Performance Budgeting: Initial Agency Experiences Provide a Foundation to
Assess Future Directions (Testimony, 07/01/1999, GAO/T-AIMD/GGD-99-216).

This testimony focuses on how performance budgeting can be advanced in
the federal government. GAO discusses (1) the evolution of performance
budgeting in the federal government, (2) some of the challenges that
confront performance budgeting efforts, (3) the postponement of
performance budgeting pilots mandated by the Government Performance and
Results Act, and (4) steps the Office of Management and Budget can take
to achieve the intent of the pilot projects.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  T-AIMD/GGD-99-216
     TITLE:  Performance Budgeting: Initial Agency Experiences Provide
	     a Foundation to Assess Future Directions
      DATE:  07/01/1999
   SUBJECT:  Planning programming budgeting
	     Congressional/executive relations
	     Strategic planning
	     Performance measures
	     Reporting requirements
	     Mission budgeting
	     Agency missions
	     Accountability
	     Budget administration
IDENTIFIER:  GPRA
	     Government Performance and Results Act

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    United States General Accounting Office GAO
    Testimony Before the Subcommittee on Government Management,
    Information and Technology, Committee on Government Reform, House
    of Representatives For Release on Delivery Expected at
    PERFORMANCE 2 p.m. Thursday,                  BUDGETING July 1,
    1999 Initial Agency Experiences Provide a Foundation to Assess
    Future Directions Statement of Paul L. Posner Director, Budget
    Issues Accounting and Information Management Division Statement of
    Christopher J. Mihm Associate Director, Federal Management and
    Workforce Issues General Government Division GAO/T-AIMD/GGD-99-216
    Mr. Chairman and Members of the Subcommittee: It is a pleasure to
    be here today to discuss how we can advance performance budgeting
    in the federal government. As you requested, I will discuss the
    postponement of the performance budgeting pilots that are required
    by the Government Performance and Results Act. I will also discuss
    some of the challenges that confront these pilots and any effort
    to more closely relate performance expectations and spending
    estimates. Despite these challenges, our recent and ongoing
    reviews of agencies' performance plans indicate that federal
    agencies are developing approaches called for by the Results Act
    to link performance plans and budget requests. These agency
    efforts deserve close attention and support, not only because of
    their contribution to the overall implementation of the act, but
    also because of their potential to inform our understanding of and
    expectations for performance budgeting within the federal
    government. But first, to set context for this discussion, I'd
    like to begin by briefly looking at how the concept and practice
    of performance budgeting has evolved in the federal government.
    The Evolution of       The concept of performance budgeting-
    essentially the process of linking Performance            budget
    levels to expected results, rather than to inputs or activities-
    has and will likely continue to evolve. Historically, within the
    federal Budgeting              government, performance budgeting
    has progressed from a relatively straightforward efficiency
    concept, as evidenced in recommendations from the first Hoover
    Commission, to the complex and mechanistic processes associated
    with such initiatives as the Planning-Programming-Budgeting System
    (PPBS) and Zero-Base Budgeting (ZBB).1 Similarly, foreign
    countries and state and local governments in this country are
    experimenting with a variety of approaches to more closely
    associate expected performance with requested funding levels, as
    part of their broader reform efforts to become more results-
    oriented.2 These governments recognize that focusing on results
    involves defining clear missions and outcomes, measuring
    performance to gauge progress, and 1Performance Budgeting: Past
    Initiatives Offer Insights for GPRA Implementation (GAO/AIMD-97-
    46, March 27, 1997). 2See, for example, Budgeting for Results:
    Perspectives on Public Expenditure Management, prepared by the
    Organisation for Economic Co-operation and Development, 1995, and
    "The State of the States: Performance-Based Budgeting Requirements
    in 47 Out of 50," by Julia Melkers and Katherine Willoughby,
    Public Administration Review (January/February 1998, Vol. 58, No.
    1). Letter    Page 1
    GAO/T-AIMD/GGD-99-216 using performance information within
    decision processes. Performance budgeting is the general term used
    to refer to the infusion of performance information into resource
    allocation processes. We have looked at the history of performance
    budgeting in the federal government and the experiences of state
    governments and believe that two general themes are suggested.3 *
    First, although the process of budgeting is inherently an exercise
    of political choice in which performance information can be one
    but not the only factor underlying ultimate decisions, many
    governments have recognized that systematic presentation of
    performance information alongside budget amounts will improve
    budget decision-making. In fact, the Results Act is based on a
    premise that budget decisions should be more clearly informed by
    performance. * Second, no single definition of, or common approach
    to, performance budgeting can encompass the range of needs or
    interests of decisionmakers, or the variety of political
    institutions and organizational arrangements of modern
    governments. Thus performance budgeting is best seen as a process
    of adaptation rather than as an adoption of a specific process. In
    its overall structure, focus, and approach, the Results Act
    incorporates important lessons from previous federal efforts to
    connect plans with budgets. For example, past initiatives-such as
    ZBB in 1977-typically devised unique and often voluminous
    presentation formats unconnected to the structures used in
    congressional budget presentations. The Results Act requires an
    agency's annual performance plan to link directly to the
    presentation structures ("program activities"4) used in the
    President's budget submission for that agency. Also, past
    performance budgeting initiatives-such as PPBS in 1965-were
    typically implemented governmentwide within a single annual budget
    cycle. In contrast, the Results Act defines a phased and iterative
    implementation process that incorporates pilot tests and formal
    evaluation of key concepts, including performance budgeting. 3See
    GAO/AIMD-97-46, March 27, 1997 and Performance Budgeting: State
    Experiences and Implications for the Federal Government (GAO/AFMD-
    93-41, February 17, 1993). 4The term "program activity" refers to
    the listings of projects and activities in the Appendix portion of
    the Budget of the United States Government. Subject to clearance
    by the Office of Management and Budget and generally resulting
    from negotiations between agencies and appropriations
    subcommittees, program activity structures are intended to provide
    a meaningful representation of the operations financed by a
    specific budget account. Letter    Page 2
    GAO/T-AIMD/GGD-99-216 The need to more closely link plans and
    budgets is of central importance to the Results Act. Improving
    agencies' performance budgeting capabilities is critical to meet a
    key expectation of the act-that decisionmakers understand what is
    being achieved in relation to what is being spent. Agencies cannot
    credibly set performance goals without understanding what
    resources are needed to achieve them. Correspondingly, these goals
    will be of little value to congressional appropriations decisions
    without a connection to the resources that agencies are
    requesting. The Results Act actually defines two different
    approaches regarding performance budgeting. First, the act
    requires "each agency to prepare an annual performance plan
    covering each program activity set forth in the budget of such
    agency." The Congress intended this provision to establish a
    direct annual link between plans and budgets. To prevent
    voluminous presentations, agencies are permitted to aggregate,
    disaggregate, or consolidate the program activities in their
    budgets, so long as any major function or operation of the agency
    is not omitted or minimized. The Office of Management and Budget's
    (OMB) subsequent guidance regarding this provision of the act set
    forth an additional criterion: plans should display, generally by
    program activity, the funding level being applied to achieve
    performance goals.5 In effect, OMB's guidance expected performance
    plans to indicate how amounts shown for program activities in an
    agency's budget request would be allocated to the performance
    goals displayed in the performance plan.6  Testifying on the
    Results Act prior to its passage, the Director of OMB
    characterized this requirement of the act as a "limited-but very
    useful-form of performance budgeting ..."7 In addition to
    mandating a direct link between budget requests and performance
    plans, the Results Act also required that a second approach to
    performance budgeting be piloted. Specifically, the Director of
    OMB, in consultation with the head of each agency, was required to
    designate for fiscal years 1998 and 1999 at least five agencies to
    prepare budgets that "present, for one or more of the major
    functions and operations of the agency, the varying levels of
    performance, including outcome-related 5OMB Circular A-11, Sec.
    220.9(e), June 23, 1997. 6Subsequently, in its guidance on fiscal
    year 2000 plans, OMB noted that it expected to see "significant
    progress in associating funding with specific performance goals or
    sets of goals" in agencies' plans. 7Government Performance and
    Results Act of 1993, Committee on Governmental Affairs, United
    States Senate, S. Rpt. No. 103-58, p. 19 (1993). Page 3
    GAO/T-AIMD/GGD-99-216 performance, that would result from
    different budgeted amounts."8 While the act required agencies to
    define goals consistent with the level of funding requested in the
    President's budget, these pilot projects would also show how
    performance would change if the agency received more or less than
    requested. OMB was to include the pilot performance budgets as an
    alternative presentation in the President's Budget for fiscal year
    1999. Subsequently, the Director of OMB is required to report to
    the President and to the Congress no later than March 31, 2001, on
    the feasibility and advisability of including a performance budget
    as part of the President's Budget. This report is also to
    recommend whether legislation requiring performance budgets should
    be proposed. However, as I will discuss in this testimony, the
    performance budgeting pilots required by the Results Act have not
    begun. Performance                       While the Results Act's
    design incorporates important lessons learned from Budgeting
    Efforts Face  previous initiatives, many challenges remain.  To a
    large extent, these challenges are inherent to a complex,
    political environment such as the Many Challenges
    federal government. For example, competing and at times
    conflicting goals, the variety of service delivery approaches, and
    the nature of federal budgetary commitments raise serious
    implementation concerns. Both the Congress and the executive
    branch must continue to explore what can be reasonably expected
    from performance budgeting. Performance budgeting assumes that
    performance goals can be defined and that valid and reliable
    performance measures can be developed. However, as we have noted
    previously, reaching a reasonable level of consensus on clear and
    precise goals will almost certainly encounter political hurdles.9
    In addition, goal definition and measure development are
    particularly challenging in the complex operating environment of
    the federal government. * Full or ultimate program outcome is
    typically not under the control of a single federal agency,
    complicating responsibility determinations and resource allocation
    decisions. In some cases, federal activities are but one-and often
    a small-component of total public and private sector 831 U.S.C.
    1119(b). 9See GAO/AIMD-97-46, March 27, 1997, and The Government
    Performance and Results Act: 1997 Governmentwide Implementation
    Will Be Uneven (GAO/GGD-97-109, June 2, 1997). Page 4
    GAO/T-AIMD/GGD-99-216 interventions in a given program area; in
    other cases, intended results cut across the activities of several
    agencies.10 In these situations, individual agency outcome
    measures could be incomplete and of limited value to budgetary
    deliberations. * Increasingly-in program areas ranging from child
    welfare to environmental protection-state and local governments,
    contractors, and other third parties are the delivery agents for
    federally financed activities. The efforts of these nonfederal
    actors-and their objectives and concerns-are often critical
    factors in determining whether program results are achieved. *
    Many federal activities, for example health and safety programs or
    research and development programs, achieve desired outcomes only
    over periods of many years. In such cases, relating these lengthy
    performance horizons to annual budget deliberations can raise
    special measurement questions. * Finally, the predominance of
    entitlement spending within the federal budget, in which federal
    spending is a function of statutory eligibility determinations,
    can cloud efforts to hold agencies accountable for results. In
    these types of programs, attention is often shifted from outcomes
    (e.g., assuring a certain standard of living) to specific process
    standards (e.g., ensuring correct and prompt payments to
    individuals). The high stakes involved in budgetary decisions
    further complicate the development and use of outcome measures.
    Introducing such measures into resource allocation processes
    before a reasonable level of consensus is achieved heightens the
    potential for bias toward favorable results.11 Recognizing this
    potential, the Results Act requires agencies to build procedures
    for verifying and validating performance measures into their
    plans. However, improvements in the quality of verification and
    validation discussions in agencies' plans are needed if the
    Congress is to have needed assurance that agencies' performance
    data will be credible.12 10See for example Combating Terrorism:
    Opportunities to Improve Domestic Preparedness Program Focus and
    Efficiency (GAO/NSIAD-99-3, November 12, 1998), Drug Treatment:
    Overview of Federal Programs (GAO/HEHS-98-237R, September 3,
    1998), and Homelessness: Coordination and Evaluation of Programs
    Are Essential (GAO/RCED-99-49, February 26, 1999). 11Program
    evaluation is critical to understanding and isolating an agency's
    impact on outcomes. For a discussion of performance measurement
    challenges, see Managing for Results: Measuring Program Results
    That Are Under Limited Federal Control (GAO/GGD-99-16, December
    11, 1998), Program Evaluation: Agencies Challenged by New Demand
    for Information on Program Results (GAO/GGD-98-53, April 24,
    1998), and Managing for Results: Analytic Challenges in Measuring
    Performance (GAO/HEHS/GGD-97-138, May 30, 1997). 12Managing for
    Results: An Agenda to Improve the Usefulness of Agencies' Annual
    Performance Plans (GAO/GGD/AIMD-98-228, September 8, 1998). Page 5
    GAO/T-AIMD/GGD-99-216 In addition to developing and using
    nonfinancial outcome measures, performance budgeting also requires
    an ability to understand how costs are related to outcomes.
    Reliable cost information is essential for Results Act
    implementation and was called for by the Chief Financial Officers
    (CFO) Act of 1990. Cost accounting standards developed by the
    Federal Accounting Standards Advisory Board (FASAB)13 require that
    agencies develop and implement cost accounting systems that can be
    used to relate the full costs of various programs and activities
    to performance outputs. Although these standards were originally
    to become effective for fiscal year 1997, the CFO Council-an
    interagency council of the CFOs of major agencies-requested the
    effective date be delayed for 2 years due to shortfalls in
    agencies' cost accounting systems. Ultimately, the effective date
    was extended by 1 year, to fiscal year 1998, but with a clear
    expectation that there would be no further delays. Agencies
    recognize the importance of cost accounting and other financial
    management systems in allocating funding to performance, but
    developing the necessary tools to gather and analyze needed
    program and activity-level cost information will be a substantial
    undertaking. For the most part, agencies are just beginning this
    effort and are already experiencing difficulties. For example, our
    audit of the Internal Revenue Service's (IRS) fiscal year 1998
    financial statements found that IRS does not consistently capture
    cost information in accordance with cost accounting standards.14
    Consequently, IRS was unable to reliably report cost-based
    performance measures. Similarly, the fiscal year 1998 audit of the
    Federal Aviation Administration's (FAA) financial statements found
    significant deficiencies in FAA's cost accounting systems. FAA
    does not expect to have a fully operational system until 2001.15
    Finally, performance budgeting efforts will almost always disclose
    tensions between budgeting and planning structures. As I mentioned
    earlier, the 13In October 1990, the nine member FASAB was
    established by the Secretary of the Treasury, the Director of OMB,
    and the Comptroller General of the United States to consider and
    recommend accounting standards to address the financial and
    budgetary information needs of the Congress, executive agencies,
    and other users of federal financial information. Once FASAB
    recommends accounting standards, the Secretary of the Treasury,
    the Director of OMB, and the Comptroller General decide whether to
    adopt the recommended standards. If they are adopted, the
    standards are published as Statements of Federal Financial
    Accounting Standards by OMB and GAO. 14Financial Audit: IRS'
    Fiscal Year 1998 Financial Statements (GAO/AIMD-99-75, March 1,
    1999). 15Federal Aviation Administration: Financial Management
    Issues (GAO/T-AIMD-99-122, March 18, 1999). Page 6
    GAO/T-AIMD/GGD-99-216 Results Act requires agencies to link
    performance goals to their program activity structures, which form
    the basis for their budget requests. This requirement is aimed at
    assuring a simple, straightforward connection among goals,
    budgets, and performance information. However, achieving this link
    is dependent on the capacity of agencies' program activity
    structures to meet dual needs. These budget structures have
    evolved to help the Congress control and monitor agency activities
    and spending and, as such, are geared more to fostering
    accountability for inputs and outputs within the control of
    agencies.16 On the other hand, performance plans need to be broad
    and wide-ranging if they are to articulate the missions and
    outcomes agencies seek to influence. Strategies for bringing
    budgeting and planning structures together must balance both sets
    of needs and values. For example, planning structures and
    presentations that bore no connection to budget structures and
    presentations hampered performance budgeting initiatives prior to
    the Results Act. In the fiscal year 1999 performance plans,
    agencies attempted to bring these structures and presentations
    together by (1) changing budget structures to more closely align
    them with goals in the performance plan, (2) using the budget
    justification to provide more details on goals contained in their
    performance plans, or (3) using crosswalks or tables to show
    relationships between planning and budgeting structures. The
    Postponement of     Many of the challenges I have just described
    were evident in OMB's Performance             decision to delay
    the performance budgeting pilots required by the Results Act. The
    performance budgeting pilots were scheduled to start in fiscal
    Budgeting Pilots        year 1998-four years after initiation of
    the act's pilot projects for performance plans and reports-"so
    that they would begin only after agencies had sufficient
    experience in preparing strategic and performance plans, and
    several years of collecting performance data."17 In this context,
    and indicating the importance of concentrating on governmentwide
    implementation in fiscal year 1998, the Director of OMB in his
    statutorily required May 1997 report on Results Act implementation
    announced that the pilots would be delayed for at least a year.
    The Director stated that the performance budgeting pilots would
    require the ability to calculate the 16Budget Account Structure: A
    Descriptive Overview (GAO/AIMD-95-179, September 18, 1995). 17S.
    Rpt No. 103-58, p. 38. Page 7
    GAO/T-AIMD/GGD-99-216 effects on performance of marginal changes
    in cost and funding. According to OMB, very few agencies had this
    capability, and the delay would give time for its development.
    Subsequently in September 1998, OMB suggested possible formats and
    time frames for the pilots in a discussion paper sent to federal
    agencies. In this document, OMB noted that pilot projects would
    not be designated unless they could "fairly test the [Results
    Act's] concept of performance budgeting," which the discussion
    paper described as "the application of multi-variate or
    optimization analysis to budgeting." The paper described three
    analytical alternatives that could be tested, involving
    performance tradeoffs (1) in the same program with changes in
    program funding, (2) in the same program with no change in total
    program funding, or (3) in several programs with shifts in intra-
    agency funding between these programs. OMB solicited agencies'
    comments on the discussion paper and on their capability to
    produce the alternative budgets suggested in the committee report
    accompanying the Results Act. However, according to OMB, no agency
    volunteered to participate. In its discussion paper, OMB stated
    that "the absence of designated pilots or having fewer
    designations than required would be an indication of agency
    readiness to do performance budgeting, and would be discussed in
    the OMB report to Congress," which is required on March 31, 2001.
    Agencies' reaction to the performance budgeting pilots reaffirms
    the challenges and tensions that performance budgeting will face
    within the federal government. Whether due to imprecise goal
    definitions, the absence of valid and reliable financial and
    nonfinancial performance information, uncertainty concerning the
    relationship between agency activities and desired outcomes, or a
    lack of priority attention, no federal agency was prepared to
    associate itself with pilot projects that appeared to mechanically
    link resources to results. Although not required to do so, OMB has
    not publicly communicated agencies' reactions to the discussion
    paper or agencies' reasons for declining to participate in the
    pilots. As a result, it has been over 2 years since OMB reported
    to the Congress on challenges facing these pilots, and more
    information is needed to determine not only the viability of the
    pilots but also the direction that federal performance budgeting
    efforts can and should take. In effect, an opportunity to better
    understand the specific challenges facing the Results Act's
    performance budgeting pilots has been missed. Page 8
    GAO/T-AIMD/GGD-99-216 OMB Can Take Steps to  Despite the
    postponement of the performance budgeting pilots, our review
    Achieve the Intent of           of agencies' performance plans
    shows that some agencies have been able to develop approaches to
    make perhaps a more basic, but still useful, the Pilot Projects
    connection between proposed spending and expected performance. The
    experience of these agencies during the first two performance
    planning cycles under the Results Act can provide a valuable
    foundation for future efforts to more closely demonstrate the
    performance consequences of budgetary decisions. In summary, we
    found that 30 of the 35 fiscal year 1999 agency performance plans
    we reviewed defined some relationship between program activities
    and performance goals, as called for by the Results Act.18
    However, only 14 of these plans translated this relationship into
    budgetary terms by (1) identifying the proposed funding level
    needed to achieve a discrete set of performance goals and (2)
    describing how that funding had been derived from the program
    activities in the agencies' budget requests. Figure 1 illustrates
    the relationship between resources and results that was expressed
    by 1 of the 14 agencies-the Nuclear Regulatory Commission (NRC).
    As shown in this figure, NRC not only indicated that it would need
    $211 million to achieve the nuclear reactor safety performance
    targets described in its plan but also explained that the $211
    million had been derived from a single program activity in its
    budget request. As a result, NRC's plan not only indicates the
    estimated cost of a given level of performance but also shows
    which goals would be primarily affected by changing the level of
    program activity funding from NRC's proposal. 18See GAO/AIMD/GGD-
    99-67, April 12, 1999. We could not determine linkages between
    program activities and performance goals for five agencies from
    the information provided in their performance plans. Page 9
    GAO/T-AIMD/GGD-99-216 Figure 1:  The Nuclear Regulatory Commission
    Aligns Budget and Planning Structures to Create a Simple
    Relationship Between Program Activities and Performance Goals 15&
    EXGJHW DFFRXQWV DQG                                     15&
    VWUDWHJLF JRDOV DQG SURJUDP DFWLYLWLHV
    SHUIRUPDQFH JRDOV Salaries and expenses account
    Strategic goal: nuclear reactor safety ($211) 1.  Nuclear reactor
    safety ($211)               Performance goals: * Goal I.A - zero
    civilian nuclear reactor accidents 2.  Nuclear materials safety
    ($49)                   * Goal I.A.1- maintain low frequency of
    events which could lead to a severe accident 3.  Nuclear waste
    safety                             * Goal I.B- zero deaths due to
    radiation or radioactivity releases from civilian nuclear reactors
    4.  Common defense and security and                  * Goal I.B.1-
    zero significant radiation exposures due international involvement
    to civilian nuclear reactors 5.  Protecting the environment
    Strategic goal: nuclear materials safety ($49) 6.  Management and
    support Performance goals: * Goal II.A- zero radiation-related
    deaths due to civilian use of source, byproduct, and special
    nuclear materials * Goal II.A.1- no increase in the number of
    significant radiation exposures due to loss or use of source,
    byproduct, and special nuclear materials * Goal II.A.1.a- no
    increase in the number of losses of licensed material as reported
    to Congress annually * Goal II.A.1.b- no accidental criticality
    involving licensed material. * Goal II.A.2- no increase in the
    number of misadministration events which cause significant
    radiation exposures Note: Dollars in millions. Source: GAO
    analysis based on NRC's fiscal year 1999 performance plan and
    Budget of the United States Government Fiscal Year 1999-Appendix.
    We also looked across these 35 plans to determine whether agencies
    and their plans shared common characteristics. We found that three
    approaches, either alone or in combination, were used more
    frequently by the 14 agencies that were able to relate resources
    to results.19 These agencies more often (1) showed simple, clear
    relationships between program activities and performance goals,
    (2) fully integrated performance plans into congressional budget
    justifications, or (3) changed their budget program activity
    structures to reflect the goal structures in their performance
    plans. 19In this review, we did not assess the quality of the
    goals presented in the plans or independently verify the funding
    levels associated with the goals. Page 10
    GAO/T-AIMD/GGD-99-216 NRC adopted each of these approaches. As
    figure 1 shows, NRC presented a simple one-to-many relationship
    between its program activities and its performance goals in its
    fiscal year 1999 performance plan.20 The allocation of funding to
    performance goals in the NRC plan was essentially automatic
    because each of the agency's program activities generally aligns
    with a strategic goal and its supporting performance goals. This
    alignment was facilitated by NRC's decision to change its budget
    structure to align with its strategic goals, as shown in figure
    1.21 For the fiscal year 2000 performance plan, NRC maintains the
    relationships shown in figure 1 while fully integrating its
    performance plan and budget justification.22 Information
    traditionally contained in a budget justification, such as
    descriptions of accounts and their funding, was combined with
    performance information such that the NRC budget justification and
    plan could not be separated. In contrast, other agencies, such as
    the Department of Veterans Affairs (VA), did not identify the
    funding levels needed to achieve performance goals and associated
    numerous program activities with numerous performance goals in
    their fiscal year 1999 performance plans-a "many-to-many"
    presentation that did not indicate the performance consequences of
    the agencies' budget requests. Like some other agencies, VA has
    noted that it is considering changes to its budget structure to
    improve its ability to relate resources and results. Although they
    used some common approaches, the 14 agencies that connected
    budgetary resources to results represented a range of federal
    missions, including agencies providing services directly to the
    public (e.g., IRS), those principally involved in grant or loan
    making (e.g., the U.S. Agency for International Development), and
    some with principally a regulatory mission (e.g., NRC). Similarly,
    these agencies achieved linkages despite varying planning and
    budgeting structures. The relative complexity of these structures-
    measured in terms of the number and layers of goal structures, and
    the number of budget accounts and program activities and
    concentration of funding within those accounts-did not appear to
    be a significant factor in an agency's ability to relate proposed
    resources to expected results. 20Figure I.2 in appendix I provides
    another illustration of a simple one-to-many relationship. 21As
    shown in figure I.3 in appendix I, the Environmental Protection
    Agency proposed an alignment of its program activities and
    strategic goals. 22Figure I.4 in appendix I provides an
    illustration of another agency that fully integrated its
    performance plan and budget justification. Page 11
    GAO/T-AIMD/GGD-99-216 During our preliminary review of the fiscal
    year 2000 plans for the same 35 agencies, we have noted little
    change in the overall number of agencies clearly relating
    resources to results. But, it does appear that some progress is
    being made in presenting the performance consequences of budgetary
    decisions. For example, more fiscal year 2000 plans associated
    funding levels with specific performance goals, although in many
    cases these funding levels were not linked back to the program
    activities in agencies' budget requests. The extent of agencies'
    progress in linking plans and budgets is not surprising;
    translating the use of agency resources into concrete and
    measurable results will be a continual challenge that will require
    both time and effort. However, based on our review of the first
    two cycles of performance planning under the Results Act, we
    believe that the approaches being developed by some agencies
    provide a valuable foundation for further experimentation in
    identifying useful methods to connect planning and budgeting
    structures. Some of these approaches- such as those used by NRC,
    the Administration for Children and Families, the Health Resources
    and Services Administration, and IRS-are illustrated in figure 1
    and appendix I to this testimony. In fact, agency efforts to link
    performance goals and program activity funding essentially
    constitute a first step toward achieving the intent of the
    performance budgeting pilots. As defined by the Congress, the
    original intent for the act's pilot projects was twofold: to allow
    OMB and agencies to develop experience and capabilities towards
    realizing the potential of performance budgeting, and to provide
    OMB with a basis for reporting to the Congress on next steps and
    needed changes. In addition to providing some practical experience
    with the concept of performance budgeting, agencies' fiscal year
    1999 and 2000 performance plans also provide a baseline from which
    OMB could assess progress and determine what changes, if any, may
    be needed to the act and federal budget processes. OMB is the lead
    agency for overseeing a framework of recently enacted reforms
    designed to improve the effectiveness and responsiveness of
    federal agencies.23 Thus, OMB should be well-situated to assess
    (1) the practicality of performance budgeting pilots as currently
    defined in the law, 23The Results Act: Observations on the Office
    of Management and Budget's July 1997 Draft Strategic Plan
    (GAO/AIMD/GGD-97-169R, August 21, 1997). Page 12
    GAO/T-AIMD/GGD-99-216 (2) agency approaches and continuing
    challenges to linking budgetary resources and performance goals,
    and (3) options to encourage progress in subsequent planning and
    budgeting cycles. In light of the delay of the performance
    budgeting pilots required by the Results Act and the experiences
    of agencies during the fiscal year 1999 performance planning and
    budgeting cycle, we recommended in April 1999 that the Director of
    OMB assess the approaches agencies used to link performance goals
    and program activities in the fiscal year 2000 performance plans.
    OMB's analysis, building on our review of fiscal year 1999
    performance plans, should develop a better understanding of
    promising approaches and remaining challenges with respect to the
    concept of performance budgeting within the federal government.
    OMB's analysis should address, for example, * the extent of
    agencies' progress in associating funding with specific or sets of
    performance goals, * how linkages between budgetary resources and
    results can be made more useful to the Congress and to OMB, * what
    types of pilot projects might be practical and beneficial, and *
    when and how those pilot projects would take place. On the basis
    of this analysis, we recommended that OMB work with agencies and
    the Congress to develop a constructive and practical agenda to
    further clarify the relationship between budgetary resources and
    results, beginning with specific guidance for the preparation of
    agencies' fiscal year 2001 plans. We further recommended that this
    analysis and the resulting agenda become the foundation for OMB's
    report to the Congress in March 2001, as currently required by the
    Results Act, on the feasibility and advisability of including a
    performance budget as part of the President's Budget and on any
    other needed changes to the requirements of the act. In summary,
    Mr. Chairman, much can be learned from the initial efforts of some
    agencies to demonstrate the performance consequences of budget
    requests. Given the importance of performance budgeting to
    achieving the Results Act's full potential and the delay of
    performance budgeting pilots called for by the act, it is critical
    that promising approaches be explored and encouraged. The
    performance plans being developed under the Results Act show
    potential to inform the budget process and change the nature of
    its dialogue by more routinely introducing performance information
    into budgetary decision-making. To be sure, many challenges will
    remain-from defining outcome goals to developing effective
    performance measures and reliable cost information. Page 13
    GAO/T-AIMD/GGD-99-216 At the same time, the Results Act and, in
    fact, any performance budgeting initiative cannot be expected to
    eliminate conflict inherent in the political process of resource
    allocation. The linkage of performance plans and budget requests
    does not guarantee that decisions will be made solely on the
    grounds of performance-nor should they be, there are other
    important criteria. However, the absence of meaningful links can
    inhibit the usefulness of performance information for resource
    allocation decisions. Only through continued experimentation and
    the mutual efforts of the Congress and the executive branch will
    the potential, and limits, for performance budgeting within the
    federal government be determined. Mr. Chairman, this concludes my
    statement this morning. I would be pleased to respond to any
    questions you or other Members of the Subcommittee may have.
    Contact and        For information about this testimony, please
    contact Paul Posner at Acknowledgments    (202) 512-9573 or by e-
    mail at [email protected], or J. Christopher Mihm at (202) 512-
    8676 or by e-mail at [email protected]. Individuals making key
    contributions to this testimony included Michael J. Curro and
    Laura E. Castro. Page 14
    GAO/T-AIMD/GGD-99-216 Page 15    GAO/T-AIMD/GGD-99-216 Appendix I
    Illustrations of Approaches Used to Connect Resources to Results
    in Agencies' Fiscal Year 1999 Performance Plans
    Appendix I Figure I.1:   The Administration for Children and
    Families Crosswalks Program Activities to Performance Goals $&)
    EXGJHW DFFRXQWV DQG                           $&) VWUDWHJLF JRDOV
    VWUDWHJLF SURJUDP DFWLYLWLHV                       REMHFWLYHV  DQG
    SHUIRUPDQFH JRDOV Family support payments to states
    Strategic goal: account
    Increase economic independence and 1. State child support
    administrative         productivity for families costs ($2,749) 2.
    Federal incentive/ hold harmless                Strategic
    objective: payments to states ($469)
    Increase parental responsibility ($3,257) 3. Access and visitation
    grants ($10) 4. Payments to territories
    Performance Goals: * Increase the paternity establishment
    percentage 5. Repatriation
    among children born out-of-wedlock to 96 percent 6. Aid to
    families with dependent children          * Increase the
    percentage of cases having child benefit payments
    support orders to 74 percent 7. Emergency assistance
* Increase the collection rate for current support to 70 percent
    Children's research and technical                           *
    Increase the percentage of paying cases among assistance account
    arrearage cases to 46 percent 1. Federal parent locator service
    ($30)             * Increase the cost-effectiveness ratio (total
    dollars collected per dollar of expenditures) to $5.00 2. Training
    and technical assistance 3. Child welfare study 4. Welfare
    research 5. Evaluation of welfare to work 6. Evaluation of
    abstinence education Note: Dollars in millions.  Numbers may not
    add due to rounding. Source: GAO analysis based on the
    Administration for Children and Families' fiscal year 1999
    performance plan and Budget of the United States Government Fiscal
    Year 1999-Appendix. Page 16
    GAO/T-AIMD/GGD-99-216 Appendix I Illustrations of Approaches Used
    to Connect Resources to Results in Agencies' Fiscal Year 1999
    Performance Plans Figure I.2:  The Health Resources and Services
    Administration Creates a Simple Relationship Between Program
    Activities and Performance Goals +56$ EXGJHW DFFRXQWV
    +56$ VWUDWHJLF JRDOV DQG DQG SURJUDP DFWLYLWLHV
    SHUIRUPDQFH JRDOV Health resources and
    Strategic goals: services  account
    1. Eliminate health care disparities 2. Eliminate barriers to care
    3. Assure quality 20 program activities including:
    Performance goals: HIV/AIDS * Increase the number of clients
    served Activity 1: AIDS emergency relief grants ($490)
    by Title I grant programs by 7.5 percent * 3 other performance
    goals * Activity 2: HIV care grants to               Increase the
    number of clients receiving states ($670)
    anti-retro viral therapy to 57,500 * 5 other performance goals *
    Increase by 5 percent the number of Activity 3: HIV early
    clients receiving primary care services intervention services
    ($86)                 * 4 other performance goals 4 Other
    activities Note: Dollars in millions. Source: GAO analysis based
    on the Health Resources and Services Administration's fiscal year
    1999 performance plan and Budget of the United States Government
    Fiscal Year 1999-Appendix. Page 17
    GAO/T-AIMD/GGD-99-216 Appendix I Illustrations of Approaches Used
    to Connect Resources to Results in Agencies' Fiscal Year 1999
    Performance Plans Figure I.3:  The Environmental Protection Agency
    Proposed Aligning Budget and Planning Structures EPA budget
    accounts and                                 EPA strategic goals,
    program activities                              strategic
    objectives, and performance goals Science and technology account
    Strategic goal: clean air 1.  Clean air ($137)                  $4
    2.  Clean water 3.  Safe food
    Strategic objective: acid rain ($22) 4.  Preventing pollution 5.
    Waste management                              Performance goals:
    6.  Global and cross border                            * Maintain
    4 million tons of sulfur 7.  Right to know
    dioxide reductions from utility sources 8.  Sound science 9.
    Credible deterrent                                 * Maintain
    300,000 tons of nitrogen oxides reductions from coal-fired utility
    sources Environmental programs and management account
* Launch the nitrogen oxides Emissions 1.  Clean air ($169)
    $13               and Allowance Tracking System for the Ozone
    Transport Region * Other program activities corresponding to EPA's
    other strategic goals (similar to above) State and tribal
    assistance grants account 1.  Clean air ($201)                  $5
* Other program activities corresponding to EPA's other strategic
    goals (similar to above) Note: Dollars in millions. Source: GAO
    analysis based on the Environmental Protection Agency's fiscal
    year 1999 performance plan and Budget of the United States
    Government Fiscal Year 1999-Appendix. Page 18
    GAO/T-AIMD/GGD-99-216 Appendix I Illustrations of Approaches Used
    to Connect Resources to Results in Agencies' Fiscal Year 1999
    Performance Plans Figure I.4:   IRS Integrates Its Budget
    Justification and Performance Plan Processing, Assistance, and
    Management Account ($3,162) Program activity: Functions: This
    activity provides for the salaries, benefits, and related
    submission processing costs to process tax returns and
    supplemental documents, account for tax ($888) revenues, issue
    refunds and tax notices, develop and print tax returns and
    publications . . .  Also included are resources to: process
    information returns such as wage, dividend, and interest
    statements; provide for payment of refunds . . . identification of
    possible non-filers for investigation; and, provide tax returns
    for audits . . . Performance goal #1:                 Performance
    goal #2:                Performance goal #3: Improve customer
    service               Increase compliance                Increased
    productivity Performance measure:                  Performance
    measure:                Performance measure: Number of individual
    211.8 million primary returns       19.5 percent of individual
    refunds issued will equal             processeda
    returns filed electronically 93.3 milliona Performance measure:
    Performance measure: Refund timeliness--paper
    78.2 percent of dollars 40 days
    received electronically 5 other performance
    Performance measure: measures
    70.9 percent dollars received via third party processors aIRS
    noted that this is a projection for budget purposes and is not
    used in the agency's business review. Note: Dollars in millions.
    Source: GAO analysis based on Internal Revenue Service's fiscal
    year 1999 performance plan. (935323)    Letter    Page 19
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