In the 1990s, Congress and the executive branch laid out a statutory and management framework that provides the foundation for strengthening government performance and accountability, with GPRA as its centerpiece. GPRA is a continuation of more than 50 years of efforts to link resources with results. These management reforms of the past—the Budget and Accounting Procedures Act of 1950, Planning-Programming-Budgeting- System, Management by Objectives, and Zero-Base-Budgeting—failed partly because they did not prove to be relevant to budget decision makers in the executive branch or Congress. GPRA melds the best features, and avoids the worst, of its predecessors. Unlike most of its predecessors, GPRA is grounded in statute, giving Congress an oversight stake in the success of this initiative. Moreover, unlike these other initiatives, GPRA explicitly sought to promote a connection between performance plans and budgets. The expectation was that agency goals and measures would be taken more seriously if they were perceived to be used and useful in the resource allocation process. GPRA has now entered its 10th year, has survived two successive administrations, and has periodically formed the basis for congressional oversight. The current administration has implemented several efforts to more completely integrate information about cost and performance during its annual budget review process. The President’s Management Agenda (PMA), by focusing on 14 targeted areas—5 mutually reinforcing governmentwide goals and 9 program initiatives—seeks to improve the management and performance of the federal government. Budget and performance integration is one of the administration's five priorities in the PMA, while PART is the central element in the performance budgeting piece of the PMA. To track both agencies’ progress towards and current status in achieving each of the five PMA initiatives, OMB implemented an Executive Branch Management scorecard. We have found that the value of the scorecard, with its red, yellow, and green “stoplight” grading system, is not, in fact, the scoring, but the degree to which scores lead to a sustained focus and demonstrable improvements. The Scorecard criteria for the budget and performance integration initiative include elements such as the integration of budget and planning staff, an integrated performance plan and budget grounded in outcome goals and aligned with the staff and resources necessary to achieve program targets, and whether the agency can document program effectiveness. While the scorecard focuses on the capacity of agency management to develop an infrastructure for performance budgeting, OMB’s PART is meant to more explicitly infuse performance information into the budget formulation process at a level at which funding decisions are made. PART was applied during the fiscal year 2004 budget cycle to 234 “programs.” OMB rated programs as “effective,” “moderately effective,” “adequate,” or “ineffective” based on program design, strategic planning, management, and results. If OMB deemed a program’s performance information and/or performance measures insufficient or inadequate, a fifth rating of “results not demonstrated” was given. According to OMB, the assessments were a factor in funding decisions for the President’s fiscal year 2004 budget request. In an unprecedented move, OMB has made the assessment tool, rating results, and supporting materials available on its Web site. OMB has said that it will apply PART to another 20 percent of programs and reassess the fiscal year 2004 programs in developing the President’s fiscal year 2005 budget request. Moreover, it has announced its intention to use agencies’ updated strategic plans, which were due in March 2003, as templates for future budget requests. During GPRA’s first 10 years, the federal government has managed, for the first time, to generate a systematic, governmentwide effort to develop strategic and performance plans covering the essential functions of government. While clearly a work in progress, the formulation of performance goals and indicators has laid the foundation for a more fundamental transformation in how the government does business. As we begin this next decade of performance management at the federal level, we may have reached a crossroad. Building on agencies’ hard-won achievements in developing plans and measures, the government now faces the challenge of promoting the use of that information in budget decision making, program improvement, and agency management. Promoting a more explicit use of performance information in decision making promises significant rewards, but it will not be easy, and in fact, is fraught with risks. Decision makers need a road map that defines what successful performance budgeting would look like, and that identifies the key elements and potential pitfalls on the critical path to success. In a sense, what is needed is a strategic plan for performance budgeting. In the remainder of this testimony I will discuss some of these key elements and risks, including a definition and expectations for performance budgeting itself; the underpinnings of credible performance information and measures; addressing the needs of various potential users; the alignment of performance planning with budget and financial management structures; elevating budget trade-offs; and the continuing role of congressional oversight. Performance-based 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 tools and programs addressing common performance outcomes. Although not the answer to vexing resource trade- offs involving political choice, performance information could help policymakers address a number of questions, such as whether programs are contributing to their stated goals, well-coordinated with related initiatives at the federal level or elsewhere, and targeted to those most in need of services or benefits. It can also provide information on what outcomes are being achieved, whether resource investments have benefits that exceed their costs, and whether program managers have the requisite capacities to achieve promised results. Although performance budgeting can reasonably be expected to change the nature of resource debates, it is equally important to understand what it cannot do. Previous management reforms have been doomed by inflated and unrealistic expectations, so it is useful to be clear about current goals. Performance budgeting cannot replace the budget process as it currently exists, but it can help shift the focus of budgetary debates and oversight activities by changing the agenda of questions asked in these processes. Budgeting is essentially the allocation of resources; it inherently involves setting priorities. In its broadest sense, the budget debate is the place where competing claims and claimants come together to decide how much of the government’s scarce resources will be allocated across many compelling national purposes. Performance information can make a valuable contribution to this debate, but it is only one factor and it cannot substitute for difficult political choices. There will always be a debate about the appropriate role for the federal government and the need for various federal programs and policies—and performance information cannot settle that debate. It can, however, help move the debate to a more informed plane, one in which the focus is on competing claims and priorities. In fact, it raises the stakes by shifting the focus to what really matters—lives saved, children fed, successful transitions to self- sufficiency, and individuals lifted out of poverty. Under performance budgeting, people should not expect that good results will always be rewarded through the budget process while poor results will always have negative funding implications. Viewing performance budgeting as a mechanistic arrangement—a specific level of performance in exchange for a certain amount of funding—or in punitive terms—produce results or risk funding reductions—is not useful. Such mechanistic relationships cannot be sustained. Rather than increase accountability, these approaches might instead devalue the process by favoring managers who meet expectations by aiming low. The determination of priorities is a function of competing values and interests that may be informed by performance information but also reflects such factors as equity, unmet needs, and the appropriate role of the federal government in addressing these needs. OMB’s PART initiative illustrated that improving program design and management may be a necessary investment in some cases. For example, the Department of Energy’s Environmental Management (Cleanup) program was rated “ineffective” under PART. The administration recommended additional funds for the program compared to fiscal year 2002 funding and reported that the Department will continue to work with federal and state regulators to develop revised cleanup plans. The Department of State’s Refugee Admissions to the U.S. program was rated “adequate” under PART; in addition to recommending increased funding, the administration will review the relationship between this program and the Office of Refugee Resettlement at the Department of Health and Human Services. For its part, State will continue its ongoing efforts to improve strategic planning to ensure that goals are measurable and mission-related. Ultimately, performance budgeting seeks to increase decision makers’ understanding of the links between requested resources and expected performance outcomes. Such integration is critical to sustain and institutionalize performance management reforms. As the major annual process in the federal government where programs and activities come up for regular review and reexamination, the budget process itself benefits as well if the result of integration is better, more reliable performance information. For performance data to more fully inform resource allocations, decision makers must feel comfortable with the appropriateness and accuracy of the outcome information and measures presented—that is, they are comprehensive and valid indicators of a program’s outcomes. Decision makers likely will not use performance information that they do not perceive to be credible, reliable, and reflective of a consensus about performance goals among a community of interested parties. Moreover, decisions might be guided by misleading or incomplete information, which ultimately could further discourage the use of this information in resource allocation decisions. Accordingly, the quality and credibility of outcome-based performance information and the ability of federal agencies to produce such evaluations of their programs’ effectiveness are key to the success of performance- based budgeting. However, in the fiscal year 2004 President’s budget request, OMB rated 50 percent of PART programs as “results not demonstrated” because they found that the programs did not have adequate performance goals and/or data to gauge program performance were not available.