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Testimony:



Before the Subcommittee on Government Efficiency and Financial 

Management, Committee on Government Reform, House of Representatives:



For Release on Delivery 

Expected at 2 p.m. EST

Tuesday, April 1, 2003:



PERFORMANCE BUDGETING:



Current Developments and Future Prospects:



Statement of Paul L. Posner, Managing Director 

Federal Budget Analysis, Strategic Issues:



GAO-03-595T:



GAO Highlights:



Highlights of GAO-03-595T report to the Subcommittee on Government 

Efficiency and Financial Management, Committee on Government Reform, 

House of Representatives



Why GAO Did This Study:



Since the Government Performance and Results Act (GPRA) was enacted in 

1993, federal agencies increasingly have been expected to link 

strategic plans and budget structures with program results. The current 

administration has taken several steps to strengthen and further the 

performance-resource linkage by making budget and performance 

integration one of its five management initiatives included in the 

Presidents Management Agenda.



GAO has reported and testified numerous times on agencies progress in 

making clearer connections between resources and results and how this 

information can inform budget deliberations. The administrations use 

of the Program Assessment Rating Tool (PART) for the fiscal year 2004 

Presidents budget and further efforts in fiscal year 2005 to make 

these connections more explicit, have prompted our examination of what 

can and cannot be expected from performance budgeting.



What GAO Found:



Performance management is critical to delivering program results and 

ensuring accountability, but it is not without risks. Building on 

agencies hard-won achievements in developing plans and measures, the 

government faces the challenge of promoting the use of that information 

in budget decision making, program improvement, and agency management. 

More explicit use of performance information in decision making 

promises significant rewards, but it will not be easy. Decision makers 

need a road map that defines what successful performance budgeting 

would look like, and identifies key elements and potential pitfalls.



Credible performance information and measures are critical for building 

support for performance budgeting. For performance data to more fully 

inform resource allocation decisions, decision makers must feel 

comfortable with the appropriateness and accuracy of the outcome 

information and measures presentedthat is, that they are comprehensive 

and valid indicators of a programs outcomes. Decision makers likely 

will not use performance information that they do not perceive to be 

credible, reliable, and reflective of a consensus about performance 

goals among a community of interested parties. The quality and 

credibility of outcome-based performance information and the ability of 

federal agencies to evaluate and demonstrate their programs 

effectiveness are key to the success of performance budgeting.



Successful performance budgeting is predicated on aligning performance 

goals with key management activities. The closer the linkage between an 

agencys performance goals, its budget presentation, and its net cost 

statement, the greater the reinforcement of performance management 

throughout the agency and the greater the reliability of budgetary and 

financial data associated with performance plans. Clearer and closer 

association between expected performance and budgetary requests can 

more explicitly inform budget discussions and shift the focus from 

inputs to expected results. 



The test of performance budgeting will be its potential to reshape the 

kinds of questions and trade-offs that are considered throughout the 

budget process. The real payoff will come in strengthening the budget 

process itself. The focus on outcomes potentially can broaden the 

debate and elevate budget trade-offs from individual programs to a 

discussion of how programs work together to achieve national goals. It 

is critical to understand how programs fit within a broader portfolio 

of tools and strategies for program delivery. Shifting perspectives 

from incremental budgeting to consideration of all resources available 

to a program, that is, base funding as well as new funds, potentially 

can lead to a reexamination of existing programs, policies, and 

activities. Prudent stewardship of our nations resources is essential 

not only to meeting todays priorities, but also for delivering on 

future commitments and needs.



www.gao.gov/cgi-bin/getrpt?GAO-03-595T.

To view the full testimony, click on the link above. For more 

information, contact Paul Posner at (202) 512-9573 or posnerp@gao.gov.



[End of section]



Mr. Chairman and Members of the Subcommittee:



I am pleased to be here today to discuss efforts to further integrate 

budget and performance information--what many have referred to as 

performance budgeting. Since the Government Performance and Results 

Act (GPRA) was enacted in 1993, federal agencies have been increasingly 

expected to focus on achieving results and to demonstrate, in 

performance plans and reports, how their activities help achieve agency 

goals. The current administration has taken several steps to strengthen 

and further performance-resource linkages for which GPRA laid the 

groundwork. For example, the Office of Management and Budgets (OMB) 

Program Assessment Rating Tool (PART), has been designed to use 

performance information more explicitly in the federal budget 

formulation process by summarizing performance and evaluation 

information. The administration applied this new tool to about 20 

percent of the programs in the fiscal year 2004 Presidents budget 

request. Most recently, OMB required agencies to submit a performance-

based budget for fiscal year 2005 and later years.



Given this effort to change the presentation of the Presidents budget 

request to explicitly connect agencies budget and planning structures, 

it is crucial to understand what can and cannot be expected from 

performance budgeting, and what opportunities and challenges lay ahead.



In my testimony today I make several points:



* Performance management is critical to delivering program results and 

ensuring accountability, but it is not without risks.



* In a sense decision makers need a strategic plan for performance 

budgeting--a road map to define what performance budgeting would look 

like.



* The presence of credible performance information and measures is a 

critical underpinning for building support for performance budgeting.



* Successful performance budgeting is predicated on aligning 

performance goals with key management activities.



* Ultimately, the test of performance budgeting will be its potential 

to reshape the kinds of questions and trade-offs that are considered 

throughout the budget process.



This testimony draws upon our wide-ranging ongoing and completed work 

on federal budget and performance integration; the Presidents Budget 

of the U.S. Government, Fiscal Year 2004; and performance management 

initiatives. We conducted our work in accordance with generally 

accepted government auditing standards.



Current Performance Budgeting Initiatives Are Grounded in Past Efforts:



:



An Historical Perspective:



In the 1990s, Congress and the executive branch laid out a statutory 

and management framework that provides the foundation for strengthening 

government performance and accountability, with GPRA as its 

centerpiece. GPRA is a continuation of more than 50 years of efforts to 

link resources with results. These management reforms of the past--the 

Budget and Accounting Procedures Act of 1950, Planning-Programming-

Budgeting-System, Management by Objectives, and Zero-Base-Budgeting--

failed partly because they did not prove to be relevant to budget 

decision makers in the executive branch or Congress.[Footnote 1]



GPRA melds the best features, and avoids the worst, of its 

predecessors. Unlike most of its predecessors, GPRA is grounded in 

statute, giving Congress an oversight stake in the success of this 

initiative. Moreover, unlike these other initiatives, GPRA explicitly 

sought to promote a connection between performance plans and budgets. 

The expectation was that agency goals and measures would be taken more 

seriously if they were perceived to be used and useful in the resource 

allocation process. GPRA has now entered its 10th year, has survived 

two successive administrations, and has periodically formed the basis 

for congressional oversight.



Recent Initiatives:



The current administration has implemented several efforts to more 

completely integrate information about cost and performance during its 

annual budget review process. The Presidents Management Agenda (PMA), 

by focusing on 14 targeted areas--5 mutually reinforcing governmentwide 

goals and 9 program initiatives--seeks to improve the management and 

performance of the federal government. Budget and performance 

integration is one of the administrations five priorities in the PMA, 

while PART is the central element in the performance budgeting piece of 

the PMA.



To track both agencies progress towards and current status in 

achieving each of the five PMA initiatives, OMB implemented an 

Executive Branch Management scorecard. We have found that the value of 

the scorecard, with its red, yellow, and green stoplight grading 

system, is not, in fact, the scoring, but the degree to which scores 

lead to a sustained focus and demonstrable improvements. The Scorecard 

criteria for the budget and performance integration initiative include 

elements such as the integration of budget and planning staff, an 

integrated performance plan and budget grounded in outcome goals and 

aligned with the staff and resources necessary to achieve program 

targets, and whether the agency can document program effectiveness. 

While the scorecard focuses on the capacity of agency management to 

develop an infrastructure for performance budgeting, OMBs PART is 

meant to more explicitly infuse performance information into the budget 

formulation process at a level at which funding decisions are made.



PART was applied during the fiscal year 2004 budget cycle to 234 

programs.[Footnote 2] OMB rated programs as effective, moderately 

effective, adequate, or ineffective based on program design, 

strategic planning, management, and results. If OMB deemed a programs 

performance information and/or performance measures insufficient or 

inadequate, a fifth rating of results not demonstrated was given. 

According to OMB, the assessments were a factor in funding decisions 

for the Presidents fiscal year 2004 budget request. In an 

unprecedented move, OMB has made the assessment tool, rating results, 

and supporting materials available on its Web site.



OMB has said that it will apply PART to another 20 percent of programs 

and reassess the fiscal year 2004 programs in developing the 

Presidents fiscal year 2005 budget request. Moreover, it has announced 

its intention to use agencies updated strategic plans, which were due 

in March 2003, as templates for future budget requests.



Performance Budgeting Holds Great Promise and Great Challenges:



During GPRAs first 10 years, the federal government has managed, for 

the first time, to generate a systematic, governmentwide effort to 

develop strategic and performance plans covering the essential 

functions of government. While clearly a work in progress, the 

formulation of performance goals and indicators has laid the foundation 

for a more fundamental transformation in how the government does 

business.



As we begin this next decade of performance management at the federal 

level, we may have reached a crossroad. Building on agencies hard-won 

achievements in developing plans and measures, the government now faces 

the challenge of promoting the use of that information in budget 

decision making, program improvement, and agency management.



Promoting a more explicit use of performance information in decision 

making promises significant rewards, but it will not be easy, and in 

fact, is fraught with risks. Decision makers need a road map that 

defines what successful performance budgeting would look like, and that 

identifies the key elements and potential pitfalls on the critical path 

to success. In a sense, what is needed is a strategic plan for 

performance budgeting.



In the remainder of this testimony I will discuss some of these key 

elements and risks, including a definition and expectations for 

performance budgeting itself; the underpinnings of credible performance 

information and measures; addressing the needs of various potential 

users; the alignment of performance planning with budget and financial 

management structures; elevating budget trade-offs; and the continuing 

role of congressional oversight.



What Is Performance Budgeting, and What Might Be Expected from It?



Performance-based budgeting can help enhance the governments capacity 

to assess competing claims in the budget by arming budgetary decision 

makers with better information on the results of both individual 

programs as well as entire portfolios of tools and programs addressing 

common performance outcomes. Although not the answer to vexing resource 

trade-offs involving political choice, performance information could 

help policymakers address a number of questions, such as whether 

programs are contributing to their stated goals, well-coordinated with 

related initiatives at the federal level or elsewhere, and targeted to 

those most in need of services or benefits. It can also provide 

information on what outcomes are being achieved, whether resource 

investments have benefits that exceed their costs, and whether program 

managers have the requisite capacities to achieve promised results.



Although performance budgeting can reasonably be expected to change the 

nature of resource debates, it is equally important to understand what 

it cannot do. Previous management reforms have been doomed by inflated 

and unrealistic expectations, so it is useful to be clear about current 

goals.



Performance budgeting cannot replace the budget process as it currently 

exists, but it can help shift the focus of budgetary debates and 

oversight activities by changing the agenda of questions asked in these 

processes. Budgeting is essentially the allocation of resources; it 

inherently involves setting priorities. In its broadest sense, the 

budget debate is the place where competing claims and claimants come 

together to decide how much of the governments scarce resources will 

be allocated across many compelling national purposes. Performance 

information can make a valuable contribution to this debate, but it is 

only one factor and it cannot substitute for difficult political 

choices. There will always be a debate about the appropriate role for 

the federal government and the need for various federal programs and 

policies--and performance information cannot settle that debate. It 

can, however, help move the debate to a more informed plane, one in 

which the focus is on competing claims and priorities. In fact, it 

raises the stakes by shifting the focus to what really matters--lives 

saved, children fed, successful transitions to self-sufficiency, and 

individuals lifted out of poverty.



Under performance budgeting, people should not expect that good results 

will always be rewarded through the budget process while poor results 

will always have negative funding implications. Viewing performance 

budgeting as a mechanistic arrangement--a specific level of performance 

in exchange for a certain amount of funding--or in punitive terms--

produce results or risk funding reductions--is not useful. Such 

mechanistic relationships cannot be sustained. Rather than increase 

accountability, these approaches might instead devalue the process by 

favoring managers who meet expectations by aiming low. The 

determination of priorities is a function of competing values and 

interests that may be informed by performance information but also 

reflects such factors as equity, unmet needs, and the appropriate role 

of the federal government in addressing these needs.



OMBs PART initiative illustrated that improving program design and 

management may be a necessary investment in some cases. For example, 

the Department of Energys Environmental Management (Cleanup) program 

was rated ineffective under PART. The administration recommended 

additional funds for the program compared to fiscal year 2002 funding 

and reported that the Department will continue to work with federal and 

state regulators to develop revised cleanup plans. The Department of 

States Refugee Admissions to the U.S. program was rated adequate 

under PART; in addition to recommending increased funding, the 

administration will review the relationship between this program and 

the Office of Refugee Resettlement at the Department of Health and 

Human Services. For its part, State will continue its ongoing efforts 

to improve strategic planning to ensure that goals are measurable and 

mission-related.



Ultimately, performance budgeting seeks to increase decision makers 

understanding of the links between requested resources and expected 

performance outcomes. Such integration is critical to sustain and 

institutionalize performance management reforms. As the major annual 

process in the federal government where programs and activities come up 

for regular review and reexamination, the budget process itself 

benefits as well if the result of integration is better, more reliable 

performance information.



Credible Performance Information and Agencies Capacity to Produce It 

Is Critical:



For performance data to more fully inform resource allocations, 

decision makers must feel comfortable with the appropriateness and 

accuracy of the outcome information and measures presented--that is, 

they are comprehensive and valid indicators of a programs outcomes. 

Decision makers likely will not use performance information that they 

do not perceive to be credible, reliable, and reflective of a consensus 

about performance goals among a community of interested parties. 

Moreover, decisions might be guided by misleading or incomplete 

information, which ultimately could further discourage the use of this 

information in resource allocation decisions.



Accordingly, the quality and credibility of outcome-based performance 

information and the ability of federal agencies to produce such 

evaluations of their programs effectiveness are key to the success of 

performance-based budgeting. However, in the fiscal year 2004 

Presidents budget request, OMB rated 50 percent of PART programs as 

results not demonstrated because they found that the programs did not 

have adequate performance goals and/or data to gauge program 

performance were not available. Likewise, GAOs work has noted 

limitations in the quality of agency performance and evaluation 

information and in agency capacity to produce rigorous evaluations of 

program effectiveness. We have previously reported that agencies have 

had difficulty assessing many program outcomes that are not quickly 

achieved or readily observed and contributions to outcomes that are 

only partly influenced by federal funds.[Footnote 3] Furthermore, our 

work has shown that few agencies deployed the rigorous research methods 

required to attribute changes in underlying outcomes to program 

activities.[Footnote 4]



Data Quality:



If budget decisions are to be based in part on performance data, the 

integrity, credibility, and quality of these data and related analyses 

become more important. Developing and reporting on credible information 

on outcomes achieved through federal programs remains a work in 

progress. For example, we previously reported[Footnote 5] that only 

five of the 24 Chief Financial Officers (CFO) Act agencies fiscal year 

2000 performance reports included assessments of the completeness and 

reliability of their performance data in their transmittal letters. 

Further, although concerns about the quality of performance data were 

identified by the inspectors general as either major management 

challenges or included in the discussion of other challenges for 11 of 

the 24 agencies, none of the agencies identified any material 

inadequacies with their performance data in their performance reports.



Moreover, reliable cost information is also important. Unfortunately, 

as we recently reported,[Footnote 6] most agencies financial 

management systems are not yet able to routinely produce information on 

the full cost of programs and projects as required by the Federal 

Financial Management Improvement Act of 1996 (FFMIA).[Footnote 7]



The ultimate objective of FFMIA is to ensure that agency financial 

management systems routinely provide reliable, useful, and timely 

financial information, not just at year-end or for financial 

statements, so that government leaders will be better positioned to 

invest resources, reduce costs, oversee programs, and hold agency 

managers accountable for the way they run programs. To achieve the 

financial management improvements envisioned by the CFO Act, FFMIA, and 

more recently, the PMA, agencies need to modernize their financial 

management systems to generate reliable, useful, and timely financial 

information throughout the year and at year-end. Meeting the 

requirements of FFMIA presents long-standing, significant challenges 

that will be attained only through time, investment, and sustained 

emphasis on correcting deficiencies in federal financial management 

systems.



Evaluation Capacity:



In the past, we have also noted limitations in agency capacity to 

produce high-quality evaluations of program effectiveness.[Footnote 8] 

Through GPRA reporting, agencies have increased the information 

available on program results. However, some program outcomes are not 

quickly achieved or readily observed, so agencies have drawn on 

systematic evaluation studies to supplement their performance data 

collection and better understand the reasons behind program 

performance. However, in survey based on 1995 data covering 23 

departments and independent agencies, we found that agencies were 

devoting variable but relatively small amounts of resources to 

evaluating program results. Many program evaluation offices were small, 

had other responsibilities, and produced only a few effectiveness 

studies annually. Moreover, systematic program evaluations--and units 

responsible for producing them--had been concentrated in only a few 

agencies. Although many federal programs attempt to influence complex 

systems or events outside the immediate control of government, we have 

expressed continued concern that many agencies lack the capacity to 

undertake the program evaluations that are often needed to assess a 

federal programs contributions to results where other influences may 

be at work. In addition to information on the outcomes, impact 

evaluations using scientific research methods are needed to isolate a 

particular programs contribution to those outcomes. Yet in our survey, 

we found that the most commonly reported study design was judgmental 

assessment of program effects. These judgmental assessments, one-time 

surveys, and simple before-and-after studies accounted for 40 percent 

of the research methods used in agencies evaluation studies conducted 

during the period we studied.



There are inherent challenges affecting agencies capacity to conduct 

evaluations of program effectiveness. For example, many agency programs 

are designed to be one part of a broader effort, working alongside 

other federal, state, local, nonprofit, and private initiatives to 

promote particular outcomes. Although information on the outcomes 

associated with a particular program may be collected, it is often 

difficult to isolate a particular programs contribution to those 

outcomes. Additionally, where federal program responsibility has 

devolved to the states, federal agencies ability to influence program 

outcomes diminishes, while at the same time, their dependence on states 

and others for data with which to evaluate programs grows.



In past reports, we have identified several promising ways agencies can 

potentially maximize their evaluation capacity. For example, careful 

targeting of federal evaluation resources on key policy or performance 

questions and leveraging federal and nonfederal resources show promise 

for addressing key questions about program results. Other ways agencies 

might leverage their current evaluation resources include adapting 

existing information systems to yield data on program results, drawing 

on the findings of a wide array of evaluations and audits, making 

multiple use of an evaluations findings, mining existing databases, 

and collaborating with state and local program partners to develop 

mutually useful performance data.



Our work has also shown that advance coordination of evaluation 

activities conducted by program partners is necessary to help ensure 

that the results of diverse evaluation activities can be synthesized at 

the national level.[Footnote 9]



Improvements in the quality of performance data and the capacity of 

federal agencies to perform program evaluations will require sustained 

commitment and investment of resources, but over the longer term, 

failing to discover and correct performance problems can be much more 

costly. More importantly budgetary investments need to be viewed as 

part of a broader initiative to improve the accountability and 

management capacity of federal agencies and programs.



Credible Performance Information Must Be Available to and Used by 

Actors with Different Needs:



Improving the supply of performance information is in and of itself 

insufficient to sustain performance management and achieve real 

improvements in management and program results. Rather, it needs to be 

accompanied by a demand for that information by decision makers and 

managers alike. The history of performance budgeting has shown that the 

supply of information will wither if it is perceived to have failed to 

affect decision making. Accordingly, PART may complement GPRAs focus 

on increasing the supply of credible performance information by 

promoting the demand for this information in the budget decision making 

process.



Successful use of performance information in budgeting should not be 

defined only by the impact on funding levels in presidential budget 

requests and the congressional budget process. Rather, resource 

allocation decisions are made at various other stages in the budget 

process, such as agency internal budget formulation and execution and 

in the congressional oversight and reauthorization process.[Footnote 

10] If agency program managers perceive that program performance and 

evaluation data will be used to make resource decisions throughout the 

resource allocation process and can help them make better use of these 

resources, agencies may make greater investments in improving their 

capacity to produce and procure quality information. For example, in 

our work at the Administration on Children and Families, we describe 

three general ways in which resource allocation decisions at the 

programmatic level are influenced by performance: (1) training and 

technical assistance money is often allocated based on needs and 

grantee performance, (2) partnerships and collaboration help the agency 

work with grantees towards common goals and further the 

administrations agenda, and (3) organizing and allocating staff around 

agency goals allow employees to link their day-to-day activities to 

longer-term results and outcomes.[Footnote 11] It is important to note 

that these and other examples from our work at the Veterans Health 

Administration and the Nuclear Regulatory Commission affect 

postappropriations resource decisions, that is, the stage where 

programs are being implemented during what is generally referred to as 

budget execution.[Footnote 12]



Structural Alignment:



Sustaining a focus on performance budgeting in the federal government 

is predicated upon aligning performance goals with all key management 

activities--budgeting, financial management, human capital management, 

capital acquisition, and information technology management. The closer 

the linkage between an agencys performance goals, its budget 

presentation, and its net cost statement, the greater the reinforcement 

of performance management throughout the agency and the greater the 

reliability of budgetary and financial data associated with performance 

plans. Clearer and closer association between expected performance and 

budgetary requests can more explicitly inform budget discussions and 

focus them--both in Congress and in agencies--on expected results, 

rather than on inputs or transactions solely.[Footnote 13]



Throughout government, as figure 1 shows, there exists a general lack 

of integration among budget, performance, and financial reporting 

structures.[Footnote 14] Moreover, these structures can vary 

considerably across the departments and agencies of the federal 

government. For example, the current budget account structure was not 

created as a single integrated framework, but developed over time to 

reflect the many roles it has been asked to play and to address the 

diverse needs of its many users. It reflects a variety of different 

orientations which for the most part do not reflect agency performance 

goals or objectives. Agency budget accounts, for instance, can be 

organized by items of expense, organizational unit, program, or a 

combination of these categories.



Figure 1: GPRA Performance Planning, Budget, and Net Cost Model:



[See PDF for image] 



[End of figure] 



The general lack of integration between these structures can hamper the 

ability of agencies to establish and demonstrate the linkage between 

budget decisions and performance goals. While special analyses can help 

illustrate these linkages, such efforts are often burdensome and 

awkward. A systematic capacity to crosswalk among these disparate 

structures can help encourage a more seamless integration of resources 

with results. Better matching of full costs associated with performance 

goals helps increase decision makers understanding of the links 

between requested resources and expected performance outcomes. This 

will eventually require linkages between performance planning and 

budget structures (to highlight how requested resources would 

contribute to agency goals) as well as linkages between performance 

plans and financial reporting structures (to highlight the costs of 

achieving agency goals). Ultimately, over the longer term, this 

integration may require changing the structures themselves to harmonize 

their orientations.



Our work indicates that progress has been made. Agencies are developing 

approaches to better link performance plans with budget presentations 

and financial reporting. They have made progress in both in 

establishing linkages between performance plans and budget requests and 

in translating those linkages into budgetary terms by clearly 

allocating funding from the budgets program activities to performance 

goals.[Footnote 15]



For example, table 1 and figure 2 show the approaches used by the 

Department of Housing and Urban Development (HUD) in its last three 

performance plans. In table 1, for fiscal years 2000 and 2001, HUD used 

summary charts to array its requested resources by general goal but 

progressed from portraying this linkage with an x in fiscal year 2000 

to using funding estimates derived from its budget request in fiscal 

year 2001. Figure 2 shows the fiscal year 2002 plan in which HUD 

removed the summary charts and instead directly portrayed the linkages 

in the body of the plan.





Table 1: Change in HUDs Presentation of Performance Plan-Budget 

Linkages, Fiscal Years 2000 and 2001:



[See PDF for image]



Source: HUD.



Note: Dollars in millions. GAO analysis of HUD data.



[End of table]



Figure 2: HUDs Presentation of Performance Plan-Budget Linkages, 

Fiscal Year 2002:



[See PDF for image] 



[A] HOME includes housing counseling staff in the Office of Housing.



[B] Housing Certificate Fund BA numbers represent program levels 

instead of net budget authority (BA figures for this account are 

significantly affected by rescissions and advanced appropriations). 

Staff includes Office of Housing staff working with project-based 

Section 8.



[C] Fiscal year 2001 BA total does not include supplemental 

appropriations.



[D] Includes programs that do not receive a discretionary 

appropriation.



[E] Other staff includes the Real Estate Assessment Center and the 

Office of Multifamily Housing Assistance Restructuring.



[End of figure] 



We have also seen progress in agencies initial efforts to link annual 

performance reporting with annual audited financial 

statements.[Footnote 16] For example, for fiscal year 2000, 13 of the 

24 agencies covered by the CFO Act, compared to 10 in fiscal year 1999, 

reported net costs in their audited annual financial statements using a 

structure that was based on their performance planning structure.



Better understanding the full costs associated with program outcomes is 

another important but underdeveloped element of performance budgeting. 

This entails a broader effort to more fully measure the indirect and 

accrued costs of federal programs. The administration has proposed that 

agencies be charged for the governments full share of the accruing 

costs of all pension and retiree health benefits for their employees as 

those benefits are earned. Such a proposal could help better reflect 

the full costs accrued in a given year by federal programs.



Recognizing long-term costs is also important to understanding the 

future sustainability and flexibility of the governments fiscal 

position. For activities such as environmental cleanup costs, the 

governments commitment occurs years before the cash consequences are 

reflected in the budget. These costs should be considered at the time 

resource commitments are made. Building on past work,[Footnote 17] we 

are currently exploring these issues in greater detail.



More broadly, timely, accurate, and useful financial information is 

essential for managing the governments operations more efficiently, 

effectively, and economically; meeting the goals of financial reform 

legislation (such as the CFO Act); supporting results-oriented 

management approaches; and ensuring ongoing accountability. We have 

continued to point out that the federal government is a long way from 

successfully implementing the statutory reforms of the 1990s. 

Widespread financial management system weaknesses, poor recordkeeping 

and documentation, weak internal controls, and a lack of information 

have prevented the government from having the cost information needed 

to effectively and efficiently manage operations or accurately report a 

large portion of its assets, liabilities, and costs.



Performance Budgeting Can Broaden the Debate on Budget Trade-offs:



Looking forward, it is appropriate to ask why all of this effort is 

worthwhile. Certainly making clear connections between resources, 

costs, and performance for programs is valuable. Improving evaluation 

capacity has the potential to create the demand to support further 

improvements. However, the real payoff will come in strengthening the 

budget process itself.



Expanding and Elevating Budget Deliberations beyond Individual 

Programs:



The integration of budgeting and performance can strengthen budgeting 

in several ways. First, the focus on outcomes can broaden the debate 

and elevate budget trade-offs from individual programs to a discussion 

of how programs work together to achieve national goals. Although the 

evaluation of programs in isolation may be revealing, it is often 

critical to understand how each program fits with a broader portfolio 

of tools and strategies--such as regulations, direct loans, and tax 

expenditures--to accomplish federal goals. For example, in fiscal year 

2000, the federal health care and Medicare budget functions included 

$319 billion in entitlement outlays, $91 billion in tax expenditures, 

$37 billion in discretionary budget authority, and $5 million in loan 

guarantees. (See fig. 3.):



Figure 3: Relative Reliance on Policy Tools in the Health Care Budget 

Functions, Fiscal Year 2000 ($447 Billion In Total Spending):



[See PDF for image] 



Note: Includes both the health and medicare budget functions. Loan 

guarantees account for about $5 million, or about 0.001 percent of the 

approximately $447 billion in total federal health care resources.



[End of figure] 



Achieving federal/national policy goals often depends on the federal 

governments partners--including other levels of government, private 

employers, nonprofits, and other nongovernmental actors. The choice and 

design of these tools are critical in determining whether and how these 

actors will address federal objectives. GPRA required the President to 

prepare and submit to Congress a governmentwide performance plan to 

highlight broader, crosscutting missions, such as those discussed 

above. Unfortunately, this was not done in fiscal years 2003 and 2004; 

we hope that the Presidents fiscal year 2005 budget does include such 

a plan.



Examining the Base in Budget Deliberations:



Second, a focus on performance can help us shift our view from 

incremental changes to an evaluation of the base itself. Making 

government adapt to meet the challenges of the future is broader than 

strengthening performance-informed resource decisions. Fiscal 

pressures created by the retirement of the baby boom generation and 

rising health care costs threaten to overwhelm the nations fiscal 

future. Difficult as it may seem to deal with the long-term challenges 

presented by known demographic trends, policymakers must not only 

address the major entitlement programs but also reexamine other 

budgetary priorities in light of the changing needs of this nation in 

the 21st century. Reclaiming our fiscal flexibility will require the 

reexamination of existing programs, policies, and activities. It is all 

too easy to accept the base as given and to subject only new 

proposals to scrutiny and analysis.



As we have discussed previously,[Footnote 18] many federal programs, 

policies, and activities--their goals, their structures, and their 

processes--were designed decades ago to respond to earlier challenges. 

In previous testimony,[Footnote 19] we noted that the norm should be to 

reconsider the relevance or fit of any federal program, policy, or 

activity in todays world and for the future. Such a review might 

ferret out programs that have proven to be outdated or persistently 

ineffective, or alternatively could prompt appropriate updating and 

modernizing activities through such actions as improving program 

targeting and efficiency, consolidation, or reengineering of processes 

and operations. This includes looking at a programs relationship to 

other programs.



The Role of Congressional Oversight:



Finally, and most critically, Congress must be involved in this debate 

and the resulting decisions and follow-up oversight activities. 

Congressional buy-in is critical to sustain any major management 

initiative, but 50 years of past efforts to link resources with results 

have shown that any successful effort must involve Congress as a 

partner given Congress central role in setting national priorities and 

allocating the resources to achieve them. In fact, the administration 

acknowledged that performance and accountability are shared 

responsibilities that must involve Congress. It will only be through 

the continued attention of Congress, the administration, and federal 

agencies that progress can be sustained and, more important, 

accelerated. Congress has, in effect, served as the institutional 

champion for many previous performance management initiatives, such as 

GPRA and the CFO Act, by providing a consistent focus for oversight and 

reinforcement of important policies.



More generally, effective congressional oversight can help improve 

federal performance by examining the program structures agencies use to 

deliver products and services to ensure that the best, most cost-

effective mix of strategies is in place to meet agency and national 

goals. As part of this oversight, Congress should consider the 

associated management and policy implications of crosscutting programs.



Given this environment, Congress should also consider the need for 

processes that allow it to more systematically focus its oversight on 

programs with the most serious and systemic weaknesses and risks. At 

present, Congress has no direct vehicle to provide its perspective on 

governmentwide performance issues. Congress has no established 

mechanism to articulate performance goals for the broad missions of 

government, to assess alternative strategies that offer the most 

promise for achieving these goals, or to define an oversight agenda 

targeted at the most pressing crosscutting performance and management 

issues. Congress might consider whether a more structured oversight 

approach is needed to permit a coordinated congressional perspective on 

governmentwide performance matters. Such a process might also 

facilitate congressional input into the OMB PART initiative. For 

example, although the selection of programs and areas for review is 

ultimately the Presidents decision, such choices might be informed and 

shaped by congressional views and perspectives on performance issues.



Concluding Observations:



How would success in performance budgeting be defined? Simply 

increasing the supply of performance information is not enough. If the 

information is not used--that is, if there is insufficient demand--the 

quality of the information will deteriorate and the process either will 

become rote or will wither away. However, for the reasons noted, the 

success of performance budgeting cannot be measured merely by the 

number of programs killed or a measurement of funding changes against 

performance grades. Rather, success must be measured in terms of the 

quality of the discussion, the transparency of the information, the 

meaningfulness of that information to key stakeholders, and how it is 

used in the decision-making process. If members of Congress and the 

executive branch have better information about the link between 

resources and results, they can make the trade-offs and choices 

cognizant of the many and often competing claims at the federal level.



A comprehensive understanding of the needs of all participants in the 

budget process, including what measures and performance information are 

required at different stages of the budget cycle, is critical. Making 

performance budgeting a reality throughout the federal government will 

be facilitated by efforts to improve the structural alignment of 

performance planning goals with budget and cost accounting structures 

and presentations. However, developing credible performance measures 

and data on program results will be absolutely critical in determining 

whether the performance perspective becomes a compelling framework that 

decsion makers will use in allocating resources.



Performance budgeting is difficult work. It requires taking a hard look 

at existing programs and carefully reconsidering the goals those 

programs were intended to address--and whether those goals are still 

valid. It involves analyzing the effectiveness of programs and seeking 

out the reasons for success or failure. It involves navigating through 

the maze of federal programs and activities, in which multiple agencies 

may operate many different programs, to address often common or 

complementary objectives. However, the task of revising and reforming 

current programs and activities that may no longer be needed or that do 

not perform well is fraught with difficulties and leads to real 

winners and losers. Notwithstanding demonstrated weaknesses in 

program design and shortfalls in program results, there often seems to 

be little low hanging fruit in the federal budget. In fact, some 

argue that because some programs are already in the base in budgetary 

terms, they have a significant advantage over new initiatives and new 

demands.



This is an opportune time for the executive branch and Congress to 

carefully consider how agencies and committees can best take advantage 

of and leverage the new information and perspectives coming from the 

reform agenda under way in the executive branch. Prudent stewardship of 

our nations resources--whether in time of deficit or surplus--is 

essential not only to meet todays needs but also for us to deliver our 

promises and address future needs.



:



This concludes my prepared statement. I would be pleased to answer any 

questions you or the other members of the subcommittee may have at this 

time.



Contacts and Acknowledgement:



For further contacts regarding this testimony, please contact Paul 

Posner at (202) 512-9573 or at posnerp@gao.gov or Denise Fantone, 

Assistant Director, at (202) 512-4997 or at fantoned@gao.gov. 

Individuals making key contributions to this testimony included 

Jacqueline M. Nowicki, 

Kristeen G. McLain, and Elizabeth McClarin.



(450198):



FOOTNOTES



[1] U.S. General Accounting Office, Performance Budgeting: Past 

Initiatives Offer Insights for GPRA Implementation, GAO/AIMD-97-46 

(Washington, D.C.: Mar. 27, 1997).



[2] There is no consistent definition for the term program. For 

purposes of PART, the unit of analysis (program) should have a discrete 

level of funding clearly associated with it.



[3] U.S. General Accounting Office, Performance Budgeting: 

Opportunities and Challenges, GAO-02-1106T (Washington, D.C.: Sept. 19, 

2002).



[4] U.S. General Accounting Office, Program Evaluation: Agencies 

Challenged by New Demand for Information on Program Results, GAO/GGD-

98-53 (Washington, D.C.: Apr. 24, 1998).



[5] U.S. General Accounting Office, Performance Reporting: Few Agencies 

Reported on the Completeness and Reliability of Performance Data, GAO-

02-372 (Washington, D.C.: 

Apr. 26, 2002).



[6] U.S. General Accounting Office, Financial Management: FFMIA 

Implementation Necessary to Achieve Accountability, GAO-03-31 

(Washington, D.C.: Oct. 1, 2002).



[7] P. L. 104-208, Div. A, Title I, sec. 101(f) [Title VIII], 110 Stat. 

3009-389 (1996).



[8] GAO/GGD-98-53. 



[9] In a report to be issued in May 2003, we discuss the experiences of 

five diverse agencies that have demonstrated evaluation capacity. The 

report also identifies useful capacity-building strategies that other 

agencies might adopt.



[10] Philip G. Joyce and Susan Seig, Using Performance Information for 

Budgeting: Clarifying the Framework and Investigating Recent State 

Experience (Washington, D.C.: American Society for Public 

Administration, 2000).



[11] U.S. General Accounting Office, Managing for Results: Efforts to 

Strengthen the Link Between Resources and Results at the Administration 

for Children and Families, GAO-03-09 (Washington, D.C.: Dec. 10, 2002).



[12] U.S. General Accounting Office, Managing for Results: Efforts to 

Strengthen the Link Between Resources and Results at the Veterans 

Health Administration, GAO-03-10 (Washington, D.C.: Dec. 10, 2002), and 

Managing for Results: Efforts to Strengthen the Link Between Resources 

and Results at the Nuclear Regulator Commission, GAO-03-258 

(Washington, D.C.: Dec. 10, 2002).



[13] For further information see U.S. General Accounting Office, 

Managing for Results: Results-Oriented Budget Practices in Federal 

Agencies, GAO-01-1084SP (Washington, D.C.: August 2001).



[14] U.S. General Accounting Office, Managing for Results: Agency 

Progress in Linking Performance Plans with Budgets and Financial 

Statements, GAO-02-236 (Washington, D.C.: Jan. 4, 2002).



[15] GAO-02-236.



[16] GAO-02-236.



[17] U.S. General Accounting Office, Fiscal Exposures: Improving the 

Budgetary Focus on Long-Term Costs and Uncertainties, GAO-03-213 

(Washington, D.C.: Jan. 24, 2003).



[18] U.S. General Accounting Office, Budget Issues: Effective Oversight 

and Budget Discipline Are Essential--Even in a Time of Surplus, GAO/T-

AIMD-00-73 (Washington, D.C.: Feb. 1, 2000), and Budget Issues: Long-

Term Fiscal Challenges, GAO-02-467T (Washington, D.C.: Feb. 27, 2002).



[19] U.S. General Accounting Office, Homeland Security: Challenges and 

Strategies in Addressing Short-and Long-Term National Needs, GAO-02-

160T (Washington, D.C.: Nov. 7, 2001), GAO/T-AIMD-00-73, and GAO-02-

467T.