The price of government cannot rise, author David Osborne told 400 high-level state and local officials at Governing's annual management conference, Managing Performance 2004. Flush economic times are gone and citizens have put a ceiling on how much they will pay. Governments are scrambling to find the revenue to fund necessary services.

With expenditure obligations increasing on the federal level-- including Medicare, Medicaid, Social Security and the interest on the national debt--state and local officials have to change the way they structure revenue and approach expenses, Osborne declared. "This fiscal crisis is going to be with us for a long time, and the only way out is through fundamental fiscal reform."

One example of that fundamental reform is a process that Osborne described as "budgeting for outcomes" or "priority-based budgeting." It is a results-based way of determining what a state or city or county's priorities are and then spending available funds to achieve those priorities, accepting the trade-offs that limited funds require. Performance data is central to the process, providing some measure of how successfully government is achieving its priorities.

Whether or not this particular approach takes hold in government, it is clear that the usefulness of performance data in general--to shape decision making, inform managers, focus agency resources and communicate with legislators, public officials and the public--is being widely recognized across government.

Managing Performance 2004 drew state and local officials from 46 states and dozens of cities, counties and regional governments to Austin, Texas, where Governing convened the conference in cooperation with the Bush School of Government and Public Service at Texas A&M University and the Lyndon B. Johnson School of Public Affairs at the University of Texas.

Osborne's keynote address launched a series of presentations and discussions in which state and local officials shared effective ways of managing and improving performance. On topics ranging from budget breakthroughs to performance reviews, the legislature's role, the auditor's role, and the development and use of performance measures in areas as diverse as public safety, child welfare services and corrections, participants exchanged experiences and lessons learned. Again and again, they returned to the theme of using data to build better relationships with constituents inside and outside of government--and to make better decisions.

A NEW WAY OF BUDGETING

Wolfgang Opitz, deputy director of the Washington State Office of Financial Management, shared Washington's experience, now into its third year, with the priority-based budgeting Osborne highlighted in his keynote and in the book The Price of Government: Getting the Results We Need in an Age of Permanent Fiscal Crisis, which he wrote with Peter Hutchinson.

Faced, like many states, with a budget shortfall of daunting proportions--$2.5 billion in this case--Washington Governor Gary Locke in 2002 decided to try an entirely new approach focused on what state government should accomplish, instead of what it would cut.

Instead of starting with the previous year's costs and then adding or subtracting, the budget teams in Washington State were instructed to ignore previous spending levels and focus instead on what outcomes mattered most to citizens. Available resources were then allocated among those outcomes, moving down through a list of government activities effective at achieving those results. When the money ran out, a line was drawn on the list. Activities above the line were funded; those below the line were not.

The resulting budget was balanced--but brutal. It eliminated health insurance for nearly 60,000 individuals; dental, hearing and optometric coverage for poor adults on Medicaid; and 2,500 state jobs. It suspended cost-of-living increases for state employees, eliminated teacher pay increases, and suspended a $221 million class-size reduction effort mandated by initiative. University tuition was set to rise by 9 percent a year for two years; 1,200 low-risk felons would be let out of prison early; and a series of other programs would shut down as a result of not being funded. But the choices were easy to see and easy to explain. Governor Locke was lauded for his leadership and the state is now into its second round of budgeting using this approach.

"When we've taken this to the public, no matter what the setting-- business, labor, social service advocates, health care, the classroom, the Rotary meeting--people understand what we're doing in a much more fundamental way than ever before," Opitz said. When leaders can show the tough decisions they have made to deliver the results most important to citizens, citizens respond. "It's clear what the trade- offs are, what the choices are," Opitz said. "This enables [legislators] to engage with citizens based on real facts. Our budget now connects government spending to the results people want."

GETTING A STATE IN SHAPE

When California Governor Arnold Schwarzenegger tapped Texas Deputy Comptroller Billy Hamilton to lead a performance review of state government, he too was facing a budget crisis. But that wasn't the only threat to California's governmental health. There also was a looming human capital crisis, the need to replace outdated technical infrastructure, and a seriously fragmented and duplicative organizational structure.

California's process--and hoped-for success--is important to all states, Hamilton explained. Most states face some combination of these problems, and California is seen as a bellwether state, an innovator in policy and governance.

"The best way to make government keep working for the future is to keep changing it," Hamilton said. That requires using performance data. The methodical collection of data provided the foundation for the 1,200 recommendations of the California Performance Review, which taken together constitute "a total reorganization and rethinking of the entire structure of government." The recommendations don't drastically downsize the government but rather focus on more efficient use of government resources.

As California tries to reform itself, the Texas Health and Human Services Commission is in the midst of a controversial and closely watched demonstration of streamlining and modernizing fragmented government. In an effort to consolidate 12 separate health and human services agencies, each governed by an independent board, executive commissioner Albert Hawkins has reshaped them into five agencies under one governing body.

Using data-informed planning as its guideline, the commission developed a strategic transition plan with a schedule and clearly articulated goals for the restructured organization. Careful workforce planning made the difficult and painful process of cutting 3,000 state employees and transferring 36,000 jobs smoother.

THE LEGISLATURE'S ROLE

Money and votes were cited as the best vehicles for convincing legislators of the importance of measuring performance. Connecticut state Representative Diana Urban, who has championed the performance- management effort in her state since the mid-1990s, uses the media to "extensively highlight the need for greater accountability and performance measures." Selling the idea of performance measures to constituents--and enlisting their help in persuading legislators is key, she said.

Jerry Luke LeBlanc, now commissioner of Louisiana's Division of Administration, and formerly an articulate and effective champion of performance management as one of the leaders of the Louisiana Legislature, has been using performance measures since 1997. A real dividend of performance management, LeBlanc explained, is the transparency it can bestow on budget decisions, which helps restore the public's faith in government. "A cynical public can regain confidence if this is used properly," LeBlanc said. "It has to be an open process."

Many governments gather information but fail to use it to make important decisions. To make performance measures effective within the legislature, said LeBlanc, performance data must be linked to money decisions. If performance measures are not specifically tied to spending levels, then legislators will largely ignore them.

GOVERNING IN SKEPTICAL TIMES

In a town-hall discussion of practical approaches to restoring trust in government--Jay Fountain, a consultant for the Government Accounting Standards Board, declared that more citizen and public involvement in government decisions is critical.

Transparency is also very important, noted Mark Funkhouser, auditor for Kansas City, Missouri. Citizens who can see that government learns from its mistakes and improves its performance over time are more likely to trust government to do the right thing and tell them the truth.