The World Bank F e b r u a r y PREMnotes 2 0 0 3 n u m b e r 7 8 Public Sector Performance-based budgeting: beyond rhetoric Performance-based budgeting seeks to link performance measures to resource allocations. Though such links are often weak, information on performance enhances policy debates. It also helps governments in other ways--particularly if used as part of a managing for results approach. Performance-based budgeting has long raising questions about the potential ben- been a recommended reform in both indus- efits of this approach. trial and developing countries. Yet consid- These limitations ground the debate on Despite widespread erable ambiguity remains on how to define performance-based budgeting at a more and implement this approach. realistic level than much of the reform claims, the likely A relatively strict definition is that per- rhetoric. This point is relevant to World formance-based budgeting allocates Bank work and recommendations on pub- benefits of resources based on the achievement of spe- lic sector reforms. A need exists for a clear, cific, measurable outcomes (Fielding agreed definition of what performance- performance-based Smith 1999). This definition promises a based budgeting means and what it is likely rational, mechanistic link between per- to achieve. budgeting are not formance measures and resource alloca- The Government Performance Project tions, with the ability to state the level of of Syracuse University tracked the perfor- always clear outputs that can be achieved with an addi- mance-based budgeting efforts of all U.S. tional amount of resources. But outputs states (see http://www.maxwell.syr.edu/gpp/). cannot always be quantified precisely-- Although many states say that they use such and while performance information offers budgeting at some level, there is no stan- benefits to governments, it cannot elimi- dard definition or process for what it entails. nate the inherently political nature of What state governments share are weak links budgeting. between performance measures and resource allocations. Performance measures The U.S. experience are not used systematically; rather, they are Over the past decade U.S. state governments just one of many factors considered by leg- have experimented extensively with per- islators when approving budgets. Moreover, formance-based budgeting. Yet while 47 of legislators are more likely to cite perfor- 50 states claim to use some form of it, dri- mance measures when they align with con- ven by legislative or administrative require- stituent interests. ments, there is no evidence that any state Under one scenario for performance- relies on a strict performance-based system. based budgeting, resource allocations Even though U.S. state governments have depend on the previous year's performance. fairly high human and financial capacity, In theory, then, agencies that achieve a large they have encountered limitations in imple- portion of their performance targets receive menting performance-based budgeting-- more funding, while agencies that perform from the development economics vice presidency and pover ty reduction and economic management n e t w o r k poorly see their funding cut. But that usually Benefits of performance-based does not happen in U.S. states. One reason budgeting may be the difficulty of creating a fair system Based on the U.S. experience, it is not open to "gaming" of performance mea- misleading to push performance-based bud- sures due to information asymmetries. In its geting as a reform that provides a mechan- response to a 2001 survey by the Government ical link between budgets and performance. Performance Project, the state of Hawaii But performance-based budgeting can offers an even more compelling reason: offer benefits--once it is accepted that the links between performance measures and When resources are limited or insuffi- resource allocations are not automatic and cient, the link between performance mea- are subject to political choices. For exam- sures and resource allocation becomes ple, performance measures can enrich pol- The links between blurred. Even if a program "performs icy debates, making legislators more likely well," commensurate funding may not be to ask questions about outputs and out- performance forthcoming if it is considered a marginal comes linked to public spending. function of government. Conversely, less The preceding discussion focused on the measures and cost-effective or "poorly-performing" pro- use of performance measures at the budget grams may continue to be funded if these approval stage, but performance-based bud- resource are "essential" government functions-- geting can also affect budget preparation. such as education, welfare or prisons. The Government Performance Project allocations are found that in states where legislators use Indeed, the Government Performance performance information, it is also used by subject to Project found that legislators often take into line agencies in preparing budget requests account performance measures when poor and by budget offices responsible for exec- political choices performance outcomes are identified and utive branch budget proposals. tied to requests for increased funding. In Okla- homa, for example, the number of uninsured Moving toward managing for children was used as an indicator of health results care access. Elected officials quickly deter- Recognizing the limits of performance-based mined that this number was unacceptably budgeting, U.S. state governments have taken high and reallocated state funding from Med- other steps to improve performance. Most icaid--the U.S. government's health care rely on a wider perspective, choosing to "man- entitlement program for poor people--to age for results." This approach suggests that target young children and pregnant women. performance information--meaning strate- What explains the loose links between gic goals as well as performance measures-- performance measures and resource allo- should be used in a number of ways, including cations? One reason is that budgeting is (but not only) guiding resource allocation. inherently political, and legislators are reluc- Managing for results is similar to other tant to cede their budgetary discretion to a approaches that emphasize government "rational" performance-based budgeting sys- performance, such as results-oriented man- tem. But the Government Performance Pro- agement and evaluation, results-based man- ject found other reasons legislators are often agement, and governing for results. reluctant to use performance measures. Dis- Inherent in all these approaches is the trust of performance data prepared by the idea of devolving responsibility while executive branch has led many states to cre- demanding accountability for results. Other ate or extend a performance auditing func- basic elements of managing for results are: tion to verify data. In addition, legislators · Strategic planning--identifying core mis- are less likely to use performance measures sions and goals of government. if they were not involved in creating them. · Performance information--using gov- Thus some states are increasingly involving ernment measures to manage and legislators in choosing such measures. improve performance. PREMnote 78 Februar y 2003 Strategic planning Increasing public accountability. Although Strategic planning should be the first part many governments make performance of managing for results, identifying what information available, some try harder to is important to measure and legitimizing make it understandable and accessible. the measures selected. Some governments Beyond political debates and media cover- begin to measure performance without such age, performance information can be com- planning, creating a high risk that measures municated to the public in a range of ways, will be of questionable value. By identifying including through budgets, strategic plans, and prioritizing desired outcomes, strate- and performance reports. Some U.S. states, gic planning also provides a policy frame- such as Missouri and Virginia, provide exten- work for government spending in the sive performance data on government Web medium term. sites. Such information, especially outcome U.S. states use three main approaches results, can spark public debate on the qual- Performance to strategic planning: a governmentwide ity of government services. strategic plan, a set of agency strategic information can plans, and presentation of strategic goals Managing for better performance. Perfor- through the budget. The three approaches mance information is most widely used by increase public are often used simultaneously, but some- managers seeking to improve the opera- times with few links between the goals that tional efficiency of their programs and work accountability and emerge from each. An exception is Vir- processes. Encouraging managers to use ginia, where strategic planning is linked performance information in this way improve public with other efforts to improve performance. appears to provide the most direct link Virginia has an overall performance man- between performance information and services agement system comprising four linked increased efficiency and service quality. This processes: strategic planning, performance approach contrasts with negative uses of measurement, program evaluation, and performance information, such as for indi- performance budgeting. All of Virginia's vidual punishments or rewards--which risk government agencies participate in the encouraging evasion or exploitation of the statewide strategic plan issued every four system rather than genuine improvements years. The goals in the plan form the basis in performance. for performance measures and budget Measures of efficiency, workloads, service requests. quality, and customer satisfaction are the Oregon is another leader in statewide most relevant to managing for better per- strategic planning. In 1989 it created the formance. These measures can be used to Oregon Shines strategic plan, which set performance targets and devise strategies includes short- and long-term goals for qual- to achieve those targets, to track performance ity of life issues and government services. over time, to benchmark performance The goals are typically outcomes, and all are against other organizations, and to develop explicitly linked to state programs. Citizens performance contracts with government participated extensively in the creation of employees and the private sector. the plan, and it remains a highly visible state- ment of government policy. Over time the Improving resource allocations. Under strict number of goals was cut from 259 to 100, performance-based budgeting, resource reflecting concerns that too many goals lim- allocations are linked to performance mea- ited the public sector's ability to focus on sures. Managing for results, by contrast, calls the most important. for a looser link between the two, with per- formance information guiding (but not Performance information determining) resource allocations. In managing for results, state governments Linking strategic planning to resource have identified three main uses for perfor- allocation is a basic requirement for a goal- mance information. led version of resource allocation. Virginia PREMnote 78 Februar y 2003 shows ways of making this link. Agencies Further reading submit both performance measures and Fielding Smith, James. 1999. "The Bene- strategic goals in their budget proposals. fits and Threats of PBB: An Assessment The proposals must show how they are of Modern Reform." Public Budgeting and linked to the strategic priorities of the Finance 19 (3): 3­15. agency and of Virginia's governor, and indi- Hatry, Harry P. 1999. Performance Measure- cate performance targets associated with ment: Getting Results. Washington, D.C.: the requested funding. A recently intro- Urban Institute. duced support system, the Commonwealth Ingraham, Patricia W., and Donald P. Moyni- Fiscal Advisor, helps decisionmakers allo- han. 2001. "Beyond Measurement: Man- cate resources among agencies. The system aging for Results in State Government." requires budget analysts to assess the In Dall Forsythe, ed., Quicker, Better, Performance urgency of each agency's budget request, Cheaper? Managing Performance in Ameri- its relationship to strategic planning prior- can Government. Albany, N.Y.: Rockefeller information gives ities, its importance to the administration's Institute. policy objectives, and the risk or uncertainty Tryens, Jeffrey. 1997. Aligning Government decisionmakers of its cost estimates. This approach ensures Priorities with Societal Hopes and Expecta- that all budget proposals are analyzed using tions: Oregon's Strategic Planning information they the same criteria and that their relative Model. Paris: Organisation for Economic importance is highlighted. Co-operation and Development. need for [http://www.oecd.org/puma/mgmtres/ Conclusion pac/account/TRYENENG.pdf]. evidence-based Though most U.S. state governments claim Virginia Department of Planning and Bud- to use performance-based budgeting, per- get. 2002. "Virginia Results." Richmond, policymaking formance measures and resource alloca- Va. [http://www.dpb.state.va.us/ tions are usually not closely linked. The links VAResults/VRHome.html]. between performance information and bud- get formulation are more multifaceted than This note was written by Donald P. Moynihan a strict performance-based budgeting model (Assistant Professor, Bush School of Government allows. But while performance information and Public Service, Texas A&M University). The is just one consideration in the political findings presented here are from research con- process of budgeting, it gives decisionmak- ducted by the Government Performance Project, ers information they need for evidence- sponsored by the Alan K. Campbell Public Affairs based policymaking. Institute at Syracuse University. For more infor- Managing for results, rather than per- mation see http://www.maxwell.syr.edu/gpp/. formance-based budgeting, is a closer reflec- If you are interested in similar topics, consider tion of what is happening in U.S. state joining the Public Expenditures Thematic Group. government--drawing on strategic planning Contact Bill Dorotinsky (x37189) or Anand and various uses of performance informa- Rajaram (x82359), or click on Thematic Groups tion to increase accountability and efficiency. on PREMnet. This note series is intended to summarize good practice and key policy find- ings on PREM-related topics. The views expressed in these notes are those of the authors and do not necessarily reflect the views of the World Bank. PREMnotes are distributed widely to Bank staff and are also available on the PREM website (http://prem). If you are interested in writing a PREMnote, email your idea to Madjiguene Seck. 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