Performance-Informed Budgeting in the United

States—Tastes Great or Less Filling?

Philip G. JoyceNovember 3, 2010

Sustained economic recovery◦ 2008-present

Ballooning budget deficits◦ 2009-?

Bringing more of a performance orientation to the budget process◦ 1960-present (in fits and starts, but not when

something else is more important) How can these three coexist peacefully or

happily?

Competing Imperatives in the United States

Year Deficit/Surplus

% GDP Debt Held by Public

% GDP

1940 -2.9 -3.0 42.8 44

1950 -3.1 -1.1 219 80

1960 0.3 0.1 238.8 46

1970 -2.8 -0.3 283.2 28

1980 -73.8 -2.7 711.9 26

1990 -221 -3.9 2411.6 42

2000 236.2 2.4 3409.8 35

2010 Est

-1342.0 -9.1 9221.0 61

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Historical Deficits and Debt ($ billions)

August 2010 CBO Baseline Projections Actual deficits:

◦ 2007: $161 billion (1.2% of GDP)◦ 2008: $455 billion (3.2% of GDP)◦ 2009: $1,413 billion (9.9% of GDP)

Under “current law”, deficits are very large in short run and decline in later years (but remember: only with no significant change in laws/policy)◦ FY10--$1,342 billion (9.1% of GDP)◦ FY11--$1,066 billion (7.0% of GDP)◦ FY12--$665 billion (4.2% of GDP)◦ FY13--$525 billion (3.1% of GDP)

These projections assume the scheduled expiration of the tax cuts enacted in 2001 and 2003 (most cuts expire after 2010)

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Ten-Year Cost (2011-2020) of Policy Alternatives Not Included in the CBO Baseline

Extending all expiring tax provisions--$6.1 trillion Extend only Bush tax cuts—$3.3 trillion Extend Bush tax cuts for only taxpayers < $250k—

$2.6 trillion Index the alternative minimum tax for inflation--$720

billion Increase discretionary spending at rate of GDP

growth--$2.1 trillion Freeze discretionary expenditures at 2010 level--

$1.65 trillion (savings) Reduce troops in Iraq and Afghanistan to 30,000 by

2013--$1.5 trillion (savings)

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With Tax Cuts

Extended and AMT Indexed

Budget Deficit or Surplus

Percentage of GDP

Debt Burden Across Countries in 2007

Percentage of GDP

Source: OECD.

LuxembourgAustraliaNorwayIreland

New ZealandMexicoIceland

SwitzerlandCanada

Czech RepublicDenmark

Slovak RepublicKoreaSpain

FinlandUNITED STATES

SwedenNetherlands

GermanyTurkeyPoland

United KingdomFranceAustria

HungaryPortugalBelgium

ItalyGreeceJ apan

0 20 40 60 80 100 120 140 160 180

2020 CBOBaseline

With Tax CutsExtended andAMT Indexed

Projected Federal Spending Over the Long Term

TheCapitol.Net 202-678-1600 8

Percentage of GDP

1962 1972 1982 1992 2002 2012 2022 2032 2042 2052 2062 2072 2082

0

5

10

15

20

25

30

35

40

Medicare and Medicaid

Social Security

Other Spending

ProjectedActual

Will the U.S. restore fiscal responsibility? Will there be targets, and what will they be? What will be the impact of the Obama deficit

commission? What effect will the 2010 midterm election have? How substantial will the effort be to reduce the deficit

in the President’s fiscal year 2012 budget (February 2011)?

If so, will this include an effort to reduce programs based on performance considerations?

What about the “big four” spending programs (Social Security, Medicare, Medicaid, and Defense), which represented 60 percent of federal spending in 2009?

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Key Questions Related to Fiscal Responsibility

Federal Performance-Informed Budgeting

The Bush Agenda and Legacy The Obama Agenda Observations about the Obama Agenda in Historical Context

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The Current State of Performance-Informed Budgeting in the U.S.

Efforts date back 50 years GPRA brought more attention Focus has typically been on OMB/Congress Performance-informed budgeting is

multidimensional In particular, lots of activity in budget

execution Enduring challenges

◦ Identifying and measuring outcomes◦ Getting performance information used◦ Establishing a culture of performance

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Federal Performance-Informed Budgeting

Traffic light” scorecard◦ Apparent substantial progress—from 1 “green” to 72; from

110 “red” to 14 PART--1000 programs in 6 years

◦ Effective or moderately effective—30% to 51% Conclusions by studies of PART

◦ Agencies said PART lacked credibility◦ Decentralized approach does not work for crosscutting

functions◦ Too much work/ too little payoff for OMB/agencies◦ Congress was apathetic or hostile◦ One size fits all approach◦ Measures improved, but still need work◦ Hard to reconcile PART with GPRA

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The Bush Administration Performance Initiatives

Uneven progress made in measuring outcomes Attempts made to reduce programs based on

performance (PART) not supported by Congress Much more success in budget execution

(management) than government-wide resource allocation

Uneven commitment from top leadership in departments/agencies

Some confusion as to the appropriate locus of performance (department or agency v. program)

Continuing Challenges Present at Outset of Obama Administration

Evaluating effects of economic stimulus Determining programs to reduce or

eliminate as part of deficit reduction Establishing “high priority performance

goals” Significant investment in a limited number

of more in-depth program evaluations

Developments in Obama Administration

Current estimate--$814 billion in total costs Major goal is job creation/saving

◦ Administration estimates that 6.8 million jobs will be created/saved

Recovery.gov tracks spending and jobs◦ Very difficult to track jobs reliably◦ Current definition—anyone who works in an ARRA-funded

job Broader definition involves tracking “multiplier

effect” of jobs

American Recovery and Reinvestment Act (Stimulus)

Obama 2010 Budget identified 121 programs for reduction or elimination ($17 billion)◦ OMB says 60% of cuts enacted by Congress

Obama 2011 budget included 126 terminations, reductions and savings totaling $23 billion (FY11) ◦ Those savings would represent a .7% reduction in

spending for FY11◦ It is uncertain how much will be approved by Congress

since they left town without passing any appropriation bills

In both FY10 and FY11 these reductions were argued on the basis of lack of program effectiveness

The Role of Performance Information in Deficit Reduction

These are agency directed Emphasis on goals where progress can be shown

within 12 to 24 months “The ultimate test of an effective performance

management system is whether it is used, not the number of goals and measures produced.”

Majority of goals are specific and measurable, although some are ambiguous◦ Social Security—”achieving an average speed of

answer of 264 seconds by the national 800-number”◦ Education—”a system with rigorous processes for

determining teacher effectiveness”

Obama High Priority Performance Goals

“Performance measures can answer only so many questions. More sophisticated evaluations” necessary to draw conclusions

It is necessary to “isolate the effect of government action from other possible influencing factors”

Obama administration established competitive process to secure funds for evaluation◦ 17 agencies funded to do evaluations of 36 programs◦ In some cases funds provided to improve agency evaluation

capacity

A centralized approach to SELECTION of evaluation topics, but a decentralized approach to the CONDUCT of evaluations

Program Evaluation

Agencies instructed to identify 5% of budgets as lowest priority◦ Unclear how performance plays out

Also ongoing effort to reform procurement ($40 billion savings estimate)

Continued suggestion that agencies that do evaluations will be favored

Will deficit commission findings be embraced?◦ Timing is problematic

Transparent and open government◦ Creation of performance dashboards

Preparing for the 2012 Budget

Not as high a priority as other issues (health reform, the economy)

Short-term could force out long-term More targeted, in-depth evaluation Transparency is major stated focus Quantitative measures may force out qualitative

ones Performance agenda must fit with pressures to

reduce spending and the deficit Stated goal is use, but not at all clear how that

will be achieved Continued uneven results

Concluding Observations about the Obama Performance Agenda