Eye on the Prize: States Looking at Goals, Outcomes for Budget Decisions

Story appears in the 2013 March/April issue of Capitol Ideas

As budgets remain strained, state leaders continue to look for new and better ways to allocate scarce resources. While performance-based budgeting is not a new strategy, some states are giving the concept a closer look.

“In recent years, there has been renewed interest in performance-focused strategies, largely because of frustrations from the recession. State leaders had to make painful cuts, and were often frustrated that they couldn’t determine what current programs were accomplishing and which ones produced the greatest returns on investment for citizens,” said Gary VanLandingham, director of Results First, an initiative the Pew Charitable Trusts and the John D. and Catherine T. MacArthur Foundation created to assist states with implementing a cost-benefit approach to policy decisions.

South Dakota has seen some of the benefits and Sen. Phyllis Heineman is hoping for more. She has co-sponsored legislation this year to create a systematic process for the performance management review of state agencies.

“We’re seeing the power and the possibilities of results-based management in some of our agencies, like the department of education and in the area of criminal justice,” she said. “It’s really about a shift in the culture of government—thinking about outcomes instead of just focusing on the process.”

Senate Bill 231 establishes a procedure to provide the legislature with a consistent system to evaluate the efficiency and effectiveness of state agencies and to provide additional government transparency to the public.

“This piece of legislation was introduced to move the conversation forward in South Dakota, to move us toward more evidence-based decision making and put a focus on accountability for performance,” said Heineman.

Sen. Larry Tidemann, who serves as chair of Government Operations and Audit Committee and as the vice-chair of Appropriations Committee, has introduced a companion bill. Senate Bill 131 would require each agency’s budget report to include performance metrics that actually measure outcomes and tie those outcomes to how money is allocated.

Managing for Results

While South Dakota is just beginning to explore performance management at the state level, Maryland has embraced the practice for nearly two decades. In 1997, then-Gov. Parris Glendening appointed an interagency steering committee, which developed a strategic planning and performance measurement approach to management and budget called Managing for Results.

Maryland’s Department of Budget and Management, in coordination with the governor’s office, publishes a Managing For Results comprehensive plan that outlines the current administration’s priorities and goals and how progress will be measured against those goals. That plan focuses on desired outcomes and emphasizes the use of resources to achieve measurable results, accountability, efficiency and continuous improvement in state programs.

“Our department monitors all of the performance areas identified in the plan—linked directly to the governor’s priorities—to determine the progress the state is making toward our goals,” said Rachel Monks, a policy analyst for the department.

But Maryland doesn’t just measure agency performance—the state takes it to the next level by tying those measures to the budget. The Department of Budget and Management requires agencies to include in their annual budget requests their overall agency missions, visions, key goals and performance measures, as well as the missions, goals, objectives and performance measures for every program in their agencies. That information is then integrated into the budget process.

“Performance measures are a key tool we use when analyzing agency budget requests, and performance data is considered when making budget recommendations,” said Monks.

Every state measures outcomes in at least some agencies, but fewer have a statewide strategic plan to measure outcomes across all agencies. Even fewer relate those outcomes to the budget.

“Unquestionably, there has been a steady trend over the last decade toward the development of performance measures aimed, in large part, at seeing where the money is going and if you are getting the results you want,” said Richard Greene, a nationally recognized expert on performance management. “That being said, there is not a lot of evidence that those performance measures are being used to directly influence budget decisions.”

That is likely because moving to a performance-based model is a big task that takes time and resources.

“It’s not easy to do and do well,” said VanLandingham. “It takes time, expertise and resources to implement a statewide system. Some states may try to do this on the cheap, but that won’t work. You have to really invest in the process and it’s not something you can just jump into or do overnight.”

Creating Success

Monks said one reason her state’s program has been successful is that the state didn’t rush the process.

“We phased it in over several years,” she said. “The first year, we required agencies to identify department level missions and goals. The next year, we required the identification of missions, goals and objectives at the program level. By the third year, we had outcome data coming in that were considered when creating the governor’s budget.”

In many cases, states aren’t collecting the kind of outcome data they need and switching to an outcome-oriented data collection system from an output-oriented system can be challenging.

“A good performance management program will typically lead a state to collect data they don’t currently collect,” said VanLandingham.

Monks agrees.

“Engaging in this process definitely changed the kind of data we collect,” she said. “We used to only measure inputs and outputs instead of outcomes, so we didn’t really know how we were doing—if we were really meeting our goals. The outcome data provides us with a much clearer picture of how we are performing—what we are achieving with the money we are investing.”

Another major challenge to implementing a performance-based budgeting process is getting everyone involved on board.

“Getting buy-in from all of the agencies and making sure they understand the process is very important,” said Monks.

Maryland focused on education when it moved to its performance-based practice to ensure the rollout went smoothly.

“We partnered with a state university to train our people in identifying appropriate outcomes, how to measure them and how they relate to the budget process,” said Monks. “Once agency leaders had a better understanding of the concept of performance measurements, they came to recognize its value over time.”

Any major shift in state strategies or procedures can be stressful, but particularly so when it is related to evaluating performance.

“Agencies can be fearful of this process because it sounds like ‘if we don’t meet our targets, our budget will be cut,’ which really isn’t the point,” said Greene.

He prefers the term “performance-informed budgeting” rather than “performance-based budgeting.”

“When you use the term ‘performance-based,’ it connotes that it is something formulaic—something rigid. How much money we get will be based on how well we perform. But performance-informed budgeting implies that money is allocated to places where it will be used in the most effective way to improve results.”

Setting an Example

Along with Maryland, Washington has been at the forefront of the movement toward performance-based or performance-informed budget strategies. The Washington State Institute for Public Policy, a nonpartisan center established by the legislature, has developed a sophisticated method to assess the costs and benefits of potential policy options using performance-focused measures.

According to VanLandingham, the Results First initiative provides assistance to states to help them adopt and apply Washington’s methods to their own policies and programs, using a cutting-edge approach that uses the best national research and state-specific data to identify and compare the return on investment that a state could achieve by funding alternative programs.

“The state’s cost-benefit model helps legislators move beyond anecdotes to make budget and policy decisions based on evidence and to take on a more long-term perspective,” said VanLandingham.

This is particularly true in the area of criminal justice. For example, in the mid-1990s, Washington started using a model that calculates the potential return on investment of certain policy options and ranked the projected benefits, costs and risks of programs related to criminal justice. That model was then used to make decisions about how much Washington should invest in certain crime prevention and treatment programs. The result was a savings of $1.3 billion for each two-year budget cycle, eliminating the need to build new prisons and making it possible to close an adult prison and a juvenile detention facility.

“But the program isn’t just saving money,” said VanLandingham. “By spending its criminal justice budget more wisely, Washington has also seen a greater improvement in crime rates and juvenile arrest rates than the national average, enabling it to improve public safety while also saving taxpayer dollars—a win/win for citizens.”

Those results illustrate the benefits of focusing on outcomes when planning, and paying for, state programs, which is important, according to Heineman.

“We have to make sure that when we speak of government being efficient and effective, it’s not just rhetoric, it’s reality,” she said.

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