Treasury Board

2009- 2010 Budget Recommendations

GSPP 835 Alternative Saskatchewan Budget
Prof. John Wright

Sean McConnachie
200 270 499
Wednesday, April 15, 2009
INDEX

Pag
e

Strategic Plan 1

Summary of Key Issues 1

A. Government Expenditure 1

B. Government Performance 3

Policy Actions 4

A. Amendments to the Growth and Financial Security Act, 2008 4

B. Performance-Based Expenditure Management System (PBEMS) 5

C. Program Review 7

D. Performance-Based Management Framework (PBMF) 8

Communications Strategy 9

References 11
I. Strategic Plan
Over the next year, the Ministry of Finance intendeds to develop an all
encompassing expenditure management framework in order to review and manage
all expenditures within the privy of the Executive Branch of government. This
development process will be conducted over the 2009-2010 fiscal year by the
Treasury Board Branch of the Ministry of Finance. From this a consolidated system
of expenditure and performance management will be housed within the newly
created Treasury Board Division of the Ministry of Finance.

The design of these processes will be largely based on those principles advocated
by David Good (2007); that is: (1) allow managers to manage by reducing their
current auditing responsibilities; and (2) re-establish and strengthen the roles of
Treasury Board (TB) within the system and (3) ensuring administrative simplicity.

This management system will be entitled the Performance–Based Expenditure

Management System (PBEMS) and will largely consist of:

• Program Review
• Multiyear Strategic Budgeting
• Results-Based Management

It is estimated that PBEMS will become fully operational by the beginning of the
budgetary cycle of 2010-2011.

II. Summary of Key Issues

A. Government Expenditure
In its 2008-2009 budget estimates, the government predicted that the province
would be running a fairly significant budgetary surplus as indicated by Table 1.
However, due to the current economic conditions that are facing the province, it is
projected that the government will be running a deficit for 2009-2010.

Though the projected 2009-2010 deficit is partly due to by a sudden decline in

revenues, as based in lower non-renewable resource prices and a low Canadian
dollar, it is also due to constant expenditure increases over the last two decades.
Although government revenues have outpaced expenditures over this timeline, at
averages of 3.7% to 3.6%, it is easy to see that revenues are much more volatile
then expenditures. Even in light of the volatility of revenues, the government has
continued and significant expenditure growth resulting in high deficit risks as we are
witnessing in Ontario and Alberta. These trends are illustrated in Graph 1. Since
reducing expenditures to one of their lowest levels in 1997, the government has
increased its expenses by 78% at an average increase of 4.6% per year.
This constant and significant expansion of government expenditures has resulted in
the government continually increasing its representation within the Saskatchewan
economy. Graph 2 shows this trend since 1997. Even though the government has
been reducing its net debt and associated mandatory interest payments,
government expenditure as a portion of the economy has been increasing
consistently at approximately 1% of GDP per annum.

The level to which government expenditures represent a portion of the provincial

economy is placed in a different light by comparing it across jurisdictions. As is
illustrated in Graph 3, Saskatchewan expenditures are significantly higher than the
level of private sector investment within the economy. This graph also shows a
possible correlation between the level of government expenditure and the level of
private investment in the economy. Though this graph does not infer causality; it is
possible that a cause and effect relationship between the two variables could be
held, thus further analysis is warranted. Nevertheless, many economists from the
neo-classical school believe that the level of government expenditure will have an
inverse relationship with private investment (Bernheim 1989, Ahmed and Miller
2000, and Kormendi 2000). Thus the level of expenditure growth could have a
negative impact on the long-term economic growth of the province.

As it is difficult to predict long-term economic outcomes, it is prudent to focus on

mitigating the risks associated with potential deficit spending by limiting the growth
of expenditures.

B. Government Performance
One of the main ways in which the government manages its expenditures and
program activities is through the process of performance management. This is one
of the major issues that are currently facing executive government due to current
difficulties in its implementation and usage.

At present the Provincial Auditor evaluates the government’s performance plans

and reports based on the Canadian Comprehensive Auditing Foundation’s nine
principles as outlined in their Reporting Principles – Taking Public Performance to
New Level (2002). However, it needs to be noted that the Provincial Auditor
currently does not assess the plans and reports that are prepared by each ministry,
but rather, evaluates the guidelines that are created and administered by the
Ministry of Finance. For the fiscal year of 2007-2008, the Provincial Auditor gave the
government a failing grade, stating that the government is only fully meeting three
of the nine principles in full with four not being met in a satisfactory manner
(Saskatchewan 2007b). This is of particular concern for the provincial government,
as the Ministry of Finance uses the Provincial Auditor’s evaluation as the sole
indicator for its performance (Saskatchewan 2007c).

Based on these results it is important to see how and to what extent each ministry
is meeting the performance criteria in regards to the publication of their individual
documents. As the annual performance reports for 2008-2009 have not been
tabled, an evaluation of these documents can only be conducted for those publicly
provided in 2007-2008. Graph 4 evaluates the government’s performance
management performance based on the evaluation criteria outlined in Appendix A.

This index is based on a scale of 0 to 10, with 7 being an adequate level of planning
and reporting based on the criteria. As the index illustrates, a large proportion of
ministries are well below what could be considered adequate, indicating the quality
of the current performance management processes.

IV. Policy Actions

Based on the analysis provided above, it is evident that the current systems of
government expenditure and performance management are not up to the task of
tackling the new and evolving issues within these areas. In light of this the following
policy recommendations have been made for the government to implement in an
attempt to mitigate the current policy issues within this area.

A. Amendments to the Growth and Financial Security Act, 2008

Recommendation

It is recommended that the government amend the Growth and Financial Security
Act, 2008 so that it is more conducive with the establishment of a government wide
expenditure and performance management program.
Implementation and Structure

The amending of the Growth and Financial Security Act, 2008, will involve direct
alterations support the implementation and continued and effective use of an
expenditure and performance management system. The amendments that have
been recommended are outlined in Appendix B.

These amendments are to be table for the beginning of the next parliamentary
session starting in the fall and will come into affect for the next fiscal year.

Outcomes and Implications

The main purpose of these amendments is not only to establish new fiscal tools for
the purpose of expenditure management, but is designed to increase the incentives
for the use of existing mechanisms. By controlling government expenditures and
establishing balance budget targets at the aggregate level the government will
increase the incentives associated with the use and tabling of multi-year rolling
budget plans and Program Review. This also increases the performance
management of government as the medium-term performance of the government
will be judged based on its four-year targets.

Though the specific act of drafting and implementing amendments will not consume
a significant amount of resources, its financial ramifications in the long-run could be
significant. First and foremost the implementation of these recommendations will
result in long-term expenditure cuts that will result in billions of dollars of savings
(see Program Review). Though there will be substantial cuts in expenditure in the
long-run, there will be additional expenditures and human resources associated
with this program as the process of continue program review will need staff and
financing.

These amendments will allow the government to work towards the achievement of
a sustainable future in Saskatchewan through the controlling of government
expenditure in both times of surplus and deficits. This will be the main tool by which
government will achieve long-term fiscal sustainability.

B. Performance–Based Expenditure Management System (PBEMS)

Recommendation

It is recommended that the government establish a new and defined budgetary and
performance management system to increase the overall effectiveness and
efficiency of government. It is further recommended that the government establish
this new system under the name of the Performance–Based Expenditure
Management System (PBEMS).

Implementation and Structure

The main objective of PBEMS is to re-establish and improve the central role of TB
and the Provincial Comptroller within the budgetary and performance process.
Based on this objective the powers of both entities will be house within a single
branch of the Ministry of Finance. First, this involves the removal of Provincial
Comptroller’s Division and the extraction of the Treasury Board Branch from the
Budget Analysis Division. From this a new independent branch of the Ministry of
Finance will be created, called the Treasury Board Division. The composition of this
newly created division is provided in Appendix C.

As is illustrated by Appendix C, this new division within the Ministry of Finance will
also house the Performance Management Branch, formally with the Budget Analysis
Division. This will also see the creation of the Treasury Board Operations Secretariat
which will deal with all matters pertaining to the Treasury Board Cabinet
Committee.

This new structure will facilitate an increased role for TB within the budget process
by providing with increased information for decision making. For the purpose of the
completion and final tabling of the budget, the Budget Analysis Division and the
Treasury Board Division will work closely together upon the budget submission to
Treasury Board. The way in which PBEMS will affect the budgetary cycle of
government in is illustrated in Appendix C.

The major stages of change are that of the Treasury Board Division’s analysis of the
budget and Treasury Board’s decisions on the budget. Under this system, the
Treasury Board Division’s Budget and Submissions Section would analyze all
departmental estimates based on the information provided through Program Review
and the Performance-Based Management Framework. From this current
departmental estimates would be table alongside recommendations to Treasury
Board for approval. Under this framework, the Budget and Submissions Section
would work within the confines of the priorities selected by Cabinet in the earlier
stages of this process.

PBEMS will also change the way in which special warrants are used by the
government, mandating that all submissions be analysed by the Budget and
Submissions Section prior to their tabling to TB by the Associate Deputy Minister of
the Treasury Board Division. Further, only those initiatives that have been indicated
by the Premier as being of the utmost importance will be able to skirt this process
and be submitted directly to Cabinet.

Outcomes and Implications

The implementation of the PBEMS will provide the provincial government with an
integrated, sophisticated, and clearly defined expenditure management framework
for the establishing of an all government approach to the collection and evaluation
of all financial and non-financial performance reporting information.

The main objectives of this system are to increase the influence and presence of TB
and its departmental arms within the budgetary and performance processes of
government. To this degree, it will result in long-term efficiency gains in
government through better program observation and executive government
decision making.

The establishment of this system will have significant costs in the short-run as the
Ministry of Finance will need to be restructured and re-staffed. This includes the
moving of employees from one division to another and the hiring of new staff to
take on the new mandates of Program Review and Performance-Based
Management. It will also involve an extensive educational campaign for all
departmental senior management so that they are aware of the importance and the
processes of this new system. It is estimated that this will cost approximately
$2million over the next year. However, the long-run expenditure reductions will be
more than enough to offset the initial cost of establishing this system.

All the components of this system will act as the main mechanism for the
achievement of long-term fiscal sustainability. The success of this system will be
highlighted by the extent to which government is able to reduce and maintain is A-
based spending, while implementing and developing programming that is in-line
with the mandate and priorities of government.
C. Program Review
Recommendation

It is recommended that the government of Saskatchewan amended clause 32 of the

Growth and Financial Security Act, 2008, and all applicable subsections for the
creation of an annual Program Review mechanism. It is recommended that this
become the main tool by which the Ministry of Finance evaluates and attempts to
control expenditure increases within departments.

Implementation and Structure

Based on the authorities provided to the Provincial Comptroller and Treasury Board,
as granted by the Financial Administration Act, 1993, program review and the
needed human resources will be housed within the Office of the Provincial
Comptroller under the newly constructed Treasury Board Division.

The newly created Program Review Branch, as an extension of the Office of the
Provincial Comptroller, will be granted the authority to systematically review all
programming within all ministries. This will be conducted on a four-year rolling basis
with a group of ministries, and their associated agencies, being selected for each
year of review. Tentatively it is suggested that the Program Review cycle be
constructed in a manner that is similar to that outlined in Table 3. In order to
conduct these reviews the Office of the Provincial Comptroller will also have the
ability to contract outside experts to assist their auditors and evaluators.

Table 1: Program Review Cycle

(millions of dollars)

2008-09 Potential
Yea Expenditur Savings
r Ministry of Review e Levels (5% level)
1 – Corrections, – Government $482 $24
Public Safety Services
and Policing – Information
– Office of the Technology Office
Provincial – Justice and
Secretary Attorney General
– Public Service
Commission

2 – Health $3,745 $187

3 – Advanced – Immigration $1,425 $71

Education, – Agriculture
Employment, – Tourism, Parks,
and Labour Culture, and Sport
– Energy and
Resources
 – Environment

4 – Social Service – Intergovernmental $2,120 $106

– Housing Relations
– Highways and – Municipal Affairs
Infrastructure – Education

Total $7,772 $338

Program Review will run alongside the traditional budgetary processes of

government and will be incorporated into the main estimates at the later stages of
the process. Appendix D illustrates the Program Review process and how this will be
integrated in to the PBEMS process described above. This process will begin soon
after the submission of final Program Review reports to Treasury Board.

All cost savings that are achieved through the process of Program Review will be
submitted to TB for further action to be taken. Based on the current priorities of the
government, TB will decide on the usage of these cost savings.

Program Review will come into full affect for the fiscal year of 2010-2011.

Outcomes and Implications

The implementation of this program will establish TB as a central factor in the

determination of the overall level of government expenditure by providing it a tool
for current expenditure evaluation and data accumulation.

It is estimated that this program will be able to significantly reduce the growth of A-
base expenditure as highlighted in Table 3. The freeing of various funds through
this process will provide the government with a greater ability to meet its short-
term and long-term objects. This will allow for the long-term sustainability of
government in its service to the Saskatchewan people.

The main objective of this policy initiative is to provide the Ministry of Finance with
an effective tool to constantly evaluate the expenditure performance of government
programming and examine whether or not these programs are in line with the
current priorities of government.

Program Review is the single largest cost driver of the physical process of
conducting effective reviews as it requires a significant amount of intellectual
manpower. In many cases the Program Review Branch will have to canvas the
academic and professional arenas for evaluators that can assist in the process.
Furthermore, departmental staff will be required to assist the Treasury Board
Division staff in their review efforts. This results in substantial human resource costs
throughout the process of Program Review. It is estimated that this would increase
the current Ministry of Finance operational costs between $500thous and $2million
per year.
Though the operational cost of this program is significant the cost savings that can
be achieved are much larger. If the program is able to reduce departmental A-based
expenditures by 3-5% per year, which is comparable to rates found at the federal
level. Over the full cycle of Program Review it is estimated that the government
could save a maximum of $338million within its first cycle.

D. Performance-Based Management Framework (PBMF)

Recommendation

It is recommended that the government of Saskatchewan establish a centralized,

coherent and useable performance management system through the
implementation of the PBMF. It is recommended that PDMF become the guiding
mechanism for the achievement of program effectiveness and efficiency in the
government of Saskatchewan.

Implementation and Structure

The first component of the PBMF is the creation of an implementation architecture

that focuses on the ease of use for all departments. This architecture will outline the
requirements and processes involved in the implementation and continuation of
PMBF as an effective tool of performance management. The design and
implementation of this architecture is to be overseen by the Performance
Management Branch of the Treasury Board Division. It is hoped that PBMF will be
fully implemented by the next fiscal year. Nevertheless, it is recognized that this will
take time to become fully implemented within all departments and to be of
significant use for government.

The PMBF will require departments to develop their performance management

activities based on the framework provided in Appendix F.

The implementation of these various components will ensure that programs are
being delivered in a logical, effective, and efficient manner. These components also
lay the foundation for effective processes with regards to Program Review and
program evaluation.

The information that is generated through this process will be accumulated and
stored through the current MIDAS system located in the Data Management Branch
of the Treasury Board Division.

In order to ensure that departments are faced with an incentives structure that is
conducive with the effective and continued use of PBMF, the government will make
senior managements’ bonuses and benefits contingent on their department’s
performance in this regard. That is, if departments are not meeting the planning
and reporting criteria of PBMF to a satisfactory level, they will be personally
penalized for this failure.

Outcomes and Implications

The information that is to be provided through the implementation of PBMF will

increase the effectiveness and efficiencies of future Program Review activities and
specific program evaluation. The programming reporting processes that are to be
established will ensure that timely and relevant quantitative and qualitative
information is available to the government for its decision making processes.

This will require the increasing of the current staff allocated to the Performance
Management Branch, but not to a significant level. Cost will also be mute in the
area of data accumulation and storage as the Data Management Branch current has
the capacity to take on this influx of information. The major costs associated with
the implementation of PBMF are short-term in nature and are associated with the
development of departmental usage of the framework. However, it is estimated that
it will cost $3million in design and training expense to have the program properly up
and running within the proposed timeline.

V. Communications Strategy
The main goals associated with the development of a communications strategy for
PBEMS is to raise public awareness of the importance of expenditure and
performance management and how it effects the average citizen, as well as
providing a comprehensive, yet understandable information to the public. In order
to achieve these goals, it is recommended that the government create a new
website link, www.finance.gov.sk.ca/PBEMS, which provides all information
pertaining to PBEMS and its results.

This website will highlight the successes of PBEMS and how costs savings have been
spent. This will provide the public with a better understanding of expenditure and
performance management and how it positively affects their lives.

It is estimate that this will cost $2million in the first two years for development and
advertising will have minimal costs associated with upkeep for all years there after.

VI. Conclusion
Based on the information provided above, the Ministry of Finance believes that it
would be in the best interests of the government of Saskatchewan to implement
these four recommendations. By implementing these recommendations, the
government will be moving towards a stable and sustainable future for the
province.

The overall costs/cost savings associated with the implementation of PBEMS are
provided in Table 2.

Table 2: Consolidated PBEMS related expenditures

(millions of dollars)
2009- 2010- 2011- 2012- Tota
10 11 12 13 l
PDEMS -2 - - - -2
Program - 23.5 185 70 278.
Review 5
PBMF -1 -2 - - -3
Communicati -0.5 -1.5 - - -2
ons
Total -3.5 20 185 70 275
References:
Ahmed, Habib and Stephen M. Miller. 2000. Crowding-Out and Crowding-In Effects
of the Components of Government Expenditure, in Contemporary Economic
Policy 18(1): 124-33.

Canadian Comprehensive Auditing Foundation. 2002. Reporting Principles: Taking

Public Performance Reporting to a New Level. Ottawa: CCAF.

Canada. 2005. The Management, Resources, and Results Structure Policy:

Instructions to Departments for Developing a Management, Resources, and
Results Structure. Ottawa: Treasury Board Secretariat.

Diamond, jack, and Barry H. Potter. 1999. Guidelines for Public Expenditure
Management. Washington, DC: International Monetary Fund.

Kormendi, Roger C. 1983. Government Debt, Government Spending, and Private

Sector Behaviour, in the American Economic Review 73(5): 994-1010

Saskatchewan. 2006. 2006 Report - Volume 3. Regina: Office of the Provincial

Auditor of Saskatchewan.

---------. 2007a. 2007 Saskatchewan Provincial Budget: Performance Plan. Regina:

Saskatchewan Finance.

---------. 2007b. 2007 Report - Volume 3. Regina: Office of the Provincial Auditor of
Saskatchewan.

---------. 2007c. 07-08 Annual Report: Ministry of Finance. Regina: Ministry of

Finance.

---------. 2008. Planning, Measurement and Reporting: Content Guidelines for 2008-
10 Planning Process. Regina: Ministry of Finance.
Appendix A: Performance Management Indicators

The use of performance management indicators for the analysis of government’s

performance management system is a key element of the transparency and
expenditure process of government. The use of such indicators provided insight on
the extent to which the government is meeting its intended goals and allows form
analysis for the development and implementation of improved performance
management processes.

The government of Saskatchewan descries performance management as a process

of regularly assessing progress towards achieving the outcomes intended by
government and demonstrating the effectiveness and efficiencies of these
processes (Saskatchewan 2008). Reviews and reporting of this process has largely
been conducted by the Ministry of Finance’s Performance Management Branch and
the Provincial Comptroller.

Indicator Name Discretion Scale

Transparency The publications of both Nominal Scale
performance plans and 2= Plan and Report
reports for the same fiscal
year 1 = Plan or Report

0 = Neither

Consistency Are the plans and the Ordinal Scale:

goals outlined within them 2 = Yes
consistent with those
outlined in the annual 1 = Some what
performance report.
0 = No

Outcomes Are departments focusing Ordinal Scale:

on the outcomes of 2 = Yes
programming as opposed
to outputs 1 = Some what

0 = No

Program Implementation Do plans and reports Ordinal Scale:

highlight the effectiveness 2 = Yes
and efficiencies of
program implementation 1 = Some what
and delivery
0 = No

Risk Analysis Do departments outline Ordinal Scale:

that risks that are 2 = Yes
associated with the
implementation of their 1 = Some what
programming
0 = No
Source:

Saskatchewan. 2008. Planning, Measurement and Reporting: Content Guidelines for

2008-10 Planning Process. Regina: Ministry of Finance.
 APPENDIX B: Amendments to the Growth and Financial Security Act, 2008

Amendments to the Growth and Financial Security Act, 2008

Part/Clau Original Alteration
se
A 3(2) Every four-year financial plan Every four-year financial plan is to set
m is to set out the minister’s out the minister’s plan for expenses,
en plan for expenses and revenues, and review related reductions
d revenues for the first fiscal for the first fiscal year covered by the
m year covered by the plan and plan and the following three fiscal years.
en the following three fiscal
ts years.
VI Efficient Service in Performance–Based Expenditure
Government Management System
32 Program Review Program Review
Re 5 For each fiscal year, the For every fiscal year, government
m actual total expenses for the expenditures from the general revenue
ov fiscal year must balance with fund must meet of be lower than those
als or less than the actual total funds accumulated within the general
/R revenues for the same year. revenue fund based on the average of all
ep accounts over the previous four years.
la 11(a) Transfer 50% of the amount N/A
ce of the pre-transfer surplus to
m the Growth and Financial
en Security Fund established
ts pursuant to Part IV
IV Growth and Financial Security N/A
Fund

33 Limits on the size of public N/A

service
Ad 6(1)(c) N/A A reduction in revenue has occurred as a
dit result of a 5% or more reduction real
io gross domestic product growth has
ns occurred within the same fiscal year.
33 N/A Limits on the size of government
expenditure: Limiting the size of
government expenditure by 3.0 average
growth rates over the designated four
year budget cycle.
N/A Multi-year budget submission should
outline all revenue and expenditure
plans for all ministries in a similar
manner to that of their main estimates,
 just not to the same level of detail.
34 N/A Performance-Based Management
APPENIX C: Performance-Based Expenditure Management System (PBEMS)

Structure of the Treasury Board Division

PBEMS Budgetary Cycle
APPENDIX D: Program Review

Chart 3: Program Review Cycle

APPENDIX E: Performance-Based Management Framework (PBMF)

Major Components of PBMF

Component Description
Strategic Outcomes – The defining of long-term outcomes of
programming, in a measurable fashion, that is in
line with the priorities of government.
– The defining of the long-term outcomes of
aggregated departmental actions based on the
priorities of government.

Program Activity – A structured inventory of all departmental

Architecture programming and their logical achievement of
departmental long-term objectives.
– The development of indicators that highlight the
extent to which departmental outcomes are being
achieved.

Program Logic Models – Program specific logic models that make a direct
connection between program outputs and
departmental long-term outcomes.

Risk Analysis and – The identifying of all major risks and liabilities within
Management the department and outside the department, on a
per program basis.
– The publication of strategies to mitigate and control
these identified risks.

Program Reporting and – The creation and maintenance of an annual

Evaluation Schedule schedule that outlines the program reporting and
evaluation processes.