Legislative Performance Budgeting

September 2008

The broad effort frequently referred to as performance management is occurring at all levels of government. The hallmarks of performance management include establishing strategic plans, setting agency goals and objectives, identifying ways to meet them, and measuring how well they are accomplished over time. Performance measures are maintained in most states. Regular performance reporting to the legislature occurs in some.

In nearly all cases, the executive branch maintains the performance measures. Legislative and executive branches may collaborate on determining measures (Oregon), while the legislature reviews key, but not all, measures (New Mexico, Texas). Legislative staff may review key measures to identify areas of legislative concern and bring them to legislators' attention (Arizona, Missouri, New Mexico, Texas).

NCSL surveys have found that legislators and staff agree that results-based government requires:

  • Permanent institutional commitment from the governor, legislature, and agency administrators (Louisiana, Texas, and Washington are examples),
  • A statutory base,
  • Adequate staff resources,
  • Existence of an oversight agency,
  • Investment in data management; and
  • Recognition that fundamental change requires time.

Legislative Use of Performance Information

Legislators and staff suggest that agencies are most likely to heed indicators when the linkage to funding is explicit. In 22 states, performance information is used at some point in the legislative budget process, although legislative performance budgeting—the actual linking of results information to legislative decision-making—is uncommon. The legislatures in these states are similar with respect to the types of performance information they use but they differ in when and where the information comes into play and how it appears. A number of states require that measures be used in development of agency budget requests and some also include this information in agency budgets. A handful include performance information in their appropriations bills.

What goals do legislators have as they consider performance measures?

  • Better understanding of state programs
  • State program effectiveness (outcomes)
  • State program efficiency (costs and benefits)
  • Potential savings
  • Other purposes

Reasons for legislative use of performance information include these:

  • Performance data can provide newly elected legislators with helpful background on the purposes of state-funded programs and the results they achieve.
  • Performance information can help explain the results of previous legislative funding decisions.
  • Performance indicators can help with estimating and justifying the potential consequences of new funding decisions.
  • Regular review of performance measures before and during budget deliberations can encourage deeper legislative understanding of agency activities and may even garner support for them.
  • Performance information has the potential to communicate what is received in return for the investment of tax dollars.
  • Instead of focusing on the preservation of existing programs and associated spending levels, both agency personnel and policymakers may gain understanding of program effectiveness.

Legislative hearings provide an opportunity for legislators to learn about agency performance, whether during the interim, at pre-session budget hearings, or in some states, during legislative session. The attached pocket guide lists questions for use in hearings. Missouri's appropriations staffs have incorporated similar information into reports for legislator review. Performance information can help show the effects of reductions on different programs and can support difficult decisions to reduce funding where the effects will be least detrimental. Louisiana's House Appropriations chairman led a successful effort to adopt performance budgeting, with legislative fiscal staff closely involved in the determination of measures and indicators. When the governor introduced a number of new initiatives in higher education and economic development for FY 2004 while reducing funding for a number of health care programs, the Legislature was able to use performance data to demonstrate the effects of the cuts on service delivery and health outcomes, to question the feasibility of implementing the administration’s proposal, and to justify reorganizing priorities to restore health care funding.

Performance Reporting to Legislators

Legislators and legislative staff over time have raised numerous issues about the choice of agency and program performance indicators and reports of performance. The most frequently heard complaints are that:

  • Indicators are not well-chosen to reflect legislators' concerns;
  • Too much information is reported;
  • Presentation is not well-planned;
  • Reported information is unreliable.

Legislators' concerns
It is important for legislators to make clear the kinds of measures they care about and how they want results information presented to them. Legislators have to be involved in selecting performance indicators to make sure the indicators are relevant to legislators' concerns. Indicators were more useful to legislators in Florida and Texas, where legislators reviewed them, than in Minnesota, where they didn't have that opportunity. A reasonable number of key indicators (selected from a larger list maintained by the agency) are likely to be of greatest use. Legislative approval of these key measures will help ensure that they will be used.

Agency personnel and legislators may have different ideas about what is important about an agency's work. Administrators' performance indicators are likely to focus on management factors--FTEs, caseloads, staff productivity, reports processed, for example. When these types of management indicators appear in reports to legislators, they may have the unintended consequence of shifting legislative attention to executive branch responsibilities and away from policy results. Examples of measures especially relevant to policy makers and their constituents include items such as highway accident rates, occurrences of child abuse in foster care, unemployment rates, college completion rates, graduate in-state job placement rates--items and issues that are the subject of policy discussions and decisions.

Information overload
The number of indicators available is large because of the size of state government, the variety of its activities, and the different interests of different legislators and other stakeholders. The Utah Office of the Legislative Fiscal Analyst in 2003 surveyed performance measures in just eight states--Alaska, Arkansas, Florida, Louisiana, New Mexico, Oregon, Texas, and Virginia--and identified 5,303 measures in its final report.

Oversight agencies and state budget offices deal with this issue by prioritizing indicators and using a relatively small number of them in budget recommendations and legislation. Legislative staff responsibilities in Florida, Louisiana, New Mexico, and Texas include tracking agency performance and reporting strong or weak performance in relation to specific expectations of legislators. Texas legislators asked whether the numbers of performance measures and targets in the appropriations act and the performance-based budgeting system were appropriate indicated an interest in either fewer, better defined, or better prioritized indicators. New Mexico legislators have said they prefer to review 12-15 key measures per agency or program.

Minnesota legislators repealed the requirement for separate agency performance reports in part because of the bulkiness of the reports they were given. The legislative auditors' staff in Minnesota reported that performance reports were too long to be assessed biennially.

Presentation
Key results indicators, limited to a few per program, agency or department, can direct legislative attention to the policy outcomes of greatest interest and importance to citizens and highlight important agency performance. When reports provide brief staff analyses and graphics to explain results, they can be even more helpful.

Louisiana legislators review two-page performance variance reports prepared by legislative staff to identify trends, compare performance to standards, and notify legislators of potential problems. In New Mexico, quarterly performance reports provide ratings of "red, yellow, green" to highlight areas of potential concern regarding measures. The Utah Legislature has developed reports that focus on budget changes called "Building Blocks." The reports show past and current funding sources and amounts along with a short description of the reasons for the appropriations.

Reliability
Suggestions about data and verification from legislators in states that were consulted for Making Results-Based State Government Work included the following:

  • Establish a system of verification of the reported data, technical assistance on the construction of performance measures, and evaluation of the validity of measures, and spend money on information and data systems (Florida).
  • Make sure to note the limitations of any measurement data and link activities being measured to some desired outcome (Oregon).

The recommendation to link indicators to appropriations has been made by legislators and staff in a number of states, yet efforts to do so have been a struggle. Legislative budget review tends to focus on changes in funding rather than on the base (the amount appropriated for the previous budget cycle). Specifying the changes in agency performance that could be expected to result from a change in funding would provide legislators with relevant and pertinent information of immediate use in policy making decisions. Agencies can specify in their budget requests and reports how any additional funds they request would affect their output and outcome measures.

Legislators and staff generally support the use of incentives and disincentives to improve agency performance, but developing an effective way to do so has been difficult. Reducing funding for programs that do not meet performance goals may not be an effective course; agency failures could be the result of inadequate funding and reduced funding could make the matter worse. Agencies that perform well can be rewarded with additional funding or additional flexibility in the use of their funds. However, such rewards have to be weighed against the needs of other agencies, and funding is not necessarily available to serve as a reward. Incentive awards for individual employees have been suggested in some states, but state personnel laws and union agreements (where they exist) have made this a less useful tool in the public sector than in the private sector.

Laws in Florida, Louisiana and Texas allow the use of incentives and disincentives, but actual use has been very limited. Louisiana imposes stricter reporting standards on agencies that fail significantly in meeting performance goals. It appears in practice that requiring reports and the use of praise and admonition may be the most effective incentives and disincentives that policy makers can use.

Sources

Lessons Learned: What Experience Teaches about Performance-Based Budget and Reporting, Ronald K. Snell, NCSL, August 2000.

Making Results-Based State Government Work, The Urban Institute, 2001.

Legislating for Results. NCSL and The Urban Institute, 2003.

Asking Key Questions: How to Review Program Results. NCSL, June 2005.

Five Actions to Improve State Legislative Use of Performance Information. IBM Center for the Business of Government, 2008.

Appendix

Performance Budgeting in the States

Even though most legislatures don’t classify their predominant budget approach as “performance-based,” quite a few call their approach a “combination.” Legislative use of performance information appears to have increased somewhat since 1997, when three states defined their budget approach as “performance-based,” and 17 reported the use of performance measures in the budget process.

A 2007 survey of legislative fiscal offices for this report found that 22 states, the District of Columbia, Guam and the Northern Mariana Islands now indicate use of performance measures in the legislative budget process. States such as Arkansas, Maine and Michigan that indicated adoption of performance budgeting procedures in 1997, however, have since moved away from the approach, and it is also endangered in Florida and Tennessee. Legislative responses to questions about their state’s “predominant budget approach” and the use of performance information in 2007 follow:

  • Arizona — The General Appropriation Act includes performance measure targets that may be used by legislators to evaluate requests.
  • California — The Legislature’s review of departments’ performance is done on a case-by-case basis.
  • Colorado — The General Assembly has entered into performance-based memoranda of understanding with certain departments or agencies.
  • Connecticut — In 2007, Connecticut concluded a two-year pilot program applying Results Based Accountability (RBA) to programs involving multiple agencies delivering services to pre-school kids. In addition, RBA has been used to evaluate two programs in the Department of Environmental Protection: clean water and parks. Connecticut will expand RBA to new and expanded programs and integrate the analysis, discussion and funding into the legislative appropriations process.
  • Delaware — Starts with a zero-based budget, but combines this with performance and traditional approaches. Performance measures are used (seldom) for program questioning during JFC [Joint Finance Committee] hearings but are a required field in agency budget requests.
  • District of Columbia — The District of Columbia (DC) uses performance-based budgeting. Performance measures are listed for each program and are monitored by the DC Council through its oversight of the budget.
  • Florida — The Florida Legislature created a performance-based program budgeting (PB2) process in 1994 to link funding to agency products or services and results. The 1994 Government Performance and Accountability Act required the governor to submit performance-based program budgets for the executive agencies to the Legislature. During the early years, the Legislature was very active in selecting and monitoring the performance measures and results. Now the process is used more by agency supervisors for internal management, although the Legislature retains a key role. In 2006, the Legislature passed Chapter 2006-122, Laws of Florida, which created § 216.1827, Florida Statutes, to separate the approval of performance measures and standards from the legislative appropriations process. Agencies now provide information on their legislatively approved performance measures and standards in their long-range program plans. To delete or amend these measures and standards, agencies must obtain approval from the Office of the Governor and the Legislative Budget Commission.
  • Georgia — Georgia uses program budgeting. Officials hope to start bringing performance into the process, but there is currently almost no review of performance measure in the legislative process.
  • Guam — Guam is moving toward performance-based budgeting.
  • Hawaii — Performance measures or program goals are a standard part of the budget submittals from the executive and judicial branches. They are included annually along with the budget request. In addition to the budget documents, state law requires the submittal of “variance reports.” These reports detail the variations to performance goals and provide explanations for those differences.
  • Iowa — Statute requires a modified zero-based approach. Performance measures are available in agency budgets for legislative review.
  • Kansas — Although still largely based on traditional methods, performance measures are requested of agencies and reviewed by the governor and Legislature in formulating the budget.
  • Kentucky — Kentucky has adopted through legislation some components of performance based budgeting. KRS 48.810 requires each program cabinet to develop and submit a four-year strategic plan and to provide periodic progress reports. KRS 48.810 also requires agencies to submit the Strategic Plan with their biennial agency budget requests. The uniform set of budget instructions and forms to be used by agencies in the budget request submission process includes a form that requires the agency to discuss program performance and provide output and outcome measures where available. Agencies must use quantitative data and other information to explain the program’s purpose and justification for expenditures. This information can be used by legislators in their deliberations when appropriating funds.
  • Louisiana — Act 1465 of 1997 mandates performance budgeting. Performance data are reviewed during the appropriations process.
  • Maryland — Performance measurement data are reported in conjunction with the budget and considered as the budget committees deliberate on agency level funding changes.
  • Mississippi — In 1997 the Legislature began including performance targets in the appropriations of 21 agencies accounting for approximately 85 percent of the state’s general fund appropriations. There are no statutory penalties for not attaining these targeted goals. All agencies are required to include performance measurement information in their annual budget request submissions. Agencies also report semi-annually on attainment of performance targets.
  • Missouri — Missouri incorporates a variety of approaches in its budgeting process, including the requirement of performance measures and outcomes, traditional/incremental budgeting and a core review of agency budget requests that is zero-based in its approach. Also, during the interim, both Senate and House appropriations committee staff have a statutory requirement to conduct a review of performance measures for purposes of analyzing the usefulness of these measures in agency performance reviews.
  • Montana — Montana is making a major effort to incorporate more performance measures into budgeting.
  • New Mexico — New Mexico uses a combination traditional/incremental and performance-based budget approach in the appropriation process. Agency appropriations are made by program with the program name appearing first, then the purpose of the program, appropriations by category and performance measures with proposed targets for the ensuing fiscal year. The Accountability in Government Act requires all state agencies to submit performance-based budget requests and “key agencies” to submit quarterly performance reports comparing actual performance with targeted performance for the reporting period to the Department of Finance and Administration and the Legislative Finance Committee. During the appropriation process, both the House Appropriations and Finance Committee and the Senate Finance Committee review and adopt performance measures and targets for the agency for the ensuing fiscal year.
  • North Carolina — In the 2006 session, North Carolina adopted a major rewrite of the state’s core budget law. The new state budget act took effect July 1, 2007. It leaves the governor free to select a budget format without specifying the styles to be applied. But it requires that, whatever format is chosen, line-item information be made available within each program. For the 2007 session, following that theme, the Office of State Budget and Management revised the governor’s budget presentation to begin including program descriptions and rudimentary output/outcome measures along with line-item detail.
  • Oklahoma — As part of a move from incremental budgeting to program budgeting, the state has begun to move toward program-based budgeting, with mixed results. Oklahoma has been using performance-based budgeting since about 1999.
  • Oregon — While the budget process is predominantly traditional [incremental], there are elements of performance-based (agency key performance measures approved by the legislature), program-based (sub-agency or program level identification), and zero-based (discussion of 10 percent to 20 percent reduction options). There has been more of an emphasis on the performance-based elements over the last two budget cycles. The legislature, through the Joint Committee on Ways and Means, reviews and approves a series of key performance measures (including targets) for each state agency as a component of the biennial budget process. Before increases to programs can be considered, agencies must identify the impact on their key performance measures. State agencies are required to provide annual reports to the legislature and public on their key performance measures.
  • South Carolina — Legislators frequently use Agency Accountability Reports as supplemental information in budget policy making.
  • Tennessee — Defined by statute, budgeting is zero-based. However, the state practices a continuation of required programs plus essential improvements. The traditional/incremental approach is still used but Tennessee incorporated performance measures into the budget request process in 2002. The Legislature has authority to review and comment on all performance measures that are reported. In 2007, the Administration proposed eliminating many of the performance-based initiatives but the change was deferred until 2008.
  • Texas — Texas reports itself as a performance-based budgeting state. The staff of the Legislative Budget Board are responsible for tracking the performance measures and making sure that key measures are brought to the attention of legislators. Texas legislators can see reports submitted by state agencies that show planned and actual performance in terms of outcome and explanatory measures (reported annually) and output and efficiency measures (reported quarterly).
  • Vermont — A combination of traditional and performance-based budgeting is used.
  • Northern Mariana Islands — Traditional budgeting is used when departments do not submit information on zero-based budgeting.

Posted October 6, 2008.
E-mail statefiscal-info@ncsl.org for more information.