Performance-based budgeting: lessons from academic research and practices in the public sector Maarten de Jong

Inhoud

PART I: Performance based budgeting: theory and evidence

PART II: Lessons and international experience

PART I PBB: theory and evidence

‘The debate on the usefulness of methods to advance evidence based public management would be helped if practitioners would adopt some more skepticism and academics would show some less cynicism.’

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New Public Management

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Results focus in the evolution of government

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Key elements of PB and PM systems

• setting measurable objectives and performance indicators for

government programs

• presenting expected results alongside spending levels in budget

documents

• measurement and reporting of results during or afterwards

program execution

• evaluation of results and use of this information for strategic

planning and budgeting

(based on Schick 2003, Robinson 2005, OECD 2007, OECD 2015 and Schick 2014):

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A divide between enthousiasts and skeptics

Academic community

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Politicians, media, consultants and some (mostly financial) government employees

Ambitions and results of PB

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Intended results of reforms

Increased transparency of government spending and

results

Allocative efficiency gains

Operational efficiency gains

Increased result orientation

More effective

allocation and management of resources

Performance Budgeting & Management

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‘traditional’ budgeting

PB/M

Purposeful PI use

Just compliance Legitimization of status quo Adding useless bureaucracy Eroding professionalism Or even worse….

Perf. dialogue Org. learning Improve E&E

Performance Information Use

Classification of PI use (De Lancer Julnes 2008):

• Reassurance

• Compliance

• Program learning

• Enlightenment

• Legitimization

Purposeful use of PI = public employees use data to improve program performance through goal-based learning that gives rise to efficiency improvements, better targeting of resources and more informed strategic decisions or by tying indicators to rewards/sanctions in contract arrangements (Moynihan 2009)

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Performance Information Use

At least 25 factors are known to correlate positively with PI use from quantitative analysis e.g. • org.culture, • leadership, • competition, • managerial autnomy, • ease of measurement, • motivational nature task • availability PI (Moynihan&Lavertu 2008, Moynihan&Pandey 2010, Dull 2009, Lagraeid et al 2008), Moynihan&Kroll 2015)

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Academic Debate

More PI use thanks to: - Availability - Reporting

requirements - Managerial

autonomy - Mandating PI

use routines

Mandating PM/PB systems: - Shifts capacity from analysis to compliance - Has failed to

increase PI use

(Lagraeid et al 2008, Moynihan&Landuyt 2009, Moynihan&Pandey 2010, Posner&Mahler 2011, Hammerschmid et al 2013, GAO 2014, Moynihan&Kroll 2015)

Recent work on the effect of PM&PB reforms

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Effect negligable but slowly increasing, new systems more effective than old ones. When effective, mostly through explorative use (enlightenment) Purposeful use of PI can be explained by historical and cultural factors Speklé & Verbeeten (2014) ‘The use of performance measurement systems in the public sector: effects on performance.’ Management Accounting Research Gerrish (2015) ‘The Impact of Performance Management on Performance in Public Organizations: A Meta-Analysis, Public Administration Review (forthcoming) My own dissertation (2015)

PART II Lessons and international experience

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‘Performance budgeting is an old idea with a disappointing past and an uncertain future’ (Schick 2003)

The Netherlands

7 oktober 2010

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•Traditional line item budget

•up until 2001

•Early performance budgeting

•2002 - 2012

•Accountable budgeting reform

• from 2012

Criticism and problems of early performance budgets

Strong emphasis line ministries on compliance and legitimization

Lengthy and unaccessible documentation often containing irrelevant information

Heavy administrative burden on civil service

No political interest

Budgets not useful for financial analysis

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Causality, attribution and results accountability

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PB

outputs and even

outcomes

PM

disconnected from budget

PB

outputs only

Ill suited for

PB or PM

Influence government

on desired end results

Link between funding and end results

+ -

+

-

Selective approach performance indicators

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Overall 50% decrease in number of performance indicators following Accountable Budgeting reform (2013)

0

50

100

150

200

250

300

350

400

2011

2013

United States: similar rethoric, different approaches

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There comes a time when every program must be judged either a success or a failure. Where we find success, we should repeat it, share it, and make it the standard. And where we find failure, we must call it by its name. Government action that fails in its purpose must be reformed or ended.

Presidential candidate George Bush (junior) in a campaign speech in Philadelphia in 2000

We committed to change the way our government in Washington does business so that we’re no longer squandering billions of tax dollars on programs that have outlived their usefulness or exist solely because of the power of a lobbyist or interest group.…..Our problem is not just a deficit of dollars. It’s a deficit of accountability, a deficit of trust.

President Obama January 7th 2009 when appointing his first Chief Performance Officer

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U.S. Performance Assessment Rating Tool (Bush era)

Program Assessment Rating Tool (PART)

25 questions divided into 4 sections:

• purpose and design: 20%,

• strategic planning: 10%,

• program management: 20%

• program results/accountability: 50%.

Example : Amtrak

PARTed Inefffective 2005

Unclear/conflicting objective

Mounting losses

Increasing delays

Maintenance track way behind schedule

Program Purpose & Design 30%

Strategic Planning 75%

Program Management 17%

Program Results/ Accountability 16%

0,2x30+0,1x75+0,2x17+0,5x16 = 24.9

Example: Amtrak

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PARTed Inefffective 2005

Unclear/conflicting objective

Mounting losses

Increasing delays

Maintenance track way behind schedule

Program Purpose & Design 30%

Strategic Planning 75%

Program Management 17%

Program Results/ Accountability 16%

0,2x30+0,1x75+0,2x17+0,5x16 = 24.9

Amtrak (* mln $) FY 2006 FY 2007 FY 2008

President’s budget $360 $900 $900

Budget approved by Congress

$1,294 $1,114

$1,470

Increase in PI availability

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0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Development PART ratings FY 04-08

Effective 6% 11% 15% 16% 17%

Moderately Effective 24% 26% 26% 29% 31%

Adequate 15% 20% 26% 28% 28%

Ineffective 5% 5% 4% 4% 3%

Results not Demonstrated 50% 38% 29% 24% 21%

FY 04 FY 05 FY06 FY 07 FY 08

GPRAMA (Obama)

Introduction of:

Priority goals for agencies and departments

Ownership of goals by top managers

Performance improvement officers

Routines to encourage PI use by agencies: mandatory quarterly data driven reviews of performance information to track progress

Public accountability on performance.gov

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Experience Poland

- Ambitious reform using a detailed gvernmentwide blueprint

- Strong initial political support that vanished quickly later on

- Two budgets: one PBB and one traditional one (the latter with legal status)

- Around 6000 performance indicators at one point

- Limited capacity to analyze data

- Misfit with civil service culture

PBB unit Ministry of Finance operated as understaffed solitary unit for budgetary intelligence

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Common pitfalls and challenges

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Do not overload the annual budget process

Capacity issues:

Bureacratic burden

Analytical capacity

Accesibilty documentation

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Performance based incentives

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Many examples perverse effects internationally

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Controlling complexity

Due to the diversity of tasks, actions and results within the public sector, a one-size fits all structure tends to end up resembling a prison with many empty cells.

Pragmatism and recognizing diversity is more helpful but goes against our bureacratic nature

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Causality, attribution and results accountability

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Performance system disconnected from budgeting and management

‘To agency managers, who are usually busy battling unexpected crises that can only be cured by resources rather than strategic thinking, performance management is little more than a distraction’

(Moynihan 2008)

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Final thoughts

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Degree to which politicians use performance information depends on many factors. PI may be one of them

Final thoughts

Donald Moynihan (2008)

Interactive Dialogue Model of Performance Information Use:

• P.I. is not comprehensive,

• P.I. is ambiguous

• P.I. is subjective

• Production of P.I. does not guarantee use

• Institutional affiliation and individual beliefs will affect selection, perception, and presentation of P.I.

• The context of dialogue will affect the ability to use P.I. to develop solutions

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But it is not all bad news!

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Despite not having ‘rationalized’ budget allocation by politicians, our performance based program structure does contribute to fiscal stability and predictability :

• Program structure ensures managerial flexibility

• Program objectives and intended measures provide leverage for

budgetary negotiations

• Performance information enbables evaluation of effectiveness

In addition performance information can be helpful for:

• internal steering and oversight (e.g. agencies)

• External accountability

Realistic ambitions for the EU Budget?

• Improving results accountability

• Contributing to performance culture public sector

• Increase role PI in allocation

• Provide flexibility to deliver results

• Ensuring data reliability while controlling bureacratic burden

• Aligning objectives, programs and funding

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Contact maarten@dejongengeuze.com +31 6 25021897