When Cuellar served in the Texas legislature, he saw how his state used performance information in the budget process. Appointed earlier this year to the House Appropriations Committee, he can finally bring this perspective to Washington in a real way. The next step is to convince his colleagues.

A decade ago, public policy professor Phil Joyce prepared a report for the IBM Center on ways the federal government could begin developing a performance budgeting approach.  In that report, he optimistically observed, “The federal government has never been in a better position to make its budget decisions more informed by considerations of performance.”  He identified ways performance could be linked at each stage of the budget development, decision-making and implementation process. It hasn’t yet happened, but states could serve as a model.

Based on a 2012 review, 40 states have adopted laws mandating the use of performance budgeting. Leading states include Michigan, Iowa, Texas and North Carolina. A number of cities also have adopted this approach. So it might be worthwhile to review what they do, and how lessons might be applied at the federal level.

The Key Ingredients 

The concept of performance budgeting is not clearly defined. In fact, a 2003 article by Richard Young at the University of Southern California concludes: “There is no one single definition of performance-based budgeting (PBB). A review of the literature does, however, suggest what it means commonly. Most observers of -- and experts on -- public budgeting do agree that, generally speaking, PBB is the allocation of funds to achieve program-matic goals and objectives as well as some indication or measurement of work, efficiency, and/or effectiveness.”

Among the many variations that have evolved during the past decade, there is now outcome-based budgeting (used in Oregon and Michigan) and results-based budgeting (used in North Carolina).  These approaches are more strategic, but still embrace the common definition of performance budgeting.

Based on observations of state and local use of performance budgeting, there are four insights that can help when implementing this approach:

-- Don’t separate budget and finance systems from the strategic goals of political leaders. These processes and systems need to be tied to the overall strategy of the city or state through committed leadership in both the executive and legislative branches. Baltimore City’s mayor Stephanie Rawlings-Blake, for example, has identified six priorities for the city and the municipal budget is organized around those priorities.
-- Use analytics and evidence-based approaches to inform budgeting priorities. This increases the likelihood that resources will be targeted to the root cause of a problem rather than its symptoms.  In Virginia, for instance, evaluations have shown that third-grade reading levels are a strong predictor of future academic performance. As a result, the state has targeted additional budget resources to third-grade reading programs.
-- Budgets should be organized around the outcomes or initiatives in the strategic plan, and not around the traditional agencies and programs that populate the organizational chart. In Iowa, for example, former governor Tom Vilseck proposed a set of priorities, and agencies bid on the services they would contribute -- and at what cost -- to implement the priority. This information was then used to develop the budget proposal that was taken to the legislature.
-- States and localities need to create a budget and finance structure that can accommodate flexibility. This means creating common classification standards across budget, grant, contract and financial systems that can show how discrete inputs can be tied back to broader outcomes. This more technical requirement tends to be a prerequisite for providing budget and financial information in various formats to ensure accountability by various stakeholders.

(By John Kamensky)