The traditional approach to budgeting focuses on incremental changes in detailed categories of expenditures. Performance based budgeting (PBB) differs by focusing on results rather than money spent. The basic principle of PBB is accountability, not merely on compliance with law and previous funding decisions. Performance based budgeting encourages lawmakers to reconsider priorities and grants agencies the flexibility to make decisions that are not easily permissible under traditional budgeting systems. This brief provides an overview of performance based budgeting and resources for further information.
A performance budget has the following characteristics:
- It presents the major purpose for which funds are allocated and sets measurable objectives.
- It tends to focus on changes in funding rather than on the base (the amount appropriated for the previous budget cycle).
- It identifies programs and agencies that are seeking similar outcomes, thereby drawing such inter-relationships to the legislature's attention.
- It offers agencies flexibility to reallocate money when conditions merit, rewarding achievement and possibly imposing sanctions for poor performance.
Although comprehensive legislative performance budgeting is relatively uncommon—almost half of the states use performance information at some point in the legislative process—states that use performance information are similar with respect to the types of performance information used but differ in when and where the information comes into play in the budget process.
For legislators, performance based budgeting allows for:
- Assisting legislators with helpful background on the purposes of state-funded programs and the results they achieve.
- Helping explain previous legislative funding decisions.
- Aid with estimating and justifying the potential consequences of new funding decisions.
- Deeper legislative understanding of agency activities.
- 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.
While there are many advantages with PBB, lawmakers and legislative staff have expressed a number of concerns about the process, including:
- Agency personnel and legislators may have different ideas regarding what is important about an agency's work.
- The size of state government coupled with the number of performance indicators available can distract and overwhelm legislators when making crucial funding decisions.
- Confidence that performance information is accurate and valid.
- The proper use of incentives and disincentives to improve agency performance.