PERFORMANCE-BASED BUDGETING IN LOUISIANA

1. PERFORMANCE-BASED BUDGETINGINLOUISIANA Putting the Pieces Together Carolyn S. Lane Deputy Director Office of Planning and Budget Division of Administration State of Louisiana

2. LOUISIANA’S EXPERIENCE History • Performance indicators reported in budget for over 50 years, with increased usage in executive budget beginning in 1970s. • Move to program budgeting in early 1990s featured administration guidelines for strategic planning, operational planning, and performance accountability—but no explicit, statutory requirement for these processes. • Act 1465 of 1997 mandated performance-based budgeting. • Some provisions of Act 1465 amended by Act 1169 of 1999, Act 82 of First Extraordinary Session of 2000, and Act 1057 of 2003. Louisiana Office of Planning and Budget

3. "It is the intent of the legislature that performance-based budgeting practices be established throughout Louisiana state government. The legislature recognizes the value of relating funding to expected performance in order to ensure efficiency and economy in the expenditure of state funds." -- Act 1465 of 1997 History LOUISIANA’SEXPERIENCE Louisiana Office of Planning and Budget

4. PLAN EVALUATE BUDGET IMPLEMENT LOUISIANA’S MANAGEMENT PROCESSES STRATEGIC PLANNING State Strategic Plan – Louisiana Vision 2020 Statewide Initiatives – Children’s Cabinet & Workforce Development Agency 5-Year Strategic Plans STATE 5-YR BASELINE BUDGET PROJECTION REVENUE ESTIMATING CONFERENCE CONSENSUS ESTIMATING CONFERENCE PERFORMANCE ACCOUNTABILITY La. Performance Accountability System (LaPAS) Performance Progress Reports Program and Contract Evaluations Annual Management and Program Analysis Reports Performance Audits Sunset Review OPERATIONAL PLANNING OPERATING BUDGET DEVELOPMENT & APPROPRIATION CAPITAL OUTLAY PLANNING 5-Year Plan (updated annually Capital Outlay Request Tracking System (CORTS) CAPITAL OUTLAY BUDGET DEVELOPMENT & APPROPRIATION FINANCIAL ACCOUNTABILITY Comprehensive Annual Financial Report (CAFR) Financial & Compliance Audits Inspector General Audits PROGRAM MANAGEMENT BUDGET MANAGEMENT FACILITY MANAGEMENT HUMAN RESOURCE MGT. CONTRACT MANAGEMENT MONITORING IMPLEMENTATION AFS Reports Fiscal Status Reports Internal Performance Monitoring Contract Monitoring Louisiana Office of Planning and Budget

5. LOUISIANA’S MANAGEMENT PROCESSES • Strategic Planning • Statewide Strategic Plans & Initiatives • Louisiana: Vision 2020, 20-Year Economic Development Master Plan • Master Plan for Higher Education • Louisiana Workforce Development • Louisiana Children’s Cabinet • Human Resource Policies that benefit women and families • Louisiana Recovery Authority • Hurricane preparedness plans • Civil Service workforce planning • Office of Information Technology • Gubernatorial special task forces and commissions Louisiana Office of Planning and Budget

6. LOUISIANA’S MANAGEMENT PROCESSES • Strategic Planning • Agency 5-Year Strategic Plans • Initial plans submitted July 1, 1998 • Revisions and updates, at a minimum, every 3 years • Must be carried to program level CPTP training in strategic planning. Louisiana Office of Planning and Budget

7. RESOURCE ALLOCATION ACCOUNTABILITY ACTION PLANS STRATEGIES OBJECTIVES INTERNAL/EXTERNAL INTERNAL/EXTERNAL ASSESSMENT ASSESSMENT GOALS SITUATION INVENTORY SITUATION INVENTORY ENVIRONMENTAL SCAN ENVIRONMENTAL SCAN FORESIGHT FORESIGHT MISSION & PHILOSOPHY (VALUES) VISION LOUISIANA’S MANAGEMENT PROCESSES Components of the Strategic Planning Process Louisiana Office of Planning and Budget

8. LOUISIANA’S MANAGEMENT PROCESSES • Performance-based Budgeting (PBB) • Performance-based budgets focus on “return on investment”—that is, what do we get for our investment of state resources? • Basic service level (or continuation of basic services)? • Increased services (more services to same recipients or expansion of same services to more recipients)? • Better (higher quality) services? • More efficient services (cost savings in service delivery)? • Mitigation or resolution of a problem? Louisiana Office of Planning and Budget

9. LOUISIANA’S MANAGEMENT PROCESSES • Performance-based Budgeting (PBB) • PBB is budgeting for result—with an eye on the price tag. • PBB emphasizes program effectiveness and bases decision making (whether for continuation or enhancement of a program) on outcomes. • However, the costs of achieving those outcomes must be scrutinizedto ensure efficient service delivery and maximize allocation of scarce resources. Louisiana Office of Planning and Budget

10. LOUISIANA’S MANAGEMENT PROCESSES • Performance-based Budgeting (PBB) • Annual OperationalPlans • Concise Executive Budget • Detailed Executive Budget Supporting Document • General and Ancillary Appropriation Bills including: • Program Descriptions • General Performance Information • Key Objectives • Key Performance Indicators • General and Ancillary Appropriation Acts with Performance Standards Louisiana Office of Planning and Budget

11. LOUISIANA’S MANAGEMENT PROCESSES • Performance-based Budgeting (PBB) • Program Structure • Strategic plans, operational plans, and performance-based budgets are geared to program structures. • Funds are appropriated to budget units, BY program. • A program is a grouping of activities directed toward the accomplishment of a clearly defined objective or set of objectives. • Program structure is an orderly, logical array of programs and activities that indicates the relationship between each. Louisiana Office of Planning and Budget

12. Louisiana’s Management Processes PROGRAM STRUCTURE BUDGET SCHEDULE or DEPARTMENT Budget Unit or Agency Budget Unit or Agency Program Program Program Program Activity Activity Activity Activity Activity Activity Activity Activity Activity Activity Louisiana Office of Planning and Budget

13. LOUISIANA’S MANAGEMENT PROCESSES • Performance Accountability • Quarterly Performance Progress Reports (PPRs) via Louisiana Performance Accountability System (LaPAS) • Reviewed, analyzed, and reported to Joint Legislative Committee on the Budget by Legislative Fiscal Office • Compliance is audited by Office of Legislative Auditor • Performance Audits by Office of the Legislative Auditor • Performance issues and actuals • Validity, reliability, and accuracy of performance indicators Louisiana Office of Planning and Budget

14. LOUISIANA’S MANAGEMENT PROCESSES • Performance Accountability • Performance-based Rewards and Penalties • The Joint Legislative Committee on the Budget (or a subcommittee thereof) may authorize a reward or impose a penalty based on performance. • A variance greater than 5% between performance standards and actual performance triggers eligibility for reward or penalty. • Act 82 of the First Extraordinary Session of 2000 makes compliance with performance-based budgeting processes an eligibility factor. • Exceptional Performance and Efficiency Incentive Program (Act 1091 of Regular Session of 2001 and Act 111 of First Extraordinary Session of 2002) Louisiana Office of Planning and Budget

15. LOUISIANA’S MANAGEMENT PROCESSES • Performance Accountability • Sunset Review • Periodic review by legislature of state government entities • Results in termination, re-creation as is, or re-creation with modification) Louisiana Office of Planning and Budget

16. LOUISIANA’S MANAGEMENT PROCESSES • Performance-based Contracting • Mandated by Acts 739 and 1424 of 1997 • Professional, personal, consulting, or social services contracts over $5,000 must include purpose, goals, objectives, performance indicators, monitoring plan See the Office of Contractual Review website for more information on contracts and cooperative endeavor agreements. http://www.doa.louisiana.gov/ocr/index.htm Louisiana Office of Planning and Budget

17. As the OPB worked with Louisiana departments and agencies to implement performance-based budgeting, managers raised numerous arguments against the usefulness or possibility of constructing meaningful performance measures. Some were founded on genuine issues; many reflected needed changes in corporate culture. We had to address these concerns. INSTITUTIONALIZING PERFORMANCE MEASUREMENT:Louisiana’s Experience Humph, only when Here are the top ten reasons cited by managers who contended that: “This won’t work in my agency!” Louisiana Office of Planning and Budget

18. TOP TEN REASONS WHY PERFORMANCE-BASEDBUDGETING WON’T WORK IN MY AGENCY • It doesn’t matter what we do because we have federal funding. 9. We just reorganized and we don’t know what we’re doing yet. 8. Everything is just fine as it is; we’ve always done it this way. 7. We’re too busy getting REAL work done to bother with this. 6. We need more staff, more money, more time, more ( fill in the blank ) to do this. 5. We can’t target outcomes; they’re too specific. 4. We can’t measure what we do. 3. You’ll misinterpret any information we give you. 2. We can’t be accountable because we have no control over anything. 1. We’re different. That act shouldn’t apply to us. We need an exemption. Louisiana Office of Planning and Budget

19. OFTEN FOLLOWED BY: All right, just give me a form and tell me what you want me to say. TOP TEN REASONS WHY PERFORMANCE-BASEDBUDGETING WON’T WORK IN MY AGENCY If I give them something, then they’ll go away. (Maybe this whole thing will just go away.) NOTE: This genie won’t go back into the lamp. But, we’re still trying to covert compliers into true believers. Louisiana Office of Planning and Budget

20. INSTITUTIONALIZING PERFORMANCE MEASUREMENT:Louisiana’s Experience Make performance an integral part of agency management processes. • Use metrics to understand and measure how a process works and the results it generates. • Develop an internal performance accountability process. • Integrate performance into policy and budget decision making and everyday program management. CPTP training on process improvement. CPTP training on internal accountability. Louisiana Office of Planning and Budget

21. INSTITUTIONALIZING PERFORMANCE MEASUREMENT:Louisiana’s Experience • POINTER: When you break down a policy, program, or process into its component parts, you use "systems logic" to develop a model of how it should work. • INPUTOUTPUT & OUTCOME PROCESS QUALITY EFFICIENCY CPTP training on process improvement. Managers should use metrics to gauge and assess program and processes, diagnose problems, and formulate solutions. Louisiana Office of Planning and Budget

22. INSTITUTIONALIZING PERFORMANCE MEASUREMENT:Louisiana’s Experience Metrics (performance indicators) measure process and product. Inputs Outputs & Outcomes Process (Demand) (Results) (Products) (Need) (Services) (Size of Problem) (Resources) Outputs (Expenditures compared to productivity; caseload per staff member.) Inputs Efficiency: (Cost per item produced, service provided, or client served; cost per result achieved.) Outputs or Outcomes Cost Outputs or Outcomes (Production or turnaround time; timeliness of results.) Time Quality: Effectiveness in meeting the expectations of customers, other stakeholders; and expectation groups. Louisiana Office of Planning and Budget

23. The volume of performance information that must be managed can be staggering. INSTITUTIONALIZING PERFORMANCE MEASUREMENT:Louisiana’s Experience Watch out for the “shotgun” or “kitchen sink” approach--reporting just about every type of measurement or statistic that is already gathered or can be counted easily. This leads to a heavy emphasis on transactional data--inputs and outputs--rather than results. Louisiana Office of Planning and Budget

24. As you hone your planning and performance accountability skills, you learn to focus on the quality of performance indicators rather than the quantity. Further, you learn which performance information needs to remain at internal agency levels for management purposes and which should be reported externally for performance-based budgeting. INSTITUTIONALIZING PERFORMANCE MEASUREMENT:Louisiana’s Experience Louisiana Office of Planning and Budget

25. Concentrate on the development of balanced sets of performance indicators in order to provide a clear picture of performance without overwhelming users with needless detail. Louisiana uses five types of performance indicators: Input Output Outcome Efficiency Quality A balanced set may include more than one of any indicator indicator type and none at all of some but must have at least one measure of outcome, efficiency, or quality. INSTITUTIONALIZING PERFORMANCE MEASUREMENT:Louisiana’s Experience Louisiana Office of Planning and Budget

26. Present performance information at different levels in order to surface key data while maintaining the availability of support and explanatory material. Louisiana uses: Key Performance Indicators Supporting Performance Indicators General Performance Information Explanatory Notes INSTITUTIONALIZING PERFORMANCE MEASUREMENT:Louisiana’s Experience • Get consensus among data users on indicator types and levels before indicators are reported. Louisiana Office of Planning and Budget

27. INSTITUTIONALIZING PERFORMANCE MEASUREMENT:Louisiana’s Experience • A key performance indicator is a performance indicator that is included in the Executive Budget Supporting Document and the General or Ancillary Appropriation Act. • Factors in determining key level include: • Most direct measure of outcome? • Critical success factor? • Big ticket item? • Hot button item? • History and who values? • Key indicators have performance standards and are reported each quarter in LaPAS. Louisiana Office of Planning and Budget

28. INSTITUTIONALIZING PERFORMANCE MEASUREMENT:Louisiana’s Experience A supporting performance indicator is a performance indicator that is included in the Executive Budget Supporting Document, but not the General or Ancillary Appropriation Act. Supporting indicators have performance standards and are reported at mid-year and yearend in LaPAS. Louisiana Office of Planning and Budget

29. INSTITUTIONALIZING PERFORMANCE MEASUREMENT:Louisiana’s Experience • General performance information (GPI) is included in the Executive Budget Supporting Document and may be included in the General or Ancillary Appropriation Act. However, values for general performance indicators are reported for prior year actual only. • GPI may include: • Multi-year histories or trends • External comparisons (national or regional) • Disaggregated data • GPI do not have performance standards but are reported in LaPAS at mid-year (prior year actual figure) and yearend (yearend actual figure). Louisiana Office of Planning and Budget

30. MANAGING VOLUME AND ACCURACY We needed a bigger boat. That’s why we built LaPAS. (LouisianaPerformance Accountability System) Louisiana Office of Planning and Budget

31. LaPAS FUNCTIONS • LaPAS provides an electronic, paperless reporting medium for quarterly performance progress reports by state agencies. • LaPAS maintains a database of performance information for use in: • Agency management • Policy and budget development and decision making • Rewards and penalties based on performance • LaPAS makes performance information readily accessible to the public, with its View and Search functions available via Internet. Louisiana Office of Planning and Budget

32. MANAGING ACCURACY:Louisiana’s Experience The usefulness of performance indicators is dependent upon their validity, accuracy, and reliability. Louisiana Office of Planning and Budget

33. Watch out for: High balls and low balls (unrealistically high or low performance targets) Instant replays (reporting the same performance level over and over, regardless of circumstances) Greased pigs (indicators for which name, definition, or method of calculation change so often that you can’t get a handle on them) Orphans (indicators for which no one claims responsibility) Statistical illiteracy (calculations that don‘t add up) Limp excuses (meaningless explanations of performance variances) MANAGING ACCURACY:Louisiana’s Experience Louisiana Office of Planning and Budget

34. Get the right start by developing meaningful, valid, accurate, and reliable performance indicators. Agencies required by statute to provide documentation for each performance indicator identified in the strategic plan. Strategic planning guidelines include performance indicator documentation sheet. MANAGING ACCURACY:Louisiana’s Experience OPB provides guidelines. CPTP training in strategic planning. Louisiana Office of Planning and Budget

35. MANAGING ACCURACY:Louisiana’s Experience • Standardize the way performance information is reported for budget development and verify the data reported. • The OPB provides guidelines and formats for reporting performance in operational plans and other budget request forms. Operational plan workshops for OP coordinators are conducted each fall. • Throughout budget development, the OPB works with agencies to improve and refine performance information. Input from legislative staff is welcomed. • LaPAS (performance database) enables verification of prior year and current year performance data. Guidelines & training provided. Louisiana Office of Planning and Budget

36. MANAGING ACCURACY:Louisiana’s Experience • Make performance reporting as easy as possible for agencies and as controlled as possible for record keepers. • The OPB provides reporting guidelines and LaPAS user guides. • The OPB populates LaPAS and controls agency access; agencies do minimal data entry during reporting periods. • LaPAS automatically calculates variances between performance standards and actuals. • LaPAS maintains an audit trail. • LaPAS allows easy viewing and paperless reporting but has a print function for user convenience. Guidelines & user guides provided. Louisiana Office of Planning and Budget

37. MANAGING ACCURACY:Louisiana’s Experience • Review and audit performance information. • OPB and legislative staff review and analyze performance data during budget development and throughout fiscal year. • Louisiana’s Legislative Fiscal Office (LFO) reviews and analyzes agency quarterly performance progress reports (PPRs). LFO presents a summary report to the Joint Legislative Committee on the Budget. • Performance audits are conducted by the Performance Audit Division of the Office of the Legislative Auditor. Louisiana Office of Planning and Budget

38. INTEGRATING PERFORMANCE INTO BUDGET DECISION MAKING:Louisiana’s Experience Louisiana: Vision 2020 AGENCY STRATEGIC PLAN CAPITAL OUTLAY REQUEST TRACKING SYSTEM PERFORMANCE ACCOUNTABILITY CAPITAL OUTLAY BUDGET DECISIONS OPERATIONAL PLAN OTHER BUDGET REQUEST FORMS & ADDENDA PERFORMANCE PROGRESS REPORTS OPERATING BUDGET DECISIONS AUDITS & OTHER REPORTS Louisiana Office of Planning and Budget

39. INTEGRATING PERFORMANCE INTO BUDGET DECISION MAKING:Louisiana’s Experience Incorporate statewide goals, objectives, benchmarks, and management initiatives into budget development. This enables us to make strategic investments in high priority areas. • Louisiana: Vision 2020 and annual Vision 2020 Action Plan (per Act 1036 of 1999). • Gubernatorial agenda • Louisiana Recovery Authority • Children’s Cabinet Louisiana Office of Planning and Budget

40. INTEGRATING PERFORMANCE INTO BUDGET DECISION MAKING:Louisiana’s Experience • Establish the link between resources and results early and maintain that link through budget development, appropriation, and budget control processes. Set performance standards linked to appropriation levels. • Performance standards are the expected levels of performance associated with a performance indicator for a particular period and funding level. They link dollars and results. • Performance standards are one way to demonstrate RETURN ON INVESTMENT--what we can expect to receive for our money. Louisiana Office of Planning and Budget

41. INTEGRATING PERFORMANCE INTO BUDGET DECISION MAKING:Louisiana’s Experience Establish the link between resources and results early and maintain that link through budget development, appropriation, and budget control processes. • During budget development, performance indicator values associated with the funding level recommended in the executive budget and appropriation bills are proposed performance standards. • During the appropriation process, performance indicator values become performance standards linked to the funding amounts actually appropriated in the appropriation acts. • Performance standards may be modified only through approved processes (BA-7s or August 15th Performance Adjustments). • Performance standards are monitored and tracked through the Louisiana Performance Accountability System (LaPAS). Louisiana Office of Planning and Budget

42. INTEGRATING PERFORMANCE INTO BUDGET DECISION MAKING:Louisiana’s Experience • How are we doing? • Louisiana’s scores In national ratings (Government Performance Project) of state Managing for Results efforts: • 1995: B+ • 1999: B • 2001: B+ • 2005: A- • We are still working on: • Continuing culture change • Strengthening integration of performance and budget • Automating more performance-based budgeting processes • Continuing training Louisiana Office of Planning and Budget

43. For more information, please visit the Office of Planning and Budget website at: http://www.doa.louisiana.gov/opb/index.htm • Look for: • Executive Budget Documents • LaPAS • Performance-based Budgeting Forms and Guidelines • MANAGEWARE: A Practical Guide to Managing for Results • Links to performance-based enabling legislation and appropriation acts Louisiana Office of Planning and Budget