As I have previously testified before this committee, known demographic trends and rising health care costs are major drivers of the nation’s large and growing structural deficits. The nation cannot ignore this fiscal pressure: it is not a matter of whether the nation deals with the fiscal gap, but how and when. Although it is the “big three”—Medicare and Medicaid and to a lesser extent, Social Security—that drive this phenomenon on the spending side, other federal spending cannot be ignored. Difficult as it may seem to deal with these long-term challenges, policymakers must not only address these entitlement programs but also reexamine other budgetary priorities in light of the changing needs of this nation in the 21st century. It will be necessary to work on several fronts at once. In fact, our history suggests that all major spending and revenue programs and policies need to be subject to periodic reviews and that exempting major areas can undermine the credibility and support for the entire process. These challenges would be difficult enough if all we had to do is figure out how to fund existing commitments. But as the nation continues to change in fundamental ways, a wide range of emerging needs and demands—for example, evolving defense and homeland security policies, increasing global interdependence, and advances in science and technology—can be expected to compete for a share of the budget. Whether national security, transportation, education, or public health, a growing population will generate new claims for federal actions on both the spending and tax sides of the budget. Many of our programs were designed decades ago to address earlier challenges. Outmoded commitments and operations constitute an encumbrance on the future that can erode the capacity of the nation to better align its government with the needs and demands of a changing world and society. Accordingly, reexamining the base of all major existing federal spending and tax programs, policies, and activities by reviewing their results and testing their continued relevance and relative priority for our changing society is an important step in the process of assuring fiscal responsibility and facilitating national renewal. A periodic reexamination offers the prospect of addressing emerging needs by weeding out programs and policies that are redundant, outdated, or ineffective. Those programs and policies that remain relevant often could be updated and modernized by improving their targeting and efficiency through such actions as redesigning allocation and cost-sharing provisions, consolidating facilities and programs, and streamlining and reengineering operations and processes. We recognize that taking a hard look at existing programs and carefully reconsidering their goals and financing are challenging tasks, as making decisions about reforming programs and activities creates winners and losers. Furthermore, given the wide range of programs and issues covered, the process of rethinking government programs and activities may take a generation to unfold. We are convinced, however, that reexamining the base offers compelling opportunities to both redress our current and projected fiscal imbalance while better positioning government to meet the new challenges and opportunities of this new century. Performance budgeting can help enhance the government’s capacity to assess competing claims in the budget by arming budgetary decision makers with better information on the results of both individual programs as well as entire portfolios of policies, tools, and programs designed to address common outcomes. It is useful to start with a review of the current landscape. The management and performance reforms enacted by Congress in the past 15 years have provided some new ways to gain insight into the financial, program, and management performance of federal agencies and activities. With GPRA as its centerpiece, the statutory and management framework laid out in the 1990s provided a foundation for strengthening government performance and accountability. As our work as shown, GPRA has succeeded in expanding the supply of performance information and promoting institutionalization of a culture of performance as well as providing a solid foundation for more recent budget and performance initiatives. As I have previously said, PMA and its related initiatives, including PART, demonstrate the Administration’s commitment to improving federal management and performance. Properly done, performance assessment and performance budgeting information produced by GPRA and PART could provide a strong basis to support the needed review, reassessment, and reprioritization process. By calling attention to successes and needed improvements, the focus that these initiatives bring is certainly a step in the right direction toward providing the kind of information needed for effective reexamination, and our work shows that progress has been made in several important areas over the past several years. For example, we have reported that the PART process continues to aid OMB’s oversight of agencies and encourage improvements in executive budget formulation and agency program management. The PART has helped to structure and discipline OMB’s use of performance information for internal program analysis and budget review, and made its use of this information more transparent. Many agency officials told us that the PART helped to create or strengthen an evaluation culture within agencies by providing external motivation for program review and focused attention on performance measurement and its importance in daily program management. Some officials said that the PART and the PMA helped them move away from “analysis by anecdote” and refocused their attention on the impact their programs have, instead of largely on output measures. Others echoed a similar sentiment—one indicated that the PART scores helped to create “a new sense of urgency” about performance measures and completing the changes to performance systems that were already under way. Even the best performance data are insufficient to achieve real improvements in management and program results unless they are used by decision makers and managers alike to inform policy and management decisions. Key stakeholder outreach and involvement in developing performance information is critical to encouraging the use of such information in both performance budgeting and reexamination efforts. Moreover, little is known about the performance of tax expenditures, which are often aimed at policy goals similar to those of federal spending programs, such as those intended to encourage economic development in disadvantaged areas, finance postsecondary education, and stimulate research and development. Yet tax expenditures and their relative contributions toward achieving federal missions and goals are often less visible than spending programs, which are subject to more systematic review. In order for performance budgeting and program reviews to hold appeal beyond the executive branch, and to actually have an impact on legislation, garnering congressional buy-in on what to measure and how to present this information is critical. Without congressional involvement and buy-in, these efforts are unlikely to play a major role in the authorization, appropriations, and oversight processes. Although congressional support is critical to sustain any major management initiative, Congress’s constitutional role in setting national priorities and allocating the resources to achieve those priorities makes it especially important for performance budgeting and reexamination efforts. Lack of consensus by a community of interested parties on goals and measures and the way that they are presented can detract from the credibility of performance information and, subsequently, its use. Fifty years of past executive branch efforts to link resources with results have shown that any successful effort must involve Congress as a full partner. We have previously reported that past performance budgeting initiatives faltered in large part because they intentionally attempted to develop performance plans and measures in isolation from the congressional authorization, appropriations, and oversight processes. Some tension about the amount of stakeholder involvement in the internal deliberations surrounding the development of measures used in budget formulation and the broader consultations more common to the GPRA strategic planning process is inevitable. Compared to the relatively open- ended GPRA process, any budget formulation process is likely to seem closed. However, if performance information—and budget recommendations based on such information—is to hold appeal beyond the executive branch, congressional understanding and acceptance will be critical. Moreover, any performance budgeting effort that does not involve Congress will be limited in its ability to function as a tool to comprehensively reexamine the entire scope of federal spending, as a major player will be left out of the effort. Existing performance budgeting initiatives provide a foundation for a baseline review of federal policies, programs, functions, and activities. Building on this foundation, several changes are in order to support the type of reexamination needed. For example, PART focuses on individual programs, but key outcome-oriented performance goals—ranging from low-income housing to food safety to counterterrorism—are addressed by a wide range of discretionary, entitlement, tax, and regulatory approaches that cut across a number of agencies, levels of government, and sectors. PART’s program-by-program approach fits with OMB’s agency-by-agency budget reviews, but it is not well-suited to addressing crosscutting issues or to looking at broad program areas in which several programs or program types address a common goal. The evaluation of programs in isolation may be revealing, but a broader perspective is necessary for an effective overall reexamination effort. It is often critical to understand how each program fits with a broader portfolio of programs, tools, and strategies to accomplish federal missions and goals. Such an analysis is necessary to capture whether and how a program complements and supports other related programs, policies, and tools, or whether it actually works at cross-purposes to such other initiatives. OMB has reported on a few crosscutting assessments in recent budget requests. We would urge as a next step a more comprehensive and consistent approach to evaluating all programs relevant to common goals. Such an approach would require assessing the performance of all programs related to a particular goal—including tax expenditures and regulatory programs—using a common framework. Our federal tax system includes hundreds of billions of dollars of forgone revenue annually. In some years, total tax expenditures have approximated the size of total discretionary spending. Yet relatively little is known about the effectiveness of tax incentives in achieving the objectives intended by Congress. PART, OMB’s current framework for assessing the performance of federal programs, has generally not been applied to tax expenditures. Tax preferences—which are legally known as tax expenditures—result in forgone revenue for the federal government due to preferential provisions in the tax code, such as exemptions and exclusions from taxation, deductions, credits, deferral of tax liability, and preferential tax rates.