The History of Performance Budgeting

The Commission on Organization of the Executive Branch of the Government was created in 1947 when Congress passed Public Law 80-162. President Truman appointed former President Herbert Hoover to chair the effort, hence the group’s popular title: “The Hoover Commission.” The report contains wide-ranging recommendations for improving the way the government works. In its discussion of government budgeting, the report makes the following statements:

The budgetary processes of the Government need improvement, in order to express the objectives of the Government in terms of the work to be done rather than in mere classifications of expenditures.

We recommend that the whole budgetary concept of the Federal Government should be refashioned by the adoption of a budget based upon functions, activities, and projects; this we designate as a ‘performance budget.’

Thus, the term “performance budget” was coined in 1949. The following excerpts explain what the creators of this concept had in mind:

Such an approach would focus attention upon the general character and relative importance of the work to be done, or upon the service to be rendered, rather than upon the things to be acquired, such as personal services, supplies, equipment, and so on. These latter objectives are, after all, only the means to an end. The all-important thing in budgeting is the work or the service to be accomplished, and what that work or service will cost. . . .

Under performance budgeting, attention is centered on the function or activity—on the accomplishment of the purpose—instead of on lists of employees or authorizations of purchases. In reality, this method of budgeting concentrates Congressional action and executive direction on the scope and magnitude of the different Federal activities. It places both accomplishment and cost in a clear light before the Congress and the public.

Performance budgeting was seen as a shift from the traditional method of budgeting for inputs, to a system of budgeting for what is to be produced—outputs—and for the results of those outputs—outcomes. Performance budgeting was also meant to increase government transparency for major stakeholders—Congress and the public.

Unfortunately, Congress didn’t immediately buy into the idea. It passed the Budget and Accounting Act of 1950, which attempted to shift the focus from input budgeting to output budgeting. But the real crux of performance budgeting, tying requested dollars to anticipated results, had to wait another 43 years for Congressional action.

In 1993 Congress attempted to make the government more accountable for producing results meaningful to the public by passing the Government Performance and Results Act (GPRA). (See Appendix I for the full text of GPRA.) In doing so, Congress, perhaps unwittingly, reinitiated the efforts that began with the Hoover Commission report in 1949 and started us down the path toward performance budgeting.

GPRA required each federal agency to satisfy three basic requirements: (1) publish a strategic plan with long-range objectives, (2) create annual performance plans that show how the agency will make progress in the coming year toward achieving the objectives outlined in its strategic plan, and (3) report on how well the agency met its annual performance plan in the form of an annual performance report.

Implementation of GPRA was slow and sporadic. Agencies by and large went through the motions, producing their plans and reports to satisfy the legislative mandate, but without a real sense of purpose. Agencies didn’t believe the plans and reports had value, and there were no benefits or consequences for meeting, or failing to meet, the annual performance goals.

This all changed when the President’s Management Agenda (PMA) was published in 2001. The PMA, consisting of five overarching strategic objectives, was designed to make the government work better. The President’s Office of Management and Budget (OMB) began quarterly ratings of the five objectives for every major federal agency. The fifth strategic objective, Budget and Performance Integration, helped us focus on performance budgeting as a desired end-state, using the GPRA structure as the means to get there. The continuous pressure of quarterly ratings moved the entire federal structure down the performance budgeting path.

After a trial run with select agencies in FY2004, all federal agencies began performance budgeting with their FY2005 budget submissions. OMB directed that the GPRA requirement for an annual performance plan would be incorporated into the budget submission—in other words, agencies were to submit a performance budget. In addition to the traditional input-style budget broken down into appropriations and object classes, agencies were now expected to show the dollars associated with their major programs or activities, what accomplishments those programs would achieve during the year, and the results, or outcomes, of those accomplishments. In other words, agencies were directed to create annual performance plans that tied results to dollars. This is the essence of performance budgeting.

The federal agencies have had varying success in implementing performance budgeting. Some have embraced the idea, creating budgets that are clear and compelling. Others are lagging behind, perhaps because the value of performance budgeting isn’t apparent or perhaps because they believe this movement is temporary and will be replaced by another initiative as administrations and politics change.