Performance Based Budgeting

The Performance of Performance Budgeting --- Managing for Results, Real Life State and Municipal Approaches Anthony H. Rainey

What the Heck Is Performance Based Budgeting? Performance-based budgeting not simply the use of program performance information in developing a budget . Performance-based budgeting does more than just inform the resource allocation decisions that go into develop of a traditional type of budget. Performance-based budgeting it is not just "budgeting based on performance." Instead, it is the process by which a particular type of budget is developed -- a Performance Budget (or "program performance budget"). To design an effective system of performance-based budgeting , it is therefore vital to understand (1) exactly what the end product itself should be, (2) what it should contain, and (3) how it should look.

The End Product of a Performance Budget A true Performance Budget is not simply an Object Class budget with some program goals attached. It tells you much more than just that for a given level of funding a certain level of result is expected.

What a Performance Budget Should Contain A real Performance Budget contains a meaningful indication of how the dollars are expected to turn into results. Certainly not with scientific precision, but at least in an approximate sense, by outlining a general chain of cause and effect.

How a Performance Budget Should Look and Feel The most effective governmental Performance Budget shows, for each program area, how dollars fund day-to-day tasks and activities, how these activities are expected to generate certain outputs, and what outcomes should then be the result.

Performance Budgeting Versus Object Class Budget A Performance Budgeting can be distinguished from an Object Class budget in a fundamental way. The Object Class budget will show what each dollar will be spent on --- salaries, benefits, office supplies, travel, utilities, equipment, etc. The Performance Budget will show what each dollar will accomplish: process a grant application, inspect a worksite, review a compliance activity, etc. However, every program could (and probably should) be able to show its budget in both formats -- with the "bottom line" dollar amounts being exactly the same for each.

Performance Budgeting --- States What the Governmental Accountability Office found when examining Performance Budgeting within five states.

Government Accountability Office (GAO) Examination of Performance Budgeting in States GAO-05-215 Performance Budgeting, February 2005 “ Performance measures and the reporting of program performance are regularly included in the budget processes of the five states GAO visited. Legislators’ expectations that this information will be collected and reported are supported through both statutory requirements and executive initiatives.” “ GAO found that the continuing efforts to improve data collection and to relate this information to structures and processes used to make resource decisions were reinforced by the increasing capacity of staff to analyze, synthesize, and incorporate performance information in ways that make this information more accessible and useful to decision makers.”

Summary of State Performance Budgeting Processes page 7, GAO-05-215 Performance Budgeting, February 2005 Executive budget document Yes Biennial budget requests Agency and program No Yes Washington Virginia Results Web Site No Internet Agency No Yes Virginia Appropriation act Yes Strategic plans and electronic quarterly update Strategies (by agency) Yes Yes Texas Executive budget document Yes Annual budget requests Agency and program No Yes Maryland Appropriation act Yes Annual program operating plans Program No Yes Arizona Primary Method of Publicly Reporting Measures Required as Part of Agency Budget Request? Method used to Submit Measures Level that Measures Are Submitted Alignment Between Planning and Budget Structures? Performance Budgeting Legislation? State

Government Accountability Office (GAO) Examination of Performance Budgeting in States GAO-05-215 Performance Budgeting, February 2005 DEVELOPMENT AND PRESENTATION CHALLENGES Although the states GAO visited all demonstrated ways in which performance information was used in budget deliberations, officials in every state described challenges in developing and presenting performance information that is both credible and useful. Despite these challenges, these states have demonstrated a commitment to performance budgeting efforts by continuing to refine their approaches in response to those challenges. Success in performance budgeting requires time, agreement on the selection of measures reported, and understanding of different perspectives. The states are working toward this success.

Government Accountability Office (GAO) Examination of Performance Budgeting in States GAO-05-215 Performance Budgeting, February 2005 USEFULNESS FOR DETERMINATION OF FUNDING LEVELS “ State officials described ways in which performance information, including outcome measures and performance evaluations, was used in budget deliberations to identify potential impacts of a proposed policy change, make policy decisions that reduced costs while maintaining effectiveness, and make changes to improve program effectiveness.” “ However, when determining funding levels and defining desired levels of service relative to funding, legislators currently rely most on workload and output measures.”

Arizona’s MFR Process GAO-05-215 Performance Budgeting, February 2005 “ Arizona is transitioning to a program budgeting structure. In 1997, the state passed legislation that established program budgeting to allow the format of the General Appropriation Act to be converted from line items of expenditure to a list of programs representing the most important activities of each agency. “ The legislation allowed for a phased approach to implementation. By fiscal year 2006, all agencies will be required to submit their requests using their program list structure. When Arizona completes the transition to program-based budgeting, it expects to align the planning and budgeting functions so that performance and budget information can be reported in the same system.”

Information from Arizona’s Fiscal Year 2003–05 Executive Budget GAO-05-215 Performance Budgeting, February 2005

Figure 2: Example of Performance Information Presented in Arizona’s General Appropriation Act GAO-05-215 Performance Budgeting, February 2005

Maryland’s M anaging F or R esults (MFR) Process GAO-05-215 Performance Budgeting, February 2005 “ Maryland’s MFR initiative is principally a strategic planning process that is intended to set organizational direction, determine priorities, and establish desired program results and outcomes. Agencies and programs are expected to develop outcome measures that are based on customer needs and expectations. Agencies and departments are also expected to develop performance measures to track the progress of programs in achieving the organizational mission, goals, and objectives. This performance information is intended to improve agency and program planning and inform budget decisions.” “ As part of their annual budget request, DBM requires agencies to submit missions, key goals, and performance measures at both the agency and program levels. Agencies independently select and report the performance information that is included in their budget requests. DBM does not have a formal role in this process. However, the Office of Budget Analysis within DBM reviews these submissions and considers the performance information in developing the executive budget. DBM publicly reports performance information in the executive budget, which contains the mission, vision, strategic goals, objectives, and performance measures for each agency. Figure 3 provides an example of this information.”

Figure 3: Example of Performance Information Presented in Maryland’s Executive Budget GAO-05-215 Performance Budgeting, February 2005

Texas MFR Effort GAO-05-215 Performance Budgeting, February 2005 “ Texas’s General Appropriation Act is structured by goals and strategies. In general, an agency will have three to five substantive strategies, sometimes referred to as ‘direct strategies,’ as well as one or more strategies labeled ‘indirect administration’ for functions shared among strategies, such as accounting, human resources, information technology, reporting, and overall administration in the higher executive offices.” “ Strategies within the larger agencies can be as large as $500 million and contain multiple programs, whereas strategies in very small agencies can be as small as a few thousand dollars. As figure 4 demonstrates, the act shows high-level goals for each agency, and funding is appropriated according to the strategies that are established to achieve those goals. Texas also includes outcome, output, and efficiency targets to show what level of performance is expected for each goal and strategy based on the appropriation level each receives.”

Figure 4: Example of Texas’s General Appropriation Act Structure GAO-05-215 Performance Budgeting, February 2005

Virginia’s MFR Effort GAO-05-215 Performance Budgeting, February 2005 “ Virginia established its performance measurement system in 1995.1 The governor required agencies to develop strategic plans and report on performance. Legislation enacted in 2001 required DPB to submit to legislators an annual report comparing expected results and expenditures for state agencies during the previous fiscal cycle to actual performance during the previous fiscal year. However, this requirement was later rescinded.” “ Virginia expanded on its performance and accountability requirements with legislation enacted in 2003, known as the Virginia Government Performance and Results Act, which expanded on performance-related efforts in the state by mandating that each state agency develop and continuously review a strategic plan identifying long-term agency goals and objectives as well as specific outcome measures reflecting the relative achievement of established goals. These plans are to cover a 3-year period from the point of submission and are reviewed on a staggered basis by the Office of the Governor. Approximately one-third of all state agencies are to be reviewed over the course of 1 year. The provisions of this act are scheduled to expire in 2008. The Virginia Government Performance and Results Act also established the Council on Virginia’s Future, an advisory council in the executive branch of state government that was charged with advising the governor and the General Assembly on the implementation of a long-term state planning process—known as the Roadmap for Virginia’s Future. Figure 6 summarizes the key components of this legislation.”

Figure 6: Summary of Key Components of Virginia’s Government Performance and Results Act GAO-05-215 Performance Budgeting, February 2005

Washington’s MFR GAO-05-215 Performance Budgeting, February 2005 “ In Washington all state agencies are required to engage in strategic planning and related performance activities. State agencies develop strategic plans to establish their missions and purposes, as well a measurable goals and objectives. Agencies are not required to regularly revise established goals and measures, but must ensure that agency mission, goals, and measures adhere appropriately to state law. “ For every major program administered by an agency, program objectives are reported with measurable outputs and outcomes to the extent possible. Agencies can develop their measures and data collection procedures with or without assistance from OFM.”

Figure 7: Example of Washington’s Priorities of Government Framework GAO-05-215 Performance Budgeting, February 2005

Municipal Managing for Results – Performance Budgeting City of Long Beach, California “Focus on Results” Maricopa County, Arizona “Managing for Results”

Focus on Results (FOR) – Long Beach Performance Management Initiative The City’s Focus on Results (FOR) Long Beach program is a comprehensive performance management system that will better align City operations with the City Council and community’s priorities. This effort will improve the efficiency and effectiveness of City operations and increase accountability at all levels of the organization. This comprehensive performance management system brings together the City’s diverse planning, budgeting, performance and service delivery processes into one integrated management structure to ensure that all stakeholders are working together to focus on providing results to the community. The City has implemented FOR Long Beach to align its operations and to ensure that all employees are working with the same set of objectives and expectations. The five key components of FOR Long Beach, listed below, are described in more detail later in this section.

Focus on Results (FOR) 5 Key Components The City has implemented FOR Long Beach to align its operations and to ensure that all employees are working with the same set of objectives and expectations. The five key components of FOR Long Beach are: Planning for Results Budgeting for Results Measuring for Results Communicating Results Evaluating Results

Key Component 1 – Planning for Results Planning for Results is designed to provide clear direction for City of Long Beach departments in achieving results for the community. City departments begin this effort through the Strategic Business Planning process. This departmental planning process incorporates Citywide and department-specific strategic and operational elements, and provides the foundation for the City’s entire comprehensive performance management structure. The planning process is undertaken with the customer in mind; providing not only the programs and services that they need and want, but the results that they expect. The department Strategic Business Plans will all utilize the community’s Strategic Plan 2010 document as a guide. This document is critical to understanding the community’s goals and objectives and helps to focus departments on how to structure operations to meet those desired goals. Other City planning documents, members of the community and staff from all levels of the organization will also serve as critical resources to the Strategic Business Planning process.

Key Component 1 – Planning for Results Strategic Business Plans (1 of 4) The Strategic Business Plan is a means by which a City of Long Beach department develops its mission and identifies issues and strategic objectives, and sets direction to address identified issues in relation to the City’s overarching goals and objectives. Strategic Business Plans assists departments in identifying strategies and activities that will support the achievement of those goals. The Strategic Business Plans are updated periodically to reflect customer needs and the changing service delivery environment. City departments also identify their program structure as part of this planning process. The program structure will help to communicate to the public about services that are being delivered, rather than focusing on who is delivering them. It is via this structure that City Manager-directed departments’ financial and performance information is presented in the Fiscal Year Budget.

Key Component 1 – Planning for Results Strategic Business Plans (2 of 4) An important component of this process is the development of a full complement of performance measures for all programs. These performance measures serve to drive the City’s of Long Beach comprehensive performance management structure by providing useful information to assess the City’s progress at providing results for our customers. Each department’s measures provide important performance data on the workload (outputs), demand, efficiencies and outcomes (or results) of City programs. While the budget only provides space for a limited number of performance measures, Strategic Business Plans represent a full family of measures by program.

Key Component 1 – Planning for Results Strategic Business Plans (3 of 4) Every program is also aligned with one of the City of Long Beach’s nine Citywide Focus Areas. Organizing the City by Focus Areas provide better information to the City Council as they develop policy guidance by identifying where financial resources are invested and how performance is impacting areas of strategic importance to the community. The focus areas also assists staff in evaluating performance and planning for areas that cross department lines. The Citywide Focus Areas are: Community Safety Neighborhoods and Housing Leisure, Culture and Education Health and Human Services Business and Economic Services Transportation and Infrastructure Utilities Environment Leadership, Management and Support

Key Component 2 – Budgeting for Results (1 of 4) The Budget is the most important policy document the City of Long Beach produces on an annual basis. The program and financial decisions it embodies must reflect the will of the community through the policy direction of the City Council. By developing an annual Budget that is based on aligned goals, strategies, priorities and performance, as defined in the department Strategic Business Plans, the City will be able to better focus its resources and efforts on those areas of the highest importance to the community. The Budget is a Performance-based Program Budget that reflects the work completed during the initial implementation of FOR Long Beach. Instead of presenting the budget in the organizational structure (department and bureau), as has been past practice, the City is for the first time presenting budget and performance information at the program level.

Key Component 2 – Budgeting for Results (2 of 4) This new approach helps the City of Long Beach to better associate the cost and performance of municipal programs to clearly set service expectations, and facilitate more informed and empirical fiscal decision-making. The Budget is not only structurally, but visually, different from previous City budgets. The following graphic on the following page represents the new layout of the City’s budget by department Programs and Lines of Business (aggregation of like programs within a department) Department Line of Business Program Service

Key Component 2 – Budgeting for Results (3 of 4)

Key Component 2 – Budgeting for Results (4 of 4) Program Budget Description Example

Key Component 3 – Measuring for Results (1 of 2) One of the objectives of FOR Long Beach is to have necessary information readily available to make good business decisions. The Measuring for Results component is designed to provide that information. the Strategic Business Planning process includes the development of performance measures for all programs. These performance measures will serve to drive the City’s comprehensive performance management structure by providing useful information to inform City staff and the public on the City’s progress at providing results to the community. Staff is currently working to document key information about each performance measure to ensure a department’s measures are valid, significant and measurable. The development over the next year of an online performance tracking, monitoring and reporting software system will provide the City Council, City staff and the community with timely, accurate and meaningful performance information that can be used to help improve services or identify funding issues. Collection of performance data in a central, web-based system will allow employees to track estimated and actual performance, and to monitor their progress in meeting the defined goals from the Strategic Business Plans.

Key Component 3 – Measuring for Results (2 of 2) Through the use of benchmarking, the City of Long Beach will also be able to compare their performance with that of other communities, resulting in an enhanced ability to identify service delivery alternatives that can enhance performance. As the measures are developed and performance information is collected over time, data will be available for trend analysis and will assist in identifying any issues in performance or needed resources to improve operations.

Key Component 4 – Communicating for Results Communicating Results is a critical component of the FOR Long Beach performance management effort as it enhances accountability by keeping all stakeholders informed about the results that the City is providing. The City is working to develop a Communications Plan to disseminate important performance information to all stakeholders. Regular reporting of financial and performance information will be provided to the City Council, community and City staff. While the system will be able to produce performance updates as often as data is entered into the system, it is anticipated that weekly and monthly reports will be made available for internal staff purposes, and quarterly reports will be produced for the City Council and the community. The City Manager will use this data to meet regularly with department directors to discuss critical operational and performance issues.

Key Component 5 – Evaluating Results (1 of 3) Continuous improvement of our municipal services is a primary goal of the City. By integrating the City’s planning, budgeting, performance and service delivery processes into one seamless structure; the City will be in a better position to identify areas for needed improvement. Evaluating Results will help to highlight program areas where there may be performance or resource gaps. City Staff will utilize performance information on a regular basis to evaluate service delivery strategies and guide decision-making with regard to deployment of resources. Both management and line staff will use performance data to inform service delivery approaches.

Key Component 5 – Evaluating Results (2 of 3) A new approach to managing the organization was introduced over the past year by a group of employees on the City’s “Innovation Team,” called “Work Smarter Teams.” These teams will become the foundation for evaluating results and improving service delivery strategies. Under this concept a group of employees from each work unit will be selected to evaluate performance information on a regular (weekly or monthly) basis and make recommendations to supervisors and management on service delivery changes they think should be made throughout the year. These teams will be a core component of the annual performance review process.

Key Component 5 – Evaluating Results (3 of 3) At the conclusion of each fiscal year, each department will undergo a thorough review and evaluation of their performance measures to ensure that we are achieving our objectives. Service delivery strategies and financial allocations may be re-evaluated at that time to improve performance, if needed. It is anticipated that an Annual Community Survey will be a critical component of the performance evaluation process, to ensure the community’s priorities and satisfaction with City services are a basis for decision-making with regard to City of Long Beach services. This evaluation effort will also aide the City’s Service Optimization efforts by highlighting potential program areas that could benefit from a review of the City’s service delivery practices. In the end, Evaluating Results is critical to producing the best possible results for the City of Long Beach’s customers.

City of Long Beach, Human Resources Organization Chart

City of Long Beach, Human Resources Budget by “Lines of Business”

City of Long Beach, Human Resources Personnel Operations Program Overview Focus Area: Leadership, Management and Support Line of Business: Personnel Operations and Employee Services Program Description : To provide human resources and employee relations support and leadership to departments. Key Services Provided : Policy manuals and interpretations, Equal Employment Opportunity (EEO), City workforce plan, labor relations, classification and position audits, Americans with Disabilities Act (ADA), reasonable accommodation, and executive recruitment

City of Long Beach, Human Resources Personnel Operations Program Key Performance Measures

City of Long Beach, Human Resources Employee Services & Benefits Program Overview Focus Area: Leadership, Management and Support Line of Business: Personnel Operations and Employee Services Program Description : To insure that benefits are competitive enough to attract, retain and motivate City employees. Key Services Provided : Health, dental, & life insurance, long-term/short-term disability, inhospital indemnity contract management, deferred compensation, flexible spending program, retiree health insurance, and health insurance advisory committee support

City of Long Beach, Human Resources Employee Services & Benefits Program Key Performance Measures

City of Long Beach, Human Resources Insurance and Loss Control Program Overview Focus Area: Leadership, Management and Support Line of Business: Risk Management Program Description : To control risk and financial loss throughout City operations to tolerable levels, transfer risk to third parties when appropriate through contracts, leases, etc., and to finance risk through insurance policies. Key Services Provided : Insurance policy procurement, department insurance fund allocations, contractual certificates of insurance approval, insurance consultations with departments, special event consultations & insurance issuance, loss control inspections, property appraisals, current and future liability estimates, self-insurance certificates, and Americans with Disability Act (ADA) & State accessibility laws

City of Long Beach, Human Resources Insurance and Loss Control Program Key Performance Measures

City of Long Beach, Human Resources Occupational Safety Program Overview Focus Area: Leadership, Management and Support Line of Business: Risk Management Program Description : To ensure safeguards are in place to protect employees from serious injury and that the City is in compliance with Occupational Safety and Health Administration (OSHA) rules and regulations. Key Services Provided : Loss control safety inspections, safety training courses and classes, random drug testing, industrial hygiene assessments, emergency preparedness, safety consultations, and safety policy manual

City of Long Beach, Human Resources Occupational Safety Program Key Performance Measures

City of Long Beach, Human Resources Workers’ Compensation Program Overview Focus Area: Leadership, Management and Support Line of Business: Risk Management Program Description : To provide treatment and lost wages to employees that are injured on the job, and to place injured employees into transitional duty job assignments when possible. Key Services Provided : Return to work placements, claims assessments, safety disability retirement determinations, Insurance Fund monitoring, employee workers’ compensation surveys, and audit responses

City of Long Beach, Human Resources Workers’ Compensation Program Key Performance Measures

City of Long Beach, Human Resources Administration Program Overview Focus Area: Leadership, Management and Support Line of Business: Administration Program Description : Provide central administrative support, coordination and direction for the entire Department. Key Services Provided : Human Resources, Training, Risk Management, Employee Safety, Workers’ Compensation, Budget and Accounting, Procurement, Billing and Collections, Contract Management, Records Management, Public Information and Communications, and Executive Leadership

City of Long Beach, Human Resources Administration Program Key Performance Measures

Maricopa County Arizona – Managing for Results – Strategic Planning Development

Maricopa County Arizona – Managing for Results – Strategic Planning Alignment

Maricopa County Arizona Budgeting for Results (BFR) Budgeting for Results format developed and implemented as standard for all departmental budget submissions beginning with FY 2005-06 budget process. All “Results Initiative Requests” (RIRs) were supported by documented performance and results expectations.

Maricopa County Arizona Budgeting for Results Advantages Budget process that focuses on purchasing results instead of funding inputs - aligns with strategic goals . Greater emphasis on: Service demand Cost per unit of service Impact on results Less (but not elimination of) emphasis on traditional budget issues – line-item spending, personnel savings, etc.

How is Maricopa County Arizona’s BFR different from traditional budgeting? OLD WAY Traditional Accounting : Salaries $3,371,917 Supplies 776,745 Services 1,242,866 Equipment 323,614 TOTAL $ 5,715,142 NEW WAY PAS Accounting: Recreation $ 3,130,600 Interpretive Services 240,789 Maintenance 2,343,753 TOTAL $ 5,715,142

Maricopa County Arizona BFR Worksheet In each Activity worksheet, the following fields are completed: Activity description/title Activity Purpose Statement Brief descriptions for the demand, output, and result measures Historical Information Total expenditures by fund data for the last two fiscal years and projected amounts for the current fiscal year

Maricopa County Arizona BFR Worksheet

Maricopa County Arizona “Family of Measures” Result: Expressed as a percent or rate, states concrete benefit or impact that the customer experiences as a consequence of having received the service or product. Output: Expressed as a number; states the volume of a service delivered to customers. Demand: Expressed as a number; states the volume of that same service that is requested or demanded by customers. Efficiency: Expressed as a dollar cost per result or unit of service.

Maricopa County Arizona BFR Advantage Gives departments opportunity to better understand and communicate how changes in expenditures affect output, efficiency and results in relation to demand. Allows departments to make a stronger case for resources Facilitates OMB and County Board evaluation of how to most effectively allocate limited resources

EXAMPLE: Maricopa County Sheriff Office “Alpha” R esults I nitiatives R equest Expected Result : 88% of graduates will not return to jail within two years.

EXAMPLE: Sheriff’s Office “Alpha” R esults I nitiatives R equest “ Alpha” Inmate Addictive Recovery, $716,362 Replaced reduced grant funding of existing substance abuse treatment (i.e., the Alpha Program) and expanded funding to meet full demand for the Activity. Treatment efforts have been found to significantly reduce the rate of recidivism for participating offenders.

Performance Based Budgeting

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Performance Based Budgeting