The Spending-Performance Equation

Doing performance-based budgeting right isn't easy. But it can pay big dividends, especially in a time of scarce resources.
by | December 20, 2011 AT 5:00 PM

Two decades ago, performance-based budgeting was all the rage. When times were flush during the late 1990s, its appeal faded. But as state and local budgets have tightened, interest in performance budgeting and the heightened level of accountability it provides if implemented correctly is again on the rise.

Performance-based budgeting holds government agencies accountable for what they achieve, not just what they spend. It requires agencies to determine what their goals are, then establish specific outcome measures to determine whether they are achieving those goals. The next step is to link appropriations to results by using outcomes to help officials decide how to apportion scarce resources.

Half the states are currently using some form of performance budgeting. As part of their budget requests, Iowa agencies are required to show their performance levels and link them to their budgets by describing how different funding levels would affect that performance. Virginia used performance data to cancel a $3.2 million employee wellness program that had sub-par participation. The commonwealth also invested an additional $22 million in a pre-kindergarten program for at-risk children after an audit tied the program to higher literacy rates.

In a perfect world, every state would use performance-based budgeting. But we don't live in perfect world. In October, California Gov. Jerry Brown vetoed a performance-budgeting bill that unanimously passed both houses of the legislature. He argued that developing and tracking "performance metrics" for all departments—some of which should perhaps be eliminated—would cost tens of millions of dollars and be unlikely to yield benefits. But having the data available for all agencies is the only way to make apples-to-apples comparisons of potential spending priorities across government.

Doing performance budgeting right requires a long-term strategic plan. The ONE North Carolina Agenda is a good example. It lists statewide priorities and goals that provide agencies with direction, but also gives them space to define specific goals and performance measures.

Just as corporate executives are often overly focused on quarterly profits, elected officials aren't always great at making plans that extend beyond their own terms. And even if they are willing to look beyond the horizon, governors, legislative leaders and agency heads don't always agree on longer-term priorities.

Implementing a whole new approach to budgeting requires training and takes a lot of work, particularly on the front end. Establishing goals and performance measures means building budgets from the bottom up, not just focusing on incremental increases or cuts. It takes a lot of time to regularly review and update performance measures. These tasks present a particular challenge during a period of scarce resources. And let's face it: Some government workers will resist being held far more accountable for results.

But performance-based budgeting is a tool that offers the promise of providing taxpayers with a realistic answer to the question, "What am I getting for my money?" That alone makes overcoming the obstacles to its implementation well worth the work.