oversight

Performance Budgeting: Fiscal Year 2000 Progress in Linking Plans With Budgets

Published by the Government Accountability Office on 1999-07-30.

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

      United States

GAO   General Accounting Office
      Washington, D.C. 20548

      Accounting and Information
      Management Division

      B-233211


      July 30,1999

      The Honorable Fred Thompson
      chairman
      Committee on Governmental &Et&s
      United States Senate

      Subject: Performance Budgeting: Fiscal Year 2000 Progress in Linking Plans With Budgets

      Dear Mr. Chairman

      This correspondence updates our recent report on agencies’fiscal year 1999 experiences in
      linking plans and budgets under the Govemment Performance and Results Act of 1993 (the
      Results Act).’ You requested that, using the fiscal year 2000 performance plans of the 35
      agencies* reviewed in that report, we (1) ident@ agencies that allocated program activil$
      funding to performance goals in their fiscal year 2000 performance plans and (2) discuss the
      progress agencies have shown in making these allocations. Allocating program activity
      funding to performance goals is a critical first step in de&ring the performance consequences
      of budgetary decisions.

      To respond to your request, we applied the methodology used in our previous report’ to
      identify which of the 35 agencies in our review allocated program activity funding to
      performance goals. To gauge agencies’progress in meeting this important element of the
      Results Act, we assessed whether the 35 agency plans had shown progress in (1) defining
      relationships between program activities and performance goals and (2) presenting funding
      levels for sets of performance goals. Cur assessment of agencies’progress on other elements
      of informative performance plans, such as performance goals or strategies to resolve mission-
      critical management problems and descriptions of efforts to verify and validate performance
      data, are included in a companion report to you5 We provided a draft of this correspondence

      L
            rmance Budgetine: Initial Exoeriences Under the Results Act in Link& Plans With Bude& (GAOk.IMD~GGD-99-57,
      April 12,1999).

      %ee enclo-sureI for a Iist of these agencies and the methodology used to select them. In this report, we refer to a perfomxmce
      plan, whether of a department, agency, or bureau, as an “agency plan.”

      ?+heterm 3rogram activity” refers to the list of projects and activities in the appendix portion of the Budget of the United States
      Government Subject to clearance by the Of&e of Management and Budget and generally resulting from negotiations between
      agencies and appropriations subcommittees, program activity strnctures are intended to provide a meanh@ul represent&ion of
      the operations financed by a specific budget account

      ‘GAOkIMDtGGD-99-67, April 12,1999.

      wana@ne fo Results Oanorhtnities for Continued Imnrovements in &en&s              Performance Plans,(GAO/GGD/AIMD-99-215,
      July 2a,l999;.



                                                    /6%/d”                  GAO/AMD-99-239R Performance Budgeting
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to the Office of Management and Budget (OMB) for comment. Enclosure I provides more
details on our scope and methodology.

Results   in Brief

Although the number of plans that clearly showed how program activity funding would be
allocated to achieve performance rose only slightly between fiscal years 1999 and 2000 (from
14 to 15 of the 35 plans we reviewed), noteworthy progress in showing the performance
consequences of budget decisions was made; Two agencies-the Federal Aviation
Admimstration (FAA) and the Social Security Administration (SSA)-made such allocations
for the first time in their fiscal year 2000 plans. Also, more agencies than last year (26 versus
20) moved beyond the act’s requirement to link program activities and performance goals by
indicating the funding levels needed to achieve performance, even if these agencies did not
always clearly explain how those amounts were derived from the program activities in their
budget requests. However, improvement within our sample of plans was mixed. For
example, we continue to fmd no relationship between program activities and performance
goals for 3 agencies, and 3 other agencies revised their plan presentations in ways that
obscured the relationships that were made in fiscal year 1999.

Cur recent report on agencies’fiscal year 1999experiences in linking budgetary resources
and performance goals described approaches used to show the performance consequences of
budget decisions and the challenges that must be addressedfor effective performance
budgeting. That report recommended that OMB develop a constructive and practical agenda
to clarify the relationship between budgetary resources and results, beginning with specific
guidance for the preparation of agencies’fiscal year 2001performance plans. In July 1999
testimony before the House Subcommittee on Government Management, Information, and
Technology, OMB pledged to begin during the fiscal year 2001 budget formulation process the
performance budgeting pilots called for by the Results Act. Also, in conjunction with its
guidance for the fiscal year 2001 budget preparation process, the Director of OMB described a
set of questions which OMB will discuss with agencies to ensure that the relationship
between budget structure and performance goals is clear and direct. Although OMB’s recent
actions hold promise for reinforcing and advancing agency efforts to connect resources with
results, we stiIl encourage OMB-worIdng with agencies-to formally analyze the approaches
being developed in order to identify and share what is practical regarding performance
budgeting within the federal government.

Backmound

The Results Act is a key component of a statutory framework that the Congress put in place
during the 1990s to promote a new focus on resuks6 Among its several purposes, the act is
designed to improve congressional decision-making by providing information on the relative
effectiveness and efficiency of federal programs and spending. That is, with regard to
spending decisions, the act aims for a closer and clearer link between the process of
allocating resources and the expected results to be achieved with those resources.


Tar a fuller discussion of this framework, see Manaeine fo Results: The Statute Framework for PerformanceBased
Management and AccountabiliQ (GAOIGGDIAIMD-98-52,.J~uary 28,1998).




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‘khe concept of linking performance information with the budget is commonly lmown as
performance budgeting. The Results Act addresses two aspects of performance budgeting.
F’irst, the act requires an agency’s annual performance plan to cover each program activity in
the President’s budget request for that agency.7 This establishes a basic foundation for
performance budgeting. OMB’s guidance regarding this provision of the act set forth an
additional criterion: plans should display, generally by program activity, the funding level to
be applied to achieve performance goals.* That is, OMB expected perforce           plans to show
how amounts .fiom the agency’s budget request would be allocated to the performance goals
displayed in the plan. Subsequently, in its guidance on fiscal year 2000 plans, OMB noted that
it expected to see “significant progress in associating funding with specific performance goals
or sets of goals” in agencies’plans.

In addition to mandating a link between budget requests and performance plans, the act also
required that pilot projects be used to test a specific application of performance budgeting.
OMB, in consultation with the head of each agency, was required to designate for fiscal years
1998 and 1999 at least five agencies to prepare budgets that “present, for one or more of the
major functions and operations of the agency, the varying levels of performance, including
outcome-related performance, that would result from different budgeted amounts.“@
However, due to agencies’difficulties in developing performance measurement and cost
accounting systems, OMB has yet to initiate these pilot~.‘~

Little Chanve in Number of Agencies Allocating
Promam Activitv Fundina to Performance Goals

Of the 35 plans we reviewed, the number of agencies allocating program activity funding to
performance goals rose from 14 in fiscal year 1999 to 15 in fiscal year 2000. This net increase
resulted from two agencies-the Federal Aviation Administration (FAA) and the Social
Security Administration (SSA)-allocating program activity funding to performance goals for
the kst time in fiscal year 2000 and from one agency-the Federal Bureau of Investigation
(FBI)-changing its performance plan structure so that program activity funding was not
being allocated consistently and clearly to performance goals.




‘The Resuks Act gives agencies the flexibility to consohiate, aggregate,or dkaggregate program activities so long as no major
function or operation of the agency is omitted or mininked.

‘PreDaration and Submission of Budget Estimam, Chxlar A-ll,     Sec. 220.9(e),June 23,1997.

51 U.S.C. 1119(b).

‘?For additional discussion of the .performance
                                        .       budgeting pilots, see Performance Bu&etinsz: Initial Aeencv Exoeriences Pro vide
A Foundan‘on to Assess Future Dwect~o~      (GAOR-AIMDIGGD-99-216,July !,1999).




Page 3                                                             GAO/AIMD-99-239R Performance Budgeting
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Figure 1: Agencies Allocating Program Activity Funding to Performance   Goals in Fiscal Year 2000
Performance Plans

 .   Department of Energy                         .    Administration for Children and Families
 0   Customs Service                              .    Employment and Training Administration
 l   Environmental Protection Agency              .    Federal Aviation Administration
 l   Food and Nutrition Service                   .    Health Resources and Services Administration
 .   Internal Revenue Service                     .    National Aeronautics and Space Administration
 l   Nuclear Regulatory Commission                l    Office of Personnel Management
 l   Small Business Administration                .    Social Security Administration
 .   U.S. Agency for International Development

Some Promess Was Made in Showiw the
Performance Conseauences of Budget Decisions

Although there was little change in the number of agency plans in our review that clearly
showed how program activity funding in their budget requests was allocated to performance
goals, more agencies generally indicated the budgetary implications of their fiscal year 2000
performance plans. Notwithstanding a slight increase in the number of agencies that showed
no relationships between their plans and budgets @Yom5 in fiscal year 1999‘to 6 in fiscal year
ZOOO),more agencies (from 20 in fiscal year 1999 to 26 in fiscal year 2000) presented funding
levels for fiscal year 2000 performance goals. Figure 2 shows the year-to-year change in the
status of agency efforts to connect resources to results for the 35 performance plans in our
review.




 Page 4                                               GAO/ADD-99-239R Performance Budgeting            ”
B-283211


Figure 2: Agencies’ Status in Connecting Resources and Results in Fiscal Years 1999 and 2000

     Numberof
     agencies
         16


         14




           6




                             A                          B                         0                           D

                      IFiscalYesr      1999
                      aFiscal     Year 2000



               A - Did not link program activities to performance goals
               B - Linked program activities to pertormance goals but did not show funding levels needed to achieve
                   performance goals
               C - Showed funding levels needed to achieve performance goals but did not show how funding levels
                   were derived from the links made between program activities and performance goals
               D-Translated     links between program activities and performance goals into budgetary terms by
                   allocating funding from program activities to performance goals


A basic requirement of the Results Act is that agencies clearly l&k performance goals to the
program activities in their budget request. Six of the agency plans in our review did not make
this basic connection, representing a slight increase from the fiscal year 1999 plans. (See
column group A in figure 2). Three agencies-the Department of Def&se, the Rural Housing
Service, and the Immigration and Naturalization Service-did not describe this link in either
their fiscal year 1999 or 2000 plans, and three other agencies-the Department of Commerce,
FBI, and the Federal Highway AdrninMration-changed         their f&al year 2000 plan
presentations in a way that obscured relationships that had been shown in their 1999plans.”
For example, in its fiscal year 1999 plan, Commerce related its performance goals and
program activities but did not show how program activity funding would be allocated to
performance goals. In its fiscal year 2000 plan, Commerce presents funding information for
its goals but does not indicate (1) which program activities are associated with these goals or
(2) how these funding levels were derived from the program activities in its budget request.

In contrast, 29 of the 35 plans reviewed met the act’s basic requirement to link program
activities and performance goals and also made varying progress toward presenting the
performance consequences of budget decisions. Three of these agencies-the Department of
Housing and Urban Development, the General Services Administration, and the Occupational
Safety and Health Administration-defined    a relationship between program activities and

“GAOIGGDMMD-99-215 provides amok complete assessment of these plans’strengths and weaknesses.




Page 5                                                                      GAO/AI&ID-99-239R Performance Budgeting
B-283211


performance goals but did not consistently identify funding levels associated with achieving
those goals, this represents a decrease from 10 agencies in fiscal year 1999. (See column
group B in figure 2). The remaining 26 plans-almost three-quarters of the plans we
reviewed, compared to 20 in f&al year 1999-now have met the Act’s requirement to link
program activities and performance goals and also progressed to indicate funding levels
needed to achieve expected performance.

l          As discussed above, 15 agencies followed OMB’s guidance that plans should display by
           program activity the fundingneeded to achieve performance goals. These agencies
           associated funding levels with performance goals and aLsoshowed how those funding
           levels had been derived from the program activities in their budget requests. (See column
           group D in figure 2.)
l          Theremainin g 11 agency plans met the act’s requirement to link expected performance
           with budget program activities but did not describe how funding levels shown in their
           plans had been derived from their budgets. That is, these plans provided some indication
           of the funding levels needed to achieve performance but are not as useful for resource
           docation decisions as they could be because these plans did not clearly show how the
           funding levels related to program activities in the agency’s budget request. (See column
           group C in figure 2.)

Although a few agencies discussed in their fiscal year 2000 performance plans the possibility
of changing their budget account structures to facilitate closer links between resources and
results, none of the agencies we reviewed proposed significant changes.‘2 However, the
Department of Veterans Affairs (VA) and the National Park Service (NPS) recognized
disconnection between their planning and budgeting structures and suggested possible
solutions.

    l       VA’s fiscal year 2000 performance plan presented funding levels needed to achieve the
            performance goals associated with broad programs, such as medical care. However, the
            plan did not explain how the program activities in VA’s budget re&est were allocated to
            each of these programs, indicating only that many program activities related to many.
            programs. In its plan, VA states that it is implementing an activity-based costing system
            and working with OMB on examinin g the agency’s budget account structure in order to,
            among other things, clarify the relationship between resources and results.
    l       Similarly, NPS’f&al year 2000.plan noted that its performance goals might cut across
            several program activities because these activities typically focus on means and strategies
            rather than the agency’s missior~~~In recognition of this difference in orientation, NPS
            created “GPEZAprogram activities” for its performance plan by aggregating, consolidating,
            or disaggregating program activities in its budget request. While the plan showed funding
            levels for the GPRA program activities and performance goals, the plan was not as useful
            for budget decision-making as it could be because the plan did not show how those
            funding levels had been derived from NPS budget program activities.


        “‘In contra& three agencies in our review   proposed
                                                          accountstructure changes
                                                                                in their fixal year 1999performance plans.
        13Fora discussion of Results Act implementation challenges facing NPS, see Jhtional Park Service: Efforts to tink Resources TV
        Results Sumzst Insinhts for Other kencie (GAOJAIMD9~ll3, April 10,199s).




        Page 6                                                              GAO/AIMD-99-239RPerformance Budgeting
B-283211



k Agenda for ImDroviw     the Linkage of
Resources to Results Is Still Needed

The fiscal year 1999 performance planning and budgeting cycle produced useful experiments
in connecting planning and budgeting structures that continued with the fiscal year 2000
plans. Collectively, these plans constitute first steps toward achieving closer hnks between
resources and results and provide a baseline to assess future progress and to determine what
changes, if any, may be needed to the act and to federal budget processes.
Nevertheless, as we have previously reported, challenges in performance planning and
measurement and deficiencies in cost accounting systems continue to confront federal
agencies-l4 In 1997, OMB cited these problems as the reasons why performance budgeting
pilot projects required by the act were not initiated. In 1998, OMB solicited agencies’
comments on these pilots but no agency volunteered to participate.

Recent OMB statements indicate renewed commitment toward progress in this essential area
of Results Act implementation.

l   In July 1999 testimony before the House Subcommittee on Government Management,
    Information, and Technology, OMB’s Acting Deputy Director for Management stated that
    performance budgeting pilot agencies would be selected during the fiscal year 2001
    budget formulation process. OMB intends to work with these pilot agencies to have them
    prepare performance budgets for selected programs or areas and will analyze these
    budgets to determine alternative levels of performance and associated resource needs.
l   Although OMB’s July 1999 guidance for preparing fiscal year 2001 performance plans is
    essentially unchanged from its fiscal year 2000 guidance with regard to plan-budget
    relationships, OMB has supplemented this guidance with a list of questions that it intends
    to ask this year in reviewing agencies’budget submissions.‘5 Several of these questions
    focus on links between plans and budgets. For example, OMB states that it will ask
    whether there is clear evidence that agency budget proposals are aligned with
    performance goals, whether the performance plans and budget justifications are
    meaningfully integrated, and whether the agency has systems for tracking the budgetary
    resources needed to achieve specific goals. Further, in the memorandum transmitting
    these questions and guidance, the Director of OMB states that some agencies can clarify
    the relationship between their budget structures and performance go& through budget
    restructur&tg and encourages such proposals to achieve alignment.

OMB’s actions are generally consistent with the intent of our previous recommendations and
hold promise for reinforcing and advancing agency efforts to better connect resources to
results. In April 1999, we recommended that OMB analyze ftscal year 2000 performance plans
to address what types of.pilot projects might be practical and beneficial, and to determine
when and how those pilots would take place-l6 OMB has not yet detailed how the pilot
projects will be selected or conducted, but initiating the pilot projects should prove useful in
determining what can realistically be expected and achieved regarding performance
“GAOIAIMDIGGD-9947, April 12,1999, and T-AIMD/GGD-99-216,July 1,1999.
                                       . .
“OMB Circular A-11, ~etminc   and Submttmz Budget Ekt~-mates, July 12,1999.

‘6GAOMMD/GGD-99-67, April 12,1999.




Page 7                                                          GAO/AIMD-99-239RPerformance Budgeting
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budgeting within the federal government. We also recommended that OMB develop a
constructive and practical agenda to clarify the relationship between budgetary resources and
expected results, beginning with the fiscal year 2001 plans. OMB’s recent statements and the
list of questions it intends to address during this year’s budget submission reviews indicate
that OMB intends to emphasize and pursue clearer links between planning, performance
measurement, and budgeting.

We are hopeful that OMB’s policy statements will spur further improvement in agencies’
efforts to connect resources to results. However, as we have noted, significant challenges to
performance   budgeting in the federal government remain and will demand sustained
attention and careful analysis. Accordingly, we continue to encourage Omither          on its
own or through its leadership of governmentwide councils--to formally analyze the
approaches that agencies are developing to link performance plans and budget requests in
order to identify and share what is practical and possible with regard to performance
budgeting. This type of formal assessment could provide valuable guidance based on
observed practkes among agencies. It could also offer an essential foundation for OMB’s
report to the Congress in March 2001 on the feasibility and advisability of including a
performance budget as part of the President’s budget and promote a fundamental goal of the
Results Act-that performance plans help the Congress and the public understand what is
being achieved in relation to what is being spent.

Agencv Comments

On July 14,1999, we provided a draft of this letter to the Director of OMB for review and
comment.
    :      On July 20,1999, a senior OMB official told us that OMB had no comments.



As ,?greedwith your office, unless you publicly announce the contents of this letter earlier, we
will not distribute it until 30 days from its date. At that time, we will send copies to Senator
Joseph Lieberman, the Ranking Minority Member of your committee; other appropriate
congressional committees; and The Honorable Jacob Lew, Director, OfEke of Management
and Budget. Copies will be made available to others on request.

Please contact me at (202) 512-9573if you or your st.aEhave any questions concerning this
letter. Michael J. Curro, Laura E. Castro, and Toni J. Wehman were major contributors to this
letter.

Sincerely yours,




Paul L. Posner
Director, Budget Issues

Enclosure




 Page 8                                            GAO/AIMD-99-239R Performance Budgeting
Enclosure 1

                                                   ScoDe and Methodologg

To address our objectives, we reviewed the fiscal year 2000 performance plans of 35 departments
and agencies covered by the Chief Finaucial Officers (CFO) Act. These agencies were originally
selected for review in out previous report on agencies’ initial experiences in linking performance
plans and budget requests.*’In our original selection of these agencies, we generally focused on
bureau-level plans for each department but limited our review to the three largest bureaus with
discretionary spending over $1 billion and/or the two largest bureaus.** Figure I. 1 lists the agencies
whose fiscal year 2000 plans we reviewed.




                ..,;.:*
                        .‘.
             . . ,-‘.
             .i-’
                   .-.
                  ,,




‘%AOMMD~GGlM9-67, April 12,1999.

‘BDiscretionaryspending levels were used as an indication of the bureau’s relevancy to appropriators since discretionary funding is
affected by appropriations actions.




Page 9                                                             GAO/ADD99-239R Performance Budgeting
 Enclosure 1

 Figure 1.1: Plans Reviewed

  Departmentwide Plans
  Department of Commerce
  Department of Defense
  Department of Education
  Department of Energy
  Department of Housing and Urban Development
~ Department of State
1 Department of Veterans Affairs

 Bureau-level Plans
 Department of Agriculture
 .      Food and Nutrition Service
 .      Forest Service
 l      Rural Housing Service
 Department of Health and Human Services
 .      Administration for Children and Families
 .      Health Resources and Services Administration
  .     National Institutes of Health
  Department of the Interior
  l     Bureau of Indian Affairs
  l     Bureau of Land Management
  .     National Park Service
   Department of Justice
   .    Federal Prison System
   .    Federal Bureau of Investigation
   .    Immigration and Naturalization Service
   Department of Labor
    l   Employment and Training Administration
   l    Occupational Safety and Health Administration
    Department of the Treasury
    .   Customs Service
    .   Internal Revenue Service
     Department of Transportation
    0 Federal Aviation Administration
     .  Federal Highway Administration

 Independent Aaencv Plans
 Environmental Protection Agency
 Federal Emergency Management Agency
 General Services Administration
 National Aeronautics and Space Administration
 National Science Foundation
 Nuclear Regulatory Commission
 Office of Personnel Management
 Small Business Administration
 Social Security Administration
 U.S. Aaencv for International Develonment

  In our review of agencies’first-year experiences in linking performance goals and budget requests,”
  we developed and applied a methodology to assess the plans on several different characteristics.




  Page 10                                               GAO/AIMD-99-239R Performance Budgeting
Enclosure 1

Three of those characteristics were assessedagain for the fiscal year 2000 plans to respond to this
request. Following is a list of those characteristics and the methodology for assessing them.2o

Program Activities     Are Linked To Goals - We identified agencies that either (1) linked program
activities to some planning structure (e.g., strategic or performance goal) in their performance plans
or (2) did not link program activities to any planning structure.

Plan Associated     Dollars With Goals - We identified agencies that either (1) associated dollars
with some planning structure in their performance plans or (2) did not associate dollars with any
planning structure.

Funding Allocated To A Discrete St& of Goals and/or Measures - Plans that allocated program
activities to a discrete set of performance goals and/or measures generally showed how program
activities and their requested funding were allocated among individual or a unique set” of
performance goals/measures (plans met this criteria even if only. discretionary funding was
allocated).

We reviewed each of the 35 fiscal year 2000 performance plans for the agencies shown in Figure I. 1
and classified the plan on each of the above characteristics. To ensure consistency in judgments,
two staff members independently reviewed the plans and the assessment on each characteristic.
Differences in judgments were addressed by having staff members jointly reevaluate the coding of
the characteristic to resolve the difference.

The following qualifications apply to our analysis.

l    Although the results of our analyses apply to the plans we reviewed, our plan selection
     procedures preclude generalizing the results to agency plans not included in our population.
l    Our analysis focused on links between performance goals and program activities in performance
     plans. We did not assess other elements of the performance plan, such as the quality of the goals
     presented in the plan. We also did not independently verify the funding amounts that agencies
     allocated to performance goals, nor systematically assess other documents, such as agency
     budget justifications.

We requested comments on a draft of this report from the Director of OMB or his designee and
incorporated OMB’s comments as appropriate. We conducted our work from May through July 1999
in accordance with generally accepted government auditing standards.




(935317)

?‘he methodology for assessing these characteristics is essentially that used in our review of the fiscal year 1999plans. The methodology
notes that, for two of the characteristics, we collapsed categories that were used in the 1999review (i.e., we categorized agencies into a
*nonen or ‘ail other” category). Otherw&e, the methodology is the same as that of our previous review.
*‘The set of goals ranged in size and scope. For example, some of these plans presented allocations of funding to strategic goals or
objectives, which represent discrete sets of performance goais.




Page 11                                                              GAO/AIMD-99-239RPerformance Budgeting
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