California Assemblyman Nathan Fletcher (R-San Diego) has co-authored a new budget reform bill intended to bring greater accountability and sense to the budgeting process. Senate Bill 14 (see the current version of the bill here) would implement performance-based budgeting, instead of the current "line-item," or "baseline" budgeting approach. As Fletcher explained in an op-ed column in last week's San Diego Business Journal,
Currently, the state budget operates on the principle of baseline budgeting. Many programs take the previous year's amount [of spending] and factor in an automatic increase. So what is often discussed in public as a cut is, in fact, simply a reduction in the rate of growth of a program. This not only confuses the public, but it also shifts the budget debate. Instead of focusing on whether a program is working efficiently or is even needed, the entire discussion becomes about the size of the increase. The baseline model does not facilitate discussion or agreement on priorities.
The budget process needs to be about goals and desired results. Under the baseline model, state officials do not have the necessary information to determine which programs are really working. Baseline budgeting does not provide data to help policymakers exercise needed oversight on the cost or effectiveness of public programs, when we have more money to invest or when we must make cuts.
Fletcher then described his proposal, which would phase in performance-based budgeting for all government programs by fiscal year 2014-15.
The bill requires that the government make its budget decision in the same way businesses do—through a performance-based model that includes:
- The mission and goals of the agency;
- The activities and programs focused on achieving those goals;
- Performance metrics that reflect desired outcomes for existing and proposed activities and a targeted performance level for the following year;
- Prior-year's performance data and an explanation of any deviation from previous goals; and
- Proposed statutory changes, including creation of incentives or elimination of disincentives, which could improve outcomes or hold down costs.
The first step, then, is changing the culture of government program management to develop good performance measures which can be used to evaluate program efficacy. Many agencies do not even collect the data necessary to properly evaluate a program performance.
The next step is tying this performance data to budget allocation decisions. While SB 14 requires that performance-based budgeting be considered in budgeting decisions, it is a little murky exactly how it is to be used. One promising approach, adopted in states like Washington, South Carolina, and Iowa, is the "priorities of government" model, in which all government programs and activities are categorized and ranked in order of priority based on a set of pre-established goals and then funded starting at the top of the list on down until available revenues are depleted. If legislators want to move a program from below the “funding line,” they have to bump a program from above the line and justify their decisions. Thus, one of the greatest benefits of the POG system is that it makes priority and trade-off decisions clear to everyone.
(For a more in-depth description of POG and "budgeting for outcomes," see the April 2010 Reason study, The Next California Budget: Buying Results Citizens Want at a Price They Are Willing to Pay, by budget guru David Osborne.)
As Assemblyman Fletcher concluded in his column, "Just as businesses do, state program goals must be supported by results—or performance measures—that allow public managers to report their progress and propose future targets." Performance-based budgeting is desperately needed in order to make the budgeting process more rationale and transparent. When used properly, it can help to identify waste and poorly-performing or lower-priority government programs, saving taxpayers money while improving the quality of services they receive.
Related Research and Commentary:
» State Budget Reform Toolkit (A joint project of the American Legislative Exchange Council, Reason Foundation, Americans for Tax Reform, The Mercatus Center at George Mason University, Washington Policy Center, Evergreen Freedom Foundation, and State Budget Solutions)
» The Sky Isn't Falling: Proven Strategies for Budget Reconciliation (Reason Foundation and Americans for Prosperity Foundation – see especially pages 4-11)
» Citizens' Budget 2003-05: A 10-Point Plan to Balance the California Budget and Protect Quality-of-Life Priorities (Reason Foundation and The Performance Institute – see pages 29-41)