Performance-Informed Budgeting in the United States—Tastes Great or Less Filling?

1. Performance-Informed Budgeting in the United States—Tastes Great or Less Filling? Philip G. Joyce November 3, 2010

2. Competing Imperatives in the United States • Sustained economic recovery • 2008-present • Ballooning budget deficits • 2009-? • Bringing more of a performance orientation to the budget process • 1960-present (in fits and starts, but not when something else is more important) • How can these three coexist peacefully or happily?

3. Historical Deficits and Debt ($ billions)

4. August 2010 CBO Baseline Projections Actual deficits: 2007: $161 billion (1.2% of GDP) 2008: $455 billion (3.2% of GDP) 2009: $1,413 billion (9.9% of GDP) Under “current law”, deficits are very large in short run and decline in later years (but remember: only with no significant change in laws/policy) FY10--$1,342 billion (9.1% of GDP) FY11--$1,066 billion (7.0% of GDP) FY12--$665 billion (4.2% of GDP) FY13--$525 billion (3.1% of GDP) These projections assume the scheduled expiration of the tax cuts enacted in 2001 and 2003 (most cuts expire after 2010) 4

5. Ten-Year Cost (2011-2020) of Policy Alternatives Not Included in the CBO Baseline Extending all expiring tax provisions--$6.1 trillion Extend only Bush tax cuts—$3.3 trillion Extend Bush tax cuts for only taxpayers < $250k—$2.6 trillion Index the alternative minimum tax for inflation--$720 billion Increase discretionary spending at rate of GDP growth--$2.1 trillion Freeze discretionary expenditures at 2010 level--$1.65 trillion (savings) Reduce troops in Iraq and Afghanistan to 30,000 by 2013--$1.5 trillion (savings) 5

6. Budget Deficit or Surplus Percentage of GDP With Tax Cuts Extended and AMT Indexed

7. Debt Burden Across Countries in 2007 Percentage of GDP Source: OECD.

8. Projected Federal Spending Over the Long Term Percentage of GDP TheCapitol.Net 202-678-1600

9. Key Questions Related to Fiscal Responsibility • Will the U.S. restore fiscal responsibility? • Will there be targets, and what will they be? • What will be the impact of the Obama deficit commission? • What effect will the 2010 midterm election have? • How substantial will the effort be to reduce the deficit in the President’s fiscal year 2012 budget (February 2011)? • If so, will this include an effort to reduce programs based on performance considerations? • What about the “big four” spending programs (Social Security, Medicare, Medicaid, and Defense), which represented 60 percent of federal spending in 2009?

10. The Current State of Performance-Informed Budgeting in the U.S. • Federal Performance-Informed Budgeting • The Bush Agenda and Legacy • The Obama Agenda • Observations about the Obama Agenda in Historical Context

11. Federal Performance-Informed Budgeting • Efforts date back 50 years • GPRA brought more attention • Focus has typically been on OMB/Congress • Performance-informed budgeting is multidimensional • In particular, lots of activity in budget execution • Enduring challenges • Identifying and measuring outcomes • Getting performance information used • Establishing a culture of performance

12. The Bush Administration Performance Initiatives • Traffic light” scorecard • Apparent substantial progress—from 1 “green” to 72; from 110 “red” to 14 • PART--1000 programs in 6 years • Effective or moderately effective—30% to 51% • Conclusions by studies of PART • Agencies said PART lacked credibility • Decentralized approach does not work for crosscutting functions • Too much work/ too little payoff for OMB/agencies • Congress was apathetic or hostile • One size fits all approach • Measures improved, but still need work • Hard to reconcile PART with GPRA

13. Continuing Challenges Present at Outset of Obama Administration • Uneven progress made in measuring outcomes • Attempts made to reduce programs based on performance (PART) not supported by Congress • Much more success in budget execution (management) than government-wide resource allocation • Uneven commitment from top leadership in departments/agencies • Some confusion as to the appropriate locus of performance (department or agency v. program)

14. Developments in Obama Administration • Evaluating effects of economic stimulus • Determining programs to reduce or eliminate as part of deficit reduction • Establishing “high priority performance goals” • Significant investment in a limited number of more in-depth program evaluations

15. American Recovery and Reinvestment Act (Stimulus) • Current estimate--$814 billion in total costs • Major goal is job creation/saving • Administration estimates that 6.8 million jobs will be created/saved • Recovery.gov tracks spending and jobs • Very difficult to track jobs reliably • Current definition—anyone who works in an ARRA-funded job • Broader definition involves tracking “multiplier effect” of jobs

16. The Role of Performance Information in Deficit Reduction • Obama 2010 Budget identified 121 programs for reduction or elimination ($17 billion) • OMB says 60% of cuts enacted by Congress • Obama 2011 budget included 126 terminations, reductions and savings totaling $23 billion (FY11) • Those savings would represent a .7% reduction in spending for FY11 • It is uncertain how much will be approved by Congress since they left town without passing any appropriation bills • In both FY10 and FY11 these reductions were argued on the basis of lack of program effectiveness

17. Obama High Priority Performance Goals • These are agency directed • Emphasis on goals where progress can be shown within 12 to 24 months • “The ultimate test of an effective performance management system is whether it is used, not the number of goals and measures produced.” • Majority of goals are specific and measurable, although some are ambiguous • Social Security—”achieving an average speed of answer of 264 seconds by the national 800-number” • Education—”a system with rigorous processes for determining teacher effectiveness”

18. Program Evaluation • “Performance measures can answer only so many questions. More sophisticated evaluations” necessary to draw conclusions • It is necessary to “isolate the effect of government action from other possible influencing factors” • Obama administration established competitive process to secure funds for evaluation • 17 agencies funded to do evaluations of 36 programs • In some cases funds provided to improve agency evaluation capacity • A centralized approach to SELECTION of evaluation topics, but a decentralized approach to the CONDUCT of evaluations

19. Preparing for the 2012 Budget • Agencies instructed to identify 5% of budgets as lowest priority • Unclear how performance plays out • Also ongoing effort to reform procurement ($40 billion savings estimate) • Continued suggestion that agencies that do evaluations will be favored • Will deficit commission findings be embraced? • Timing is problematic • Transparent and open government • Creation of performance dashboards

20. Concluding Observations about the Obama Performance Agenda • Not as high a priority as other issues (health reform, the economy) • Short-term could force out long-term • More targeted, in-depth evaluation • Transparency is major stated focus • Quantitative measures may force out qualitative ones • Performance agenda must fit with pressures to reduce spending and the deficit • Stated goal is use, but not at all clear how that will be achieved • Continued uneven results