FY 1999 Budget Development and Management Reform Implementation

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Performance Results Management and Extreme
Budget Deficit Management Inside the
Beltway Mutually Exclusive or Symbiotic Tools?
Hyong Yi Office of Budget and Planning April
10, 2003
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Introduction

• Hyong Yi
• Director of Operations and Policy
• Office of Budget and Planning
• Independent Office of the Chief Financial Officer
• Government of the District of Columbia
• KPMG LLP, Global Knowledge Management
• DC Government, Executive Office of the Mayor
• DC Financial Control Board
• Views You Can Use Co-Editor for The Public
  Manager
• Professor for the Center for Excellence in
  Municipal Management at GWU
• Recently Married, No Kids, No Pets, Live outside
  DC, and drive a Volkswagen

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Overview

• The District A Brief History
• The Districts Recent Financial History
• Performance Based Budgeting Our Silver Bullet
• Performance Based Budgeting The Reality
• Conclusions
• Questions and Answers

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• The District of Columbia
• A Brief History

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The District of Columbia is
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The District of Columbia

• Founded by Congress in 1791 over there.
• Seat of the Federal government.
• Diamond shaped until Virginia part ceded back
  after the Civil War.
• 68 square miles.
• 53 of the land is owned by the Feds, educational
  institutions, foreign governments, and
  non-profits.
• No vote in Congress.
• Homerule in 1974.
• Mayor-Council form of government
• Limited legislative powers in such instances as
  approving our Appropriations.

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• The Districts Recent Financial History

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The Fall from Grace Rising from the Ashes
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The Financial Control Board Period

• Created by Congress in 1994 to oversee the
  Districts finances and management until four
  consecutive balanced budgets are achieved
• Act also created an Independent Office of the
  Chief Financial Officer
• Act also created an Office of the Inspector
  General

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Revitalizing the District

• 1997 Revitalization Act significantly shifted
  responsibilities between the District and the
  Federal government
• The Federal government took over
• All operating and capital costs of most aspects
  of the Districts court system
• Assumed responsibility for the Districts accrued
  pension liability through 1997
• Increased Medicaid reimbursement rates from 50 to
  70 percent
• Eliminated annual payment (660 million in the
  1996)

Chart FY03 page 105
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Impact on the Bottomline
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Recent Developments

• 1998 Anthony Williams elected Mayor (1st Term)
• 1998 DC government receives authority from
  Control Board
• 2001 DC balances fourth consecutive budget
  Control Board goes into hibernation
• 2002 Internet Economy bursts Economy collapses
• 2002 DC cuts 75 million to balance budget
  before year end
• 2002 DC cuts 323 million from FY 2003 proposed
  budget based on declining revenue
  projections
• 2003 DC cuts additional 128 million from FY
  2003 budget
• 2003 District reduces FY 2004 expenditures

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FY 2003 Sources of Local Revenue
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FY 2003 Expenditures by Appropriation Title
(General Fund)

• Expenditures total 5.7 billion in FY 2003.
• Growth in public health and education constitute
  the largest increases in spending.
• Without health and education, growth is a modest
  2.4.

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FY 2003 General Fund Expenditures
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FY 2003 Local General Fund Expenditures
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The Current Challenge

• As revenues continue to stagnate, how do
  stakeholders decide which programs to fund and
  which ones to cut?
• How do we determine which agencies are performing
  well and which are not?
• On what basis do we decide which programs are
  performing and delivering results and which ones
  are not?

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• Performance Based Budgeting
• The Silver Bullet

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Performance-Based Budgeting (PBB)
A budget structured and presented by activities
and programs (as opposed to organizational units)
that integrates results-oriented strategic
planning with measurable outcomes allowing for
budget decisions that are informed by program
performance and cost information.
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Strategic Management Cycle
is an integrated District-wide leadership and
management approach that fosters continuous
improvement, demonstrates goal attainment and
facilitates transparency and accountability in
management.
The Strategic Management Cycle is the Districts
version of Managing for Results
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Planning, Budgeting and Perf Mgmt in the
Strategic Cycle
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PBB Integration with other SMC initiatives
CYCLE PHASE
Budget Development
Performance Management
Strategic Planning
?
?
?
City Administrator / Office of Personnel
Budget Planning
Office of the Mayor
AGENCIES INVOLVED
?
?
?
Agency Strategic Business Plans
Citywide Strategic Plan
Budget Financial Plan
Agency Scorecard
Agency Strategic Plan
INITIATIVES
Director Performance Contracts
Performance Accountability Plan Report
Policy Agenda
C.A.F.R.
Strategic Neighborhood Action Plan (SNAP)
Performance Management Program
Agency Strategic Business Plans are the linchpin
to aligning Planning, Budgeting and Performance
Initiatives
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Our Goal with PBB

• Focuses resources personnel and funding on
  results
• Communicates the results and costs of programs
  provided to citizens
• Provides performance and expenditure information
  about agency programs and activities
• Allows improvement in service delivery
• Changes the discussion from what is spent to what
  the District government accomplishes

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PBB Results for District Residents

• Clarifies what citizens can expect from their
  government
• Facilitates improved access and participation in
  governance
• Improves services by introducing a level of
  accountability

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PBB Results for Policymakers

• Provides information needed to make policy
  decisions and provide policy direction to agency
  leadership
• Clarifies policy decision making by illuminating
  results of proposed actions
• Links budget funding with program results

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PBB Results for District Employees

• Provides information to make day-to-day
  operational decisions to improve services
• Articulates results the agency plans on achieving
• Assists employees in understanding how their job
  contributes to achieving results

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Elements of an AgencysStrategic Business Plan

• Mission and Goals
• Program Structure
• Program Result Measures
• Program Purpose Statements
• Activity Performance Measures
• Results
• Output
• Demand
• Efficiency (Activity Based Costing)

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Strategic elements of theStrategic Business Plan

• Mission - The Departments Mission is a clear,
  concise statement of purpose for the entire
  department
• Issue Statements - Issues, both internal and
  external to the agency, which determine the goals
  to be met
• Goals - Strategic Result Goals outline the
  significant results to be achieved over the next
  2-3 years
• Specific (date certain)
• Results-Oriented (e.g., quantifiable and
  measurable)
• Informs citizens as to what to expect from the
  agency

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Business elements of theStrategic Business Plan

• Program/Activity/Service Structure
• Budget and accounting structures are the same
  organized around the results to be achieved
• Program Purpose Statements
• What are you doing?
• Why are you doing it?
• Who are you doing for?
• Family of Performance Measures for every Activity
• Results
• Output
• Efficiency
• Demand

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Sample Activity Purpose Statement and Activity
Measures

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Integration of Agency SBPs, PBB and the SMC
A structured Corporate Review process was
developed to ensure agency strategic business
plans support the Districts corporate planning
processes and performance management activities.
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• Performance Based Budgeting
• The Reality in a Budget Cutting Environment

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Implementation takes time
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Program Budgeting Theory and Implementation

• Cuts are results based
• Cuts are program/activity/service level focused
• Based on performance results and cost (I.e.,
  value), lowest value services are cut first
• Activities can be reduced first or eliminated

X
X
X
X
X
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District-wide not as effective

• Assumes agencies are givens (cuts below agency
  level)
• PBB helps manage agencies performance and
  budgets, not a whole jurisdiction
• The larger the deficit, the less useful PBB will
  be in helping to close the gap
• DC in closing its 323 million and 128 million
  deficit resorted to a mixture of program and
  across-the-board reductions on the expenditure
  side and increased taxes on the revenue side

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Actions to Balance Budget
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• Conclusions

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Another tool in the mgmt toolbox

• Increases accountability and transparency of
  government programs
• Progressively linking programs ? funding ?
  results
• Slowly changing how DC officials, employees, and
  citizens think about what government does and how
  we measure it
• Helps managers own their programs and provides
  incentives to perform
• Identifies similar programs across agencies
  (I.e., Medicaid)

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PBB is not a magic bullet

• Its a micro-level tool that works best at the
  agency/program level
• Not very effective in managing macro-level
  financial problems
• Governments will always resort to a suite of
  actions both revenue and expenditure based to
  balance any budget deficits
• Most programs, even the worst performing, have a
  constituency
• It can contribute to managing a deficit, but it,
  on its own, most likely will not solve it
• Lack of clarity in agency performance measures
  limits ability to make management decisions based
  on measures
• Link between programs?funding?results can be fuzzy

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Challenges and Next Steps

• Change management/Organizational change
• Training and education

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• Questions?