Governmental Budgeting Performance Measurement

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Governmental BudgetingPerformance Measurement
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Budgeting Basics
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Role of the Budget

• Public process representation
• Legal contract
• Estimated revenues
• Appropriations
• May not be prepared
• For all funds statutory requirements
• On GAAP basis
• Role of encumbrances
• Should be tied to strategic plan

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Types of Budget Formats

• Types
• Operating
• Capital
• Capital improvement plan
• Cash
• Timing

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Role of the Budget

• Budget document
• Operations guide
• Communication device
• Financial plan
• Policy document

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Role of the Budget

• Legal standing
• Legal level of control
• Administrative level of control
• Budgetary basis of accounting
• Versus GAAP
• Basis
• Timing
• Perspective
• Entity

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Role of the Budget

• Budget process
• Preparation
• Approval
• Execution
• Evaluation

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Role of the Budget

• Budget process
• Preparation
• Estimate revenues
• Prepare agency budgets
• Prepare preliminary budget
• Executive balancing of budget
• Prepare Executive budget

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Role of the Budget

• Budget process
• Approval
• Public hearings
• Changes
• Tentative millage
• Final adoption

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Role of the Budget

• Budget process
• Execution
• Appropriations
• Apportionments
• Changes
• Administrative legal

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Role of the Budget

• Execution
• Encumbrances
• Needed to determine available appropriations
• Budgetary tool to control spending
• Purchase commitments
• Lapse vs. re-appropriation

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Role of the Budget

• Evaluation
• Accountability
• Legal contract
• FS requirements
• General fund
• SRF with legally adopted annual budget
• Reported as
• RSI or BFS

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Approaches to Budgeting
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Various Budgeting Approaches

• Incremental budgeting
• Performance budgeting
• Program budgeting
• Planning-Programming-Budgeting System (PPBS)
• Zero-Based budgeting

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Incremental Budgeting

• Simple widely used
• No relating of inputs to outputs to outcomes
• Focuses on departmental expenditures
• Established percentage change applied
• Annual inflation rate
• Specific adjustments
• Expected salary increases
• Shrinkage relating to scaling back operations

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Performance Budgeting

• Relates resource inputs to efficient production
  of outputs
• Dates back to the Hoover Commission in 1949
• Performance auditing
• Subsequent evaluation to determine resources were
  in fact used efficiently effectively in
  accordance with plans

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Program Budgeting

• Discloses full costs of programs/functions
  without regard to number of organizational units
  involved
• Often considered synonymous with performance
  budgeting
• Performance budgeting typically focuses on
  relationship between inputs outputs of each
  organizational unit, rather than programs

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Planning-Program-Budgeting System (PPBS)

• Developed in the 1960s
• McNamara at DOD
• Fell out of favor in the 1970s because it is
  difficult to implement

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Planning-Program-Budgeting System (PPBS)

• Comprehensively integrates planning control
  into one system
• Provides legislators public administrators with
  output-oriented information
• Used in evaluating how successful government is
  in meeting strategic objectives

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Zero-Based Budgeting (ZBB)

• Requires justification of existence of each
  activity each year, as well as amount of
  resources that will need to be allocated to it
• Many organizations use combinations of budgeting
  techniques, such as applying ZBB to a set of
  programs each year so that all programs are
  justified over a period of time, although not
  each year
• Introduced at federal level by Carter in 1976
• Rejected 1980 due to difficulties

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Budgetary Accounting
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Budgetary Accounts

• Purpose
• Record budgetary inflows outflows
  estimated/authorized in annual budget

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Budgetary Accounts

• Accounts
• Estimated Revenues, Estimated Other Financing
  Sources
• Appropriations, Estimated Other Financing Uses
• Encumbrances

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Budgetary Operating Statement Accounts

• Appropriation
• Legal authorization granted by legislative body
  to incur liabilities for purposes specified in
  appropriation act/ordinance

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Budgetary Operating Statement Accounts

• Encumbrance
• Estimated amount recorded for purchase orders,
  contracts, or other expected expenditures
  chargeable to an appropriation

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Encumbrance Accounting

• Before a department can order materials and
  supplies or equipment, the department should
  verify that a sufficient unexpended appropriation
  exists to cover the items being ordered
• Process sometimes referred to as preauditing

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Budgetary ControlRevenues

• Periodically compare actual to estimated
  revenues
• Usually done very frequently (no less than
  monthly) depending on the sensitivity of the
  revenue source.

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Budgetary ControlRevenues

• Use a common classification scheme for revenues
  and estimated revenues

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Budgetary ControlExpenditures

• Budgetary control of expenditures achieved by
• Ensuring valid appropriation exists prior to
  recording encumbrance/expenditure

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Budgetary ControlExpenditures

• Budgetary control of expenditures achieved by
• Periodically comparing encumbrances
  expenditures to appropriations to prevent
  overspending
• Comparison enhanced by using same account
  classification scheme for appropriations,
  encumbrances, expenditures

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Performance Measurement Benchmarking
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Overview

• Background
• Why measure performance
• Relationship of PM to budget
• Steps to establish a PM system
• State of affairs
• Users
• GASB
• Issues associated with PM
• Implementing performance budgeting
• Examples

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Why Measure Performance

• Citizens are demanding better services
• Perceptions
• Government not responsive
• Taxes are too high for value perceived
• Citizens want more efficient effective
  government
• Perceptions
• No one listens to what they want
• Money spent with no regard for efficiency /
  effectiveness

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Why Measure Performance

• Way to measure progress toward goals
• Move toward strategic management by many SLGs
• Consistent with current public sector initiatives
• Continuous improvement process
• Decrease inefficiencies waste
• Increase productivity responsiveness
• Re-engineer government operate like a business
• Benchmark where possible (internal external)
• Ensure accountability
• Budget for performance
• Continual justification of budget

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Benefits of Performance Measurement

• Better way to communicate with stakeholders
• Ensure expectations being met
• Focuses organization for alignment
• Spotlights areas for improvement
• Gauges success shows results of change
• Creates individual team opportunities
• Can be tied to employee compensation

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Relationship of Performance Measurement to the
Budget

• Budget financial operating PLAN to implement
  goals
• What gets measured gets done
• Performance measurement provides decision makers
  systematic approach to evaluate funding decisions

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Relationship of Performance Measurement to the
Budget

• Comparison of actual to budget does not measure
  progress toward goals
• What services are delivered how delivered
• Cause effect relationship between inputs
  outputs
• Performance results should drive budget funding
  decisions
• Outcomes vs. outputs / inputs
• Leads to performance based government

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Steps to Establish Performance Measurement System

• Self assessment
• Understand how entity works performs
• Process alignment
• Challenge traditional notions of service delivery
• Determine what services should be performed
• Determine full cost of providing services

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Steps to Establish Performance Measurement System

• Self assessment
• Top down bottom up
• Explore new management techniques
• Consider managed competition for services /
  projects

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Steps to Establish Performance Measurement System

• Understand how entity works performs
• Consider
• What services delivered
• How services delivered
• Understand relationships
• External forces on government activities /
  services
• Government activities / services on performance
• Performance on external forces

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Steps to Establish Performance Measurement System

• Process alignment
• Process defines organizational purpose
• Who are customers what is done for them?
• What goods / services are offered to customers
  why?
• What are core functions / competencies?

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Steps to Establish Performance Measurement System

• Process alignment
• Baseline assessment
• Vision, mission values
• Getting there
• Setting priority issues
• Goals, strategies action plans

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Steps to Establish Performance Measurement System

• Challenge traditional notions of service delivery
• What services must government provide?
• Citizens should drive decisions
• Austin, TX
• What services must government make certain are
  provided?

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Steps to Establish Performance Measurement System

• Determine what services should be performed
• No generic answer
• Each government is different
• Demographics
• Geographic area location
• Depends on each governments situation

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Steps to Establish Performance Measurement System

• Determine full cost of providing services
• Data collection systems
• Can lead to competition / privatization
• Activity based costing
• Beware of purpose explicit / implicit
• Captures real cost of activities, services
  projects

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Whos Measuring What?

• Inputs
• State agencies 63, city/counties 70
• Activity/process
• State agencies 60, city/counties 71
• Outputs
• State agencies 63, city/counties 78
• Outcomes
• State agencies 52, city/counties 47

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Whos Measuring What?

• Cost/efficiency
• State agencies 34, city/counties 44
• Quality/customer satisfaction
• State agencies 25, city/counties 43
• Benchmarks
• State agencies 27, city/counties 24

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Where is the Information?

• Budget requests
• State agencies 84, city/counties 79
• Agency/department annual reports
• State agencies 68, city/counties 52
• Reports to citizens/stakeholders
• State agencies 36, city/counties 31

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Where is the Information?

• Reports to elected officials
• State agencies 55, city/counties 56
• CAFR
• State agencies 17, city/counties 21
• May increase as GASB No. 44 implementation is
  refined

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What good is it?

• Improved program effectiveness
• State agencies 44, city/counties 33
• Improved program/service quality
• State agencies 39, city/counties 36
• Improved responsiveness to customers
• State agencies 44, city/counties 39
• Changing strategies to achieve results
• State agencies 47, city/counties 33

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What good is it?

• Increased awareness focus on results
• State agencies 58, city/counties 44
• Improved communication with policy makers
• State agencies 42, city/counties 34
• Changed appropriation levels
• State agencies 24, city/counties 17

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GASB Citizen Group Feedback

• Want to see info they think is important
• Involve them in selecting performance measures
• Want range of services different types of
  performance reported
• Outcomes considered important

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GASB Citizen Group Feedback

• Want to know government is making good use of
  performance info
• Want to know performance info has been
  independently verified
• Educate citizens about performance info its use

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GASB Citizen Group Feedback

• Uses of performance measurement identified
• Increase government accountability
• Increase citizen engagement
• Enable citizens to analyze, interpret evaluate
  public performance
• Support citizen decision making
• Increase citizen confidence in government

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Issues for Governments

• Buy in
• Governing body
• Executives management
• All levels
• Administrative issues
• Development, implementation, on-going
• Personnel
• Availability expertise
• Data system limitations
• Limited availability
• Not usually part of financial packages

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Issues for Auditors

• Opportunity for additional services
• Vision aligned
• Value added service
• Develop performance measures vs. audit
  procedures
• Independence issues - GAO
• Obtaining expertise
• Non AA CPE
• Where how CPE offered
• Cost / benefit issues
• Impact on fees / realization already low

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Implementing Performance Budgeting
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Possibilities of Performance Budgeting

• Align service priorities service spending
• Add information dimension to budget deliberations
• Motivate program managers employees
• Records progress toward service delivery goals
• Demonstrate to citizens that providers are
  interested in improving service quality

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Then What is Performance Budgeting?

• a commitment to bring performance data to each
  decision to include it in the resource
  allocation deliberation process

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A Short History of Performance Budgeting

• Machine politics
• Progressive Era
• NY Bureau of Municipal Research
• Budget process reforms
• Local governments record

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A Short History of Performance Budgeting

• Machine politics
• Early 1900s
• New York Chicago
• Positive
• Higher voter turnout
• Citizens in tune with local politics
• Meetings events
• Emergency aid
• Negative
• Lack of secret balloting
• Bought political participation
• Actual criminality in some cases

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A Short History of Performance Budgeting

• Progressive Era
• Industrial revolution impacts on thinking
• Administrative reform decisions in the public
  interest
• Take government from machines give to those
  practicing the science of PA
• Secondary concern increasing immigrant
  population
• Reforms
• Non-partisan city elections
• Council-manager form
• Civil service hiring system

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A Short History of Performance Budgeting

• NY Bureau of Municipal Research
• 1907
• Goal get good men in government
• Purpose
• Promote efficient economical government
• Promote scientific methods of accounting
  reporting
• Constructive publicity of municipal problems
• Collect, classify, analyze, correlate, interpret
  publish facts re administration of government

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A Short History of Performance Budgeting

• NY Bureau of Municipal Research
• Established difference between YE accounting
  plan for revenues expenditures at beginning of
  year
• Budget process started with scientific unbiased
  survey of existing activities expenditures
• Activities classified first program budget
• Line items within activities grouped by object

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A Short History of Performance Budgeting

• Budget process reforms
• 1964 - Planning-Programming System
• Scientific approach to policy analysis
• Link inputs to outputs
• 1970 - Management by objectives
• Budget expenditures reflect policy priorities
• Align activities with objectives
• 1976 - Zero based budgeting
• Best way to deliver benefits at least cost
• Re-examine activities each year

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A Short History of Performance Budgeting

• Budget process reforms
• 1980 - Cutback budgeting
• Weaker public sector will strengthen private
  sector
• Active targeting of potential cost savings
• 1992 - Performance budgeting Part 2
• Link service accomplishments with program funding
• Act more like a business

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Obstacles to performance budgeting

• Earmarked money
• Grants
• Gas taxes, etc.
• Unions agreements
• Pay without performance
• Staffing standards
• Fiscal stress

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Stages of Implementation

• Creating
• Linking
• Reporting
• Institutionalizing

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Creating Performance Measures

• Initial design
• Two years
• Quantity measures easier
• Understanding what to measure
• Identifying programs aspects to measure
• Role of CEO

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Creating Performance Measures

• Data collection
• Existence of data
• Record keeping cooperation
• Approaches
• Trade-offs
• Design using available data
• Departments allowed to design
• Computerize budget process

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Creating Performance Measures

• Departmental resistance
• Time cost of data collection
• Accountable for uncontrollable outcomes
• Increasing acceptance
• Substantial control over design
• Incentives, help increased budget support
• Not to be held against them
• All held to same standard

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Linking Performance Measures to Budget

• Periodic reporting
• Credibility of data
• Assess barriers to meeting goals
• Analyze implications on budget allocations
• Performance objectives negotiated
• Agreed upon service levels-given amount

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Reporting Performance

• Various levels
• Multiple sets of goals objectives
• Different audiences
• Perception of data
• Use of data

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Integrating Performance Measurement

• Managerial political needs
• Routine needs policy goals
• Citizen commissions
• Shifts in leadership
• Incremental budgeting
• Balanced scorecard movement

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Balanced Scorecard

• Need to understand how decision in one dimension
  affects other dimensions of organization
• Links strategy performance
• Major quadrants of service delivery
• Financial perspective
• Internal business perspective
• Innovative learning perspective
• Customer perspective

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Balanced ScorecardFinancial Quadrant

• Cornerstone of accountability
• Includes
• Budgetary implications
• From policy perspective
• Financial implications
• From controlling reporting perspective
• Management implications
• From decision making perspective
• Planning implications
• From fiscal stability perspective

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Balanced ScorecardInternal Business Quadrant

• Perspective of program manager as adjusts primary
  process of service delivery
• Link to
• Financial quadrant comes from annual budget
  process
• Customer quadrant is citizen satisfaction with
  services
• Innovation learning quadrant focuses on
  individuals providing services

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Balanced ScorecardInnovative Learning Quadrant

• Involves employees of organization
• Hiring qualified individuals
• Providing them continuous training skill
  development
• Including them in planning processes
• Promoting continuing education
• Planning for career advancement
• Creating positive work environment
• Often overlooked by management in planning process

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Examples of Performance Measures
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Examples

• Public safety
• Law enforcement
• Fire/rescue
• Public works
• Streets
• Water/sewer
• Solid waste
• Administration
• Finance
• Clerk