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USING TAXPAYERS’ DOLLARS MOST EFFICIENTLY:

PERSPECTIVES ON PERFORMANCE BUDGETING

HEARING

BEFORE THE

COMMITTEE ON THE BUDGET 

HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

HEARING HELD IN WASHINGTON, DC, SEPTEMBER 20, 2007

Serial No. 110–19

Printed for the use of the Committee on the Budget

(

Available on the Internet: 

http://www.gpoaccess.gov/congress/house/budget/index.html 

(II)

COMMITTEE ON THE BUDGET 

JOHN M. SPRATT, JR., South Carolina, Chairman 

ROSA L. DELAURO, Connecticut, 

CHET EDWARDS, Texas 

JIM COOPER, Tennessee 

THOMAS H. ALLEN, Maine 

ALLYSON Y. SCHWARTZ, Pennsylvania 

MARCY KAPTUR, Ohio 

XAVIER BECERRA, California 

LLOYD DOGGETT, Texas 

EARL BLUMENAUER, Oregon 

MARION BERRY, Arkansas 

ALLEN BOYD, Florida 

JAMES P. MCGOVERN, Massachusetts 

ROBERT E. ANDREWS, New Jersey 

ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia 

BOB ETHERIDGE, North Carolina 

DARLENE HOOLEY, Oregon 

BRIAN BAIRD, Washington 

DENNIS MOORE, Kansas 

TIMOTHY H. BISHOP, New York 

GWEN MOORE, Wisconsin 

[Vacancy] 

PAUL RYAN, Wisconsin, 

Ranking Minority Member 

J. GRESHAM BARRETT, South Carolina 

JO BONNER, Alabama 

SCOTT GARRETT, New Jersey 

MARIO DIAZ–BALART, Florida 

JEB HENSARLING, Texas 

DANIEL E. LUNGREN, California 

MICHAEL K. SIMPSON, Idaho 

PATRICK T. MCHENRY, North Carolina 

CONNIE MACK, Florida 

K. MICHAEL CONAWAY, Texas 

JOHN CAMPBELL, California 

PATRICK J. TIBERI, Ohio 

JON C. PORTER, Nevada 

RODNEY ALEXANDER, Louisiana 

ADRIAN SMITH, Nebraska 

[Vacancy] 

PROFESSIONAL STAFF

THOMAS S. KAHN, Staff Director and Chief Counsel 

JAMES T. BATES, Minority Chief of Staff 

(III)

C O N T E N T S

Page 

Hearing held in Washington, DC, September 20, 2007 ........................................ 1

Statement of: 

Hon. John M. Spratt, Jr., Chairman, House Committee on the Budget ..... 1

Hon. Paul Ryan, ranking minority member, House Committee on the 

Budget ............................................................................................................ 2

Barry Anderson, Organization for Economic Cooperation and Development (OECD), prepared statement of ......................................................... 3

Hon. Adrian Smith, a Representative in Congress from the State of 

Nebraska, prepared statement of ................................................................ 7

Hon. Clay Johnson III, Deputy Director for Management, Office of Management and Budget (OMB) ........................................................................ 8

Prepared statement of ............................................................................... 9

David M. Walker, Comptroller General of the United States, U.S. Government Accountability Office (GAO) ............................................................... 11

Prepared statement of ............................................................................... 16

Peter R. Orszag, Director, Congressional Budget Office (CBO) ................... 37

Prepared statement of ............................................................................... 40

Paul L. Posner, director, Public Administration Program, George Mason 

University, prepared statement of ............................................................... 78

(1)

USING TAXPAYERS’ DOLLARS MOST

EFFICIENTLY: PERSPECTIVES ON 

PERFORMANCE BUDGETING 

THURSDAY, SEPTEMBER 20, 2007

HOUSE OF REPRESENTATIVES, 

COMMITTEE ON THE BUDGET, 

Washington, DC. 

The committee met, pursuant to call, at 10:07 a.m. in room 210, 

Cannon House Office Building, Hon. John Spratt [chairman of the 

committee] presiding. 

Present: Representatives Spratt, Edwards, Cooper, Becerra, 

Blumenauer, Berry, Boyd, Scott, Etheridge, Bishop, Ryan, 

Conaway, Porter, Alexander, and Smith. 

Chairman SPRATT. Good morning and welcome to our hearing on 

performance budgeting. We have an excellent panel of government 

witnesses who have thought long and hard about this subject, performance budgeting. I thank them for their participation today. 

Given the daunting budgetary that face us, we need more than 

ever to put the taxpayers’ dollars to the wisest possible use. Earlier 

this year, the committee heard from government witnesses about 

efforts to combat waste, fraud and abuse in health care, retirement 

and tax collection. 

Our budget this year made provision for additional funding to 

provide for what we call ‘‘program integrity’’ in these areas. And 

those program integrity funds are included in the appropriation 

bills that the House passed. 

Today we turn our attention to another aspect of stewardship. 

Our question today is whether or not there are ways that we can 

improve the tools we use to measure government performance and 

effectiveness to see that we are getting the most bang for our 

bucks. 

Performance budgeting is not a new concept. It has been undertaken by nearly every administration for the past 50 years. The 

most recent comprehensive initiative was the Government Performance Results Act of 1993 which is aimed at creating a framework 

to align performance objectives and program activities. 

While the goals of the GPRA are similar to other efforts, it differs from its predecessors in one key respect. The basis for the 

GPRA review is statutory, explicitly linked to the budget process, 

and congressional involvement is mandated. 

During the current administration, OMB has embarked on the 

development of the rating system known as Program Assessment 

Rating Tool, or PART. While similar in some respects to the goals 

2

of GPRA, PART has been used mostly to assist in the executive 

branch budget formulation. There is a wide range of views about 

PART. Criticism has been raised about its effectiveness, the subjectivity. And some of those perspectives will be explored today. And 

from OMB, GAO and CBO we have an extraordinary range of expertise. 

But before turning to our witnesses, I want to yield to the Ranking Member, Mr. Ryan for any opening statements he may care to 

make. 

Mr. Ryan. 

Mr. RYAN. Thank you, Chairman, and I thank you for having 

this hearing. This is a very well-timed hearing and I look forward 

to our witnesses’ testimony. 

Clearly, constituents want Congress to ensure that they are running their government and spending their tax dollars as effectively 

and as efficiently as possible. But Congress has long struggled to 

define that goal, let alone even achieve it. There is simply no formula on how Congress’ spending decisions are made. Policy preferences, parochial interests, both inside and outside of government, 

and even emotional ties, all factor into the mix. And it is notoriously difficult to come to a consensus as to which programs we 

think are working well and which are not. It is therefore critical 

that Congress has an objective means for measuring agency performance. 

Today we are here to discuss several of the tools Congress has 

been provided to help us towards that end. And in particular, the 

Government Performance and Results Act and the administration’s 

Program Assessment Rating Tool, or PART, are two good tools. 

Clearly there is not always going to be a direct correspondence between how well an agency performs and the amount of funding it 

receives. 

That said, let us look at this year’s PART assessment of the 

worst performing programs that appears to show that there is a 

complete disconnect between program performance and Housepassed funding levels. 

If you could pull up chart one, please. 

Consider what has happened with our worst performing programs. OMB’s recent PART analysis reviewed over 1,000 programs, 

3 percent of which received a rating of ineffective, or the worst possible rating that they provide. The President’s budget requested 

lower funding levels for these programs. But as this chart shows, 

the House actually gave them considerably more than the President requested. Again, there is not always going to be a direct correspondence between performance and funding levels, but it does 

seem that Congress is failing to take advantage of the tools we 

have available to guide funding decisions, at least partially, on actual agency performance. 

So I think today’s review of these assessment tools and how Congress might better utilize them is a particularly useful and constructive use of this committee’s time. And I thank the Chairman 

for having this hearing. 

Chairman SPRATT. Mr. Ryan, we will go with Mr. Johnson first, 

the Deputy Director of OBM. But before we do, we have got a couple of housekeeping details. First of all, we have a request for 

3

1 Curristine, T., Z. Lonti and I. Joumard (2007) ‘‘Improving Public Sector Efficiency: Challenges and Opportunities’’, OECD Journal on Budgeting, Vol. 7(1), pp. 161-201 2 Curristine, T (2005) ‘‘Performance Information in the Budget process: Results of the OECD 

2005 Questionnaire’’, OECD Journal on Budgeting, Vol. 5(2), pp. 87-131

unanimous consent for two witnesses, the statements of Mr. Barry 

Anderson, whom we all know, head of Budgeting and Public Expenditures at OECD, and Paul Posner, Director of the Public Administration program at George Mason. I want to take this opportunity quickly to thank both of them for their contributions to the 

hearing. We had asked them to submit testimony to gain a boarder 

spectrum of views about the subject from some of those who have 

thought long and hard about it. Their observations will be part of 

the record and will be food for thought as we deal with this matter. 

[The prepared statement of Mr. Anderson follows:]

PREPARED STATEMENT OF BARRY ANDERSON, ORGANIZATION FOR ECONOMIC

COOPERATION AND DEVELOPMENT (OECD) 

Mr. Chairman and Members of the Committee: Thank you for giving me the opportunity to testify on the use of performance information in budgeting. I know this 

Committee has had an interest in the performance of Federal programs for a number of years, as I have discussed the subject many times with members and staff 

during my tenure as the Deputy Director of the Congressional Budget Office between 1999-2003. However, I am in a much different role now than I was then: I 

am currently Head of the Budgeting and Public Expenditures Division of the Organization of Economic Cooperation and Development (OECD) located in Paris. And 

I have been asked to submit written testimony on the international use of performance information in budgeting. 

OECD countries—and other countries around the world—are under pressure to 

improve public sector performance and at the same time contain expenditure 

growth. As factors such as ageing populations and increasing health care and pension costs add to budgetary pressures, citizens are demanding that governments be 

made more accountable for what they achieve with taxpayers’ money. An important 

step in this process is to gather objective information about public sector performance.1 Performance information enables governments to measure progress towards 

achieving their policy and programme goals and provides details on what initiatives 

are working and those that are not. The central aim is to improve decision making 

by providing politicians and civil servants with better quality and more concrete information on the performance of agencies and programmes. In addition, this information can enhance transparency to the public and the legislature. 

The introduction of performance information into the budget processes across 

OECD countries is a widespread, long term and evolving process. Formal performance information is taken to refer to both performance measures (outputs and/or 

outcomes) and evaluations. Consider the following: 

• 75% of OECD countries include non-finance performance data in budget documentation; 

• 40% of countries have been working on outputs for over 10 years; 

• 35% of countries introduced a new initiative in this area in 2005.2

The 1990s witnessed an expansion of efforts by many governments to introduce 

performance information into their budgets as part of a process that seeks to move 

the focus of decision making in budgeting away from inputs (how much money can 

I get?) towards measurable results (what can I achieve with this money?). At first 

this movement led to the introduction of performance budgeting as a form of budgeting that directly relates funds allocated to measurable results. Performance budgeting has also been linked to larger reform efforts to improve expenditure control 

and/or public sector efficiency and performance. Performance budgeting initiatives 

tend to go hand in hand with performance management or managing for results. 

These reforms are often combined with reductions in input controls and increased 

flexibility for managers—in return for stronger accountability for the results—so as 

to enable them to decide how to best deliver public services. 

PERFORMANCE-INFORMED BUDGETING

The production of performance information is not an end in itself; quite the contrary, to make difference performance information has to be actually used in the deVerDate 0ct 09 2002 15:50 Jan 14, 2008 Jkt 000000 PO 00000 Frm 00007 Fmt 6633 Sfmt 6621 J:\DOCS\HEARINGS\110TH\110-19\39976.TXT HBUD1 PsN: DICK
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3OECD (2007) , Performance Budgeting in OECD Countries, OECD Publishing, Paris. 

cision-making process. As countries struggled with mechanical performance budgeting systems that some first started with, a major issue developed on what was 

the best way to use performance information in the budgetary process. However, 

whatever troubles countries encountered in using performance information, no country ever stopped using the information, although some changed their techniques as 

they learned what worked and what didn’t. 

There are different models and approaches to using performance information. As 

the use of performance information evolved, the majority of OECD countries began 

to adopt performance-informed budgeting where performance information (performance measures and/or evaluations) is used along with other information on political 

and fiscal priorities to inform—but not determine—budget allocations. Most importantly, it is only one factor in the decision-making process.3 In performance-informed budgeting, there is no direct or mechanical link between measures of performance and funding. Performance information is used for planning and/or accountability purposes; that is, the Ministry of Finance (MOF) can use planned future performance to inform funding decisions and use performance results to hold agencies 

to account and to inform budgetary allocations. But many countries have found that 

performance-informed budgeting techniques are better at incorporating performance 

information into the budget process than mechanistic performance budgeting. 

Below are examples of different approaches to include performance information in 

budget and management processes taken by a few OECD countries. 

Australia 

Australia’s current performance budgeting and management framework has been 

in place since the mid-1990s. These arrangements arose from the budgetary reforms 

associated with the 1996 report of the National Commission of Audit and subsequent introduction of accrual-based outcomes and outputs policies. The current 

framework develops both performance measures and evaluations. 

At a national level, Australia operates under a devolved financial framework. Performance management and budgeting are generally the responsibility of individual 

ministers and their departments and agencies. The current system concentrates on 

agency-level outcomes. Every department and agency within the general government sector is required to identify comprehensive and explicit outcomes, outputs, 

and performance measures for quantity, quality, price, and effectiveness of their activities. They are required to report on those items and any major evaluations in 

their budget plans (portfolio budget statements) and their end-of-year results (in annual reports). 

Expenditure and programme reviews are a central feature of the Australian budget process and an area where performance information is used to inform budget decisions. Until recently, the lapsing budget measure review process was the most 

commonly used type of review, but the Australian government revised the review 

arrangements in October 2006. The new arrangements give the MOF a greater role 

in identifying and managing reviews in co-operation with departments. Senior ministers make decisions early in the budget process regarding which major areas of 

public expenditure will be reviewed in any year. In addition, there can be major reviews or departmental reports, which can be short-term and available for the next 

budget or more for long-term. 

Canada 

Over the years, the Canadian federal government has implemented numerous performance budgeting and management initiatives. The government currently uses 

performance information throughout the planning, measuring and assessing, and reporting phases of expenditure management. 

The federal government’s expenditure management framework is complex and 

decentralised. All major departments produce strategic plans, known as reports on 

plans and priorities (RPPs). These are planning documents which are submitted to 

Parliament detailing the strategic outcomes and planned results of each department. These documents also include information on resource requirements over a 

three-year period. All departments report on the results in departmental performance reports (DPRs) which set out performance against commitments in the RPP. 

The Treasury Board (a Cabinet committee) produces and presents to Parliament two 

whole-of-government reports: RPP Overview guides parliamentarians through the 

many RPPs each spring, and Canada’s Performance does the same for the departmental performance reports each autumn. 

In addition, all major departments and agencies have internal audit and evaluation units. In 2004-2005, evaluations covered approximately 10% of departmental 

5

programme funding. The government has also sought to introduce performance information into decision making on its 750 non-statutory transfer payment programmes that are delivered through third parties and must be reviewed by the 

Treasury Board at least once every five years. As the programmes come up for review, departments must produce evaluations. In addition, a policy on transfer payments (June 2000) formalised the requirement for departments to develop resultsbased management and accountability frameworks and risk-based audit frameworks 

in support of the ongoing management and renewal of these programmes. 

In 2005, the Treasury Board, in an effort to regain detailed programme-level 

knowledge, adopted the Management, Resources and Results Structure (MRRS) policy. This sets explicit requirements for departments on how to collect, manage and 

report financial and non-financial information at a government-wide level. These results-based structures underpin all performance planning and reporting. 

After the 2006 election, the conservative government called for reform of the federal expenditure management system and greater use of performance information 

in support of resource allocation and reallocation decisions. In addition to the performance-based Cabinet reviews of transfer payment programmes already in place, 

current plans call for the commencement of a first round of strategic programme reviews to begin in the autumn of 2007. All available performance information—

whether from audits, evaluations, the MRRS performance frameworks, or from annual assessments of departmental management performance—will support these reviews. 

Netherlands 

In 2001, the Netherlands introduced a more policy-oriented budget structure. The 

Policy Budgets and Policy Accountability reform aimed to provide Parliament with 

a more transparent budget document and clearer information about the results of 

government actions. This reform was an initiative of the Lower House of the Dutch 

Parliament. 

In addition, since 1995 the Netherlands has developed a system of interdepartmental policy reviews. Policy reviews are proposed by the MOF and approved by the 

Cabinet and the respective line ministries. A list of proposed reviews is included in 

the September budget memorandum. These reviews are conducted by small working 

groups including representatives from the relevant line ministries, the MOF, and 

external experts. All reports are published and submitted to Parliament. Initially 

these reviews concentrated on efficiency with a mandatory 20% saving; however, as 

the economic situation improved the mandatory cut was abolished and the reviews 

focused more on institutional reform. 

United Kingdom 

The United Kingdom first introduced the comprehensive spending review in 1998 

and repeated the exercise in 2000, 2002, 2004 and 2007. This biennial approach 

aims to reallocate money to key priorities and to improve the efficiency and delivery 

of public services. After a review of existing departmental spending, each department develops a three-year spending plan and a public service agreement (PSA). 

The Treasury negotiates with ministries regarding their key performance targets for 

the next three-year period and these targets are included in their public service 

agreements. PSAs contain measurable targets for a whole range of government objectives. The current agreements mainly focus on outcome targets, although there 

are still a few output targets. In addition to the PSA, each department produces a 

technical note stating how the targets will be measured and a delivery plan explaining how it plans to achieve the targets. The technical note is published but the delivery plan is not. 

The PSA also states who is responsible for the delivery of the targets—usually the 

relevant secretary of state. In contrast to Australia, Denmark, and Sweden, this is 

a top-down, centrally-driven performance system. The development and evolution of 

the PSA framework has been led by the Treasury. All performance agreements and 

ministerial targets are agreed with the Treasury. Performance information is discussed as part of the spending review negotiations between the Treasury and ministries, although there is no automatic link between results and resource allocation. 

In the United Kingdom, key objectives and targets are integrated into the decision-making process at a high political level. There is a special cabinet subcommittee on public services and public expenditure, which is chaired by the Chancellor of the Exchequer. This committee discusses progress against targets and key 

strategic objectives and challenges. 

6

THE BENEFITS AND CHALLENGES OF THE USE OF PERFORMANCE INFORMATION IN THE

BUDGET PROCESS

Countries have reported a number of benefits from the use of performance information: 

• It generates a sharper focus on results within the government. 

• It provides more and better information on government goals and priorities, and 

on how different programmes contribute to achieve these goals. 

• It encourages a greater emphasis on planning—especially when part of a medium term expenditure framework—and acts as a signalling device that provides 

key actors with details on what is working and what is not. 

• It improves transparency by providing more and better information to parliaments and to the public. (Twenty-four out of 30 OECD countries provide information on performance results to the public.) 

• It has the potential to improve the management of programmes and efficiency. 

Advocates claim that the provision of objective performance information facilitates 

better decision making for the efficient use of resources, programme management, 

central resource allocation, and expenditure prioritisation. In sum, supporters claim 

that the use of performance information in budgetary decision-making can contribute to budgetary goals of improving productive efficiency, allocative efficiency, 

and even aggregate fiscal discipline. 

Despite these reported benefits, OECD countries continue to face a number of 

challenges with the development and use of performance information in the budget 

process including: 

• how to improve the use of performance information in budgetary decision-making; 

• how and if performance information should be related to resources; 

• how to improve the measurement of activities; 

• how to improve the quality of information; and 

• how to get politicians to use performance information in decision making. 

Country experiences have shown that the existence of a procedure to integrate 

performance information into the budget process is a necessary but not sufficient 

condition to ensure its use. Other factors influencing use include the quality of the 

information, the institutional capacity of the MOF and the spending ministries, and 

the political and economic environment. 

OECD GUIDELINES ON DESIGING AND DEVELOPING BUDGET SYSTEMS THAT USE

PERFORMANCE INFORMATION

Despite these challenges, countries are not discarding the use of performance information, but continue to evolve new approaches to using the information. The 

OECD has developed general guidelines for countries as they adopt and evolve initiatives to improve the use of performance information in budgeting processes. Some 

important factors to consider in this respect are: 

• There is no one model of performance budgeting; countries need to adapt their 

approach to the relevant political and institutional context. 

• A whole-of-government planning and reporting framework is important. 

• Performance information should be integrated into the budget process. 

• Designing government-wide systems that automatically link performance results to resource allocation should be avoided. Such automatic linkages distort incentives, ignore the underlying causes of poor performance, and require a very high 

quality of performance informaiton that is rarely available. 

• Meaningful and accountable performance information requires reliable output 

and outcome data that are continuously updated. 

• Timely and straightforward assessments of performance information should be 

carried out independently of the spending departments and be supported by external expertise. 

• The support of political and administrative leaders is vital for implementation. 

• The staff and resource capacity of the ministry of finance and spending ministries is critical. 

• Reform approaches need to be adapted to evolving circumstances. 

• It is important to develop incentives to motivate politicians and civil servants 

to change their behaviour. Regardless of the type of performance information (evaluations or performance measures), consideration needs to be given to whether and 

how it will be used by decision makers. It is a matter not just of process, but also 

of having the right incentives to motivate decision makers to use the information. 

7

CONCLUSIONS

Previous incarnations of performance budgeting in many countries began with expectations that were unrealistic, thus ensuring disillusionment when the predicted 

results failed to materialise. It is important from the outset to manage expectations 

in terms of the length of time it takes for the reforms to produce results. There are 

no quick fixes. A long-term approach and patience are necessary as countries go 

down this road. Some countries estimated that it took 3-5 years to establish a government-wide performance measurement framework. There can be expectations that 

performance budgeting will create an environment of rational decision-making and 

will enable governments to financially reward good performance and punish bad. 

While this may be a simple and appealing idea, it does not take account of the fact 

that budgetary decision-making takes place in a political context, or that the issues 

and context surrounding budget decisions are complex. In most cases such an approach is not desirable. The more realistic expectation is that countries will engage 

in performance-informed budgeting. 

In the governments of OECD member countries, a great deal of the annual budget 

process remains incremental and inputs still play a key role. Results information 

will never completely replace inputs. There is a trend towards reforms that are, 

however, slowly shifting the thinking of decision makers at all levels—politicians, 

the MOF, spending departments and agencies, and the general public—towards a 

greater focus on results, and there is a clearer understanding of the need to see public policy and government actions in terms of achieving results. Despite the challenges encountered, countries are continuing to move forward with reforms to improve the use of performance information in budgetary decision-making. As long as 

citizens demand results from their governments for their tax dollars, there will be 

a continuing need for performance information.

In addition, before we proceed to testimony, we welcome—I have 

got it, I would like to ask unanimous consent that all members be 

allowed to submit an opening statement for the record at this 

point. 

Without objection, so ordered. 

[The prepared statement of Mr. Smith follows:]

PREPARED STATEMENT OF HON. ADRIAN SMITH, A REPRESENTATIVE IN CONGRESS

FROM THE STATE OF NEBRASKA

Good morning and thank you, Chairman. I am so pleased we are holding this 

hearing today. 

We have an obligation to exercise accountability and fiscal responsibility in government spending. As this Committee plans for future federal budgets, the ideas 

and information expressed to us today are of utmost importance. 

While we address the many fiscal challenges we face, we must assess the value 

of the information available to us. This hearing will give us the opportunity to explore ‘‘performance-based budgeting.’’ The models and results of ‘‘performance-based 

budgeting’’ could serve as a valuable tool for setting our spending priorities. Too 

often in Congress, we debate, vote on, and pass—and in some cases regrettably so—

legislation about which we have no measure of its efficacy. And Mr. Chairman, that 

just has to change. 

Financial discipline is one of my greatest concerns. By serving on this Committee, 

my goal is to add fiscal restraint to the budget process. Congress must promote policies which will make government programs better, more efficient, and more sustainable for the long-term. Commonsense tells us this can only be achieved with an accountability system in place. Adding accountability to the budget process will combat waste, fraud, and abuse while we work to control the growth in government and 

restrain spending. 

I appreciate the Committee for holding this hearing as an important step to meeting our goals. 

Chairman, I look forward to continuing to work with you, and I thank you for 

your time.

Chairman SPRATT. Let me welcome my witnesses this morning 

and say that if you have prepared written statements, we will treat 

your witness statements as made part of the record. You can summarize them as you please, but the floor is yours. 

8

STATEMENTS OF CLAY JOHNSON III, DEPUTY DIRECTOR FOR 

MANAGEMENT, OFFICE OF MANAGEMENT AND BUDGET; 

DAVID M. WALKER, COMPTROLLER GENERAL OF THE 

UNITED STATES, U.S. GOVERNMENT ACCOUNTABILITY OFFICE; AND PETER R. ORSZAG, DIRECTOR, CONGRESSIONAL 

BUDGET OFFICE 

Chairman SPRATT. We will proceed first with Mr. Johnson. 

Thank you very much for coming. We look forward to your testimony. 

STATEMENT OF CLAY JOHNSON III 

Mr. JOHNSON. Chairman Spratt, Ranking Member Ryan, members of the committee, thank you for having me. We all want the 

Federal Government to be effective. We want to spend money on 

programs that work. We want not to spend money or waste money 

on programs that don’t work or can’t be made to work. And we 

want to get what we pay for. We all want to be held accountable 

for this. We are here to do this work. In fact, I think we should 

all publicly declare that we want to be held accountable for this. 

To do this, to deliver on this, for every Federal program we must 

have clear outcome goals and we must know how we are performing relative to those goals. We can’t manage programs unless 

we know what we are trying to manage to. 

Today, every Federal program, and therefore every Federal agency, has better outcome goals and more information about its performance than ever before. It is very good information. It is not 

perfect, nor will it ever be perfect. Performance information, by its 

very nature, we will get smarter and smarter about—as we learn 

more and more about programs and develop ways to capture relevant performance information. But this information is very, very 

good. It is subjective, it is consistent with the information we have 

for like programs. It is appealable by those who disagree with it, 

and it is reviewed for accuracy and quality on a regular basis. 

And by the way, Chairman Spratt, let me add that it is not separate and apart from GPRA. It is very consistent with GPRA. It is 

a more refined way of dealing with—in our opinion, dealing with 

program performance. It is more information with which to comment and report on how programs are performing. But it is not 

something totally different. Because we have this information, we 

can now, and only now, link managers’ evaluations to the performance of the programs. We can more formally focus every manager 

and employee on the desired outcomes of the program they work 

on, which means we can more purposefully and intelligently pursue 

the goal of greater effectiveness. 

In fact, we are going to talk here about the use of this information in the budgeting process. But I believe the most important, 

most valuable use of this quality goal and performance information 

is to help managers and employees cause programs to be more effective. 

But in addition to helping programs be more effective, we can 

also use this information to make smarter budget appropriation decisions, which is the subject of this hearing. We can, for instance, 

invest more in programs known to be effective and less in those 

that are known not to work. We can decide not to create and fund 

9

1Government Accountability Office, ‘‘Performance Budgeting: Initial Experiences Under the 

Results Act in Linking Plans with Budgets.’’ GAO/AIMD/GGD-99-67 (April 1999). 2Government Accountability Office, ‘‘The Government Performance and Results Act: 1997 

Governmentwide Implementation Will be Uneven.’’ GAO/GGD-97-109 (June 1997). 3Office of Management and Budget, ‘‘Guidance for Completing 2007 PARTs.’’ Program Assessment Rating Tool Guidance No. 2007-02 (www.omb.gov/part/fy2007/2007—guidance—final.pdf) 

(January 29, 2007). 

new programs that duplicate existing programs, especially if they 

are not known to work. We can decide to increase funding for a less 

effective program only if its managers have a plan to fix it. And 

we can look at our spending by key indicator or strategic goal or 

desired outcome, across all agencies, to more intelligently debate 

relative spending levels and how to invest effectively and efficiently 

to accomplish our goal. 

None of this is possible without good goals and good information 

about how we are performing relative to those goals. This is not 

something that is nice to have; this is something that we must 

have for you all to do your work and for us to do our work to drive 

behavior and performance in the executive branch. 

I look forward to working with you and answering any questions 

you have at the end of this hearing. Thank you very much for having me here. 

Chairman SPRATT. Thank you, Mr. Johnson. 

[The prepared statement of Clay Johnson follows:]

PREPARED STATEMENT OF HON. CLAY JOHNSON III, DEPUTY DIRECTOR FOR

MANAGEMENT, OFFICE OF MANAGEMENT AND BUDGET (OMB) 

Since and even before enactment of the Government Performance and Results Act 

(GPRA) in 1993, Congress and the Executive Branch have been trying to discern 

just what we’re getting for the tax dollars we spend and how to get even more. The 

first step is to have good information about what works and what doesn’t. 

GPRA implementation in the 90’s laid a strong foundation for strategic and performance planning in the Federal Government. It required agencies to set goals and 

report on whether they were achieving them. This was the beginning of a candid 

assessment of government’s performance, but any connection with the budget was 

remote. At the time, the Government Accountability Office (GAO) found that, although most agencies (30 of 35 reviewed) defined some type of relationship between 

the program activities of their proposed budgets and the performance goals in their 

annual performance plans, most plans did not explain how spending on the program 

would help it achieve performance goals.1 More importantly, managers reported to 

GAO that their agencies were not well-positioned to answer the question of whether 

their programs produced real results.2

With that constructive criticism in mind, the Administration developed a tool—

the Program Assessment Rating Tool—to assess performance at the program level 

and use the information to identify ways to help programs improve. Using the performance goals and information developed to implement GPRA, agencies and OMB 

assessed the available evidence and asked of every program: 

• Is its purpose clear and is it well-designed to achieve that purpose? 

• Does it have clear, outcome-oriented long-term and annual goals with aggressive targets? 

• Is it well managed? 

• Does it achieve its goals? 

Over the last six years, agencies and OMB have assessed more than 1000 programs that total $2.6 trillion in spending. These assessments show that 78 percent 

of the programs assessed are considered ‘‘performing.’’ Fifty percent of programs received the impressive ratings of Effective or Moderately Effective. Only 3 percent 

were demonstrably Ineffective. 

Is the information valid and reliable? Yes. The questions asked are those a reasonable person would ask to assess a program’s performance. There are clear, written rules that guide what evidence is required to get a ‘‘yes’’ answer to a PART 

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4 United States House of Representatives Committee on Appropriations, Report Accompanying 

the FY 2008 Financial Services and General Government Appropriations Bill, House Report 110-

207 (June 2007). 5The Departments of Labor, Health and Human Services, and Education FY Appropriations 

Act for FY 2006, Public Law 109-149, Section 107. 

dence. Then all PART questions are reviewed by experts in the PART process to ensure they are consistent with the rules. Agencies then have an opportunity to appeal 

questions to a high-level appeals board of a selection of agency chief operating officers. All of these factors contribute to the validity and reliability of PART information. We will continue every year to improve the quality of program goals, the consistency of PART answers, and the accuracy of performance information. 

As part of our ongoing effort to ensure PARTs reflect the most accurate picture 

of a program’s performance, agencies and OMB over the next several months will 

systematically review all of the assessments to ensure the program goals are clear 

and outcome-oriented; the performance information is valid; and the program improvement plans are aggressive. 

GPRA required public planning and reporting. PART results, the evidence on 

which they are based, the results each program achieves, and the amount of money 

spent and requested for each program, are all posted on ExpectMore.gov. We must 

continue to be candid about how well (or not) programs are performing and what 

we are doing to improve if we want to hold programs and agencies accountable for 

achieving outcomes that matter to the American people. 

We want to incorporate performance information into budget justifications so Congress finds that it is a valuable factor in the decision-making process. Finding the 

best way to do this remains a challenge. The report accompanying the FY 2008 Financial Services and General Government Appropriations Bill criticized agency 

budget justifications for being ‘‘filled with references to the [PART], drowning in pleonasm, and yet still devoid of useful information.’’ 4 [I’m sure the Members of the 

Committee know this, but I had to consult the dictionary to find that pleonasm 

means ‘‘the use of more words than are necessary to express an idea; redundancy.’’] 

But the Labor, Health and Human Services Appropriations Bill cites the Department of Education’s Budget Justification as a model.5 Education’s budget justification integrates performance information in three different ways: • A separate 25-page Performance Budget tab displaying budgets, programs, and 

key performance measures by strategic plan goal; • A detailed discussion of performance information—both GPRA and evaluation—

in each program justification; and • References to performance information and PART in the program account narratives. 

Education’s budget staff has briefed every agency on its justification, and OMB 

has encouraged others to emulate it, provided they consult with appropriators first. 

In an effort to encourage greater use of performance information in Congressional 

decision-making and address a helpful recommendation from GAO, agencies now 

also brief their House and Senate appropriations and authorizing committees each 

year on completed and planned PART assessments. 

Of course, it was never our goal, nor should it ever be, to make decisions mechanically based on performance information. It is not true that a program’s budget 

should be cut just because it is not currently achieving results. Such a program may 

require additional resources in order to improve. Likewise, just because a program 

is achieving results does not mean it warrants an increase in funding. Such a program may have outlived its usefulness. 

In some cases, poor performance has been the basis for a request for additional 

resources. For instance, the National Park Service Facilities Maintenance was unable to demonstrate results when it was first assessed in 2002. The program then 

began using a facility condition index to assess the state of its facilities and 

prioritize investment decisions for addressing identified deficiencies. Use of the 

index also helped the program provide a better justification for additional resources. 

This program has received funding increases and is steadily improving the quality 

of its facilities. Additional funding for the Earned Income Tax Compliance Program 

was proposed to improve its efforts to reduce improper payments. Improper Payments in this program are estimated at between 23 and 28 percent of total program 

payments. 

Our ultimate goal is to make programs work better. We believe that making information about a program’s performance more of a factor in all deliberations about 

the program will help it and other programs become more effective. 

We have more information about what works and what doesn’t today than ever 

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formation for both agencies and programs is available to the public on 

ExpectMore.gov. We can and must make greater use of this information in our deliberations about programs, including funding and other issues affecting program performance. I look forward to working with Congress, especially Members of this Committee, to find ways we can be ever smarter about spending the taxpayers’ money.

Chairman SPRATT. Now, General David Walker, the Comptroller 

General of the United States. 

STATEMENT OF DAVID M. WALKER 

Mr. WALKER. Thank you, Chairman Spratt, Ranking Member 

Ryan. I am pleased to be here today to discuss performance budgeting as a way to help the government meet the pressing challenges of the 21st century by prompting a much needed and long 

overdue review of Federal activities and programs. 

The Federal Government is in a period of profound transition. It 

faces a range of challenges and opportunities that can enhance performance, ensure accountability and better position the Nation for 

the future. A number of overarching trends, including the Nation’s 

long-term fiscal imbalance, drive the need to reexamine what the 

Federal Government does, how the Federal Government does business, and who does the Federal Government’s business. 

The term ‘‘performance budgeting’’ encompasses a range of approaches, activities and processes, but they all have one idea in 

common and that is more explicitly linking resources to results. 

And in all candor, the Federal Government does an extremely poor 

job of that. As it holds promise, this is a means for facilitating reexamination of the government. 

Through the President’s management agenda and its related initiatives with the Office of Management Budget’s Program Assessment Rating Tool, the administration has taken steps in the right 

direction by calling attention to successes and needed improvements in Federal management and performance. 

As we previously noted, PART itself has certain strengths and 

weaknesses. The weaknesses need to be addressed and the 

strengths need to be capitalized on. Whatever approach is taken in 

the future, however, in our view it will be important not only to 

look at programs on activities that run through the spending side 

of the budget, but also to look at those policies that run through 

the tax side of the budget. Any reexamination or performance 

budgeting effort that fails to include tax expenditures in the review 

of Federal activities and policies and whether or not they are 

achieving their intended goals will fall short of its full potential 

and will fall short of our Nation’s needs. 

As I have previously testified before this committee, known demographic trends and rising health care costs are major drivers to 

our Nation’s large and growing structural deficits. And I am going 

to take you through three quick graphics, two of which are in your 

material. The first one is not. 

First graphic, please.

12

This represents the long-run fiscal situation for the Federal Government based upon CBO’s baseline extended, or, in my view, a 

more realistic alternative simulation which assumes no reform of 

Social Security and Medicare; discretionary spending growing by 

the rate of the economy; and historical tax levels over the long 

term. Reality may be somewhat in between, but either one is unacceptable. 

Next please.


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The next one is on page 11 of my testimony. It shows you what 

has happened since 1982 in constant dollars with regard to mandatory spending, which is the green line, which is growing out of control, represents 62 percent of the Federal budget last year. That is 

on auto pilot. The blue line, which is discretionary spending, which 

Congress has responsibility for dealing with every year, and the 

red line which represents the sum of tax expenditures or the revenue losses associated with them. And as you will see, the tax expenditures in some years exceed discretionary spending and yet 

they are not in the financial statements, they are not part of the 

budget process, they are not part of the appropriations process. 

They are off the radar screen. And it is important that they be on 

the radar screen because they cost money and they may or may not 

be working. 

Next, please.


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It is important to keep in mind that these involve $800-plus billion in the aggregate. Health care alone is close to $200 billion for 

2006. Now, these are based upon Treasury estimates after the end 

of 2006. And in this particular case, we unbundled the defined contribution plans from the defined benefit plans. So If you add those 

together, you will see that the pension tax preferences would be 

number two to health care on that basis. But the bottom line is 

these numbers are just too big to be off the radar screen. 

Accordingly, to reexamine the base of all major Federal spending 

and tax programs, policies, and activities by reviewing the results 

and testing their continued relevance and relative priority for our 

changing society is important, and the sooner we start doing it, the 

better. Reexamination is not a one-time activity. It must be a continuing process and we should expect even the initial round to take 

several years. 

We could accomplish more if the intent of the Government Performance and Result Act, which was to develop a comprehensive 

governmentwide performance plan, was fully implemented. We 

think more needs to be done in that regard. But in doing it, we 

need to move beyond programs by programs and agency by agency 

to looking more horizontally and to also considering tax preferences. 

I think it is also important to keep in mind that the United 

States is one of few major industrialized nations without a set of 

key national outcome-based indicators. What do I mean by that? 

Economic, safety, security, social, and environmental outcomebased indicators in order to be able to assess which programs and 

policies are working and which aren’t working. How do we stand 

as a Nation? How are we trending? And how do we compare to others? 


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And when you look at some statistics published by the OECD, of 

which the United States is one of 30 member countries, on a portfolio of indicators, the United States ranks 16 out of 28 on outcomebased indicators. As a certified public accountant, I can tell you 

that is below average. 

We can and we must do better. And I think performance budgeting is a way that can help us see the way forward and make 

some very tough choices. 

In summary, performance budgeting is one means that can help 

us be able to put our Nation on a more prudent, sustainable fiscal 

path, to separate the wheat from the chaff with regard to which 

programs and policies are working and which aren’t, and make 

sure we are targeting our resources and preferences to accomplish 

the best greater good in a way that does not undercut the economy. 

But I cannot stress enough that performance budgeting cannot be 

merely an executive branch action. The legislative branch has to be 

a key partner in this effort. And for performance budgeting to 

work, the information must be not only useful, it must be used. 

And if it is not, it is a waste of time. 

Thank you, Mr. Chairman. 

Chairman SPRATT. Thank you, General Walker. 

[The prepared statement of David M. Walker follows:]

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Chairman SPRATT. And now the Director of the Congressional 

Budget Office, Peter Orszag. 

STATEMENT OF PETER R. ORSZAG 

Mr. ORSZAG. Thank you very much, Mr. Spratt, Mr. Ryan and 

other members of the committee. Both economic and common sense 

suggest that a program’s budget should be linked to its effectiveness in achieving its objectives. The concept of performance-based 

budgeting, though, has been applied mostly to discretionary spending, which represents less than 40 percent of overall Federal expenditures. So, like Mr. Walker, my written testimony extends the 

concept of performance budgeting to two parts of the Federal budgVerDate 0ct 09 2002 15:50 Jan 14, 2008 Jkt 000000 PO 00000 Frm 00041 Fmt 6633 Sfmt 6602 J:\DOCS\HEARINGS\110TH\110-19\39976.TXT HBUD1 PsN: DICK

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et that have not been examined as closely from that perspective: 

health insurance and tax expenditures. 

In both cases, the amount of Federal funds at stake is substantial, and important questions exist about the cost effectiveness of 

those expenditures. 

First with regard to health care, as I have said over and over 

again, rising health care costs represent the central fiscal challenge 

facing the Nation. My written testimony includes the chart that I 

have always used before this committee, but just for a change of 

pace I won’t actually put it up. 

If health care costs continue to grow at the same rate over the 

next four decades as they did over the past four decades, Medicare 

and Medicaid would rise from under 5 percent of the economy 

today, to 20 percent by 2050; yet very little analysis is undertaken 

of whether that spending is generating corresponding gains in the 

health of enrollees, which presumably is the ultimate objective of 

the programs. 

Many treatments improve enrollees’ health, and the benefits suggest that health spending, on average, improves health outcomes. 

But in many cases, such spending is not cost effective and in many 

cases it may not even improve health. One reason is that relatively 

little rigorous evidence is available about which treatments work 

best for which patients, or whether the benefits of more expensive 

therapies warrant their additional costs. 

Although estimates vary, some experts believe that less than half 

of all medical care is based on or supported by firm evidence about 

its effectiveness. Much of the research that has been done about 

Medicare spending and its impact on health has focused on the traditional fee-for-service portion of the program that serves the vast 

majority of its enrollees. But the concepts behind performance 

budgeting could also be applied to the Medicare Advantage component of the program. The data currently collected, however, are not 

sufficient to do so. 

Medicaid spending has also received relatively less attention. 

Like with Medicare, Medicaid spending at the State level varies 

substantially, even among enrollees who have qualified for the program, for the same reason. More research on the source of variation in the program’s costs and its impact on enrollees’ health is 

warranted. 

In sum, we are spending a substantial amount of money on 

health care. It is the central long-term fiscal challenge facing the 

Nation, and yet we are doing too little to examine what we are getting in return. 

The second area of the Federal budget that is often not examined 

from a performance budgeting perspective involves tax expenditures. Mr. Walker already laid out some of the amounts involved 

and they are obviously very significant. In each of the major cases, 

the reduction and receipts gives the appearance of a reduced impact on the Federal budget and on the economy. Indeed, most presentations of the budget omit any mention of tax expenditures. But 

tax preferences are effectively equivalent to collecting taxes at ordinary tax rates on the full potential tax base and then subsidizing 

the preferred behavior through outlays. Because selective tax reductions operate as expenditures for specific economic activities, 

39

their effectiveness can and should be evaluated in the same way 

as is done for spending programs. 

Given the size of many tax expenditures, it is striking that they 

are subjected to little analysis of their effectiveness in achieving 

their objectives. In many cases, the specific outcome of the tax expenditure that is desired is unclear, and may even conflict with objectives of other policies. In a number of instances where the policy 

goal is clearer and not in conflict with other policies, the tax incentives do not appear to yield their desired effect in a cost-effective 

manner. For example, significant empirical questions exist about 

whether tax preferences for certain kinds of saving vehicles such 

as IRAs and 401(k)s have significantly boosted private savings or 

merely subsidized saving that would have occurred in the absence 

of those incentives. 

In addition, many tax expenditures are structured in a relatively 

inefficient way. In particular, most tax expenditures are delivered 

in the form of a deduction or exclusion, which links the size of the 

tax expenditure or the value thereof to one’s marginal tax bracket. 

However, unless one believes that there is a differential response 

by income category or broader social benefits that vary by income 

category when people do respond, from an economic efficiency perspective, it does not make sense to vary the subsidy rate per dollar 

of activity in any manner, either up the income distribution or 

down the income distribution. So from an economic efficiency perspective, unless you have evidence to the contrary that there is differential response rates, the most efficient approach to delivering 

a subsidy through the Tax Code is a uniform credit that does not 

vary with the household’s income. My written testimony discusses 

that at more length. 

I would also note that perhaps the most prominent example of 

a tax expenditure that appears to be inefficient is the exclusion for 

employer-provided health insurance, and my written testimony discusses that issue in more detail also. 

To sum up, the growth of health care spending is the central 

long-term fiscal challenge facing the Nation, and existing tax expenditures entail a substantial reduction in the Nation’s tax base. 

In both cases, Federal policy would be improved by applying principles of performance budgeting, evaluating whether the benefits 

derived warrant the resources provided. Thank you very much. 

Chairman SPRATT. Thank you very much, Dr. Orszag. 

[The prepared statement of Peter R. Orszag follows:]

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Chairman SPRATT. Let me put the question to all three on our 

panel. Is there some better systematic way that you can gain congressional review? Is part of the problem here overkill? 

For example, Director Johnson, if your information largely comes 

from PART and from GPRA, and it comes with the budget—$2.8 

trillion budget—it gets buried in a lot of budget detail. Do you 

think it would serve the interest of greater scrutiny if the information were prepared in some different form so it came to us in what 


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was more discernible, easier to find, or otherwise it is scattered 

throughout your entire budget? 

Mr. JOHNSON. Yes, sir, I do. Every subcommittee is different. For 

instance, the TUB committee’s budget and appropriations that deal 

with the Education Department welcome a lot of performance information. It is really the model for all of the other agencies. And yet 

there are other subcommittees that state in writing that they don’t 

want to be confused by my words, all this performance information. 

So it is not a universal acceptance or rejection. It varies by committee, which causes to us think we have an education challenge 

before us to explain to every subcommittee how this information 

can help them do a better job of budgeting or appropriating. 

And every year when we talk about how to put our budget together, we talk about how to present this, how to focus on desired 

outcomes. The goal is not to spend $2.X billion. It is to accomplish, 

A, B, C, D. By the way, the cost to accomplish that is whatever it 

is. That ought to be the mindset, in our opinion. And our budgets, 

in our opinion, ought to be laid out to encourage that kind of thinking. But some committees—some subcommittees welcome that approach, are comfortable with that approach and others are not. 

Chairman SPRATT. Are you familiar with the Selected Acquisition 

Report in the Department of Defense? 

Mr. JOHNSON. No, sir, I am not. 

Chairman SPRATT. Do you have any experience with—I am sure 

you have had—accounting variation reporting systems whereby you 

establish a baseline for costs, schedule, and performance and then 

measure against that over time? 

Mr. JOHNSON. Well, that is the kind of rigor and approach that 

I—that is what I spend all of my time doing, is trying to create 

that sort of mindset and approach throughout the Federal Government. 

Chairman SPRATT. Let me suggest that you take a look at the 

SAR, Selected Acquisition Report, created in about 1970. And 

somebody added the phrase—I think it was General Walker—if you 

want it to be useful, it has got to be used. It is a classic example 

of something that hasn’t been intensively used, and therefore it has 

not become any more useful than it was, very much so, when it 

was first introduced. 

Mr. JOHNSON. Let me make one comment on that. I have every 

spring for the first 4 years that I was in this job, gone out and did 

focus groups with career managers and talked about goals and having performance information and outcome goals and so forth. And 

what they told me every year, no matter who I talked to, we have 

always had some description of what our goal is. And sometimes 

it has been quantifiable, sometimes it has been general, sometimes 

it has been outcome, sometimes it has been output. But we have 

never, ever been held accountable for achieving them. So that is 

this—is it useful versus used, their comment to me is that this information has never been used to drive performance. 

Chairman SPRATT. One of the recommendations made a long 

time ago—in fact, I wrote an article in General Walker’s quarterly 

about it—is that somehow or another for weapon systems in the 

Pentagon,—there are about 40, I think, or about 50 that track with 

the SAR. The principals here and at DOD need to sit down early 

60

in the life of a program when it is about to take off and go into 

engineering development and establish the baselines that are pertinent to that particular system, things that you recognize the 

vulnerabilities that need to be watched, so that you don’t have one 

template that applies to 40 different systems that are very different and diverse. 

It would seem to me that on major programs you could have the 

same sort of attitude, that you would sit down with the committee 

and you would agree that we are going to watch these things, we 

are going to give you a periodic report on this. If there is going to 

be cost growth, it could happen here, watch it early. We don’t have 

any of that kind of interactive activity at all. 

Mr. JOHNSON. There is information, not of the sort you want, but 

what you just described is a great goal to shoot at. There is information now—every program—the evaluation of every program—

overall evaluation and then the recent performance of that program 

relative to its goals for all 1,000-plus programs; $2.8 trillion is very 

public on expectmore.gov, the Web site. 

What you are talking about is regular reports; here is where we 

are running behind schedule, ahead of schedule, whatever, and 

here is what we are doing to get back on track. 

Chairman SPRATT. We would call this performance budgeting, 

but part of it is just reporting anomalies that will require further 

investigation should be called to our attention, like Dr. Orszag is 

pointing to the fact that a coronary bypass has a fourfold variation 

around the country. There needs to be an explanation of that, or 

the variation of Medicare expenditure per capita ranges from 4,500 

to 11- or $12,000 per person. That is maybe not really performance, 

but it is the sort of thing where the executive agency says to the 

Congress, you should use your oversight and investigative powers 

to look into something like that. 

Mr. JOHNSON. Right. We would welcome developing that and figuring out how to interact with Congress to provide exception reporting, or as you say, anomalies, to help you all better focus on 

how these programs are performing. 

Chairman SPRATT. General Walker. 

Mr. WALKER. Mr. Chairman, in addition to what you are talking 

about, I would like to raise it up a level that I think we need to 

focus on and I know you are interested in. The Federal Government spends $2.7 trillion a year. It issues thousands of pages of 

regulations a year. It forgoes revenues of $800 to $900 billion a 

year in tax preferences. And for the most part, it has no idea 

whether those programs, policies, and regulations are achieving the 

desired outcomes or not. 

And one of the things that has to happen, I believe, is the Congress, which has the constitutional responsibility for appropriations 

and which has this budget process which this committee is responsible for, we need to get back to basics and we need to say what 

type of outcomes are we trying to achieve as a Nation when legislation is authorized, reauthorized, when the budget process is gone 

through, when the appropriators allocate funds and when the oversight committees end up conducting their oversight operations. 

And that brings me back to the need for a set of key national 

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ronmental. Thirty-eight percent of the budget last year, as you 

know, was discretionary. Sixty-two percent was on auto pilot. That 

has got to be on the radar screen. We have got to analyze that too. 

Furthermore, none of that counts tax expenditures. That has got to 

be on the radar screen too. We haven’t done the basics. We haven’t 

stepped back and said what are we trying to accomplish; are we 

doing that? And as a result, what the Federal budget is today in 

the government, it is an amalgamation of programs, policies, functions and activities from decades, many of which may be outdated, 

many of which may not be working. And given our challenges for 

the 21st century, we really need to focus at that level as well as 

making sure that we have, as you are saying, we are using the 

stuff that is being done now, we have a consistent approach and 

hopefully a streamlined and more results-oriented approach to the 

current processes that are here now. 

Chairman SPRATT. Dr. Orszag? 

Mr. ORSZAG. Again, I think an aggregate perspective is important. But if there were a single thing that policymakers could do 

to improve from a performance basis what we are getting today 

and in the future, it would be examining what we are getting in 

return for our health care expenditures, including the variation 

that you noted, both in Medicare and Medicaid. And since so much 

of the growth in the future is going to come from increased expenditures in that area, if there were just one thing to do it, it would 

be to make sure that we were getting value out of those dollars. 

And that would be a substantial improvement relative to where we 

are today. 

Chairman SPRATT. Thank you all very much. 

We have just had an ominous bell go off on a motion to adjourn. 

So that is not a good sign. 

But I am going to turn to Mr. Ryan, and let us make up as much 

as we can before we have to run over and vote and come back. 

Thank you, Mr. Ryan. 

Mr. RYAN. Thanks, Mr. Chairman. I will try to be fairly quick because we have 13 minutes left. 

Let me say for the record, I bristle at the notion or the term ‘‘tax 

expenditure.’’ it kind of more or less assumes that this is the government’s money unless we benevolently expend it back to people. 

Be that as it may, let us focus on the health one. And if we are 

going to spend our time talking about this Nation’s fiscal challenges, we probably should spend three-fourths of our time talking 

about health care. 

And so what I want to ask from you—and I know Dr. Orszag and 

General Walker, you spent a lot of time on this—what do you think 

we can do to address the root cause of health inflation, number 

one? 

Number two, does the health exclusion, that tax expenditure contribute to the problem of health inflation and is it really the primary reason which created the third-party payment system in the 

first place? Which I would argue is largely the biggest contributor 

towards health inflation. 

And then I have a question about TRIA. And if there is time, I 

wanted to ask you, Director Johnson, about how does the PART 

program interact with the appropriations process? Do you come and 

62

talk to the appropriators and bring them through these things 

work or aren’t working, and is there a connection between how we 

appropriate and the analysis you are doing? So let me stick with 

that. And then a quick TRIA question if I have time. 

Mr. WALKER. That is a lot. First let me say with regard to the 

tax preference, I think it is part of the problem. The fact that we 

spend almost—the fact that we forego revenues—and by the way, 

tax expenditure is the Treasury’s term. That is a generally accepted term, not mine. The fact that we forego almost $200 billion a 

year in tax preferences in the health care area, I think is part of 

the problem because it desensitizes people to the true cost of health 

care. They don’t see it on their tax return, they don’t see it on their 

W-2. It is the fastest growing part of compensation expense. It is 

a huge competitiveness problem for American businesses as well as 

a fiscal problem for the Federal Government. 

So, yes, I think it is part of the problem. Secondly, I think part 

of the answer is better targeting of tax preferences and better targeting of government subsidies in the area of Medicare, et cetera. 

It is one thing to be eligible for a program or a preference. It is 

another to differentiate based upon your income and your ability. 

Thirdly, we need national evidence-based practice standards in 

health care to reduce costs, to improve consistency, to enhance 

quality and to dramatically reduce litigation risk. And the Federal 

Government ought to pave the way through the programs that it 

has direct responsibility for. We have VA health care. We have 

health care that deals with civilian and military employees. We 

have an ability to pave the way and to lead by example there, and 

that is critically important. 

Mr. RYAN. Dr. Orszag, at the end of your answer, if you could 

comment on the contributing factor to the tax expenditure and 

health care. We just passed a bill yesterday on TRIA, the Terrorism Risk Insurance, which I think you scored at $8.4 billion, but 

it left the floor with quote-unquote no score circumventing the 

PAYGO process. If you can comment on whether that is going to 

cost the Treasury money or not, I would appreciate that as well. 

Mr. ORSZAG. Okay. Why don’t I start with that? Insurance costs 

money because it provides some value to the insured households 

and businesses, even in the event that the thing you are insuring 

against doesn’t occur. So when you insure your house against a 

fire, there is some value that is being provided and some expected 

cost of the insurance company, even if your house doesn’t burn 

down. 

And in the context of terrorism reinsurance, we all would hope 

and pray that—that probability of an attack is very low, but there 

is unfortunately, some probability, which is why firms want this insurance. And that was the basis of our score. It was consistent with 

what we had done in the past. I have seen some reports that people 

were surprised by our score, but it was fully in line with previous 

analysis that CBO has done. The amendment that was adopted reduced the score to zero by removing the certainty that is essential 

or integral to the provision of insurance, because the insurance will 

trigger on only if there is a future active Congress. And under our 

scoring, we don’t evaluate future legislative action. So it was scored 

at zero, as amended. 

63

With regard to the employer-provided tax expenditure, tax preference for health care, there is wide agreement among economists 

that that is a relatively inefficient approach to providing a subsidy 

through the Tax Code for health insurance. It creates a bias for 

employer-provided health care as opposed to individual. It creates 

a bias for gold-plated health care relative to less generous health 

care plans and creates a variety of other distortions. I think the 

challenge in thinking about options to reform or replace it is that 

employers are the central pooling mechanism that we have in the 

United States for health care. And so if you tinker or change the 

tax preference for employer-provided health insurance, what replaces it so that we are not all in an individual market, which 

doesn’t work well in the health sector? 

Mr. RYAN. Director Johnson, The PART in the appropriations 

process, how do we better connect the two? 

Mr. JOHNSON. There is currently—I forget the exact correlation. 

I think you all ran a correlation of programs that are PARTed on 

a low score and what happens to their budget; does it go down? 

And there is a positive correlation. There is attention being paid 

whether programs work or not. More attention is paid in some committees than others, but there is a positive correlation. Every year 

we send up——

Mr. RYAN. In the administration’s budget? 

Mr. JOHNSON. Pardon me. 

Mr. RYAN. In the administration’s budget. 

Mr. JOHNSON. It is not only in the budget, but money that is actually appropriated. It is not only what goes on in our budget, but 

it is not true that every ineffective or results-not-demonstrated program is recommended for a big reduction. Sometimes it is such a 

priority, we need to work to make it fix, and we need to fund it 

in the meantime. In some cases, we need more money to allow 

them to measure the quality in our parks and so forth and so on. 

So nothing automatic happens because of the current performance 

of a program. Nor should it. 

So there is information that—we will send up like—several years 

ago it was 50, and last year it was 140 programs that we recommend for zeroing out or significant reductions. Usually a third, 

40 percent, 25 percent of those are because of the way they PARTed. There are other reasons for the majority of those programs, why 

they were recommended for a big reduction. They are duplicative; 

they work, but they are duplicative, or it is not a priority or we 

can’t afford it anymore or whatever. There is a variety of reasons. 

Performance is not the only reason, honestly, to drive your all’s 

budgeting thinking or appropriations thinking. 

But right now, performance is being looked at. And it can be 

looked at more and it can be looked at more consistently across all 

subcommittees. But most importantly, we can do a better job using 

this information to drive performance within the executive branch, 

which David talks about, within the discretionary programs; and 

then in the future, in the nondiscretionary programs. 

Mr. RYAN. Thank you. I see we probably have time for somebody 

else to ask something. 

Chairman SPRATT. We are down to 6 minutes. Okay, good. If you 

will bear with us, we will run and vote. We have got 6 minutes for 

64

this vote and then the two 5-minute votes following it. So we 

should be back in about 15 minutes, barring some antics on the 

floor. The committee stands in recess. 

[Recess.] 

Chairman SPRATT. Call the committee back to order and now recognize Mr. Edwards of Texas for 5 minutes. 

Mr. EDWARDS. Thank you, Mr. Chairman. Mr. Chairman, thank 

you for holding this hearing. I think while there are sometimes 

partisan differences on this Budget Committee regarding what the 

priorities and responsibilities of the Federal Government ought to 

be, one issue in principle that ought to bring us all together is the 

idea that when we are spending taxpayers’ dollars for programs, 

we should work together to see that those dollars are being spent 

effectively, efficiently, with clear goals in mind. And I think I can 

say as a Democrat to my Democratic colleagues, I think in years 

past sometimes we have tended to pass a bill based on—or funding 

based on a good intention, but good intentions aren’t good enough 

when it comes to spending taxpayers’ dollars. And we who believe 

in government ought to be the first in line to say we are going to 

be very tough on ensuring that programs are accomplishing their 

goals, because if they aren’t, ultimately taxpayers will lose their 

credibility in the programs themselves. 

So I salute you, Mr. Chairman, for holding this important hearing. I thank all of the witnesses for your input and your leadership 

in this area as well. 

In that spirit, Mr. Johnson, let me say one reason I took a few 

more minutes to come back from our votes is I went downstairs 

from the House floor to talk to the subcommittee staff that I work 

with from my vantage point as Chairman this year of the Military 

Construction and Appropriations Subcommittee. And I asked if 

they had ever, in this year or in previous years, had ever met with 

OMB staff to review the analysis that your agency has carried out 

regarding the effectiveness of military construction and VA programs. And their answer was, no, not this year, and not in their 

memory. 

So whether that is my subcommittee’s fault or OMB’s doesn’t 

really matter. But let me just say, in the spirit of my opening comments, I would welcome your staff meeting with me or my staff as 

we start to go to conference on the MILCON-VA bill and look at 

what we can glean from that analysis. 

And an example, the kind of question that is so basic to me that 

still can’t get answered very well, is the VA health care system 

generally a good bang for the buck? My general belief is yes, it is. 

It is an outstanding system. And the conventional wisdom is that 

we provide quality care for fewer dollars than the private and nonprofit and for-profit health care system. But I am not sure I could 

quantify that judgment. 

So by the same token, I was very involved in the new public-private partnership program we have had in military housing. And I 

think generally it has been accepted by the departments of the 

agencies within the Department of Defense as an outstanding program. But I haven’t seen any kind of economic analysis to compare 

that to the old system. So I, for one, who at least chairs one approVerDate 0ct 09 2002 15:50 Jan 14, 2008 Jkt 000000 PO 00000 Frm 00068 Fmt 6633 Sfmt 6602 J:\DOCS\HEARINGS\110TH\110-19\39976.TXT HBUD1 PsN: DICK
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priations subcommittee, would welcome more interaction between 

us on this. 

Mr. JOHNSON. I will make sure that happens, sir. 

Mr. EDWARDS. Thank you. 

I would—Mr. Walker had brought up, Mr. Johnson, the issue of 

analyzing tax preferences. Whether we call them tax expenditures 

legally or tax preferences doesn’t bother me one way or the other, 

but let us call them tax preferences out of respect for others. The 

fact is that GAO has put out a report saying that they do represent 

a huge loss of revenues based on preferences that some companies, 

some groups of individuals, some industries get compared to others. 

It also says that OMB has only rarely used the performance-based 

analysis on tax preferences. Could you tell me what the administration’s official position is on that issue? And should we expand 

performance-based analysis to the effectiveness and efficiency and 

the clarity of goals of tax preferences? 

Mr. JOHNSON. I know it was the administration’s official position 

to develop the PART to analyze programs, both discretionary and 

nondiscretionary programs. And so the feeling about using something—using it or something like it to evaluate tax programs, it 

was not no, but not yet. That is still our position. And unofficially 

it sounds like it is something we ought to do, and we ought to review the mechanism, or decide that that mechanism—the PART 

mechanism or some version of the PART mechanism, and figure 

out what we want to do. 

But our position has never been that we didn’t want to do it; it 

was just not yet. We wanted to focus on how programs worked, because we wanted to use that then as the basis for driving performance management, people management within programs, and cause 

the Federal Government to become more purposeful about the way 

they spend the money. 

Mr. EDWARDS. Right. Okay. Thank you. I see my time is up, so 

I will withhold my additional question. Thank you, Mr. Johnson. 

Thank you, Mr. Chairman. 

Chairman SPRATT. Thank you, Mr. Edwards. 

Mr. Doggett is not here. 

Mr. Scott of Virginia. 

Mr. SCOTT. Thank you, Mr. Chairman. 

Mr. Walker, you indicated that—I think implied that tax expenditures were hidden in the budget process. Doesn’t PAYGO expose 

these expenditures, at least the prospectively, if we try to pass 

them in the past, in the future? 

Mr. WALKER. My understanding is there is some prospective application, but not ones that already exist, if you will. They are in 

the base. And that is what I am talking about. 

Mr. SCOTT. Okay. And when we were talking about performance 

measures, is that a Budget Committee function, or is it a suggestion that authorizing committees on reauthorization should consider, should be proactive in ascertaining whether or not the programs have been performing, and then kind of report to the Budget 

Committee or to the Appropriations Committee? 

Mr. WALKER. I believe that the country would benefit and the 

Congress would benefit for having a set of key outcome-based indicators for budgeting, authorization, reauthorization, appropriations, 

66

and oversight purposes. When you are considering legislation to 

begin with, one of the basic questions ought to be what are you trying to accomplish, and how are you going to end up measuring 

whether or not it is making a difference? And so I think it crosses 

all those different constitutional responsibilities. 

Mr. SCOTT. I serve as Chair of the Crime Subcommittee. What 

kind of performance budgeting policies would you suggest for budgeting in the area of crime policy? 

Mr. WALKER. Crime rates, the nature of violent crime. I mean, 

there are issues that relate to actual outcomes. What are we doing, 

you know? Those would be a couple of examples in that area. 

Let me give you a couple other examples that are outside that 

area: math proficiency, science proficiency, life expectancy at birth, 

infant mortality, household savings rates. There are a number of 

things that right now, quite frankly, we are measuring, and many 

other countries are measuring, but we are not using it for purposes 

of informing our decisions on spending programs, tax policies, and 

regulatory actions. 

Mr. SCOTT. And if the expenditure on a crime policy issue did not 

lead to a reduction in crime, reduction in violence, then we ought 

to reconsider making that expenditure? 

Mr. WALKER. Right. You need to have more evidence in order to 

be able to make informed decisions about which programs and policies are working and which aren’t, how to redirect limited resources and authorities to achieve the maximum impact. 

Mr. SCOTT. This is hard to understand, because most crime policy is slogan generated; that is, you come up with a good slogan 

and you codify it, and it helps politicians get elected. What you are 

suggesting is we ought to use our common sense and actually reduce crime. How does that help us get reelected? 

Mr. WALKER. My objective, Mr. Scott, is to help the Congress 

help the country, help the American people. 

Mr. SCOTT. Could you say a word about—a lot of the testimony 

is on health care, and it seems to me if you don’t have employerbased health care, there would be no incentive—with the tax benefit—there would be no incentive for the employers to actually provide the health care. 

Mr. WALKER. I will let Mr. Orszag——

Mr. SCOTT. We are trying to get more people insured. What 

would happen if we did not have this tax expenditure? 

Mr. WALKER. Let me answer that and then go to Mr. Orszag. 

First, I don’t know that Mr. Orszag is talking about eliminating 

any tax preference. From my standpoint, I think you have to recognize that there are a variety of forces that cause employers to offer 

health care, not just the tax preferences. 

Mr. SCOTT. If you don’t have the tax preference, that is the rationale. 

Mr. WALKER. No, no. Well, the number one benefit of preference 

by employees—and I used to practice as the worldwide head of a 

human capital consulting firm before I had this job—the number 

one employee benefit of preference for employees is health care. 

Number two is health care. Number three is health care. So the 

market says employees want health care as part of their basic compensation package. The tax incentives are icing on the cake, but 

67

they are by no means going to reduce the demand or desire of employees for health care. 

And I will let Mr. Orszag——

Mr. ORSZAG. Yeah, Mr. Scott, if I could just add, clearly the current tax preference provides one incentive for employers to offer 

health care. But in analyzing proposals like the administration’s 

proposal to transform the current tax preference into something 

else, we had to struggle with what other things, what other aspects 

of the employer-provided package would still persist? And our estimate suggests there would be a reduction in employer-provided 

coverage, but it would still be the bulk of coverage. And the reason 

is administrative cost savings from large employers being able to 

pool people together, and the pooling mechanism through employers. So unless you specifically——

Mr. SCOTT. That you get a group rate. 

Mr. ORSZAG. You get a group rate, and you get administrative 

cost savings because it is not just a group rate by pooling people 

together, but you are doing it in an employment setting, where it 

is easier to sign people up, and the back office kind of steps are 

also easier. 

Mr. SCOTT. Thank you, Mr. Chairman. 

Chairman SPRATT. Thank you, Mr. Scott. 

Mr. Boyd of Florida? 

Mr. BOYD. Thank you, Mr. Chairman. 

Mr. Chairman, I am very pleased that you have decided to take 

on this issue in this hearing. And also it is very obvious that these 

three panelists have a good grasp of the principles that would be 

required to take on this monumental task. 

When I was in the Florida Legislature in 1994, I chaired a committee that wrote a piece of legislation called performance-based 

budgeting. That ultimately came into law, was signed by then Governor Lawton Chiles, and now we have 13 or so years of history 

of performance-based budgeting in Florida. And that has been 

hailed by some, including the National Conference of State Legislatures, as one of the premiere performance-based reporting and 

budgeting laws and States in the country. 

I would ask those of you on the panel, are you familiar with this, 

and have you studied it, and is that or some other similar system 

one that we can use as a model? Because this is not going to be 

easy. 

Mr. JOHNSON. There was a hearing 2 years ago, I think, and 

Mike Conaway and Congressman Cuellar were on the panel with 

me, and Congressman Cuellar was talking about the performancebased budgeting in Texas. I am sure it wasn’t as good as it was 

in Florida, but maybe it was close. And a lot of the things that he 

pointed out were being done in Texas he was recommending be 

done here, that they have this kind of information and that kind 

of information. And the thing that came out of that hearing was 

actually the kind of information he is calling for exists, it is this 

performance information, but it is not used, which is—we haven’t 

done a good job of communicating it, and maybe the interest level 

here, or piquing the interest, tweaking the interest level up here. 

As you make this comment, I was writing down we need to look 

at, in our world, all the examples of performance-based budgeting 

68

in the States, and what are the lessons learned? How do different 

States use the information to make smarter budget decisions, appropriations decisions? And are there any suggestions about what 

we might be doing differently at OMB or in the executive branch, 

or what this committee or the appropriators might be doing differently? I bet that we haven’t studied that to see if there are any 

lessons learned as much as we should have. 

Mr. BOYD. Before we go to the other panelists to answer that 

question, I might add we went all over the country studying other 

governmental entities—Texas was one of them—but we found lots 

of our good work or good examples of good systems in cities, municipalities, and counties. 

So, Mr. Walker? 

Mr. WALKER. Mr. Boyd, I am somewhat familiar with that. As 

you know, I am a Florida CPA and lived in Florida a number of 

years. I know that Florida was an early adopter of performancebased budgeting. I know you had something to do with that. I know 

GAO did some work in the mid-1990s which included looking at a 

number of performance-based uses at State level, and Florida was 

a leader at that time. We haven’t done work on it in recent years, 

and, quite frankly, we would entertain a request from this committee to take a look at what is the state of performance-based 

budgeting should you desire us to do that, because I think it clearly 

is meritorious. 

Mr. ORSZAG. The only thing I would add is my understanding, 

for whatever it is worth, is that at the State level performancebased budgeting has not been widely applied to two of the areas 

that we were discussing here, in particular, for example, State 

Medicaid programs and exactly what they are accomplishing or not, 

and similarly SCHIP, and also tax expenditures. So they are very 

useful for the areas that they are applied to, but, at least from a 

Federal budget perspective, there are big pieces that are not as 

analyzed. 

Mr. BOYD. It is obvious—well, I can tell you from having been 

through this exercise at a lower level of government that you have 

to—it is not about just having information, it is about creating a 

framework or a structure in which you use that information with 

definable and measurable principles or principles of measurement, 

performance, duplication, waste, fraud, and—all of those things 

come into play. But you have to have a structure which tells the 

bureaucracy of a government that this is the way we are going to 

do it, and that structure has to be in law. Obviously, that bureaucracy is a very, very difficult one to break through here in Washington, D.C. Are you folks optimistic that we could do that if Congress and the administration put our heads to it? 

Mr. JOHNSON. I am confident, primarily because we are getting 

agencies to do this, to focus on results by holding them accountable 

for it. What we have found is—and it would be even stronger, it 

would be even more compelling if there were some congressional 

reasons for doing it, if some of this was in statute. We have found 

that when you sit around with agency leadership and say, here is 

what we want to do, here is how we want to run the railroad, don’t 

you agree; you have goals and you have performance, you report on 

it quarterly or every 6 months or whatever, and you have correcVerDate 0ct 09 2002 15:50 Jan 14, 2008 Jkt 000000 PO 00000 Frm 00072 Fmt 6633 Sfmt 6602 J:\DOCS\HEARINGS\110TH\110-19\39976.TXT HBUD1 PsN: DICK
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tive action plans and performance action plans, we want to make 

this very public, don’t you agree this is a good idea? And they will 

say, well, yes, but let us do it this way. Then we say, here is the 

way we are going to run the railroad, and then every quarter let 

us assess who is doing what they said they were going to do, and 

when are we getting to the point where it is a desired level of performance management? 

We do that. There is no law that says this will happen, but it 

is the President, starting with the President on down, that says, 

this is the way we are going to do it. And so you can say, well, then 

what if another President came in and it wasn’t a priority, would 

you lose it? Maybe. But my sense is that the people in the agencies 

understand this is good for the agencies. This is something that by 

and large it will make HUD work better. It will make Interior work 

better. And so it will make it a better place to work, a better place 

to be a public servant. And so the employees get it. This is not 

something that is bad for them. But they want to be trained how 

to do it. They want to have the money to be able to do it. They 

want to have the time to be able to do it. 

And so I think we have—what we need to do is figure out how 

to help agencies do it even more successfully going forward. It exists in the executive branch now. It is not locked in. It is not—

doesn’t permeate their entire being, but it is something they get, 

it is something they are doing because we are holding them accountable for doing it. 

Mr. BOYD. Mr. Chairman, I know my time has run out. Are we 

going to have a second round so that we may continue with——

Chairman SPRATT. Go ahead, Mr. Boyd, if you would like. 

Mr. BOYD. Okay. I would ask the other panelists to respond. 

Mr. WALKER. First, Mr. Boyd, you already have one law that is 

called the Government Performance and Results Act. And as I 

noted in my testimony, we need full implementation of that law. 

We don’t believe the executive branch has fully implemented the 

governmentwide performance plan. We think they need to do more 

on the horizontal dimension, and they also need to consider tax 

preferences, as I have noted. 

Secondly, we have also recommended in my testimony that the 

Congress ought to consider a congressional performance resolution. 

And this committee obviously could take the lead. 

I think this committee could also take the lead on looking at the 

concept of key national indicators. And I think that is something 

that, quite frankly, is meritorious of moving forward with a publicprivate partnership to take that concept and make it a reality, as 

other countries have. We have done some work on that. We are 

happy to do more work on that. 

I also think that this committee could also think about doing 

something similar to what the Senate Budget Committee did back 

early in my tenure, and that is to form some task forces on health 

care, key national indicators, selected issues that you may have an 

interest in to see what might be a proper way forward not just for 

this committee, but for the Congress. And we would be happy to 

work with you on that. 

So first we have got to fully implement the existing laws, then 

we need to figure out what else can be done administratively. And 

70

I come back to what I said earlier: Even if the information exists, 

it has got to be used. There is information that exists right now 

that is not being used. And that is a cultural issue; it is not a legislative issue. It is the fact that people aren’t used to it, they are not 

being held accountable for it, and therefore why bother? 

Mr. ORSZAG. If I could just tunnel in on one area, in addition to 

the comments that have already been made. With regard, for example, to Medicare, there would be statutory changes that would be 

required in order to significantly expand the information base that 

we have, which is currently lacking. We simply do not have enough 

information on what works and what doesn’t, what is causing the 

variation in Medicare spending, what type of spending is worth it 

and what is not, what works better, what works not so well. And 

for Medicare to then incorporate that information into its payment 

system so that we would move from a fee-for-service to a fee-forvalue, one would require statutory changes also. So in that particular area, as just one example, there are statutory changes that 

would be necessary to build the information base and then to apply 

the information. 

Mr. JOHNSON. If I may have one more comment, a good bit of 

GPRA has been implemented. Agencies do a lot of reporting about 

performance. In my opinion, our opinion, the PART information 

gives us more consistent, higher quality, outcome-oriented performance information with which to comply with GPRA requirements. 

I think most people would agree that little change in performance has come about as a result of GPRA. It is not because—for 

the programs that we are managing. It is not so much for the mandatory, and we have got nothing going on in the tax whatever you 

want to call it program. But for the discretionary programs that we 

pay a lot of attention to and are trying to hold, increasingly so, 

managers responsible for performing well, little attention is paid to 

what is reported to Congress about performance. It is not as specific in the GPA format as it can be, and, I think, as it should be, 

and when it is reported, very little attention is given to it. Very little—there is very little, so what? This program doesn’t work. What 

are you going to do to cause this program to work at an exceptional 

level versus a marginal level? And this isn’t a budget issue so much 

as at a congressional level, and I think we can even do a better job 

at the executive branch. 

One of the things that has really helped sort of set the groundwork for change in the executive branch is 3 years ago or so, they 

changed the law that allowed the Senior Executive Service, 8,000 

of them, 90 percent of which are career, to be held accountable for 

the performance—the performance measures—program performance measures in their performance goals. So they are not held accountable for having proper competencies; they are held accountable for the performance of their programs. And their pay increase 

can be tied to their performance rating. 

We could have had this law 3 years ago and not been able to 

abide by it because we didn’t have the performance measures used 

to evaluate a manager’s performance. Now we have performance 

measures. They are not perfect, never will be, but they are very, 

very good. We have the data now to increasingly every year hold 

managers accountable for the performance of their programs. That 

71

is where real rubber meets the road is when individual executives 

in programs and all of their staff are held accountable for how their 

programs work. That can take place in the executive branch with 

the help of some legislation, and if we work together to prevent 

some legislation that would keep that from happening. There are 

some interests in this town that would like that not to happen, as 

you can imagine. 

Mr. BOYD. Thank you, Mr. Chairman, for your indulgence. 

Chairman SPRATT. We will go next to Mr. Cooper and then Mr. 

Porter of Nevada. 

Mr. Cooper. 

Mr. COOPER. Thank you, Mr. Chairman. I can’t think of a more 

important topic than helping taxpayers get more value for their 

money. 

We have excellent witnesses here today. I am disappointed at 

Member response. This testimony should be required reading for 

all of our colleagues so that we can get more on top of these issues. 

First let me focus on the Medicare discussion that Mr. Orszag 

was having with Mr. Boyd. I want to commend Peter for beefing 

up the CBO staff in the health care area, and I think there are 

some very explosive parts of the testimony for Members who really 

understand. First the map on page 5, the geographical differences 

in Medicare reimbursement are stunning. Completely different pay 

levels for doing exactly the same medical procedure, completely unjustifiable, but yet it has been law for 40-plus years. And we seem 

to live with those discrepancies. 

But my real point is the chart on page 8, which shows the relationship between quality of care and expenditure of money on care. 

There are a lot of dots on the map. I wish that CBO in the future 

would put each State’s identity on those dots, and also do what I 

think the Commonwealth Foundation has done, which is to draw 

a trend line over those dots so that you can see the inverse relationship between money and quality. So, in other words, the more 

you spend, you don’t get more quality; the more you spend, the less 

quality you get, which is the opposite of what it should be. So I 

hope CBO wasn’t pulling any punches in this case, but an overlay 

trend line would be helpful for Members so they could see clearly 

the relationship. 

Mr. ORSZAG. I would hope that I am getting known for not pulling punches. So, no, that was not on purpose. We can look into the 

suggestions that you made for future publications. 

Mr. COOPER. Thank you. 

I thought the other most explosive element of the testimony was 

regarding tax expenditures, and here Comptroller Walker excels. 

Most Members of this body do not realize that the Ways and 

Means Committee’s pocket jurisdiction is larger than the total discretionary spending of every other committee in Congress combined. Now, I am not against the Ways and Means Committee, but 

that is an amazing side feature of their jurisdiction, to be able to 

effectively spend $800, $900 billion a year, and that is not even 

their primary portfolio. 

So I would like to ask Mr. Walker what we can do to try to rein 

in these expenditures in drag, basically, because they are 

72

masquerading as something else, and I think to a curious effect. 

What should we do about this expenditure problem? 

Mr. WALKER. First, we need more transparency with regard to 

these tax preferences and the cost of these tax preferences. We 

need to have more transparency in the financial statements. We 

should have more transparency as part of the annual process the 

budget goes through, you know, maybe the congressional budget 

resolution that we recommended. 

Secondly, we need to also subject them to an outcome-based analysis, and hopefully that the Congress can move forward with this 

concept of key national indicators through a public-private partnership. Then we should subject not just discretionary spending, but 

mandatory spending as well as tax preferences to an analysis of 

whether or not they are making an outcome-based difference. 

I think whenever you are passing new legislation and reauthorizing existing policies and programs, you need to determine what 

you are trying to accomplish on an outcome-based measure. Put it 

right in the legislation and make sure, therefore, that there is a 

periodic analysis of that both on the tax side and the spending side 

that Congress automatically will consider as part of its normal constitutional responsibilities. Tax preferences are largely off the 

radar screen. You can’t manage what you don’t measure. You can’t 

hold accountable what there is not adequate transparency for. 

Mr. COOPER. I thank the gentleman for his response. This effectively—it seems to me you are saying that as uncontrollable as 

some entitlement spending is, tax expenditure spending could be 

even more uncontrollable, because oftentimes we don’t even know 

what it is. 

There is a Bush Treasury official, I think her name was Pam 

Olson, who testified before this committee a couple years ago saying that tax expenditure spending is basically unmeasured and 

unmeasurable, unverified and unverifiable. That should alarm anyone who is interested in good government. And yet year in, year 

out we seem to do very little about it. 

I see that my time has expired, Mr. Chairman. Thank you for 

this important hearing. 

Chairman SPRATT. Thank you, Mr. Cooper. 

Mr. Porter? 

Mr. PORTER. Thank you, Mr. Chairman. I appreciate this opportunity today. And we have three of the most talented individuals 

in Washington. And I say that I do respect, I appreciate your opinion, and have worked closely with you for a number of years, and 

I appreciate you being here. And we could choose who has talent 

or not, if you would like. I know, Mr. Walker, you were just in Las 

Vegas. Did you see O.J. While you were there? Anything we need 

to know about——

Mr. WALKER. It is amazing, you know. I was in there doing the 

Fiscal Wakeup Tour the day that O.J. got arrested, and I didn’t 

come across him. 

Mr. PORTER. You weren’t at the Palace Station, obviously. 

Mr. WALKER. Don’t know him, haven’t seen him, and don’t really 

worry that I haven’t. 

73

Mr. PORTER. In all seriousness, we appreciate you being in Nevada. And I understand it was very well received. And thank you 

for your insights. 

And again, thank you, Mr. Chairman. 

And I guess I sometimes try to oversimplify things in trying to 

compile information and put it in words that maybe our constituents can understand, but it seems to me—and this may be more 

of a comment than a question, but it seems to me we need a day 

of reckoning in Congress, that there is 1 day of the year when we 

look at expenditures, we look at revenues, how much we have 

spent, or how much we have promised to spend, and on that particular day everything comes to a point where we see how much we 

don’t have. And I know we go with continuing resolutions sometimes, and there is omnibus bills, but it doesn’t seem to me, unless 

I am missing something, that there is 1 day of reckoning, other 

than tax day, of course, which I think should be election day, April 

15th, where this Congress, this body—and I believe that we could 

do it together in a bipartisan way—look at this is where we are 

today, this is what we have promised, and this is what we don’t 

have. Is there such a mechanism in place? Can we do that? 

Mr. WALKER. I can tell you that I lead strategic planning for 

auditor generals around the world, and also I am on the board of 

the international organization, and some countries have such a 

thing. And I think one of the things that this Congress ought to 

consider is one time a year have the Director of OMB, the Comptroller General of the United States, and the Director of CBO report to the Congress as a whole—and I am talking about not just 

sending a paper, but I am talking about physically be there with 

the Congress—to present an assessment of where we are, and 

where we are headed, and the different perspectives. I think that 

would be invaluable. And I know that happens in some countries. 

Unfortunately it doesn’t happen in ours. 

Mr. PORTER. I think for families we look at our budget, and at 

the end of the year you look, and you look at your credit cards, and 

you look at your bills and how much income you have. There is a 

day with our families when we know we are short or we are doing 

okay. And the same with business. We have that. At the end of the 

year we reconcile our books. And I would like to work with you, if 

we could make that presentation to this body at some point so that 

we can see where—the American people can see where we are. I 

would appreciate that. 

Mr. ORSZAG. I was just going to add that one of the purposes of 

CBO’s budget outlook that is released in January and then in August is to give a snapshot of both where we have been and where 

we are going. And one of the purposes of the budget resolution, to 

the extent it is adopted on an annual basis, is to try to take that 

information into account. So I agree there is much more that can 

be done. 

Mr. PORTER. Be more transparent. I think you are providing the 

information, but maybe we can consolidate it more concise. 

Mr. ORSZAG. Yes. 

Mr. PORTER. I would appreciate that. 

Mr. WALKER. It is not just that, Mr. Porter. There is no question 

that CBO provides a lot of valuable information, and so does GAO, 

74

and so does OMB. But there is a difference between sending up 

electronic or print documents up here and appearing before the 

body of the whole and making an oral presentation, using charts 

and graphs that convey a lot of information very concisely. That is 

what is missing, and that is what is needed. 

Mr. PORTER. Thank you. 

Thank you, Mr. Chairman. 

Chairman SPRATT. Mr. Etheridge is next. 

Mr. Etheridge, would you yield just for a second and let me say 

a word? 

Mr. ETHERIDGE. Yes. 

Chairman SPRATT. This is the point I was going to make about 

the SAR. I recall when it was created in the Pentagon, I was working for the Comptroller when it was created. Twelve years later, 

when I came back here, came into Congress, I went over and started pulling out SARs just to see how they looked. They looked the 

same way they had 12 years ago. They weren’t more useful because 

they hadn’t been used. 

One of the things that happens when you engage and use a document is it becomes better and better adapted to its intended purposes. When it sits on the shelf, nobody uses the end product, it 

just gives you the same old output every year. 

Mr. Etheridge. 

Mr. ETHERIDGE. Thank you, Mr. Chairman, and thank you for 

the hearing. 

Let me thank each of you for being here. And I won’t elaborate 

on the accolades, because we are honored to have you here. Let me 

just make a couple of points and ask a question. 

I served as a State legislator before I came here, and chaired the 

Appropriations Committee, and then served 8 years as State superintendent and ran one of the largest budgets in our State. And 

what you say is true. But the real challenge gets below really that, 

as you well know. And let me just give an example, and then I am 

going to ask my question, because I do think that performancebased budgeting really holds some potential, really maximum potential, for public agencies if it is used and used properly. 

For example, let me just give you one example, that we are 

underfunding education right now, in my view, if we are really 

going to continue to be a strong country. And if we are pairing it 

off against other things, I think that is dangerous. The administration sent a budget up cutting education by 1.5 billion, eliminating 

44 various agencies. Sounds like a great idea if you don’t know the 

difference, but when you start looking at it, it was a tool that was 

called Program Assessment Rating Tool. Sounds good. Makes 

sense. However, when you find out that, number one, none of the 

public participants were in it, none of the stakeholders were consulted, they just reached in and parceled them out, threw them up 

on the table, and the problem you have with that is the folks in 

the field are dealing with training the next generation of workers, 

and they don’t have input. 

That is not a very good performance-based process, in my view, 

having worked with it. People need to be engaged and believe it is 

fair. And we are getting close to a reckoning day. So I think you 

are absolutely right. 

75

So let me ask you a question. And I do want to applaud the work 

that each of you are doing and thank you for it. It is very important to our work. To develop options, though, for policymakers to 

address the looming train wreck that you have been talking about, 

and I think it is one we have got to deal with on the budgets, on 

the horizons, in a variety of ways, and I want to thank Chairman 

Spratt for calling this meeting, let me just ask each one of you for 

one suggestion, just one, and you have given us a whole bunch, but 

just one that we could use to accomplish that purpose. Just one. 

Whoever wants to start first. Mr. Johnson? 

Mr. JOHNSON. I think that this committee or Congress or the administration should publicly declare that they want to be held accountable for the government working well and better every year 

in a demonstrable, quantifiable degree. 

Mr. ETHERIDGE. That is more like a policy statement. Okay. 

Mr. JOHNSON. Just that commitment will drive behavior, will 

drive a level of transparency that doesn’t exist now. It will drive 

an attention to performance or nonperformance that doesn’t exist 

now. And it will drive real-life things happening unlike that are 

happening now. 

Mr. ETHERIDGE. Very good. Thank you. 

Mr. Walker? 

Mr. WALKER. I testified before that with regard to our fiscal challenge, the best thing you can do is to reimpose tough statutory 

budget controls on both sides of the ledger, dealing not just with 

discretionary spending, but also mandatory reconsideration triggers 

for mandatory spending, and also to put tax preferences as part of 

that radar screen. You have to do that. 

Now, as far as performance budgeting, I would say moving towards an annual congressional performance-based budget resolution—now, it is going to take you—you are going to have to do 

some work to get there, because you are right, there is a lot of debate about, well, which indicators do you want to use in order to 

assess performance? But agreeing that there is a desire to move to 

some type of annual congressional performance-based budget resolution and then putting in place mechanisms to make that a reality 

over time. 

Mr. ETHERIDGE. Starts that dialogue. 

Mr. ORSZAG. I would say if there is one step that, looking out 

over the future, you wanted—and you wanted to adopt a perspective to get more for your money from the Federal budget, it is in 

health care. And perhaps the most single auspicious thing that 

could be done if you wanted to move in that direction is to vastly 

expand the amount of comparative effectiveness research that is 

done; that is, examining what works and what doesn’t through registries, through trials, et cetera, and then tying financial incentives 

and other incentives to the results of that research. 

Mr. ETHERIDGE. Thank you. Thank all three of you. 

Thank you, Mr. Chairman. I yield back. 

Chairman SPRATT. Thank you, Mr. Etheridge. 

Mr. Becerra? 

Mr. BECERRA. Thank you, Mr. Chairman, and thank you to the 

witnesses for your testimony. 

76

I am not sure if you explored this earlier or not, but I am interested in hearing your thoughts about the expenditure side. And, 

Comptroller General Walker, let me start with you and ask have 

you all done any analysis of the charitable deduction expenditure 

and whether or not we as a Nation are getting the value of that 

lost revenue in returned programming and services for Americans 

through that charitable deduction? 

Mr. WALKER. We have done some work with regard to tax preferences in general. I do not recall any particular work that has focused specifically with regard to the charitable deduction and the 

value for money implication, but I will check and provide for the 

record a specific answer. 

[The information follows:] 

******** COMMITTEE INSERT ********

Mr. BECERRA. Let me offer any of the witnesses if they have any 

comment with regard to any work that may have been done to analyze that particular expenditure, the charitable deduction, and its 

value to America. 

Mr. ORSZAG. There has been some academic work done. I will 

have to check on whether CBO has published work. The academic 

work has raised some interesting possibilities. So, for example, 

there is a recent study that shows a match for a charitable contribution may be more effective in eliciting charitable contributions 

than money back in your pocket, which is basically what a tax—

the current tax preference does. So you give a dollar to a charity 

and there is a matching contribution, that, according to one study, 

generated more activity than you give a dollar to the charity and 

you get something back in your pocket in exchange. 

Mr. BECERRA. Dr. Orszag, I am actually interested in the output 

side of that transaction, where we then determine how that charity 

uses the money. I would like to find out if anyone has analyzed 

how those organizations that receive that charitable deduction employ those dollars that they get as a result of taxpayers having less 

money to have to pay into the Treasury. Money forgone, my understanding, it is about $32 billion that the Treasury forgoes because 

people make these charitable deductions to these nonprofit organizations. And I am interested in finding out, for example, if we are 

getting our dollars’ worth. I know there are a lot of poor people in 

this country. I am wondering how many of those charitable contributions end up helping people who are poor, end up helping people who have no health care. 

Mr. WALKER. You are raising a very interesting point. First, 

there is audit authority and evaluation authority that we have, for 

example, when you are dealing with Federal grants. All right. So 

they are on the radar screen, because they go through the appropriations process and the budget process. But tax preferences don’t. 

That is not Federal money. It is forgone Federal revenues. And 

therefore, you would even have an issue of whether or not we 

would have the audit authority, you know, with regard to a tax 

preference. That is not Federal money. It is forgone revenues. 

Mr. BECERRA. Let me ask and see if any of you wish to volunteer 

an opinion on whether or not we are making the best investment 

of tax dollars or forgone tax dollars by providing this particular tax 

expenditure, the charitable deduction. 

77

Mr. ORSZAG. Let me just say there are a variety of tax preferences associated with the nonprofit and charitable sector, not just 

the contribution one that you noted, but also the fact that they do 

not pay tax on their net revenue. 

Mr. BECERRA. Correct. 

Mr. ORSZAG. And there have been questions that have been 

raised about the degree to which some of those entities are performing services and doing things that are quasi-commercial in nature. And the dividing line between a purely charitable activity and 

a quasi-commercial activity has become blurred. CBO has done 

some work on that in the past and will be doing more in the future. 

And I guess I would leave it at that, that there have been questions raised about that line. 

And then you are raising another issue, which is even within the 

charitable—you know, even within that more clearly charitable set 

of activities, how effective are they in actually achieving their objectives? 

Mr. BECERRA. Right. 

Mr. ORSZAG. Again, I think that is something that we don’t have 

good answers on. 

Mr. BECERRA. General? 

Mr. WALKER. A few comments real quick. First, there is something called UBTI, unrelated business taxable income. And, for example, AARP pays a lot of money on—a lot of tax on that, because 

they make a lot of money with regard to their insurance programs. 

Furthermore, we have done work at GAO for the Senate on the 

issue of not-for-profit entities, for example, hospitals, and whether 

or not there is a meaningful difference at the type of services that 

they are providing versus for-profit hospitals, because obviously 

they are gaining a benefit through tax-exempt status, and presumably there should be a public welfare gain from that. 

Mr. BECERRA. And, Mr. Chairman, I see my time has expired. If 

I could just explore one final question. 

Is there something, General Walker, that we could do to perhaps 

expand that examination? Because I think it is a legitimate concern to find out if there is a difference between what a not-for-profit hospital is providing to the public versus a for-profit hospital, 

and whether or not there is a reason to give a not-for-profit hospital a tax advantage over a for-profit hospital in the work that 

they do in a community. 

I also think there is a reason to explore whether or not many 

foundations are doing the work that we expect of them, especially 

family foundations are doing the work we expect of them to provide 

the general welfare of the public for the forgone taxes that they 

would otherwise pay. Is there something there that you think 

would be worth exploring by the GAO? 

Mr. WALKER. First, let me do two things. One, I will provide back 

to your office information on what we have done and what we are 

doing with regard to not-for-profit hospitals. Secondly, I also want 

to think about whether or not there may be additional authorities 

that we might need in order to be able to do evaluations in situations where the Federal Government is forgoing billions of dollars 

of revenue and has a legitimate interest in trying to understand 

78

what public good is being obtained from that. There may be some 

need to look at our access authority and our audit authority here. 

Mr. BECERRA. I look forward to hearing back from you on that. 

Mr. Chairman, I thank you very much. Yield back. 

Chairman SPRATT. Thank you, Mr. Becerra. 

Mr. Ryan, do you have any further questions? 

Mr. RYAN. No. 

Chairman SPRATT. Let me say to our witnesses today, Director 

Johnson, General Walker, Director Orszag, thank you very much 

for your time, and more than that for your insightful advice on a 

topic that we clearly need to pay more attention to. 

I also—earlier on I recognized the contribution of Dr. Posner, and 

Barry Anderson as well. Dr. Posner is here. 

[The prepared statement of Mr. Posner follows:]

Prepared Statement of Paul L. Posner, Director, Public Administration 

Program, George Mason University 

Mr. Chairman and Members of the Committee, I appreciate this opportunity to 

share my perspectives on the prospects for performance budgeting in general and 

the Program Assessment Rating Tool (PART) process in particular. In brief, performance informed budgeting has become institutionalized at the federal level 

through two successive Administrations. The use of performance data to inform 

budget decisions can potentially improve the decision making process and the outcomes of government by ensuring that performance goals and results are taken seriously at all levels. The benefits of strengthening the link between resources and results suggest that some form of performance budgeting is here to stay—it would not 

be surprising if the next Administration continued this agenda with initiatives of 

its own. While we should never expect to ‘‘depoliticize’’ the inherently political process of budgeting, performance information provides valuable new perspectives that 

can help transform the kind of debate—budget options can be compared not just 

based on their potential costs but on their relative contribution to policy outcomes 

we care about as a nation. 

In rethinking how to design the next round of performance budgeting, the PART 

process of this Administration will form an important foundation. Now that nearly 

all programs in the budget have been covered by at least one PART review, policymakers have an opportunity to create a process to better inform the difficult budgetary tradeoffs the nation will be facing in the years to come. Rather than engaging 

in yet another round of reviews revisiting the same programs, it is time to build 

on the base of measures and assessments developed under both GPRA and PART 

to do broader- based and more selective assessments of broad program areas. Such 

assessments should review the relative contribution of multiple programs to overarching program goals, e.g. improving food safety, or providing for low income housing, and should include all major tools of government used by the federal government to reach those broad outcomes, including tax expenditures. The assessments 

should also be performed in an open and inclusive manner that ensures the engagement of significant stakeholders and the Congress itself. While PART served the 

President’s interests, a revised assessment process could achieve greater credibility 

and support if it were more open and inclusive. Enhancing the prospects for Congressional attention to performance issues is vital if we are to promote this agenda 

for the future. 

THE SURPRISING STAYING POWER OF PERFORMANCE BUDGETING

Performance based reforms have had a long history in the United States at all 

levels of government. Often led by state and local initiatives, public administrators 

at all levels have become gripped by waves of performance reforms intended to improve performance and enhance public confidence in government. Ushered in with 

great expectations, reforms such as Planning-Programing-Budgeting, Zero Based 

Budgeting, and Total Quality Management, achieved significant improvements but 

are widely acknowledged to have fallen well short of their mark in institutionalizing 

a sustainable focus on performance within government over the longer term. This 

checkered history of reforms encouraged a certain amount of cynicism about the efficacy of performance management to achieve lasting success in government. 

79

One lesson learned from these past initiatives is that the ultimate success of performance reforms will be predicated on their integration with the most important 

process engaged in by public managers every year—the budget process.1 The introduction of performance goals and metrics into the budget process gained the moniker of ‘‘performance budgeting’’ and this has become a fundamental feature of current performance reforms at federal, state and local levels of government, as well 

as in most OECD nations.2

Notwithstanding the failures of prior incarnations of performance management, 

since 1993, performance management reforms in general, and performance budgeting in particular, has achieved a level of continuity and sustainability that is at 

once both surprising and tenuous. The Government Performance and Results Act 

(GPRA), passed in 1993, has ushered in a period where performance information 

and justifications have become widely accepted in federal agencies, in OMB reviews 

and even, sporadically, in certain committees of the Congress itself. Notably, the reform has not only survived through two Administrations of different parties, and 

has become a vital part of the management reform strategies of both the Clinton 

and Bush Administrations. 

Under the GPRA, agencies were required to prepare strategic and annual performance plans and reports that covered the program activities in their budgets. 

While agencies had primary responsibility for preparing these plans, OMB reviewed 

the plans as part of the budget process and eventually worked with agencies to integrate performance plans into agency budget justifications. GAO found in its ten-year 

retrospective that federal managers reported having significantly more types of performance measures and that GPRA had begun to facilitate better linkage between 

performance information and planning and budget decisionmaking, although more 

remained to be done to promote the use of this information for resource allocation. 

3 The surprising staying power of GPRA is partly due to its statutory origins, as 

reformers realized that past initiatives undertaken without the support of the Congress failed to transcend the terms of their executive political champions 

ADMINISTRATION PERFORMANCE BUDGETING INITIATIVES

The Bush Administration built on the GPRA infrastructure to carry performance 

budgeting initiatives further along the continuum. While the agencies had made 

progress in developing the ‘‘supply side’’ of performance plans and measures under 

GPRA, the demand for this information by budget decisionmakers proved to be episodic at best, particularly in the Congress. Although performance reformers hoped 

that building credible performance plans would in themselves prove compelling 

enough to foster their own demand, these high hopes proved to be unfounded. Some 

fear that agencies may eventually lose interest in generating the supply of information if the supply is unrequited by the demand and actual use of the information. 

The Administration sought to strengthen the linkage of performance with budgeting. First, they included budget and performance integration (BPI) as a key initiative within the President’s Management Agenda and evaluated agencies’ progress 

periodically by using a scorecard published in the budget. As part of this initiative, 

OMB encouraged agencies to restructure their budget presentations and underlying 

account structures to better align budget resources with performance goals. Beginning with the fiscal year 2005 budget, OMB required agencies to submit a ‘‘performance budget’’ that would integrate the annual performance plan and the congressional budget justification into one document. While framed as a strategy to promote 

the GPRA agenda of linking plans with budgets, this initiative was viewed by appropriators and some agency managers as laying down the proverbial gauntlet by eliminating traditional information presentations that long served as the foundation for 

congressional appropriations and oversight. 4

The Administration’s Program Assessment Rating Tool (PART) added a program 

review and assessment component to performance budgeting. The PART initiative 

was justified as a way to promote greater attention to the performance perspective 

that was originally fostered by GPRA. Moreover, the initiative also was premised 

on the need to transcend the traditional focus of budget process from one that focused disproportionate attention on incremental changes to existing programs to a 

process where the base itself is periodically reexamined. Given the fiscal challenges 

facing the nation both now and over the longer term, such a periodic reexamination 

can be healthy for any political system.5

The PART process consists of a series of questions rating the purpose and design, 

planning, management and results of each program in the budget. Programs receive 

ratings based on the answers to these questions, with ratings ranging from effective 

to ineffective and a separate category, results not demonstrated, when programs fail 

to have sufficient information or documentation. To date, OMB has assessed the 

80

performance of nearly 1000 programs, covering 96 percent of all programs in the 

budget. 

While PART can be viewed as building on GPRA, there are differences to be sure. 

One observer contrasted PART and GPRA by noting that GPRA was a ‘‘passive’’ 

strategy relying on the power of well developed plans and metrics to create their 

own demand. In contrast, PART constituted a more active strategy, where performance information would form the basis for explicit judgments of a program’s effectiveness that would become part of the executive budget formulation process. Moreover, while GPRA plans and metrics were largely developed by federal agencies 

themselves, PART marked a new departure by placing control of performance assessments in the hands of OMB. It was the President’s budget agency that designed 

the process and made the final judgments on program assessments, with the active 

participation of the agencies. At least in the initial years of implementation, agencies were encouraged to replace GPRA goals and measures with those developed 

under PART, substituting OMB’s judgment for that of the agencies. 

The PART process has itself been assessed by GAO and others in the federal community. The process has institutionalized more formal and systematic program reviews in the executive budget process and has jump started a more regular conversation between OMB and the agencies on the performance of their programs. 

This has arguably led to a greater focus on performance as part of the budget review 

process. Agencies have a more powerful incentive to improve their performance data 

and measures to protect themselves in this review process in the future. Some agency officials suggest that PART has stimulated initiatives to focus on management 

issues that the agency may not have addressed on its own. While funding levels 

have been changed in some cases, changes to program design and management were 

a more prevalent outcome of the PART process, according to the GAO.6

However, the PART process raises some vexing questions about the ability of any 

process to develop the appearance of a ‘‘bottom line’’ rating for complex government 

programs. Unlike the private sector, there is no single bottom-line for most federal 

programs. Given the multiple purposes and goals reflected in most programs, OMB 

staff invariably had to make judgments on how to answer yes/no questions on such 

issues as whether the program was effective in reaching its goals and whether the 

costs of the program were reasonable. Notwithstanding claims that PART rests on 

‘‘objective’’ ratings, this is often not possible in the high stakes world of federal 

budgeting where multiple stakeholders have their own interpretations of seemingly 

straightforward numbers. A single performance indicator, whether it is trends in 

drug abuse, serious crimes or welfare caseloads, is subject to multiple interpretations about what the performance data mean and how it should be used in making 

decisions. The GAO assessment of PART concluded that the experiences with the 

rating tool illustrate ‘‘the inherent limitations of any tool to provide a single performance answer or judgment on complex federal programs with multiple goals.’’7

Moreover, the PART process used discrete budget program activities as its unit 

of analysis for assessments. The assessment of detailed budgetary activities have 

the advantage of more closely tying performance assessments to the budget, but at 

the price of accepting the current budget structure as a given. However, there is 

a tradeoff—while performance data may gain greater influence in budgeting, this 

may come at the expense of the breadth and openness that characterize strategic 

planning processes. The PART focus on relatively narrow budget accounts and activities contrasts with the broader planning and goal orientation of the GRPA planning process. The key question agencies are charged with answering in their GPRA 

plans and metrics is what difference does the agency and its programs make for outcomes that matter to the various publics in a democratic society? In many cases, 

whether it be low income housing, job training, food safety or child nutrition, such 

outcomes are achieved from the results of a number of programs and governmental 

tools, often crossing agency lines. 

Finally, any assessment will invariably reflect the interests of the entity that controls the process. As part of the President’s budget preparation, PART clearly must 

serve the President’s interests. However, it is unlikely that the broad range of actors 

whose input is critical to decisions will use performance information unless they believe it is credible and reliable and reflects a consensus about performance goals 

among a community of interested parties. This consensus building process is critical—if the goals in the plans gain broad support, their use in the budget will become more accepted and credible. The measures used to demonstrate progress toward a goal, no matter how worthwhile, cannot appear to serve a single set of interests without potentially discouraging use of this information by others. In the case 

of PART, the control of the process by OMB has arguably served to erode the support for the assessment process by such key players as Congressional appropriators 

and authorizers. The absence of broad based support will limit the impact that such 

81

a process can have longer term on the sustained development and improvement of 

linkages between performance and budgeting. I might add that most efforts to integrate performance information into budgeting suffer to some degree from the absence of open collaboration with stakeholders and the Congress, reflecting the closed 

nature of the budget process where deliberations are considered to be 

‘‘predecisional’’ and not subject to public disclosure our debate. This is true not only 

for the budgetary figures and decisions themselves, but also for performance plans 

and PART scores that comprise the President’s budget under both Clinton and Bush 

Administrations. 

WERE DO WE GO FROM HERE?

PART and GPRA established the valuable expectation that performance will inform budget decisions. Continuity is important—the attention devoted to performance information by both Clinton and Bush Administrations have prompted agencies to take the generation of goals and measures and data more seriously. The momentum will hopefully continue. The long term budget models of GAO, CBO and 

OMB have reached the consensus that the federal deficits of today are but a prelude 

to the serious and unsustainable deficits of tomorrow. As the baby boom retires, the 

budget challenges will become even more daunting—and the first baby boomers retire next year. A performance based assessment process will help the nation update 

its priorities as all programs increasingly compete for increasingly limited resources. 

The question is—how do we build on the recent reforms to establish a performance 

assessment process that will be sustainable and relevant over the longer term? 

PART has served to continue and heighten the focus of agencies on performance 

and has prompted some to redouble their efforts to more systematically evaluate 

their own programs and improve the base of information upon which such evaluations rest. However, now that nearly all programs have been reviewed, it is an ideal 

time to rethink the assessment process. Simply continuing the current process 

through yet another round of assessments would not constitute the best use of 

scarce analytic resources in the agencies and the budget community. The completion 

of the cycle of PART reviews, instead, should provide the occasion to refocus the attention of the budget community on a broader, yet more targeted assessment process that would be more inclusive and open than PART has proved to be. The process 

I have in mind would refocus assessments on the broader outcomes that individual 

federal programs are attempting to influence together, building on the results of 

both GPRA planning and individual PART reviews. 

The experiences of other nations can be examined to help us rethink our own 

process. Other nations, too, have undertaken comprehensive reexamination efforts. 

New Zealand, Australia, Canada, and the Netherlands, for example, have undergone 

performance-based budgeting and performance management reforms aimed at 

reprioritizing the base of their respective budgets that spanned a number of years. 

In Canada, an OECD study concluded that a program review exercise delivered 

$18.8 billion in savings over three years, contributing to the achievement of the nation’s deficit reduction targets in the mid 1990’s. 

In the Netherlands, reconsideration reviews are conducted on both particular programs as well as broader crosscutting areas selected for each budget cycle, with participation by working groups of central budget and departmental staff as well as external experts, resulting in a public report with recommendations to be considered. 

According to OECD, the process has been in place since 1981 and has lead to significant savings as well as many reforms of major policy areas. 8 In their broader crosscutting reviews, which they call Interdepartmental Reviews, their system is different than PART in several respects. First it is selective, with about 10 reviews 

each year. Second, it has a broader focus as reviews address an entire policy area 

or governmentwide management concern. Third the reviews are more collaborative 

involving a partnership the budget office, agencies and outside researchers and academics. 

Our own recent experience as well as that of other nations suggests it is time to 

consider a revised assessment process within the context of continuing and enhancing the connection between performance planning and budgeting.. Such a process 

should include the following elements: 

• Continuing and enhancing the GPRA planning process as the foundation for the 

assessment process. This process has succeeded in generating the ‘‘supply side’’ of 

performance budgeting, producing plans and reports with progressively greater coverage and credibility. Such a process can be enhanced by the implementation of a 

goverrnmentwide performance plan to capture those important outcomes that are 

the produce of the programs of several different agencies. 

82

• Continuing efforts to tie performance plans and metrics into the budget formulation process in both executive and legislative stages. This should encompass 

changes to budget presentations and structures to highlight the performance implications of budget decisions—an initiative begun under the Clinton Administration 

and carried forward during the Bush Administration under the Budget and Performance Integration. The goal of these initiatives is to change the debate to focus 

more on how given levels of resources will achieve particular performance goals and 

targets. Accountability should increasingly come to focus on the setting and accomplishment of discrete performance targets. These targets can be articulated both in 

budget presentations within the executive process as well as in appropriations debates and reports. 

• Targeting future assessments based on such factors as the relative priorities, 

costs, and risks associated with related clusters of programs and activities addressing common strategic and performance goals. More selective reviews would help ration scarce analytic resources as well as focus decision makers’ attention on the 

most pressing policy and program issues. The Netherlands Interdepartmental Reviews provide an illustration of a long standing assessment process that selects several broad program areas for review each fiscal year, in a process that has been established for over 25 years. 

• Adopting a broader unit of analysis keyed to program outcomes, not budget accounts. PART’s focus is overly narrow and fails to focus attention on the most important areas for governmental policymaking—the relative contribution of different 

programs and tools to policy outcomes. Thus, rather than producing separate reviews of the many different job training programs in differing budget years, a more 

comprehensive review process would cover all significant programs together in one 

assessment. Such a review should cover all significant governmental tools address 

broader outcomes, including the more indirect tools such as tax expenditures and 

regulatory programs. 

• Establishing a more open process that is more independent of OMB and the 

agencies. The Netherlands process entails reviews by committees often chaired by 

independent experts, with participation by budget and agency officials. There are 

many options to open up the assessment process here. One option that could be considered would be to anchor the process in a nonprofit organization while guided by 

OMB and the Congress. While including a broader base of stakeholders, such assessments must be truly independent and neutral to attain the credibility necessary 

to influence budgetary decisions. 

Mr. Chairman, it is vital that such a revised assessment process engage the Congress. Given the strong role Congress plays in both budgeting and management 

oversight, Congressional involvement will prove to be vital in reinforcing the importance of performance assessment and ensuring that such a process reflects a broader 

base of values and interests. PART has served the President, but as a result was 

not perceived to serve the interests of other actors in the system, most notably the 

Congress. While Congress has largely ignored PART assessments and performance 

budgets, such a posture risks giving the President unimpeded access to the performance high ground. As we have learned from PART and even GPRA, performance reviews are anything but objective, and turn on highly contestable formulations of program goals, selection of particular measures and highlighting of particular results. 

Performance information would be more credible if Congress were engaged in selecting reviews, highlighting key differences with executive interpretations and using 

their own information resources to challenge executive data. 

Several alternatives might be considered to enhance Congressional involvement in 

program assessment: 

• A more collaborative approach could be adopted where the new President and 

the Congress could reach agreement about those areas to be assessed in each budget 

year. Congress could help ensure that areas that are ripe for reexamination, such 

as those up for reauthorization, would get attention in the executive review process. 

The resulting assessment process could have greater credibility in the process. Such 

a process would require the Congress to articulate its oversight and reexamination 

priorities centrally and OMB to invite Congress to help determine executive assessment priorities. 

• Congress could request the GAO to undertake a series of assessments of broad 

program areas deemed in need of reexamination by the leadership. The agency 

would engage in an evaluation synthesis, systematically examining the evidence 

from other studies, including its own, of the effectiveness of federal program design 

for the area in question. Such studies could, in effect, constitute Congress’ own assessment process oriented to the oversight and performance priorities expressed by 

its own leadership in contrast to those articulated by the President. 

83

• Congress could adopt its own performance assessment and review process 

linked to the budget process. The Budget Committees could be the vehicle to accomplish this by reporting out a ‘‘congressional performance resolution’’ as part of the 

budget resolution. Such a resolution could be the vehicle to engage the full Congress 

in debate over those areas most ripe for review and assessment each year. The resolution could be viewed as a requirement that committees undertake the assessments 

through hearings, GAO studies and other vehicles that they deem appropriate to reexamine the program areas identified in the resolution. This would more forcefully 

place Congress in the forefront of the performance budget process. Just as the budget resolution helps identify priorities for scarce resources, the performance resolution could jump start a healthy process for prioritizing those areas that most warrant a reexamination of goals, program design or management processes. 

• Budget committees could not only spearhead such a resolution but also become 

a focal point for undertaking more systematic oversight of important crosscutting 

issues, perhaps in concert with other committees. Similar to a process undertaken 

by the Senate Budget committee in the l990’s, a budget committee driven oversight 

process could add value to the traditional oversight conducted by other committees 

by conducting assessments that both cut across current committee jurisdictions and 

have significance for current and future budgets. 

Mr. Chairman, this concludes my statement. I would be glad to respond to any 

further inquiries by the Committee. 

ENDNOTES

1 U.S. General Accounting Office, Performance Budgeting: Past Initiatives Offer Insights for 

GPRA Implementation (Washington, D.C.: GAO, 1997) 2Organization of Economic Cooperation and Development, Performance Information in the 

Budget Process: Results of the OECD 2005 Questionnaire (Paris: OECD, 2005) 3 U.S. Government Accountability Office, Results-Oriented Government: GPRA Has Established a Solid Foundation for Achieving Greater Results (Washington, D.C.: GAO, 2004, GAO 

-04-38) 4 U.S. Government Accountability Office, Performance Budgeting: Efforts to Restructure Budgets to Better Align Resources With Performance (Washington, D.C.: GAO, 2005) GAO-05-117SP 5 U.S. Government Accountability Office, 21st Century Challenges: Reexamining the Base of 

the Federal Government (Washington, D.C.: GAO, 2005) GAO-05-325SP 6 U.S. Government Accountability Office, Performance Budgeting: PART Focuses Attention on 

Program Performance, but More Can Be Done to Engage Congress (Washington, D.C.: GAO, 

2006, GAO-06-26) 7 U.S. Government Accountability Office, Performance Budgeting: Observations on the Use of 

OMB’s Program Assessment Rating Tool for the FY 2004 Budget (Washington, D.C.: GAO, 2004, 

GAO-04-174) 8OECD, Reallocation: The Role of Budget Institutions (Paris, OECD: 2005)

Chairman SPRATT. We appreciate you coming, and we appreciate 

your very methodical and clear set of proposals that you sent in 

your testimony. Thank you very much indeed. 

The hearing is adjourned. 

[Whereupon, at 12:21 p.m., the committee was adjourned.]

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