oversight

Performance Budgeting: Past Initiatives Offer Insights for GPRA Implementation

Published by the Government Accountability Office on 1997-03-27.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                 United States General Accounting Office

GAO              Report to Congressional Committees




March 1997
                 PERFORMANCE
                 BUDGETING
                 Past Initiatives Offer
                 Insights for GPRA
                 Implementation




GAO/AIMD-97-46
      United States
GAO   General Accounting Office
      Washington, D.C. 20548

      Accounting and Information
      Management Division

      B-275095

      March 27, 1997

      The Honorable Fred Thompson
      Chairman
      The Honorable John Glenn
      Ranking Minority Member
      Committee on Governmental Affairs
      United States Senate

      The Honorable Dan Burton
      Chairman
      The Honorable Henry A. Waxman
      Ranking Minority Member
      Committee on Government Reform and Oversight
      House of Representatives

      Since 1950, the federal government has attempted several governmentwide
      initiatives designed to better align spending decisions with expected
      performance—what is often commonly referred to as “performance
      budgeting.”1 Consensus exists that all of these efforts, whether launched
      by the legislative or executive branch, failed to shift the focus of the
      federal budget process from its longstanding concentration on the items of
      government spending to the results of its programs.

      In 1993, the Congress enacted the Government Performance and Results
      Act (GPRA) to improve the effectiveness, efficiency, and accountability of
      federal programs by having agencies focus their management practices on
      program results. Through better information on the effectiveness of
      federal programs and spending, GPRA seeks to help federal managers
      improve program performance; it also seeks to make performance
      information available for congressional policy-making, spending decisions,
      and program oversight. With regard to spending decisions, GPRA aims for a
      closer and clearer linkage between resources and results. In this sense
      GPRA can be seen as the most recent event in a now almost 50-year cycle of
      federal government efforts to improve public sector performance and to
      link resource allocations to performance expectations.

      GPRA mandates that GAO review the implementation of the Act’s many
      requirements and comment on the prospects for compliance by federal

      1
       In this report, we use the term “performance budgeting” to refer generally to the process of linking
      expected results to budget levels, but not to any particular approach. As discussed in the body of this
      report, both the concept and techniques of performance budgeting have evolved considerably since
      1950.



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                       agencies as governmentwide implementation begins in 1997. This report is
                       one component of GAO’s response to that statutory mandate.2 Specifically,
                       this report compares and contrasts the key design elements and
                       approaches of GPRA with those of past initiatives which also sought to link
                       resources with results, a concept generally termed performance
                       budgeting.3 A principal hypothesis of our work was that understanding
                       past initiatives can aid the Congress in anticipating future implementation
                       challenges for GPRA.

                       In addition to an extensive literature review of past initiatives and GPRA,
                       we convened panels of agency officials and legislative staff involved in
                       GPRA implementation, as well as academic and other experts familiar with
                       GPRA and some of the prior initiatives. Panelists were asked to comment on
                       a set of challenges we identified for GPRA implementation from our review.
                       Throughout this report, we refer to these panelists by their affiliation with
                       a particular branch of government or as “experts” due to their background
                       in budgeting and public administration. Although not necessarily complete
                       or generalizable, the views expressed by the panelists cover a broad range
                       of perspectives reflecting multiple congressional committee jurisdictions
                       and a wide range of executive departments and agencies. Lastly, we
                       discussed this report with senior officials from the Office of Management
                       and Budget (OMB). They proposed several technical adjustments, which we
                       have incorporated as appropriate.


                       In its overall structure, focus, and approach, GPRA incorporates critical
Results in Brief       lessons learned from previous efforts. Nevertheless, many of the same
                       issues encountered in previous initiatives remain and will likely pose
                       significant challenges if GPRA is to achieve its aim of better linking resource
                       decisions to performance levels.

                   •   Where past efforts failed to link executive branch performance planning
                       and measurement with congressional resource allocation processes, GPRA
                       requires explicit consultation between the executive and legislative
                       branches on agency strategic plans. Past initiatives’ experiences suggest
                       that efforts to link resources with results must begin in the planning phase


                       2
                        For additional discussion of GPRA implementation issues, see Executive Guide: Effectively
                       Implementing the Government Performance and Results Act (GAO/GGD-96-118, June 1996); Managing
                       for Results: Achieving GPRA’s Objectives Requires Strong Congressional Role (GAO/T-GGD-96-79,
                       Mar. 6, 1996); GPRA Performance Reports (GAO/GGD-96-66R, Feb. 14, 1996); and Managing for
                       Results: Status of the Government Performance and Results Act (GAO/T-GGD/AIMD-95-193, June 27,
                       1995).
                       3
                        As discussed in the body of this report, GPRA requires performance budgeting pilots that present the
                       anticipated levels of outputs and outcomes that would result from varying spending levels.


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    with some fundamental understanding about program goals. The challenge
    for those implementing GPRA will be to ensure that consultations are
    substantive and address the sometimes conflicting and competing goals of
    federal programs and the differing expectations of participants.
•   Where past initiatives devised unique performance information formats
    often unconnected to the structures used in congressional budget
    presentations, GPRA requires agencies to plan and measure performance
    using the “program activities” listed in their budget submissions.4
    However, program activity structures vary throughout the federal
    government, and the extent to which current structures can support both
    GPRA performance planning needs and congressional budget
    decision-making is also likely to vary.
•   Where past initiatives were generally unprepared for the difficulties
    associated with measuring the outcomes of federal programs and often
    retreated to simple output or workload measures, GPRA states a preference
    for outcome measurement while recognizing the need to develop a range
    of measures, including output and nonquantitative measures.5 Focusing on
    outcomes shifts the definition of accountability from the traditional focus
    on inputs, processes, and projects to a perspective centered on the results
    of federal programs. However, the difficulties associated with selecting
    appropriate measures and establishing relationships between activities
    and results will continue to make it difficult in many cases to judge
    whether changes in funding levels will affect the outcomes of federal
    programs.

    Our discussions with selected legislative staff and agency officials
    revealed fundamental differences in perspective and expectations that are
    often a necessary consequence of our system of separated powers. For
    example, legislative staff concentrated on their oversight role and stressed
    near-term program performance, consistency over time in information
    presentations, and accountability. Conversely, executive agency officials
    stressed long-term goals, adaptability to changing needs, and flexibility in
    execution. Past initiatives often foundered because no mechanism existed
    to reconcile or even to address these legitimate but at times competing
    views. GPRA, through required consultations and formal, public documents,
    is intended to encourage an explicit and periodic exchange of views


    4
     The term “program activity” refers to the listings of projects and activities in the Appendix portion of
    the Budget of the United States Government. Program activity structures are intended to provide a
    meaningful representation of the operations financed by a specific budget account.
    5
     GPRA defines outcome measures as an assessment of the results of a program activity compared to
    its intended purpose. Output measures, conversely, refer to the tabulation, calculation, or recording of
    activity or effort, such as checks processed or students enrolled.



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                      between the branches; nevertheless the inherent challenges posed by our
                      system of checks and balances will inevitably and appropriately remain.

                      GPRA  differs from prior initiatives in two important respects. First, past
                      performance budgeting initiatives were typically implemented
                      governmentwide within a single annual budget cycle. GPRA, in contrast,
                      defines a multiyear and iterative governmentwide implementation process
                      that incorporates pilot tests and formal evaluations of key concepts. In this
                      manner, GPRA increases the potential for integration of planning,
                      budgeting, and performance measurement while guarding against the
                      unreasonably high expectations that plagued earlier initiatives. Second,
                      GPRA will face an operating environment unknown to its predecessors:
                      persistent efforts to constrain spending. This restrictive budgetary climate
                      can create an imperative for linking performance information to resource
                      decisions but will likely intensify existing differences in expectations
                      between executive and legislative branches.

                      Past initiatives demonstrate that performance budgeting is an evolving
                      concept that cannot be viewed in simple mechanistic terms. The process
                      of budgeting is inherently an exercise in political choice—allocating
                      scarce resources among competing needs and priorities—in which
                      performance information can be one, but not the only, factor underlying
                      decisions. GPRA is based on the premise that budget decisions should be
                      more clearly informed by expectations about program performance.
                      Ultimately this goal of linking resources with results implies both risks and
                      rewards. The risk lies in expecting too much too soon—for example, that
                      discrete outcomes can be associated with specific resource commitments,
                      or that performance information can quickly provide solutions to today’s
                      budgetary pressures. But rewards exist as well. GPRA holds the potential to
                      more explicitly infuse performance information into budgetary
                      deliberations, thereby changing the terms of the debate from simple inputs
                      to expected and actual results.


                      At the federal level, interest in performance budgeting has led to
Federal Initiatives   numerous initiatives since World War II, including four that were
Have Taken Varying    governmentwide in scope: (1) reforms flowing from the first Hoover
Approaches to         Commission in its efforts to downsize the post-World War II government,
                      (2) Planning-Programming-Budgeting-System (PPBS) begun in 1965 by
Performance           President Johnson, (3) Management by Objectives (MBO) initiated in 1973
Budgeting             by President Nixon, and (4) Zero-Base Budgeting (ZBB) initiated in 1977 by
                      President Carter. Each of these efforts established unique procedures for



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linking resources with results. The following discussion briefly
summarizes and relates each of these initiatives; appendixes II through V
provide additional background information.

First championed in 1949 by the Hoover Commission, a federal
“performance budget” was intended to shift the focus away from the
inputs of government to its functions, activities, costs, and
accomplishments. Rather than emphasizing items of expenditure—for
example, salaries, rent, and supplies—a performance budget was to
describe the expected outputs resulting from a specific function or
activity—for example, weapons, training, insurance claims, construction
projects, or research activities. Consistent with the Commission’s
recommendations, the Congress enacted the Budget and Accounting
Procedures Act of 1950 (BAPA), which, among other things, required the
President to present in his budget submission to the Congress the
“functions and activities” of the government, ultimately institutionalized as
a new budget presentation: “obligations by activities.” These presentations
were intended to describe the major programs, projects, or activities
associated with each federal budget request—in a sense, the “performance
budget” of a government which at that time was primarily involved in
directly providing specific goods and services.6 Workload and unit cost
information began to appear in the President’s Budget, associated with the
“obligations by activities” presentations, providing a means of publicly
reporting the outputs of federal spending.

The Planning-Programming-Budgeting-System (PPBS), mandated
governmentwide by President Johnson in 1965, assumed that different
levels and types of performance could be arrayed, quantified and analyzed
to make the best budgetary decisions. In essence, PPBS introduced a
decision-making framework to the executive branch budget formulation
process by presenting and analyzing choices among long-term policy
objectives and alternative ways of achieving them. Multiyear planning was
to be based on an agency’s “program structure,” which was to provide a
coherent statement of a national need, an agency’s directive to fill that
need, and the activities planned to meet it. Performance was generally
defined as agency outputs, with an agency’s program structure linking

6
 The Hoover Commission’s recommendation for a performance budget was first made a statutory
requirement applicable to the Department of Defense through the National Security Act Amendments
of 1949. President Truman’s fiscal year 1951 budget, released in January of 1950, was subsequently
hailed as the “first performance budget,” as it applied the Commission’s concepts governmentwide.
However, BAPA, which was enacted in the fall of 1950 and effectively institutionalized the President’s
1951 budget presentation, did not contain the phrase “performance budget.” During final debate, some
members argued that the term was redundant with the phrase “functions and activities” and could be
restrictive of future budget presentations.



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                                 outputs to long-term objectives. Systems analysis and other sophisticated
                                 analytical tools were an intrinsic part of PPBS, with measurement seen as
                                 an essential means to better understand federal outputs, benefits, and
                                 costs.

                                 Management by Objectives, which was primarily a federal management
                                 improvement initiative, ultimately sought to link agencies’ stated
                                 objectives to their budget requests. Initiated by President Nixon in 1973,
                                 MBO put in place a process to hold agency managers responsible for
                                 achieving agreed-upon outputs and outcomes. Agency heads would be
                                 accountable for achieving presidential objectives of national importance;
                                 managers within an agency would be held accountable for objectives set
                                 jointly by supervisors and subordinates. Performance was primarily
                                 defined as agency outputs and processes, but efforts were also made to
                                 define performance as the results of federal spending—what would today
                                 be called “outcomes.”

                                 Zero-Base Budgeting (ZBB) was an executive branch budget formulation
                                 process introduced into the federal government in 1977 by President
                                 Carter. Its main focus was on optimizing accomplishments available at
                                 alternative budgetary levels. Under ZBB agencies were expected to set
                                 priorities based on the program results that could be achieved at
                                 alternative spending levels, one of which was to be below current funding.
                                 In developing budget proposals, these alternatives were to be ranked
                                 against each other sequentially from the lowest level organizations up
                                 through the department and without reference to a past budgetary base. In
                                 concept, ZBB sought a clear and precise link between budgetary resources
                                 and program results.


The Legacy of Past               Past initiatives, although generally perceived as having fallen far short of
Initiatives: The Evolution       stated goals, contributed to the evolution of performance-based
of Performance Budgeting         measurement and budgeting in the federal government. Many concepts
                                 first introduced by these initiatives became absorbed in the federal
                                 government and persisted long after their origins in PPBS, MBO, or ZBB had
                                 been forgotten.

                             •   Hoover Commission reforms ultimately led to permanent changes in the
                                 President’s budget presentations and a greater inclusion of performance
                                 information in the narrative summaries associated with each budget
                                 account. The “obligations by activities” presentations established in
                                 response to the Commission’s performance budgeting recommendations



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    continue today, although they are now referred to as “obligations by
    program activity” or, more informally, “program activities.”
•   PPBS and MBO fostered exploration of difficult performance measurement
    issues, ultimately demonstrating the inherent limitations of analysis in a
    political environment and the often complex and uncertain relationship
    between federal activities, outputs, and outcomes.
•   ZBB illustrated the usefulness of defining and presenting alternative
    funding levels and expanded participation of program managers in the
    budget process.

    When viewed collectively the past initiatives suggest two common themes.
    First, any effort to link plans and budgets—that is, to link the
    responsibility of the executive to define strategies and approaches with
    the legislative “power of the purse”—must explicitly involve both branches
    of our government. PPBS and ZBB faltered in large part because they
    intentionally attempted to develop performance plans and measures in
    isolation from congressional oversight and resource allocation processes.
    Since goals, objectives, and activities were not jointly discussed and
    agreed upon, there was no consensus on what performance should be,
    how to measure it, or how to integrate performance information with
    resource decisions.

    Second, the concept of performance budgeting has and will likely continue
    to evolve. Past initiatives illustrate a progression from the
    straight-forward, efficiency notion implicit in the Hoover Commission
    recommendations, through the increasingly complex and mechanistic
    processes of PPBS and ZBB. Budgeting is the process of making choices, and
    all of these initiatives sought to improve the rationality of budget choices
    by focusing on the results of activities—however those results might be
    defined. This history suggests that no single definition of performance
    budgeting encompasses the range of past and present needs and interests
    of federal decisionmakers. One commentator has summarized this reality
    as follows.

    “To a student of politics and of legislative bodies, it [performance budgeting] means . . . a
    presentation and review of budget requests in such a manner as to emphasize issues and
    make possible more effective choices. To a top administrator, it . . . also [means] greater
    flexibility and discretion in his operations, plus better control and accountability with
    regard to his subordinates. Down the line of an agency, it may mean a single source for
    funds, an enlargement of authority, flexibility, and responsibility in the use of funds. . . . To




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                            the accountant, it means accrual accounting, cost accounting, segregation of capital from
                            operating accounts, working capital funds, and many other techniques.”7


                            In other words, the multiplicity of definitions reflects the differences in the
                            roles various participants play in the budget process. And, given the
                            complexity and enormity of the federal budget process, performance
                            budgeting at the federal level will need to encompass a variety of
                            perspectives in its efforts to link resources with results.8


The Future of Performance   As the current federal initiative seeking to link resources to results, GPRA
Budgeting: The              seeks to involve all participants, directly ties plans and measures to budget
Government Performance      presentations, and centers attention on outcome performance
                            measurement. GPRA requires all federal agencies to set strategic goals in
and Results Act             consultation with the Congress and key stakeholders; develop plans for
                            program activities; measure performance; and annually report to the
                            President and the Congress on the degree to which goals were met.
                            Appendix VI contains additional information on GPRA’s purposes and
                            requirements.

                            GPRA  can be seen as melding the best features of its predecessors. Its
                            required connection to budget presentations harkens back to BAPA; its
                            interest in performance measurement and cross-agency comparisons
                            reflects PPBS; and its concern with outcomes and outputs emulates MBO. In
                            performance budgeting terms, GPRA avoids the mechanistic approaches of
                            previous efforts, notably PPBS and ZBB. The Senate committee report on
                            GPRA9 emphasized that although “this Act contains no provision authorizing
                            or implementing a performance budget,” it was imperative that the
                            “Congress develop a clear understanding of what it is getting in the way of
                            results from each dollar spent.” Recognizing that “it is unclear how best to
                            present [performance] information and what the results will be,” GPRA
                            requires pilot projects to develop alternative forms of performance
                            budgets.


                            7
                            Frederick C. Mosher, Program Budgeting: Theory and Practice with Particular Reference to the U.S.
                            Department of the Army (New York: American Book-Stratford Press, 1954), pp. 80-81.
                            8
                             This observation is not limited to the federal government. See Performance Budgeting: State
                            Experiences and Implications for the Federal Government (GAO/AFMD-93-41, February 17, 1993);
                            Using Performance Measures in the Federal Budget Process, prepared by the Congressional Budget
                            Office, July 1993; Joint Staff Report: Performance Budgeting, prepared by the Joint Budget Committee
                            and Office of State Planning and Budgeting, State of Colorado, September 20, 1995; and Budgeting for
                            Results: Perspectives on Public Expenditure Management, prepared by the Organisation for Economic
                            Co-operation and Development, 1995.
                            9
                             S. Rep. No. 103-58 (1993).



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                          As one observer has noted, “there is no magic bullet that will replace
                          budget judgement and budget policies with science.”10 Past initiatives
                          demonstrate that any link between performance information and resource
                          allocation decisions is unlikely to be straightforward. The implicit
                          presumptions of PPBS and ZBB—that systematic analysis of options could
                          substitute for political judgment—ultimately proved unsustainable. GPRA
                          recognizes that decisionmakers, rather than budget systems, must provide
                          judgments needed within a public sector context. That is, in a political
                          process, performance information can be one, but not the only factor in
                          budgetary choice; performance information can change the terms of
                          debate, but not necessarily the ultimate decision.

                          Finally, GPRA should be seen as part of a series of critical managerial and
                          financial reform efforts currently underway in the federal government that
                          share common goals of better management and accountability for results.
                          For example, the Chief Financial Officers Act and efforts by the Federal
                          Accounting Standards Advisory Board seek to increase public confidence
                          in government through improved financial reporting. These efforts will,
                          among other things, help achieve improved cost accounting and reliability
                          of data, essential steps in accurately matching resources to program
                          performance.


                          In its structure, focus, and approach, GPRA incorporates important lessons
Key Design Elements       from past federal performance budgeting initiatives. For example,
of GPRA Incorporate
Lessons From the      •   by requiring consultation between the executive and legislative branches
                          on overall agency goals and missions, GPRA addresses past failures to link
Past, but                 planning and goal setting processes with the congressional budget
Implementation            process;
                          by requiring use of program activities in agency budget requests as the
Challenges Remain     •
                          basis for performance planning and measurement, GPRA enhances
                          prospects for effective links with the budget; and
                      •   by emphasizing a range of performance measures that strive toward but do
                          not initially demand outcomes, GPRA provides a realistic framework for the
                          expectations and capabilities of performance measurement in the federal
                          environment.

                          Nevertheless, many of the challenges which confronted earlier efforts
                          remain unresolved and will likely affect early GPRA implementation efforts.
                          Agency officials, legislative staff, and other experts we met with

                          10
                            John Mikesell, Fiscal Administration, 4th ed. (Belmont, CA: Wadsworth, 1995), p. 190.



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                            recognized these continuing concerns and emphasized the need to adjust
                            expectations as new approaches and capabilities are developed and tried.


GPRA Emphasizes Formal      Where most past initiatives did not link performance information
Strategic Planning          developed within the executive branch with congressional processes, GPRA
Incorporating Stakeholder   provides that agencies must consult with cognizant congressional
                            committees, and other stakeholders, as strategic planning efforts progress.
Consultation                This requirement is GPRA’s most fundamental change and perhaps its most
                            significant challenge, because any effort to link resources and results must
                            encompass some fundamental understanding of the goals of a particular
                            program. However, discussions between agencies and the Congress on
                            strategic planning are likely to underscore the competing and conflicting
                            goals of many federal programs as well as the sometimes different
                            expectations among the various stakeholders in the legislative and
                            executive branches. In addition, the federal government’s increasing
                            reliance on third parties—principally, state and local governments and
                            contractors—further complicates efforts to reach consensus on program
                            goals. And, significantly, executive branch officials and legislative staff we
                            spoke with seemed to approach strategic planning consultations with very
                            different expectations.

                            For the most part, past initiatives defined planning processes as internal
                            agency activities, with limited external visibility and virtually no external
                            involvement. Not surprisingly, where initiatives were in practice confined
                            within the executive branch, legislative oversight and budget
                            decision-making were ultimately unaffected; the Congress resorted to
                            traditional information sources, which agencies quickly reemphasized. For
                            example, in PPBS, executive agencies did not provide the Congress with
                            information on alternative program choices or even on the basis for
                            decisions to pursue a particular program course, often despite requests
                            from the Congress.11 During MBO, presidential objectives approved by the
                            administration were made public, but congressional involvement in
                            determining these objectives was not sought. Although some ZBB decision
                            packages were made available to the Congress, differences in format and




                            11
                             In a congressional hearing discussing the availability of PPBS information for the Congress, the
                            Bureau of the Budget (BOB), the predecessor to OMB, took the position that information used to
                            develop the budget was internal to the executive branch. However, BOB stated that budget requests
                            and legislative justifications should incorporate evaluation data and cost estimates that arose from
                            PPBS analysis.



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the voluminous amount of paperwork limited congressional interest and
discouraged use.12

GPRA’s premise of joint legislative and executive involvement in strategic
planning is new. GPRA requires a formal document based in part on
consultations with the Congress and other interested stakeholders. The
Senate report on GPRA indicates that strategic plans are to be the basic
foundation for a recurring process of goal-setting and performance
measurement tied to the agency’s program activities and that goals must
be clear and precise in order to maintain a consistent direction. The
Senate report on GPRA recognizes that shifts in political philosophy may
alter priorities and means of achieving objectives but assumes that
legislatively determined missions and goals would remain largely
unchanged from year to year. GPRA strategic planning was viewed as
fundamentally different from previous efforts, requiring that agency
missions and goals be connected to day-to-day operations.

Past governmentwide initiatives suggest that achieving GPRA’s strategic
planning consultation goals will be difficult, particularly given the changes
in emphasis and approach established by GPRA. For example, reaching a
reasonable level of consensus on clear and precise strategic goals will
almost certainly encounter political hurdles. Competing and/or ambiguous
goals in many federal programs are often a by-product of the process of
consensus building; strategic planning which is seen as merely rekindling
old conflicts may not be well-received within the political process.
Furthermore, the federal government’s continued and, in recent years
expanded, reliance on state and local governments and other third parties
to deliver federally funded services—some of the stakeholders that would
likely be part of the consultation process—adds extra complications to the
prospect of reaching consensus. For example, applying PPBS to programs
requiring participation by federal, state, and local governments was seen
as a major implementation problem.

Discussions with legislative and executive branch staff confirmed the
above concerns and also suggested that these officials may be approaching
strategic planning from fundamentally differing perspectives. Agency
officials viewed strategic plans as a potentially useful means to a dialogue
with congressional committees but were skeptical that consensus on
strategic goals could be reached, especially given the often conflicting
views among an agency’s multiple congressional stakeholders. Some noted

12
  Some ZBB pilots were congressionally directed prior to governmentwide implementation, but results
were similar to the Carter initiative: congressional use was hindered by large volumes of information
in unfamiliar formats.



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                           that achieving consensus may result in rhetorical rather than substantive
                           plans and doubted the capacity of such plans to inform congressional
                           decision-making. Legislative staff characterized some of the early strategic
                           plans as lacking in substance and requisite detail. One staff member
                           expressed concern that agency strategic plans would be used to present
                           political agendas and justifications for the status quo, rather than real
                           assessments of need and value provided by specific program activities.
                           Another legislative staff suggested that the broader focus of the strategic
                           planning process could hinder traditional congressional oversight and
                           control processes.

                           Some experts we contacted suggested that the expectations for strategic
                           planning must be lowered, particularly for the initial attempts at
                           congressional consultation. Specifically, they urged agencies and the
                           Congress to seek a “reasonable degree” of consensus on draft strategic
                           plans and allow several iterations to refine plans and demarcate lines of
                           conflict and agreement. In the opinion of these experts, establishing an
                           ongoing dialogue between the branches will be more important than
                           seeking immediate consensus.


GPRA Performance           Where past initiatives tended to devise unique structures to capture
Planning and Measurement   performance information that ultimately proved difficult to link to
Requires Direct Linkage    congressional budget presentations, GPRA requires agencies to plan and
                           measure performance using the same structures which form the basis for
With the Budget            the agency’s budget request: program activities. This critical design
                           element of GPRA aims at assuring a simple, straightforward link among
                           plans, budgets, and performance information and the related
                           congressional oversight and resource allocation processes. However, the
                           suitability of agencies’ current program activity structures for GPRA
                           purposes is likely to vary widely and require modification or the use of
                           crosswalks. Discussions with agency officials and legislative staff suggest
                           that both are well aware of potential challenges in implementing this GPRA
                           requirement but, again, tend to view the need for and benefits of
                           adjustments to program activity structures from very different
                           perspectives.

                           As discussed previously, the “program structures” (PPBS) and “decision
                           units” (ZBB) of earlier performance budgeting initiatives were not intended,
                           at least initially, to explicitly connect to either an agency’s organizational




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structure or congressional budget justifications.13 Attempts to crosswalk
PPBS program structures to budget presentations proved unduly
cumbersome, and subsequent efforts to align these structures with the
federal budget were ultimately unsuccessful. Similarly, under ZBB,
crosswalks were needed between decision units and budget structures,
and decision unit consolidations obscured the analysis of alternative
spending levels and performance that was ZBB’s presumed hallmark.
Congressional interest in both initiatives quickly waned as plans and
performance information could not be directly linked to familiar oversight
and budget structures. In the end, structural incompatibilities meant that
resources were not linked to the new results information.

GPRA’s  required use of program activities appearing in the President’s
Budget as the basis for performance planning and measurement is
intended to establish the direct budgetary link absent in earlier initiatives.
But this goal is dependent on the capacity of the current program activity
structures to meet GPRA’s needs. That is, where the success of earlier
initiatives hinged on the extent that unique planning structures could link
to congressional processes, current program activities structures useful to
congressional resource allocation processes must prove their suitability
for planning and measurement purposes. Subject to clearance by OMB14
and generally resulting from negotiations between agencies and
appropriations subcommittees, program activity structures differ from
agency to agency and, within an agency, from budget account to budget
account. Program activities, like budget accounts, may represent
programmatic, process, organizational, or other orientations15 and,
similarly, their suitability for GPRA planning and measurement purposes
will also vary. For example, during ZBB, some agencies used their program
activities as the basis for consolidated decision units; one agency that did
so found that the process orientation of its program activities (e.g.,
regulatory development) rendered ZBB rankings meaningless.

Under GPRA, when program activity structures present challenges to
performance planning and measurement objectives, agencies have
options. GPRA allows agencies to consolidate, aggregate, or disaggregate

13
  In fact, under PPBS, budget presentations were ultimately expected to conform to the new program
structures. PPBS guidance noted that over time it “may be necessary and desirable for the program by
activity portion . . . to be brought into line with the program structure developed.”
14
 OMB Circular A-11, “Preparation and Submission of Budget Estimates,” requires that an agency’s
program activities must be useful for the analysis and evaluation of budget estimates, be related to the
administrative operations of the agency, and have accounting support.
15
 For a discussion of this point, see Budget Account Structure: A Descriptive Overview
(GAO/AIMD-95-179, September 18, 1995).



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program activity structures for performance planning purposes, where
needed. This approach would of course require subsequent crosswalks,
but presumably not as burdensome as those of prior initiatives. Agencies
may also attempt to renegotiate program activities with their
appropriations subcommittees and OMB. Program activities, however, serve
specific functions and may prove resistant to frequent or substantial
change. For example, program activities (1) provide a relatively consistent
structure for OMB and the Congress, allowing comparison of current
spending to estimates of future needs, and (2) often form the basic unit of
congressional oversight for determining reprogramming thresholds.16

Agency officials we spoke with confirmed the varying suitability of their
program activity structures for GPRA purposes. One agency successfully
worked through the performance planning process using its existing
program activities; another agency found it necessary to devise a separate
planning structure and then link back to program activities using a
crosswalk. This second agency had a program activity structure that
reflected its organizational units—a structure useful for traditional
accountability purposes but less useful for outcome planning. Still other
agencies separated performance planning from program activity
structures, believing it necessary to first establish appropriate program
goals, objectives, and measures before considering the link to the budget.
These agencies planned to rely on GPRA’s provision to aggregate,
disaggregate, or consolidate program activities.

Our discussions with agency officials and legislative staff highlighted a
potential tension on the use of program activities as a basis for agencies’
performance planning and measurement. Some agency officials saw
program activity structures as secondary to strategic planning; thus, where
current program activity structures proved unsuitable for planning
purposes, these officials viewed change in the program activity structure
as inevitable and appropriate. Legislative staff generally viewed these
structures as fundamental to congressional oversight of agency activities;
thus, change was viewed with apprehension and concern. Legislative staff
were generally comfortable with existing structures and questioned
whether changes would frustrate congressional oversight. Agency officials
generally saw a need to be flexible in using program activities as a
planning mechanism, and considered it likely and desirable to change


16
  Reprogramming is the shifting of funds within an appropriation to purposes different from those
contemplated at the time the appropriation was requested and provided. Several appropriations
subcommittees use program activity structures to establish reprogramming thresholds. If an agency
needs to shift funds from one activity to another above the defined threshold, it is expected to notify
the subcommittee.



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                       program activity structures to better align with GPRA goals and objectives;
                       however, they noted that changes could prove difficult and
                       time-consuming to negotiate with the Congress. In addition, agency
                       officials were not convinced that changes to program activities would
                       necessarily achieve GPRA’s purposes, particularly when competing or
                       unclear goals existed or when agency goals and objectives were likely to
                       change over time.

                       The experts we met with generally agreed that the program activity
                       requirement of GPRA would likely constitute a significant implementation
                       challenge. One expert expressed the tension between legislative and
                       executive branch officials as a difference in the purpose and role of the
                       program activity structure. Congressional interests emphasize oversight
                       and control, thus necessitating detail and continuity in the structure.
                       Agencies, however, use program activities for managerial purposes, thus
                       seeking less detail in favor of more flexibility. Another expert noted that
                       GPRA does not define how to aggregate, disaggregate, or consolidate
                       program activity structures.


GPRA Performance       GPRA  performance reporting allows agencies to use a range of performance
Reporting Emphasizes   measures but contains a specific emphasis on outcomes—the actual
Outcomes               results of a program activity compared to its intended purpose. Past
                       initiatives struggled with a variety of approaches, ultimately finding it
                       more practical to measure agency processes and outputs than outcomes.
                       Agency officials implementing GPRA affirmed the value of outcome
                       measurement and were also exploring alternative approaches due to the
                       inherent challenge of outcome measurement in a federal environment
                       marked by entitlement programs and other programs performed by
                       nonfederal actors. Legislative staff questioned the validity and usefulness
                       of outcome data in decision-making and perceived a potential for loss of
                       needed detail. Taken together, the views of executive and legislative
                       officials suggest GPRA will be challenged to identify performance measures
                       that are both outcome-based and useful for traditional accountability
                       purposes.17

                       Past initiatives struggled with performance reporting. Taken together,
                       their experiences reflect a slow refinement of the objectives and
                       awareness of the difficulties of performance measurement within the

                       17
                        For a discussion of related issues within foreign and state governments, see Managing for Results:
                       Experiences Abroad Suggest Insights for Federal Management Reforms (GAO/GGD-95-120, May 2,
                       1995) and Managing for Results: State Experiences Provide Insights for Federal Management Reforms
                       (GAO/GGD-95-22, Dec. 21, 1994).



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federal government. Efforts spurred by the Hoover Commission centered
on identifying the activities to be performed and their costs, most
commonly described as unit cost and workload analysis. Under PPBS, the
purposes and uses of analysis were expanded to include a decision-making
component; hence, not only were outputs and their costs analyzed, but
PPBS expected that such analysis could define the most urgent national
goals and determine the most effective and efficient means of reaching
these goals. But agencies which attempted to gather this
performance-oriented data found the process to be far more difficult than
expected, and officials reported that several years would be required to
develop the information and collection systems envisioned by PPBS.
Agency officials reporting on their experiences under PPBS also noted
situations where it was difficult to relate programs to a stated outcome or
to separate out other influences that might affect ultimate outcomes. For
example, the Upward Bound program was designed to increase skills and
motivation for low-income high school children. However, PPBS officials
had no way to isolate the program’s effect from other environmental
influences which might also have contributed to the success or failure of
different program participants.

While subsequent initiatives reduced their expectations regarding the use
of performance measurement and analysis, they continued to encounter
similar difficulties. Under MBO, in contrast to PPBS experiences, presidential
objectives and related agency programs were to be determined, and then
followed by discussion of appropriate measures. This approach recognized
that some presidential objectives, such as achieving cooperation with
other countries or successfully negotiating international economic
treaties, did not lend themselves to scientific analysis. ZBB decision
packages were expected to include the outputs or accomplishments
expected from a program. However, these performance measures were
very quickly overwhelmed by the need to present decision packages
within budget deadlines. ZBB allowed the use of proxy measures of
performance and even indicated that decision packages were expected to
be ranked with or without the benefit of performance information. In fact,
a subsequent analysis of ZBB efforts found that fewer than half of the
decision packages examined had quantifiable accomplishments, workload,
or unit cost information.

While acknowledging the inherent difficulties of performance
measurement, GPRA requires that agencies establish performance
indicators to be used in measuring the relevant outputs and outcomes of
each program activity. The Senate report on GPRA indicates that sponsors



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understood the importance of measurement to any performance-based
initiative and that outcomes are the most desirable performance indicator.
However, GPRA also accepts that measurable outcomes may not always be
possible—that causal links between federal efforts and desired outcomes
may never be established—and encourages that a range of related
indicators, such as quantity, quality, timeliness, and cost be developed and
used to approximate outcomes.

Executive officials we spoke with were strongly supportive of
performance measurement, including outcome measurement, but raised
concerns about the use of this information, particularly as a vehicle for
congressional oversight. These officials saw value in defining outcomes for
planning purposes and were also testing various approaches, including
identifying intermediate performance measurements,18 using multiple
measures to reflect different stakeholders’ interest, and applying
nonquantitative measures, due to the difficulties inherent in outcome
measurement.

But executive officials were concerned that in today’s federal
environment, full or ultimate program outcome was typically not under the
control of a single federal agency, complicating responsibility
determinations and resulting resource allocation decisions. In some cases,
outcomes can only be achieved over many years; in other cases, federal
activities are but one, and often a small, component of total public and
private sector interventions in a given program area; and in still other
cases, intended results cut across the activities of several agencies. In each
of these cases, any individual agency outcome measurement is often
incomplete and therefore of limited value to budgetary decisions.
Moreover, the increasing role of state and local governments as well as of
other third parties as the delivery agents for federally financed activities
means that in achieving many federal outcomes, the efforts of nonfederal
actors—and their objectives and concerns—were critical factors in
performance measurement. Lastly, the predominance of entitlement
spending, in which federal actions are typically a function of statutory
eligibility determinations, further clouds the ability to hold agencies
accountable for outcomes by shifting attention from broad goals (e.g.,
assuring a certain standard of living) to specific processes (e.g., ensuring
correct and timely payments to individuals).


18
  Intermediate outcomes are outcomes that occur between outputs (delivery of products or services)
and the achievement of the ultimate purposes of a program (reducing pollution and improving health,
for example). Intermediate outcomes might include client satisfaction, actions taken by other levels of
government, or actions by those in the private sector.



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Legislative staff also expressed concerns regarding the use of outcome
measurement for oversight purposes, but principally in terms of the
completeness, validity, and reliability of the data for decision-making. In
particular, legislative staff were reluctant to have outcome information
substitute for the more detailed information they customarily receive,
indicating that such a substitution could lead to less, rather than better
informed legislative decision-making. One official described an agency’s
strategic plan as outcome-based, but with little discussion of the activities
planned to meet the established agency goals; others expressed frustration
that an agency’s goals defined in its GPRA plans can be very different from
those negotiated in congressional oversight and resource allocation
processes. Finally, legislative staff also expressed strong interest in
congressional involvement in measurement questions. Although
concerned about the added burden for congressional staff, legislative staff
felt that the Congress should take an active interest in what is measured
and how it is measured. GPRA performance information, augmented by
audited financial data, was seen as most useful for the Congress, but the
staff emphasized that the quality of this information would need to be
greatly improved.

Experts we spoke with encouraged agencies to identify a range of
measures and indicated that this approach is particularly useful for
programs with multiple or conflicting goals. Nonquantitative measures
were also cited as important for activities such as research and
development, and one expert urged the use of multiyear measures where
goals could not be realistically achieved in a single year.19 One expert
cautioned against agencies identifying outcomes too quickly, indicating
that such a practice risked rhetoric over measurement and would not be
useful in holding agencies to a level of performance. Similarly social
indicators—poverty rates or mortality statistics—should only be used
where it is evident that federal actions have the capacity to affect the
indicator.




19
 See, for example, Managing for Results: Key Steps and Challenges in Implementing GPRA in Science
Agencies (GAO/T-GGD/RCED-96-214, July 10, 1996).



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                          Unlike past initiatives, GPRA’s implementation design enhances prospects
GPRA Defines a            for a fuller integration of performance information with budgeting. As
Phased, Iterative         noted above past initiatives were generally attempted within a single
Implementation            annual budget cycle and tended to lack processes for addressing
                          implementation problems. In contrast GPRA posits a multiyear, iterative
Process That              implementation process, built around periodic publicly available products,
Enhances Prospects        that will allow agencies and the Congress the opportunity to refine
                          performance planning, measurement, and reporting, and to modify, as
of Integration With the   needed, current budget processes and presentations.
Budget
                          Past initiatives tended to take an “instant implementation” approach that
                          limited their capacity to address challenges as they arose. At their outset,
                          these initiatives generally gave agencies little time for complex
                          implementation tasks. For example, PPBS gave agencies 10 weeks to
                          develop requisite program structures—a task which the Department of
                          Defense, the originator of PPBS, took 10 years to accomplish. ZBB similarly
                          imposed numerous changes to executive branch budget formulation
                          processes within a single budget cycle, with guidance agencies believed
                          was inadequate on key requirements. Given this abbreviated
                          implementation process and the fact that cost estimates and decision
                          packages developed under these initiatives were not routinely made
                          available to the Congress, it is not surprising that congressional budget
                          decision-making was unaffected.

                          In contrast, GPRA defines a 7-year implementation time frame, from initial
                          pilots to first governmentwide performance reports, and incorporates
                          feedback mechanisms such as required evaluations of key concepts before
                          governmentwide implementation.20 Once key requirements have been
                          phased in, successive iterations of agencies’ strategic plans, performance
                          plans, and performance reports will allow opportunities for needed
                          refinements. In addition, GPRA’s products, which will be part of the public
                          record, are to be made available routinely to the Congress in time to allow
                          for the information to be integrated with congressional budget and
                          oversight processes. For example, the Senate report on GPRA states that its
                          plans and reports can give the Congress the ability to identify where
                          planned resources do not appear adequate to achieve intended results and
                          then to make realignments as appropriate.

                          GPRA’s implementation approach also provides for 2-year pilot projects of
                          alternative performance budget approaches in at least five agencies.

                          20
                           OMB called for changes in the quality and quantity of performance information in agency budget
                          submissions earlier than required by GPRA. For further discussion, see Office of Management and
                          Budget: Changes Resulting from the OMB 2000 Reorganization (GAO/GGD/AIMD-96-50, Dec. 29, 1995).



                          Page 19                                              GAO/AIMD-97-46 Performance Budgeting
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                      During the second year of these pilots (fiscal year 1999),
                      performance-based budget presentations for each of the designated
                      agencies are to be included in the President’s Budget submission to the
                      Congress. The pilots’ aim is to test possible approaches and develop
                      capabilities toward realizing the potential of performance budgeting, and
                      to present varying levels of performance, including outcome-related
                      performance, resulting from different budgeted amounts. GPRA also
                      requires OMB to evaluate the results of the pilots by March 31, 2001, and
                      assess whether legislation requiring performance budgets should be
                      proposed.

                      The Senate report on GPRA said that the performance budgeting pilots are
                      to begin “only after agencies had sufficient experience in preparing
                      strategic and performance plans, and several years of collecting
                      performance data.” In this context, and recognizing the importance of
                      concentrating on governmentwide GPRA implementation in 1998, OMB
                      indicates that these pilots will be delayed for at least a year. As envisioned
                      under GPRA, performance budgeting will require the ability to calculate the
                      effects on performance of marginal changes in cost and funding.
                      According to OMB, very few agencies currently have this capability, and the
                      delay will give time for its development.


                      In one critical dimension, GPRA will face an environment unknown to
GPRA Will Face        previous performance budgeting initiatives: sustained, real declines in
Unique Conflicts      discretionary spending.21 Past efforts faced budget-related tensions, but
Arising From          nothing comparable to that which will likely form the initial operating
                      environment for GPRA. Both implementation challenges and opportunities
Budgetary Pressures   will likely arise from different expectations regarding the appropriate role
                      for GPRA within this period of declining resources. To executive officials
                      we spoke with, performance information was seen as essential to justify
                      and improve current program performance; to legislative staff,
                      performance information was expected to prove valuable as a government
                      downsizing tool.

                      As GPRA is implemented governmentwide, total discretionary spending is
                      projected to decline in real terms, continuing the pattern of the last 6
                      years. This constitutes a unique implementation environment when
                      compared to past initiatives. Hoover Commission recommendations were
                      implemented as the federal government shifted from a wartime

                      21
                       Real discretionary spending refers to outlays that are controlled through annual appropriations and
                      adjusted for inflation. The President’s fiscal year 1998 budget projects a decline in real discretionary
                      spending from 1998 through 2002.



                      Page 20                                                    GAO/AIMD-97-46 Performance Budgeting
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bureaucracy; PPBS faced the competing spending tensions of the Vietnam
war and an ambitious social agenda; ZBB was instituted as federal deficits
reached then post-war highs and the economy experienced unusually high
inflation. While all of these concerns affected consideration and passage of
the budget, federal spending during each of these initiatives generally
continued to experience real increases, particularly for discretionary
spending.

Budgetary constraints will likely raise implementation issues for both
agencies and the Congress. Experts we spoke with noted that in
implementing GPRA all participants will need to build capacity to develop
and use performance information. For agencies, this will mean acquiring
necessary resources and skilled personnel, and developing the
management leadership needed to sustain a performance-based
organization. Similarly, the Congress will need to expand its capacity to
actively participate in strategic planning, effectively communicate
results-based expectations, and manage its use of performance
information provided by agencies. Generally, executive officials did not
see resource availability as a significant concern; they tended to view GPRA
as the “right thing to do” and believed that needed resources would be
found. However, they were concerned about the potential burden of
expanded performance measurement requirements, noting that GPRA’s
requirements could be especially onerous if, as some expected, they were
layered on top of existing information requirements.

In our discussions with executive officials and legislative staff, both
agreed that declining budgets provided new incentives to use performance
information as a key input to decision-making, but each had differing
expectations as to how this should be done. In effect, each had differing
views on what constituted appropriate and effective “use.” Executive
officials believed that GPRA can be used to more effectively present
budgetary requirements in performance-based terms, for example to the
Congress. In addition, they noted that GPRA can be useful within the
executive branch to identify ways to streamline operations and to make
necessary budget reductions; its principal value was internal and
management oriented, stemming from its ability to clarify missions and
performance expectations. However, they also noted that current
budgetary pressures and apprehension about use of GPRA information
could increase levels of defensiveness among agency staff.

Legislative officials agreed that GPRA should aid in presenting budgetary
requirements in performance-based terms. They saw GPRA as encouraging



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                   both agencies and the Congress to revisit current functions and activities
                   in relation to their articulated mission and to identify poorly performing or
                   overlapping program activities. Legislative staff added that, given the
                   difficult budget choices facing the nation, terminating programs based on
                   GPRA performance information was a far more defensible practice than
                   instituting across-the-board reductions in all spending—all too often the
                   only other alternative. These staff expressed concern that as agencies and
                   the Congress search for ways to reduce federal spending, conflicts over
                   agency missions and program goals are more likely to surface, leading to
                   agency “repackaging” of information to obscure poor performance. And
                   they questioned whether agencies could provide valid and accurate
                   performance data.

                   Other experts saw potential for use of GPRA in the budget process but
                   expressed caution. These experts noted that the GPRA process can allow
                   agencies and the Congress to renegotiate program goals, thus forcing rigor
                   into federal budgeting and management processes. One expert emphasized
                   that agencies would need to see GPRA information used in decision-making
                   if they were to continue to invest in the initiative. However, if GPRA’s
                   exclusive result is to terminate programs, the initiative could suffer a loss
                   of support within the executive branch. Experts also stated that GPRA
                   information would also need to be used outside of the budget process.


                   While GPRA has incorporated critical lessons from the past, the Congress
Observations       and the executive branch will face certain challenges in their efforts to
                   connect resources to results in the federal government. These challenges
                   cannot be addressed by either the executive or legislative branch alone; all
                   those involved in the resource allocation process must play a part. In
                   particular, efforts to implement GPRA must address the following issues:

               •   The Congress and the executive branch will need to explore what can be
                   expected of a performance budgeting system. GPRA can inform the budget
                   process and change the nature of its dialogue by more routinely
                   introducing performance information into decision-making. But, GPRA
                   cannot be expected to eliminate conflict inherent in the political process
                   of resource allocation, and final decisions will appropriately take into
                   account many factors, including performance.
               •   The Congress and the executive branch must acknowledge that it takes
                   time to develop goals, outcomes, and measures that are valid and
                   acceptable to a range of stakeholders. All participants must take full
                   advantage of the iterative planning and reporting processes defined by



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    GPRA. Immediate expectations regarding budgetary impact and the ease of
    performance measurement must be tempered with long-term involvement
    and commitment to achieving GPRA’s purposes.
•   The Congress and the executive branch must recognize the difficulties
    associated with devising a system that integrates performance and budget
    information. GPRA provides for such integration through the program
    activity structure of the federal budget. Both the budget and GPRA
    processes must be better aligned, requiring adjustments and
    accommodations. In some cases, agencies may need to develop effective
    crosswalks between strategic plans and the budget; in other cases,
    agencies and the Congress may decide to change the program activity
    structure in the budget. Improved financial reporting and auditing as
    required by the Chief Financial Officers Act will further strengthen the
    cost basis and reliability of data underlying the link between performance
    information and the budget.

    Over the longer term, GPRA can become a powerful tool for the hard
    budgetary choices that the Congress and the administration will face in the
    coming years. In addition to improving attention on the performance of
    individual program activities, GPRA can be used to address one of the more
    intractable problems of the federal government—that of duplicative
    programs that cut across federal missions and agencies. The Congress and
    the administration could use GPRA as the vehicle to devise a framework
    that compares and integrates decisions that affect related programs. In
    this manner, GPRA’s focus on governmentwide performance can offer an
    important alternative to across-the-board reductions and better inform
    choices among competing budgetary claims.


    We are sending copies of this report to the Chairmen and Ranking
    Minority Members of the Senate Committee on the Budget; House
    Committee on the Budget; Senate Committee on Appropriations; House
    Committee on Appropriations; Subcommittee on Government
    Management, Information and Technology, House Committee on
    Government Reform and Oversight; the Director of the Office of
    Management and Budget; and other interested parties. We will also make
    copies available to others on request.




    Page 23                                  GAO/AIMD-97-46 Performance Budgeting
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The major contributors to this letter were Michael J. Curro, Carolyn L.
Yocom, and Linda F. Baker. If you have any questions, I can be reached at
(202) 512-9573.




Paul L. Posner
Director, Budget Issues




Page 24                                  GAO/AIMD-97-46 Performance Budgeting
Page 25   GAO/AIMD-97-46 Performance Budgeting
Contents



Letter                                                            1


Appendix I                                                       28

Objectives, Scope,
and Methodology
Appendix II                                                      30

The First Hoover
Commission
Appendix III                                                     35

Planning-
Programming-
Budgeting-
System (PPBS)
Appendix IV                                                      42

Management by
Objectives (MBO)
Appendix V                                                       46

Zero-Base Budgeting
(ZBB)
Appendix VI                                                      52

Overview of the
Government
Performance and
Results Act




                      Page 26   GAO/AIMD-97-46 Performance Budgeting
Contents




Abbreviations

BAPA       Budget and Accounting Procedures Act
BOB        Bureau of the Budget
DOD        Department of Defense
GDP        gross domestic product
GPRA       Government Performance and Results Act
MBO        Management by Objectives
NAPA       National Academy of Public Administration
OMB        Office of Management and Budget
PFP        Program and Financial Plan
PM         Program Memoranda
PPBS       Planning-Programming-Budgeting-System
ZBB        Zero-Base Budgeting


Page 27                                GAO/AIMD-97-46 Performance Budgeting
Appendix I

Objectives, Scope, and Methodology


              The specific objective of our work was to compare and contrast the key
              design elements and approaches of GPRA with those of similar past
              initiatives in order to identify potential challenges for GPRA
              implementation. To identify past federal performance budgeting
              initiatives, we used the following criteria: (1) the initiative occurred after
              World War II, (2) the initiative was implemented governmentwide, and
              (3) the initiative asserted (either initially or ultimately) a relationship
              between performance information and the federal budget process. Based
              upon these criteria, we identified four prior federal initiatives: federal
              performance budgeting initiatives derived from the first Hoover
              Commission; the Planning-Programming-Budgeting-System (PPBS);
              Management by Objectives (MBO); and Zero-Base Budgeting (ZBB). Our
              work did not address performance budgeting initiatives that were limited
              to a few programs or agencies, nor did we address initiatives that were
              planned but never fully implemented. For example, this approach
              excluded the end-results budgeting efforts in the Forest Service during the
              1980s and President Ford’s Presidential Management Initiatives.

              To collect information on GPRA and on the four prior federal initiatives, we
              used a qualitative research design. In making our review of each prior
              initiative, we conducted extensive literature searches, including pertinent
              legislative histories, hearings, and committee prints. For GPRA, we
              collected information on its legislative history as well as other relevant
              information including OMB guidances, selected pilot performance plans and
              reports, and available reviews of GPRA implementation efforts to date. We
              compiled information on the context, implementation approach, and
              results of each of the prior initiatives. To compare and contrast these
              analysis results with GPRA, we summarized our findings for each initiative,
              then compiled a set of observations relevant to GPRA design and
              implementation. From this work we identified a set of potential challenges
              for GPRA implementation as well as relevant observations based on past
              initiatives.

              To compare the results of our analysis with GPRA implementation
              experiences to date, we contacted selected individuals in the executive
              and legislative branches and other experts from outside government. We
              selected these individuals based on their knowledge, experience, and
              interest in GPRA. We asked them to review the identified challenges and
              observations and participate in one of three panels: (1) an executive panel
              of individuals with direct responsibility for implementing GPRA and
              representing agencies covering a range of functions and program types
              (e.g., regulatory, direct service provision, grant administration, research



              Page 28                                    GAO/AIMD-97-46 Performance Budgeting
Appendix I
Objectives, Scope, and Methodology




and development); (2) a legislative panel composed of staff from
authorizing, budget, and appropriations committees in the House of
Representatives; and (3) a panel of individuals from the National Academy
of Public Administration (NAPA), academia, and former government
officials with expertise in GPRA or prior performance budgeting initiatives.

We asked the panelists to review our observations and indicate the extent
to which the challenges we identified held true for the programs and/or
budgets under their purview or within their experience. We also asked
panelists to discuss what approaches had been used or might be
considered to mitigate these concerns. To assure maximum candor,
individuals were informed that there would be no attribution of their
comments to them or their organizations.

We conducted our work in Washington, D.C., between October 1996 and
March 1997. We requested comments on a draft of this product from the
Director of OMB. On March 3, 1997, we met with designated OMB officials
and discussed and incorporated changes based upon their comments.




Page 29                                   GAO/AIMD-97-46 Performance Budgeting
Appendix II

The First Hoover Commission


                 After World War II, America was left with a wartime organizational
Context          bureaucracy and a huge national debt that exceeded the gross domestic
                 product (GDP). Reorganization planning evolved as a systematic means of
                 reducing federal spending while allaying concerns that such reductions
                 would cause a return to the depression of the 1930’s. The President and
                 the Congress explored various reorganization efforts, the most effective
                 and well known being the Commission on the Organization of the
                 Executive Branch, more commonly referred to as the first Hoover
                 Commission, established by law in 1947.

                 The Declaration of Policy in the act creating the first Hoover Commission
                 (61 Stat. 246, July 7, 1947) focused on promoting economy, efficiency and
                 improved services in the executive branch of government. The
                 Commission was charged with the structural reorganization of
                 departments and agencies and the President’s managerial authorities; it
                 published 19 reports with over 270 recommendations in the Spring of 1949.
                 With estimates of the number of implemented recommendations being as
                 high as 196, the first Hoover Commission is considered to have been highly
                 successful.

                 One recommendation deemed successfully implemented was that for
                 performance budgeting, which the Commission defined as follows:

                 “Under performance budgeting, attention is centered on the function or activity—on the
                 accomplishment of the purpose—instead of on lists of employees or authorizations of
                 purchases . . . . this method of budgeting concentrates congressional action and executive
                 direction on the scope and magnitude of the different Federal activities. It places both
                 accomplishment and cost in a clear light before the Congress and the public.”


                 Performance budgets as prescribed by the Hoover Commission were to
                 provide more comprehensive and intelligible information to the President,
                 the Congress, and the public. And, the Commission recommended that
                 attention should shift away from government inputs—items of expense,
                 lists of federal employees—to government outputs—its accomplishments,
                 activities, and their related costs.


                 Both the executive and legislative branches of government made efforts to
Implementation   implement a performance budget. In the executive branch, initial work on
Approaches       a performance budget began in 1949 when the Bureau of the Budget (BOB)




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Appendix II
The First Hoover Commission




began preparation for the 1951 budget.1 BOB issued a statement to the
Congress about the unique nature of the 1951 budget presentation, and
pledging its support for a performance-type budget suggested by the
Hoover Commission and others:

“While the 1951 budget may be described as the first performance budget, it will be far
from perfect, and we hope that we can improve it immeasurably in later years.”


The 1951 budget submission was a distinct change from prior Presidential
budgets. One of the more significant changes made was in the “obligations
by activities” section of the budget. This section provided (1) listings of the
programs or activities imbedded within a budget account, (2) separated
operating and capital expenses, and (3) established breakouts for grants,
and other fixed charges as well. Prior to the 1951 budget, less than
45 percent of all budget accounts contained obligation by activity
subdivisions; after the 1951 budget, all accounts did. The 1951 budget also
included narrative statements on program and performance for each
account. Narrative statements varied in their approach, some presenting
workload and unit cost information and others simply describing activities
within the budget account. Finally, the 1951 budget replaced detailed lists
of civilian positions and salaries that accompanied each account with
summary information on employment levels.

Most executive agencies charged with implementation had high
expectations for performance budgets as a means of better defining,
presenting, and executing the budget. Performance budgets were expected
to align programs and activities in a uniform manner and assist managers
in making trade-offs between—and within—particular programs. Agencies
also viewed performance budgets as correcting budgeting and accounting
weaknesses and improving the administration and oversight of programs.
And, some agencies saw the submission of budgets on a program and
functional basis as a simplification of the federal budget.

However, some agencies did provide more cautionary statements
regarding the implementation of performance budgeting. In particular,
agencies expressed concern regarding whether—or how—to define
different functions and activities consistently. Agencies also noted that the
requirements for performance budgeting were adding to rather than
substituting for their current budget and reporting requirements. Agency

1
 The executive branch acted on Hoover Commission recommendations to change the President’s
budget prior to legislative enactment of the Budget and Accounting Procedures Act of 1950. In fact, the
executive branch argued that congressional action was not necessary, since the budget presentation
was already being changed.



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Appendix II
The First Hoover Commission




comments regarding the requirements for performance budgeting were
mixed, with some expressing concern that requirements were too rigid
and others stating that requirements were very generally and broadly
defined.

Congressional efforts to enact performance budgeting requirements were
contained in two laws. The first was the National Security Act
Amendments of 1949 (63 Stat. 578, August 10, 1949) which set
performance budgeting requirements for the newly created Department of
Defense (DOD) specifically patterned after the Hoover Commission’s
recommendation for a performance budget. That act added Title IV, the
“Promotion of Economy and Efficiency Through Establishment of
Uniform Budgetary and Fiscal Procedures and Organizations,” to the
National Security Act of 1947 and statutorily mandated the implementation
of a performance budget similar in form to the President’s fiscal year 1951
budget. New Section 403, “Performance Budget,” stated:

“The budget estimates of the Department of Defense shall be prepared, presented, and
justified, where practicable . . . so as to account for, and report, the cost of performance of
readily identifiable functional programs and activities, with segregation of operating and
capital programs. . . .”


And, as far as practicable, the Defense budget estimates and authorized
programs were to be presented in a comparable form and follow a uniform
pattern. The use of a performance budget was expected to correct
weaknesses in budget formulation and presentation as well as improving
the administration and management of authorized programs. And, BOB
expected that a uniform pattern of accounts would allow comparisons
across the services that were currently difficult to obtain.

A second law, the Budget and Accounting Procedures Act of 1950 (BAPA, 64
Stat. 832, September 12, 1950), ultimately provided a less prescriptive
definition of performance budgeting for governmentwide application.
Early versions of this bill had contained detailed definitions of
performance budgeting very similar to that of Title IV legislation. However,
during congressional deliberations, the specific language for performance
budgeting was removed from the bill. The conference report notes that the
term performance budget was considered surplusage—words in a statute
which add nothing to the force and legal effect of the statute—and might
result in an interpretation more restrictive than intended by the Congress.
BOB also supported BAPA’s less prescriptive language, arguing that (1) the
executive branch was already implementing performance budgeting and




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          Appendix II
          The First Hoover Commission




          (2) specific performance budgeting language would appear too rigid and
          make it difficult to proceed with future budgeting improvements. Thus, the
          final enacted version of BAPA did not contain the term “performance
          budgeting.” Instead, the final language stated in part:

          “The Budget shall set forth in such form and detail as the President may determine—(a)
          functions and activities of the Government;”



          The Congress considered that the Hoover Commission recommendation
Results   for performance budgeting was instituted on a governmentwide basis with
          the passage of BAPA. The second Hoover Commission, established on
          July 10, 1953 (67 Stat. 184), noted that performance budgeting was first
          used generally in the budget for fiscal year 1951. Reflecting on the
          implementation of performance budgeting, the second Commission
          observed that many programs did not have adequate cost information and
          suggested that budget activities and organization patterns be made
          consistent and accounts established to reflect this pattern; and, that
          budget classifications, organization, and accounting structures should be
          synchronized.

          DOD performance budgeting efforts in the 1950’s did work towards a
          consistent presentation of budget accounts that led to the current budget
          structure of DOD. Comptrollers were established in DOD and the Services
          with the aim of enhancing the development of adequate budget
          preparation and review. Each Service was required to develop similar
          systems which allowed for some general comparisons between the
          services and standard classifications of cost categories were developed.2

          Although it did not specifically mention performance budgeting, BAPA is
          generally credited with advancing several important changes to federal
          budget practices. The statute institutionalized efforts to report
          sub-account level information to the Congress through the obligations by
          activity sections, now termed program activities.3 A greater amount of
          performance information was placed into the President’s budget, primarily
          output based work-load and unit cost information. BAPA also required

          2
           While DOD budgets continue to reflect the performance budgeting requirements developed, the term
          performance budget was repealed when the National Security Act Amendments and other statutes
          were codified in 1962. The legislative history of this codification (P.L. 87-651, September 7, 1962) notes
          that its passage was not intended to make any substantive change to the law, but to bring up to date
          Title 10 of the U.S. Code.
          3
           In fact, GPRA requires that annual performance plans cover each program activity set forth in the
          budget of an agency.



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Appendix II
The First Hoover Commission




additional coordination between agencies, created management devices
such as working capital funds, delineated responsibilities for budgeting
and accounting between the executive and legislative branches, and
emphasized the need for a close relationship between accounting,
management, and programming activities.

Despite the successes cited, concerns remained that the budget did not
adequately link programs with their costs. The report of the second
Hoover Commission summarized these concerns as follows:

“The installation of performance budgeting in the Federal agencies has met with varying
degrees of success. . . . performance budgeting has encountered practical difficulties
greater than originally contemplated and in some cases created congressional
dissatisfaction with respect to program classification and accounting support.”


In 1954, Arthur Smithies, noted chronicler and analyst of the budget,
clarified this issue by distinguishing between a performance budget and a
program budget.

“Congressmen themselves are dissatisfied with the present form of the budget. They feel
they have lost something by the performance budget and have not gained much . . . . Unless
the performance budget can evolve into a true program budget, the Congress may decide to
revert to the old system and console itself with the fiction that it has no programmatic
responsibilities . . . . While the preparation of a meaningful program budget is a task of
immense difficulty, and may never be wholly successful, there can be little doubt that
further progress without direction is both feasible and desirable.”




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Appendix III

Planning-Programming-Budgeting-System
(PPBS)

               In January of 1965, President Johnson described the nation’s economic
Context        performance as “a creditable record of achievement.” From 1961 to 1964
               the economy had been growing in real terms at an average annual rate of
               over 5 percent. Average annual inflation was just over 1 percent during
               this period, while unemployment was roughly constant at 5 percent. There
               was some concern about annual federal deficits, which in 1962 reached
               $7 billion, or 1.3 percent of GDP.

               A Planning-Programming-Budgeting-System (PPBS) was seen as a means of
               building upon the Nation’s economic strength by modernizing the
               management tools used in the federal government. Proponents of PPBS
               believed that efficiencies and improvements in government operations
               could be achieved through a common approach for (a) establishing long
               range planning objectives, (b) analyzing the costs and benefits of
               alternative programs which would meet these objectives, and
               (c) translating programs into budget and legislative proposals and
               long-term projections. President Johnson considered PPBS a technique for
               controlling federal programs and budgets, rather than “having them
               control us.”

               Furthermore, an earlier introduction of a PPBS-type system in DOD in 1961
               was deemed a significant improvement over previous budget practices.
               Prior to PPBS, the DOD system was highly decentralized and resource
               formulation and allocation processes across the services were duplicative,
               inequitable, and limited to consideration of a single budget year. Initially
               termed a “program package-program element” system, DOD’s PPBS activities
               provided a means of evaluating and deciding among major alternative
               methods of accomplishing military missions. Planning horizons were also
               extended with the development of a 5-year defense plan.

               On August 25, 1965, President Johnson announced his intention to
               introduce PPBS on a governmentwide basis, asserting that three major
               objectives would be achieved:

               “(1) It will help us find new ways to do jobs faster, to do jobs better, and to do jobs less
               expensively. (2) It will insure a much sounder judgment through more accurate
               information, pinpointing those things that we ought to do more, spotlighting those things
               that we ought to do less. (3) It will make our decision-making process as up-to-date, I think,
               as our space-exploring program.”




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                 Appendix III
                 Planning-Programming-Budgeting-System
                 (PPBS)




                 There were distinct differences between DOD approaches and the
Implementation   subsequent governmentwide implementation of PPBS. DOD implementation
Approaches       involved several hundred analysts and over 10 years of contractor-assisted
                 development efforts. DOD introduced three key phases of activity for
                 implementing PPBS: (1) reviewing requirements, (2) formulating and
                 reviewing programs, extended several years into the future, and
                 (3) developing annual budget estimates. The first two phases were
                 continual, year-round efforts that resulted in a 5-year program plan for the
                 entire defense establishment. In phase three, the budget year requirements
                 established in the 5-year program plan are separated out into an annual
                 budget request.

                 In contrast to this phased approach used at DOD, governmentwide
                 implementation of PPBS was expected to be accomplished in less than 6
                 months. On October 12, 1965, less than 2 months after the formal
                 announcement of PPBS, the Bureau of the Budget (BOB) issued Bulletin 66-3
                 which provided agency guidance and instructions for implementing PPBS.
                 Overall, 22 executive departments and establishments were mandated and
                 17 smaller agencies were encouraged to implement PPBS. Bulletin 66-3 gave
                 agencies 10 days to designate an official responsible for their PPBS system
                 and to report their choice to BOB. Within the next 20 days, agencies were to
                 make tentative decisions on their broad program categories. Agency
                 instructions, procedures, or regulations regarding PPBS implementation
                 were to be forwarded to BOB within the next 2 months. A final Program
                 Structure, approved by the director of the agency, was expected by
                 February 1, 1966.

                 Program Structures were the basic foundation of the PPBS system,
                 designed to provide a coherent statement of a national need, an agency’s
                 authority to fill that need, and the activities planned to meet that need. BOB
                 expected agencies to categorize all operations and activities in output
                 oriented terms reflecting each agency’s objectives. Three subdivisions of
                 activities were available within the Program Structure: (1) program
                 categories, defined as activities with similar broad missions, (2) program
                 subcategories, defined as subdivisions of narrower objectives, and
                 (3) program elements, defined as the specific products (e.g., goods and
                 services) contributing to agency objectives. For example, if education is a
                 sample Program Structure, a program category might be secondary
                 education; subcategories might include college preparatory and vocational
                 activities; and program elements might include facilities, books, and
                 teachers.




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Appendix III
Planning-Programming-Budgeting-System
(PPBS)




Three documents were expected to provide data on Program Structures:
Program and Financial Plans (PFP), Program Memoranda (PM) and Special
Studies. The PFP were similar to the DOD 5-year plan, containing multiyear
descriptions of program objectives and accomplishments in quantitative
nonfinancial terms related to the universe of need. PM were expected to
describe agency program categories, summarize PFP data, and delineate
recommended programs. Agencies were to illustrate how they would
achieve national needs, showing costs and effectiveness of alternative
objectives, program types, and levels of operation. Furthermore, PM should
include any assumptions and uncertainties on the cost and criteria used to
support agency recommendations and estimates. Special Studies were
expected to vary greatly in scope and were carried out in response to
agency top management or BOB inquiries, or at the initiative of analytic
staff.

Contrary to expected time frames, PPBS implementation proceeded
slowly—even after several years of effort. In November of 1966, President
Johnson issued a memorandum to Cabinet members and agency heads
stating that too many agencies had been slow in establishing PPBS and that
PPBS had not been used to make top management decisions. The President
urged personal participation of agency heads and instructed the Director
of BOB to review and report on agency progress in implementing PPBS.
Nevertheless, fully 2 years into implementation, agency directors and
former BOB officials testified that implementation was proceeding more
slowly than hoped. Some agencies characterized their efforts as in the
beginning stages or as requiring several more years before achieving
notable results. Others reported that new information systems had to be
developed or devised in order to track data on a program or mission basis.

As originally designed, PPBS information systems were not expected to
correlate to the Presidents’ budget submission to the Congress. Instead,
agency operating budgets—used to allocate resources and control
day-to-day operations—were expected to conform gradually with PFP.
Hence, BOB did not expect changes to the President’s budget or to the
internal submission of annual budget requests to BOB. Bulletin No. 66-3, the
first guidance on implementing PPBS, specifically noted:

“The introduction of the Planning, Programming, and Budgeting system will not, by itself,
require any changes in the form in which budget appropriation requests are sent to
Congress. Further, this Bulletin is not to be interpreted to set forth changes in the format of
annual budget submissions to the Budget Bureau.”




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          Appendix III
          Planning-Programming-Budgeting-System
          (PPBS)




          However, to affect resource allocation decisions made within the
          executive branch, PPBS reports were timed to occur with the BOB budget
          preparation schedule. PM and Special Studies were expected to be used
          during the BOB spring review of the budget, when agencies and BOB would
          develop initial estimates of budgetary need and PFP was expected to be
          used during the fall as agencies developed annual budget requests for BOB.
          The result was two tracks of budget information: one which addressed the
          new PPBS requirements and one which addressed the existing BOB
          requirements for submitting the President’s budget to the Congress.

          This separation between Program Structures and the President’s budget
          created an implementation burden that later BOB bulletins tried to address,
          primarily by devising a more concrete link between PPBS and the budget. In
          July 1967, a second BOB bulletin (No. 68-2) directed agencies to provide a
          crosswalk—or a reconciliation—between their PPBS and appropriations
          structures. The crosswalk was to be sufficient to ensure that the budget
          submission was consistent with the intent of the program decisions. In
          1968, the Congress requested and received an accompanying commentary
          to BOB’s third bulletin (No. 68-9); the commentary noted that the
          then-current “two-track system” of program and appropriation structures
          was confusing and causing an undue burden. Agencies were asked to
          consider changing their PPBS program structures so as to avoid crosswalks
          and integrate PPBS and appropriations structures.

          Subsequent BOB guidances made procedural changes to the PPBS system,
          primarily limiting the scope and magnitude of reporting requirements for
          agencies and increasing staff hiring and training. Although originally
          allowed to include unlimited program proposals without regard to agency
          budget levels, the PFP requirements became limited to budgeted activities.
          Noting that many PM lacked analysis of major alternatives, policy
          decisions, or strategies directed towards specific outputs, BOB dramatically
          reduced its requests for major policy issues presented in PM documents.
          Further, BOB provided agencies extra preparation time for PM, and pledged
          assistance with the analysis and review of major policy issues. Lastly,
          during the first two years of implementation, almost 900 PPBS-specific
          positions were created, of which almost 400 were filled through new hires.
          Four years into implementation, over 4,500 staff had attended PPBS training
          sessions.


          While DOD continues to use PPBS procedures today, the governmentwide
Results   initiative begun with such great promise in 1966 was formally discontinued



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Appendix III
Planning-Programming-Budgeting-System
(PPBS)




in 1971 with remarkably little comment. Some observers and participants
faulted the implementation process, contrasting DOD’s 10 years of
preparation with a significantly shorter governmentwide implementation
period. A former agency official charged that PPBS was implemented
indiscriminately, with agencies lacking the capability to perform PPBS
activities, and BOB lacking the competence to guide them. Others said PPBS
failed to garner the necessary support it needed because it affected the
balance of power between the executive and legislative branches.

PPBS participants and observers cited many problems developing measures
and analysis techniques, as well as incorporating results into
decision-making practices. Congressional hearings reviewed executive
approaches to estimating, measuring, and valuing benefits, ultimately
recommending the use of standard interest rates and discount policies. A
GAO report cited several obstacles to relating output measures to program
benefits; for example the report noted that the increased use of grants
meant that program outputs could not be obtained due to a “rather loose
and intermittent” federal control over grantees’ program performance.1
Some members of Congress questioned the broader purposes and
accomplishments of PPBS as a decision-making tool, particularly in light of
the impact of assumptions on analysis results; they further noted that their
lack of access to PPBS documents placed them at a disadvantage in
considering resource allocation questions. Some agencies cautioned that
PPBS analysis could not substitute for inherently political decisions such as
the allocation of resources among different priorities (e.g., health v.
education); others asserted that decisions for certain federal
functions—such as foreign affairs—could not be relegated to systems
analysis. Other observers found PPBS unrealistic because it attempted to
improve decision-making without recognizing the differing goals and
interests of the decisionmakers.

Over 3 years into PPBS implementation, the Joint Economic Committee of
the Congress published a compendium of papers on the analysis and
evaluation of public expenditures in PPBS.2 In this compendium, an
Assistant Director for Program Evaluation at BOB noted that expectations
for PPBS needed to be constrained by certain realities of the federal
environment, namely


1
Survey of Progress in Implementing the Planning-Programming-Budgeting System in Executive
Agencies (B-115398, July 29, 1969).
2
 The Analysis and Evaluation of Public Expenditures: the PPB system, a compendium of papers
submitted to the Subcommittee on Economy in Government of the Joint Economic Committee,
Congress of the United States, U.S. Government Printing Office, Washington: 1969.



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    Appendix III
    Planning-Programming-Budgeting-System
    (PPBS)




•   Governments operate with limited resources, and the demand for these
    resources always exceeds the available supply.
•   Past resource commitments place heavy constraints on current budgets,
    providing limited control over resource allocation.
•   Workable program measurement techniques are difficult to achieve,
    particularly given the complexity and size of the federal government.
•   Implementation of new ideas can be slowed by the size of government, the
    inherent uncertainties of its tasks, and the high degree of coordination
    needed.
•   Often there are political and moral claims made on the federal government
    which do not necessarily reflect an interest in cost effectiveness or
    efficiency.
•   The resource allocation process in government is not well linked to
    planning, as these activities serve different needs and respond to different
    time frames.
•   Once a budget is established, there is minimal accountability for
    performance.3

    Although it failed as a governmentwide performance budgeting initiative,
    PPBS is credited with instituting improvements in federal program
    management. PPBS allowed agencies to reappraise their mission and
    functions; accumulate better information on inputs, outputs, and their
    relationship to objectives; and increase top official interest over planning,
    budgeting, and performance. Furthermore, decisionmakers increased the
    use of systems analysis, recognizing its value as a means of better
    understanding outputs, benefits, and costs. Finally, PPBS left a
    long-standing legacy of increases in the amount and quality of program
    evaluation in the federal government.

    Despite the immense implementation difficulties—a truncated start-up,
    significant increases in paperwork, problems measuring program benefits
    and costs, and complex crosswalks to link program and budget
    structures—few individuals argued against the goals of PPBS. Some argued
    for its continuation, asserting that the goals and purposes of PPBS were
    critical to improving government operations. At a congressional hearing in
    1970, one former HEW official summarized this view in the following
    manner.

    “. . . Rekindle the spluttering flame of PPB[S] . . . . In my judgment PPB[S] is absolutely
    right in concept. It requires more sustained support from the Congress, the White House,


    3
    “The Status and Next Steps for Planning, Programming, and Budgeting,” by Jack W. Carlson, Assistant
    Director for Program Evaluation, BOB.



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Appendix III
Planning-Programming-Budgeting-System
(PPBS)




and the BOB. It requires patience. Its message and value is care in considering what the
Government has done and might do. New initials will be needed but the job must be done.”4




4
 Statement of William Gorham, formerly Assistant Secretary for Program Coordination at HEW, in a
hearing before the Subcommittee on Economy in Government of the Joint Economic Committee,
Congress of the United States, 91st Congress, Second Session, June 2, 1970.



Page 41                                                GAO/AIMD-97-46 Performance Budgeting
Appendix IV

Management by Objectives (MBO)


                 During the 1960’s a bipartisan consensus developed that federal
Context          management needed improvement. A study requested by President
                 Johnson in 1966 and carried out by the Heineman Task Force criticized the
                 federal government’s management of the new Great Society programs. The
                 Task Force recommended strengthening the management responsibilities
                 of the then-Bureau of the Budget (BOB). In 1970 President Nixon proposed
                 changing BOB into a new Office of Management and Budget (OMB), with the
                 new agency expected to give greater attention to federal management
                 issues.

                 To gain greater administrative control over major executive branch
                 departments and agencies, President Nixon proposed a new
                 governmentwide initiative: Management by Objectives (MBO). MBO was a
                 popular management technique used in the private sector and had also
                 been implemented at the Department of Health, Education, and Welfare
                 during the President’s first term. MBO was intended to centralize
                 goal-setting decisions while at the same time allowing managers to choose
                 how to achieve the goals. It focused on tracking progress toward goals
                 previously agreed upon between a supervisor and subordinate.


                 President Nixon formally initiated MBO in an April 18, 1973, memorandum
Implementation   to 21 agencies, which included the 11 cabinet departments and constituted
Approaches       about 95 percent of the budget and federal employees. President Nixon
                 stated: “I am now asking each department and agency head to seek a
                 sharper focus on the results which the various activities under his or her
                 direction are aimed at achieving. . . . This conscious emphasis on setting
                 goals and then achieving results will substantially enhance federal
                 program performance.” A follow-up memo to the MBO department heads
                 from the Director of OMB further explained that the new initiative aimed at
                 better communication, faster identification of problems, and greater
                 accountability of managers to supervisors. Ultimately, the OMB Director
                 stated, MBO would lay the groundwork for the President to decentralize
                 more responsibility to the agencies.

                 In his April 1973 letter, the President asked each agency to propose the 10
                 or 15 most important objectives—referred to as “presidential
                 objectives”—to be accomplished in the coming year; the goal was to
                 identify 100 presidential objectives. Different agencies were given different
                 deadlines, varying between 2 and 8 weeks, to submit proposals.
                 Subsequently, agencies were told that their search for objectives need not
                 be limited to their proposals to the President. Agencies were encouraged



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Appendix IV
Management by Objectives (MBO)




to identify additional objectives, to track progress towards achieving them,
and to use MBO in all aspects of their operations.

OMB  was to play a key role in implementing MBO. As part of MBO
implementation, a new position within OMB was created: the “management
associate.” Thirty management associates with varying backgrounds, some
with government experience and some without, were hired. Their
responsibilities would include providing day-to-day assistance to the
departments in preparing objectives, tracking progress, working closely
with OMB budget examiners, and providing technical assistance to agency
staff and OMB top management to help implement the initiative. In addition,
staff were specially selected to implement MBO at the agencies and were
generally located between the Office of the Secretary and program
managers.

OMB statements emphasized that the initiative was to be conducted with a
minimum of paperwork. Face-to-face meetings were to be held roughly
every 2 months between top OMB and agency staff. The meetings were to
focus on agency progress in achieving objectives, problems requiring top
management attention, and any changes to objectives. Some existing OMB
requirements were eliminated as a way of encouraging agency acceptance
of the new initiative.

OMB gave agencies some guidelines on their proposals for presidential
objectives. In proposing presidential objectives, agencies were to consider
the importance to the President’s agenda, measurability, and the ability to
achieve the objective without additional resources and within 1 year.
Agencies were to identify objectives on their own—that is, without
intervention by OMB—and were asked to develop action plans with specific
milestones for accomplishing objectives. All objectives were to be linked
to the organizational units that would be held accountable for achieving
them. If circumstances warranted, objectives could be changed during the
year. OMB would review agencies’ proposed presidential objectives as well
as track progress toward achieving them. In its first year, no explicit
connection of MBO to the budget process was attempted.

MBO fell far short of expectations during its first year. Although 20 of the 21
MBO agencies had identified presidential objectives and 18 had progress
tracking systems in place by the end of the first year, many other
important implementation steps were not achieved. For example,
management conferences were held, although not as often as originally
planned with 4 to 6 months passing between conferences for some



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          Appendix IV
          Management by Objectives (MBO)




          agencies. Despite OMB’s intention to address this problem, scheduled
          meetings continued to be canceled frequently. And, as MBO reviews were
          increasingly done at the staff level, rather than at the OMB and agency head
          level, MBO paperwork increased. At OMB, tensions initially developed
          between the new management associates and OMB’s budget examiners; this
          eased to some extent as the management associates found that monitoring
          agency objectives was not a full-time task, especially given the associates’
          lack of control over agency actions. Increasingly the management
          associates became involved in non-MBO tasks such as doing special studies.
          Most importantly, presidential involvement in MBO also faltered during
          1974, affecting agency implementation and acceptance of MBO.

          In the second year of MBO, an attempt was made to re-emphasize MBO by
          linking objectives with agency budget submissions. In a February 1974
          meeting, OMB informed agency heads that their 1976 budget requests were
          to be based on their presidential and agency (secretarial) objectives. OMB
          hoped that this would increase the permanence of MBO and encourage
          more explicit statements of the purposes for which money was to be
          spent. In June 1974, OMB asked the 21 MBO agencies to identify selected
          objectives in the letters transmitting their budget requests to OMB; these
          objectives were to be discussed in depth in the budget justifications.
          Agencies were told to “be prepared to provide” outlay estimates and
          “preliminary” schedules of milestones upon request, but were not required
          to include action plans. In August 1974, President Nixon resigned and,
          shortly after taking office, President Ford endorsed agencies’ proposed
          1975 Presidential objectives. These were the last presidential objectives
          requested under MBO.


          Although certainly affected by President Nixon’s resignation, the MBO
Results   initiative suffered from its initial separation from existing budget
          formulation processes and from problems in identifying and measuring
          objectives. Efforts in the second year to tie the MBO initiative to the
          budget’s priority setting processes were quickly overwhelmed by its early
          demise. The President’s request that agencies focus on results and express
          those results in measurable terms did not make the practice of
          performance measurement any easier. For various reasons agencies found
          this difficult to do. Not surprisingly, as initially submitted to OMB, agencies’
          objectives were often vaguely worded (e.g., “the abolition of crime in
          society” or “to make the U. S. Merchant Marine the most competitive in the
          world”) and not easily measurable. In addition, agency objectives often
          dealt with matters not achievable within a single year (such as finding a



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Appendix IV
Management by Objectives (MBO)




cure for cancer) or were beyond the control of agency managers (such as
improving water quality), making accountability problematic.

Despite these issues and its brief life as a formal initiative, proponents
believe that MBO had positive results in both the short and long term. For
the administration that proposed it, the MBO initiative enhanced its ability
to explain the President’s agenda to the public—for example, the emphasis
on transferring more federal power to cities and states. Some OMB staff and
agency officials found MBO valuable as an internal agency management
process, helping to clarify goals and associated activities. To some extent,
the basic concepts of MBO—negotiating goals and holding subordinates
accountable for achieving them—have survived in federal management
practices. In addition, the potential of MBO as a tool for articulating
presidential agendas and linking them with the budget was later confirmed
by a similar initiative under President Bush; this initiative included
publishing presidentially approved objectives, the resources needed to
achieve them, and relevant accomplishments in the President’s Budget.
And issues raised during MBO concerning the difficulties inherent in
identifying and measuring federal outcomes would remain for later
initiatives to address.




Page 45                                   GAO/AIMD-97-46 Performance Budgeting
Appendix V

Zero-Base Budgeting (ZBB)


                 In the mid 1970s, the annual deficit was a matter of public debate. By 1977
Context          the annual deficit had been above $50 billion for 2 years, reaching a
                 post-World War II high of $73.8 billion for fiscal 1976. A general sense
                 existed that federal spending was out of control, with much of it no longer
                 subject to annual appropriations but driven by permanent entitlement
                 programs and multiyear budgetary authority.

                 During 1976, the Congress and Candidate Jimmy Carter had responded to
                 the new budget situation. Beginning in the spring the Congress held
                 hearings on proposals for so-called “sunset” legislation that would have
                 required periodic zero-base reviews of all federal programs by their
                 congressional authorizing committees. Sunset proposals, however, did not
                 become law. While campaigning for the presidency, Jimmy Carter
                 promised to balance the budget within his first term and to reform the
                 federal budgeting system, which he characterized as “inefficient, chaotic,
                 and virtually uncontrollable by either the President or the Congress.” To
                 these ends he had promised to introduce zero-base budgeting (ZBB), which
                 he had used as Governor of Georgia and which also had been discussed in
                 sunset hearings. In fall 1976, congressional appropriations committees
                 asked selected independent agencies to pilot test the applicability of ZBB
                 concepts to legislative decision-making.

                 Used in private industry as well as in some state and local governments,
                 ZBB in theory required expenditure proposals to compete for funding on an
                 equal—starting from “zero”—basis. ZBB prepares a detailed identification
                 and evaluation of all activities together with alternatives, and spending
                 necessary to achieve desired plans and goals. Where federal budgeting in
                 recent years had made incremental changes to an accepted base of past
                 spending, ZBB in contrast sought to look below the base, evaluating the
                 efficiency and effectiveness of current operations and comparing the
                 needs of one program against the needs of other programs that might be of
                 higher priority. ZBB also looked to a greater involvement of program
                 managers in budgeting as a way to identify new efficiencies and to
                 incorporate better analysis into budget decision-making.


                 On February 14, 1977, shortly after his inauguration, President Carter
Implementation   issued a memorandum to the heads of executive departments and agencies
Approaches       mandating use of zero-base budgeting for all fiscal year 1979 agency
                 budget requests. The memorandum mandated that a new ZBB budget
                 process would replace—not simply accompany or link to—the existing
                 executive branch budget formulation process for all budget proposals in



                 Page 46                                   GAO/AIMD-97-46 Performance Budgeting
    Appendix V
    Zero-Base Budgeting (ZBB)




    the immediately upcoming budget cycle. Consistent with an emphasis in
    ZBB theory on a close link between planning with budgeting, federal
    planning and budgeting under ZBB were to be done at the same time, in a
    single process. In contrast to its implementation of PPBS and MBO, OMB did
    not add or create a special staff for ZBB. Federal managers and budgeteers
    were expected to implement the new initiative. ZBB would not affect
    budget materials provided to congressional appropriations or authorizing
    committees, nor would it change the form of the President’s Budget.

    Formal implementation steps were taken within 2 months of the
    memorandum. On March 21, 1977, OMB sent agencies draft ZBB guidelines
    for comment, issuing final guidance on April 19 as Bulletin 77-9. In effect,
    agencies were given a lead time of about 6 months before final budget
    submissions were due to OMB. Agencies were to set up their own ZBB
    systems using the steps outlined in the Bulletin as a framework. Among
    other new requirements, agencies were asked to identify the “decision
    units” for which budget requests would be made. A decision unit was to be

•   “at an organizational or program level at which the manager makes major
    decisions on the amount of spending and the scope, direction, or quality of
    work to be performed.”
•   “not so low in the structure as to result in excessive paperwork and review
    . . . [nor] so high as to mask important considerations and prevent
    meaningful review of the work being performed.”
•   “normally . . . included within a single account, be classified in only one
    budget subfunction, and to the extent possible, reflect existing program
    and organizational structures that have accounting support.”

    In all cases, the guidance stated, the identification of the decision units
    was to be determined by the information needs of top management.
    Budget requests for each decision unit were to be prepared by their
    managers, who would (1) identify alternative approaches to achieving the
    unit’s objectives, (2) identify several alternative funding levels, including a
    “minimum” level normally below current funding, (3) prepare “decision
    packages” according to a prescribed format for each unit, including budget
    and performance information, and (4) rank the decision packages against
    each other in a series of steps, beginning with program managers and
    proceeding up the hierarchy. The results of the ZBB process would be
    agency budget justifications and rankings, with the latter required to be
    submitted to OMB but not to the Congress. With OMB’s approval, agencies
    could consolidate decision units as a means to minimize paperwork and
    the review burden on top management.



    Page 47                                     GAO/AIMD-97-46 Performance Budgeting
Appendix V
Zero-Base Budgeting (ZBB)




The guidance also required agencies to set objectives and performance
indicators at the beginning of their ZBB process. Top and program
managers were to set objectives as “explicit statements of intended
output, clearly related to the basic need for which the program or
organization exists.” Concurrently they were to identify the key indicators
to be used in measuring performance and results. These should be
“measures of effectiveness, efficiency, and workload for each decision
unit. These measures can often be obtained from existing evaluation and
workload measurement systems.” Indirect or proxy indicators could be
used if these systems did not exist or were under development. A “lack of
precise identification and quantification of such objectives,” however,
would “not preclude the development and implementation of zero-base
budgeting procedures.”

Despite considerable variation in how agencies implemented ZBB, some
patterns can be discerned. Some agencies tended to associate their
decision units with their account structure or, within their account
structure, with their program activities. Some agencies did not identify
minimums below current funding, and many identified minimums as an
arbitrary percentage of current funding, generally between 75 and
90 percent. Agencies also made use of the option to consolidate decision
units and often set initial decision units at high organizational levels (e.g.,
the division level or higher). Lastly, one study of several agencies found
that fewer than half the decision packages examined had quantifiable
accomplishments, workload, or unit cost information.

The next year, in May 5, 1978, OMB issued Circular A-115, which revised
some aspects of the ZBB process. Addressing problems with objectives and
performance information, OMB now urged agencies to use the results of
their performance evaluations in analyzing alternative methods of
accomplishing objectives and in analyzing anticipated accomplishments
identified with each level of performance. The circular also strengthened
language dealing with the objective-setting requirement. The guidance on
selecting decision units, preparing rankings, and consolidation was
clarified. A requirement to train staff before they participated in the ZBB
process was also added. In other respects, however, ZBB requirements
were unchanged. For example, no provision was made for a separate
planning phase, and the requirement to prepare decision packages for all
budget requests, including those for mandatory programs, remained.

The budget that resulted from agencies’ and OMB’s first year of ZBB efforts
disappointed some observers. Few significant budgetary actions were



Page 48                                      GAO/AIMD-97-46 Performance Budgeting
          Appendix V
          Zero-Base Budgeting (ZBB)




          identified as resulting from ZBB, and some questioned the utility of the
          many hours spent by program managers, budgeteers, and top managers on
          ZBB. In the following year, agency budget justifications to OMB continued to
          be prepared using ZBB, but agency budget justifications to the Congress
          continued to be prepared as in the past, largely without reference to
          agencies’ ZBB information.

          As the Carter presidency proceeded, less and less attention was devoted in
          the Budget Message to the role and claimed achievements of ZBB. On
          August 7, 1981, in the first year of the succeeding administration, OMB
          rescinded circular A-115 requiring agencies to have ZBB systems. Some ZBB
          requirements, however, survived beyond the formal life of the initiative.
          Requirements for agencies to identify “decision units” and prepare
          consolidated rankings remained until May 1986. A requirement to identify
          three funding levels lasted even longer, remaining until 1994, as did an OMB
          option to request that the agency present a “consolidated” ranking of
          “program elements and related funding levels.”


          In one sense, ZBB was successfully implemented: all agencies submitted
Results   the required paperwork on time. By the end of ZBB’s first budget year,
          agencies had prepared about 25,000 internal decision packages and
          submitted about 10,000 of these to OMB. But in essential ways federal ZBB
          had not been an exercise in zero-basing a budget. The widespread use of
          arbitrarily chosen percentages to identify alternative funding levels, rather
          than analysis based on program knowledge and performance information,
          precluded genuine zero-basing, as did consolidation and selection of initial
          decision units at high levels in the organization.

          From the beginning, paperwork burden for federal managers constituted a
          significant implementation problem. One study estimated that paperwork
          increased, on average, 229 percent in ZBB’s first year. In addition to the ZBB
          packages, agencies had to prepare separate budget materials, often using
          different categories, for OMB, appropriations, and authorizing committees.
          Preparing crosswalks between these added to agency burden.

          Agencies believed that inadequate time had been allowed to implement the
          new initiative. The requirement to compress planning and budgeting
          functions within the timeframes of the budget cycle had proven especially
          difficult, affecting program managers’ ability to identify alternative
          approaches to accomplishing agency objectives. Some agency officials
          also believed that the performance information needed for ZBB analysis



          Page 49                                    GAO/AIMD-97-46 Performance Budgeting
Appendix V
Zero-Base Budgeting (ZBB)




was lacking. Available information concerned processes and activities, not
how well these processes and activities performed. Agencies also
questioned the need to prepare and rank decision packages for programs
whose spending levels were outside their control. For example, the
Department of Health, Education, and Welfare did not identify minimum
levels for social security and other programs where it believed spending
was uncontrollable; Treasury stated it saw little use in ranking decision
packages for interest on the debt since the interest would have to be paid
in any case. Paperwork and other burden and technical difficulties were
compounded by agency perceptions that OMB had not used the results of
agencies’ ZBB efforts in its budget decision-making.

In Congress, the results of the congressionally requested ZBB pilots, made
public in June 1977 cast doubts on ZBB’s suitability as a potential tool for
congressional decision-making. One major thrust of the pilots had been to
see whether ZBB rankings—comparing priorities of “decision packages”
against one another—could be used by appropriators to identify the
impact of budget cuts. The results of the pilots were not encouraging. In
one pilot, the agency had failed to set minimums below current funding for
over one-third of its decision units and refused to rank its decision
packages because the process-oriented program activity structure of the
agency’s budget was too interdependent to permit meaningful ranking.
The lack of cost accounting information needed to identify alternative
funding levels was also cited as a technical problem. Finally, the level of
burden and paperwork was a problem for both for agencies and
appropriators. In one typical case, 362 pages were needed for an agency’s
ZBB-based budget justification versus 72 pages for its non-ZBB justification.


The results of the congressional pilots were largely consistent with later
agency experiences. No mechanism existed, however, to incorporate
lessons learned from the congressional pilots into executive branch ZBB
implementation. By the time OMB sent agencies a survey in October 11,
1977, seeking their views on implementation problems and proposed
solutions, the gaps between ZBB’s initial promise and its first year results
were becoming apparent.

Despite implementation problems and the relatively short time span in
which all its elements were required, federal ZBB has been credited with
some positive results. Some participants in the budget process as well as
other observers attributed certain program efficiencies, arising from the
consideration of alternatives, to ZBB. Interestingly, ZBB established within




Page 50                                     GAO/AIMD-97-46 Performance Budgeting
Appendix V
Zero-Base Budgeting (ZBB)




federal budgeting a requirement to present alternative levels of funding
linked to alternative results—a requirement that lasted until 1994.




Page 51                                   GAO/AIMD-97-46 Performance Budgeting
Appendix VI

Overview of the Government Performance
and Results Act

                  GPRA seeks to promote greater public confidence in the institutions of
                  government through a better reporting and accounting for the outcomes of
                  federal programs. As stated in the act, the goals of GPRA are to

                  “(1) improve the confidence of the American people in the capability of the Federal
                  Government, by systematically holding Federal agencies accountable for achieving
                  program results;


                  (2) initiate program performance reform with a series of pilot projects in setting program
                  goals, measuring program performance against those goals, and reporting publicly on their
                  progress;


                  (3) improve Federal program effectiveness and public accountability by promoting a new
                  focus on results, service quality, and customer satisfaction;


                  (4) help Federal managers improve service delivery, by requiring that they plan for meeting
                  program objectives and by providing them with information about program results and
                  service quality;


                  (5) improve congressional decisionmaking by providing more objective information on
                  achieving statutory objectives, and on the relative effectiveness and efficiency of Federal
                  programs and spending; and


                  (6) improve internal management of the Federal Government.”1


                  From these broad purposes, a system of interrelated plans and reports
                  provides the basis for linking federal resources and results, with
                  requirements and new concepts piloted before governmentwide
                  application.

                  GPRA  requires each agency to develop strategic plans covering a period of
Strategic Plans   at least 5 years. Agencies’ strategic plans must include the agency’s
                  mission statement; identify long-term general goals, including
                  outcome-related goals and objectives; and describe how the agency
                  intends to achieve these goals through its activities and through its human,
                  capital, information, and other resources. Under GPRA, agency strategic
                  plans are the starting point for agencies to set annual program goals and to
                  measure program performance in achieving those goals. To this end,
                  strategic plans are to include a description of how long-term general goals
                  will be related to annual performance goals as well as a description of the
                  program evaluations used in establishing goals. As part of the strategic

                  1
                   P.L. 103-62, sec. 2.



                  Page 52                                             GAO/AIMD-97-46 Performance Budgeting
                     Appendix VI
                     Overview of the Government Performance
                     and Results Act




                     planning process, agencies are required to consult with the Congress as
                     well as solicit the views of other stakeholders. Agencies’ first strategic
                     plans are to be submitted to the Director of OMB and the Congress by the
                     end of fiscal year 1997. Strategic plans must be updated at least every 3
                     years.


                     GPRA  also requires each agency to prepare an annual performance plan that
Annual Performance   includes the performance indicators that will be used to measure “the
Plans                relevant outputs, service levels, and outcomes of each program activity” in
                     an agency’s budget. The annual performance plan is to provide the direct
                     link between strategic goals outlined in the agency’s strategic plan and
                     what managers and employees do day-to-day. When an agency believes it
                     is not possible to express a measurable goal for a program activity, the
                     agency may ask OMB’s authorization to use a nonquantifiable goal. In
                     addition, GPRA allows agencies to aggregate, disaggregate, or consolidate
                     program activities for purposes of performance planning. These plans are
                     also to be used by OMB to develop an overall federal performance plan for
                     the federal budget, which is to be submitted each year to the Congress
                     with the President’s budget. The first annual performance plans are to be
                     submitted to OMB in the fall of 1997, with the first overall federal
                     performance plan due for fiscal year 1999.


                     Ultimately, GPRA will require that each agency prepare an annual report on
Annual Performance   program performance for the previous fiscal year. In each report, agencies
Reports              are to review and discuss performance compared with the performance
                     goals established in annual performance plans. When a goal is not met,
                     agencies are to explain the reasons the goal was not met; plans and
                     schedules for meeting the goal; and, if the goal was impractical or not
                     feasible, the reasons for that and the actions recommended. Actions
                     needed to accomplish a goal could include legislative, regulatory, or other
                     actions or, when the agency found a goal to be impractical or infeasible, a
                     discussion of whether the goal ought to be modified. The report is also to
                     include the summary findings of program evaluations completed during
                     the fiscal year covered by the report. Agencies’ first performance reports
                     for fiscal year 1999 are due to the President and the Congress no later than
                     March 31, 2000.2



                     2
                      For fiscal years 2000 and 2001, agencies’ reports are to include performance data beginning with fiscal
                     year 1999. For each subsequent year, agencies are to include performance data for the year covered by
                     the report and 3 prior years.



                     Page 53                                                   GAO/AIMD-97-46 Performance Budgeting
                         Appendix VI
                         Overview of the Government Performance
                         and Results Act




                         In crafting GPRA, the Congress also recognized that managerial
Managerial Flexibility   accountability for results is linked to managers having sufficient flexibility,
                         discretion, and authority to accomplish desired results. GPRA authorizes
                         agencies to apply for managerial flexibility waivers in their annual
                         performance plans beginning with fiscal year 1999. The authority of
                         agencies to request waivers of administrative procedural requirements and
                         controls is intended to provide federal managers with more flexibility to
                         structure agency systems to better support program goals. The
                         nonstatutory requirements that OMB can waive under GPRA generally
                         involve the allocation and use of resources, such as restrictions on shifting
                         funds among items within a budget account. Agencies must report in their
                         annual performance reports on the use and effectiveness of any GPRA
                         managerial flexibility waivers that they receive.


                         GPRA  calls for phased implementation, as described above, beginning with
Implementation           selected pilot projects in performance goals and managerial flexibility in
Approach: Phasing-in     fiscal years 1994 through 1996. These pilots are expected to develop
and Piloting of          experience with GPRA processes and concepts before implementation
                         begins governmentwide in 1997. As of March 1997, 68 pilot projects for
Requirements             performance planning and performance reporting were under way in 28
                         agencies. OMB also is required to select at least five agencies from among
                         the initial pilot agencies to pilot managerial accountability and flexibility
                         for fiscal years 1995 and 1996; however, OMB did not do so. GAO is required
                         to report on governmentwide readiness for implementation by June 1,
                         1997; OMB is required to report on the costs, benefits, and usefulness of the
                         performance planning and measurement pilots by May 1, 1997, identifying
                         any recommended changes in GPRA requirements.

                         GPRA also requires OMB to select at least five agencies, at least three of
                         which have had experience developing performance plans during the
                         initial GPRA pilot phase, to test performance budgeting for fiscal years 1998
                         and 1999. Performance budgets to be prepared by the pilot agencies are
                         intended to provide the Congress with information on the direct
                         relationship between proposed program spending and expected program
                         results and the anticipated effects of varying spending levels on results.
                         OMB is required to report on these pilots by March 31, 2001. OMB’s report is
                         to assess the feasibility of performance budgeting, recommend whether
                         legislation requiring performance budgets should be proposed, and
                         identify any other recommended changes to GPRA requirements.




(935220)                 Page 54                                     GAO/AIMD-97-46 Performance Budgeting
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