When taxpayers provide their hard-earned dollars to government officials, they are doing so in hopes of receiving a tangible outcome for this investment in public services. The true measure of success for these tax dollars is not how much is being spent but whether a measurable performance outcome is being achieved. This is why state and local budgets should be transformed from a list of spending to a performance agreement with taxpayers on what the expected results will be for these investments. This type of budgeting is known as performance-based budgeting.
Although many states use a variation of performance-based budgeting, Texas is the clearest example of transforming a state’s actual appropriation bills into a performance agreement with taxpayers on what outcomes are expected. As noted in a 2005 United States Government Accountability Office (GAO) audit:
“In Texas, funds are appropriated by agency goals and strategies, which are defined in the agency’s strategic plan. Strategies set forth actions to be taken by an agency to achieve its goals. There may be multiple strategies under one goal. Funding is provided at the strategy level . . . in Texas agencies work with legislative and executive budget staff throughout the strategic planning and budgeting processes to determine the measures they will report in the next biennial budget.”
GAO further notes about the Texas performance-based budgeting process:
“In addition to funding amounts, the legislative budget estimates and general appropriations bill also include other budget-related information, such as performance measures and targets, financing procedures, and historical summaries of previous funding requests and approved agency budgets. The Governor’s Office also provides its budget proposal at the beginning of the legislative session using a similar format as the LBB . . .
Texas’s General Appropriation Act is structured by goals and strategies. In general, an agency will have three to five substantive strategies, sometimes referred to as ‘direct strategies,’ as well as one or more strategies labeled ‘indirect administration’ for functions shared among strategies, such as accounting, human resources, information technology, reporting, and overall administration in the higher executive offices . . .
Texas also includes outcome, output, and efficiency targets to show what level of performance is expected for each goal and strategy based on the appropriation level each receives.”
Here is an example of what the Texas budget looks like by using this type of process:
The Texas Legislative Budget Board further explains:
“As a part of the strategic planning process, agencies develop performance measures. Performance measures are quantifiable indicators of achievement. Texas uses four types of measures:
* Outcome—indicates the effect on a stated condition;
* Output—counts the services produced by an agency;
* Efficiency—gauges resource cost per unit of product; and
* Explanatory/input—provides information to help assess reported performance . . .
Over the next two years, an agency collects data on its performance measures and reports this information quarterly to the LBB, GBPD, and other agencies. As part of the data collection process, an agency must establish controls to ensure the data is properly collected and reported. Among the duties of the SAO are auditing performance measures and certifying those measures. The audit report on performance measures includes a report on the adequacy of controls in reporting data and the accuracy of agency reporting on actual performance.”
Although caseloads, inflation, and population changes are important drivers of budget pressures, the fiscal conversation should always be focused on what the expected performance outcomes are for the taxpayer investments being made. By using a budgeting process that places desired performance outcomes directly into the actual appropriation bills, budget writers can help refocus the spending debate while signaling a clear expectation to agencies on what they are expected to accomplish on behalf of taxpayers.