Performance Budgeting Within State and Local Governments: The Disconnect Between Public Manager Efforts and Legislative Action

Using Performance Data in the Budgetary Process

Increasingly, states and local governments view performance measurement not simply as an important element of public management, but more so as a necessary tool for an effective and efficient government. Today, public managers are using performance information to inform their decision making with greater frequency. While performance measurement to improve managerial capabilities of the organization is essential, using performance data to allocate resources is equally as important. The issue at hand is not the lack of performance measurement information used by public managers in state and local government. Instead, the challenge has and continues to be the use of performance data, which is collected and managed by policymakers and elected officials when making resource allocation decisions.

There are countless reports and studies that identify factors adversely impacting the use of performance information in the budget process. Yet, as the U.S. emerges from the Great Recession and the economy continues to show signs of improvement, it seems as if there would be greater interest by state and local governments to implement performance budgeting systems.

 

Performance Measurement to Performance Budgeting

Performance information continues to be valued as an important component leading to improvement within government. As government continues to rely more heavily on information technology, the use of performance measurement similarly increases. In addition to clear accountability, Newcomer and Caudle (2011) assert that public managers are being asked to deliver services more efficiently and improve program decision-making. Performance measurement is one method managers can implement to accomplish these goals. Performance budgeting can further strengthen decision-making along with the allocation of resources.

The use of performance information by public managers is extremely valuable, in particular at the sub-department or program level. At this level, where performance information is linked to managerial decision-making and not necessarily resource allocation, public managers commonly have a great deal of discretion. It is less important, therefore, for them to rely upon cooperation between other managers in the organization. In a case analysis of the performance system in Indianapolis, Ho (2011) found that performance information was more likely to be used at the program level as opposed to the department level. His study also found that budget appropriations had little to do with the actual performance of the program. This does not seem to make sense for any organization that values wise allocation of public funds.

 

Factors Impacting Performance Budgeting

What factors prevent state and local governments from using performance information when allocating resources? For localities that are renowned for strong performance budgeting systems, like Sunnyvale, California, greater emphasis is placed upon using performance data to inform budgetary decisions. Cases like Sunnyvale are not the norm, however. Several key factors likely to inhibit organizations from using performance information when allocating resources include:

• Insufficient knowledge of performance measurement to maximize use
• Lack of time to implement system
• Unreliable performance data
• Poor resources, in particular information technology capacity
• Absence of elected official buy-in/support

Perhaps the most compelling factor that impacts performance measurement use in the budgetary process is legislation. According to Lu, Willoughby and Arnett (2009), nearly 80 percent of U.S. states had performance measurement legislation requiring that state agencies link resource allocation to performance measures. That number has likely increased as the diffusion of performance budgeting innovation continues to expand across the country. Using performance data to inform budgetary decisions may increase among local governments as well. For this to continue, a substantive effort by elected officials to hold themselves accountable for their decisions needs to occur. Therein lays the problem. Precisely who holds an elected official accountable when they dismiss relevant performance data when allocating resources?

Lu, Willoughby and Arnett (2009) found states that scored higher on the Government Performance Project (GPP) Survey of 2008 had legislation in place requiring the use of performance measurement in allocating resources. States also scored higher on the GPP survey if they had “stronger” performance budgeting policies in place.

Whereas discretion affords public managers the ability to use performance data to make program-level decisions, elected officials are likely to view performance budgeting as a mechanism to decrease their level of discretion. Elected officials may believe that strict use of performance information to allocate resources undermines their ability to negotiate and make compromises. It should be noted, however, that performance budgeting is not an all-or-nothing endeavor. Negotiation will always be an integral component of budgetary discussions. Including performance information may simply minimize the need to negotiate on every line item in the budget. Further, using performance information in budget negotiations simply assists informed decision-making. At what point do we ask our elected officials to make rational decisions that are in the public’s best interest?

 

What’s Next?

While there are several factors that may prevent elected officials or policymakers from allocating resources based upon performance information, legislation may be the best manner to encourage use. Precisely who holds an elected official accountable when performance data is dismissed when allocating resources? As Ho (2011) aptly asserts, performance budgeting is more than a management tool. To prevent future fiscal challenges, performance information should be used more extensively in the budgetary process.

Certainly there are examples of states and localities that have performance budgeting systems that do not have a particular law in place forcing its usage. A closer examination of the link between legislation and performance budgeting therefore is warranted. It would also be of interest to track the election trends of governors and mayors who ran for office based upon the premise that they would sign legislation supporting the use of performance information in the budgetary process.

Although the performance budgeting process can take several years to demonstrate tangible benefits, once it is in place it becomes difficult to live without. In many ways, performance budgeting becomes a part of the ingrained culture of the organization. It also becomes something that the public expects of government to ensure their money is spent wisely. And it just makes sense. It is difficult to envision an individual managing their personal finances without establishing benchmarks that assess money spent well versus money spent poorly. How then can states or cities do so without a performance budgeting process in place?

Performance budgeting legislation may not be the panacea to fix all state and local government financial management issues but it is certainly a step in the right direction. Performance budgeting legislation is likely the remedy needed to eliminate the gap between public manager efforts and elected official action.

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Author: Marc K. Fudge, Ph.D. is an assistant professor within the Department of Public Administration at California State University San Bernardino. His research focuses on performance management, public budgeting and finance and e-government. He can be reached via email at: [email protected]

 

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