Finance

Can Performance Help in Reducing Deficits?

Making spending decisions based on evidence and analysis can be hardest to do in times of austerity, but that's precisely when these tools are most useful.
by | May 8, 2013

While revenues may have begun to rebound, austerity will cast its long shadow over all levels of government for some time to come. State and local budgets may be on the mend, but the federal government is just beginning to deal with deficits through tax hikes and sequestration's across-the-board spending cuts.

In this environment, budget cuts represent both a risk and an opportunity. Inherently, budget cuts distribute losses--a task that is never easy in any democracy that hopes to sustain public support. But austerity also can provide an incentive to apply a rational calculus to priority-setting. David Stockman provided the ultimate credo that many of us would subscribe to: Budget cuts should single out weak claims, not weak claimants.

As governments approached the Great Recession, they had one asset that many of them did not have in earlier fiscal crises: a legacy of performance-management reforms that had institutionalized analysis and data in the budget process. Starting with the states and localities, the performance movement percolated to the federal level. This year marks the 20th anniversary of the federal Government Performance and Results Act, which aimed to institutionalize the use of program results to make hard choices in difficult fiscal times.

Looking broadly over the recent experiences of states and the federal government, austerity has had decidedly mixed impacts on performance reforms. At the federal level, for instance, the Obama administration has outlined a series of targeted budget cuts in domestic spending that are, to some extent, informed by program evaluation and performance assessments. The fiscal 2014 budget proposed in April outlined an ambitious program of evidenced-based budget decisions in which grants to states in selected programs would be awarded based on the states' evidence-informed selection of projects.

Yet, thanks to legislation passed by Congress in 2011 to avert the debt-ceiling crisis, the only cuts actually implemented have been via sequestration, which applied a crude across-the-board percentage cut to all program accounts, regardless of their performance records. And exemptions that have been granted to those sequesters--to agencies such as the Federal Aviation Administration for air traffic control and the Agriculture Department for meat inspection--have been based on economic and political consequences, not on performance.

The states may offer the most instructive recent experience with budget crises. Yilin Hou and his colleagues report that performance reforms were undermined in many states as they faced the deepest fiscal crisis since the New Deal. In Oregon, the economic downturn led to the elimination of funding for the Progress Board, an innovative agency that established performance indicators for the state. Consequently, the state has seen a drop-off in its emphasis on performance-measurement systems and use of performance budgeting. In Utah, state budget decisions were made to preserve basic services, regardless of performance measures. Not all the news is so bleak: Louisiana reports a greater focus on outcomes in budgeting during the crisis years, with performance analysis providing an additional tool to legislators in balancing the budget.

These mixed trends are ironic indeed. While performance budgeting appears to thrive during good budgetary times, it is often missing in action when it would appear to be needed the most. During times of scarcity and budget cuts, the political reality is that performance considerations are likely to be eclipsed by pressing priorities and equity concerns. In addition, the resources needed to do performance and program assessments can disappear during retrenchments. This isn't a new phenomenon: New York City's investment in fire and police performance and productivity staffs and studies evaporated when the city's fiscal crisis hit in the mid-1970s. Analysts were laid off, enabling the city to save the jobs of frontline service people.

Policy analysts need not be depressed by these stories. Just as we were naive to assume that retrenchment would be the occasion for a flowering of performance analysis, we can still use the tools of performance analysis to avoid a full-scale fiscal crisis. When compared to many nations in Europe, the federal government has the advantage of being able to approach austerity in a more deliberate way, freed from the intense pressures of restive creditors who threaten to take their funds elsewhere. States and localities, emerging from the most painful fiscal downturn since the Great Depression, also can use the coming period of fiscal recovery to review their priorities and sort out weak from strong claims for resources--actions that should strengthen their capacity to weather the next downturn. We still have time to apply analysis to rationalize the inevitable retrenchment process through smart cuts on both the spending and revenue sides of the budget.

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