Performance-Based Budgeting
Performance-based budgeting is an approach to budgeting that ranks expenditures in order of their priority – increasing governmental accountability for the efficient use of tax dollars.
Under this approach, policymakers:
1) Outline their broad policy goals, in order of priority.
2) Define the performance metrics that will be used to measure progress toward those goals.
Thus armed, they next direct public monies specifically toward the accomplishment of those top goals.
In 2011, Governor Brian Sandoval submitted the Silver State’s first performance-based Executive Budget document.1 Later that year, Nevada lawmakers passed a bill that institutionalizes the performance-based approach into state law.2
The 2011 legislation was a tremendous step forward, but fails to envision the performance-based approach in its highest form, which entails a competitive bidding process.
Key Points
Prioritize the results, not the intentions. A performance-based budgeting process cannot succeed unless policymakers first establish their broad policy goals. Policymakers should be discriminating with their use of tax dollars, recognizing that the results of state programs – not policymaker intentions – are what matter. Not all spending programs produce results that taxpayers value. The International Monetary Fund has developed a helpful guide to implement performance-based budgeting.3
No offices are entitled to public money. Bureaucrats often approach lawmakers with funding requests based upon the expectation that just because a program has existed in the past, it should continue to receive funding into the future – regardless of its results.
The burden of proof should be on agency directors to demonstrate that each program operating within an agency reflects lawmakers’ broad policy goals and is a worthwhile use of tax dollars. In effect, agency directors should “sell” their product to lawmakers, who in turn should act as taxpayers’ vigilant stewards.
Government monopoly is not the only way to provide public services. If lawmakers are convinced that a particular program merits the use of tax dollars, they should “shop” for the most cost-effective supplier of that program. That supplier may not always be an existing state office.
Once lawmakers have decided on a list of worthwhile programs, they should issue a request for proposals to administer those programs. Any state agency or local government should be free to bid to administer a program – as should any potential private-sector or non-profit competitor. Lawmakers can then select from among the most cost-effective bids.
Competition spurs innovation. When the state of Washington pioneered the performance-based budgeting process in 2003, its policymakers realized significant cost savings by submitting the delivery of public services to a competitive process. Facing competition, state agencies reinvented themselves to become more efficient – partnering with other agencies to streamline operations and avoid duplication.
As a result, Washington taxpayers were able to save more than $2 billion in the 2003-2005 budget cycle, while also receiving far greater value from their state government. The approach remains in use today and has allowed Washington to navigate fiscal headwinds without further burdening the private economy.4
Recommendations
Incorporate a competitive bidding process into the performance-based budgeting method. Nevada taxpayers deserve the highest value possible for their tax dollars. Competitive bidding through an open RFP process, even for services currently performed by existing state agencies, is crucial to that effort.
1 State of Nevada, Department of Administration, Division of Budget and Planning, “2011-2013 Executive Budget: Priorities and Performance Budget.”
2 Nevada Legislature, 76th Session, Assembly Bill 248.
3 Marc Robinson and Duncan Last, “A Basic Model of Performance-Based Budgeting,” IMF, September 2009.
4 State of Washington, Office of Financial Management, “Priorities of Government” website, accessed Oct. 2011; see also, David Osborne, “The Next California Budget: Buying Results Citizens Want at a Price They Are Willing to Pay,” Reason Foundation, 2010.