Budget Reform: Putting Performance First

LITTLE HOOVER COMMISSION Richard R. Terzian Chairman Michael Alpert Vice Chairman Nathan Shapell Past Chairman Senator Alfred Alquist Charles G. 8akaly, Jr. Carl D. Covitz Pier A. Gherini, Jr. Senator Lucy Killea Gwen Moore Angie Papadakis Assemblywoman Jackie Speier Stanley R. Zax STAFF Jeannine L. English Executive Director Kathleen Beasley Deputy Executive Director 0/ State California LITTLE HOOVER COMMISSION Richard R. T =.i", October 11, 1995 Chamnan Mich.d E. A1pm VU"t' Chai77714n N.,h"" Sh.pell Past Chairman A1Jr.a E. Alquist Senator Chules G. B.hly,jr. The Honorable Pete Wilson Cul D. Covitz Governor of California PH~r A. Gherini,jr. Lucy Killea The Honorable Bill Lockyer The Honorable Rob Hurtt Srnatar President Pro Tempore of the Senate Senate Republican Floor Leader Gwen Moore and Members of the Senate The Honorable Brian Setencich The Honorable Willie L. Brown Jr. j >clUe Speier AsscnblYWOm4n Speaker of the Assembly Assembly Democratic Floor Leader s,.ruey R. Z;u and Members of the Assembly je.uuline L. EngL'h £UCUllvt: DlrtaQT Dear Governor and Members of the Legislature: No single reform can banish California's many problems or make the choices faced by its policy makers any easier to resolve. But the State can take steps to emulate successful private-sector companies that have made great strides in efficiency and effectiveness. Such steps hold out hope that government performance will meet the expectations and demands of citizens. In previous reports, the Little Hoover Commission has advocated overhauling the State's procurement practices and civil service procedures. In the report that accompanies this transmittal letter, the Commission examines the State's budgeting mechanism and finds work in progress on innovative reforms -- but a lack of the type of support that can foster and spread success. The State's experiment with performance-based budgeting is warmly embraced by the departments involved but has generated little enthusiasm in the Legislature and in the remainder of the Executive Branch. The key advantage of the performance measurement approach to budgeting is that the allocation of funding is linked to what a program is able to accomplish. This differs from traditional budgeting, which focuses on increasing line items of expenditures - personnel, equipment, supplies, etc. -- when case loads grow, regardless of a program's ability to meet goals. After reviewing the State's progress and examining the experience of other government jurisdictions throughout the country and in other nations, the Commission has concluded that performance-based budgeting is a valuable mechanism with winners on all sides: Milton Marks Commission on California State Government Organization and Economy 660 J Street, Suite 260 • Sacramento, CA 95814 • tel (916)445-2125 • fax (916)322-7709 Budget Reform: Putting Performance First October 1995 Table of Contents Table of Contents Section Executive Summary Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Background ................................................. 7 Finding 1: Flawed Process ..................................... 25 Finding 2: Measuring Up ...................................... 45 Finding 3: Costly Controls ..................................... 57 Conclusion ................................................ 67 Appendix ................................................. 73 Endnotes ..... -............................................. 77 Little Hoover Commission: Performance-Based.Budgej~tin~g~ ________________ Table of Contents Table of Sidebars Pressures on State Government ................................... 4 The Power of Measuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 1 949 Hoover Report Excerpt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2 The Waves of Reform ......................................... 13 Palo Alto's New Paradigm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 8 California's Nine Principles ..................................... 20 Departments: Go For It ........................................ 22 California Conservation Corps Budget .............................. 29 Backers of Budget Reform ...................................... 31 Sunnyvale Solid Waste Disposal .................................. 33 The Texas Tornado .......................................... 35 Indianapolis Parks and Recreation ................................. 37 Palo Alto Public Works ........................................ 38 United Kingdom Commitments ................................... 49 Oregon's Benchmarks ......................................... 50 California Department of Parks and Recreation . . . . . . . . . . . . . . . . . . . . . . . . 51 Department of Consumer Affairs ................................. 52 California Conservation Corps ................................... 53 Little Hoover Reports ......................................... 62 Parks and Recreation Cost Avoidance .............................. 63 Little Hoover Commission: Performance-Bas~d Budge,tir'1L- Executive Summary Little Hoover Commission: Performance-Based Budgeting ii Executive Summary Executive Summary A s the demands on California to provide services increase and resources remain limited, it is critical that the State move to equip its agencies and programs with the flexibility to perform efficiently and effectively. It is no less critical that policy makers be provided with information that will allow them to make informed choices among competing interests. Performance-based budgeting -- while not a panacea that will produce balanced spending plans without painful choices -- is a promising tool for managers and policy makers alike. Performance-based budgeting links measured results with allocations of funding. Departments are held accountable for outcomes, spending is prioritized based on a program's ability to successfully reach goals, and comparative data allows policy makers to understand the array of results that can be accomplished through different levels of spending. This system differs sharply from traditional budgeting, which focuses on line item expenses -- personnel, equipment, supplies, etc. Under the traditional system, spending increases as demand for a program grows rather than as a program proves itself successful in reaching desirable outcomes. Many states, the federal government and other nations have adopted performance-based budgeting to some degree. In California, several departments are participating in a performance-based budgeting pilot project. The Little Hoover Commission examined California's experiment with the performance-based budgeting format and reviewed the iii Little Hoover Commission: Performance-Based Budgeting experience of other government jurisdictions. The result is the Commission's report, which contains three findings and nine recommendations. F inding 1: The current process for allocating funds and setting program priorities is not a framewOJrk that encourages the best policy decisions, especially in times of e(:onomic contraction. The traditional line-item budget invites policy makers to add funds automatically to existing programs each y,ear to take care of caseload growth. In years when resources are growing, such reflexive action is possible even as new layers of programs arE! added. But when resources fail to keep pace with demands, policy makElrs would be better served by a system that helps them make rational choices. Such a system would quantify outcomes that will be achieved by various levels of spending. Informed decisions about how to get the most value out of limited resources to meet competing needs could then be made. The focus could shift to reaching consensus about priorities rather than on battling to protect existing programs, regardless of performance. Recommendation I-A: The Legisllature should playa major role in bringing budgeting to California, performance-bas(~d providing support and oversight for the current pilot project. The Legislature needs to designate a point person or committee for ensuring that the performance-based budgeting pilot project is proceeding in a direction that can win legislative support and consensus. This could be either a special budget subcommittee in each house that would be in charge of the budgets for the departments in the pilot program, or it could be a special, joint committee of the two houses. Since the system envisions the policy makers yielding substantial power to -department managers on line-item management and programmatic details, it is imperative that legislators understand the benefits that they can expect to gain in terms of accountability and improved real-world information. Such an educational process will only occur if there is a strong point of support for the new system within the Legislature. Recommendation I-B: The Executive Branch should renew its commitment to the performanc,e-based budgeting concept by providing the logistical support departments need to make the system work. iv Executive Summary The Administration can assist pilot project departments by providing them with the guidance and standardized approaches needed to gain Executive Branch consensus on the performance-based budgeting process. This should include strong support from the Department of Finance, which has been placed in an oversight capacity for the pilot project. The Department of Finance should playa lead role in gathering information from other governments using performance-based budgeting, providing parameters for departments to use in negotiating budget contracts and reporting performance measures, and setting up formats for information sharing between departments and the Legislature. The experience of other states, the federal government and other nations does not support the Department of Finance's viewpoint that the system must be limited to certain departments and functions. Such pre-judgment may hamper the success of much-needed reform in the long run. Recommendation l-C: The Governor and the Legislature should express their long-term commitment to budgetary reform by adopting legislation to extend the timeline for the performance-based budgeting pilot project and to encourage its expansion as appropriate. There is an intensive investment of time and resources in developing strategic plans, identifying appropriate performance measures and tracking data. Many of these processes may not work well the first, or even the second, time. But for reform to be successful, the commitment to change the budgeting process cannot evaporate at the first sign of failure. In addition, performance-based budgeting contains many elements that allow for improved program management rather than just improved budgetary decision making. The Governor and the Legislature should encourage departments whose leadership is capable and open to change to adopt techniques and processes now under development by the pilot project departments rather than waiting for a final evaluation of the project. Finding 2: Reliable and relevant performance measures are difficult to identify and may be costly to track but they are a critical component for a valid performance-based budgeting system. Some things in government programs are easy to measure: How many pieces of paper are processed in a certain amount of time, how many hours of service are provided, how much money is spent for postage. But other things are more difficult to quantify: Does a person who v Little Hoover Commission: Performance-Based Budgeti<1~gi.--____________ receives services have an improved life, is a specific training program sufficient to help someone obtain a permanent job, does the provision of a certain recreation program reduce juvenile crime? Performance-based budgeting seeks to capture the latter kind of information so that policy makers can make informed choices about how to spend funds. But picking the right thing to measure -- and then measuring it accurately - can be a difficult process. Pick the wrong thing to measure and performance "improvements" will tilt in undesirable directions or have unintended consequences. Recommendation 2-A: The Leg:islature should establish general criteria for the types of performance measurements it would find useful and require departments to submit their proposed performance measures for approval before budget hearings. The Legislature should direct departments that are moving into performance-based budgeting to measure the things that policy makers are interested in using to craft budgetary decisions. While the Legislature should allow departments the ability to develop accountability systems that meet their needs and programs, the departments would benefit from general parameters and indications of what the Legislature would find most useful. The further step of having the Legislature specifically approve performance measurements befor,s budget time would focus policy makers' attention on their own needs and give departments time to reshape measuring systems as necessary before budget deliberations. Recommendation 2-B: The Governor and the Legislature should approve legislation direding the Department of Finance to ensure that departments have access to adequate training and outside expertise to effective measuring d'~velop systems. Each department knows its own culture, programs and needs best. But the movement toward performance-based government and results oriented programming is so extensive that there is a large base of experience with developing measurements. Departments should make the most of others' experiences as they put their measurement systems into place. The most efficient way of gathel,oing the relevant information is to have the oversight agency, the Department of Finance, contract with experts and act as a clearinghouse for data. In addition, the Department of Finance should take the lead in ensuring that department directors and managers have adequate training to make performance based budgeting work in a meaningful way, vi Executive Summary F inding 3: Achieving accountability through bureaucratic controls increases the cost of government programs and decreases the flexibility needed to make them successful. Whenever something goes wrong in government, the reaction is to set up control systems that will preclude a repeat occurrence. The protective systems become paperwork burdens on programs, increasing costs without adding value, creating frustration and shifting employee focus away from meeting program goals. Accountability, however, is the key to operating government effectively, efficiently and credibly. Performance-based budgeting retains accountability but shifts it away from command-and-control structures and toward concrete outcome and output measurements. Recommendation 3-A: The Governor and the Legislature should examine and revise control systems for all agencies to eliminate unnecessary and costly processes. The Little Hoover Commission has identified many procedural barriers to government efficiency in several prior reports. Chief among the systems that should be revised, according to these reports and the experience of the pilot project departments, are the civil service system, the procurement system, leasing oversight and the mandatory use of Prison Industry Authority products. The prior Commission reports contain specific recommendations for increasing efficiency without eliminating accountability. Recommendation 3-B: The Governor should negotiate and the Legislature should approve a pay-for-performance system that rewards success and sanctions failure. Whether it is called a merit system or a pay-for-performance system, government should have the ability to provide managers and employees incentives for doing a good job. The "fairness" of a system that pays everyone assigned the same type of work the same amount regardless of their ability and effort can and should be disputed. Organizations that recognize achievement are most likely to encourage it. Recommendation 3-C: The Governor and the Legislature should allow departments that achieve budgetary savings through increased efficiency to retain and redirect part of the savings. vii Little Hoover Commission: Performance-Based Budgeting The perverse incentives in the current budgeting process encourage departments to spend every penny in each year's budget. Allowing a program manager to retain funds into a new budget year when they have been earned through efficiency would change that spending incentive and encourage innovation. The redirection of the savings could be restricted to certain expenditures approved by the Legislature or managers could be given broad discretion as long as the spendin!~ contributed to the mission and objectives of the department's programs. Recommendation 3-D: The Governor and the Legislature should adopt a multi-year approach to budgeting. Performance-based budgeting yields data about long-range trends and performance. But to take advantage of this information, policy makers need to look beyond the next year and understand the implications of their decisions. This can be achieved by building mUlti-year projections into the budget process and exploring the potential, including any necessary constitutional changes, for adopting budgets that span more than one year. viii Introduction Little Hoo ver Commission: Performance-Ba5led Budge tiJ.~7g:L-_______________ 2 • Introduction Introduction W hen private-sector companies ignore their customers and their market environment, they fail financially. When governments do the same thing, they earn the disdain of taxpayers and face restrictions at the ballot box that affect their ability to provide services. In the 1980s and '90s, the private sector has moved dramatically to sharpen efforts and refocus strategies in the new highly competitive marketplace so that fulfilling customer expectations is the top priority. Continuous improvement, employee empowerment, right-sizing, just-in time delivery -- the buzzwords and fads are many but the changes and results are tangible. At a much slower pace -- indeed, in fits and starts -- governments are also beginning to change, largely driven by overt public dissatisfaction and dwindling resources. Policy makers and bureaucrats are examining ways to take successful private-sector concepts and fit them into government operations without sacrificing the public trust. At the heart of the transformation of government across the nation is the struggle to measure the outcome of programs and forge a connection between budgetary decisions and the proven ability to create desirable results. Two dozen states and the federal government are in various stages of using an analytical, performance measurement approach to budgeting. They range from Texas, which in one two-year budget cycle completely overhauled its budgeting mechanism, to California, which IS inching into reform with a limited pilot program in four departments. 3 Little Hoover Commission: Performance-Ba;,?ed Budget/~ Linking program performance with fundinn decisio 1S is not a new concept, as those who have seen wave after wave of budget reforms in the past 50 years can attest. But the circumstances f3eing government today have combined to make reform imperative, Amon9 those circumstances in California are: • r-----' '----'--.------------------, California's economy. PreSSlll'eS on State Government Economists may differ on the details, but all agree that the State has been Among the indicators of stress on state programs: through a long and ./ Declining levenues. Spurred by a large tax increase, difficult recession that has California's revenues peaked at $42,03 billion in 1991·92, restricted the revenues but then drllpped to $40,95 billion in 1992·93 and $40.10 available to government. billion in 1E 93·94. The increase '11 1994·95 .. to $42,35 .. Military base closures, signaled an improving economy bllt did not allow the State to deteriorating infrastructure recoup grotl nd lost to inflation. and other factors are expected to continue to ./ Growing c ~sBloads. While the State's population grew 9.4 suppress the State's percent between 1990·91 and 1995·96, the AFDC caseload economic growth for the grew 40 pErCE!nt and the number of SSIISSP clients grew 26 near future. Even the percent. In the mid·1980s, one in ninE! Californians was on most rosy predictions do Medi·Cal. lhe rate is one in six today, not forecast a return any time soon to the type of ./ Low voter turnout. Only 60.5 percent of registered voters economic expansion that went to thl! polls in the 1~ l94 gubernatorial election compared allowed California to 79.2 per :ent in 1966's gubernatorial race. government to grow non stop throughout the post High publil: distrust of government. In 1983, only 28 World War II years. As a percent of Ihose polled felt the California Legislature was result, governments at all doing a poc r job compared to 39 percent in 1994 .. an levels In the State improvemelt from 1992 's 50 percent disapproval rating. During the !;ame period, public disapproval of Congress rose continue to find their from 43 pelcent to 73 percent. resources constrained. • Increasintl diversity. In 1980, California's population was Population pressures. 67.0 perce'lt white, 19.2 percent Hispanic, 7.5 percent California continues to African Arr eriean and 5.2 percent Asian, By 1990, the grow, both through picture had changed, with only 57.2 percent white, immigration and birthrates Hispanics were 25.8 percent of the popUlation, African that outstrip deaths. Americans 7 percent and Asians 9,1 percent. State statistics make it clear that the growth is Sources: Budget Summaril s, Governor's Budget Summary 19 9596 Secretary of State's coupled with Office, Field Poll, Gallup Pol, O(!partment of Finance disproportionate increases In the demands for services, largely because of the specific derlOgraphics of the growth (largely the very old, the very young ard the very new to America). From the social safety net programs like Medi-Cal and Aid to Families with Dependent Children (AFCCI, to the general service programs, such as schools, the nurrber of clients for state services is increasing at a far greater rate than the popUlation itself. As a result, government must strain to prOVide 4 Introduction more services even as resources diminish. • Public distrust. The public's belief in government as a positive force has steadily eroded, as reflected in opinion polls and voter turnout. Hand-in-hand with this growing distrust have come a series of ballot-box measures meant to tie government's hands: Proposition 13, Proposition 4 and Proposition 98 -- each of which restricted government's ability to raise revenues or determine how to spend funds -- are just a few examples. As a result, policy makers are faced with limited options and are increasingly unwilling to make tough choices, preferring inaction and short term fixes over long-term reforms that may prove unpopular. • Increasing diversity. Amid the clamor of single-issue groups and other special interests, it is difficult for policy makers to focus on the needs and desires of the general public. In addition, as California has become less homogeneous, it has become more difficult to identify a single common good that is easily agreed on by the diverse groups constituting California's population. As a result, prioritizing needs and making decisions about the relative value of various possible expenditures becomes a zero-sum game of balancing conflicting demands rather than a reasoned dispassionate approach to investing government resources in services that have proven value. These factors could be formidable forces on state government to do a better job, but institutional inertia and turf-protecting instincts are immense barriers to change. It is within this environment of warring pressures that California began a performance-based budgeting pilot project in 1993. While the pilot project has yet to run its course, mid way assessments by the Legislative Analyst's Office and legislative staff have been cautious, if not negative. The Little Hoover Commission turned its attention to the pilot project as a natural progression from other studies it has conducted on the mechanics of government. In prior reports on how the State oversees its real property assets, how the State procures goods and services and how the State manages its work force, the Commission has advocated reforms that echo private-sector practices in an effort to make government more effective and efficient. The Commission, therefore, had an interest in examining performance-based budgeting as a concept that would help the State focus on the bottom line of wisely spending scarce resources. Study Methodology To carry out its study, the Commission gathered information from experts across the nation, as well as examined the experience of other states, the federal government and other nations. The Commission conducted a public hearing in Sacramento, bringing together some of 5 Little Hoover Commission: Performance-Based BudgefinL-. those experts and the state department heads involved in the pilot project (see Appendix A for a list of hearing participar'ts). Finally, the Commission intensively studied the experience of Oregon and Texas, the two states that appear to have made the most progress in perfecting performance-based budgeting. The result is the following report, which focuses on the concept of performance-based budgeting rather than on an evaluation of the pilot project process in California. The Commission believes 'hat the specifics of the pilot project implementation are less important to the eventual success of the experiment than the steps that need to be taken, as demonstrated in other jurisdictions, to build c()nsensu~; and support for change. The report begins with an Executive Summary and this introduction, followed by a background section and three separate findings with associated recommendations for each. The repOit ends with a conclusion, appendices and endnotes. Background • Performance-based budgeting is an approach to allocating funds that links measured results with policy decisions. • Traditional budgeting focuses on line-item costs for personnel, equipment and supplies; performance-based budgeting focuses on outcomes. • Sunnyvale's successful budgetary process includes a 20-year strategic plan, a 10-year financial plan, a two-year performance budget, annual evaluations and performance-based compensation. • Twenty-four states are trying performance based budgeting to some degree, ranging from the wholesale adoption in Texas to Florida's projected, gradual conversion department by department. • California's experiment includes four departments: Parks and Recreation, General Services, Consumer Affairs and the California Conservation Corps. 7 Little Hoover Commission: Performance-BasE~d Budgetimt,.1 ________________ 8 Background Background I n an era of recession-reduced revenues and increasing demands for services, national, state and local governments are seeking ways to improve delivery of effective services at the lowest possible cost. California is no exception. In 1993, the State began a pilot program to test performance-based budgeting, a complex process of strategic planning and outcome evaluation that seeks to ensure that programs are funded according to their ability to produce positive results. The State's first steps in this direction come at a time when many other states have taken major strides to reform their budgeting mechanisms. The federal government is embarking on a massive pilot project and foreign governments are well immersed in linking evaluations to budgetary decisions. While California is not a leader in the movement toward performance based budgeting, it long ago incorporated many of the elements in its own budgeting process that other states are just now adopting - concepts such as delineating funding by program functions and providing key program indicators within the budget document. Thus, the State has not felt the same pressure for change that policy makers in other states have who are frustrated by cryptic, enigmatic budget documents. By comparison, California's budget, as introduced by governors each January, is a treasure trove of information about how much specific programs cost, how many people are employed to operate them and, often, how much service is delivered. Nonetheless, the budget falls far 9 Little Hoover Commission: Performance-Bast~~r;j Bud.fJ..!2:ing short of providing a picture of how success"ful state Ilovernment IS m reaching the policy goals represented by the cornmitm ~nt ot funding. Nationally and in California, the move to performance-based budgeting is but the latest in a long line of attempts to inlprove the way governments allocate funds and provide accountability. Understanding what has come before and why other reform effor1 S have failed is important for those who seek to make the new budgetmg overhaul successful. In addition to explaining! the performance-based budgeting concept, this background section provides a historical Cllrltext for budget reform, summarizes the experience of other government jurisdictions and reviews the pilot project in progress in California. r---------·--·----·----------------, A Definition The Power ofltJeasllrillK performance-based budgeting is The book Neinllenlin,q I.:ovemment: How the Entrepreneuria/ Spirit is an approach to allocating Transforrning the Pub/,,: Sector describes the power of performance funds that attempts to link measurement measured results with policy decisions. This method stresses .I What gets m~ asured gets done. holding departments accountable for outcomes, prioritizing .I If you don't 11easure results, you can't tell success frOITl spending based on a program's failure. ability to successfully reach !~oals, and providing comparative data .I If you can't ~;ee success. you can't reward it. on how much value is received when dollars are allocated in .I If you can't leward success. you're probably rewarding different ways. failure. As the Legislative Analyst's If you can't :;ee success, you can't learn from it. Office defines it, performance based budgeting is: .I If you can't I ecognize failure, you can't correct it. If you can dEmonstrate results. you can win public support. ... the allocation of resources based on an expectation of performance levels, where performance is mea.wred in specific, meaningful terms. it differs from the traditic'nal approach to budgeting in that it focuses on outc0177eS rath,'r than inputs or processes when deciding how to a/locate reSOLrces. 1 For instance, rather than funding a job-training progrilrTI based on the number of clients needing services and the number of caseworkers that are required to meet that need, a performance-based bL dnet would offer policy makers a grid of expected results that would be verified over time. An investment of one level of dollars would have the potential of achieving a 10 percent reduction in unemployment, while a greater investment may bring a 20 percent reduction. 10 Background The contrast between performance-based budgeting and the more traditional line-item budgeting is clear because the perspectives are quite different, according to a report by the National Conference of State Legislatures: The traditional approach to government budgeting focuses on incremental changes in detailed categories of expenses called line items. More money is appropriated for specific expenses like personnel, equipment or rent as demand for an agency's service expands or new program responsibilities are added over time. Performance budgeting differs from this traditional approach because it focuses on spending results rather than the money spent -- on what the money buys rather than the amount that is made available. 2 The report identified the following characteristics of a performance-based budget: • A statement of the goal in allocating funds for a particular program and a set of measurable objectives. • A report on past performance and the use of a common cost factor that allows direct comparisons between disparate types of programs. • Flexibility for managers to redirect funds as needed, along with rewards for success and sanctions for failure. • Data on program evaluation that is reliable, credible and capable of being independently verified.3 The Governor's Budget Summary of 1993-94 provided a similar but expanded list of "essential elements" for the performance-based budgeting pilot project in California. The elements include: • The creation of long-term strategic plans, with the State identifying missions for each program and strategies for carrying out the missions. • The development of performance measures to be used in a department's program and financial planning process. • The establishment of benchmarks by which to measure progress toward more efficient and effective operation. • The development of annual budgetary contracts that specify the level of resources provided to a program, the level of performance expected, accountability measures and flexibility granted to managers. 11 Little Hoover Commission: Performance-Base~d Budqet~"7(L-. ___ • The provision of flexibility to managers to enhance program performance through relief from control mech,:lnisms involving procurement, personnel and other requirements • The incentive of retaining 50 percent of any ~.a\lings within a department to encourage program efficiency anj innovation. • The commitment to quality improvement, w th a focus on customer service, constant redesign of proceSSE~S and employee empowerment.4 The Governor's Budget Summary ~------- ------.-----.----------.--------------~ 1949 Hoover Report Excerpt emphasized the potential that performance-based budgeting holds for increasing efficiency: The federal Hoover Corr mission recommended overhauling the nation's "The development of a budget process in a rep(lrt that said: performance budget requires in order to pfllduce a simpler, more understandable and more budget writers and proqram satisfactory £'ldget plan for congressmen, newspaper managers to determine the best reporters and the general public, the present ponderous method to maximize pro!Jram budget document needs to be completely recast along the performance and enhance service knes of work,7rograms. This is known as the program or delivery, given a realistic level of performance i'udget, which analyzes the work of available funding. "5 !/,overnmental departments and age/lcies according to their major functiol'S, activities or projects. It thus concentrates As will be examined In more 1\~70n the general character and relative linportance of the detail in Finding '1, performance work to be de?e or the service to be rendered by the based budgeting offers policy departments ,'no' agencies, rather t/lan the things to be makers the opportunity to make "Icquired by tI,e departments and agencies, such as personnel program evaluation part of the services, comractual services, supplies, materials, equipment budget process, to provide "nd so on. Tile !.mer things are only means to an end. The managers with flexibility while ,'il/-important ,:'onsideration in budgeting is the work or service maximizing accountability for to be accomplished. results and to encourage (;ost effective streamlining of Source: Hoover CommiSSion's Task Force Report on Fiscal Budgeting and programs. None of these are new ,~ccounting Actlliitles, 1949 goals, as a review of more than four decades of budgeting reforms indicates. Historical Context O fficials have long struggled to make dry and complex budget documents more understandable and relevant to 'hose who must use them to make decisions. The federal Commission on the Organization of the Executive Branch of Government, more commonly known as the Hoover Commission, in 1949 recommended that the federal government reshape its budget to focus on fun ~tions, activities and projects rather than agencies and departments_ --he Commission used the term "program budget" to describe the new concept, which was touted as a simpler, more understandable way of presenting the 12 Background budget with an emphasis on "the general character and relative importance of the work to be done" rather than on things (personnel, equipment, supplies, etc.) to be acquired by departments. The Commission's report included a nod to the State of California for already using programmatic themes in its budget. The federal government adopted program budgeting in 1951, but this proved to be only a single change in a succession of reforms. Budgets were now formatted by programs, but expenditure categories were still driven by "things" rather than by work output. In 1961, Secretary of Defense Robert McNamara implemented Planning Programming-Budgeting-Systems (PPBS) in the department, which was followed by a presidential order in 1965 that all federal departments adopt the new system. This The Waves of Reform system was designed to provide macro-analysis of broad policy The federal government has not hesitated to tinker with its approach to decisions and desired outcomes budgeting. Key reforms include: rather than focusing on the details of planning and Program Budgeting, 1951: Laying out expenditure implementation. According to information by program category rather than by agency or one national researcher, PPBS department.. was intended to "provide a systematic process to identify Planning·Programming·Budgeting Systems, 1965: trade-ofts among programs aimed Focusing on broad policy objectives and program performance at similar objectives, to analyze rather than implementation details. the performance and impact of programs and to connect these Zero· Base Budgeting, 1976: Starting from scratch each objectives to the current year's year, with all programs competing for limited funding based budget. "6 on performance and priorities rather than on prior years' funding. Despite goals that were very Performance·Based Budgeting, 1993 (pilot): Basing similar to those expressed by the budgetary decisions on outcome data and long·range strategic federal Hoover Commission, the planning. new system was no more successful than the old in driving decisions toward proven results. In the late 1960s, witnesses told congressional committees that across the federal system there had been no apparent change in the decision making process and the budgets being produced. 7 President Carter brought Zero-Base Budgeting to the federal government after implementing it as governor of Georgia in 1971. This approach tackles the problem of programs becoming entrenched and receiving funding long after their usefulness has diminished or their aims have become a lower priority for policy makers. Under Zero-Base Budgeting, each year's budget is supposed to be designed fresh without relying on prior years' totals. Each program is theoretically begun with a zero budget and is funded after competing with all other programs for available resources. Directors are required to identify, evaluate and rank 13 Little Hoover Commission: Performance-Basl1.d Budgetin. .g.. _ _______________ in order of importance each function and operation to be performed by a department so that program value can be compared iICI'OSS all sectors of government. 8 Zero-Base Budgeting met much the same fate as PPI3S: Departments quickly learned the rituals that needed to be performed, but actual decision-making remained largely unaffected by the new system, according to many observers. By the 1980s, a national trend toward performance-based budgeting was emerging, with the California community of Sunnyvale leading the way. The 1993 publication and runaway success of Reinven ting Government: How the Entrepreneurial Spirit is Transforming the Pub/ic Sector put the catchwords mission-driven, results-oriented and customer-focused on the agenda of every progressive policy maker. Cautious ob~:;ervers, however, wonder if performance-based budgeting will prove to be just one more new exercise that fails to change decision-making in any fundamental way. This perspective gained credence when the Unitl3d States General Accounting Office examined performance-based budgE~ting in five states and concluded that the system has yet to influence state budget decisions. Instead, allocations continued to be driven by traditional budgeting practices.9 Advocates are firm in the belief that the periormancE~-based budgeting approach holds the key to making government efficient and responsive. And the track record of at least some of the jlJrisdictions using performance criteria to mold their budgets demonstratns that the system has vast potential when used well. Success Stories SUnnYVale, a city of 120,000 people just south of ~:an Francisco, has become internationally renowned for its performance-based budgeting. Under a federal Office of Management i nd Budget (OMB) grant in the mid-1970s, Sunnyvale began to experiment with an approach that it calls the Planning and Mananement S,,'stem (PAMS). By May 1991, OMB was impressed enough with the results to tell a Senate committee that Sunnyvale's system: ___ stands out as the single best example of a comprehensive approach to performance measurement that w/~ have found in the United States ... One underlying reason for the success achieved in Sunnyvale is the fact that every program manager uses the system to plan, manage and assess progress on a day-to-day basis. '0 The elements of the system include a 20-year strate'Jic plan, a 10-year financial plan, a two-year performance bud~let, anm al evaluations and performance-based compensation." Rather than formattlllg its budget along departmental lines, Sunnyvale matches its allac 3ti,ons to the seven 14 Background topics in its 20-year strategic plan: transportation, community development, environmental management, public safety, socio economics, cultural and planning and management. The budget allocates funding for tasks rather than for personnel, equipment or supplies, with quantifiable objectives that are expected to be achieved with the funding.12 The proof of Sunnyvale's success with the system comes not just in the kudos it receives in books such as Reinventing Government and in international forums, but in the statistics it can provide. Compared to fiscal year 1984-85, Sunnyvale reported in 1993-94 that there was a 44 percent improvement in worker productivity and a 38 percent improvement (in constant dollar terms) in the cost of providing city 13 services. The City of Indianapolis for several years has produced what it calls a "popular budget" for several major departments, including parks and recreation and public safety. The budget provides mission statements, allocations by outcome objectives and comparative performance measures. An introductory statement that is specific to the parks and recreation department captures the flavor of what the city is attempting to achieve with its popular budget: This agency is under a major transformation that represents a dramatic departure from traditional government approaches. Indy Parks hopes to communicate to the public and to its constituencies that parks and recreation are a necessity. With today's frantic lifestyles, Indy Parks will strive to provide enticing recreational opportunities so that people are healthier and more productive. With every action that Indy Parks takes, it will do so with the end customer in mind. Considering the customer's wants and needs will continue to be important at every phase of implementation. 14 The successful implementation of performance-based budgeting has not been limited to this country. The Organization for Economic Cooperation and Development, based in Paris, has promoted results-oriented approaches to governmental service for the past five years. The United Kingdom, Australia and New Zealand have been at the forefront of making government more responsible and accountable through performance measurements.15 Australia is particularly well known for its system of strategic planning, annual work plans, performance reporting and program evaluation. The government each year publishes a 19- volume set of detailed program performance statements relating funding 16 to accomplishments. In 1991, the United Kingdom began a 10-year program called the Citizen's Charter to improve public services. The program aims to make clear what standard of service people can expect and what they can do about it if service falls short. A 1994 report on the effort produced by the prime minister documented improvements in services in 24 different 15 Little Hoover Commission: Performance-Based Budgerin,;;1g_ _______________ areas of government, ranging from health and educcltion to the post office, defense, agriculture, planning and housing. h each area, the report delineated with specific objectives and data what had been promised, what was achieved and what future steps wl~re planned. The United Kingdom's efforts have been widely acknowledged as successful, prompting other countries to study the model.17 Closer to home, most efforts in the United States are too fresh for any deflllitive analysis of the results. But performance-based budgeting, either whole or in part, is spreading rapidly. The National Experience Twenty-four states have tried performance-based budgeting to some . extent. Eighteen are in various stages of modifying their budget procedures: Arizona, California, Connecticut, Florida, Georgia, Idaho, Massachusetts, Minnesota, Mississippi, North Carolina, New Mexico, Oklahoma, Oregon, South Carolina, Texas, Virginia, Washington and Wyoming. Another six are emphasizing long-range stral:e!~ic planning but are expected to reform budget processes as a next step: Alabama, Arkansas, Missouri, Utah, Vermont and West Virginia. Eight states may join the performance-based budgeting ranks in 1995: Alaska, Kansas, Louisiana, Maryland, Nebraska, New York, North Dakota and Pennsylvania.18 The National Conference of State Legislatures identifies three types of performance reforms that are emerging. The broad'3st type rethinks what role government should play, extends beyond single budget cycles and looks at the highest levels of program outcome. Oregon, Minnesota and Utah are Involved in this type of reform. "An unspoken expectation in these states is that once long-range goals are harr mered out, these objectives will limit budget debate, structure prog 'am activity and establish spending priorities for years to come. "19 The second type of reform focuses on efficiency ane:' effectiveness of current services, moving into the new budlgetary system quickly and with little advance discussion. Texas fits int.o this category. The third type focuses on managerial aspects, giving departments freedom from budgetary line-item control in exchange for promised levels of performance. California, Massachusetts and Missi~;sippi are working on this concept.20 The degree of involvement in performance-based budgeting varies. The following summarizes the experiences .of several states that are considered on the leading edge of the movement: • Texas: In a single, biennial budget cycle, Texas converted its entire funding process to a performance-based )udgeting system. Beginning with a top-down strategic planning process, Texas 16 Background policy makers defined a vision statement for state government and directed all agencies to develop mission statements that fit within the vision. Agencies were required to develop six-year strategic plans and performance measurements, identifying outcomes and outputs. The 1993-95 budget had more than 3,000 key performance targets that agencies were expected to be held accountable for achieving. A senior analyst told the Little Hoover Commission that, by and large, the system has worked well, especially for those agencies that have taken the process seriously.21 • Oregon: Working from the bottom up, Oregon began conducting a series of statewide public hearings in 1988 that culminated in a strategic plan and mission statement entitled Oregon Shines. The Legislature created the Oregon Progress Board in 1989 with the mandate to develop measurements and criteria for holding government programs accountable. The result was Oregon Benchmarks: Standards for Measuring Statewide Progress and Government Performance, a document with almost 300 achievement goals that is regularly updated and subject to extensive public review. By the 1993-95 biennial budget, all state agencies were directed to use performance measurements linked to the benchmarks in developing budget requests. A state coordinator for the program estimates that only about 25 percent of the agencies have produced effective measurement systems, but others continue to make progress.22 • Florida: Moving on a slower track, Florida has set up a gradual schedule of conversion to performance-based budgeting that is expected to encompass all agencies by 2002. Unlike many states where part of the goal is to deflect micro-management by policy makers, Florida's reform effort came from frustration with a budget that gave no program information and left agencies free to shift funds away from activities that the Legislature set as priorities. A half dozen agencies are expected to be added to the process each year. 23 • North Carolina: Driven by a $1.2 billion shortfall in revenues for 1991-92, North Carolina created a State Government Audit Committee with legislators and private-sector representatives. In 1993, the legislature enacted many of the committee's recommendations, including a mandate to develop a performance based budgeting system that focuses on results rather than line items and a new personnel classification system that would allow greater management flexibility and reward performance.24 • Minnesota: In 1993, 20 agencies were directed to produce annual performance reports on which the 1994-95 budget could be based, with all other agencies to follow by the 1996-97 budget. The reports are required to answer three questions: What is the agency's mission? What are the expected results of 17 Little Hoover Commission; Performance-Bas!~d Buc!fE.Jir~ ____ agency programs? What are the actual resu1ts? The reports were to be used by the Legislature during the budget deliberation process. But a report by the state's auditor indicates that the 25 first set of performance reports had very little impact on the discussion and decisions by executive and legisldtive branches for the 1994-95 budget.26 • r----'-----'-----'------·-----------, Pennsylvania: Focusing on the development of a Palo Alto's IVew Paradigm solid measurement system first, Pennsylvania requires In additiDn tD states alld 'the federal gDvernment, municipal all departments to form governmllnts are also ,!mbracing performance·based budgeting. For five-year strategic plans instance, the May 9, 1995 presentation of the city manager's budget and annual performance proposal to the City 01 Palo Alto begins by trumpeting the city's move plans. Based on three to a "mission·driven bL dgel" system. The transmittal letter explains: years' experience With projections and actual The basic approach and philosophy of the budgeting system is results, the Budget Office to present t'le financial spending plan irl a logical and clear is expected to recommend format that is easy to read, presenting the services in a clear, understandi1ble manner and displaying the impacts of the the best way to implement services, alwg with the costs of the services. This, we a performance-based believe, ma/les the budget a powerful tool and a logical budgeting system by late 1998.27 method to L se if! deciding what services the City will provide and at wha, level to fund them for years to come .... This • budget pres,?flts the costs of services to you rather than an Washington: The orgafllzatioflal structure. The foCils is not on how Washington Performance department:; are orgal7lzed and how much each orgafllzational Partnership is a mUlti-year piece costs, but on what the Couflcll afld community deserve plan by the state's leaders to know. 7:lat IS what we are providlilg to the community·· to refocus state how much,' costs and how do we measure the linpact. government programs on meeting the needs of Although the Palo Alt,1 has chosen to call its process mission· driven, the citizens. Using focus budget document adhl!res closely to the elements of performance·based groups, citizen input and budgetinlg: clear stat,!ments of purpose, measurable objectives and surveys, the state's allocatiol1s by activit\ rather than by personnel. equipment and supplies, leaders have put together a strategic statement for Source City of Palo Alto 19S'596 Proposed Budget. May 9, 1995 Washington government and is directing the implementation of performance measuremenU throu~lhout state agencies. The biennial 1997-99 bud~let is expected to be based on performance measures and strateglic visions.28 • Virginia: The state's 1992 budget act required all new programs to be set up with performance measures. Exist nn programs were to be moved into performance-based budgetinn on a pilot basis in future years. 29 The federal government is also moving in the direction of performance based budgeting. In 1993/ the National Per10rmance Review recommended that future budgets be baseej on outc )mes, finding tha1 18 Background the current budgeting process is both messy and costly. The panel's report described the lengthy negotiations and their effect: Until the end, agency officials troop back and forth to [the Office of Management and Budget} and to the Hill to make their case. States and localities, organizations and advocates seek time to argue their cause. Budget staffs work non-stop, preparing estimates and projections on how this or that change will affect revenues or spending. All this work is focused on making a budget -- not planning or delivering programs .... The process is devoid of the most useful information. We do not know what last year's money, or that of the year before, actually accomplished. Agency officials devise their funding requests based on what they got before, not on whether it produced results. In sum, the budget process is characterized by fictional requests and promises, an obsession with inputs rather than outcomes, and a shortage of debate about critical national needs. 30 The same year the report was issued, the Government Performance and Results Act was enacted. It required at least 10 federal pilot projects to test strategic planning, annual performance plans and measurable outcomes. To date, more than 75 agencies are involved. The same act required all agencies beginning in 1997 to submit five-year strategic plans, to be updated each three years, and annual performance plans.31 The fact that all levels of government are experimenting with budgeting techniques reflects the shared need to improve and streamline programs. With widespread interest both in the United States and around the world in reforming budgeting techniques, it is not surprising that California would become involved. What is notable, however, is that the State - with a history of being an aggressive leader, if not innovator, in reform movements -- has taken a cautious, small-step-at-a-time approach. California Enacted by both Executive Order of the Governor and statute in 1993, California has a performance-based budget pilot project that currently involves four departments: the Department of General Services, the Department of Parks and Recreation, the Department of Consumer Affairs and the California Conservation Corps. The Department of Finance provides oversight for the pilot project and is required to report to the Legislature on January 1, 1996 on the extent to which performance-based budgeting results in more cost-effective and innovative programs and services. The departments in the pilot project are diverse in many respects, including size, areas of responsibility and types of programs. For 19 Little Hoover Commission: Performance-Bas€~!f Budgetin(;LZ ________________ instance, the California Conservation Corps, with 415 E:mployees and a $56.7 million budget, is tiny compared to the Department of General Services, with 3,740 employees and a $503.1 million budget. The Department of Consumer Affairs deals extensively with 'clients" outside of state government (the people it regulates and the State's consumers), while the Department of General Services' actilvities are directed toward other state agencies. The Department of Parks and Recreation manages natural resources, while the ,----'-----'----'---------------, California Conservation Corps California's Nine Principles focuses on training youths for productive lives. California's performancl!·based budgeting pilot prolJram is guided by The goal of the pilot project is to nine princilJles. As delinl~ated in the Performance and Results Act of find more cost-effective ways to 1993 (CharlIer 641), thl!se are: deliver government services through strategic planning, ./ Strategic plan ling is central. performance measurement and the budgetary decision-making ./ Outcome mea !;ures are the primary focus of management accountability process. The statute creating the pilot project lists nine elements Productivity bl~nc:hmarks measure progress toward strategic that in general outline a pro~lram !loals. where departments will be given flexibility but in turn will be held ./ Pmformance II udgeting may work in conjunction with total accountable for results that are quality managl~ment, which emphasizes an orientation toward delineated in a contract each year customer serv ce and quality improvement. between the Legislature and the department. ./ Budget contra cts between the Legislature and the executive branch require departments to deliver spBcified outcomes for Each department has followed a 11 specified level of resources. fairly similar path of strategic planning (developing mission and Budget contra ~ts shall include evaluation criteria, and shall goal statements), identifying specify "gainsharing" provisions, in which 50 percent of measurable objectives and linking savings resulti ng from innovation are reinvested in the budgetary needs to program program. activities. As of mid-1995, each department had a strategic plan in ./ Managers are Jrovided sufficient operational flexibility to place, as well as mechanisms for alchieve statec! outcomes. updating and revising the plans; each had established performance ./ Legislative inviJlvement is critical and is clppropriately focused on strategic pi anning and performance outcomes. measurements and baseline data, although some were still being ./ Innovation is r ~warded, not punished . revised; and each had completed a budget contract with the Legislature. The contracts, however, focused on the flexibility that managers would be allowed and the achievements that would be pursued. The actual budgets adopted for each department for the 1995-96 fiscal year continUl3d to reflect the line-item format used for all state departments. Managers told the Little Hoover Commission that a lack cf !~uidance from the Department of Finance, particularly in terms of standardized 20 Background processes and explicit expectations, has forced each department to struggle with a steep learning curve. The Legislative Analyst's Office particularly noted that there were no guidelines to help departments determine how to conduct budget negotiations with the Legislature, and that no common reporting formats or computer application standards had been set to facilitate the shift to a performance-based budget 32 document. The Department of Finance, however, has maintained that since each department is so different an important part of the pilot project process is to allow each to develop separately with little constraint. In sharp contrast to enthusiastic advocates of performance-based budgeting who testified to the Commission and the leaders of state departments in the pilot project who uniformly said they saw positive changes in their operations, the Department of Finance sees performance-based budgeting as one in a long line of attempted reforms that has only limited applicability to state government. The Chief Deputy Director of the Department of Finance told the Commission: We continue to believe that not all agencies are well suited to performance-based budgeting. Our focus should remain on those agencies whose services mirror the private sector and which have identifiable measures of performance. Some agencies administer programs for the federal government; they operate under rules that we do not control in California. Other agencies have mandated responsibilities that are not amenable to the level of discretion necessary for performance-based budgeting to succeed. 33 An expert from Texas, however, told the Commission that his state's overnight conversion to performance-based budgeting in all agencies has worked well for the most part. He said the factor that seems to determine whether the method will work for an agency is not the agency's mission or program constraints, but the degree of seriousness with which the agency approaches the process of strategic planning and 34 measurement development. Similarly, the U.S. Senate counsel most closely connected to the federal experiment (and a former mayor of Sunnyvale) said that performance based budgeting can work with any level of government and any type of program. He said an appropriate analogy is the difference between a 747 jet and a small single-engine plane; both fly under the same general principles of aerodynamics but each is designed and constructed differently.35 Both the Department of Finance and the Legislative Analyst's Office agree that the State has seen little tangible results from the pilot project so far, although departments have reported improved customer sensitivity. Departments have spent more than $5 million on the process of creating strategic plans and identifying performance measures, although some of that cost involves staff time that would 21 Little Hoover Commission: Performance-Based BudgMing have been spent on budgeting activities regardless of the pilot project. Cost savings are not expected to accrue until departments have been able to implement the program fully -- and that is not expected to be before the January 1, 1996 reporting deadline. While the results of the pilot project have yet to be assessed, Departments: Go For It policy makers have taken several actions to set the stage for the Although the Department of Finance does not see performance-based method's eventual expansion to budgeting working for every agency, the departments in the pilot other agencies. project have a different perspective. They told the Commission: In 1994, the State Government Department of Parks and Recreation: The Department of Strategic Planning and Parks and Recreation has complex programs ... with numerous Performance Review Act (AB funding sources. It is our assessment that if the pilot is 2711, Chapter 799, Statutes of successful for [us}, it can be used with all state departments. 1994) said that "strategic planning is a prerequisite for ./ Department of Consumer Affairs: [We believe) that all state departments should be allowed to participate in effective performance reviews performance-based budgeting once the pilots are complete. and effective performance In fact, the process by which each department must develop budgeting." The act requires the performance and outcome measures may lead each Department of Finance to survey department to examine the reason for its existence. Any annually state agencies regarding process thilt requires government to refocus on its activities the status of their strategic plans and the necessity for its existence is worthwhile in its and to recommend which ones application. should develop or update a plan. The act also requires the ./ California Conservation Corps: Regardless of whether the Controller, the Department of California pilot project is successful in changing the emphasis Finance and the Bureau of State of budgeting from line-item expenditure control to the Audits, in consultation with the allocation of resources based on program goals and measured Legislative Analyst, to develop a results, the CCC is evidence of how government departments plan for conducting performance can improve management by focusing on results and reviews of all state agencies. efficiency. In addition, executive orders and ./ Department of General Services: Performance budgeting statutes have focused on total offers a new way to achieve program accountability by quality management programs replacing bureaucratic controls w/~h documented and results-oriented processes. A accomplishments. Performance budgeting offers opportunities to show that public expenditures result in total of 27 "Pioneer Projects" measurable benefits. Our experience to date suggests that have brought total quality successful performance budgeting requires the following management techniques to state capabl7/~ies and characteristics: leadership, project goals and agencies under a 1993 executive evaluation criteria, resources, standards and rational order. A 1993 statute (SB 1082; consequences. Chapter 418, Statutes of 1993) requires Cal-EPA to develop a model quality program and to begin in 1998 submitting a yearly progress report on the achievement of performance objectives as part of the budget process. Regardless of the eventual assessment of the performance-based budgeting pilot project, California clearly is moving away from traditional 22 Background top-down, command-and-control mechanisms for delivering state services. The following three chapters of findings examine the experience of those most familiar with the necessary steps to re engineer government effectively and provide recommendations designed to speed the process and avoid missteps in California. 23 ------------------'----- Little Hoover Commission: Performance-Based BudgE~ting 24 Flawed Process • California's line-item budget encourages policy makers to make automatic cuts or increases, rather than focusing on the quality of a program or the desirable level ofs ervice. • Performance-based budgeting is particularly helpful in three ways: • Data comes in a format that makes it easier to re-assess priorities as conditions change. • It is a system that focuses on available revenue rather than on the funding gaps created when demands outstrip resources. • Program expectations are clearly stated and performance becomes the key factor in funding decisions. • No system will make tough decisions automatically - policy makers simply have more information on which to base choices in a performance system. 25 Little Hoover Commission: Performance-Based Budgeting 26 Flawed Process Flawed Process Finding 1: The current process for allocating funds and setting program priorities is not a framework that encourages the best policy decisions, especially in times of economic contraction. T he traditional line-item budget invites policy makers to add funds automatically to existing programs each year to take care of caseload growth. In years when resources are growing, such reflexive action is possible even as new layers of programs are added. But when resources fail to keep pace with demands, policy makers would be better served by a system that helps them make rational choices. Such a system would quantify outcomes that will be achieved by various levels of spending. Informed decisions about how to get the most value out of limited resources to meet competing needs could then be made. The focus could shift to reaching consensus about priorities rather than on battling to protect existing programs, regardless of performance. Government budgeting experts agree that no system can make difficult choices on behalf of policy makers. Decisions must be made about how to meet the competing demands on state government, regardless of how data is presented and tracked. No system provides an "automatic pilot" for arriving at the proper balance of public expenditures. But it is widely acknowledged that some systems enhance the ability of policy makers to focus on pertinent data and make sound comparisons between programs, including their effectiveness and efficiency. 27 ------------- ,---,-------~ Little Hoover Commission: Performance-Based Budgeting Most governmental entities use a budgeting system referred to interchangeably as line-item, baseline, current services or workload. The budget for a department under this system lists personnel, equipment, supplies, travel, training and other well-defined categories for how money is to be spent. An unrefined version of this type of budget makes no reference to the separate programs that may be operated by a department, the source of funding, the operational goals, the number of clients served or other information that sheds light on how money is used in a broad sense. Instead, it merely describes how money is spent. California's Budget California's budget has a long history of being more informative than a straightforward line-item budget. The 1949 federal Hoover Commission report acknowledged California as a leader in describing expenditures in terms of programs rather than departments.36 This allows people to tell how much is being spent on specific groups of services rather than lumping the many operations of a single department together. In the late 1970s, the push by "tax revolt" proponents to cut government waste prompted the Legislature to improve budget oversight and require more information on which to base decisions. One major bill, Chapter 1284 of the Statutes of 1978, put into place most of the recommendations from a study by Deloitte Haskins & Sells on the State's fiscal management. Among other things, the law required: • The Department of Finance to operate an accounting system with expenditures by program, item, organization and fund source. • The Governor to propose his budget in terms of programs rather than simply by department. • Federal allocations to be incorporated in the budget as a source of funds by program. • The Department of Finance to develop an online California Fiscal Information System to monitor the budget, forecast revenues and allow comparison of the affect of different spending choices - and to provide access to the information to both the Legislature and the Administration. • The Department of Finance to develop departmental performance measures for each state agency. 37 Although several of the requirements were later modified, the statute substantially affected how the State's annual budget was presented. The box on the next page, which contains in abridged form all of the elements in the 1995-96 Governor's Budget for the California Conservation Corps, shows the range of information in the budget. 28 Fla wed Process California Conservation Corps Budget (Abridged Version/rom 1995-96 Governor's Budget) The California Conservation Corps (CCC) assists federal, State and local agencies and nonprofit entities in conserving and improving California's natural resources while providing employment, training and educational opportunities for young men and women. The CCC performs over 3 million hours of conservation work each year. In addition to tree planting, stream clearance, trail building, park development, landscaping, energy conservation, forest improvements, maintaining a native plant nursery and wildlife habitat restoration, the CCC responds to emergencies caused by fires, floods, earthquakes and other natural disasters. The annualized corps member population for 1995·96 is estimated to be 1,800. Authority: Public Resources Code Section 14000 Summary of Program Requirements 93·94 94·95 95·96 Personnel Equivalent Years 377.3 396.3 415.6 TOTALS $54,230 $58,879 $56,702 General Fund $26,938 $30,212 $27,503 Public Resources Account 226 234 234 Energy Resources Account 5,429 5,607 5,607 Collins·Dugan Fund 2,352 6,244 Petroleum Violation Account 2,088 Federal Trust Funds 1,160 1,892 1,000 Reimbursements 18,125 14,690 20,270 Program Objective and Description The CCC hires California youth primarily between 18 and 23 years old who reflect the diversity of the State's population. The age range varies with grants and specially funded programs. As a general rule, the youth hired are not on probation or parole and are paid minimum wage. The mission of the CCC is to develop youth and enhance the State's natural resources. This is done through fostering an appreciation for the value of hard work and the importance of education. The work is varied, meaningful and productive. Statewide, there are 13 residential service districts, 1 nonresidential service district and more than 30 nonresidential satellites in urban and rural areas. Major Budget Adjustments Included for 1994-95 • $264,000 from the Collins-Dugan Fund and three positions for the Northern California Bootstraps program. • $3,345,000 to fund youth national service and learning programs (Americorps). • $2,709,000 General Fund to provide funding for the CCC's settlement of a Fair Labor Standards Act lawsuit. • $250,000 Federal Trust Fund increase to allow completion of three federal grant projects. Major Budget Adjustments Proposed for 1995-96 • $2,088,000 from the Petroleum Violation Escrow Account, $706,000 in additional reimbursements and 18.5 positions for an expanded Southern California Energy, Water and Housing Center in Compton. • Continuation of $3,345,000 from Americorps. • $306,000 in reimbursements from the California Youth Authority to continue the Bootstraps program. Program Budget Detail Shows funding from separate sources for different programs Summary by Object Shows spending on personnel, operating expenses and equipment Reconciliation with Appropriations Shows a reconciliation of the appropriations by funding source • All figures in thousands of dollars 29 ------------------------'------------- Little Hoover Commission: Performance-Based Budgeting The elements in the budget include: • An introductory paragraph about the department, followed by the statutory citation that provides authority for the program. • A summary that tells how many people work for the department, how much money is spent and where the money comes from. All figures in the budget -- expressed in thousands of dollars -- are compared across three years: the actual prior year, the anticipated current year and the proposed next year. • A statement about the program's objective and a description of how it operates. • A listing of the major budget adjustments for the current year and those that would affect the proposed year. • A detailed budget showing the total funding coming from separate sources and the different programs within the department that funding will be spent on, by source. • A summary for the whole department showing how much will be spent on personnel salaries and benefits, operating expenses and equipment. • A reconciliation of the appropriations by funding source. California's budget, then, displays a broad range of information. But all of it is information relating to what a program is expected to do -- not what it has actually accomplished. It is full of "inputs" (number of personnel, amounts to be spent on salaries, benefits, equipment, etc.) and not "outcomes." In addition, like all line-item budgets, it encourages policy makers to make automatic cuts or increases -- rather than focusing on the quality or level of service being funded -- since there is no information that would allow such a judgment. The Governor's Bud~let Summary for 1993-94 described the exercise the administration goes through to propose the next year's budget: The Executive Branch phase of this process begins by developing a workload budget for each program for the upcoming fiscal year. The workload budget is calculated by adjusting the program's authorized level of spending in the current fiscal year for one-time costs, increases in the cost of operations, implementation of new legislation and for additional workload anticipated under current law. 38 None of this exercise involves determining how well a program has performed and making some assessment of whether the program should continue. In writing about the problems with traditional budgeting, the 30 Fla wed Process National Conference of State Legislatures agreed that the focus on line items leads to an incremental approach. Incremental budgetit~!J assumes that past decisions remain appropriate and would not typically be subject to major revision. Incremental budgeting does not easily allow a state to shift large sums of money from existing programs to more pressing needs. 39 In testimony to the Commission, the Department of Finance said that such an approach to budgeting works when revenues are growing but: ... it fails when revenues are shrinking because it builds false Backers ofB udget Reform expectations by calculating a program's "entitlement" and then failing to fund the program to that Many groups outside of government recognize the value of revamping level. The result is to create California's budgeting mechanism: "funding gaps" which pit one program against another to see California Business·Higher Education Forum: State and local governments should expand their use ofp erformance which program can fill more of its budgeting, working to establish goals and benchmarks gap. The losers are the people of consistent with an evaluation of the outputs of government California. In the environment of rather than the traditional focus on inputs ... .Budgeting based today's realities, we need a new on performance results is a much tighter coupling of program budget process that shifts from a success and budget allocation than is possible when using the focus on expenditures to a focus traditionalline·item budget process. on available revenues. In this new budget paradigm, the most California Taxpayers Association: Moving a political important question becomes, mountain is what we are talking about in discussing priority "What is the best program I can budgeting and trashing the traditional current services deliver for the funds that are approach. Call it a priority budget if you like, or a resources available? "40 budget, because growth is determined by a limited amount of revenue divided among priority programs. Because the current process builds on prior budgets, new and California Policy Seminar: The state needs to refocus innovative programs often get policy development and evaluation on outcomes .... Even if we squeezed out with little can't guarantee that we have precise performance measures, consideration. The revenues that we should rely on the current state·of·the·art to enhance that exist beyond that needed to cover approach .... Clearing up lines of responsibility tied to outcome workload increases in existing performance measures would help to restore public programs are the only source of confidence in government. funding for new concepts. When resources are not expanding, earmarking funding for one program, either new or old, often means cutting another. Competition among programs for limited dollars creates countervailing pressures on policy makers that are easiest to avoid by across-the-board cuts that ignore issues like performance, quality and need. Summing up the problems with the workload budget concept, the Governor's Budget Summary for 1993-94 said: 31 --------------------------------------- Little Hoover Commission: Performance-Based Budgeting The process of developing a workload budget has created unrealistic expectations among department managers and employees, elected officials and program recipients that the current level of service is an entitlement that can be continued without regard to the State's fiscal condition. It makes no allowance at all for productivity or quality improvements. It places too much emphasis on the level of funding promised to each program, and too little emphasis on progf,fJm performance. Finally, it has relegated the development of the budget to a technical calculation of desired levels of funding, when the budget should instead be a tool for improving program management. 41 Frustration with the current system goes beyond the state bureaucrats and policy makers struggling to make it work. The California Business Higher Education Forum, the California Taxpayer's Association and the California Policy Seminar have all issued statements backing the performance-based budgeting concepts.42 In addition, experts from other governmental jurisdictions that are at various stages of making performance-based budgetin!~ work uniformly praise it as a much-needed improvement over traditional budgeting. The following sections provide their observations and advice, as well as samples of their budgeting techniques. Sunnyvale SUnnYVale'S budget document is rich in information, ranging from past trends in performance to current statistics on the unit cost of different activities and targets for future performance. Organized by function rather than department (for instance, solid waste disposal rather than the Department of Public Works), the budget reflects increased productivity over time and captures the return on innovative program management. Perhaps the most striking aspect of the city's budget is the long list of performance indicators -- the measurements that tell what is being achieved by the city's programs and services. The ones in the box on the next page deal with solid waste disposal, but there are many other examples: having fewer than 10 complaints about telephone information services; repairing damage from vandalism within three days; successfully assisting on library information requests 95 percent of the time; responding to police emergency calls in 5.6 minutes or less 90 percent of the time; maintaining files so they can be retdeved within five minutes 85 percent of the time; and getting positive SUI"vey results from recreational customers 90 percent of the time.43 If such measurements are rare in most governments, they are the heart of Sunnyvale's intensively monitored system. It is a system that has allowed the city to focus on its goals even in times of declining 32 Fla wed Process revenues. The Sunnyvale city manager says that performance-based budgeting allows government to accomplish three things: • A clear articulation of the Sunnyvale Solid Waste Disposal purpose for which funds are appropriated, which in turn assures that the This partial listing from Sunnyvale's budget for its solid waste disposal funds are being spent for system shows the type of information the budget provides. the "right thing." Solid Waste Disposal System • The enhanced ability to To ensure safe and effective collection and disposal of all Class 3 solid wastes generated within the city. provide oversight and Program·wide objective: Collect and dispose of 175,800 tons of solid proper management of waste at a cost of $83.31 per ton. Also collect and process recyclable services. materials from 28,000 houses at a cost of $11.81 per unit. • Objective: Provide recycling collection to 28,000 homes on a weekly An improvement in the basis at least 99% of the time. quality and efficiency of Number of pickups 350,000 service delivery. Unit cost .74 Hours 10,125 By focusing on outcomes and Cost $257,449 desirable objectives, policy Objective: Process all incoming recyclable materials within 5 working makers not only give better days of receipt 90% of the time. guidance to those who are Tons processed 7,100 managing the programs but they Unit cost 5.68 also free themselves from being Hours 1,575 concerned about issues that are Cost $40,304 irrelevant to their goals. The city Objective: Perform administrative and support services. manager told the Commission: Work hours 5,981 Unit cost 30.67 Traditional approaches to Cost $183,434 governmental budgeting often are Performance Indicator Statement criticized for being micro Percent of collections performed as scheduled 100% managed, with policy leaders Percent of time recyclables processed in 5 days 100% involved in day-to-day Gallons of motor oil collected per week 588 Pounds of newspaper collected per week 127,648 administration, establishing Budget Program Totals by Account numerous prescriptive rules as to Salaries $242,353 how to get the job done. In the Contracts 209,584 case of Sunnyvale, those General supplies 11,440 deterrents to the provision of Postage 11,837 economic and quality services Ta xes and licenses 258,336 have largely been done away Refuse collection 7,422,540 with. We have found that when Franchise fees 371,125 policy leaders know that they are Payments to landfills 1,975,449 responsible for the clear Consulting services 579,020 articulation of the level and Fleet rental 93,154 quality of services to be provided Other (detailed in budget) 285,747 and when they receive frequent TOTAL $11,460,576 feedback on what was actually accomplished, that they no longer feel the necessity of micromanaging, and as a result responsible 33 Little Hoover Commission: Performance-Based Budgeting management and line personnel have greater freec)om to focus on results. 44 One key aspect of the Sunnyvale system that is atypical of government is that management is on a pay-for-performance system. Managers are evaluated based on their ability to meet the goals set in the budget document. Those who succeed earn bonuses of up to 10 percent while those who fail may face a reduction of 5 percent in their pay (and this sanction has been used, according to the city manager, although managers with a pattern of under-performing usually do not stay with the city). Because Sunnyvale emphasizes achieving specified levels of service more efficiently, managers are rewarded more for meeting the objective at a lower cost than for exceeding the objective at the budgeted amount. Another aspect of the Sunnyvale system is the constant accountability. Managers receive monthly reports on performance in relationship to goals. The city manager told the Commission that such constant reminders that performance is expected is alien to many people in public service and that some have a tough time adjusting. But many flower in an atmosphere that not only allows them to be creative but also rewards them for innovation and success. Because of the city's commitment to training and shifting employees to new areas rather than laying them off when changes are made, employees and their unions in general are supportive of the system. Even with a system that is being lauded and studied internationally, Sunnyvale is not content to rest on its laurels. The city manager told the Commission that the city is now evolving into a system that focuses on "high-level outcomes." For instance, instead of measuring the time it takes to respond to police calis, the city is exploring ways to objectively measure activities that lead to reduction in crime. There seems to be a trend emerging at higher levels of government to focus on overall outcomes as opposed to the details of defining specific services, which are often output based. The City of Sunnyvale, recognizing the value of high level, but still measurable, outcome statements, is now moving to a major refinement of its historical performance budgeting approach to the development of high-level outcomes. In spite of the success we have enjoyed under the past framework, we are finding new opportunities to better focus scarce resources, as well as to clarify what results government should be attempting to accomplish. 45 Thus, Sunnyvale is committed to continuing to refine Its process and, if necessary, move in new directions -- even after more than 15 years of performance-based budgeting. The city manager said the one lesson the city has learned is that change takes time, but patience as the system evolves is critical. 34 Flawed Process Performance-based budgeting and management takes time. It is not a quick fix. Its results evolve over time. It should be viewed as a framework and theoretical construct rather than a new fad, and therefore requires perseverance at both the political and executive level so that its full capabilities are allowed to grow and emerge rather than any expectation that it will be judged an instantaneous success or failure. 46 The need for patience has also The Texas Tornado been stressed by others with experience in performance-based budgeting, including those who Texas has a strategic planning template shaped like an inverted pyramid are running the system in a .. colloquially known as the Texas To mado. The state sets the overall governmental jurisdiction that far vision and functional goals. Agencies set their own missions, surpasses Sunnyvale in size and philosophies, goals, objectives and measures. The following is an excerpt from a budget request by the Department of Environmental complexity: Texas. Quality: Texas Goal/ Objective / Strategy Improve air quality in Texas Unlike California, which is Reduce air pollutants to fed standards by 1988 edging into performance Implement EPA ozone policy $11,125,000 based budgeting with a largely Enforce local air quality programs 250,000 unstructured pilot project, Texas Reduce toxic emissions by 40% 1990·1998 has whole-heartedly embraced Implement comprehensive program 5,000,000 By 1998, analyze 90% of potential cases of toxic the new system, taking a top chemical exposure through air pollution down approach. While Conduct studies of exposure 1,200,000 Sunnyvale's emphasis is on TOTAL GOAL 1 $17,575,000 performance indicators and well defined unit costs, Texas has Improve air quality in Texas concentrated on strategic Reduce air pollutants to fed standards by 1988 planning. In 1992, the then- Percent of Texans where standards met 77% Governor published Texas Reduce toxic emissions by 40% 1990·1998 Tomorrow, laying out the Percent reduction from 1990 levels 13% statewide vision, philosophy and By 1988, analyze 90% of potential cases of toxic mission that would become the chemical exposure through air pollution foundation for the marching Percent of cases analyzed 37% orders to individual state agencies to define their own missions, Administrative and Support Cost for Whole Department philosophies, goals, objectives Central Admin (personnel, operating, capital) 1,500,000 and strategies. Financial and Personnel Services 296,000 Information Resource Technologies 1,300,000 The state's vision, philosophy and Operating/Support 780,000 mission read: TOTAL 3,876,000 Administrative/Support Cost by Strategy We envision a Texas where all Implement EPA ozone policy $1,642,040 people have the skills and Enforce local air quality programs 37,760 Implement air toxics program 566,400 opportunities they need to Conduct studies of toxic exposure 75,520 achieve their individual dreams; a TOTAL admin/support for GOAL 1 2,321,720 Texas where people enjoy good health, are safe and secure from 35 ._-------------,,---_.--- - Little Hoover Commission: Performance-Based Budgeting harm and share a quality standard of living; a Texas where we and future generations can enjoy our bountiful natural beauty and resources. Public service is a public trust. As public servants we take pride in the service we provide for our fellow citiztms. We will be open, ethical, responsive, accountable and dedicated to the public we serve -- providing legendary customer service. We wtf/ foster a working environment free of bias and mspectful of the individual. We will operate efficiently and spend the public's money wisely. The mission of Texas state government is: • to provide educational opportunities for al/ its people; • to protect and enhance the health, weI/-being and productivity of aI/ Texans; • to preserve the state's environment, and ensure wise, productive use of the state's natural resources; • to build a solid foundation for social and economic prosperity; and • to ensure the safety of our communities. 47 Each of the mission statements has several goals, each of which is accompanied by a list of key indicators of success. For instance, one of the goals for the mission of building a solid foundation for social and economic prosperity is: "The Texas economy will be diversified and healthy, creating and retaining the jobs needed for a prosperous Texas." Key indicators for success under this goal include: the Texas employment rate, median household income, net number of new jobs created, net number of start-up businesses, and economic diversity as measured by the percentage of jobs outside of the s'tate's five largest industries. Another goal under the same mission is: "Our communities will be socially prosperous." Key indicators of success include: percentage of Texans with access to affordable housing, home and auto insurance cost as a percentage of median household income, percentage of Texans with access to public transportation, number of civil rights/harassment violations per 1 0,000 Texans, and percentage of state professional licensee population without documented complaints.48 Working within these state-set missions and goals, each Texas department determines a set of objectives and outcome measurements and then puts in place a strategy to meet the measurement levels specified in the budget. For instance, the Texas Commission for the Blind has several objectives, including increasing by 6 percent by 1995 the number of blind people who meet their independent living goals and to increase by 7 percent the number of children who reach their habilitative goals. Related strategies are to provide a ~;tatewide program for developing independent living skills and to provide services to all blind and visually impaired children. 36 Flawed Process A senior budget analyst for Texas told the Commission the system is holding up well as the state moves into the second two-year budget cycle using performance measures. Policy makers who scoffed at the concept that the new system could make a difference are now converts to the process, he said. Among the lessons he identified that Texas has learned and can share with others are: • Involve everyone, instilling Indianapolis Parks and Recreation a sense of ownership through orientation, training, information sharing and active solicitation of Indy Parks has three missions: providing quality programs, providing ideas. "Everyone" includes leisure opportunities and developing park resources. Excerpts from elected officials, department their budget: heads, managers, line employees, service populations, non-profits, Budget summary by external outcome community groups, local units of Provide quality programs $12,160,189 Provide leisure opportunities 6,124,965 government, business, labor and Develop park resources 4,733,861 the media. TOTAL for whole department $23,019,015 • Be flexible and patient. Policy Goal: Strong neighborhoods "The job is never done. This is a External Outcome: Provide quality park facilities and areas long-term (10 years?) iterative The quality of Indianapolis neighborhoods is enhanced by well·built and process centered around maintained parks and facilities. A pleasant environment increases the continuous learning and attendance and adds to overall positive experiences. continuous improvement." Regional Attractions $4,282,691 Non·tax revenue per $1 expended .80 • Create incentives, not just Percent prime' time use 75% disincentives. Reward genuine Percent non·prime·time use 50% participation by departments with Percent of surveys showing satisfaction or better 86% additional operational flexibility, Percent of critical indicators met 90% public recognition and relief from Number of active partnerships 20 reporting requirements. In the Percent reduction in vandalism incidents 25% long run, rewards should include Average time in minutes for ranger response 15 increased appropriations and pay Magnet Parks $4,217,832 for performance. Neighborhood Parks $3,659,666 TOTAL for providing quality programs $12,160,189 • Report, regularly and Operating Budget for Providing Quality Parks publicly, about the results with Personal Services $6,708,491 easy-to-read formats. Supplies 926,327 Other 4,381,452 • "Think of this as not just Capital 143,919 another system or a new process, TOTAL for providing quality programs $12,160,189 but rather as a revolution in thinking, attitudes and emphasis. ,,49 Indianapolis, Palo Alto ExamPles of budgets on this page and the next from Indianapolis and Palo Alto demonstrate again the level of information that a 37 Little Hoover Commission: Performance-Based Budgl'Jting performance-based system provides. The Indianapolis budget -- a document that the mid-western city uses more for public information sharing than for policy decisions -- concentrates on missions, policy goals and external outcomes that demonstrate the goals are being met. Appropriations are delineated according to both mission and operating expenses. Palo Alto's new budget, which is an initial, untested system for the Palo Alto Public ij!o rks San Francisco Bay Area city, divides up departments by Excerpts from the City of Palo Alto's new mission-drive budget for the function and describes the major Department of Public Works: activities related to each function. The impact measures Department SummilrY set the goals for performance Streets $3,198,697 and, once baseline data is Sidewalks 496,047 Trees 1.520,010 established, will demonstrate the Structures & Grounds 3,691,203 trends over time. Other portions Private Dellelopment 406,764 of the budget not shown here TOTAL EXPENDITURES $9,312,720 detail the numbers and type of FUll·TlME POSITIONS 76_88 personnel involved in each TOTAL DEI)ARTMENT REVENUE $1,867,276 activity and provide a summary Major Activity: StH!ets -- In-House Maintenance of the reasons for proposed To maximize the useJ'ul life of streets through effective repairs funding changes. Salaries, blmefits $366,680 Non-salaries 230,514 Benefits and Pitfalls Allocated E!XpenSes 758,519 TOTAL EXPENDITURES $1,355,713 FUll-TIME POSITIONS 6.43 The message from those who Impact measures have studied performance Repair potholes within 5 working days 85% based budgeting and those who Respond to bicycle path maintenance requests are using it is that it is within 5 days 95% particularly useful in at least three Major Activity: THies -- In-House Maintenance ways for policy makers: To provide for healthy trees and public safety through quality and specialty activities, blc1uding ornamental trimming, watering, etc. • It provides data in a Salaries, benefits $407,368 format that makes it Non-salaril!s 135,800 easier to re-assess Allocated I!xpenses 225,219 priorities as conditions TOTAL EXPENDITURES $7 68,387 change instead of merely FUll-TIME POSITIONS 8_00 duplicating the past. Impact measures Annually trim" prune City trees 10% • It is a system that focuses Respond to emergency requests within 8 hours 80% on available revenue and Contain controllable infestations within 90 days 80% how to divide those funds rather than on "funding gaps" that are created when allowing automatic program growth causes demands to outstrip expected resources. • It makes performance a key factor in funciing decisions and provides a clear statement of program expectations. 38 Flawed Process Converting to a performance-based budgeting system, however, is not easy. Among the potential pitfalls outlined by experts are: • Delayed gratification: As noted by Commission witnesses from Sunnyvale and Texas, perfecting a performance-based budgeting system takes time and missteps are likely to occur along the way. The department managers in California's pilot project are already aware of the pressures they face to produce results. The Department of Parks and Recreation told the Commission, "Results have been expected on a time frame which is difficult to produce considering the rather monumental undertaking of changing California's budgetary process. It will not be the failure of the pilot, but the failure of government to accept or allow the pilot's success that will be the ultimate barrier to the project. "50 • Silver-bullet syndrome: Those who believe a new system will fix government funding crises will be disappointed in performance based budgeting because it is not a silver bullet that can perform miracles. Said one experienced analyst from Mississippi: "Budget reform will not prevent revenue shortfalls. It will not eliminate budget cuts. It will not allow more spending. And it will not totally eliminate structural deficit problems. What it will do is greatly improve preparations for revenue shortfalls. "51 Another expert wrote, "Performance budgets, program budgets and zero-base budgets all try to increase the rationality of budget choices. None provide the complete solution to the budget problem -- it is wrong to expect any system to provide judgments that must be made by people. ,,52 Tough decisions still will need to be made, but they can be made with more information than before with a performance-based system. In addition, simply setting performance goals does not mean departments will be able to achieve them. Wrote California's Legislative Analyst, "While this approach helps the administration and Legislature to focus on the results of programs, it does not guarantee that departments will improve. There may be other important changes needed before a department can improve its performance. For example, performance budgeting will have limited success if the department has poor managers, inadequately trained staff, problems filling key job classifications, or conflicting objectives. "53 • Lack of consensus: There are many key players who can make the budgeting process work -- or turn it into a futile paper exercise. These include the elected officials who propose the budget, the policy makers who adopt it and the bureaucrats who use it daily. Failure on the part of anyone of these players to embrace performance-based budgeting diminishes the value of the new system. This has been particularly evident in Florida, where legislators over a several-year span have created audit units, evaluation committees and requirements for agency 39 Little Hoover Commission: Performance-Based Budql:~~,t!.!.in.!.}.q~ _______________ strategic plans -- but lack of follow-through and funding have kept these reforms from being effective. 54 Support outside of government is important, too, for maintaining consensus once it is achieved; one Texas expert told the Commission that getting the media to understand the system and write about it knowledgeably is important.55 Summing up its review of six states, the U.S. General Accounting Office found that achieving consensus is critical: "The experiences of the state reforms that we examined as part of this review continued to underscore the importance of the executive and legislative branch officials working together and the damage to performance budgeting reforms when strong working relationships were not established. "~i6 • Turf concerns: Change does not come easily to organizations, especially when power has been shaped and institutionalized over time. Performance-based budgeting does not allow business as usual. When implemented properly, it forces policy makers to let go of line-item control in return for promised results in meeting specific goals; it holds bureaucrats accountable for outcomes, not simply for spending money in specific categories; and it pushes politics and ideology to one side by assuring that everyone has the same base of credible facts about actual performance on which to make decisions. Few are comfortable with the wholesale chanties needed in such a reform. Most experts recognize that strono, effective, visible and committed leadership from the top is critical whenever an organization seeks cultural change in the way it does business. This is no less true in government than in the private sector -- and in fact becomes more important because there is no profit motive to help drive change. Setting Up for Success AVOiding the potential pitfalls is not easy. California's past experience with budget reforms demonstrates that lack of follow-through and institutional resistance can sidetrack the most well-intended reforms - and patience has never been a hallmark of the State's political process. One example of prior failed reforms is the State's brush with zero-based budgeting. Chapter 503 of the Statutes of 1979 established a form of zero-based budgeting, requiring a review of all department budgets over a four-year period. The implementation, however, was first delayed and then eventually sidetracked by incorporating it into simple paperwork (I process that had little effect on legislative decision-making. Assessing the impact of the law, a Senate analyst wrote, "[The Department of Finance] has been able to impair a thorough review of the budget base 40 Fla wed Process by essentially going through a minimal paperwork effort to meet the minimum requirements of law. ,,57 Similarly the major reforms of 1978 discussed earlier (the development of an on-line computer information system, performance measures, etc.) were never fully implemented. In the midst of what was supposed to be a 7- to 10-year implementation schedule, policy makers decided that the law's goals were being met and -- at the request of the Department of Finance -- enacted Chapter 1286 of the Statutes of 1984 to change S0me of the original requirements. Among other things, the new law deleted the requirement for the development of performance measures and said that using a program format for the budget was no longer mandatory. A Senate overview of the budget process concluded: While the bulk of the budget was retained on a program basis, the authority of the Legislature was seriously weakened. What began as a serious effort to improve the budget capabilities of the Legislature was usurped by the Executive [Branch]. Ironically, the administration made the greatest use of this effort by improving its own internal operations. The Legislature did not maintain proper oversight and lost this opportunity to produce an integrated, on-line fiscal information system. 58 The same overview found that the Legislature does not spend enough time determining the effectiveness of current programs, instead concentrating on writing new laws. Writing about the performance-based budgeting pilot project, the Legislative Analyst said that the Legislature will need to change its general perspective if reform is to be productive. Her report said that the Legislature will need to relinquish some controls over departments and programs, will need to focus on program mission, goals and outcomes rather than inputs and processes, and must be willing to accept long term views of implementation and results. The offsetting benefit the Legislature can expect to reap is greater control through being in charge of policy rather than process. 59 If the Legislature needs to change, the need is no less so in the Executive Branch. The tentative nature of support and lack of helpful guidelines from the Department of Finance has slowed the pilot project's progress, according to the participants. The Department of General Services produced for the Commission a laundry list of prerequisites for success if performance-based budgeting is to spread throughout all state agencies. The list included the need for functional guidelines (as opposed to "cookie-cutter requirements") for setting benchmarks and objectives, creating strategic plans, and reporting accomplishments. The Department also said the pilot project itself should be subject to well defined measurable goals and criteria for evaluating its success or failure.60 41 "--------------,----"------- Little Hoover Commission: Performance-Based Budge,,~ti!-!.n~g ______. _ _______ The history of past reform efforts in California and elsewhere is not encouraging except in the lessons that may be learned. Minnesota's legislative auditor could have been writing about Ccdifornia when he concluded, "For the most part, these reforms did not outlive the administrations that proposed them. Their failures demonstrate that, for budget reforms to succeed, there must be a shared commitment to the objectives of budget reform within the executive branch and between the executive and legislative branches. "61 California's start in the direction of performance-based budgeting has been slow, but the prognosis for successful budget reform can be influenced by the combined efforts of leaders, policy makers and program managers to make the new system work. Recommendations Recommendation l-A: The Legislature should playa major role in bringing performance-based budgeting to California, providing support and oversight for the current pilot project. The Legislature needs to designate a point person or committee for ensuring that the performance-based budgeting pilot project is proceeding in a direction that can win legislative support and consensus. This could be either a special budget subcommittee ir each house that would be in charge of the budgets for the departments in the pilot program, or it could be a special, joint committee of the two houses. Since the system envisions the policy makers yielding substantial power to department managers on line-item mana!~ement and programmatic details, it is imperative that legislators understand the benefits that they can expect to gain in terms of accountability and improved real-world information. Such an educational process will only occur if there is a strong point of support for the new system within the Legislature. In addition, the Legislature is well positioned to make the benefits of the new system available to the public. At a time when the public continues to demand more services while refusing to pay higher taxes, it is critical that citizens be made aware of exactly what their tax dollars are purchasing. Shifting to results-oriented accountabilitv for government programs can be a powerful tool for restoring public confidence in the public sector's ability to provide quality service. The Legislature can play a key role in ensuring that performance results are made public in an understandable and useful way. Recommendation /-B: The Executive Branch should renew its commitment to the performance-based budg,eting concept by providing the logistical support departments need to make the system work. 42 Flawed Process The Administration can assist pilot project departments by providing them with the guidance and standardized approaches needed to gain Executive Branch consensus on the performance-based budgeting process. This should include strong support from the Department of Finance, which has been placed in an oversight capacity for the pilot project. The Department of Finance should playa lead role in gathering information from other governments using performance-based budgeting, providing parameters for departments to use in negotiating budget contracts and reporting performance measures, and setting up formats fcr information sharing between departments and the Legislature. The experience of other states, the federal government and other nations does not support the Department of Finance's viewpoint that the system must be limited to certain departments and functions. Such pre judgment may hamper the success of much-needed reform in the long run. In addition, when the Governor presents his proposed 1996-97 budget in January 1996, the pilot project department budgets should be in a performance-based format, such as that used by Texas or Sunnyvale, rather than the traditional format used for all agencies. This will help make the progress already made by pilot project departments toward accountability and measured achievements evident to the policy makers and the public. Recommendation l-C: The Governor and the Legislature should express their long-term commitment to budgetary reform by adopting legislation to extend the timeline for the performance-based budgeting pilot project and to encourage its expansion as appropriate. There is an intensive investment of time and resources in developing strategic plans, identifying appropriate performance measures and tracking data. Many of these processes may not work well the first, or even the second, time. But for reform to be successful, the commitment to change the budgeting process cannot evaporate at the first sign of failure. In addition, performance-based budgeting contains many elements that allow for improved program management rather than just improved budgetary decision making. The Governor and the Legislature should encourage departments whose leadership is capable and open to change to adopt techniques and processes now under development by the pilot project departments rather than waiting for a final evaluation of the project. 43 Little Hoover Commission: Performance-Based Budgel:,!!..in~gL.-_____________ 44 Measuring Up • It is easy to count the number of employees working on a program, the amount of paper they use and the square footage they occupy -- these are inputs. • It is not much harder to count the number ofp eople served, the number of applications processed and the number of hours spent on a task -- these are outputs. • Measuring outcomes is valuable but tricky. Pick the wrong thing to measure and efforts will be focused in the wrong direction. Results may be too far into the future or too non-concrete to quantify. • Setting overall goals -- or benchmarks, as Oregon calls them -- is a first step to identifying what needs to be measured. • Oregon set its goals with a bottom-up approach ofp ublic meetings and grass-roots involvement • Texas set its goals with a top-down approach in a directive from the Governor and the Legislature. • California is letting each department set its own goals independently. 45 --------~- Little Hoover Commission: Performance-Based Budget:.!1.in~gL-_______________ 46 Measuring Up Measuring Up Finding 2: Reliable and relevant performance measures are difficult to identify and may be costly to track but they are a critical component for a valid performance-based budgeting system. S ome things in government programs are easy to measure: How many pieces of paper are processed in a certain amount of time, how many hours of service are provided, how much money is spent for postage. But other things are more difficult to quantify: Does a person who receives services have an improved life, is a specific training program sufficient to help someone obtain a permanent job, does the provision of a certain recreation program reduce juvenile crime? Performance-based budgeting seeks to capture the latter kind of information so that policy makers can make informed choices about how to spend funds. But picking the right thing to measure -- and then measuring it accurately -- can be a difficult process. Pick the wrong thing to measure and performance "improvements" will tilt in undesirable directions or have unintended consequences. Government, of course, already measures many things. As the authors of Reinventing Government: How the Entrepreneurial Spirit is Transforming the Public Sector write: 47 Little Hoover Commission: Performance-Based Budgeting ~------------------------------ People in government are always counting something or churning out some statistical report. But most of this counting is focused on inputs: how much is spent, how many people are served, what service each person received. Very seldom does it focus on outcomes, on results. This is true in part because measuring is so difficult. Measuring profit in business is fairly straightforward. Measuring results in government is not. Normally it takes years to develop adequate measures; an agency's first attempt often falls woefully short. It may measure only outputs, not outcomes. It may define outcomes too narrowly, driving employees to concentrate on only a few of the results the organization actually wants to achieve. It may develop so many measures that employees can't tell what to concentrate on.62 The following sections of this finding discuss the types 01' measurements that are needed for performance-based budgeting to work, summarize the difficulties that may arise as departments seek to identify the correct measurements and highlight the value that adequate measuring brings to government programs. Boxes on the following pages give examples of measurements and targets being used by different levels of government, including three of the four California pilot project departments. Definitions Experts on performance-based budgeting generally use four terms to define different types of measurements: • Inputs are the elements that go into a program. They include the number of staff, the amount of supplies, the hours worked, etc. Typically, traditional budgeting defines allocations by inputs. • Outputs are the volume of work produced. This includes things like how many applications are processed, how many hours of service are delivered and how many miles of road are repaired. Although not part of traditional budgeting usuallv, these factors are often easily counted and the information may be supplied to policy makers outside of the budget document. • Outcomes are a higher-level of assessment thelt looks at the quality or effectiveness of what is produced. Included are questions like did the training result in a person obtaining a permanent job, did the service help the disadvantaged person live independently longer than he would have otherwise, and did the creation of summer recreation programs reduce juvenile crime. • Efficiency measures tell what the cost per unit of output or the cost to achieve a specific outcome is. Even whEn a program is 48 Measuring Up having the desired outcome, it is desirable that it still improve its performance by increasing efficiency and lowering cost.63 Although outcomes are the key focus of budget reform enthusiasts, there is some level of academic debate about what needs to be measured -- and the answer appears to be a mix of each type of data. Critics of input-measuring systems argue that service providers become caught up in the processes of a program rather than in what is actually provided to people. But those who question the outcome-only approach to measuring worry that process will be completely ignored in the rush to count positive outcomes, which may result in more difficult cases being ignored. A report on the best way to provide job training identified a middle ground: A third view is that neither of United Kingdom Commitments these two approaches works well alone. Advocates of this position argue that outcome-based Under the Citizen's Charter, the United Kingdom has been committed to accountability is the single most a 1O ·year program to improve government service since 1991. The important mechanism for government regularly publishes an update on what it has promised, improving quality and efficiency in what has been accomplished and what future steps will be taken. service delivery, but that higher Excerpts of some of the promises and achievements: level outcomes cannot be achieved without a concurrent Promised Achieved 90.5% next-day mail delivery 91.9% emphasis on promoting 96% of customers to be served in 5 minutes 96% continuous improvement in the Benefits Agency to achieve an 85% way all service delivery and customer satisfaction rating 82% support processes are carried out Inland Revenue to see callers within 15 minutes 93% throughout the system. They Inland Revenue to answer letters within 28 days 99% urge implementing outcome-based Customs and Excise to reply to written requests accountability systems in which within 10 days 90% there are real consequences for Prosecution witnesses should be called to testify poor performance and using more within two hours 42% traditional input-driven processes Witness expenses to be paid within 5-10 days 79% to promote the adoption of Weather forecasters to achieve 83% accuracy continuous quality improvement in 24-hour forecasts 84% processes. 64 Search and Rescue to respond promptly 95% of the time 95% A mixture of types of measurements is evident in most of the jurisdictions using performance measuring. The United Kingdom, for instance, publishes a varied list of goals and accomplishments that include outputs, outcomes and efficiency measures. Regardless of what is being measured, it is important to carefully design the instrument that is used. California's Legislative Analyst identified five key ingredients for designing performance measures that will work well: Measures need to focus on outcomes, not process. Measures must be relevant to the performance being measured_ 49 Little Hoover Commission: Performance-Based Budgeting Measures should be customized to fit specific programs. Multiple measures should be developed to capture the complexity of programs. Measures must be reliable -- that is, produce accurate and verifiable information. 65 The Texas list for what makes a good measure also covers relevance, reliability and ability to capture complexity -- and adds" cost effective:" The data must be of sufficient value to justify the cost of producing and tracking it. A Texas report added: Performance measures can Oregon's Benchmarks neither resolve program difficulties nor ensure program success, but can indicate whether Each two years, Oregon updates its set of benchmarks, a well· defined either condition is occurring. list of what the state wants to accomplish to provide a high quality of They cannot account for the life for its citizens. State departments are expected to gear their impact of all factors affecting efforts toward making the benchmark targets a reality. Among the 272 benchmarks set by the state are: program outcomes but do reflect the composite effects of external 1992 2000 2010 and internal influences. 66 Pregnancy per 1,000 females 10·17 19.3 8.0 8.0 Babies born drug·free nla 99% 100% The neutrality of measurements is Teens drug·free previous month 80% 98% 99% most evident in Oregon Child care facilities meeting Benchmarks, a publication that is basic standards 23% 100% 100% nationally acknowledged as a Oregonians with economic leader in setting standards and access to health care 85% 100% 100% measurement criteria. The Oregonians living where air document contains no strategies meets fed standards 50% 100% 100% for achieving goals, no Homeowners spending less prescription for changing the than 30% on housing 49% 84% 92% conditions described, no reasons Reincarceration rate for parolees for the existence of the problems within 3 years of release 41% 20% 15% quantified. Instead, it is a Hate crimes per 100,000 people 19.2 2 0 compilation of data about existing 11 th graders proficient in conditions and targets for what math, reading 66% nla 99% government programs should Areas where wild salmon and achieve in a variety of quality-of steelhead are increasing 25% 88% 100% %w ho think Oregon is doing a life areas. Oregon's state departments are expected to good job providing service 32% 75% 90% design their programs and their own accountability measurements around the expectations set in Oregon Benchmarks. The benchmarks are derived from community meetings and policy rna ker input by a permanent state commissioll. As many managers have discovered, the difficult part is not setting targets but in knowing what data to capture to achieve relevant measures. A Florida analyst writes: 50 Measuring Up Developing good performance measures that actually assess whether a program is achieving the desired outcome is difficult in any environment, but is even more demanding in the public sector where many activities are not susceptible to quantification. There is also a danger that the adoption of a performance measurement system will provide agencies with the perverse incentive of measuring those activities that the agency can easily achieve while neglecting measurement of California Department of Parks meaningful activities that promote the agency's and Recreation mission. Agency staff may also resist a The Department of Parks and Recreation has set up a hierarchy of performance measurement goals (customer service, resource preservation, financial responsibility system due to fear that and organizational efficiency), each with its own set of strategies and the system will hold them measurements. Some examples: accountable for outcomes that are beyond their Goal: Customer Service ability to control or subject Strategy: Establish high·quality visitor facilities only to limited control. 67 Indicator of Success: Maintain 918 miles of surface roads at a rating of 70 on the repairs index These are not the only hurdles to 95-96 Target: Maintain 918 miles of surface roads at a building a performance-based rating of 61_ 7 on the repairs index under proposed funding system. Some of the stumbling level blocks include difficulty in Equipment $ 250,000 deciding what to measure, Cat I 950,000 unintended consequences from Cat II 2,200,000 TOTAL $3,400,000 picking certain measures, at what level standards should be set and Goal' Resource preservation how many measurements are Strategy: Protect resources from threats needed. Indicator of Success: Reintroduction of fire into natural ecological processes Difficult Decisions 95-96 Target: Prescribed burning will be applied to 3,500 acres of parklands and a cost-per-acre baseline structure for It is easy to count the number future outcome measures will be developed of employees working on a Goal: Financial Responsibility program, the amount of paper Strategy: Establish revenue generating opportunities they use annually and the volume Indicator of Success: Increase revenue from leases of applications they process 95-96 Target: Generate an increase of 3% on gross sales (inputs). It is not much more from 94-95 total of $52_35 million for an additional $1.5 difficult to determine the number million in revenue from leases of people they provide service to and the number of hours spent in providing service (outputs). However, if a program is narrow in function but has broad policy goals it may be difficult to determine how to measure the outcome. For instance, providing eligible families with vouchers to pay security deposits on rental units is a specific function with the broad policy goal of reducing homelessness. But the outcome of the program may not be 51 Little Hoover Commission: Performance-Based Budgeting clear until the family has avoided homelessness for an undetermined length of time. The problem of what to measure becomes more difficult with programs that defy quantification. Government programs that involve research often yield results sporadically or only over long periods of time. Emergency readiness pro!~rams, such as the Office of Emergency Services, may show low measures of achievement except when the need arises for the specific services. The consulting firm Price Waterhouse says it is important to avoid thinking that: If it can't be counted, then it doesn't count. Due to the complex nature of many programs and organizations, developing quantitative Department of Consumer Affairs performance measures is challenging, if not The Department of Consumer Affairs has created a grid that addresses impossible. An over- four functions .. licensing, consumer information, mediation and emphasis on quantification enforcement .. with three sets of measurements. The measurements often drives out important are speed/volume, quality and cost. An excerpt from the grid: qualitative measures of effectiveness. 68 licensing Speed/Volume Average time to process new license Osborne and Gaebler agree in Average time to process renewal Ouality Customer satisfaction Reinventing Government that Percent of applicants denied license some valuable results are Exam pass rate impossible to quantify. They Cost Average cost to process new license advocate doing both quantitative Average cost to process renewal and qualitative analysis, adding that over-reliance on numbers Mediation may prompt employees to Speed/Volume Average time to mediate complaint "game" the numbers. Price Number of complaints received Waterhouse puts it bluntly: If the Complaints referred to enforcement numbers do not look good, there Ouality Customer satisfaction may be a tendency to simply % of cases resulting in compensation change the numbers" For Complaints resolved as a % of closed instance, if an agency is held Cost Average cost per complaint closed accountable for how many complaint cases it closes, it may go to any lengths to close a case regardless of the quality of the outcome. Or if an application must be processed within a certain amount of time, then applications are rejected as incomplete for minor errors so that the time clock can start again when the person reapplies. The unintended consequences that can arise from choosing measurements can skew the results of a program. Osborne and Gaebler present the example of job training programs that concentrated on placing well-qualified people in jobs because it was easier and allowed them to meet their contractual obligations. It did not, however, do much for the unqualified people who needed the job training services the most.69 Another example the authors use is the FBI improving their 52 Measuring Up fugitive apprehension figures by concentrating on catching military deserters, who were comparatively easier to find than dangerous criminals. Another problem with numbers arises when targets are set for improving measurements. If the targets are set too low, the agency will easily reach them and look successful, even if a higher level of performance was possible. If the targets are set too high, management may be blamed for failing to reach an impossible goal. And targets may be set and reached without any consideration for efficiency; successfully reaching a target does not necessarily mean an agency used the most cost-effective means and streamlined approach. Finally, it is easy to fall into the California Conservation Corps trap of measuring far too many things. Both the Department of General Services and the The California Conservation Corps has two goals (building capable and Department of Consumer Affairs skilled youth and filling important environmental and community needs), told the Commission their initial four desirable outcomes for each goal and a total of 21 performance attempts at identifying measures. An excerpt: measurements produced too Goal: To build capable and skilled youth many standards to deal with and monitor. Some will be kept as Outcome: Employable youth Increase to 100% those who complete Career internal management indicators Development course rather than as measurements to Train 350 annually on oil spill cleanup be used in budget negotiations. Tr ain six wildlife firefighting crews The cost can be high for tracking Outcome: Literate corpsmembers data that is interesting but not Increase by 10% corpsmembers who earn GED or high critical for evaluating school diploma performance. In addition, there is the danger of shifting a program's Goal: To fill important environmental and community needs emphasis from process to Outcome: Corpsmember hours dedicated to public outcome only to become focused Increase crews trained to fight fires instead on measurement as an Maintain 200 corps members trained for oil spills end to itself. Outcome: Efficient, high quality programs State agencies differ dramatically Decrease workers' comp costs by 2% in mission and objectives so it is Reduce General Fund cost-per-person by 5% impossible to direct the adoption Increase efficiency through information technology in all of specific measurement district offices standards from above. But with the many government jurisdictions rushing to embrace performance-based budgeting, there is a substantial pool of experience that could assist agencies in fixing on relevant and reliable measurements of performance. Finding the Right Ones One consulting firm has a five-step approach that it advises agencies to take in identifying performance measures. The steps include: 53 Little Hoover Commission: Performance-Based Budgeting • Taking aim: Begin by assessing what the program is supposed to do and what strategies it will take to accomplish goals. • Taking inventory: Identify all the potential ways of measuring the program's performance. • Taking the best: Settle on the best set of measurements that will be reliable, relevant and cost-effective to capture. • Taking action: Put the measurement systems in place so they can begin to drive change. • Taking another look: Reassess measurements over time and refine them to develop the best, clear picture of program results.70 Another method is determining what other similar agencies who are recognized as good performers are doing to see if it can be replicated. In the private sector, this practice is known as benchmarking. With two dozen states, many cities and several other countries engaged in performance measuring, there are many different role models to investigate and emulate. A key to ensuring that performance measurements will provide a solid foundation for performance-based budgeting is not just picking the right indicators but building the consensus that the correct things are being measured. Experts agree that performance measures do little good if they are not both usable by the agencies for management purposes and relevant to the concerns of legislators who must make budgetary decisions. Reaching such a consensus requires the active involvement of legislators as state departments develop their strategies, goals and objectives. Managers of departments in California's pilot project told the Commission that one of the biggest barriers to their success has been the lack of involvement by the Legislature. The director of the California Conservation Corps said: The CCC has had a difficult time persuading the Legislature to change the way they view and control a depi3lftment's budget. Because legislators only receive input-related information regarding department operations, there is only limited focus on the impact of appropriations. Even though legislators seem to desire more control, and more information should theoretically lead to more control, there are indications that members feel that performance data will be inaccessible and unreliable. Legislators and their staff may be afraid that information will be too hard to understand, too overwhelming and require too much work. 71 Other department managers agreed that it is difficult to forge ahead with a new system when the intended beneficiaries -- legislative policy 54 Measuring Up makers -- are either not supportive or not interested in the reforms taking place. Because measurements are the critical component of the performance-based budgeting system, obtaining high-level agreement on what should be measured in each department is a vital step to making the system a credible source of information on which to base budgetary decisions. While measuring government services does not necessarily mean improvements will follow, they are unlikely to occur in the absence of meaningful measurements. As one consulting firms summarized: While performance measures are powerful tools, they are only tools. They are no more likely to guarantee good government than an accurate speedometer is likely to prevent speeding tickets. If properly developed and used, they can reveal problems, point to solutions and be a check on the effectiveness of solutions once implemented. 72 Recommendations Recommendation 2-A: The Legislature should establish general criteria for the types ofp erformance measurements it would find useful and require departments to submit their proposed performance measures for approval before budget hearings. The Legislature should direct departments that are moving into performance-based budgeting to measure the things that policy makers are interested in using to craft budgetary decisions. While the Legislature should allow departments the ability to develop accountability systems that meet their needs and programs, the departments would benefit from general parameters and indications of what the Legislature would find most useful. The further step of having the Legislature specifically approve performance measurements before budget time would focus policy makers' attention on their own needs and give departments time to reshape measuring systems as necessary before budget deliberations. Recommendation 2-B: The Governor and the Legislature should approve legislation directing the Department of Finance to ensure that departments have access to adequate training and outside expertise to develop effective measuring systems. Each department knows its own culture, programs and needs best. But the movement toward performance-based government and results oriented programming is so extensive that there is a large base of experience with developing measurements. Departments should make the most of others' experiences as they put their measurement systems 55 ~~ -------~------~--------------.-------.----.---------~-------- Little Hoover Commission: Performance-Based Budgeting into place. The most efficient way of gathering the relevant information is to have the oversight a!gency, the Department of Finance, contract with experts and act as a clearinghouse for data. In addition, the Department of Finance should take the lead in ensuring that department directors and managers have adequate training to make performance based budgeting work in a meaningful way. 56 Costly Controls • Control systems are an automatic response to costly mistakes and intentional wrongdoing -- but they often constrain options, drive up costs and slow down production. • Each of the departments in the performance-based budgetinK. pilot program has sought relieff rom the same four control systems: • The overlapping authority of the State Personnel Board and the Department of Personnel Administration. • The standard procurement process. • The property leasing oversight and design services. • The use of the Prison Industry Authority as the sole source for the goods and services offered. 57 Little Hoover Commission: Performance-Based BudgE~ting 58 Costly Controls Costly Controls Finding 3: Achieving accountability through bureaucratic controls increases the cost of government programs and decreases the flexibility needed to make them successful. W henever something goes wrong in government, the reaction is to set up control systems that will preclude a repeat occurrence. The protective systems become paperwork burdens on programs, increasing costs without adding value, creating frustration and shifting employee focus away from meeting program goals. Accountability, however, is the key to operating government effectively, efficiently and credibly. Performance-based budgeting retains accountability but shifts it away from command-and-control structures and toward concrete outcome and output measurements. Traditional government operations are set up to be consistent and rigid, removing the chance for error and misstep -- but also removing the flexibility needed to meet changing challenges and evolving conditions. Private-sector experts on improving performance recognize that one key is to have the person closest to a situation -- the person with the most hands-on experience and knowledge about conditions -- making decisions. Under this concept, known as employee empowerment, management takes on the role of coach and supporter for front-line workers, supplying information and guidelines rather than issuing orders and restricting options. Greater accountability for outcome balances with the greater freedom of action. This shift in roles is not easy to make in the public sector. 59 Little Hoover Commission: Performance-Based Budgeting The Sunnyvale city manager told the Little Hoover Commission that one of the largest barriers to performance-based budgeting implementation is the structure of government itself: Most governmental organizational structures are designed on command-and-control principles around a traditionally defined way of providing services. Performance budgeting and management, however, requires as much authority and flexibility as possible for the direct delivery of services to be pushed to the lowest possible level. Control is around results, not how things get done. This requires a significant change in thinking and behavior by both policy leaders and executive management. 73 He added that much of the infrastructure developed in governmental organizations is in conflict with the environment necessary for performance management. Civil service systems, governmental pay systems, prescriptive rules and regulations,. training systems, etc., were developed over a many year period of time with multiple purposes. When they are not aligned with one another and in support of a performance approach, they often serve to provide a contradictory and confusing set of signals to employees. In a sense, an organization is being asked to go in two (or multiple) directions at the same time with one direction being the accomplishment of a specific results area and the other to meet a prescriptive set of standards that do not support the results orientation, but rather some other standard. 74 Osborne and Gaebler write that government's control systems emerged as a reaction to the scandals at the turn of the 20th Century when figures like Boss Tweed ran programs for their own benefit. The new reforms cleaned up government but, in doing so, they created their own problems. "In attempting to control virtually everythin,~, we became so obsessed with dictating how things should be done -- regulating the process, controlling the inputs -- that we ignored the outcomes, the results. "75 The tendency to over-prescribe solutions when a disaster, wrong-doing or mistake occurs is reinforced by a system that protects those who made the error but demands action from those at the top. Thus, when an agency wastes millions of dollars on a computer system that will not work, the managers involved are not held accountable for their actions - but policy makers demand control systems that will ensure that nothing similar happens again. Write Osborne and Gaebler: To this day, whenever things go wrong, politiciims respond with a blizzard of new rules. A business would fire the individuals responsible, but governments keep the offenders on and punish everyone else by wrapping them in red tape. Th,ey close the barn door after the horse has escaped -- locking in all the cowhands. 60 Costly Controls We embrace our rules and red tape to prevent bad things from happening, of course. But those same rules prevent good things from happening. They slow government to a snail's pace. They make it impossible to respond to rapidly changing environments. They build wasted time and effort into the very fabric of the organization. 76 In addition to setting up control systems, policy makers often move toward centralization to solve perceived problems. If something goes wrong, then clearly the system was lacking someone high enough up with the proper power and knowledge to make the right decision. Current management philosophy, however, backs decentralization - pushing the decision-making and responsibility down to the lowest possible levels of an organization so that action can take place swiftly and changing conditions can be dealt with by those most familiar with what is needed. While the control systems and centralization process are sometimes prescribed in statute, the budgeting process itself is often used by policy makers to dictate conditions. The extensive use of line items to describe how each dollar should be spent often leads to the charge that policy makers are micromanaging programs, but the prospect of yielding line item control leaves many policy makers feeling that agencies will run wild. A balance between accountability and detailed direction is difficult to reach. In discussing the proper role of the budgeting process in California, a Senate analyst wrote: There should be adequate budget controls to insure that each dollar budgeted is expended for the authorized purpose. The budget control mechanisms should provide enough flexibility to meet unanticipated and emergency needs. The institutional budget arrangements should provide adequate checks and balances without detracting from management capacity for creativity and ingenuity. 77 That said, the analyst went on to characterize the State's existing budget process as one of control rather than one of management or planning. Since government as it exists is a hostile environment for performance based budgeting techniques, implementing the system reform requires a give-and-take that is atypical of government. Policy makers typically grant agencies relief from control systems in return for commitments that targets for performance will be met. Testifying to the U.S. Senate Committee on Governmental Affairs, one expert said that governments in states and countries that adopt performance-based budgeting typically grant managers greater freedom from civil service constraints; allow them to arrange mUltiple-year budgets and retain efficiency savings for redirected spending; and streamline acquisition processes, including the ability to privatize services when advantageous.78 61 Little Hoover Commission: Performance-Based Budg.'Jting Implications for California California's system of governance is replete with command-and- control mechanisms. Much of the centralized ovel'sight for financial decisions comes from the Department of Finance, while control of daily operational processes is often vested in the Department of General Services. In addition, departments face multiple constraints on choices because of statutes that require government business to be conducted in a certain fashion. Printing, for instance, is done by the State Printer. And Prison Industry Authority products must be purchased in lieu of comparative shopping for the best value in the private sector. Many of the pitfalls of some of these systems of control have been described by the Little Hoover Commission in prior reports that have called for Little Hoover Reports streamlining processes and increasing efficient operation of internal government programs. The little Hoover Commission has long advocated removing costly controls and streamlining internal governmental processes. Prior It is no surprise, then, that the reports that focus on the same areas that pilot project departments are four departments involved in the avoiding include: performance-based budgeting Too Many.4gencies, Too Many Rules: The Commission pilot project have negotiated to noted the overlapping authority and duplicative processes escape the heavy hand of the that make the civil service process slow and costly for State's many control systems. department:;. The relief from control systems sought and obtained by the four California'~i $4 Billion Bottom-line: This report found that pilot project departments has the State's centralized procurement system involves costly been strikingly similar. Each delays and intensive paperwork. The same report exposed sought the ability to: the Prison Industry Authority as a poor buy for departments • because products are high priced, delivery is delayed and Attend to civil service quality is poor. matters by going directly to the State Personnel Moving Beyond the Role of Caretaker: The Commission Board, skipping the review continued its push for more effective property management process by the techniques, increasing both speed and flexibility for Department of Personnel department~ .. Administration. • Procure goods and services outside of the control system established by the Department of General Services. • Lease office space without the oversight and design services of the Department of General Services. • Use the Prison Industry Authority as a competitive bidder rather than as the sole source for goods and services. The California Conservation Corps' list of exemptions reached further, covering 22 separate relief measures. Among those was the ability to make budget changes without going through the Department of Finance 62 Costly Controls processes; travel outside of the state without special permission; make some hiring decisions without going through the State Personnel Board; and hire above minimum salaries without specific approval. 79 While any state department manager would recognize that these exemptions from control systems are invaluable in terms of avoiding time-consuming paperwork, delayed action and other headaches, there is an actual cost-savings as well. The Department of Parks and Recreation built into its performance-based budget for 1995-96 the expectation of saving more than $660,000 in a single year from avoiding the procedures of control agencies.80 Other incentives Parks and Recreation Cost Avoidance Relief from controls is a large incentive for departments to By obtaining relief from various control agency mechanisms, the want to make difficult changes Department of Parks and Recreation plans to save more than $660,000 in 1995·96. and revamp the way they conduct business. But Anticipated Savings performance-based budgeting Contract Administration $ 61,970 systems typically involve other Records Management 5,800 incentives as well. As has been Procurement 137,000 mentioned in prior findings, Land Acquisition 300,000 governments like Sunnyvale's Development 158,000 provide direct rewards (and TOTAL $662,770 sanctions) to managers who successfully meet goals by linking compensation to performance. While pay for performance is a concept alien to the set salaries of civil service systems, it is close kin to a merit system of pay increases -- if the merit raises are actually based on evaluation of performance rather than automatically given to anyone who comes to work regularly. While a pay-for-performance system offers individual incentives, organizational incentives along the same lines are also sometimes part of performance-based budgeting. The expert from Texas told the Commission that state departments that are meeting their targets are more likely to receive increased funding or extra allocations for special projects. Conversely, departments that do poorly may find policy makers less receptive at budget time.81 This area is controversial, however, because the correct response to poor performance may not be to cut a department's appropriation. If a program is performing poorly because there were not enough resources to meet goals despite exemplary management, then cutting funding further will not resolve the situation. Instead, despite its counter-intuitive feel, the proper response to a poorly performing program may be to increase allocations. In addition to the above incentives, performance-based budgeting systems often address a lingering, perverse incentive that is built into traditional, incremental forms of budgeting. Under current budgeting 63 Little Hoover Commission: Performance-Based BudgE?ting systems, departments lose any funding they do not spend by the end of the fiscal year. Worse than that, if they do not spend all of their appropriation, they endanger their future years' budgets because policy makers may see the leftover funds as a sign that less money is needed to conduct operations. In essence, efficient departments are punished by having their funding endangered while inefficient departments are rewarded with increased appropriations. A legislator from Texas summarized the inherent problem: Our method of budgeting makes no sense. It removes incentives from agencies and employees to conserve and save because they don't get any benefit from it. We reward lethargy. An agency that spends more and more money and claims it needs more and more money to do increased work, as opposed to being more efficient, is going to be rewarded. We give them more money. And efficient organizations? We take their money away. It's insane. 82 An incentive typically offered under performance-based budgeting is that a department may retain at least some portion of the savings created by innovative efficiency measures over multiple fiscal years and redirect the funding to internal projects. Finally, performance-based budgeting is built on the concept of long range planning and tracking performance over time. This requires a stability of funding decisions that is difficult to achieve when budgets are adopted annually and the budgetary implications of spending decisions are not calculated out over several years. Some 20 states use biennial budgets and many governmental jurisdictions Incorporate long term projections in their budgets.83 California, however, has a single year budget and does not provide long-term projections as part of the budget document. As California's pilot project is expected to demonstrate and the Little Hoover Commission has frequently noted in previous reports, departments that are given the latitude to control their own operations can improve their programs and services without becoming less accountable. The spread of latitude to other departments similar to that given to pilot project participants has the potential of yielding dramatically improved government performance. Recommendations Recommendation 3-A: The Governor and the Legislature should examine and revise control systems for all agencies to eliminate unnecessary and costly processes. 64 Costly Controls The Little Hoover Commission has identified many procedural barriers to government efficiency in several prior reports. Chief among the systems that should be revised, according to these reports and the experience of the pilot project departments, are the civil service system, the procurement system, leasing oversight and the mandatory use of Prison Industry Authority products. The prior Commission reports contain specific recommendations for increasing efficiency without eliminating accountability. Recommendation 3-B: The Governor should negotiate and the Legislature should approve a pay-for-performance system that rewards success and sanctions failure. Whether it is called a merit system or a pay-for-performance system, government should have the ability to provide managers and employees incentives for doing a good job. The "fairness" of a system that pays everyone assigned the same type of work the same amount regardless of their ability and effort can and should be disputed. Organizations that recognize achievement are most likely to encourage it. Recommendation 3-C: The Governor and the Legislature should allow departments that achieve budgetary savings through increased efficiency to retain and redirect part of the savings. The perverse incentives in the current budgeting process encourage departments to spend every penny in each year's budget. Allowing a program manager to retain funds into a new budget year when they have been earned through efficiency would change that spending incentive and encourage innovation. The redirection of the savings could be restricted to certain expenditures approved by the Legislature or managers could be given broad discretion as long as the spending contributed to the mission and objectives of the department's programs. Recommendation 3-D: The Governor and the Legislature should adopt a multi-year approach to budgeting. performance-based budgeting yields data about long-range trends and performance. But to take advantage of this information, policy makers need to look beyond the next year and understand the implications of their decisions. This can be achieved by building multi year projections into the budget process and exploring the potential, including any necessary constitutional changes, for adopting budgets that span more than one year. 65 Little Hoover Commission: Performance-Based Budgeting 66 Conclusion 67 Little Hoover Commission: Performance-Based Budge.!..!;tin!..!..l:Lg ______,_ _______ 68 Conclusion Conclusion I nherent in the nature of institutions are mechanisms to avoid change and preserve the status quo. But governments at all levels are facing immense pressures to reform their processes and procedures. Only by improving performance can government restore the confidence the public once had in the ability of the public sector to serve many needs, and serve them well. Experts on systems management believe government has gone astray by focusing on processes rather than results, by concentrating on efficiency without regard to effect, and by failing to re-evaluate the continued need for programs as times and conditions change.84 The failure results in part from a lack of consensus about the primary functions of government. One commission charged with identifying the principles that should guide government in Florida developed the following list: • Government should be catalytic, steering hundreds of different organizations in delivering services rather than being a centralized service provider. • Government should be community-oriented, empowering localities to come up with their own solutions to problems. • Government should be customer-driven, giving its constituents the choices they desire for delivery of services. 69 ----~"--------~~~~~--~~~~~-~~~- .~~~~~~--~~~~~~~--------- Little Hoover Commission: Performance-Based BudgE!ting • Government should be value-oriented, focusinq on preventative measures rather than immediate fixes. • Government should be results-focused, funding outcomes rather than inputs. • Government should be market-oriented, using competition rather than using public monopolies.85 Few governments live up to these or similar principles. But performance based budgeting offers a promising venue for governments to change and improve. By providing comparative information, performance-based budgets can give policy makers the tools they need to make informed decisions. At the same time, it is a system that increases accountability, both between managers and policy makers and between government and the public. With clear and compelling data easily accessible to everyone, policy discussions can focus on realities rather than ideologies. Change is very difficult, however. As one Florida analyst wrote: Reinventing government is not only harder than it sounds, it takes a long time to make even small gains. For each bloated bureaucracy and each set of convoluted rules, there is a constituency that demanded it and a constituency that will defend it. Additional obstacles include the sheer complexity of the endeavor, a bureaucratic culture which is risk intolerant and acclimated to following cumbersome rules and regulations rather than searching for the best way to obtain quality results for customers, and a legislature that guards its prerogative to dictate in detail how agencies spend their funds. 86 Despite these barriers, many in California recognize the need for change. With a pilot project that involves four departments, California has made tentative steps toward adopting performance-based budgeting. But those involved in the project and those who are assessing its progress have noted a lack of the necessary support and leadership that may make the difference between failure and success. In addition, with no single point person among policy makers to champion the continuation of reform, there is a real danger that the process will peter out and become just one more passing fad. The departments involved believe they have made substantial improvements in their operations and have created an atmosphere where excellence can thrive. The continuation of their effort and its spread to other state departments holds the promise of increasing the capacity of state government to provide services in an effective and efficient manner. The experience of other governmental jurisdictions using performance based budgeting points to the need for patienCE) and long-term commitment to reform. Neither is an evident pattern in California's 70 Conclusion political process. Nonetheless, the recommendations in this report are designed to improve the chances that reform will succeed in California and that the partial benefits already reaped by departments in the pilot project can be extended to other agencies. With the demands and constraints facing California, policy makers need to be aggressive about finding ways to reshape and improve government programs. Performance-based budgeting offers them that opportunity. 71 Little Hoover Commission: Performance-Based Budg4:~~t.!!..in~gL-______________ 72 Appendix 73 Little Hoover Commission: Performance-Based Budge'ting 74 Appendix APPENDIX Witnesses Appearing at Little Hoover Commission Perfomanced-Based Budgeting Public Hearing July 26. 1995. Sacramento Kathleen Connell, State Controller Thomas Lewcock, City Manager of Sunnyvale Ara Merjanian, Texas Bob Dell' Agostino, Legislative Analyst's Office Stan Stancell, Department of Finance Steve Olsen, Department of General Services Donald Murphy, Department of Parks and Recreation Marjorie Berte, Department of Consumer Affairs AI Aramburu, California Conservation Corps 75 Little Hoover Commission: Performance-Based Budqe'tinq 76 Endnotes 77 Little Hoover Commission: Performance-Based Budqe .. t!.i!n!..!.1::t.q ______________ 78 Endnotes ENDNOTES 1. Legislative Analyst's Office, "Performance Budgeting: Reshaping the State's Budget Process," October 2~., 1993, 2. 2. Karen Carter, "The Performance Budget Revisited: A Report on State Budget Reform," National Conference of State Legislatures, February 1994, 2. 3. Ibid, 2-3. 4. Governor's Budget Summary, 1993-94, 38-39. 5. Ibid, 38. 6. Peter A. Pyhrr, Zero-Base Budgeting: A Practical Management Tool for Evaluating Expenses, 1973, 140. 7. Ibid, 145. 8. Ibid, 194. 9. "Performance Budgeting: State Experiences and Implications for the Federal Government," United States General Accounting Office, February 1993, 1. 10. "Government Performance and Results Act of 1993," U.S. Senate Committee on Governmental Affairs, June 16, 1993, 10. 11. Thomas Lewcock, City Manager, Sunnyvale, in written testimony to the Little Hoover Commission, July 26, 1995, 1. 12. John Mercer, Counsel for U.S. Senate Committee on Governmental Affairs, "The Performance Management and Budget System of the City of Sunnyvale, California," speech to the Organization for Economic Cooperation and Development. 13. Lewcock, op cit, 2. 14. "An Indianapolis Vision: A Competitive City with Safe Streets, Strong Neighborhoods and a Thriving Economy," 1995, 7-1. 15. Ibid, 3. 16. U.S. Senate Committee on Governmental Affairs, op cit, 12. 17. The Citizen's Charter, Second Report: 1994, Prime Minister and Chancellor of the Duchy of Lancaster, March 1994. 18. Karen Carter, "Performance Budgeting: Here by Popular Demand," State Legislatures, December 1994, 24. 19. Carter, "Performance Budget Revisited," op cit, 9. 20. Ibid, 9. 79 Little Hoover Commission: Performance-Based Budq(,tin:...!,;q::L..-_______________ 21. Ara Merjanian, Senior Budget Analyst, Texas Governor's Budget Office, in testimony to the Little Hoover Commission, July 26, 19~15. 22. Kelly Freels, Division of Fiscal Policy Analysis, Oregon Department of Administrative Services, phone interview, December 12, 1994. 23. David Hosansky, "Tell Me Where the Money Went," State Legislatures, December 1994, 26-30. 24. "Final Bill Analysis and Economic Impact Statement," Committee on Governmental Operations, Florida, Chapter #94-249, 5-6. 25. Laura M. King, Assistant Commissioner of the Minnesota Department of Finance, July 23, 1993 memo regarding annual performance reports. 26. "Performance Budgeting," Office of the Legislative Auditor, Minnesota, February 1994, xii. 27. "Pennsylvania Government Performance and Accountability Act," handout from the Pennsylvania House Appropriations Committee. December 1993. 28. "Washington Performance Partnership," July 1 6, 1994 handout. 29. "Restructuring and Innovations in State Ma~'lagement: Some Recent Examples," National Association of State Budget Officers, July 1993. 30. "From Red Tape to Results: Creating a Government that Works Better and Costs Less," National Performance Review, September 7, 1993, 15. 31. U.S. Senate Committee on Governmental Affairs .. op cit, June 16, 1993, 21. 32. Bob Dell'Agostino, Legislative Analyst's Office, in testimony to the Little Hoover Commission, July 26, 1995. 33. LaFenus Stancell, Chief Deputy Director, Department of Finance, in testimony to the Little Hoover Commission, July 26, 1995. 34. Merjanian, op cit. 35. Mercer, op cit. 36. Hoover Commission Task Force Report on Fiscal Budgeting and Accounting Activities, 1949. 37. Sam Obregon, "California State Budget Reforms," Senate Committee on Budget and Fiscal Review, December 23, 1993 draft, 2-4. 38. Governor's Budget Summary, 1993-94, 37. 39. Carter, "The Performance Budget Revisited," op cit, 2. 40. Stancell, op cit, 2. 80 Endnotes 41. Governor's Budget Summary, 1993-94, 37-38. 42. California Fiscal Reform: A Plan for Action, Recommendations and Summary, California Business-Higher Education Forum, June 1994, 9 and 12; "Priority Budgeting is the Way to Go," California Taxpayers' Association commentary, January 28, 1992; and LeRoy Graymer, "Options for Reforming California Governance," California Policy Seminar, 1995, 6. 43. U.S. Senate Committee on Governmental Affairs, op cit, 11. 44. Lewcock, op cit, 6. 45. Ibid, 14. 46. Ibid, 9. 47. "Strategic Budgeting in Texas: A New System for the 90s," 2. 48. Merjanian, op cit, 8e-8f. 49. Ibid, 20a-20b. 50. Donald Murphy, Director, Department of Parks and Recreation, in written testimony to the Commission, July 26, 1995, 3. 51. Carter, "The Performance Budget Revisited," op cit, 7. 52. John L. Mikesell, Fiscal Administration: Analysis and Applications for the Public Sector, Brooks/Cole Publishing Col, 1991, 134. 53. "Performance Budgeting: Reshaping the State's Budget Process," Legislative Analyst's Office, October 25, 1993, 11. 54. "Final Bill Analysis," op cit, 10-11. 55. Merjanian, op cit. 56. "Managing for Results: State Experiences Provide Insights for Federal Management Reforms," U.S. General Accounting Office, December 1994, 15. 57. Obregon, op cit, 5-6. 58. Ibid, 5. 59. "Performance Budgeting: Reshaping the State's Budget Process," op cit, 11. 60. Olsen, op cit, 10-11. 61. "Performance Budgeting," Office of the Legislative Auditor, Minnesota, February 1994, x. 81 -------------------- ~~-------------------------- Little Hoover Commission: Performance-Based Budqei!~~in:..!,;q~ ______________ 62. David Osborne and Ted Gaebler, Reinventing Government: How the Entrepreneurial Spirit is Transforming the Public Sector, Addison-Wesley Publishing Company Inc., February 1993, 349. 63. "Program Performance Measures: Federal Agency Collection and Use of Performance Data," U.S. General Accounting Office, May 1992, 59. 64. "Building State Workforce Development Systems based on Policy Coordination and Quality Assurance," National Governors' Association, 1994, vi. 65. "Performance Budgeting: Reshaping the State's Budget Process," op cit, 13. 66. Governor's Office of Budget and Planning, "Detailed Instructions for Preparing and Submitting Requests for Legislative Appropriations," June 1992, 5. 67. "Final Bill Analysis," op cit, 15. 68. "Performance Measurement: The Key to Accelerating Organization Improvement," Price Waterhouse, 12. 69. Osborne and Gaebler, op cit, 155. 70. "Who Will Bell the Cat?," Price Waterhouse, 3. 71. AI Aramburu, Director, California Conservation Corps, in testimony to the Little Hoover Commission, July 26, 1995, 6. 72. "Who Will Bell the Cat?," op cit, 23. 73. Lewcock, op cit, 8. 74. Ibid. 75. Osborne and Gaebler, op cit, 14. 76. Ibid, 111. 77. Obregon, op cit, 11. 78. U.S. Senate Committee on Governmental Affairs, op cit, 17. 79. Aramburu, op cit. 80. Murphy, op cit. 81. Merjanian, op cit. 82. "Final Bill Analysis," op cit, 8. 83. National Performance Review. op cit. 170 84. Carter, "Performance Budget Revisited," op cit, 3. 82 Endnotes 85. "Final Bill Analysis," op cit, 9. 86. "Final Bill Analysis," op cit, 15. 83 --------------------------------------------- LITTLE HOOVER COMMISSION FACT SHEET The Little Hoover Commission, formally known as the Milton Marks Commission on California State Government Organization and Economy, is an independent state oversight agency that was created in 1962. The Commission's mission is to investigate state government operations. and -- through reports, and recommendations and legislative proposals -- promote efficiency, economy and improved service. By statute, the Commission is a balanced bipartisan board composed of five citizen members appointed by the Governor, four citizen members appointed by the legislature, two Senators and two Assembly members. The Commission holds hearings on topics that come to its attention from citizens, legislators and other sources. But the hearings are only a small part of a long and thorough process: * Two or three months of preliminary investigations and preparations come before a hearing is conducted. * Hearings are constructed in such a way to explore identified issues and raise new areas for investigation. * Two to six months of intensive fieldwork is undertaken before a report . including findings and recommendations -- is written, adopted and released. * legislation to implement recommendations is sponsored and lobbied through the legislative system. * New hearings are held and progress reports issued in the years following the initial report until the Commission's recommendations have been enacted or its concerns have been addressed. Additional copies of this publication may be purchased for $5.00 per copy from: little Hoover Commission 660 J Street, Suite 260 Sacramento, CA 95814 Make checks payable to little Hoover Commission.