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Paper presented at the 14th Annual Conference of the Association for Budgeting and Financial
Management a section of the American Society for Public Administration, October 10-12, 2002
in Kansas City, Missouri.
DRAFT: Cite with Permission Only
Performance Measurement Utility in Public Budgeting:
Application in State and Local Governments
Introduction
Budgetary reform is little different from human reform change, when entrenched,
fosters a feedback of information to support budget learning (Forrester and Adams 1997).
Such knowledge presumably factors into the decisions about spending by responsible
budgeters and administrators. Practitioners and academics who are guardedly
optimistic about performance measurement applicability to public budgeting practices
point out that as a reform, performance measurement has in its favor that it is not new. In
fact, building on existing budget routines, performance measures are slowly being
developed, but more important, the routines for developing the measures are being
routinized (Chackerian and Mavima 2001).
In fact, over the last decade governments in the United States have been folding
performance measurement and/or results oriented systems into traditional practices of
management and budgeting some more comprehensively than others. If time allows
synergistic learning and a reduction of ambiguity (Grizzle and Pettijohn 2002) are these
systems viewed as useful by those required to generate and apply measurement within the
budget cycle and for budgeting purposes? This research seeks to answer this question by
examining the perceptions of state and local officials and staff about performance
measurement applicability to budget cycle and process in their governments. This
research rests on the notion that budget structures influence budget deliberations and
discussions and therefore impacts the final budget decision, an appropriation or
appropriations (Ingraham and Moynihan 2001; Pettijohn and Grizzle 1997). If
performance measurement can be found to be useful to government budgeters and
administrators, then it can be considered successful in adding value to budgetary
decision-making. This research examines the perceptions of performance measurement
by those responsible regarding its utility to budgeting. And, if performance measurement
is a requirement of budget documentation, where in the budget cycle is this type of
information perceived as most helpful.
A quick review of the factors related to successful implementation of reform in
government is provided. This is followed by a discussion of our present understanding of
how useful performance measurement can be to budgetary decisions in particular at the
state and local level. Then, study method and findings are presented. The conclusion
summarizes results and offers suggestions for future analysis of how public budgeting
decisions can be better supported.
Implementing Change
The factors associated with successful implementation of any reform are dynamic. Streib
and Willoughby (forthcoming) provide illustration of the characteristics that must exist
for innovation in government.
Stable
Environment
Knowledgeable Leadership
Good Communication
Slack Resources
Successful
Reform
Skilled Staff
External
Pressure for
Change
While performance development and reporting requirements in some form or fashion are
identifiable as having been adopted by most state and local governments in the United
States, assessment of the institutionalization of these requirements is a complex task
(Melkers and Willoughby 1998; Poister and Streib 1999). Literature that focuses
specifically on performance measurement implementation concurs that the above
characteristics are often missed or inconsistently applied and may compromise successful
application of performance measurement to management and budgeting practices
(Grizzle and Pettijohn 2002, Julnes and Holzer 2001; Lee and Burns 2000; Smith 1999).
On the other hand, much research exists that has teased out some subtle and not so
subtle implications of instituting performance measurement into budget systems.
Franklins (2002) analysis of appropriation format change from 1990 to 2000 in two
states finds that agencies in the reform state (that advances performance measurement),
Arizona, are more likely than those in the non-reform state, Oklahoma, to have less
restrictive appropriations at the end of the decade. Other variables that she finds can
effect appropriation format include the restrictiveness of the format in 1990, the percent
change in general fund reliance of an agency, whether the agency head is elected, and
turnover of agency heads over time. As noted related to government implementation of
an innovation, active and sustained leadership, good communication across the
organization, and flexible resources contribute to success.
Jordan and Hackbart (1999, 84) find that almost two-thirds of the responding
states indicate that the governors executive budget recommendations could be impacted
by [agency] achievement of performance standards achievement that comes to light
with communication about performance measurement. These authors also find that
more than half of the respondents from survey of state executive branch budget officials
answer that performance indicators are important tools for allocation decisions or budget
recommendations (1999, 78). However, they conclude that while states are reticent
about basing allocation decisions strictly on performance, measurement supports making
adjustments to funding to improve or maintain performance (1999, 85).
Chackerian and Mavima (2001) analyze administrative and budget reform during
Lawton Chiles administration in the State of Florida and conclude that in spite of some
difficulties, key stakeholders continue to like the idea of budget reform and performance
measures. Policy conflict and ambiguity is moderate. Budget reform is seen as doable and
as possibly resulting in long-term cost savings. They conclude that:
Since implementation costs for the budget reforms are stretched over a long
time, their apparent size is reduced. Agencies also reduce costs by learning
from the experience of the early adopters of the phased-in budget reforms. In
addition there is, of course, a great deal of experience with the existing
budgeting process, which serves as a jumping-off point for the changes.
Thus, while performance-based budgeting represents a departure from it, it is
built upon past practice. .The generalized legitimacy of the approach, the
incremental implementation, and the existing statutory framework for
budgeting and staffing have greatly reduced the implementation costs, and
thereby makes full implementation more likely (2001, 353-377).
Bradley and Flowers (2001, 401) temper this enthusiasm about Floridas application of
performance measurement and reporting by noting, extended implementation has
diffused the intellectual coherence of the initiative, diluting leadership commitment.
Legislative aspirations to make performance central to allocation decisions have been
largely deflected in the face of persistent technical problems. Their conclusions again
point to the importance of sustained leadership (and in both branches of government) for
effective reform.
Research about local applications of performance measurement to budgeting is
cautiously optimistic as well. Smith with Bratton (2001) considers the implementation of
computerized statistics, Compstat to re-engineer police management and impact citizen
safety in New York City. They are hopeful that the system will continue to support a
changed culture in the police force, opening lines of communication and accountability
among officers, and reorienting precincts as hubs for problem solving and performance
management. Scheps (2000) illustrates a good case for sustained pressure and constant
communication as successfully linking performance measures to resource allocation in
Dallas County, Texas. And Steifel, Rubenstein and Schwartz (1999) generate findings
that support the ongoing flexibility and enhancement of performance measures when
applying to spending decisions. They find that adjusted performance measures can be
used effectively to explain past resource allocation decisions. Their carefully chosen and
stepped model successfully distinguishes high and low performing schools in Chicagos
Public School System, specifically illustrative of different patterns of discretionary
spending in these two categories.
Kluvers (2001) finds that program budgeting including the use of performance
indicators does not foster reallocations, but does provide useful information that allows
for the sorting of direct and allocated costs and fosters a changed attitude toward
planning. The institution of planning programming budgeting did not assist in
eliminating duplicative activities or change objectives based on performance indicators.
He cannot claim that better budgeting decisions are being made, but suggests that the
subtle effects of measurement application could influence spending over time. His
results would square with those of Ammons (1995) in that performance measurement has
had more utility to managers internal to governments rather than to citizens external to
them.
Poister and Streib (1999) review the inconsistency of use of performance
measurement among local governments, although they do find that larger local
governments and those with a council-manager form of government are more likely to
make use of measurement. Not surprisingly and particularly at the local level, workload
and output measures are a measurement mainstay. And local officials are more often
pressed to use such measures to track costs and improve accountability to the local
government manager or chief administrator. These authors find that in governments with
centralized systems, performance measurement is used in a meaningful way for planning
and is considered very important for budgeting purposes. Most officials (80 percent)
with centralized systems of performance measurement indicated that measurement
improves decisions in their jurisdictions, at least to a moderate degree. Of this group,
more than 60 percent report moderate or substantial changes in budget allocations as an
impact of their performance measures (1999, 331).
Berman and Wang (2000) concur that existence and meaningful use of
performance measurement are separate issues and that overstatement of use often masks
the inadequacies of the organization in supporting such reform. Their research provides
good corroboration of the work by Jordan and Hackbart (1999), which finds that
organizational capacity is vital to the usefulness of performance measurement for
budgeting. Jordan and Hackbart (1999, 85) suggest that governments can best support
their performance initiative by empowering the central budget office given its influence
on budget deliberations later on in the budget cycle. As the nexus between policy
development and its administration, these offices provide an appropriate sieve through
which information flows about what agencies do and what they need. Depending upon
orientation (capacity as a control versus policy office) these offices house examiners who
understand the usefulness of performance measurement to spending decisions, and are in
a strong position regarding when and where to use such information for success in
terms of gaining support for spending by agencies from the budget director, the chief
executive, and eventually the legislature (Thurmaier and Willoughby 2001).
The body of research above illustrates that the application of performance
measurement to decisions by government officials is widespread although highly variable
among sub national governments in the United States. Those responding to past studies
of performance measurement use indicate that such data is most helpful for managerial
and communication purposes. The influences of performance measurement to budgetary
decision making and traditional practices however, are faint in terms of directly linking
this information to budget allocation changes.
Research Focus and Methodology
This study is part of more extensive research about performance measurement that has
been funded in part by the Alfred P. Sloan Foundation. A mailed survey to state and
local government budgeters and administrators in the summer of 2000 was a follow-up to
approximately two dozen case analyses conducted by the Governmental Accounting
Standards Board (GASB) in selected governments regarding the success of government
performance measurement initiatives. This work stems from the GASBs Service Efforts
and Accomplishments project that supports government experimentation with
performance measurement and reporting. In the present study, similar, though tailored
versions of the instrument were mailed to the executive and legislative branches of the
different levels of government as well as to departments and agencies in these
governments.
Those contacted for this survey are in the business of performance measurement
application in their governments and includes budget and fiscal officers and staff from
executive and legislative budget offices of state government, state agency directors,
division directors, program managers and staff, and local government managers,
department and division directors, program managers and budget, accounting and audit
staff. Questionnaires were sent to 121 officers in executive and legislative budget offices
in all 50 states. Also, 434 questionnaires were sent to the heads of selected agencies in
states, including those in Corrections, Education, Economic Development/Welfare, and
Transportation. Finally, 735 questionnaires were sent to those in similar positions in a
sample of local governments across the nation.
A total of 1,311 questionnaires were mailed and 491 received, with 489 useable
instruments. The overall response rate for the survey was 37 percent and includes 60
state government budget officers or staff, 152 state agency personnel, and 277 local
government officials, half who are identified as budget officers or staff and half as
agency administrators or staff. Representation by government includes responses from
37 states, 47 counties and 168 cities. The inclusion of those responsible for and
knowledgeable about performance measurement across government branches and by
level helps avert threats to the validity of this research. And as is typical of this type of
research, most questions were accommodated to Likert-scale items in which responses
fall along a continuum regarding level of agreement, evaluation of effectiveness, or
frequency of use. The scales used range in value from 1 (the lowest) to 4 or 5 (the
highest).
Research Findings
Considering types of measures used helps to explain the seemingly broader application at
the local level, however. That is, while strong majorities of officials from both levels of
government admit use in over 50 percent of agencies of input, process and output types of
measures, perception of application across all agencies drops rather dramatically as
measurement becomes more difficult or complex beginning with outcome measures,
and continuing a decline in perceived comprehensive use of quality, explanatory and
benchmark measures. It seems that performance measurement application is still quite
selective; the more easily measurable activities are tracked most often by using rather
elementary data. Also, performance measurement seems to realize more comprehensive
use at the local level of government. This coincides with the fact that many local
government activities are quite amenable to measurement. For example, it is easy to see
why local governments might develop quality measures by surveying customers about
service delivery timeliness and quality, given the more direct relationship between
citizens with local service delivery.
Those surveyed were asked to respond if performance measures were very effective to
not at all effective regarding the items listed. Generally speaking, state level respondents
1
As is common for nominal level data like this, contingency tables and the Chi Square statistics are
calculated using level of government of respondent as the independent (column) variable and the extent of
use of the measure (as scaled from all to no departments) as the dependent (row) variable. The 2 values
for each of nine tests of independence of extent of use of each measure by level of government is
significant at probability values ranging from less than 0.05 to 0.001 (See Agresti and Agresti 1979 for a
discussion of the use of the Chi Square test statistic).
are more likely than their local counterparts to find performance measurement effective,
particularly for promoting a culture that focuses on results, for influencing management
changes to achieve desired results, and for improving communication both horizontally
and vertically throughout government. It is interesting that the 2 values found to be
significant (p<0.05) are associated with just two items, Improving communication between
departments and programs (state officials are 11 percent more likely than local ones to find
performance measurement effective or very effective for this); and Changing the
substance or tone of discussion among legislative members in budgeting or oversight.
State officials seem to recognize greater effectiveness of performance measurement in
adding value to the budgeting deliberations of legislative branch member than local
officials. Perhaps because many of the performance budgeting and measurement
initiatives by states in the last decade were legislatively initiated (Melkers and
Willoughby 1998), legislators may feel some pressure to take advantage of the
information they are requiring of executive branch officials and staff. Or, given natural
legislative turnover, new, younger and perhaps more technically savvy legislators just
feel more comfortable incorporating this type of data into their decision making.
In general, these results affirm that performance measurement can support
advancements to management decisions and foci, as well as to communication within
governments. At least a third or more of both the state and local level respondents
consider that performance measurement is effective or very effective for the first nine
items. These administrators and budgeters consider that performance measurement is
most effectively used to focus the attention of government officials on program results
and the factors contributing to those results. They agree that communication across
departments, with the executive budget office and with legislative branch members are
enhanced by using performance measures. Finally, program and service quality are
advanced given the institution of performance measurement application in the
governments represented by these respondents.
The processes and interactions in which performance measurement is less likely
to prove effective include changes to program costs or their appropriations, advancing
coordination among agencies and programs, saving money, reducing duplicative services,
or enhancing external relationships or communications. Relatively small proportions of
both groups (a fifth or less of state and local respondents) in fact find performance
measurement effective for reducing duplicative services, changing appropriations levels,
eliminating ineffective services programs, affecting costs savings, or improving external
support to government. It is interesting that a smaller proportion of local respondents
than state ones find performance measurement effective for improving external
government cooperation or coordination.
The following teases out the perceptions of the budgeters only. Central budget office
staff have a more global view of the application of performance measurement to
budgeting practices than do agency administrators and staff (see Thurmaier and
Willoughby 2001 for a full examination of the orientations of central budget offices and
the budget analysts employed therein). Sections of the survey related to performance
measurement applicability to budgetary processes and cycles were included for state
budgeters, but not the administrators, and included for all local budgeters and
administrators. To enhance reliability, the perceptions of state budgeters are compared to
those of the local budgeters only. The tables below take advantage of responses from 60
state budgeters and 140 local budgeters. Budgeters are defined as directors, deputy
directors, or analysts working within a central budget office (either executive of
legislative) or staff working in the capacity of a government wide auditor.
Table 3 shows responses of budgeters by level of government acknowledging the
appearance of output or outcome measures in budgeting documentation. The difference
Allen Schick ponders that [t]he problem [with performance measurement] is not in how
we measure performance but in how we use the results (2001). While the influences of
performance measurement to advance management practice are more easily documented,
gauging measurement applicability to budget practice is a tougher assessment to make.
There certainly is little information confirming Schicks strict definition of performance
budgeting that requires linkage of each increment in budget resources to an increment in
outputs or outcomes. The results of this research actually provide some support to
skeptics regarding the applicability of performance measurement to budgeting, however,
there is also support for optimists encouragement to those who hold out hope that such
information will continue to seep into budgetary practice as a reliable resource for
important budget actors. Results supporting skeptics include:
Notice that the second point regarding appearance of performance measures in the budget
cycle can support skeptics or optimists. Skeptics might find solace in the fact that
performance measures are less apparent in latter stages of the typical budget cycle,
somewhat restricted to a supportive role during the budgetary development stage.
Optimists can consider this positively, in that the greatest gains for influencing
appropriations can occur for agencies at the development stage when they must make
their case to executive budgeters for their spending needs.
Finally, results show that there is little distinction by level of government of
budgeters perceptions of the importance of output or outcome measures to departmental
budget cycle. However, larger proportions of local budgeters view this information as
important to government wide budget processes, and these budgeters are significantly
more likely than state budgeters to view performance measurement as important or very
important to final appropriation determinations. Such results might speak to the
difficulty of gaining a comprehensive view of state government performance, when
compared to local government performance, on a government-by-government basis.
In any event, it remains important to find out what types of performance measures
are most useful and where in a public budgeting cycle and/or within which decision
processes it holds its greatest likelihood for effectiveness. This research has provided
some enlightenment about the usefulness of this information. And, there should be little
threat that so called rational decision aids will supplant the politics of public budgeting.
Rather, in the words of David M. Walker, U.S. GAO Comptroller General (2002, 2),
Linking performance information to budgeting carries great potential to
improve the budget debate by changing the kinds of questions and
information available to decision makers. However, performance
information will not provide mechanistic answers for budget decisions;
nor can performance data eliminate the need for considered judgment and
political choice.
References
Agresti, Alan, and Barbara Finlay Agresti. 1979. Statistical Methods for the Social
Sciences. San Francisco, CA: Dellen Publishing Company.
Berman, Evan, and XiaoHu Wang. 2000. Performance Measurement in U.S. Counties:
Capacity for Reform. Public Administration Review (September/October) 60, 5:
409-420.
Bradley, Robert B., and Geraldo Flowers. 2001. Getting to Results in Florida, Chapter
14 in Quicker, Better Cheaper: Managing Performance in American Government,
edited by Dall W. Forsythe (NY: The Rockefeller Institute Press): 365-416.
Forrester, John P., and Guy B. Adams. 1997. Budgetary Reform Through
Organizational Learning: Toward an Organizational Theory of Budgeting.
Administration and Society (February) 28, 4: 466-488.
GASB, 2000. State and Local Government Case Studies: The Use and the Effects of
Using Performance Measures for Budgeting, Management, and Reporting.
(April). http://www.rutgers.edu/Accounting/raw/seagov/pmg/index.html.
Harris, Jody L. 2000. Best Value and Performance Management: Lessons Learned from
the United Kingdom. Government Finance Review (August) 16, 4: 27-32.
Hatry, Harry. 1999. Performance Measurement: Getting Results. Washington, D.C.: The
Urban Institute Press.
Jordan, Meagan M., and Merl M. Hackbart. 1999. Performance Budgeting and
Performance Funding in the States: A Status Assessment. Public Budgeting and
Finance (Spring) 19, 1: 68-88.
Julnes, Patria de Lancer, and Marc Holzer. 2001. Promoting the Utilization of
Performance Measures in Public Organizations: An Empirical Study of Factors
Affecting Adoption and Implementation. Public Administration Review
(November/December) 61, 6: 693-708.
Lee, Robert D., and Robert C. Burns. 2000. Performance Measurement in State
Budgeting: Advancement and Backsliding from 1990 to 1995. Public Budgeting
and Finance (Spring) 20, 1: 38-54.
MacReynold, Merlin, and Kevin Fuhrer. 2002. Want to Balance Your Budget?
Constraint Budgeting Works. Public Management (May) 84, 4: 19-21.
Pettijohn, Carole D., and Gloria A. Grizzle. 1997. Structural Budget Reform: Does It
Affect Budget Deliberations? Journal of Public Budgeting, Accounting and
Financial Management (Spring) 9, 1: 26-45.
Poister, Theodore H., and Gregory Streib. 1999. Performance Measurement in
Municipal Government: Assessing the State of the Practice. Public
Administration Review (July/August) 59, 4: 325-335.
Smith, James Fielding. 1999. The Benefits and Threats of PBB: An Assessment of
Modern Reform. Public Budgeting and Finance (Fall) 19, 3: 3-15.
Stiefel, Leanna, Ross Rubenstein, and Amy Ellen Schwartz. 1999. Using Adjusted
Performance Measures for evaluating Resource Use. Public Budgeting and
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Thurmaier, Kurt, and Katherine Willoughby. 2001. Policy and Politics in State
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Journal of State Government (Spring) 75, 2: 9-11.
Input Measures 42 52 26 19 11 5 22 25
(177/238)
Activity/Process Measures 33 44 33 26 13 7 21 23
(181/237)
Output Measures 31 42 35 25 16 12 17 21
(195/253)
Outcome Measures 20 24 31 23 26 17 24 36
(188/243)
Cost/Efficiency Measures 10 21 26 23 28 19 36 37
(186/238)
Explanatory Measures 9 12 15 15 25 13 51 60
(152/186)
Benchmarks 5 11 22 13 20 19 53 58
(167/226)
Table 2: Responses by Level of Government Affirming Performance
Measurement Effectiveness
10) Changing the substance or tone of discussion among legislative 32% 22%
members in budgeting or oversight (184) (234)
12) Changing the questions legislators or their staff ask of government 27% 27%
managers or executives (185) (237)
Extent that Output or Outcome All Departments >50% of Departments <50% of Departments Few or No
Performance Measures Appear in Departments
(# state/# local) State Local State Local State Local State Local
Department budget requests 45% 32% 30% 23% 16% 12% 9% 34%
(56/138)
Quarterly reports 15 12 13 7 15 5 58 76
(40/121)
Annual reports 21 19 23 14 18 9 39 59
(39/133)
Table 4: Responses of Budgeters by Level of Government Claiming Output or Outcome
Measures as Very Important or Important in the Budgetary Process
State Local
% (n) % (n)