Incentives, Certification and Targets in Performance Budgeting

1. Incentives, Certification and Targets in Performance Budgeting

2. Research Purpose Investigate which reforms— an incentive approach, certification approach, and target approach— a seasoned public manager thinks • will allocate discretion most decisively, • control aggregate spending, and • which can produce trust in government Develop hypotheses for future research Assume budget reform selection is á la carte

3. Incentive approach Reverses “spend it or lose it” end of year behavior Allows carryover of unspent funds Sometimes includes a pay for performance, bonuses, out of true savings

4. Certification approach • Requires internal audit of performance measures and underlying activity they represent • Some forms require benchmarking

5. Target approach • Ceiling set for expenditure • Combined with performance levels to form performance contracts in theory

6. The Model • Trade the details for the totals, a result-reward system • Top down targets or ceilings at one end of a scale • Management oriented lump sum or decentralized budgeting at the other end of the scale • Hinge is the role for performance data • TBB  Performance Measures  Rewards?

8. The Research Questions • To confirm what exists of our model, we ask four questions: • do Target, Performance Measurement, and Incentive elements of the model exist? • what configuration of the three elements do managers believe allocates discretion most decisively? • what configuration do managers prefer to control aggregate spending? • what elements produce trust in government?

9. Methods & Findings • Two focus groups • Insiders’ view of three approaches • Public’s view (through manager eyes) on ability to improve trust • A survey and interviews as a pilot study • 8 cities known for cutting-edge management reforms

10. First focus group • Only targets – ceilings not contracts - will produce savings • Certification of performance could justify increased spending • Retained savings will inevitably get cut; the more elastic the revenue system, the more inevitable the cut, GF, others less so • No consensus on decisive allocation of discretion

11. Figure 2: Second Focus Group on Trust in Government 1 , 2, etc = Group member 1, GM 2, etc.

12. 8 Reform Cities No city uses all three: Targets, Performance Measurement, and Retained Savings, but – 5 cities used targets with retained savings (savers) 1 city used retained savings with benchmarked performance measures (performance-informed) 1 city used performance measures and retained savings but no targets 1 city centers all on performance measurement, employs no targets, and allows no retained savings

13. Our conclusion Variation is the rule-integrating budgeting with management follows no pattern other than contingency • 1 – board of directors model – leaders guard the tax rate levels, a budget first, target or ceiling, performance management later • 2 – checks and balances model in which budgets (FinResources) tradeoff against allocations in staff (HR) and technology (IR) • 3 – line-staff model in which management leads budget. Top managers define goals, divide core from peripheral programs, and use budget and finance as just another staff advisor

14. Which model when? • Board of directors model is fiscal or political crisis dominated • Checks and balances system reflects indecisive management, a divided leadership in the governing structure, or both strong line and budget departments • Line-staff model requires stable or growing resources • All of these environments form part of the traditional reform budgeting literature

15. Conclusions • Limited forms of retained savings • Savings linked to targets • Targets not linked to performance