oversight

Performance Budgeting: Current Developments and Future Prospects

Published by the Government Accountability Office on 2003-04-01.

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

                          United States General Accounting Office

GAO                       Testimony
                          Before the Subcommittee on Government Efficiency and
                          Financial Management, Committee on Government
                          Reform, House of Representatives


For Release on Delivery
Expected at 2 p.m. EST
Tuesday, April 1, 2003
                          PERFORMANCE
                          BUDGETING
                          Current Developments and
                          Future Prospects
                          Statement of Paul L. Posner, Managing Director
                          Federal Budget Analysis, Strategic Issues




GAO-03-595T
                          A
                                                April 1, 2003


                                                PERFORMANCE BUDGETING

                                                Current Developments and Future
Highlights of GAO-03-595T report to the
Subcommittee on Government Efficiency           Prospects
and Financial Management, Committee on
Government Reform, House of
Representatives




Since the Government                            Performance management is critical to delivering program results
Performance and Results Act                     and ensuring accountability, but it is not without risks.
(GPRA) was enacted in 1993,                     Building on agencies’ hard-won achievements in developing plans and
federal agencies increasingly have              measures, the government faces the challenge of promoting the use of that
been expected to link strategic
                                                information in budget decision making, program improvement, and agency
plans and budget structures with
program results. The current                    management. More explicit use of performance information in decision
administration has taken several                making promises significant rewards, but it will not be easy. Decision
steps to strengthen and further the             makers need a road map that defines what successful performance
performance-resource linkage by                 budgeting would look like, and identifies key elements and potential pitfalls.
making budget and performance
integration one of its five                     Credible performance information and measures are critical for
management initiatives included in              building support for performance budgeting. For performance data to
the President’s Management                      more fully inform resource allocation decisions, decision makers must feel
Agenda.                                         comfortable with the appropriateness and accuracy of the outcome
                                                information and measures presented—that is, that they are comprehensive
GAO has reported and testified
                                                and valid indicators of a program’s outcomes. Decision makers likely will
numerous times on agencies’
progress in making clearer                      not use performance information that they do not perceive to be credible,
connections between resources                   reliable, and reflective of a consensus about performance goals among a
and results and how this                        community of interested parties. The quality and credibility of outcome-
information can inform budget                   based performance information and the ability of federal agencies to
deliberations. The administration’s             evaluate and demonstrate their programs’ effectiveness are key to the
use of the Program Assessment                   success of performance budgeting.
Rating Tool (PART) for the fiscal
year 2004 President’s budget and                Successful performance budgeting is predicated on aligning
further efforts in fiscal year 2005 to          performance goals with key management activities. The closer the
make these connections more                     linkage between an agency’s performance goals, its budget presentation, and
explicit, have prompted our
examination of what can and
                                                its net cost statement, the greater the reinforcement of performance
cannot be expected from                         management throughout the agency and the greater the reliability of
performance budgeting.                          budgetary and financial data associated with performance plans. Clearer and
                                                closer association between expected performance and budgetary requests
                                                can more explicitly inform budget discussions and shift the focus from
                                                inputs to expected results.

                                                The test of performance budgeting will be its potential to reshape
                                                the kinds of questions and trade-offs that are considered throughout
                                                the budget process. The real payoff will come in strengthening the budget
                                                process itself. The focus on outcomes potentially can broaden the debate
                                                and elevate budget trade-offs from individual programs to a discussion of
                                                how programs work together to achieve national goals. It is critical to
                                                understand how programs fit within a broader portfolio of tools and
                                                strategies for program delivery. Shifting perspectives from incremental
                                                budgeting to consideration of all resources available to a program, that is,
www.gao.gov/cgi-bin/getrpt?GAO-03-595T.
                                                base funding as well as new funds, potentially can lead to a reexamination of
To view the full testimony, click on the link   existing programs, policies, and activities. Prudent stewardship of our
above. For more information, contact Paul       nation’s resources is essential not only to meeting today’s priorities, but also
Posner at (202) 512-9573 or
posnerp@gao.gov.                                for delivering on future commitments and needs.
Mr. Chairman and Members of the Subcommittee:

I am pleased to be here today to discuss efforts to further integrate budget
and performance information—what many have referred to as
“performance budgeting.” Since the Government Performance and Results
Act (GPRA) was enacted in 1993, federal agencies have been increasingly
expected to focus on achieving results and to demonstrate, in performance
plans and reports, how their activities help achieve agency goals. The
current administration has taken several steps to strengthen and further
performance-resource linkages for which GPRA laid the groundwork. For
example, the Office of Management and Budget’s (OMB) Program
Assessment Rating Tool (PART), has been designed to use performance
information more explicitly in the federal budget formulation process by
summarizing performance and evaluation information. The administration
applied this new tool to about 20 percent of the programs in the fiscal year
2004 President’s budget request. Most recently, OMB required agencies to
submit a performance-based budget for fiscal year 2005 and later years.

Given this effort to change the presentation of the President’s budget
request to explicitly connect agencies’ budget and planning structures, it is
crucial to understand what can and cannot be expected from performance
budgeting, and what opportunities and challenges lay ahead.

In my testimony today I make several points:

• Performance management is critical to delivering program results and
  ensuring accountability, but it is not without risks.

• In a sense decision makers need a strategic plan for performance
  budgeting—a road map to define what performance budgeting would
  look like.

• The presence of credible performance information and measures is a
  critical underpinning for building support for performance budgeting.

• Successful performance budgeting is predicated on aligning
  performance goals with key management activities.

• Ultimately, the test of performance budgeting will be its potential to
  reshape the kinds of questions and trade-offs that are considered
  throughout the budget process.




Page 1                                                            GAO-03-595T
                            This testimony draws upon our wide-ranging ongoing and completed work
                            on federal budget and performance integration; the President’s Budget of
                            the U.S. Government, Fiscal Year 2004; and performance management
                            initiatives. We conducted our work in accordance with generally accepted
                            government auditing standards.



Current Performance
Budgeting Initiatives
Are Grounded in Past
Efforts

An Historical Perspective   In the 1990s, Congress and the executive branch laid out a statutory and
                            management framework that provides the foundation for strengthening
                            government performance and accountability, with GPRA as its centerpiece.
                            GPRA is a continuation of more than 50 years of efforts to link resources
                            with results. These management reforms of the past—the Budget and
                            Accounting Procedures Act of 1950, Planning-Programming-Budgeting-
                            System, Management by Objectives, and Zero-Base-Budgeting—failed
                            partly because they did not prove to be relevant to budget decision makers
                            in the executive branch or Congress.1

                            GPRA melds the best features, and avoids the worst, of its predecessors.
                            Unlike most of its predecessors, GPRA is grounded in statute, giving
                            Congress an oversight stake in the success of this initiative. Moreover,
                            unlike these other initiatives, GPRA explicitly sought to promote a
                            connection between performance plans and budgets. The expectation was
                            that agency goals and measures would be taken more seriously if they were
                            perceived to be used and useful in the resource allocation process. GPRA
                            has now entered its 10th year, has survived two successive administrations,
                            and has periodically formed the basis for congressional oversight.




                            1
                              U.S. General Accounting Office, Performance Budgeting: Past Initiatives Offer Insights
                            for GPRA Implementation, GAO/AIMD-97-46 (Washington, D.C.: Mar. 27, 1997).




                            Page 2                                                                      GAO-03-595T
Recent Initiatives   The current administration has implemented several efforts to more
                     completely integrate information about cost and performance during its
                     annual budget review process. The President’s Management Agenda
                     (PMA), by focusing on 14 targeted areas—5 mutually reinforcing
                     governmentwide goals and 9 program initiatives—seeks to improve the
                     management and performance of the federal government. Budget and
                     performance integration is one of the administration's five priorities in the
                     PMA, while PART is the central element in the performance budgeting
                     piece of the PMA.

                     To track both agencies’ progress towards and current status in achieving
                     each of the five PMA initiatives, OMB implemented an Executive Branch
                     Management scorecard. We have found that the value of the scorecard,
                     with its red, yellow, and green “stoplight” grading system, is not, in fact, the
                     scoring, but the degree to which scores lead to a sustained focus and
                     demonstrable improvements. The Scorecard criteria for the budget and
                     performance integration initiative include elements such as the integration
                     of budget and planning staff, an integrated performance plan and budget
                     grounded in outcome goals and aligned with the staff and resources
                     necessary to achieve program targets, and whether the agency can
                     document program effectiveness. While the scorecard focuses on the
                     capacity of agency management to develop an infrastructure for
                     performance budgeting, OMB’s PART is meant to more explicitly infuse
                     performance information into the budget formulation process at a level at
                     which funding decisions are made.

                     PART was applied during the fiscal year 2004 budget cycle to 234
                     “programs.”2 OMB rated programs as “effective,” “moderately effective,”
                     “adequate,” or “ineffective” based on program design, strategic planning,
                     management, and results. If OMB deemed a program’s performance
                     information and/or performance measures insufficient or inadequate, a
                     fifth rating of “results not demonstrated” was given. According to OMB, the
                     assessments were a factor in funding decisions for the President’s fiscal
                     year 2004 budget request. In an unprecedented move, OMB has made the
                     assessment tool, rating results, and supporting materials available on its
                     Web site.



                     2
                       There is no consistent definition for the term program. For purposes of PART, the unit of
                     analysis (program) should have a discrete level of funding clearly associated with it.




                     Page 3                                                                         GAO-03-595T
                            OMB has said that it will apply PART to another 20 percent of programs and
                            reassess the fiscal year 2004 programs in developing the President’s fiscal
                            year 2005 budget request. Moreover, it has announced its intention to use
                            agencies’ updated strategic plans, which were due in March 2003, as
                            templates for future budget requests.



Performance                 During GPRA’s first 10 years, the federal government has managed, for the
                            first time, to generate a systematic, governmentwide effort to develop
Budgeting Holds Great       strategic and performance plans covering the essential functions of
Promise and Great           government. While clearly a work in progress, the formulation of
                            performance goals and indicators has laid the foundation for a more
Challenges                  fundamental transformation in how the government does business.

                            As we begin this next decade of performance management at the federal
                            level, we may have reached a crossroad. Building on agencies’ hard-won
                            achievements in developing plans and measures, the government now
                            faces the challenge of promoting the use of that information in budget
                            decision making, program improvement, and agency management.

                            Promoting a more explicit use of performance information in decision
                            making promises significant rewards, but it will not be easy, and in fact, is
                            fraught with risks. Decision makers need a road map that defines what
                            successful performance budgeting would look like, and that identifies the
                            key elements and potential pitfalls on the critical path to success. In a
                            sense, what is needed is a strategic plan for performance budgeting.

                            In the remainder of this testimony I will discuss some of these key elements
                            and risks, including a definition and expectations for performance
                            budgeting itself; the underpinnings of credible performance information
                            and measures; addressing the needs of various potential users; the
                            alignment of performance planning with budget and financial management
                            structures; elevating budget trade-offs; and the continuing role of
                            congressional oversight.



What Is Performance         Performance-based budgeting can help enhance the government’s capacity
Budgeting, and What Might   to assess competing claims in the budget by arming budgetary decision
                            makers with better information on the results of both individual programs
Be Expected from It?        as well as entire portfolios of tools and programs addressing common
                            performance outcomes. Although not the answer to vexing resource trade-



                            Page 4                                                             GAO-03-595T
offs involving political choice, performance information could help
policymakers address a number of questions, such as whether programs
are contributing to their stated goals, well-coordinated with related
initiatives at the federal level or elsewhere, and targeted to those most in
need of services or benefits. It can also provide information on what
outcomes are being achieved, whether resource investments have benefits
that exceed their costs, and whether program managers have the requisite
capacities to achieve promised results.

Although performance budgeting can reasonably be expected to change the
nature of resource debates, it is equally important to understand what it
cannot do. Previous management reforms have been doomed by inflated
and unrealistic expectations, so it is useful to be clear about current goals.

Performance budgeting cannot replace the budget process as it currently
exists, but it can help shift the focus of budgetary debates and oversight
activities by changing the agenda of questions asked in these processes.
Budgeting is essentially the allocation of resources; it inherently involves
setting priorities. In its broadest sense, the budget debate is the place
where competing claims and claimants come together to decide how much
of the government’s scarce resources will be allocated across many
compelling national purposes. Performance information can make a
valuable contribution to this debate, but it is only one factor and it cannot
substitute for difficult political choices. There will always be a debate
about the appropriate role for the federal government and the need for
various federal programs and policies—and performance information
cannot settle that debate. It can, however, help move the debate to a more
informed plane, one in which the focus is on competing claims and
priorities. In fact, it raises the stakes by shifting the focus to what really
matters—lives saved, children fed, successful transitions to self-
sufficiency, and individuals lifted out of poverty.

Under performance budgeting, people should not expect that good results
will always be rewarded through the budget process while poor results will
always have negative funding implications. Viewing performance budgeting
as a mechanistic arrangement—a specific level of performance in exchange
for a certain amount of funding—or in punitive terms—produce results or
risk funding reductions—is not useful. Such mechanistic relationships
cannot be sustained. Rather than increase accountability, these approaches
might instead devalue the process by favoring managers who meet
expectations by aiming low. The determination of priorities is a function of
competing values and interests that may be informed by performance



Page 5                                                             GAO-03-595T
                            information but also reflects such factors as equity, unmet needs, and the
                            appropriate role of the federal government in addressing these needs.

                            OMB’s PART initiative illustrated that improving program design and
                            management may be a necessary investment in some cases. For example,
                            the Department of Energy’s Environmental Management (Cleanup)
                            program was rated “ineffective” under PART. The administration
                            recommended additional funds for the program compared to fiscal year
                            2002 funding and reported that the Department will continue to work with
                            federal and state regulators to develop revised cleanup plans. The
                            Department of State’s Refugee Admissions to the U.S. program was rated
                            “adequate” under PART; in addition to recommending increased funding,
                            the administration will review the relationship between this program and
                            the Office of Refugee Resettlement at the Department of Health and Human
                            Services. For its part, State will continue its ongoing efforts to improve
                            strategic planning to ensure that goals are measurable and mission-related.

                            Ultimately, performance budgeting seeks to increase decision makers’
                            understanding of the links between requested resources and expected
                            performance outcomes. Such integration is critical to sustain and
                            institutionalize performance management reforms. As the major annual
                            process in the federal government where programs and activities come up
                            for regular review and reexamination, the budget process itself benefits as
                            well if the result of integration is better, more reliable performance
                            information.



Credible Performance        For performance data to more fully inform resource allocations, decision
Information and Agencies’   makers must feel comfortable with the appropriateness and accuracy of
                            the outcome information and measures presented—that is, they are
Capacity to Produce It Is
                            comprehensive and valid indicators of a program’s outcomes. Decision
Critical                    makers likely will not use performance information that they do not
                            perceive to be credible, reliable, and reflective of a consensus about
                            performance goals among a community of interested parties. Moreover,
                            decisions might be guided by misleading or incomplete information, which
                            ultimately could further discourage the use of this information in resource
                            allocation decisions.




                            Page 6                                                           GAO-03-595T
               Accordingly, the quality and credibility of outcome-based performance
               information and the ability of federal agencies to produce such evaluations
               of their programs’ effectiveness are key to the success of performance-
               based budgeting. However, in the fiscal year 2004 President’s budget
               request, OMB rated 50 percent of PART programs as “results not
               demonstrated” because they found that the programs did not have
               adequate performance goals and/or data to gauge program performance
               were not available. Likewise, GAO’s work has noted limitations in the
               quality of agency performance and evaluation information and in agency
               capacity to produce rigorous evaluations of program effectiveness. We
               have previously reported that agencies have had difficulty assessing many
               program outcomes that are not quickly achieved or readily observed and
               contributions to outcomes that are only partly influenced by federal funds. 3
               Furthermore, our work has shown that few agencies deployed the rigorous
               research methods required to attribute changes in underlying outcomes to
               program activities.4

Data Quality   If budget decisions are to be based in part on performance data, the
               integrity, credibility, and quality of these data and related analyses become
               more important. Developing and reporting on credible information on
               outcomes achieved through federal programs remains a work in progress.
               For example, we previously reported5 that only five of the 24 Chief
               Financial Officers (CFO) Act agencies’ fiscal year 2000 performance
               reports included assessments of the completeness and reliability of their
               performance data in their transmittal letters. Further, although concerns
               about the quality of performance data were identified by the inspectors
               general as either major management challenges or included in the
               discussion of other challenges for 11 of the 24 agencies, none of the
               agencies identified any material inadequacies with their performance data
               in their performance reports.




               3
                U.S. General Accounting Office, Performance Budgeting: Opportunities and Challenges,
               GAO-02-1106T (Washington, D.C.: Sept. 19, 2002).
               4
                U.S. General Accounting Office, Program Evaluation: Agencies Challenged by New
               Demand for Information on Program Results, GAO/GGD-98-53 (Washington, D.C.: Apr. 24,
               1998).
               5
                 U.S. General Accounting Office, Performance Reporting: Few Agencies Reported on the
               Completeness and Reliability of Performance Data, GAO-02-372 (Washington, D.C.:
               Apr. 26, 2002).




               Page 7                                                                    GAO-03-595T
                      Moreover, reliable cost information is also important. Unfortunately, as we
                      recently reported,6 most agencies’ financial management systems are not
                      yet able to routinely produce information on the full cost of programs and
                      projects as required by the Federal Financial Management Improvement
                      Act of 1996 (FFMIA).7

                      The ultimate objective of FFMIA is to ensure that agency financial
                      management systems routinely provide reliable, useful, and timely financial
                      information, not just at year-end or for financial statements, so that
                      government leaders will be better positioned to invest resources, reduce
                      costs, oversee programs, and hold agency managers accountable for the
                      way they run programs. To achieve the financial management
                      improvements envisioned by the CFO Act, FFMIA, and more recently, the
                      PMA, agencies need to modernize their financial management systems to
                      generate reliable, useful, and timely financial information throughout the
                      year and at year-end. Meeting the requirements of FFMIA presents long-
                      standing, significant challenges that will be attained only through time,
                      investment, and sustained emphasis on correcting deficiencies in federal
                      financial management systems.

Evaluation Capacity   In the past, we have also noted limitations in agency capacity to produce
                      high-quality evaluations of program effectiveness.8 Through GPRA
                      reporting, agencies have increased the information available on program
                      results. However, some program outcomes are not quickly achieved or
                      readily observed, so agencies have drawn on systematic evaluation studies
                      to supplement their performance data collection and better understand the
                      reasons behind program performance. However, in survey based on 1995
                      data covering 23 departments and independent agencies, we found that
                      agencies were devoting variable but relatively small amounts of resources
                      to evaluating program results. Many program evaluation offices were small,
                      had other responsibilities, and produced only a few effectiveness studies
                      annually. Moreover, systematic program evaluations—and units
                      responsible for producing them—had been concentrated in only a few
                      agencies. Although many federal programs attempt to influence complex
                      systems or events outside the immediate control of government, we have

                      6
                        U.S. General Accounting Office, Financial Management: FFMIA Implementation
                      Necessary to Achieve Accountability, GAO-03-31 (Washington, D.C.: Oct. 1, 2002).
                      7
                          P. L. 104-208, Div. A, Title I, sec. 101(f) [Title VIII], 110 Stat. 3009-389 (1996).
                      8
                          GAO/GGD-98-53.




                      Page 8                                                                                     GAO-03-595T
expressed continued concern that many agencies lack the capacity to
undertake the program evaluations that are often needed to assess a
federal program’s contributions to results where other influences may be at
work. In addition to information on the outcomes, impact evaluations using
scientific research methods are needed to isolate a particular program’s
contribution to those outcomes. Yet in our survey, we found that the most
commonly reported study design was judgmental assessment of program
effects. These judgmental assessments, one-time surveys, and simple
before-and-after studies accounted for 40 percent of the research methods
used in agencies’ evaluation studies conducted during the period we
studied.

There are inherent challenges affecting agencies’ capacity to conduct
evaluations of program effectiveness. For example, many agency programs
are designed to be one part of a broader effort, working alongside other
federal, state, local, nonprofit, and private initiatives to promote particular
outcomes. Although information on the outcomes associated with a
particular program may be collected, it is often difficult to isolate a
particular program’s contribution to those outcomes. Additionally, where
federal program responsibility has devolved to the states, federal agencies’
ability to influence program outcomes diminishes, while at the same time,
their dependence on states and others for data with which to evaluate
programs grows.

In past reports, we have identified several promising ways agencies can
potentially maximize their evaluation capacity. For example, careful
targeting of federal evaluation resources on key policy or performance
questions and leveraging federal and nonfederal resources show promise
for addressing key questions about program results. Other ways agencies
might leverage their current evaluation resources include adapting existing
information systems to yield data on program results, drawing on the
findings of a wide array of evaluations and audits, making multiple use of
an evaluation’s findings, mining existing databases, and collaborating with
state and local program partners to develop mutually useful performance
data.




Page 9                                                              GAO-03-595T
                              Our work has also shown that advance coordination of evaluation activities
                              conducted by program partners is necessary to help ensure that the results
                              of diverse evaluation activities can be synthesized at the national level.9

                              Improvements in the quality of performance data and the capacity of
                              federal agencies to perform program evaluations will require sustained
                              commitment and investment of resources, but over the longer term, failing
                              to discover and correct performance problems can be much more costly.
                              More importantly budgetary investments need to be viewed as part of a
                              broader initiative to improve the accountability and management capacity
                              of federal agencies and programs.



Credible Performance          Improving the supply of performance information is in and of itself
Information Must Be           insufficient to sustain performance management and achieve real
                              improvements in management and program results. Rather, it needs to be
Available to and Used by
                              accompanied by a demand for that information by decision makers and
Actors with Different Needs   managers alike. The history of performance budgeting has shown that the
                              supply of information will wither if it is perceived to have failed to affect
                              decision making. Accordingly, PART may complement GPRA’s focus on
                              increasing the supply of credible performance information by promoting
                              the demand for this information in the budget decision making process.




                              9
                                In a report to be issued in May 2003, we discuss the experiences of five diverse agencies
                              that have demonstrated evaluation capacity. The report also identifies useful capacity-
                              building strategies that other agencies might adopt.




                              Page 10                                                                         GAO-03-595T
Successful use of performance information in budgeting should not be
defined only by the impact on funding levels in presidential budget requests
and the congressional budget process. Rather, resource allocation
decisions are made at various other stages in the budget process, such as
agency internal budget formulation and execution and in the congressional
oversight and reauthorization process.10 If agency program managers
perceive that program performance and evaluation data will be used to
make resource decisions throughout the resource allocation process and
can help them make better use of these resources, agencies may make
greater investments in improving their capacity to produce and procure
quality information. For example, in our work at the Administration on
Children and Families, we describe three general ways in which resource
allocation decisions at the programmatic level are influenced by
performance: (1) training and technical assistance money is often allocated
based on needs and grantee performance, (2) partnerships and
collaboration help the agency work with grantees towards common goals
and further the administration’s agenda, and (3) organizing and allocating
staff around agency goals allow employees to link their day-to-day
activities to longer-term results and outcomes.11 It is important to note that
these and other examples from our work at the Veterans Health
Administration and the Nuclear Regulatory Commission affect
postappropriations resource decisions, that is, the stage where programs
are being implemented during what is generally referred to as budget
execution.12




10
  Philip G. Joyce and Susan Seig, Using Performance Information for Budgeting:
Clarifying the Framework and Investigating Recent State Experience (Washington, D.C.:
American Society for Public Administration, 2000).
11
  U.S. General Accounting Office, Managing for Results: Efforts to Strengthen the Link
Between Resources and Results at the Administration for Children and Families, GAO-
03-09 (Washington, D.C.: Dec. 10, 2002).
12
  U.S. General Accounting Office, Managing for Results: Efforts to Strengthen the Link
Between Resources and Results at the Veterans Health Administration, GAO-03-10
(Washington, D.C.: Dec. 10, 2002), and Managing for Results: Efforts to Strengthen the Link
Between Resources and Results at the Nuclear Regulator Commission, GAO-03-258
(Washington, D.C.: Dec. 10, 2002).




Page 11                                                                       GAO-03-595T
Structural Alignment   Sustaining a focus on performance budgeting in the federal government is
                       predicated upon aligning performance goals with all key management
                       activities—budgeting, financial management, human capital management,
                       capital acquisition, and information technology management. The closer
                       the linkage between an agency’s performance goals, its budget
                       presentation, and its net cost statement, the greater the reinforcement of
                       performance management throughout the agency and the greater the
                       reliability of budgetary and financial data associated with performance
                       plans. Clearer and closer association between expected performance and
                       budgetary requests can more explicitly inform budget discussions and
                       focus them—both in Congress and in agencies—on expected results, rather
                       than on inputs or transactions solely.13

                       Throughout government, as figure 1 shows, there exists a general lack of
                       integration among budget, performance, and financial reporting
                       structures.14 Moreover, these structures can vary considerably across the
                       departments and agencies of the federal government. For example, the
                       current budget account structure was not created as a single integrated
                       framework, but developed over time to reflect the many roles it has been
                       asked to play and to address the diverse needs of its many users. It reflects
                       a variety of different orientations which for the most part do not reflect
                       agency performance goals or objectives. Agency budget accounts, for
                       instance, can be organized by items of expense, organizational unit,
                       program, or a combination of these categories.




                       13
                        For further information see U.S. General Accounting Office, Managing for Results:
                       Results-Oriented Budget Practices in Federal Agencies, GAO-01-1084SP (Washington, D.C.:
                       August 2001).
                       14
                         U.S. General Accounting Office, Managing for Results: Agency Progress in Linking
                       Performance Plans with Budgets and Financial Statements, GAO-02-236 (Washington,
                       D.C.: Jan. 4, 2002).




                       Page 12                                                                   GAO-03-595T
Figure 1: GPRA Performance Planning, Budget, and Net Cost Model

     Budget          Performance Planning         Statement of Net Cost

     Agency                 General                       Agency
                             Goal


     Budget                 Strategic                  Responsibility
     Account                Objective                    Segment


    Program               Performance                    Segment
    Activity                  Goal                        Output

     Budget          Performance Planning         Statement of Net Cost
Source: GAO.




The general lack of integration between these structures can hamper the
ability of agencies to establish and demonstrate the linkage between
budget decisions and performance goals. While special analyses can help
illustrate these linkages, such efforts are often burdensome and awkward.
A systematic capacity to crosswalk among these disparate structures can
help encourage a more seamless integration of resources with results.
Better matching of full costs associated with performance goals helps
increase decision makers’ understanding of the links between requested
resources and expected performance outcomes. This will eventually
require linkages between performance planning and budget structures (to
highlight how requested resources would contribute to agency goals) as
well as linkages between performance plans and financial reporting
structures (to highlight the costs of achieving agency goals). Ultimately,
over the longer term, this integration may require changing the structures
themselves to harmonize their orientations.




Page 13                                                             GAO-03-595T
Our work indicates that progress has been made. Agencies are developing
approaches to better link performance plans with budget presentations and
financial reporting. They have made progress in both in establishing
linkages between performance plans and budget requests and in translating
those linkages into budgetary terms by clearly allocating funding from the
budget’s program activities to performance goals.15

For example, table 1 and figure 2 show the approaches used by the
Department of Housing and Urban Development (HUD) in its last three
performance plans. In table 1, for fiscal years 2000 and 2001, HUD used
summary charts to array its requested resources by general goal but
progressed from portraying this linkage with an “x” in fiscal year 2000 to
using funding estimates derived from its budget request in fiscal year 2001.
Figure 2 shows the fiscal year 2002 plan in which HUD removed the
summary charts and instead directly portrayed the linkages in the body of
the plan.




15
     GAO-02-236.




Page 14                                                          GAO-03-595T
Table 1: Change in HUD’s Presentation of Performance Plan-Budget Linkages, Fiscal Years 2000 and 2001

Fiscal Year 2000 performance plan
                                                                             General goals
                                             Increase
                                        availability of                               Promote self-          Improve
                                    decent, safe, and        Ensure equal           sufficiency and      community
Selected examples                 affordable housing        opportunity in       asset development      quality of life   Restore the
of accounts or            Budget         in American        housing for all          of families and   and economic       public trust
program activities        request       communities            Americans                 individuals           vitality       in HUD
Public Housing
Capital Fund               $2,555                     X                                           X                  X
Community
Development Block
Grants                     $4,775                     X                     X                     X                  X
FHA: GI/SRI                  $208                     X                     X                                        X




Fiscal Year 2001 performance plan
                                                                             General goals

                                             Increase
                                        availability of                               Promote self-          Improve
                                    decent, safe, and        Ensure equal           sufficiency and      community
Selected examples                 affordable housing        opportunity in       asset development      quality of life   Ensure the
of accounts or            Budget         in American        housing for all          of families and   and economic       public trust
program activities        request       communities            Americans                 individuals           vitality       in HUD
Public Housing
Capital Fund               $2,955               $2,069                  $443                    $148             $295               --
Community
Development Block
Grants                     $4,900               $1,470                  $490                    $980           $1,960               --
FHA: GI/SRI                  $456                  $456                     --                    --                 --             --
Source: HUD.

                                         Note: Dollars in millions. GAO analysis of HUD data.




                                         Page 15                                                                          GAO-03-595T
Figure 2: HUD’s Presentation of Performance Plan-Budget Linkages, Fiscal Year
2002




     Source: HUD’s fiscal year 2002 performance plan.
a
    HOME includes housing counseling staff in the Office of Housing.
b
  Housing Certificate Fund BA numbers represent program levels instead of net budget authority (BA
figures for this account are significantly affected by rescissions and advanced appropriations). Staff
includes Office of Housing staff working with project-based Section 8.
c
    Fiscal year 2001 BA total does not include supplemental appropriations.
d
    Includes programs that do not receive a discretionary appropriation.
e
 Other staff includes the Real Estate Assessment Center and the Office of Multifamily Housing
Assistance Restructuring.




Page 16                                                                                 GAO-03-595T
We have also seen progress in agencies’ initial efforts to link annual
performance reporting with annual audited financial statements.16 For
example, for fiscal year 2000, 13 of the 24 agencies covered by the CFO Act,
compared to 10 in fiscal year 1999, reported net costs in their audited
annual financial statements using a structure that was based on their
performance planning structure.

Better understanding the full costs associated with program outcomes is
another important but underdeveloped element of performance budgeting.
This entails a broader effort to more fully measure the indirect and accrued
costs of federal programs. The administration has proposed that agencies
be charged for the government’s full share of the accruing costs of all
pension and retiree health benefits for their employees as those benefits
are earned. Such a proposal could help better reflect the full costs accrued
in a given year by federal programs.

Recognizing long-term costs is also important to understanding the future
sustainability and flexibility of the government’s fiscal position. For
activities such as environmental cleanup costs, the government’s
commitment occurs years before the cash consequences are reflected in
the budget. These costs should be considered at the time resource
commitments are made. Building on past work,17 we are currently
exploring these issues in greater detail.

More broadly, timely, accurate, and useful financial information is essential
for managing the government’s operations more efficiently, effectively, and
economically; meeting the goals of financial reform legislation (such as the
CFO Act); supporting results-oriented management approaches; and
ensuring ongoing accountability. We have continued to point out that the
federal government is a long way from successfully implementing the
statutory reforms of the 1990s. Widespread financial management system
weaknesses, poor recordkeeping and documentation, weak internal
controls, and a lack of information have prevented the government from
having the cost information needed to effectively and efficiently manage
operations or accurately report a large portion of its assets, liabilities, and
costs.


16
     GAO-02-236.
17
 U.S. General Accounting Office, Fiscal Exposures: Improving the Budgetary Focus on
Long-Term Costs and Uncertainties, GAO-03-213 (Washington, D.C.: Jan. 24, 2003).




Page 17                                                                  GAO-03-595T
Performance Budgeting Can         Looking forward, it is appropriate to ask why all of this effort is
Broaden the Debate on             worthwhile. Certainly making clear connections between resources, costs,
                                  and performance for programs is valuable. Improving evaluation capacity
Budget Trade-offs                 has the potential to create the demand to support further improvements.
                                  However, the real payoff will come in strengthening the budget process
                                  itself.

Expanding and Elevating Budget    The integration of budgeting and performance can strengthen budgeting in
Deliberations beyond Individual   several ways. First, the focus on outcomes can broaden the debate and
Programs                          elevate budget trade-offs from individual programs to a discussion of how
                                  programs work together to achieve national goals. Although the evaluation
                                  of programs in isolation may be revealing, it is often critical to understand
                                  how each program fits with a broader portfolio of tools and strategies—
                                  such as regulations, direct loans, and tax expenditures—to accomplish
                                  federal goals. For example, in fiscal year 2000, the federal health care and
                                  Medicare budget functions included $319 billion in entitlement outlays, $91
                                  billion in tax expenditures, $37 billion in discretionary budget authority,
                                  and $5 million in loan guarantees. (See fig. 3.)



                                  Figure 3: Relative Reliance on Policy Tools in the Health Care Budget Functions,
                                  Fiscal Year 2000 ($447 Billion In Total Spending)



                                                 20%                                                Tax expenditures




                                       8%                                                           Discretionary BA

                                                             72%                                    Mandatory outlays




                                  Source: Budget of the United States Government, FY 2001, Office of Management and Budget.

                                  Note: Includes both the health and medicare budget functions. Loan guarantees account for about $5
                                  million, or about 0.001 percent of the approximately $447 billion in total federal health care resources.


                                  Achieving federal/national policy goals often depends on the federal
                                  government’s partners—including other levels of government, private



                                  Page 18                                                                                     GAO-03-595T
                               employers, nonprofits, and other nongovernmental actors. The choice and
                               design of these tools are critical in determining whether and how these
                               actors will address federal objectives. GPRA required the President to
                               prepare and submit to Congress a governmentwide performance plan to
                               highlight broader, crosscutting missions, such as those discussed above.
                               Unfortunately, this was not done in fiscal years 2003 and 2004; we hope that
                               the President’s fiscal year 2005 budget does include such a plan.

Examining the Base in Budget   Second, a focus on performance can help us shift our view from
Deliberations                  incremental changes to an evaluation of the base itself. Making government
                               adapt to meet the challenges of the future is broader than strengthening
                               performance-informed resource decisions. Fiscal pressures created by the
                               retirement of the baby boom generation and rising health care costs
                               threaten to overwhelm the nation’s fiscal future. Difficult as it may seem to
                               deal with the long-term challenges presented by known demographic
                               trends, policymakers must not only address the major entitlement
                               programs but also reexamine other budgetary priorities in light of the
                               changing needs of this nation in the 21st century. Reclaiming our fiscal
                               flexibility will require the reexamination of existing programs, policies, and
                               activities. It is all too easy to accept “the base” as given and to subject only
                               new proposals to scrutiny and analysis.

                               As we have discussed previously,18 many federal programs, policies, and
                               activities—their goals, their structures, and their processes—were
                               designed decades ago to respond to earlier challenges. In previous
                               testimony,19 we noted that the norm should be to reconsider the relevance
                               or “fit” of any federal program, policy, or activity in today’s world and for
                               the future. Such a review might ferret out programs that have proven to be
                               outdated or persistently ineffective, or alternatively could prompt
                               appropriate updating and modernizing activities through such actions as
                               improving program targeting and efficiency, consolidation, or
                               reengineering of processes and operations. This includes looking at a
                               program’s relationship to other programs.


                               18
                                 U.S. General Accounting Office, Budget Issues: Effective Oversight and Budget
                               Discipline Are Essential—Even in a Time of Surplus, GAO/T-AIMD-00-73 (Washington,
                               D.C.: Feb. 1, 2000), and Budget Issues: Long-Term Fiscal Challenges, GAO-02-467T
                               (Washington, D.C.: Feb. 27, 2002).
                               19
                                 U.S. General Accounting Office, Homeland Security: Challenges and Strategies in
                               Addressing Short- and Long-Term National Needs, GAO-02-160T (Washington, D.C.: Nov. 7,
                               2001), GAO/T-AIMD-00-73, and GAO-02-467T.




                               Page 19                                                                  GAO-03-595T
The Role of Congressional   Finally, and most critically, Congress must be involved in this debate and
Oversight                   the resulting decisions and follow-up oversight activities. Congressional
                            buy-in is critical to sustain any major management initiative, but 50 years of
                            past efforts to link resources with results have shown that any successful
                            effort must involve Congress as a partner given Congress’ central role in
                            setting national priorities and allocating the resources to achieve them. In
                            fact, the administration acknowledged that performance and
                            accountability are shared responsibilities that must involve Congress. It
                            will only be through the continued attention of Congress, the
                            administration, and federal agencies that progress can be sustained and,
                            more important, accelerated. Congress has, in effect, served as the
                            institutional champion for many previous performance management
                            initiatives, such as GPRA and the CFO Act, by providing a consistent focus
                            for oversight and reinforcement of important policies.

                            More generally, effective congressional oversight can help improve federal
                            performance by examining the program structures agencies use to deliver
                            products and services to ensure that the best, most cost-effective mix of
                            strategies is in place to meet agency and national goals. As part of this
                            oversight, Congress should consider the associated management and
                            policy implications of crosscutting programs.

                            Given this environment, Congress should also consider the need for
                            processes that allow it to more systematically focus its oversight on
                            programs with the most serious and systemic weaknesses and risks. At
                            present, Congress has no direct vehicle to provide its perspective on
                            governmentwide performance issues. Congress has no established
                            mechanism to articulate performance goals for the broad missions of
                            government, to assess alternative strategies that offer the most promise for
                            achieving these goals, or to define an oversight agenda targeted at the most
                            pressing crosscutting performance and management issues. Congress
                            might consider whether a more structured oversight approach is needed to
                            permit a coordinated congressional perspective on governmentwide
                            performance matters. Such a process might also facilitate congressional
                            input into the OMB PART initiative. For example, although the selection of
                            programs and areas for review is ultimately the President’s decision, such
                            choices might be informed and shaped by congressional views and
                            perspectives on performance issues.




                            Page 20                                                            GAO-03-595T
Concluding     How would “success” in performance budgeting be defined? Simply
               increasing the supply of performance information is not enough. If the
Observations   information is not used—that is, if there is insufficient demand—the quality
               of the information will deteriorate and the process either will become rote
               or will wither away. However, for the reasons noted, the success of
               performance budgeting cannot be measured merely by the number of
               programs “killed” or a measurement of funding changes against
               performance “grades.” Rather, success must be measured in terms of the
               quality of the discussion, the transparency of the information, the
               meaningfulness of that information to key stakeholders, and how it is used
               in the decision-making process. If members of Congress and the executive
               branch have better information about the link between resources and
               results, they can make the trade-offs and choices cognizant of the many
               and often competing claims at the federal level.

               A comprehensive understanding of the needs of all participants in the
               budget process, including what measures and performance information are
               required at different stages of the budget cycle, is critical. Making
               performance budgeting a reality throughout the federal government will be
               facilitated by efforts to improve the structural alignment of performance
               planning goals with budget and cost accounting structures and
               presentations. However, developing credible performance measures and
               data on program results will be absolutely critical in determining whether
               the performance perspective becomes a compelling framework that
               decsion makers will use in allocating resources.

               Performance budgeting is difficult work. It requires taking a hard look at
               existing programs and carefully reconsidering the goals those programs
               were intended to address—and whether those goals are still valid. It
               involves analyzing the effectiveness of programs and seeking out the
               reasons for success or failure. It involves navigating through the maze of
               federal programs and activities, in which multiple agencies may operate
               many different programs, to address often common or complementary
               objectives. However, the task of revising and reforming current programs
               and activities that may no longer be needed or that do not perform well is
               fraught with difficulties and leads to real “winners” and “losers.”
               Notwithstanding demonstrated weaknesses in program design and
               shortfalls in program results, there often seems to be little “low hanging
               fruit” in the federal budget. In fact, some argue that because some
               programs are already “in the base” in budgetary terms, they have a
               significant advantage over new initiatives and new demands.



               Page 21                                                          GAO-03-595T
                  This is an opportune time for the executive branch and Congress to
                  carefully consider how agencies and committees can best take advantage
                  of and leverage the new information and perspectives coming from the
                  reform agenda under way in the executive branch. Prudent stewardship of
                  our nation’s resources—whether in time of deficit or surplus—is essential
                  not only to meet today’s needs but also for us to deliver our promises and
                  address future needs.


                  This concludes my prepared statement. I would be pleased to answer any
                  questions you or the other members of the subcommittee may have at this
                  time.



Contacts and      For further contacts regarding this testimony, please contact Paul Posner at
                  (202) 512-9573 or at posnerp@gao.gov or Denise Fantone, Assistant
Acknowledgement   Director, at (202) 512-4997 or at fantoned@gao.gov. Individuals making key
                  contributions to this testimony included Jacqueline M. Nowicki,
                  Kristeen G. McLain, and Elizabeth McClarin.




(450198)          Page 22                                                          GAO-03-595T