    Performance Budgeting: States' Experiences Can Inform Federal
    Efforts (28-FEB-05, GAO-05-215).

    With a number of challenges facing the nation--including a
    long-term fiscal imbalance--agencies need to maximize their
    performance and leverage available resources and authorities to
    achieve maximum value while managing risk. Examining state
    efforts to increase the focus on performance and their
    experiences in responding to recent fiscal stress can offer
    insights into practices that may assist federal decision makers
    in addressing the challenges ahead. GAO described for five
    selected states--Arizona, Maryland, Texas, Virginia, and
    Washington--legislators' use of performance information in budget
    deliberations, how performance information helped to inform
    choices during fiscal stress, challenges these states face in
    implementing and sustaining their efforts, and the potential for
    state experiences to inform initiatives to improve the use of
    performance information at the federal level. Among other
    factors, these states were selected because they have established
    histories of performance budgeting efforts and represent a
    variety of approaches to implementing those efforts.
    -------------------------Indexing Terms-------------------------
    REPORTNUM:   GAO-05-215
        ACCNO:   A18436
      TITLE:     Performance Budgeting: States' Experiences Can Inform
    Federal Efforts
         DATE:   02/28/2005
      SUBJECT:   Budget administration
    	     Budgeting
    	     Government information
    	     Legislative procedures
    	     Performance measures
    	     State budgets
    	     State legislation
    	     Productivity in government
    	     Federal/state relations
    	     Performance-based budgeting
    	     Arizona
    	     Maryland
    	     OMB Program Assessment Rating Tool
    	     Texas
    	     Virginia
    	     Washington

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    GAO-05-215

    United States Government Accountability Office

    Report to the Chairman, Subcommittee onGAO Oversight of Government
    Management, the

    Federal Workforce, and the District of Columbia, Committee on Homeland
    Security and Governmental Affairs, U.S. Senate

    February 2005

    PERFORMANCE BUDGETING

                     States' Experiences Can Inform Federal Efforts

                                           a

    GAO-05-215

    February 2005

    PERFORMANCE BUDGETING

    States' Experiences Can Inform Federal Efforts

    [IMG]

    What GAO Found

    Performance measures and the reporting of program performance are
    regularly included in the budget processes of the five states GAO visited.
    Legislators' expectations that this information will be collected and
    reported are supported through both statutory requirements and executive
    initiatives. GAO found that the continuing efforts to improve data
    collection and to relate this information to structures and processes used
    to make resource decisions were reinforced by the increasing capacity of
    staff to analyze, synthesize, and incorporate performance information in
    ways that make this information more accessible and useful to decision
    makers.

    State officials described ways in which performance information, including
    outcome measures and performance evaluations, was used in budget
    deliberations to identify potential impacts of a proposed policy change,
    make policy decisions that reduced costs while maintaining effectiveness,
    and make changes to improve program effectiveness. However, when
    determining funding levels and defining desired levels of service relative
    to funding, legislators currently rely most on workload and output
    measures.

    In addition to using some traditional tools or approaches to address
    budgetary shortfalls, such as across-the-board cuts or tax increases, most
    states GAO visited also developed new initiatives that considered existing
    performance information among other factors to respond to revenue
    shortfalls. For example, three states created prioritization initiatives
    that framed trade-offs according to how programs contributed to achieving
    statewide goals. Three of the states also established efficiency
    commissions to identify opportunities for cost savings by improving the
    structure and function of state government.

    Although the states GAO visited all demonstrated ways in which performance
    information was used in budget deliberations, officials in every state
    described challenges in developing and presenting performance information
    that is both credible and useful. Despite these challenges, these states
    have demonstrated a commitment to performance budgeting efforts by
    continuing to refine their approaches in response to those challenges.
    Success in performance budgeting requires time, agreement on the selection
    of measures reported, and understanding of different perspectives. The
    states are working toward this success.

    GAO convened a panel to discuss the implications of our state findings for
    the federal government. Panelists were encouraged that performance
    information has influenced legislative budget decisions in the states, but
    advised that demand for performance information in Congress may take
    longer because of the complexity of its processes and committee
    structures. Most also agreed that the federal government will need to
    transcend agency borders and take a more crosscutting view of performance
    to address fiscal challenges, but did not reach consensus on a model or
    method for doing so.

                     United States Government Accountability Office

    Contents

    Letter

    Results in Brief
    Background
    Performance Information Has Influenced Legislative Budget

    Deliberations in the States Examined

    During Periods of Fiscal Stress, States Supplemented Existing Tools with
    Priority-Setting and Efficiency Initiatives to Respond to Revenue
    Shortfalls

    States Face Challenges but Continue to Demonstrate a Commitment to
    Performance Budgeting Efforts Implications of State Performance Budgeting
    Experiences for the Federal Government Observations

    1 3 5

    9

    12

    16

    19 22

    Appendixes

    Appendix I:

    Appendix II:

    Appendix III:

    Appendix IV:

    Appendix V:

    Appendix VI:

    Appendix VII:

    Objectives, Scope, and Methodology 26

    Overview of Arizona's Budget Process and
    Performance-Related Requirements, Processes, and
    Initiatives 29

    Overview of Maryland's Budget Process and
    Performance-Related Requirements, Processes, and
    Initiatives 38

    Overview of Texas's Budget Process and
    Performance-Related Requirements, Processes, and
    Initiatives 45

    Overview of Virginia's Budget Process and
    Performance-Related Requirements, Processes, and
    Initiatives 51

    Overview of Washington State's Budget Process and
    Performance-Related Requirements, Processes, and
    Initiatives 57

    GAO Contacts and Staff Acknowledgments 64

                                        Contents

    Tables	Table 1: Table 2: Table 3: Table 4: Table 5:

    Table 6: Table 7: Table 8: Table 9: Summary of State Performance Budgeting
    Processes Summary of Arizona's Budget Process Summary of Arizona's
    Performance Budgeting Process Summary of Maryland's Budget Process Summary
    of Maryland's Performance Budgeting Process Summary of Texas's Budget
    Process Summary of Texas's Performance Budgeting Process Summary of
    Virginia's Budget Process Summary of Virginia's Performance Budgeting
    Process

    8 29 32 38

    39 45 48 51 54 57

    58 Table 10: Summary of Washington's Budget Process

    Table 11: Summary of Washington's Performance Budgeting Process

    Figures	Figure 1: Figure 2: Figure 3: Figure 4: Figure 5: Figure 6: Figure
    7:

    Example of Performance Information Presented in
    Arizona's Executive Budget 34
    Example of Performance Information Presented in
    Arizona's General Appropriation Act 35
    Example of Performance Information Presented in
    Maryland's Executive Budget 41
    Example of Texas's General Appropriation Act
    Structure 47
    History of Texas Sunset Advisory Commission Action,
    1979-2003 50
    Summary of Key Components of Virginia's Government
    Performance and Results Act 53
    Example of Washington's Priorities of Government
    Framework 62

    Contents

    Abbreviations

    BRAC Base Realignment and Closure
    CPS Child Protective Services
    DBM Department of Budget and Management
    DLS Department of Legislative Services
    DPB Department of Planning and Budget
    GASB Government Accounting Standards Board
    GOBPP Governor's Office of Budget, Planning, and Policy
    GPRA Government Performance and Results Act of 1993
    JLAC Joint Legislative Audit Committee
    JLARC Joint Legislative Audit and Review Committee
    JLBC Joint Legislative Budget Committee
    LBB Legislative Budget Board
    MFR Managing for Results
    NASBO National Association of State Budget Officers
    NCSL National Conference of State Legislatures
    OAG Office of the Auditor General
    OFM Office of Financial Management
    OLA Office of Legislative Audits
    OMB Office of Management and Budget
    OSPB Office of Strategic Planning and Budget
    PAR program area review
    PART Program Assessment Rating Tool
    POG Priorities of Government
    SAC Sunset Advisory Commission
    SAO State Auditor's Office
    SPAR strategic program area review

    This is a work of the U.S. government and is not subject to copyright
    protection in the United States. It may be reproduced and distributed in
    its entirety without further permission from GAO. However, because this
    work may contain copyrighted images or other material, permission from the
    copyright holder may be necessary if you wish to reproduce this material
    separately.

    A

    United States Government Accountability Office Washington, D.C. 20548

    February 28, 2005

    The Honorable George V. Voinovich

    Chairman, Subcommittee on Oversight of Government Management, the Federal
    Workforce, and the District of Columbia Committee on Homeland Security and
    Governmental Affairs United States Senate

    Dear Mr. Chairman:

    With a number of challenges facing the nation-including a growing
    long-term fiscal imbalance-it is critical to reexamine the relevancy of
    federal programs and their fit with national goals, while maximizing
    program performance within current and expected resource levels.1 The
    implementation of performance budgeting efforts is an important step in
    doing so.2 Although federal performance and accountability reforms have
    given much attention to increasing the supply of performance information
    over the past several decades, the promise of any performance budgeting
    initiative lies in its potential to infuse that information into budget
    deliberations. As attention in the federal government shifts to increasing
    the demand for and use of performance information in budget deliberations,
    we look to the states-which have also put in place structures for the
    collection and use of performance information-to identify practices that
    may be useful if applied at the federal level. Because states have
    recently faced fiscal stress,3 insights into their use of performance
    information in budget deliberations may also offer lessons for the federal
    government as it addresses its fiscal challenges.

    To better understand the progress states have made in using performance
    information in the budget process, you asked us to examine some
    performance budgeting tools and initiatives employed by state governments
    with the goal of understanding what lessons can be learned at

    1 For more information on reexamination of federal programs, see GAO, 21st
    Century Challenges: Reexamining the Base of the Federal Government,
    GAO-05-325SP (Washington, D.C.: February 2005).

    2 In this report, the term performance budgeting refers to any linkage
    between budgeting and expected or actual evidence-based performance
    information.

    3 According to the National Association of State Budget Officers' Fiscal
    Survey of the States (April 2004), since 2001, states have had to respond
    to decreasing revenues and rising mandatory costs.

    the federal level. As discussed with your staff, the objectives of this
    report were to describe for selected states (1) whether and, if so, how
    legislators are using performance information in budget deliberations; (2)
    whether performance information helped to inform budgetary choices during
    fiscal stress and, if so, how; (3) challenges states face in implementing
    and sustaining performance budgeting efforts; and (4) the potential for
    state experiences to inform initiatives to improve the use of performance
    information in budget deliberations at the federal level.

    To address these objectives, we selected Arizona, Maryland, Texas,
    Virginia, and Washington for site visits based on the results of a
    literature search, review of state documents, consultation with experts on
    state government, and initial phone interviews with state officials. There
    were a number of factors that we considered in our selection of states,
    but most important we sought to choose states that had established
    histories of performance budgeting efforts and that represented a variety
    of approaches to implementing those efforts.

    In the selected states, we interviewed central budget and planning staff,
    their legislative counterparts, senior officials from the governors'
    offices, and-in some instances-members of the general assembly to get
    their perspectives. We also interviewed staff members from executive and
    legislative oversight entities, such as audit and sunset review staff,
    that analyze and provide performance information to decision makers.
    Because the states selected are not a representative sample, our findings
    and conclusions are not generalizable to the experiences of other states.

    As part of our effort to identify how state experiences could inform
    initiatives to improve the use of performance information in budget
    deliberations at the federal level, we convened a panel of federal
    officials and academics familiar with the federal budget process and
    performance budgeting concepts to review a summary of our findings and
    conclusions and to identify the potential relevance of what we found for
    federal performance budgeting efforts. Each state was given an opportunity
    to review and confirm statements made and examples used about its
    experiences. Any technical or clarifying comments that were provided as
    part of that review have been incorporated where appropriate. We conducted
    our work from February 2004 through January 2005 in accordance with
    generally accepted government auditing standards. See appendix I for more
    details on our scope and methodology.

    Results in Brief	We found that performance information has influenced
    legislative budget deliberations in the states examined. Although a number
    of factors, including political choice, influence budget decisions, when
    legislators do use performance information they find specific types of
    performance information useful in performing different functions. They use
    outcome measures and performance evaluations in budget deliberations to
    identify potential impacts of a proposed policy change, make policy
    decisions that reduce costs while maintaining effectiveness, and make
    changes to improve program effectiveness. However, when determining
    funding levels and defining desired levels of service relative to funding,
    legislators currently rely most on workload and output measures.4

    Since 2001, states have faced severely constrained budget conditions due
    to declining revenues and rising costs. In the past when revenues
    declined, states relied heavily on several tools or approaches to address
    shortfalls, such as across-the-board cuts, tapping rainy day funds,
    delaying expenditures, and in some cases increasing taxes and fees.
    However, during recent periods of fiscal stress, most of the states we
    examined did not rely solely on these tools. In addition to using some of
    the traditional tools, states also developed new initiatives that
    considered performance information among other factors to make additional
    spending adjustments. For example, Maryland, Virginia, and Washington
    developed prioritization efforts that frame trade-offs according to how
    programs contribute to achieving statewide goals. However, their impact or
    long-term viability cannot be assessed because they are either too new-as
    is the case in Washington-or not yet fully implemented. Arizona, Maryland,
    and Virginia also formed efficiency commissions that were tasked with
    identifying opportunities for cost savings by improving the structure and
    function of state government. Although each of these commissions did
    result in some improvements, the extent to which the commissions' efforts
    assisted in addressing budget shortfalls was somewhat limited because most
    recommendations were not implemented.

    4 Output measures refer to the products and services that a program
    delivers, while outcome measures reflect the results of delivering a
    program's products and services. In measuring the performance of a
    job-training program, for example, an output measure could be the number
    or percentage of program participants who completed the training. An
    outcome measure, on the other hand, could be the number or percentage of
    program participants employed 1 year after the training.

    The states examined face challenges in developing and presenting credible
    and useful performance information. For example, state officials said data
    reliability concerns and a lack of consensus by stakeholders on the
    selection of measures that are reported detract from the credibility of
    performance information. Several states have taken steps to address these
    issues, including having state auditors or legislative oversight entities
    audit selected measures and attempting to more actively involve
    stakeholders in shaping performance budgeting efforts. In addition, some
    state officials said that the large quantity of performance information
    that is reported limits its use in budget deliberations because it is
    difficult for decision makers to quickly identify the most relevant
    information; although we were told that budget and planning staff have
    grown increasingly important in distilling the most useful information and
    presenting it to decision makers. Officials from several states also said
    that their states are taking steps to be more selective in the measures
    that are reported. States were less optimistic about their efforts to
    address difficulties in aligning budget and planning structures because
    such efforts represent more than structural or technical changes. They
    also involve important trade-offs among different and valid perspectives,
    including the needs of legislators and different levels of executive
    branch management. Only one of the states examined has fully implemented
    such a structural alignment, but officials in that state reported that
    challenges remain in satisfying the needs of various stakeholders. Despite
    facing challenges, the states we examined have also demonstrated a
    commitment to performance budgeting efforts by continuing to refine their
    approaches in response to those challenges.

    We convened an expert panel to discuss the implications of state
    performance budgeting experiences for the federal government. Many members
    of our panel were encouraged that performance information has influenced
    legislative budget decisions in the states we examined. Some saw this as a
    promising bellwether of things to come at the federal level but advised
    that developing demand for performance information in Congress will take
    more time than it has in the states because of the complexity of
    congressional processes and committee structures. The panelists pointed to
    a number of long-standing challenges-many of which were similar to those
    in the states-that, if addressed, could promote legislative use of
    performance information. Perhaps most important, several panelists said
    that legislators need an incentive to use performance information and that
    as budget constraints become more difficult, the federal government-like
    the states-may well find ways to use performance information in
    considering budgetary trade-offs. To make performance information useful
    in addressing federal fiscal challenges, most of the panelists agreed that
    the

    states' experiences demonstrate that the federal government will need to
    transcend agency boundaries and take a more crosscutting view of
    performance. However, there was no consensus on a model or method for
    doing so. While several panelists felt that rather than develop a new
    process for prioritizing government activities, the federal government
    should work within existing systems and prioritization processes, others
    thought that extraordinary measures would be necessary to effectively use
    performance information in addressing fiscal stress.

    Background	For many years, reform efforts in federal, state, and local
    governments have attempted to change the emphasis of budgeting from its
    traditional focus on incremental changes in inputs to the allocation of
    resources based on program goals and measured results. Many refer to this
    linkage between resources and results as performance budgeting. Although
    that term can be used narrowly to describe mechanistic linkages between
    formal performance metrics and resource allocations, in this report we use
    performance budgeting to refer generally to any linkage between budgeting
    and expected or actual evidence-based performance information, including
    information from stand-alone performance audits and evaluations as well as
    formal performance metrics. Thus, we use the term performance budgeting to
    describe a process that encourages the routine collection, reporting, and
    consideration of performance information from a variety of sources in
    resource decision making, and not to any particular approach.

    Federal interest in performance information and its potential relationship
    to budgeting practices has existed to varying degrees for over 50 years.5
    More recently, this interest culminated in the passage of the Government
    Performance and Results Act of 1993 (GPRA).6 This legislation mandates

    5 For a detailed examination of previous federal performance budgeting
    initiatives, see GAO, Performance Budgeting: Past Initiatives Offer
    Insights for GPRA Implementation, GAO/AIMD-97-46 (Washington, D.C.: Mar.
    27, 1997).

    6 Pub. L. No. 103-62 (1993).

    that federal agencies develop performance information describing the
    relative effectiveness and efficiency of federal programs as a means of
    improving the congressional decision-making process. Among other statutory
    obligations, GPRA requires federal agencies to publish strategic and
    annual plans describing specific program activities with the intention of
    establishing a more tangible link between performance information for
    these programs and agency budget requests.7 Furthermore, the current
    administration has made budget and performance integration one of its top
    five management priorities. As part of this initiative, beginning in
    fiscal year 2005 the Office of Management and Budget (OMB) required
    agencies to submit what it describes as performance budgets linking each
    agency's strategic goals with related long-term and annual performance
    goals and include the costs of specific activities that contribute to the
    achievement of these goals.8 Also central to the budget and performance
    integration initiative is OMB's Program Assessment Rating Tool (PART),
    which rates programs on their purpose/design, strategic planning,
    management, and results using a diagnostic tool comprised of a series of
    questions.9 These assessments are done in conjunction with OMB's review of
    agency budget requests and the results are reported in the President's
    budget submission to Congress. Using PART as a diagnostic tool, the
    administration expects to assess all federal programs by 2007 when the
    president transmits his fiscal year 2008 budget proposal to Congress.

    The landscape of performance budgeting at the state level has also changed
    over the last decade. We last reviewed state performance budgeting efforts
    in 1993.10 In that study we found that states that were considered to be

    7 For more information on federal efforts to implement GPRA, see GAO,
    Results-Oriented Government: GPRA Has Established a Solid Foundation for
    Achieving Greater Results, GAO-04-38 (Washington, D.C.: Mar. 10, 2004).

    8 For a detailed examination of this effort, see GAO, Performance
    Budgeting: Efforts to Restructure Budgets to Better Align Resources with
    Performance, GAO-05-117SP (Washington, D.C.: February 2005).

    9 For a detailed examination of the use of PART, see GAO, Performance
    Budgeting: Observations on the Use of OMB's Program Assessment Rating Tool
    for the Fiscal Year 2004 Budget, GAO-04-174 (Washington, D.C.: Jan. 30,
    2004).

    10 GAO, Performance Budgeting: State Experiences and Implications for the
    Federal Government, GAO/AFMD-93-41 (Washington, D.C.: Feb. 17, 1993). The
    states examined were Connecticut, Hawaii, Iowa, Louisiana, and North
    Carolina.

    among the leaders in performance budgeting had begun to create a supply of
    performance information that program managers were using as a management
    tool. However, at that time performance measures and statewide performance
    budgeting efforts had not attained sufficient credibility to influence
    resource allocation decisions. Since then states have had more time to
    establish performance budgeting requirements, to develop or refine
    performance measures, and to evaluate and report on program results.
    According to a recent study,11 the use of performance measurement is
    pervasive across the states-with all 50 states now having performance
    budgeting requirements that include both strategic planning and the
    regular collection and reporting of performance information. That study
    also found that performance measurement systems in the states have evolved
    rather than withered in the last decade.

    The five states we visited-Arizona, Maryland, Texas, Virginia, and
    Washington-have had performance budgeting requirements, systems, and
    processes in place for 7 or more years. Table 1 summarizes these
    processes. For more details, see appendixes II through VI.

    11 Julia Melkers and Katherine Willoughby, Staying the Course: The Use of
    Performance Measurements in State Governments (Washington, D.C.: IBM
    Center for the Business of Government, 2004).

    Table 1: Summary of State Performance Budgeting Processes

                             Alignment
                              between                         Required
                                                                 as
               Performance   planning   Level that   Method   part of        Primary
                                and                   used    agency       method of
                budgeting     budget     measures  to submit   budget  publicly
                                           are                         reporting
      State    legislation? structures? submitted   measures  request?   measures
     Arizona       Yes          No                 Annual       Yes    Appropriation
                                         Program   program                  act
                                                   operating
                                                   plans
                   Yes          No                   Annual     Yes      Executive
     Maryland                           Agency and   budget               budget
                                         program    requests             document
      Texas        Yes          Yes                Strategic    Yes    Appropriation
                                        Strategies plans                    act
                                           (by        and
                                         agency)   electronic
                                                   quarterly
                                                    updates
                   Yes          No                  Internet     No      Virginia
     Virginia                             Agency                          Results
                                                                         Web site
                   Yes          No                 Biennial     Yes      Executive
    Washington                          Agency and budget                 budget
                                         program    requests             document

    Source: GAO.

    Note: Based on analysis of testimonial evidence, documentation collected,
    or both.

    As of 2004, all of the states we examined had enacted legislation that at
    a minimum requires agencies to define their missions and strategic goals
    and integrate performance measures that can be used to determine whether a
    program has achieved its goals. See section II of appendixes II through VI
    for additional information on each state's statutory requirements.
    Although several of the states we examined have undertaken efforts to
    better align their budget and planning structures, only Texas has fully
    implemented this effort. In Texas, funds are appropriated by agency goals
    and strategies, which are defined in the agency's strategic plan.
    Strategies set forth actions to be taken by an agency to achieve its
    goals. There may be multiple strategies under one goal. Funding is
    provided at the strategy level. For more information about the states'
    budget structures, see section I of appendixes II through VI.

    Although there are some commonalities in each state's approaches to
    collecting, reporting, and reviewing performance information, such as
    requiring agencies to develop performance measures as part of a strategic
    planning process, no two states have taken an identical approach. For
    example, among the states examined legislative and executive budget and
    planning staff are involved to varying degrees in agency efforts to select
    and define measures for reporting. Most of the states allow agencies to

    independently choose the measures they report, but in Texas agencies work
    with legislative and executive budget staff throughout the strategic
    planning and budgeting processes to determine the measures they will
    report in the next biennial budget. States also have different methods for
    publicly reporting the performance information that they collect. Most of
    the states report performance information in executive budget documents,
    as well as strategic and annual performance plans. Some also have this
    information available on Web sites. Of the states we examined, Texas and
    Arizona are the only two that present performance measures in their
    general appropriation acts. See section III of appendixes II through VI
    for additional information on the states' systems and processes.

    External parties-including the federal government, bond rating companies,
    and national organizations-have influenced the development and
    sustainability of state performance budgeting efforts. Many federal grant
    programs, for example, require states to report on program performance in
    order to receive funding. Bond rating companies, whose ratings affect a
    state's ability to finance government projects, include the public
    reporting of performance information as a criterion for assessment in the
    rating process. In addition, efforts by organizations such as the
    Government Performance Project, National Association of State Budget
    Officers, Governmental Accounting Standards Board, and National Conference
    of State Legislatures, which track and compare the progress of state
    governments in developing and using performance information, have advanced
    state performance budgeting efforts by setting the expectation that states
    have performance budgeting efforts in place and creating interstate
    competition to drive those efforts forward.

    Performance
    Information
    Has Influenced
    Legislative Budget
    Deliberations in the
    States Examined

    States' performance budgeting efforts have evolved over the last decade by
    increasing the supply of performance information and its infusion into
    executive budget formulation. We found that performance information has
    also influenced legislative budget deliberations in the states examined.
    Although a number of factors, including political choice, influence budget
    decisions, when legislators do use performance information they find
    specific types of performance information useful in performing different
    functions. They use outcome measures and performance evaluations in budget
    deliberations to identify potential impacts of a proposed policy change,
    make policy decisions that reduce costs while maintaining effectiveness,
    and make changes to improve program effectiveness. However, when
    determining funding levels and defining desired levels of service relative
    to funding, legislators rely most on workload and output

    measures. None of this information, however, led to automatic budget
    decisions. Instead, it helped to inform budget deliberations by
    highlighting problems, supporting claims, or enriching the debate.

    Legislators Sometimes Draw on Outcome Measures and Performance Evaluations
    in Budget Decision Making

    Officials from most of the states examined were able to describe instances
    in which outcome measures and performance evaluations were useful in
    budget deliberations. Information about programmatic outcomes can help
    legislators discern the potential impacts of proposed policy changes. When
    presented convincingly, this information can even lead legislators to
    change previously established positions on policy proposals. In Arizona,
    for example, one executive branch official said that performance
    information was used in the fiscal year 2004-05 budget debate to prevent
    the elimination of a nearly $10.8 million drug treatment program that
    supplies psychotropic drugs to the seriously mentally ill. The chairmen of
    both the House and Senate Appropriation Committees had supported
    elimination of this program. However, the program's director was able to
    retain legislative support by describing how the 9,000 participants were
    benefiting from the program and the potential social and economic impacts
    of its termination. For example, without the program, many of its
    participants are at risk of becoming involved in illegal activities and
    entering hospitals or jails- costing the state as much as $450 a day.

    Legislators have also used outcome measures to change policy when the
    results showed that a program could be just as effective at lower cost.
    For example, a legislative official in Virginia said that legislators
    regularly use performance information published by the Virginia Criminal
    Sentencing Commission, a judicial branch agency, in making funding
    decisions for prisons, jails, and community-based alternatives to
    incarceration. This official provided a specific example in which
    performance information was key to a policy decision that affected the
    politically sensitive area of criminal sentencing guidelines. During the
    2003 session, the General Assembly used the commission's analysis of
    recidivism rates to increase the number of low-risk, nonviolent offenders
    who are recommended for diversion from jail under the sentencing
    guidelines, based on the commission's finding that this step would not
    substantially affect the overall rate of recidivism. This policy change
    may lead to cost savings by reducing the need for future prison
    construction.

    In addition, legislators used performance information to identify
    opportunities to improve program effectiveness. According to one state
    official, performance evaluations can be particularly useful to
    legislators in

    assessing program effectiveness because they can provide greater insight
    into the impact of programs than performance measures alone, which are
    often inconclusive. This official also said performance evaluations
    provide context for performance measures and can help create viable
    recommendations for legislators to consider. In all of the states
    examined, oversight entities, such as state or legislative auditors,
    produce performance evaluation reports that serve as a source of
    performance information for legislators. Although the recommendations in
    these reports typically focus on nonfinancial operational improvements
    that can be made at the agency level, implementation of some of these
    recommendations can have a budgetary impact. In Maryland, for example,
    after several audits revealed performance issues, including instances of
    abuse and poor conditions within at least two juvenile corrections
    facilities, the General Assembly introduced legislation requiring the
    Department of Juvenile Services to develop a master facilities plan. This
    plan is to be based on a set of principles established in the legislation
    and should include outcome measures that are to be used to assess service
    delivery. This legislation also included a provision requiring the state
    to take control of one of the facilities from a third-party vendor, even
    though, according to the Maryland Department of Legislative Services, the
    costs associated with taking control were likely to be higher than they
    had been with the vendor.

    Legislators Currently Use
    Workload and Output
    Measures More Often
    Than Other Types of
    Performance Information in
    Making Budget Decisions

    Although most states were able to point to instances in which outcome
    measures and evaluations were useful in budget deliberations, state
    officials said that workload and output measures are currently more
    directly linked to budget decisions than other types of performance
    information. Workload and output measures lend themselves to the budget
    process because workload measures, in combination with cost per unit
    information, can be used to help develop appropriation levels and
    legislators can more easily relate output information to a funding level
    to help define or support a desired level of service.

    In most of the states examined, we were told that legislators expect
    agencies to produce and present information about workload and output
    measures in their budget submissions and during budget hearings.
    Legislators sometimes use performance measures to determine how agencies'
    service levels would change in response to increases or decreases in
    funding. Legislators can also relate these measures to funding levels in a
    straightforward way. For example, legislative officials in Virginia said
    that information about the number of students in the education system is
    used

    in combination with information about costs per pupil to help determine
    education appropriations.

    Legislators also sometimes used performance information more directly to
    link appropriations to expected results by setting performance targets for
    service delivery. For example, during its 2003 special session, the
    Arizona legislature established a set of performance targets for the Child
    Protective Services (CPS) and tied portions of the CPS appropriation to
    those targets. The legislature appropriated nearly $2 million in staffing
    salaries "to meet national staffing standards for child protective service
    caseloads," and another approximately $1.7 million in an effort "to fund a
    one hundred per cent investigation rate."

    Legislative involvement in target setting can be important in motivating
    agencies to perform better. For example, when legislators set targets that
    are higher than what agencies would establish on their own, it can push
    agencies to more closely scrutinize their operations and funding
    allocations in an effort to achieve those targets. Legislative officials
    told us that absent legislative scrutiny of performance targets, agencies
    may deflate them to look as if they are exceeding expectations.

    During Periods of Fiscal Stress, States Supplemented Existing Tools with
    Priority-Setting and Efficiency Initiatives to Respond to Revenue
    Shortfalls

    Since 2001, states have faced severely constrained budget conditions due
    to declining revenues and rising costs. In the past when revenues
    declined, states relied heavily on several tools or approaches to address
    shortfalls, such as across-the-board cuts, tapping rainy day funds,
    delaying expenditures, and in some cases increasing taxes and fees.
    However, one of the arguments for focusing on results is that in times of
    fiscal stress, performance information can help decision makers make more
    informed budgetary trade-offs, even if it cannot be expected to provide a
    single budgetary answer or replace considered judgment and political
    choice. In fact, one official reported that in periods of fiscal stress
    even agencies that perform well may receive significant cuts. During
    recent periods of fiscal stress in the states we visited, neither past
    tools and approaches nor information from performance measurement systems
    alone was sufficient to address actual or expected downturns in their
    fiscal conditions. In addition to using more traditional approaches,
    several of the states developed prioritization initiatives that consider
    performance information among other factors to frame trade-offs according
    to how programs contribute to achieving statewide goals. Some states also
    formed efficiency commissions that were tasked with identifying
    opportunities for cost savings by improving the structure and function of
    state government.

    Several States Developed Statewide Prioritization Initiatives during
    Periods of Fiscal Stress

    Although all of the states we visited continued to rely on available tools
    and approaches to address budgetary shortfalls, Maryland and Washington
    also developed new prioritization initiatives that consider performance
    among other factors to help make trade-offs between service provision and
    resource constraints. Virginia also developed an effort to align decision
    making and agency operations with long-term statewide priorities, but this
    effort was not developed specifically to address the state's fiscal
    stress. However, the impact or long-term viability of these states'
    initiatives cannot be assessed because they are either too new-as is the
    case in Washington-or not yet fully implemented. Washington's next budget
    cycle will provide an opportunity to assess whether their prioritization
    approach can be routinized and better adapted to its normal budget
    process. Maryland and Virginia have yet to fully implement their efforts.
    See section IV of appendixes III, V, and VI for more information on each
    state's prioritization initiative.

    The prioritization approaches used by these states vary in language,
    formality, and structure, but the general premise is the same-identify
    several statewide goals and prioritize programs according to how critical
    they are to achieving these goals. For example, Washington's Priorities of
    Government (POG) initiative-which was designed to prioritize state
    government services and develop a budget reduction strategy when the state
    faced a potential budgetary shortfall of approximately $2.4 billion for
    the 2003-05 biennial budget-categorizes all state programs and services
    into 11 results areas. A guidance team and 11 results teams that
    correspond with each of the results areas were developed to implement the
    POG process. The results teams were led by Office of Financial Management
    (OFM) budget or policy staff and consisted of six to eight subject-matter
    experts from executive branch agencies with knowledge and background in
    the particular results area. Each of the results teams was tasked with
    evaluating and "mapping" the factors that influence or drive the result
    that it wanted to achieve. Based on this map, they were asked to transcend
    agency silos to identify ways to better and more efficiently achieve the
    desired outcomes in their respective areas and recommend high-level
    purchase strategies to agencies to inform the development of their budget
    proposals. To develop their strategies, the teams used whatever
    information was available, including existing research and internal
    analyses, not just information from the existing performance measurement
    system. Ultimately, POG helped OFM to develop the 2003-05 executive budget
    proposal. Budget activities were ranked by contribution to the results,
    and a line was drawn at the dollar amount allocated to the result.

    Activities below the line were listed in order to identify how changes in
    revenue might affect service provision.

    According to Washington's OFM, the POG framework is meant to provide
    several benefits, including (1) helping to keep the focus on contribution
    to results-getting out of agency silos; (2) making performance information
    more relevant to budget choices; (3) facilitating thinking about
    trade-offs above and below the line and across results areas; and (4)
    helping to frame broad questions like, "Why does the line have to be drawn
    here?" One Washington legislator said that POG provided decision makers
    with proposed priorities in a clear and easily understood format that
    encouraged constructive debate. POG allowed the governor to reframe the
    budget discussion by highlighting priorities and what would be funded in
    the governor's budget proposal rather than just showing what would be cut.
    Legislative officials said that the greatest contribution of POG was that
    it provides a strong, clear means of communicating budgetary trade-offs to
    both decision makers and the public.

    One of the principal criticisms that officials in Washington expressed
    about POG was its lack of alignment and integration with formal planning,
    performance, and budgeting systems. Officials said that this limited the
    usefulness of POG because, in the end, the budget process was conducted in
    much the same way as it had been in past years. However, POG was created
    late in the budget process for the 2003-05 biennium, and Washington is
    attempting to address this issue in the next budget cycle. In developing
    their budget requests for the 2005-07 biennium, agencies will submit both
    performance measures and budget requests at the activity level to more
    clearly link expected performance to the budget. In addition, agencies are
    expected to submit performance measures that link budget activities to the
    POG results areas. According to the Joint Legislative Audit and Review
    Committee, these and other efforts to better integrate POG into the
    2005-07 budget development process will make it easier for decision makers
    to use performance measures in budget deliberations.

    The other states' initiatives are not yet fully implemented and thus
    cannot currently provide detailed lessons learned. Maryland's
    initiative-called Strategic Budgeting-will be used to develop the fiscal
    year 2006 budget, for which the state has projected a significant
    shortfall. To implement Strategic Budgeting, Maryland's Department of
    Budget and Management has asked agencies to prioritize their fiscal year
    2006 funding requests according to how they address key outcomes related
    to the administration's five pillars-Education, Health and the
    Environment,

    Public Safety, Commerce, and Fiscal Responsibility-as well as agency and
    program missions. This initiative is expected to help decision makers
    understand the trade-offs of funding one program over another within and
    across multiple agencies and the impact those trade-offs can have on
    achieving goals. Virginia's prioritization initiative-the Council on
    Virginia's Future-is a long-term restructuring effort that is expected to
    better integrate long-term goals and performance information into the
    budget decision-making process. Specifically, the council is charged by
    legislation with developing a road map for Virginia's future that includes
    long-term goals and objectives as well as key progress indicators to help
    direct decision making and guide agency operations in delivering services.
    It is intended to identify priority issues for the long term, create an
    environment for improved policy and budget decision making, and improve
    citizen knowledge and understanding. According to one legislative
    official, the council has the potential to significantly improve the
    state's budget process by shifting funding priorities toward those efforts
    that support the achievement of broader strategies. This official said
    that effective and consistent leadership would be key to sustaining this
    effort because of the council's broad mandate and extensive time line for
    implementation.

    Several of the States Examined also Developed Efficiency Commissions
    during Fiscal Stress to Supplement Existing Tools

    During the recent period of fiscal stress that began in 2001, the
    governors of Arizona, Maryland, and Virginia formed commissions tasked
    with improving the efficiency and effectiveness of state government. There
    was variation in each commission's approach, but all of them were intended
    to help improve state services. Maryland's and Virginia's commissions were
    short term, existing a year or less, and both developed a broad range of
    recommendations. Arizona's Efficiency Review is a long-term effort that
    attempts to identify crosscutting strategic issues affecting many agencies
    and developing enterprisewide approaches for delivering services.
    Arizona's review also solicits, prioritizes, and helps implement
    agencyspecific efficiency ideas generated from state employees.

    All three commissions examined a wide range of issues to identify
    redundant and ineffective services. Officials in each of these states said
    that the commissions' efforts did result in some improvements, most of
    which were managerial or operational. For example, Arizona's Efficiency
    Review found that multiple departments in the state were offering their
    employees many of the same or similar types of training courses. In
    response, some of the duplicative courses have been consolidated, thus
    reducing the overall training costs in the state. Virginia's commission
    recommended that the state establish an enterprisewide approach to

    acquiring technology services. This recommendation was implemented by
    establishing the Virginia Information Technologies Agency.

    According to state officials, the extent to which the commissions' efforts
    assisted these states in addressing budget shortfalls was somewhat limited
    because most recommendations were not implemented. In Maryland, for
    example, state officials said the commission generated 54 recommendations,
    but only a few of these have been implemented. An official in this state
    attributed the low rate of implementation to the fact that the efforts
    lacked credibility with decision makers and presented few recommendations
    that were politically feasible to enact. In Virginia, an official said
    that decision makers had little trust and support for that state's
    commission because of a lack of transparency in the commission's
    methodology for developing recommendations.

    States Face Challenges but Continue to Demonstrate a Commitment to
    Performance Budgeting Efforts

    The states we examined face a range of challenges in developing and
    presenting credible and useful performance information. However, the
    states have demonstrated a commitment to performance budgeting efforts by
    continuing to refine their approaches in response to those challenges.

    Officials in some states said that concerns regarding the reliability of
    agency-reported performance measures detract from the credibility of such
    performance information, causing decision makers to distrust and sometimes
    discount it. Although audits of agency-reported performance information
    can help address this issue, the amount of time and effort needed to
    exhaustively review the measures reported by all state agencies may be
    prohibitive. However, state auditors or legislative oversight entities in
    all of the states we visited periodically review selected agency
    performance measures. The Texas State Auditor's Office, for example,
    conducts periodic reviews to determine whether selected agencies have
    adequate control systems for the collection of performance measures and
    whether these measures are accurately reported.12

    State officials also reported that a lack of consensus by stakeholders on
    the selection of measures that are reported detracts from the credibility
    of performance information. To address this issue, several states are
    taking

    12 In its last review of performance measures, which was done in 2002, the
    Texas State Auditor's Office found serious deficiencies in the collection,
    calculation, and reporting of key measures in 12 of the 14 entities that
    were audited.

    steps to more actively involve budget and planning staff in assisting
    agencies with identifying and selecting those performance measures that
    will be most helpful to decision makers. This involvement can help improve
    the credibility of performance information by ensuring agencies present a
    balanced picture of performance and do not simply choose measures that
    highlight good performance. In addition, at least one state has attempted
    to broaden buy-in. The Council on Virginia's Future involves stakeholders
    from both the executive and legislative branches as well as the public.
    According to one legislative official, any performance management
    initiative has to have a certain level of transparency and agreement among
    all interested parties, including the legislature, the executive branch,
    citizens, and community leaders. According to this official, a past
    performance measurement initiative failed because it was executive driven,
    with all measures selected by the state's executive budget and planning
    office with little buy-in from other stakeholders.

    Another challenge that officials in every state we visited described was
    effectively using the large quantities of performance information
    generated by state agencies. According to some of these officials,
    decision makers are overwhelmed with the quantity of information available
    to them, and they find it difficult to locate what would be most useful in
    addressing their particular needs. However, as they have become more
    familiar with performance information over the years, state officials said
    that legislative and executive budget and planning staff have become more
    effective at analyzing performance information, distilling the most useful
    information, and presenting it to decision makers. To help inform budget
    deliberations in Maryland, for example, staff from the Department of
    Legislative Services develop and provide legislators with program
    summaries that outline recent budget and performance trends. Several
    states we visited also described efforts to reduce the number of
    performance measures that are collected and reported. These states are
    attempting to get agencies to focus on reporting only a key set of
    measures that will be most relevant and useful to decision makers when
    making budget decisions. Texas, for example, continually attempts to
    reduce the number of measures that are reported in its budget document.
    Texas has been collecting performance information for over 10 years and,
    over time, has been able to reduce the total number of measures reported
    by state agencies. According to a state official, Texas used to report
    over 3,000 key measures in its biennial budget document, and an additional
    8,000 nonkey measures were maintained in the state's performance
    information system. Currently, it has reduced these numbers to 2,100 key
    measures and 4,000 nonkey measures. Texas officials said that they still
    have too many measures but that they continue to try to

    find ways to reduce the quantity of measures that are reported to make the
    system more manageable and useful.

    One of the biggest challenges state officials described is aligning and
    integrating planning and budget structures in a way that meets the needs
    of all the stakeholders involved in the process. Efforts to align and
    integrate budget structures involve more than structural or technical
    changes. They also involve important trade-offs among different
    perspectives, including those of legislators, and different entities and
    levels of executive branch management.13 Three of the states we examined
    have undertaken efforts to better align and integrate their budget and
    planning structures, but only Texas has already fully implemented this
    effort. However, Texas's experience illustrates that structural alignment
    and integration is not a panacea. In Texas, funds are appropriated by
    agency goals and strategies, which are defined in an agency's strategic
    plan. Strategies set forth actions to be taken by an agency to achieve its
    goals. There may be multiple strategies under one goal. Strategies in
    larger agencies can be as large as $500 million and contain multiple
    programs, whereas strategies in very small agencies can be as small as a
    few thousand dollars. Officials in Texas expressed frustration with the
    existing structure because they have found it difficult to identify
    specific cost-accounting line items, particularly when the state needed to
    make spending cuts. When the state faced a budgetary shortfall of $1.8
    billion in fiscal year 2003, prior to the development of the 2004-06
    biennial budget, the Legislative Budget Board created greater transparency
    in agency budget requests by asking agencies to identify and rank
    essential services-referred to as building blocks-up to an identified
    spending limit. An executive branch official said the building blocks
    approach was useful because it provided a level of program and funding
    visibility that is lacking in its current budget format, which lays out
    appropriations according to strategies within agencies as opposed to
    programs or line items. Although officials said the building blocks
    approach would likely be helpful in developing future budgets, they said
    that the state does not plan to make immediate wholesale changes to the
    way the budget is currently presented in the General Appropriation Act.
    However, they also said that the legislative and executive branches
    continue to work together to adjust the budget structure to better meet
    stakeholder needs.

    13 For more information about federal efforts to align and integrate
    budget and performance information, see GAO-05-117SP.

    Implications of State Performance Budgeting Experiences for the Federal
    Government

    Many members of our panel were encouraged that performance information has
    influenced legislative budget decisions in the states we examined. Some
    saw this as a promising bellwether of things to come at the federal level
    but advised that developing demand for performance information in Congress
    will take more time than it has in the states because of the complexity of
    congressional processes and committee structures. We have previously
    reported that challenges confronting federal agencies in developing
    performance information that is useful to congressional decision makers
    will take time to resolve.14 Several panelists noted that unlike many
    states, the federal government separates its appropriations and
    authorization functions, which they viewed as a significant difference in
    governance. Based on the states' experiences, several panelists thought
    that structural reform of congressional committees may contribute to
    increased legislative use of performance information at the federal level.
    Panelists also noted that at the federal level, research institutions,
    trade associations, and "good government" organizations have a significant
    role in influencing policy. Several panelists suggested that such
    organizations should be involved in promoting legislative use of
    performance information.

    Despite their general optimism about the potential for performance
    information to inform decision making at the federal level, the panelists
    cautioned against having unrealistic expectations for legislative use.
    There was general agreement that it is a mistake to measure success in
    performance budgeting only by appropriators' use of performance
    information. In 1997, we noted that success or failure should not be
    judged on whether contentious budget and other policy issues are fully
    resolved; rather, it will likely turn on the extent to which the
    information produced helps Congress and the executive branch make informed
    policy decisions and improve program management.15 Moreover, panelists
    said that this information was just as important for authorization,
    budget, and government oversight committees and that authorization
    committees may actually be the best place to begin cultivating demand.
    Most of the panelists agreed that even in the best case, budgeting will be
    performance-informed not performance-based because a number of factors
    affect

    14 GAO, The Government Performance and Results Act: 1997 Governmentwide
    Implementation Will Be Uneven, GAO/GGD-97-109 (Washington, D.C.: June
    1997), pp. 74-5.

    15 GAO/GGD-97-109, p. 90.

    decision making, not the least of which is political choice.16 One
    panelist noted that the greatest impact of our state findings could be the
    implications they may have for intergovernmental relations. As states
    continue to increase their use of performance information in making budget
    decisions, he believes the federal government could arguably consider
    giving states more authority to make decisions about how to spend federal
    dollars.

    The panelists pointed to a number of long-standing challenges that, if
    addressed, could promote legislative use of performance information. A
    number of these challenges have been identified in our work over the past
    decade.17 Many were also similar to those we found in the states. One
    panelist attributed the current lack of legislative demand to perceptions
    that performance information (1) is not timely and reliable, (2) displaces
    information that appropriators and their staff value, and (3) is viewed as
    representing "the administration's" perspective. Pointing to the important
    roles that legislative and audit staff have played in legislators' use of
    performance information in the states, several panelists suggested that
    greater involvement by federal legislative branch entities in analyzing
    and presenting performance information could lead to increased trust and
    use of the information. Consistent with a challenge we have cited since
    1992, another panelist suggested that legislators are not using
    performance information because agencies have not provided them with
    reliable cost data. To help address this, he said, and we have also
    suggested,18 that in accordance with the CFO Act and subsequent related
    legislation, agencies should develop financial management systems that
    integrate budget, performance, and cost information.19 Perhaps most
    important, several

    16 Dr. Philip Joyce, Associate Professor of Public Policy and Public
    Administration at George Washington University, coined the term
    "performance-informed budgeting" to better characterize the role of
    performance information in the budget process.

    17 We have previously highlighted a number of these challenges and
    provided guidance on approaches for addressing them. See, for example,
    GAO-04-38; Results-Oriented Budget Practices in Federal Agencies,
    GAO-01-1084SP (Washington, D.C.: August 2001); GAO/GGD-97-109; and
    Executive Guide: Effectively Implementing the Government Performance and
    Results Act, GAO/GGD-96-118 (Washington, D.C.: June 1996).

    18 See GAO/GGD-97-109, p. 93.

    19 For information about federal agencies' efforts to link performance,
    budget, and financial information, see GAO, Managing for Results: Agency
    Progress in Linking Performance Plans With Budgets and Financial
    Statements, GAO-02-236 (Washington, D.C.: Jan. 4, 2002).

    panelists said that legislators need an incentive to use performance
    information and that as budget constraints become more difficult, the
    federal government-like the states-may well find ways to use performance
    information in considering budgetary trade-offs.

    To make performance information useful in addressing federal fiscal
    challenges, most of the panelists agreed that the states' experiences
    demonstrate that the federal government will need to transcend agency
    boundaries and take a more crosscutting view of performance. However,
    there was no consensus on a model or method for doing so.20 Several
    panelists felt that rather than develop a new process for prioritizing
    government activities, the federal government should work within existing
    systems and prioritization processes. Some expressed concern that
    developing an effort similar to the state prioritization initiatives would
    detract from efforts to further implement existing initiatives, such as
    GPRA.21 Another panelist thought continued attention to existing
    initiatives that examine performance at a micro level might eventually
    lead to macro reforms, such as prioritization. Panelists also said that
    decision makers already have means to lay out their priorities through the
    President's Budget and the Congressional Budget Resolution.22 However,
    several panelists noted that the budget resolution process has not been
    effective for several years. One panelist said that Congress should use
    the authorizations and appropriations processes to prioritize, but others
    said that the authorizations process does not receive sufficient
    attention- about 40 percent of current programs are not authorized-and the
    appropriations committees are not structured to make crosscutting
    trade-offs.

    In contrast to those who thought the federal government should work within
    existing processes to prioritize programs and make budgetary trade-offs,
    some thought that extraordinary measures would be necessary

    20 We have identified several tools and approaches that may assist the
    federal government in making crosscutting trade-offs to address fiscal
    challenges. For information, see GAO-05-325SP, pp. 77-90.

    21 For more information on federal efforts to implement GPRA, see
    GAO-04-38.

    22 In the past, we have also suggested that Congress could develop a
    performance resolution tied to the budget resolution to establish its
    oversight priorities. For more details see GAO-05-325SP, pp. 86-7 and
    Budget Issues: Effective Oversight and Budget Discipline Are
    Essential-Even in a Time of Surplus, GAO/T-AIMD-00-73 (Washington, D.C.:
    Feb. 1, 2000).

    to effectively use performance information in addressing fiscal stress.
    One panelist advocated an initiative-much like the Council on Virginia's
    Future-that establishes governmentwide priorities, relates indicators of
    progress to the priorities, and requires agencies to tie their individual
    plans and performance measures to those priorities and indicators.23
    Others agreed that there may be benefits to this approach, but thought
    that unlike the council, a federal initiative should be housed in either
    the executive or legislative branch (or both, but not as one effort) and
    that it should not involve participants from outside the government.
    Another panelist suggested that the federal government could develop a
    process-similar to the federal Base Realignment and Closure (BRAC)
    process-that would establish a commission to develop governmentwide
    priorities, analyze performance information, and develop a set of funding
    recommendations to be considered in its entirety by Congress.24 Several
    panelists thought that such a model would help to make politically
    sensitive funding trade-offs more palatable.

    Observations	Performance language and tools have become part of the
    culture of governance. Ten years ago, we concluded that performance
    information had not reached the point where it was regarded as credible
    for resource decision making in states that were considered leaders at the
    time. Ten years later, performance measurement and reporting of
    information in state budget presentations has become the expectation
    rather than the exception in the states we visited. Unlike 10 years ago,
    when it looked as if statewide performance budgeting initiatives would
    change with each administration, the states we visited have not only
    sustained but also institutionalized their systems and most are now taking
    steps to refine

    23 Our work examining indicators systems developed by individuals and
    institutions at the local, state, and regional levels across the United
    States-as well as in some other nations and the European Union-revealed
    that indicators systems have shown evidence of positive effects, such as
    improving decision making, enhancing collaborations on issues, and
    increasing the availability of knowledge. For more information on these
    indicator systems, see GAO, Informing Our Nation: Improving How to
    Understand and Assess the USA's Position and Progress, GAO-05-1
    (Washington, D.C.: Nov. 10, 2004). For more information on efforts to
    develop a national key indicators system in the United States, See GAO,
    Forum on Key National Indicators: Assessing the Nation's Position and
    Progress, GAO-03-672SP (Washington, D.C.: May 2003).

    24 The BRAC process uses a nine-member commission appointed by the
    President and confirmed by the Senate to develop a package of
    recommendations that is considered, in its entirety, by the President and
    Congress.

    them in response to ongoing challenges. There is a similar trend at the
    federal level. Our recent retrospective of GPRA and its effect on federal
    programs revealed that GPRA has laid a solid foundation for
    resultsoriented agency planning, measurement, and reporting and
    increasingly has become a part of agencies' cultures.25 In addition, OMB,
    through its development and use of PART, has more explicitly infused
    performance information into the budget formulation process and increased
    the attention paid to evaluation and performance information.

    Over the intervening years, as data collections and processes have become
    more robust in states' executive branches, greater attention has been
    given to increasing legislative demand. An important element to building
    demand has been the role that states' legislative staff have played in
    analyzing performance information and infusing it into the structures and
    processes used by legislators. States have also taken steps to increase
    communication both within and across branches of government to broaden
    buy-in on what is measured and how. To some degree, these efforts have
    paid off. In the states we visited, we found that legislators are
    interested in and use performance information to meet their needs,
    primarily to define or diagnose a problem or to support a position or
    decision. Similarly, congressional committees have used information
    generated by GPRA for reauthorization hearings and increasingly public
    laws and committee reports show references to GPRA and PART provisions,
    but our expert panel participants indicated that more could be done to
    cultivate higher demand for and use of performance information, including
    in congressional budget deliberations. As the federal government moves
    forward with implementation of new or existing initiatives, the states'
    experiences suggest that increased use of performance in decision making
    is facilitated when the goals and measures are supported by a diverse
    group of stakeholders.

    Under the crucible of fiscal stress, several states went beyond existing
    performance and budgeting frameworks. Faced with the need to reexamine
    existing programs to address daunting fiscal shortfalls, states did not
    rely solely on traditional budget-cutting strategies, such as
    across-the-board reductions. They recast the decision-making framework
    itself by creating new outcome-oriented frameworks to help set priorities
    and look across agencies and programs in making budgetary trade-offs.
    Performance information helped states understand the relationship among
    programs and

    25 GAO-04-38, pp. 6-7.

    their relative contributions to outcome priorities. These state
    experiences illustrate how performance information can potentially help
    refocus the nature of the trade-offs and discussions in the
    decision-making process itself.

    The federal government is also facing large fiscal shortfalls-both in the
    near and the long term. As we have recently reported, the size of the
    fiscal gaps will prompt the need to reexamine what the federal government
    should do, how it does business, and how it should be financed.26 Like the
    states, a more outcome-oriented approach may assist the federal government
    in rethinking how its existing base of programs addresses these national
    goals. We previously have suggested that fully developing the
    governmentwide performance plan provided for under GPRA would help us
    better focus on the relative contribution of portfolios of programs
    cutting across agencies to broader outcomes or goals.27 Congress could
    also consider focusing its oversight and review on these important
    overarching goals and missions by considering adopting a performance
    agenda of its own. One approach we have suggested is a performance
    resolution that could be included as part of the annual budget resolution
    to help target congressional activity on key program areas or performance
    problems.28 Regardless of the specific combination of reexamination
    approaches adopted, the ultimate success of this process will depend on
    several important overarching conditions, including sustained leadership
    to champion changes and reforms through the many stages of the policy
    process, broad-based input by a wide range of stakeholders, reliable data
    and credible analysis from a broad range of sources, and clear and
    transparent processes for engaging the broader public in the debate over
    the recommended changes.

    26 See GAO-05-325SP.

    27 See GAO-05-325SP; Results-Oriented Government: Using GPRA to Address
    21st Century
    Challenges, GAO-03-1166T (Washington, D.C.: Sept. 18, 2003);
    Results-Oriented
    Government: Shaping the Government for the 21st Century, GAO-03-1168T
    (Washington, D.C.: Sept. 17, 2003); Performance Budgeting: Opportunities
    and Challenges,
    GAO-02-1106T (Washington, D.C.: Sept. 19, 2002); and Office of Management
    and Budget:
    Future Challenges to Management, GAO/T-GGD/AIMD-00-141 (Washington, D.C.:
    Apr. 7, 2000).

    28 See GAO-05-325SP and GAO/T-AIMD-00-73.

    As agreed with your staff, unless you publicly announce the contents of
    this report earlier, we plan no further distribution of it until 30 days
    from the date of this letter. At that time, we will provide copies to
    other interested parties and make additional copies available upon
    request. This report will also be available at no charge on the GAO Web
    site at http://www.gao.gov.

    If you or your staff have any questions concerning this report, please
    contact me at (202) 512-9573 or posnerp@gao.gov or Denise Fantone at (202)
    512-4997 or fantoned@gao.gov. Additional key contributors to this report
    are listed in appendix VII.

    Sincerely yours,

    Paul L. Posner Managing Director Federal Budget Issues, Strategic Issues

    Appendix I

                           Objectives, Scope, and Methodology

    The objectives of this report were to describe for selected states

    1.	whether and, if so, how legislators are using performance information
    in budget deliberations;

    2.	whether performance information helped to inform choices during fiscal
    stress and, if so, how;

    3.	challenges states face in implementing and sustaining performance
    budgeting efforts; and

    4.	the potential for state experiences to inform initiatives to improve
    the use of performance information in budget deliberations at the federal
    level.

    In order to address the first three objectives, we sought to study states
    that had established histories with performance budgeting, including
    executive or legislative requirements, and represented a variety of
    approaches to implementing those efforts. We also sought states that had
    demonstrated legislative interest in performance budgeting by involving
    legislative staff or offices in analyzing and using performance
    information, as well as states that in addition to having formal
    performance measurement systems, had other means of generating and
    analyzing performance information, such as systematic reviews or program
    analyses or special commissions, like those for efficiency reviews.

    To identify states with these characteristics, we asked knowledgeable
    academics from the performance management and budgeting fields, as well as
    relevant officials at the National Conference of State Legislatures
    (NCSL), the National Association of State Budget Officers (NASBO), the
    Government Accounting Standards Board (GASB), and the Urban Institute for
    recommendations on states to consider including in our study. We also
    identified and reviewed relevant literature, including studies, reports,
    and state government Web sites. Based on our research and analysis, as
    well as the input from academics, NCSL, NASBO, GASB, and the Urban
    Institute, we selected a preliminary group of nine states for more
    in-depth consideration. In each of these states, we conducted a series of
    teleconference interviews with senior budget officials, budget and policy
    analysts, or both in the legislative and executive branches. From the
    information gathered in these interviews, we determined that five states-

    Appendix I
    Objectives, Scope, and Methodology

    Arizona, Maryland, Texas, Virginia, and Washington-met our selection
    criteria and selected all five of these states for site visits.

    In each of the states we visited, we conducted semistructured interviews
    of central budget and planning staff; their legislative counterparts;
    senior officials from the governors' offices; staff members from executive
    and legislative oversight entities that analyze and provide performance
    information to decision makers, such as audit and sunset review staff;
    and-in some instances-members of the general assembly to obtain a range of
    perspectives on the relationship between performance information and the
    budgeting process. In these interviews, we asked about the role of that
    office in the budget process and decision making, the availability and use
    of performance information, perceptions of the quality and usefulness of
    the information, and use of performance information during fiscal stress.
    We also collected documentary evidence from these officials to supplement
    testimonial evidence, where available. We analyzed and summarized the
    information collected from the selected states in an effort to identify
    common themes and practices in performance budgeting at the state
    government level.

    Because the states selected are not a representative sample, our findings
    and conclusions are not generalizable to the experiences of other states
    that have engaged in performance budgeting efforts. Because it was not
    directly relevant to our objectives, we did not independently evaluate the
    relevancy, reliability, or timeliness of states' performance information,
    but instead relied upon state auditor reviews for such information, as
    well as state officials' perspectives on these issues. Similarly, we did
    not independently verify the quality assurance processes used by states to
    monitor the establishment and review of performance measures, but instead
    relied upon testimonial evidence and state-authored documentation of these
    processes.

    To examine ways in which these state experiences could potentially be used
    to improve the use of performance information in budget deliberations at
    the federal level, we hosted an expert roundtable discussion where
    participants discussed the potential relevancy and applicability to the
    federal government of the reported state experiences with performance
    budgeting. To identify potential participants with recognized expertise in
    performance-related budgeting practices at the federal level, we relied on
    sources we had used in state selection, as well as our experience in this
    area, to compile a list of individuals with diverse backgrounds in the
    field. From this pool of potential participants, we

    Appendix I
    Objectives, Scope, and Methodology

    selected six individuals who represented a cross section of knowledge and
    experiences from academia and government-five of whom accepted our
    invitation to participate on the panel.

    Each state was given an opportunity to review and confirm statements made
    and examples used about its experiences. Any technical or clarifying
    comments that states provided have been incorporated where appropriate. We
    conducted our work from February 2004 through January 2005 in accordance
    with generally accepted government auditing standards.

    Appendix II

    Overview of Arizona's Budget Process and Performance-Related Requirements,
    Processes, and Initiatives

    Section I: Overview of Budget Process and Structure

                      Table 2: Summary of Arizona's Budget Process

                                  Budget    Agency             Governor
                    Frequency   guidelines            Agency    submits                 Fiscal
                    of                     requests
     Frequency of   legislative  sent to   submitted hearings  budget to   Legislature
                                              to                                         year
     budget cycle      cycle     agencies  governor    held   legislature adopts budget begins
    Annual/biennial   Annual       June    September January-   January   January-April  July
                                                     February

    Source: GAO.

    Note: Based on analysis of testimonial evidence, documentation collected,
    or both.

    In 1997, Arizona enacted legislation that established a biennial budgeting
    process.1 However, more recent legislation,2 passed in 2002, requires 16
    of the state's larger agencies to submit annual budgets and allows the
    governor to request budget estimates more often than every 2 years from
    all state agencies. Despite the bifurcated budget cycle, the budget
    process time line is the same for all agencies, regardless of whether they
    function on an annual or biennial cycle. However, biennial agencies have
    fewer reporting requirements midbiennium.

    Arizona's budget process begins on or before June 1, when the Office of
    Strategic Planning and Budget (OSPB), an executive branch agency, issues
    instructions to guide agencies in preparing their budget requests. Agency
    requests are submitted to OSPB and its legislative counterpart, the Joint
    Legislative Budget Committee (JLBC), by September 1, unless an agency was
    granted an extension from OSPB. From September through January, OSPB
    reviews agency budget requests and prepares the governor's Executive
    Budget Recommendation, which must be submitted to the legislature in early
    January. JLBC staff also review agency requests and the governor's budget
    recommendation to prepare an alternative budget for the legislature.
    Legislative review and deliberation of the two budgets begins

      1 1997 Ariz. Sess. Laws ch. 210, S:7. 2 2002 Ariz. Sess. Laws ch. 210, S:2.

        Appendix II Overview of Arizona's Budget Process and Performance-Related
                        Requirements, Processes, and Initiatives

    shortly after the regular session convenes. Both the Senate and House
    appropriation committees hold public hearings. The committees may adopt
    the executive budget, the JLBC staff budget, a budget containing elements
    of both budgets, or an entirely new budget. Once adopted, the bill is then
    presented to the governor for approval. The governor holds the right to
    both a full veto and line-item veto. The legislature may override any veto
    with a two-thirds vote.

    Arizona is transitioning to a program budgeting structure. In 1997, the
    state passed legislation that established program budgeting to allow the
    format of the General Appropriation Act to be converted from line items of
    expenditure to a list of programs representing the most important
    activities of each agency.3 The legislation allowed for a phased approach
    to implementation. By fiscal year 2006, all agencies will be required to
    submit their requests using their program list structure. When Arizona
    completes the transition to program-based budgeting, it expects to align
    the planning and budgeting functions so that performance and budget
    information can be reported in the same system.

    Section II: Overview of Performance and Accountability Requirements

    According to JLBC, Arizona passed legislation in 1993 to establish a
    program review process for state government. This law required each agency
    to develop a strategic plan that included a mission statement, goals,
    objectives, and performance measures. It also required OSPB to develop a
    master list of state agency programs and created a 4-year pilot program to
    complete 75 program area reviews (PAR). Under these reviews, agencies
    completed self-assessments of designated programs. OSPB and JLBC staff
    analyzed the self-assessments to develop findings on the efficiency and
    effectiveness of the programs' operations and then made recommendations on
    whether to retain, eliminate, or modify the programs.

    In 1995, Arizona amended the PAR process by updating the list of PAR
    programs.4 This legislation also requires agencies to submit 3-year
    strategic plans for each program and subprogram and performance measures
    in both agency and program operating plans. OSPB publishes this
    information in the Master List of State Government Programs. The 1997
    legislation

    3 1997 Ariz. Sess. Laws ch. 210, S:14. 4 1995 Ariz. Sess. Laws ch. 283.

    Appendix II Overview of Arizona's Budget Process and Performance-Related
    Requirements, Processes, and Initiatives

    further amended the PAR process to make it permanent and to require that
    PARs be conducted in even-numbered years (the second year of the 2-year
    legislative term) to avoid legislator and staff time conflicts with the
    budget. The legislation also required the speaker of the House of
    Representatives and the president of the Senate to appoint sufficient
    joint PAR committees to evaluate the OSPB and JLBC staff findings. Each
    committee was required to have three appointed private citizens, in
    addition to legislative members representing both parties, and to hold at
    least one public hearing. In 1999, the PAR process was replaced with the
    strategic program area review (SPAR) process.5 SPAR is similar to PAR in
    that it is based on OSPB and JLBC findings derived, in part, from
    agency-authored self-assessments and culminates in the decision to retain,
    eliminate, or modify a program area. However, SPARs focus on program areas
    addressed by multiple agencies.

    Legislation passed in 2002 further changed the planning process by
    distinguishing between long-range planning (strategic) and short-range
    planning (operational) tied to budget cycles and performance measures.6
    This legislation requires each of the 16 annual budget agencies to develop
    and post on its Web site a 5-year strategic plan for the entire agency and
    to update this plan annually as necessary. In addition, this legislation
    modified the requirements for agency-level operating plans to require
    agencies to submit mission statements, descriptions, and strategic issues
    in lieu of goals and measures, which are no longer required at the agency
    level.

    5 1999 Ariz. Sess. Laws ch. 210. 6 2002 Ariz. Sess. Laws ch. 210 S:10.

        Appendix II Overview of Arizona's Budget Process and Performance-Related
                        Requirements, Processes, and Initiatives

    Section III: Overview of Performance Measurement System and Processes

              Table 3: Summary of Arizona's Performance Budgeting Process

    Performance                                              Primary method of
        budgeting     Level that Method used to     Required as publicly
                    measures are submit               part of   reporting
                                                    agency
    legislation?  submitted        measures      budget          measures
                                                    request?
           Yes                   Annual program         Yes
                      Program    operating                      Appropriation act
                                       plans

    Source: GAO.

    Note: Based on analysis of testimonial evidence, documentation collected,
    or both.

    In Arizona, agencies submit performance information to OSPB at the program
    level through program operating plans that contain mission statements,
    descriptions, goals, performance measures, and budgetary data. Agencies
    also develop and annually submit to OSPB and JLBC agencywide operating
    plans, which are to contain mission statements, descriptions, and
    strategic issues. In addition, annual budget agencies are required to
    annually submit 5-year strategic plans that must contain strategic issues,
    mission statements, descriptions, goals, strategies, and resource
    assumptions.

    Agencies are given some latitude in how they define both programs and the
    measures they use in tracking the performance of those programs. However,
    once OSPB concurs with the program structures, changes cannot be made
    without its consent and JLBC staff consultation. Similarly, once OSPB and
    an agency agree to a set of key measures for each of these programs, the
    agency cannot change them without OSPB's consent. Arizona does not have a
    formal process for validating agency-reported performance information.
    However, some agency performance audits conducted by the Arizona Office of
    the Auditor General (OAG) include an examination of the adequacy of
    agency-reported goals and performance measures. As appropriate, the
    auditor general will recommend changes to the performance measures that
    agencies use to improve their quality and relevance.

    Appendix II Overview of Arizona's Budget Process and Performance-Related
    Requirements, Processes, and Initiatives

    Every 2 years, OSPB compiles the program operating plan submissions into
    the Master List of State Government Programs. This master list is meant to
    provide decision makers and citizens with one complete document for
    tracking state program budgets and recent and expected performance. OSPB
    also uses the program performance information to develop the executive
    budget, which includes recommended funding levels and recent and expected
    performance goals based on funding. Figure 1 provides an example of how
    performance information is presented in the governor's executive budget.

    Appendix II Overview of Arizona's Budget Process and Performance-Related
    Requirements, Processes, and Initiatives

    Figure 1: Example of Performance Information Presented in Arizona's
    Executive Budget

    Source: State of Arizona.

         Note: Information from Arizona's fiscal year 2003-05 executive budget.

    Appendix II Overview of Arizona's Budget Process and Performance-Related
    Requirements, Processes, and Initiatives

    In addition to publicly reporting program performance measures through the
    Master List of State Government Programs and the executive budget
    proposal, Arizona reports performance information in the General
    Appropriation Act, which contains funding recommendations along with
    performance targets for selected measures. Figure 2 provides an example of
    how performance information is presented in the Arizona General
    Appropriation Act.

    Figure 2: Example of Performance Information Presented in Arizona's
    General Appropriation Act

    Note: Information from Arizona's fiscal year 2004-05 General Appropriation
    Act.

    Another aspect of Arizona's performance measurement process is the SPAR
    process. Through SPARs, JLBC and OSPB assess the performance of state
    government programs and determine whether they are achieving the desired
    results. The SPARs are a permanent part of the biennial budget process and
    result in decisions to retain, eliminate, or modify particular programs.
    The SPAR process undertakes crosscutting performance reviews of government
    services that span several programs and agencies. In 2001, the SPAR
    process produced three reports examining state funding

        Appendix II Overview of Arizona's Budget Process and Performance-Related
                        Requirements, Processes, and Initiatives

    assistance provided to counties, state special education programs, and
    children's case management services. Because of resource constraints
    during the recent period of fiscal stress, the SPAR process has been
    suspended since 2002. However, officials from both OSPB and JLBC expect to
    reinitiate SPARs as part of future budget processes.

    Arizona also has a sunset review process through which existing state
    agencies are reviewed for potential elimination.7 Sunset processes work by
    setting a date on which an agency will be abolished unless legislation is
    passed to continue its functions. The OAG, which is responsible for
    coordinating, and in many cases conducting, the state's sunset reviews,
    provides the Joint Legislative Audit Committee (JLAC) with a list of
    agencies scheduled for termination in the upcoming biennium. JLAC decides
    which agencies will undergo sunset reviews by the auditor general and
    which agencies will be reviewed by the committees with jurisdiction in the
    legislature. At least one public hearing is held to discuss the agency or
    program under review. When the reviews are complete, the OAG makes
    recommendations in a public report and presents its findings and
    recommendations to the committees in the legislature, which then consider
    a number of factors in deciding whether to recommend to the full
    legislature that an agency be continued, eliminated, or modified.

    Section IV:
    Overview of Other
    Performance-Related
    Initiatives

    In January 2003, Governor Janet Napolitano established an Efficiency
    Review program and team to improve the performance and efficiency of
    Arizona state government. The review attempts to identify ways for
    agencies, and the government as a whole, to reduce costs, cut bureaucracy,
    eliminate duplication, and improve customer service using a two-pronged
    approach: (1) identify individual agency cost saving and cost avoidance
    opportunities and (2) develop crosscutting, statewide projects that will
    generate additional savings.

    The Efficiency Review team developed recommendations in a number of areas.
    The recommendations ranged from changing agency travel and training
    policies to ensuring more efficient and effective use of electronic
    resources. The Efficiency Review team examined several agencies
    individually to identify areas for potential savings. Specifically, it
    reviewed and developed a number of recommendations for the Arizona
    Departments

    7 A.R.S. S:S:41-2951-41-2958.

    Appendix II Overview of Arizona's Budget Process and Performance-Related
    Requirements, Processes, and Initiatives

    of Health Services, Juvenile Corrections, Public Safety, Transportation,
    and Game and Fish, as well as the Health Care Cost Containment System. The
    Efficiency Review team also developed recommendations for crosscutting,
    statewide projects to generate cost savings.

    Appendix III

    Overview of Maryland's Budget Process and Performance-Related Requirements,
    Processes, and Initiatives

    Section I: Overview of Budget Process and Structure

                     Table 4: Summary of Maryland's Budget Process

                            Budget    Agency             Governor
              Frequency   guidelines                      submits               Fiscal
              of                     requests
    Frequency legislative  sent to   submitted  Agency   budget to  Legislature
    of                               to                                       year
     budget      cycle     agencies  governor  hearings legislature adopts      begins
      cycle                                    held                 budget
     Annual     Annual       June     August   October-   January      April     July
                                               November

    Source: GAO.

    Note: Based on analysis of testimonial evidence, documentation collected,
    or both.

    Maryland operates on annual budget and legislative cycles. The Department
    of Budget and Management (DBM) issues budget instructions to agencies in
    June. Agencies then develop their budget requests and submit them to DBM
    for review by August 31. The governor reviews DBM's recommended budget and
    submits the executive budget to the General Assembly in January. From
    January through April, the General Assembly, primarily through the Senate
    Committee on Budget and Taxation and the House Committee on
    Appropriations, reviews the executive budget, holds hearings, and passes
    budget bills. By constitutional provision,1 the General Assembly may only
    concur with or reduce the budget of the executive branch unless it
    establishes a means for supporting the increased spending with additional
    revenue. However, the General Assembly may reduce, concur, or increase the
    appropriations for the legislative and judicial branches. The governor has
    no veto authority over the enacted fiscal year budget.

    Maryland's General Appropriation Act is structured by agencies and
    programs. There are variations in the structure depending on the level at
    which appropriations are made. Some agencies have broader spending
    authority than others.

    1 Md. Const. art. III, S:52.

    Appendix III Overview of Maryland's Budget Process and Performance-Related
                        Requirements, Processes, and Initiatives

    Section II: Overview of Performance and Accountability Requirements

    Maryland's performance and accountability requirements were originally
    established under DBM's budget and planning process in 1997 but were not
    codified in law or under executive order until the 2004 legislative
    session when the Managing for Results (MFR) legislation was passed
    unanimously by both the House and Senate and signed by the governor.2 This
    legislation requires DBM to develop a comprehensive state MFR plan with
    objectives and performance measures. Additionally, it requires state
    agencies, in conjunction with DBM, to select no more than six goals per
    agency that are either compatible with the statewide MFR plan or are
    otherwise consistent with the agency's mission if the goals identified in
    the comprehensive plan do not apply to the agency. As part of the budget
    process, each agency must develop and submit an agencywide MFR strategic
    plan to DBM. Agencies must also maintain documentation of the internal
    controls they use to ensure the accuracy of the performance information
    they collect and report. Both state agency measures and the internal
    controls are subject to review by the state legislative auditor. Beginning
    in January 2005, DBM must provide a report to the House and Senate budget
    committees in January of each year on the contents of the statewide MFR
    plan and the state's progress toward the goals outlined therein.

    Section III: Overview of Performance Measurement System and Processes

              Table 5: Summary of Maryland's Performance Budgeting Process

    Performance                                                 Primary method
                                                                               of
        budgeting          Level that Method used to  Required as  publicly
                         measures are submit            part of    reporting
    legislation?     submitted        measures    agency budget    measures
                                                     request?
           Yes         Agency and     Annual budget       Yes        Executive
                         program         requests                      budget
                                                                      document

    Source: GAO.

    Note: Based on analysis of testimonial evidence, documentation collected,
    or both.

    2 2004 Md. Laws ch. 452.

    Appendix III Overview of Maryland's Budget Process and Performance-Related
    Requirements, Processes, and Initiatives

    Maryland's MFR initiative is principally a strategic planning process that
    is intended to set organizational direction, determine priorities, and
    establish desired program results and outcomes. Agencies and programs are
    expected to develop outcome measures that are based on customer needs and
    expectations. Agencies and departments are also expected to develop
    performance measures to track the progress of programs in achieving the
    organizational mission, goals, and objectives. This performance
    information is intended to improve agency and program planning and inform
    budget decisions.

    As part of their annual budget request, DBM requires agencies to submit
    missions, key goals, and performance measures at both the agency and
    program levels. Agencies independently select and report the performance
    information that is included in their budget requests. DBM does not have a
    formal role in this process. However, the Office of Budget Analysis within
    DBM reviews these submissions and considers the performance information in
    developing the executive budget. DBM publicly reports performance
    information in the executive budget, which contains the mission, vision,
    strategic goals, objectives, and performance measures for each agency.
    Figure 3 provides an example of this information.

    Appendix III Overview of Maryland's Budget Process and Performance-Related
    Requirements, Processes, and Initiatives

     Figure 3: Example of Performance Information Presented in Maryland's Executive
                                         Budget

    Source: State of Maryland.

    Note: Information from Maryland's fiscal year 2005 Executive Budget.

    Appendix III Overview of Maryland's Budget Process and Performance-Related
                        Requirements, Processes, and Initiatives

    In 2000 the Maryland Office of Legislative Audits (OLA) in the Department
    of Legislative Services (DLS) began auditing agency performance measures.
    OLA conducts selective reviews of agency performance measures to determine
    their accuracy. OLA also determines whether adequate control systems are
    in place for collecting, summarizing, and reporting the performance
    measures.

    Maryland also has a sunset review process.3 Nearly 70 agencies or other
    state entities are subject to a sunset review because they have
    termination dates in their authorizing statutes, which typically means
    legislative action must be taken to reauthorize them. The sunset reviews
    are intended to determine whether there is a continued need for state
    regulation or involvement in an area and to ensure legislative review
    takes place. These evaluations also determine the accountability,
    efficiency, and effectiveness of agency operations and finances. Agencies
    subject to sunset review typically undergo preliminary evaluation 2 years
    before their scheduled termination dates. DLS conducts these evaluations
    and makes recommendations to the Legislative Policy Committee. That
    leadership body determines whether a full evaluation should be undertaken.
    If an agency is chosen for a full evaluation, it is assigned to committees
    of the General Assembly. DLS then undertakes a full evaluation on behalf
    of these committees and issues a report. The designated committee holds a
    public hearing at which DLS presents the findings and recommendations of
    the evaluation. The committees report their recommendations to the full
    General Assembly along with the legislation necessary to implement the
    desired changes and reauthorize the entity.

    Section IV:
    Overview of Other
    Performance-Related
    Initiatives

    Maryland Strategic According to state estimates, Maryland faces a
    significant structural budget Budgeting shortfall for fiscal year 2006. To
    address this potential shortfall, DBM

    3 Maryland Program Evaluation Act, Md. Code Ann., state gov't
    S:S:8-401-8-413 (2004).

    Appendix III Overview of Maryland's Budget Process and Performance-Related
                        Requirements, Processes, and Initiatives

    introduced a new approach to developing the state's budget, called
    Strategic Budgeting. Strategic Budgeting attempts to more directly link
    agency and program priorities with funding priorities. The administration
    has selected five pillars-Education, Health and the Environment, Public
    Safety, Commerce, and Fiscal Responsibility-to frame budget priorities.
    Agencies are expected to prioritize and fund programs in fiscal year 2006
    according to how they address agency and program missions, as well as key
    outcomes that reflect the administration's five pillars.

    In the budget instructions that describe the Strategic Budgeting approach,
    DBM encourages agency heads to think of their agencies not as collections
    of programs but as vehicles that deliver services to customers. The
    instructions say, for example, that to deliver the outcome of safer
    streets and highways, agencies have to provide services through a number
    of avenues-law enforcement, the prison system, and the judicial system.
    The outcome is a result of several programs in several agencies. Some of
    these programs also support the delivery of other outcomes. The budget for
    fiscal year 2006 will be the first to focus on these outcomes, the most
    effective ways the agencies can deliver the outcomes, and the processes
    that maintain and build the capacity to deliver outcomes in future years.
    After assessing all programs and the outcomes they deliver, agency heads
    are expected to assign a ranking to each program based on both the
    importance of those outcomes in comparison to other agency programs.

    Maryland Commission on the Structure and Efficiency of State Government

    In January 2003, Maryland's governor created the Governor's Commission on
    the Structure and Efficiency of State Government to examine and make
    recommendations concerning state government operations and the
    reorganization of independent agencies and commissions. The goal of the
    commission was to improve Maryland's ability to provide necessary services
    to its citizens as effectively and economically as possible. The
    commission was asked to evaluate independent state programs and agencies
    and to recommend to the governor the elimination, consolidation, or
    streamlining of programs and agencies. The commission was also asked to
    examine and analyze staffing patterns in state agencies and recommend
    changes that would lead to the elimination of wasteful practices and
    duplication of services.

    The commission first met in August 2003 and was given approximately 4
    months to complete its reviews. To do so, the commission established four
    committees to examine particular areas of state government operation-the
    Committee to Evaluate Independent Agencies, the

    Appendix III Overview of Maryland's Budget Process and Performance-Related
    Requirements, Processes, and Initiatives

    Committee to Evaluate Adjudicatory Agencies, the Committee to Evaluate Law
    Enforcement Agencies, and the Committee to Evaluate Environmental
    Agencies. The commission generated 54 recommendations, including changing
    statewide service-contracting and procurement practices, conducting more
    in-depth reviews of some agencies and programs, and changing the structure
    of certain programs and agencies. Examples of these recommendations
    included creation of a Department of Disabilities, consolidation of the
    Natural Resources Police with the State Park Rangers, and an increase in
    certain fees imposed by the Office of Administrative Hearings.

    Appendix IV

    Overview of Texas's Budget Process and Performance-Related Requirements,
    Processes, and Initiatives

    Section I: Overview of Budget Process and Structure

                       Table 6: Summary of Texas's Budget Process

                                         Agency
                            Budget      requests                    Governor/
              Frequency   guidelines  submitted to                 LBB submit
              of
    Frequency legislative  sent to     governor/        Agency     budgets to  Legislature    Fiscal
    of                                                                                       year
     budget      cycle     agencies   legislature   hearings held  legislature adopts       begins
      cycle                                                                    budget
    Biennial   Biennial     April    July-September July-September   January       May     September

    Source: GAO.

    Note: Based on analysis of testimonial evidence, documentation collected,
    or both.

    Texas operates on both biennial budget and legislative cycles. Unlike many
    other states where the budget process begins in the executive branch,
    Texas's process is driven mostly by the legislature, namely the state's
    Legislative Budget Board (LBB).1 The LBB is a 10-member legislative body
    that consists of the lieutenant governor, the speaker of the House, the
    chairman of the House Appropriations Committee, chairman of the House Ways
    and Means Committee, chairman of the Senate Finance Committee, and 5
    additional appointed members from the House and Senate. The primary
    purpose of the LBB is to develop recommended appropriations for all state
    government agencies. The LBB also has the authority, in conjunction with
    the governor, to make budget adjustments when the legislature is not in
    session.

    In the spring of even-numbered years, the Governor's Office and the LBB
    jointly issue budget instructions, which state agencies use to develop
    their budget requests. During the summer months, the LBB and Governor's
    Office of Budget, Planning, and Policy (GOBPP) hold hearings with each
    agency to discuss these requests. In the fall, the LBB drafts the
    legislative budget estimates and the general appropriations bill and
    submits them to the legislature at the beginning of the legislative
    session in January.

    1 See generally Tex. Gov't Code Ann. S:322.001-S:322.001 (Vernon 2004)
    (Provides general information regarding budget process and role of LBB).

    Appendix IV Overview of Texas's Budget Process and Performance-Related
    Requirements, Processes, and Initiatives

    In addition to funding amounts, the legislative budget estimates and
    general appropriations bill also include other budget-related information,
    such as performance measures and targets, financing procedures, and
    historical summaries of previous funding requests and approved agency
    budgets. The Governor's Office also provides its budget proposal at the
    beginning of the legislative session using a similar format as the LBB.
    The House and Senate consider their versions of the appropriation bill
    separately and hold a conference committee review to reconcile any
    differences between the two versions of the bill. The revised bill is sent
    to both houses for approval. After approval by both houses, the bill is
    sent to the state comptroller for certification, ensuring that the
    approved budget remains within the constitutionally established funding
    limits. The governor has line-item veto authority.2 However, the
    legislature has the ability to override the veto with a two-thirds
    majority vote in both houses, as long as the veto occurs while the
    legislature is in session. The signed appropriation act becomes effective
    on September 1 of every oddnumbered year. Agreement by both the governor
    and the LBB allow for funds to be shifted between agency programs or
    between agencies during the fiscal year.

    Texas's General Appropriation Act is structured by goals and strategies.
    In general, an agency will have three to five substantive strategies,
    sometimes referred to as "direct strategies," as well as one or more
    strategies labeled "indirect administration" for functions shared among
    strategies, such as accounting, human resources, information technology,
    reporting, and overall administration in the higher executive offices.
    Strategies within the larger agencies can be as large as $500 million and
    contain multiple programs, whereas strategies in very small agencies can
    be as small as a few thousand dollars. As figure 4 demonstrates, the act
    shows high-level goals for each agency, and funding is appropriated
    according to the strategies that are established to achieve those goals.
    Texas also includes outcome, output, and efficiency targets to show what
    level of performance is expected for each goal and strategy based on the
    appropriation level each receives.

    2 Tex. Const. art. IV S:14.

    Appendix IV Overview of Texas's Budget Process and Performance-Related
    Requirements, Processes, and Initiatives

            Figure 4: Example of Texas's General Appropriation Act Structure

         Appendix IV Overview of Texas's Budget Process and Performance-Related
                        Requirements, Processes, and Initiatives

    Section II: Performance and Accountability Requirements

    In 1991, the Texas General Assembly passed a law to establish the
    Strategic Planning and Budgeting system.3 In 1993, the law was amended to
    consolidate planning requirements and change the minimum planning time
    line from 6 to 5 years.4 Agencies are required to complete and submit
    formal plans every 2 years. These plans include agency mission, goals,
    objectives, outcome measures, strategies, output measures, and efficiency
    measures. The LBB and the governor have the statutory responsibility for
    providing agencies with guidance in developing their strategic plans as
    well as for reviewing and finalizing those plans.

    Section III: Overview of Performance Measurement System and Processes

               Table 7: Summary of Texas's Performance Budgeting Process

    Performance                                                 Primary method
                                                                               of
        budgeting           Level that Method used to  Required as publicly
                          measures are submit            part of   reporting
                                                       agency
    legislation?     submitted         measures     budget         measures
                                                       request?
           Yes        Strategies (by   Strategic plans     Yes     Appropriation
                         agency)             and                        act
                                         electronic
                                          quarterly
                                           updates

    Source: GAO.

    Note: Based on analysis of testimonial evidence, documentation collected,
    or both.

    Texas's 5-year strategic planning process provides the framework for both
    performance reporting and the budget structure. Under this aligned
    planning and budgeting structure, agencies are required to develop
    strategic plans that are organized by goals and objectives with outcome
    measures that should be used to assess their achievement. The strategic
    plans also include strategies for achieving the goals and objectives as
    well as output, efficiency, and explanatory measures to quantify the
    results of

    3 Acts 1991, 72nd Leg., ch. 384. 4 Acts 1993, 74th Leg., ch. 76, S:529(b).

    Appendix IV Overview of Texas's Budget Process and Performance-Related
    Requirements, Processes, and Initiatives

    those strategies. In the budget process, these strategies also provide the
    basis for the allocation of budgetary resources. Agencies work with the
    governor and the LBB throughout the strategic planning process to identify
    and select key measures that provide a quantifiable assessment of service
    provision.

    The LBB and GOBPP approve the strategic plans and the measures selected by
    the agencies. After the strategic plans are approved by the GOBPP and LBB,
    agencies prepare their biennial budget requests using the framework of
    their approved goals, strategies, and performance measures. According to
    the LBB, once the general appropriation bill has been enacted, agencies
    submit reports electronically to the LBB every 3 months on their success
    in achieving performance targets included in the General Appropriation Act
    via the Automated Budget and Evaluation System of Texas. Agencies are
    required to explain the variance between their targets and their actual
    performance if that variance is greater than 5 percent.

    The Texas State Auditor's Office (SAO) conducts periodic audits of
    performance measures in selected agencies to determine whether they have
    adequate control systems for the collection of performance information and
    whether they are accurately reporting selected measures. The SAO and LBB
    work together to identify and select agencies and measures for these
    performance measure audits.

    In Texas, performance information is publicly reported as part of the
    budget process in the General Appropriation Act and in the LBB's annual
    Budget and Performance Assessments report. According to the LBB,
    performance measures and targets have been included in the appropriation
    act since 1991.

    Texas has a regular sunset review process by which legislatively
    established programs and agencies are reviewed approximately every 10
    years.5 Sunset processes work by setting a date on which an agency will be
    abolished unless legislation is passed to continue its functions. The
    Texas sunset review process is guided by the Sunset Advisory Commission
    (SAC), a 12-member body of legislators and public members appointed by the
    lieutenant governor and the speaker of the House of Representatives. SAC
    reviews 20 to 30 agencies per cycle and typically reviews each agency on a
    10-year cycle. SAC does not have a standard methodology for its

    5 See generally Tex. Gov't Code Ann. S:325.003 (Vernon 2004).

         Appendix IV Overview of Texas's Budget Process and Performance-Related
                        Requirements, Processes, and Initiatives

    reviews, but each review generally results in a decision to continue,
    modify, or eliminate an agency. The decision to continue or modify an
    agency requires legislative action and gubernatorial approval. Failure to
    pass and sign legislation discontinues the agency. Figure 5 describes the
    number of agencies that have been continued, modified, or eliminated as a
    result of sunset reviews from 1979 to 2003. As the figure demonstrates,
    the majority of reviewed agencies were continued following the sunset
    process.

    Figure 5: History of Texas Sunset Advisory Commission Action, 1979-2003

    Note: Information from the Texas Sunset Advisory Commission, Sunset
    Process Report Card (Austin, Tex.: December 2002, revised February 2003),
    2.

    Appendix V

    Overview of Virginia's Budget Process and Performance-Related Requirements,
    Processes, and Initiatives

      Section I: Overview of Budget Process and Structure

                     Table 8: Summary of Virginia's Budget Process

                             Budget       Agency                Governor
              Frequency    guidelines                            submits               Fiscal
              of                         requests
    Frequency legislative   sent to    submitted to   Agency    budget to  Legislature
    of                                                                               year
     budget      cycle      agencies     governor   hearings   legislature      adopts begins
      cycle                                         held                        budget
    Biennial    Annual    April-August June-October September-  December   March-April  July
                                                     October

    Source: GAO.

    Note: Based on analysis of testimonial evidence, documentation collected,
    or both.

    Virginia operates on a biennial budget system. The budget is enacted
    during even-numbered years and amendments are made during odd
    numbered years. In the early fall of odd-numbered years, state agencies
    are required to develop funding requests for the upcoming fiscal cycle and
    submit these requests to the Department of Planning and Budget (DPB). In
    the fall, DPB reviews the agency requests and develops a proposed budget
    for the governor's consideration. The governor submits the executive
    budget to the state legislature by December 20. Each house refers the
    proposed budget bill to a committee, which holds public hearings and
    considers amendments. After being reported by the committees, the amended
    bills are brought to the floor of each house for further consideration and
    amendments. Upon approval in the two houses, the bills are "exchanged"
    between the houses, where they are again reviewed and adjusted. A
    conference committee composed of members of both houses reviews the two
    budget bills, reconciles the differences, and submits the final proposed
    budget to the General Assembly for final legislative approval. Following
    approval from each house, the proposed budget is submitted to the
    governor. The governor may sign the bill as presented, veto the entire
    bill, veto certain portions of the bill via a line-item veto authority, or
    recommend amendments. If any portion of the bill is vetoed or amended, the
    bill is resubmitted to the General Assembly for additional review and
    revision. The approved budget is enacted into law effective July 1 of
    even-numbered years.

        Appendix V Overview of Virginia's Budget Process and Performance-Related
                        Requirements, Processes, and Initiatives

    Virginia's general appropriation bill is organized by function, primary
    agency, and proposed appropriation according to programs. Provisions and
    other amendments relating to the statutory purpose and responsibilities of
    an agency or agency program may be included within the enrolled
    appropriation act. There are variations in the structure depending on the
    level at which appropriations are made. Some agencies have broader
    spending authority than others.

    Section II: Overview of 	Virginia established its performance measurement
    system in 1995.1 The governor required agencies to develop strategic plans
    and report on

    Performance and performance. Legislation enacted in 2001 required DPB to
    submit to

    Accountability legislators an annual report comparing expected results and
    expenditures

    Requirements	for state agencies during the previous fiscal cycle to actual
    performance during the previous fiscal year.2 However, this requirement
    was later rescinded.

    Virginia expanded on its performance and accountability requirements with
    legislation enacted in 2003, known as the Virginia Government Performance
    and Results Act,3 which expanded on performance-related efforts in the
    state by mandating that each state agency develop and continuously review
    a strategic plan identifying long-term agency goals and objectives as well
    as specific outcome measures reflecting the relative achievement of
    established goals. These plans are to cover a 3-year period from the point
    of submission and are reviewed on a staggered basis by the Office of the
    Governor. Approximately one-third of all state agencies are to be reviewed
    over the course of 1 year. The provisions of this act are scheduled to
    expire in 2008. The Virginia Government Performance and Results Act also
    established the Council on Virginia's Future, an advisory council in the
    executive branch of state government that was charged with advising the
    governor and the General Assembly on the implementation of a long-term
    state planning process-known as the Roadmap for Virginia's Future. Figure
    6 summarizes the key components of this legislation.

    1 1995 VA Acts ch. 51. 2 2001 VA Acts ch. 43. 3 2003 VA Acts ch. 900.

    Appendix V Overview of Virginia's Budget Process and Performance-Related
    Requirements, Processes, and Initiatives

    6: Summary of Key Components ofFi Virginia's Government Pergure formance
    and Results Act

    Source: State of Virginia.

    Note: Information from the Council on Virginia's Future, Interim Report
    (Richmond, Va.: January 2004).

        Appendix V Overview of Virginia's Budget Process and Performance-Related
                        Requirements, Processes, and Initiatives

    Most recently, in 2004, legislation was enacted that requires agencies to
    develop a series of performance outcome measures for any new state
    programs or services as part of the budget request. These measures are
    intended to gauge program or service effectiveness and are to be
    incorporated into the budgeting process.

    Section III: Overview of Performance Measurement Systems and Processes

              Table 9: Summary of Virginia's Performance Budgeting Process

    Performance                                             Primary method of
        budgeting     Level that Method used to  Required as  publicly reporting
                    measures are submit            part of
    legislation?  submitted      measures    agency budget      measures
                                                request?
           Yes                      Internet         No          Virginia Results
                       Agency                                            Web site

    Source: GAO.

    Note: Based on analysis of testimonial evidence, documentation collected,
    or both.

    In Virginia, state agencies develop and submit strategic plans describing
    the intended goals and objectives as well as corresponding performance
    measures to DPB for approval prior to the start of each fiscal cycle.
    State agencies are responsible for the regular collection and reporting of
    performance information, a responsibility they carry out by submitting
    performance information through Virginia Results-a publicly available
    Internet-based system. This information is benchmarked with previous
    agency performance and compared to established performance targets.

    The Virginia Auditor of Public Accounts periodically assesses the accuracy
    of the performance measures submitted by state agencies. The results of
    these audits are reported to the General Assembly along with any
    recommendations for revisions to agency collection and reporting systems.

    Performance information is publicly available on the Virginia Results Web
    site. However, performance information is not published in either the
    executive or legislative budget documents.

        Appendix V Overview of Virginia's Budget Process and Performance-Related
                        Requirements, Processes, and Initiatives

    Section IV:
    Overview of Other
    Performance-Related
    Initiatives

    Council on Virginia's Future	The Council on Virginia's Future was created
    by legislation enacted during the 2003 session of the General Assembly.4
    The council-which is led by the governor and includes members from the
    Virginia General Assembly, executive branch agencies, and private sector
    organizations-was charged with, among other things, identifying long-term
    strategic issues facing the state. The council is subdivided into several
    "workgroups" which focus on specific issue areas, such as public safety
    and transportation. An interagency staff from both the executive and
    legislative branches assists the council.

    The legislation creating the council assigns specific tasks to the group.
    Initial tasks include developing and refining the framework for the
    state's strategic decision-making process. Long-term council objectives
    include the development and regular publication of a "scorecard"
    reflecting the relative performance of state services and recommendations
    for performance improvement. Ultimately, the council is expected to
    develop high-level goals and align the strategic planning, performance
    management, and budgeting systems in an effort to improve decision making
    in the state. As the council's work progresses, it is expected to develop
    and propose legislation designed to achieve these objectives. Much of the
    preliminary work of the council has focused on developing and identifying
    appropriate indicators and other benchmarks that will provide an accurate
    assessment of the progress of the state in developing its strategic
    planning and decision-making processes.

    4 2003 Va. Acts ch. 900.

        Appendix V Overview of Virginia's Budget Process and Performance-Related
                        Requirements, Processes, and Initiatives

    Governor's Commission on Efficiency and Effectiveness

    Initiated by Executive Order in 2001, the Commission on Efficiency and
    Effectiveness was charged by Governor Mark Warner with developing
    strategies and initiatives that would allow Virginia to serve its citizens
    more effectively and to manage its resources more efficiently. The
    commission was composed of a group of both public and private sector
    officials as well as academics.

    According to the commission's final report, issued in December 2002, the
    group recommended several initiatives that would streamline Virginia
    government operations and generate substantial savings. Examples of these
    recommendations include adjustments to procurement procedures, such as
    researching state spending patterns, combining currently separated
    information technology centers, and reducing vacancy rates in state-owned
    office space.

    Appendix VI

    Overview of Washington State's Budget Process and Performance-Related
    Requirements, Processes, and Initiatives

    Section I: Overview of Budget Process and Structure

                    Table 10: Summary of Washington's Budget Process

                            Budget    Agency             Governor
              Frequency   guidelines            Agency    submits               Fiscal
              of                     requests
    Frequency legislative  sent to   submitted hearings  budget to  Legislature
    of                               to                                       year
     budget      cycle     agencies  governor    held   legislature adopts      begins
      cycle                                                         budget
    Biennial    Annual      April    September    -      December    April-May   July

    Source: GAO.

    Note: Based on analysis of testimonial evidence, documentation collected,
    or both.

    Washington operates on a biennial budget cycle, with each fiscal cycle
    beginning on July 1 of odd-numbered years. In the summer and fall of
    evennumbered years, state agencies submit budget requests to the Office of
    Financial Management (OFM). These requests are reviewed by OFM and the
    governor and serve as the basis for the governor's proposed budget. State
    law mandates that the governor submit a proposed biennial budget to the
    legislature in December.1 In the spring, the legislature reviews the
    proposed budget separately in committees within both houses. After each
    house develops its version of the budget, a conference committee is called
    to reconcile the differences between the two proposed budgets. The
    reconciled budget is returned to both houses, where it must receive a
    majority vote before it is submitted to the governor for final approval
    and signature. By law, the governor may veto all or some provisions of the
    budget approved by legislators. The legislature reconsiders the biennial
    budget during the second year of the fiscal cycle.

    Washington's general appropriation bill is structured by agency and fund.
    Provisos or amendments relating to the statutory purpose and
    responsibilities of an agency also may be included within the enrolled
    appropriation act. There are variations in the structure depending on the
    level at which appropriations are made. Some agencies have broader
    spending authority than others.

    1 Wash. Rev. Code S:43.88.060 (2004).

             Appendix VI Overview of Washington State's Budget Process and
              Performance-Related Requirements, Processes, and Initiatives

    Section II: Overview of Performance and Accountability Requirements

    According to the Joint Legislative Audit and Review Committee (JLARC),
    legislators amended Washington's Budgeting and Accounting Act in 1996 to
    require state agencies to engage in strategic planning and related
    performance activities,2 including the development of an agency mission
    and measurable goals, program objectives, and budget proposals that
    incorporate performance measures indicating the relative success in
    achieving program objectives and goals. This legislation was followed by
    an Executive Order issued in 1997, which provided a similar mandate to
    state agencies by requiring the use of "the tools of strategic business
    planning and performance measures to establish their priorities and
    measure their progress toward their stated goals." This order established
    a series of "quality management" activities for state agencies, including
    the establishment of a quality-improvement representative for individual
    agencies, as well as quality steering committees, which were to report to
    the governor on each quarter.

    Section III: Overview of Performance Measurement Systems and Processes

            Table 11: Summary of Washington's Performance Budgeting Process

    Performance                                                 Primary method
                                                                               of
        budgeting     Level that Method used to       Required as  publicly
                    measures are submit                 part of    reporting
    legislation?  submitted        measures       agency budget    measures
                                                     request?
           Yes       Agency and  Biennial budget          Yes        Executive
                      program    requests                              budget
                                                                      document

    Source: GAO.

    Note: Based on analysis of testimonial evidence, documentation collected,
    or both.

    In Washington all state agencies are required to engage in strategic
    planning and related performance activities. State agencies develop
    strategic plans to establish their missions and purposes, as well as

    2 1996 Wash. Laws ch. 317, codified in, Wash. Rev. Code S:43.88.090.

    Appendix VI Overview of Washington State's Budget Process and
    Performance-Related Requirements, Processes, and Initiatives

    measurable goals and objectives. Agencies are not required to regularly
    revise established goals and measures, but must ensure that agency
    mission, goals, and measures adhere appropriately to state law. For every
    major program administered by an agency, program objectives are reported
    with measurable outputs and outcomes to the extent possible. Agencies can
    develop their measures and data collection procedures with or without
    assistance from OFM.

    In addition to OFM, JLARC is directed to facilitate the implementation of
    effective performance measures throughout state government. JLARC consists
    of 16 legislators, equally divided by House and Senate, with not more than
    4 members from each house being of the same political party. With staff
    assistance, JLARC conducts policy and fiscal research, including
    performance audits and program evaluations.3 In recent years, JLARC has
    conducted selective performance outcome measurement reviews and developed
    recommendations to improve the quality of performance information reported
    by state agencies.

    Performance information is publicly reported in the biennial executive
    budget document. This information is reported at the agency level and
    includes the agency mission, performance goals, and output or outcome
    measures.

    Washington has a sunset review process that is used to determine whether
    certain state entities should be reauthorized, modified, or eliminated.
    Washington's reviews are also intended to determine the accountability,
    efficiency, and effectiveness of agency operations and finances. The
    entities that are subject to sunset reviews are required to develop
    performance measures and data collection plans and submit these to JLARC
    for review and comment. These measures are intended to serve as part of
    the framework for evaluating overall program effectiveness in conducting
    sunset reviews.

    3 Wash. Rev. Code S:44.88.010.

             Appendix VI Overview of Washington State's Budget Process and
              Performance-Related Requirements, Processes, and Initiatives

    Section IV:
    Overview of Other
    Performance-Related
    Initiatives

    Washington Priorities of Government

    The Priorities of Government (POG) approach was created during the
    development of the budget for fiscal year 2003-05 when the state had to
    address a potential budgetary shortfall of approximately $2.4 billion. The
    POG initiative was designed to rank and prioritize state government
    services and develop a budget strategy from the results of these
    exercises. POG categorizes all state programs in services into one of the
    following 11 results areas:

    o  Improve student achievement in elementary, middle, and high schools

    o  Improve quality and productivity of our workforce

    o  Improve value of a state college or university education

    o  Improve health of Washington citizens

    o  Improve security of Washington's vulnerable children and adults

    o  Improve economic vitality of business and individuals

    o  Improve statewide mobility of people, goods, information, and energy

    o  Improve safety of people and property

    o  Improve quality of Washington's natural resources

    o  Improve cultural and recreational opportunities throughout the state

    o 	Strengthen government's ability to achieve its results efficiently and
    effectively

    For each results area, there are several high-level indicators to describe
    the progress that the state has made. For example, the result area related
    to

    Appendix VI Overview of Washington State's Budget Process and
    Performance-Related Requirements, Processes, and Initiatives

    improving the quality of Washington's natural resources had indicators of
    progress in reducing impacts on the environment, maintaining habitat to
    support natural systems, and maintaining healthy fish and wildlife
    populations. Measures under these indicators included trends in water
    quality and carbon dioxide emissions; the conversion rate of resource
    lands to urban use; and number of wildlife species classified as
    endangered, threatened, or sensitive.

    A guidance team and 11 results teams that corresponded with each of the
    results areas were developed to implement the POG process. The guidance
    team consisted of about 10 members from the public, private, and nonprofit
    sectors and was principally tasked with overseeing the prioritization
    process and reviewing the work of the results teams. Each results team was
    led by OFM budget or policy staff and consisted of six to eight
    subjectmatter experts from executive branch agencies with knowledge and
    background in the particular results area. Each of the results teams was
    tasked with evaluating and "mapping" the factors that influence or drive
    the result that it wanted to achieve. Based on these maps, they were asked
    to identify ways to better and more efficiently achieve the desired
    outcomes in their respective areas and recommend high-level purchase
    strategies to agencies to inform the development of their budget
    proposals.

    Ultimately, the POG approach also informed the governor's proposed budget
    for the 2003-05 biennium. Budget activities were ranked by contribution to
    the results, and a line was drawn at the dollar amount allocated to the
    result. Activities below the line were listed in order to identify how
    changes in funding might affect service provision. Figure 7 illustrates
    the POG framework.

    Appendix VI Overview of Washington State's Budget Process and
    Performance-Related Requirements, Processes, and Initiatives

    7: Example of WashFi ington's Priorities of Gogure vernment Framework

                   Source: Washington Office of Financial Management.

    Appendix VI Overview of Washington State's Budget Process and
    Performance-Related Requirements, Processes, and Initiatives

    The POG framework was helpful in communicating the administration's
    highest priorities and presenting the key activities that it thought the
    state could afford to fund to address those priorities without increasing
    taxes, as well as those activities that the administration considered of
    lower priority and did not recommend funding. Detailing which activities
    were funded and which were not was a unique approach that helped both the
    legislature and Washington citizens understand what the state could and
    could not afford from the administration's perspective. For example, in
    its proposed budget the administration recommended not funding two
    education-related voter initiatives because of fiscal constraints.
    Although it is usually difficult for the legislature to coalesce support
    for overturning a voter initiative, it was able to do so in this case. The
    POG framework helped to communicate that there were no other alternatives.

    Appendix VII

                         GAO Contacts and Staff Acknowledgments

    GAO Contacts	Paul L. Posner, (202) 512-9573 Denise M. Fantone, (202)
    512-4997

    Acknowledgments	In addition to the above contacts, Kristeen McLain,
    Tiffany Tanner, Brian James, and Ted Beck made significant contributions
    to this report. Thomas Beall, Sheila Rajabiun, Carlos Diz, Amy Rosewarne,
    and David Eisenstadt also made key contributions.

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    United States Government Accountability Office Washington, D.C. 20548-0001

    Official Business Penalty for Private Use $300

    Address Service Requested
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