PERFORMANCE BUDGETING IN THE

U.S. FEDERAL GOVERNMENT:

HISTORY, STATUS AND FUTURE
IMPLICATIONS
L. R. Jones
Wagner Professor of Public Management
Graduate School of Business and Public Policy, Naval
Postgraduate School
Monterey, California, USA

Jerry L. McCaffery
Professor of Public Budgeting
Graduate School of Business and Public Policy, Naval
Postgraduate School
Monterey, California, USA

ABSTRACT
Performance budgets emphasize activities performed and their
costs, and include various performance measures in the budget to
document what is gained from what is spent. These measures
usually include unit cost comparisons over time or between
jurisdictions. Performance budgeting tends to emphasize measures
of efficiency and effectiveness. Broader measures (outcome) are
often difficult to define and measure, particularly in human service
areas. Nonetheless, performance budget concepts have proven
persistent. For the federal government, a key measure that has
stimulated increased interest in the topic was passage by Congress
of the Government Performance and Results Act in 1993 (GPRA)
and subsequently the Government Management and Results Act
(GMRA) in 1995. This article notes the long period of
experimentation with performance budgeting in the U.S. and
identifies some of the lessons learned from this initiative. It also
addresses reforms including the Office of Management and Budget
(OMB) Program Assessment Rating Tool (PART) as they relate to
incentives for budgeting based on performance. Conclusions also
touch upon the difficulties faced in attempting budget reform in the
midst of a period of fiscal and monetary stress. We conclude that
while the expressed interest of the Obama administration in

Public Finance and Management

Volume 10, Number 3, pp. 482-523
2010
PFM 10/3 483

assessing the performance of federal government agencies is

evident, there is no evidence to suggest that the administration will
attempt to implement performance budgeting per se as a means to
accomplish this end. Rather, performance is now reviewed by OMB
only as an input to budget decision making, which is perhaps the
best that advocates of performance budgeting can hope for in the
medium term. What it would take to interest federal government
decision makers, particularly members of Congress, to accept
performance budgeting is impossible to determine given the
present focus of the government on health care reform, job
creation, the state of the economy and armed conflicts abroad.
Administrative reform, except in the areas of regulation of
financial institutions, national security and transportation safety,
has not been high on the agenda of the Obama administration or
Congress in the period 2008-2010. However, this could change
with new initiatives recently announced by the administration and
Congress.

1. INTRODUCTION

Performance measurement and performance

budgeting are topics that have long been a part of the
public administration agenda in the United States
(Eghtedari and Sherwood, 1960a; 1960b; Schick, 1971).
Interest in performance budgeting developed in
response to perceived abuses at the local government
level as early as the 1870s in the U.S. (e.g., in New
York City), at the beginning of the 20th century (e.g., in
the budget research of the New York City Bureau of
Municipal Research, which eventually became the
Brookings Institution), from a response to growth of
government at all levels and particularly of the federal
government during the presidency of Franklin D.
Roosevelt during the Depression of the 1930s, through
the mid-1940s and in the post-World War II era,
especially during the Eisenhower presidency
(McCaffery and Jones, 2001: 43-67). The first wave of
what we would identify as pure performance budgeting
occurred during the 1950s under the guidance of the
President’s Bureau of the Budget (BOB). In the view of
the leadership of the BOB in the 1950s, performance
budgeting and performance measures were intended to
484 Jones & McCaffery

emphasize efficiency and effectiveness. Then, as now,

broader measures (outcomes) were desired but often
were difficult to define and measure, particularly in
human services programs. Nonetheless, performance
budgeting in concept has proven persistent over time in
the U.S. federal government, as well as in state and
local government. Evidence of this trend is found in the
huge expansion of the literature in this area in the past
decade. It is interesting to note that until the 1990s, in
the U.S. and internationally, performance data were
intended for internal government use, primarily by
budget and management control offices and line agency
managers, and after 1993 by members of oversight
committees of Congress. The external use of
performance measures arose in some part in response to
the customer orientation of reform initiatives intended
to make government more accessible and to improve
service quality to citizens. Such initiatives include the
National Performance Review in the U.S., Total Quality
Management, and a range of initiatives that have been
lumped together, described and analyzed as the New
Public Management (see for example Borins, 1997;
Schedler, 1997; Thompson, 1997; Lynn, 1997).

More recently for the U. S. federal government, the

key measures that stimulated increased interest in
performance and budgeting was approval by Congress
into statute in 1993 of the Government Performance and
Results Act (GPRA), and in 1994 of the Government
Management and Results Act (GMRA). The 1994
GMRA extended the provisions of the 1993 Act across
the entire federal government. Pursuit of the National
Performance Review under the Clinton administration
(1992-2000) also stimulated interest in this topic
(National Performance Review, 1993). Our study does
not ignore this long history of interest in performance as
part of the modern era of effort devoted to instilling
“good government” and governance practices. Rather,
informed by this history, it focuses on implementation
of GPRA/GMRA and identifies some of the lessons
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learned from this initiative, its application and use,

misuse and non-use. It also addresses selected
impediments to reform as they relate to incentives for
budgeting based on performance.

Before delving into the specifics of performance

budgeting, let us note the tremendous increase in
interest in performance measurement and management
that characterizes the field presently and has done so for
much of the past decade. Measurement of performance
and efficiency in the public sector has become a sub-
field unto itself (Ingraham, Joyce and Donahue, 2003;
Robinson, 2007). Scholars are interested and attempting
to use various types of measurement, including tools
including CompStat/CitiStat (Behn, 2008a: 206-235)
and techniques including Laspeyres and Paasche index
numbers, principal-components methods, use of
canonical analysis and eigenvalues in weighting
relevant variables, dynamic factor modeling,
instrumental variables, and what are termed hedonic
approaches using regression coefficients in the
weighting of a range of types of variables, balanced
scorecards and their linkage to organizational strategy
(Kaplan and Norton, 1996; Kaplan and Norton, 2001;
Simons, Dávila and Kaplan, 1999), and other
approaches (see for example Smith and Street, 2005:
401–417; Stone, 2002: 405–434; Rouse and Putterill,
2003: 791-805; Reichmann and Sommersguter-
Reichmann, 2007). While our study focuses on use of
performance measures in budgeting, the question of
how best to measure performance, or whether it can be
measured well at all, remains an issue of considerable
academic and practitioner interest.

2. HISTORICAL EVOLUTION OF PERFOR-

MANCE BUDGETING

General acceptance of the concepts of performance

budgeting may be dated from the recommendations of
the Commission on Organization of the Executive
486 Jones & McCaffery

Branch of the Government (commonly called the

Hoover Commission) in 1949. Performance budgeting
was initially mandated by amendments to the National
Security Act in 1949. These amendments required the
Department of Defense to install performance budgeting
in the three military departments (63 Stat 412, 1949).

The federal government as a whole entered into

performance budgeting as a consequence of the Budget
and Accounting Procedures Act of 1950. This act
required the heads of each agency to support “...budget
justifications by information on performance and
program cost by organizational unit” 64 Stat 946, 1950).
The first wave of experimentation with performance
budgeting in the U.S. federal government occurred
during the 1950s when the President’s Bureau of the
Budget recommended and Congress accepted and
adopted a number of proxies for performance in
budgets, primarily as a means for simplifying the task of
budgeting (McCaffery and Jones, 2001; see also Hilton
and Joyce, 2007). For purposes of definition at this
time, performance budgets were intended generally to
identify and emphasize activities performed and their
costs, and to include various performance measures in
the budget to document what was gained from what was
spent. These measures typically included unit cost
comparisons over time, or between jurisdictions when
used at state and local government levels.

While the federal government was developing

performance measures and moving toward performance
budgeting, some state and local governments quickly
adopted the concept. Early attempts included Detroit,
MI, Kissimmee, FL, San Diego, CA, and various states
including Oklahoma, California, and Maryland
(Seckler-Hudson, 1953, 5-9). The City of Los Angeles
provides another case study of this era from 1952 to
1958. In 1951, Los Angeles created the position of City
Administrative Officer (CAO) and filled it with Samuel
Leask, Jr. Just one year after his appointment, Leask
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had instituted a performance budget system throughout

the city. The heart of the Los Angeles system was a
performance contract. This contract was based on goals
and targets developed in the budget process. The parties
to this contract were the mayor, city council and the
CAO, on the one hand, and department administrators
on the other. These performance contracts were
monitored by the CAO during budget execution to
ensure goals were achieved (Eghtedari and Sherwood,
1960b: 83). Performance contracts were based upon
work programs that became the starting point from
which questions about timing, size, and nature of
expenditures could be framed. Departmental
appropriations were based on work programs, and a
government-wide reporting system was used to compare
units of work performed to man-hours expended in the
budget execution process. This was the final check on
actual versus proposed performance (Eghtedari and
Sherwood, 1960b, 83).

A study of this system, conducted primarily in the

Building, Safety, and Library Departments, found that
the performance approach resulted in a strengthening of
the executive budget, program planning, and central
control of decisions going into the executive budget.
Measurement of work in a governmental jurisdiction
was found to be practical and feasible, with positive
benefits gained from such measurements (Eghtedari and
Sherwood, 1960b: 82-88). In this case, perhaps the
major finding of the study was in the value of creating
and staffing the Office of City Administrative Officer
(CAO). The study found that the CAO had “...improved
the quality of program planning, had brought about a
higher degree of coordination among the essentially
independent departments than ever before existed, and
has made some contribution to the overall efficiency of
municipal operations” Eghtedari and Sherwood, 1960b).
Additionally, the new budget process assisted in
increased control for the city administrator by creating
the performance contracts. Perhaps the most important
488 Jones & McCaffery

result of the Los Angeles experiment was the proof that

a performance-style budget in a governmental agency
was feasible and beneficial.

Since the 1950s and particularly beginning in the

1990s, the United States federal government was not
alone in its recognition of the potential of performance
budgeting. Various U.S. state and local governments
continued to experiment with versions of performance
budgeting, and continue to do so to the present (Sanger,
2008). More than fifty countries have implemented
various aspects of performance budgets in the period
from the late 1960s through 2000. Among the leaders in
this endeavor were New Zealand, Australia, the United
Kingdom, Sweden, Canada, and France. Most early
attempts in foreign nations merely supplemented the
traditional budget and were usually issued as separate
documents (Axelrod, 1988, pp. 272-273). Meanwhile,
the performance budget experiment in the U. S. federal
government was integrated first into Program Budgeting
in the 1950s and then the Planning, Programming,
Budgeting System (PPBS) during the 1960s. And while
the government-wide PPBS experiment was terminated
by President Richard Nixon in 1969, PPBS continues to
be used by the Department of Defense to the present,
although in the early 2000s it was renamed the
Planning, Programming, Budgeting and Execution
System (PPBES), indicating the importance of the entire
budget cycle and not just the front end of budget
preparation, negotiation and decision (Jones and
McCaffery, 2008).

3. PERFORMANCE BUDGETING METHOD-

OLOGY

Performance budgeting (PB) requires administrators

to separate programs into the basic activities in which
their agency engages, decide what performance
measures best fit each activity and develop budgets
based on costs for each measure. In this respect, PB has
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much in common with performance management (for

more on this topic, see Behn, 2008a; 2008b). The
typical performance budget has narrative describing
what the unit does, performance measures that indicate
activities and trends, and a breakdown by typical budget
category. A “pure” performance budget would consist
of activity classifications, workload data, other
measures of performance, unit costing data, and
program goals. Other data typically found in budgets
that are modeled after performance budgets consist of
narratives discussing the activity or program, several
years of data for comparisons, mission statements, and
desired outcomes. It should be noted, most budgets that
are called performance budgets are not of the pure
format.

Once programs have been separated into activities,

measurements for performance must be generated for
program evaluation. There are five generic performance
measures used with performance budgeting. These
include input, workload, efficiency (“doing the thing
right”), effectiveness (“doing the right thing”), and
impact or outcome measures. Input measures describe
the resources, time, and personnel used for a program.
They typically appear in the budget as dollars for salary
and supporting expenses. They also might be presented
as staff training hours and number of person years
expended on an activity.

Workload measures are volumetric measures of what

an agency does. Such items as number of audits done,
returns filed, checks issued, number of arrests made, or
miles of highway constructed are typical workload
measures. Workload measures are the lowest form of
performance measurement. The trouble with workload
measures is that there are a lot of them and they do not
tell anyone very much without further analysis. While
workload measures do describe the activities of a
program, they do not define how well the program is
accomplishing its mission (Jones & Thompson, 1999;
490 Jones & McCaffery

2007). To do this, workload measures must be

converted into measures of efficiency, effectiveness,
and outcome.

Efficiency measures take workload data and merge it

with cost data to develop unit cost measures. Then
efficiency can be gauged on such items as the cost per
arrest made, the cost of issuing a check, or the cost of
flying an aircraft per hour. Efficiency is a much better
indicator of performance than simple workload data
since it gives outputs a direct cost relationship. These
costs per unit can then be compared over time or against
other similar activities to gauge competitiveness or
improvement. This is important since it allows
administrators a simple way to keep track of complex
programs. At higher levels, the legislature can track
efficiency measures to keep costs down, and the public
can be assured its taxes are being spent efficiently.
Efficiency, however, does not necessarily indicate
effectiveness.

Effectiveness measures are used to mark output

conformance to specified characteristics. Such items as
quality, timeliness, and customer satisfaction fall into
this category. These measures require the manager to
determine goals for the particular program activity and
to identify who their customers are and what type of
characteristics customers would want within the
products or services delivered to them. Then
effectiveness measures indicate how well the agency is
satisfying these needs. Effectiveness measures are better
than efficiency measures in that the primary focus of
effectiveness is on the customers, whereas the primary
focus of efficiency is the organization. If efficiency
focuses on cost per unit, effectiveness measures tend to
focus on rates of accomplishment, like percent of
satisfied clients or ratio of clients helped as opposed to
ratio of clients seen. Effectiveness is associated with the
quality of service and includes such things as
responsiveness, timeliness, accessibility, availability,
PFM 10/3 491

participation, safety, and client satisfaction. If efficiency

measures are largely internal, effectiveness measures
connect the operator to his clientele, the citizen to his
government.

Outcome measures are the most difficult level of

measure used in a performance budget system. These
are measures of outcome, impact, or result. They
attempt to capture performance based on achieving
what the program wanted to do as a whole. Simply put,
they ask if the program achieved the mission it set out
to do from the start. Has the city become cleaner, the
streets safer, students more knowledgeable, and
customers more satisfied? In the 1970s, several cities
took photographs of their city streets and used a
standardized photograph rating scale to judge whether
their streets were actually getting cleaner as a result of
sanitation efforts. This information could then be
compared against historical data or against a rating for a
different neighborhood. After all, it is possible to collect
many more tons of trash and to have the unit cost drop,
but have the city streets getting dirtier. The photo scale
technique was meant to provide an outcome measure.
As a practical matter, outcome measures have proved to
be very difficult to develop and maintain. They tend to
be particularly difficult in human service areas, such as
education or public safety, where global statements are
easy, but precise measurement difficult. Additionally, in
the budget process, even where measurement is easy,
sometimes it is difficult for policymakers to decide how
many dollars it will take to move up an increment or
two on a rating scale and if it is worth it. This further
assumes more clarity in cause-and-effect relationships
than may be possible in the real world. Constructing and
evaluating measures adds technical difficulty to the
budget process, which many participants view as
complicated enough in terms of determination of cost
and political preference.
492 Jones & McCaffery

Early versions of performance budgeting focused on

measures of workload and efficiency. The indicators
focused primarily on the agency itself and were
primarily internal measures of what the agency did and
what it cost. These were input and workload measures,
like salary cost and tons of trash collected, with
efficiency ratios developed to measure the change in
cost of collecting a ton of trash from one year to the
next. More recent attempts at performance budgeting
have included measures of effectiveness and outcomes
or results, and have a focus on the clients and customers
of the agency, with some measures constructed to
evaluate client or customer satisfaction or response time
to customer demand. Whatever measures are used, they
are compared between similar agencies or over several
years to measure competitiveness or improvement.

This type of budget aims to assist managers in wisely

spending such that maximum output is achieved with as
little input as possible, with the focus shifting from
objects of expenditure to program activities as the basis
for budgeting. Therefore, instead of budgeting for
salaries, utilities, and travel expenses, the manager
would base the budget upon the activities his unit
performs, and policymakers would judge which
activities should be increased or decreased.

4. ADVANTAGES AND DISADVANTAGES OF

PERFORMANCE BUDGETING

As with any budget type, performance budgets have

advantages and disadvantages associated with them.
The basic premise of PB is that it will instill incentives
to improve the performance and productivity of
agencies and their employees. Some additional potential
advantages include improved planning, more effective
administrative control, increased decentralization of
decision making, improved public relations as a
consequence of greater transparency of program and
spending information, improved focus on the activities
PFM 10/3 493

of the organization, and provision of more precise

quantitative measures, which if pertinent and feasible,
are better than vague generalities for evaluating the
organization according to a set of established standards
(Wildavsky and Jones, 1994).

Some potential disadvantages also may be noted. The

first is that there is no empirical evidence in the
literature of any case where PB actually has had
significant influence on agency budgets or productivity
(Gilmour and Lewis, 2006; Robinson and Brumby,
2005). However, there are cases where disincentives
built into PB agency reviews have retarded
performance, e.g., when budgets have been reduced.
Thus, one disadvantage is that when PB review is
performed and the results are positive, leading to
increased funding, no productivity increases are evident.
But, when the opposite occurs, performance can
decrease. Secondly, performance budgeting is not
equally applicable to all organizations or agencies.
Many agencies do not do work or exhibit performance
that is easily quantifiable (Schick, 2001). Thirdly,
efficiency is not guaranteed by identifying and using
unit cost data for comparison to performance measures.
Legislators and administrators may use a performance
budget to identify problem areas or wasteful agencies,
but this by itself does not increase efficiency. Fourthly,
in a political context, it may be difficult to define an
appropriate set of measurements for workload or
performance. In practice, many indicators have proven
to be inappropriate, and agencies may have to go
through several iterations before a satisfactory set of
measures is found. Fifthly, the end product of many
agencies may not be measurable by any known means.
Measures of effectiveness and outcome or impact are
extremely difficult to develop in some areas, e.g., social
services and education. Lastly, this type of budgeting
may not be practicable for relatively small agencies.
The staffing time and costs associated with monitoring
494 Jones & McCaffery

indicators year-round may inhibit or prevent smaller

agencies from using performance budgets effectively.

Two attributes appear to distinguish current

performance measurement and budgeting initiatives
from the efforts of the 1950s. The reincarnation of
performance measurement beginning in the 1990s in the
U.S. federal government focused considerably on
external relations, with customer satisfaction measures
viewed as a major strength of new performance
measurement systems. Additionally, when
implementing performance measurement, a shared
sense of vision from the top to the bottom of the
organization was thought to be critical by advocates.
However, despite that agencies now prepare and submit
annual and long-term program plans to OMB and
Congress in conformance with the requirements of law,
as explained in the next section of this study, most of
these plans still did not link directly with their budgets
(Joyce, (1993). Thus, neither OMB nor Congress could
analyze budgets linked to performance even if they
wanted to because they have not had the data to enable
such an effort (Moynihan, 2006; see also Gilmour and
Lewis, 2005).

5. ENACTMENT OF GPRA AND GMRA:

IMPLICATIONS FOR PERFORMANCE
BUDGETING

As noted in our introduction, on August 3, 1993,

Congress passed P.L. 103-62, the Government
Performance and Results Act of 1993 – GPRA (P.L.
103-62, 1993). Approximately a year later, it passed the
Government Management Reform Act (GMRA) that
implemented the provisions of GPRA across all of the
federal government. The purpose of the acts was to shift
the focus of government management from inputs to
outputs and outcomes, from process to results, from
compliance to performance, and from management
control to managerial initiative.
PFM 10/3 495

The significance of GRPA was made evident in 1994

when the Office of Management and Budget (OMB)
issued its Circular No. A-11 Revision (Preparation and
Submission of Budget Estimates for FY 1996). Under
the guidelines of this directive, justification of programs
and program funding henceforth would require the use
of performance indicators and goals as set forth by the
GPRA. In issuing Circular A-11 in 1994 to instruct and
control the preparation of the FY 1996 budget, OMB
indicated that without performance indicators,
performance goals, or some other type of performance
data, agency requests for significant funding to continue
or increase an ongoing program would be difficult to
justify (OMB, 1994, 122). For the FY 1996 President’s
Budget submission and subsequently through 2000,
OMB asked agencies to use output and outcome based
performance measures in the budget decision-making
process and budget justification statements. These
guidelines conformed to the general provisions of the
GPRA.

The long-term goal of GPRA was and continues to

be implementing performance measurement into federal
government management and to some extent
experimentally into budgeting as a means of improving
resource planning, decision making, allocation and
execution for federal agencies (McCaffery and Jones,
2001; McNab and Melese, 2003). Performance budget
pilot projects were conducted for FY 1998 and FY 1999
under the auspices of GPRA. Regrettably, the results
from these pilot projects were never provided externally
and consequently only agencies and OMB learned from
these experiments. Then in 2002, under the
administration of George W. Bush, OMB developed
and integrated performance measurement but not
performance budgeting per se into all programmatic and
budget submissions and reviews under the Performance
Assessment Rating Tool (PART) system.
496 Jones & McCaffery

6. THE PROGRAM ASSESSMENT RATING

TOOL AND LINKAGE TO PERFORMANCE
BUDGETING

A budget reform initiative was announced by Presi-

dent Bush in the FY 2003 President’s Budget delivered
to Congress in February 2002 (Jones, 2002a). The
budget introduced “performance-based budget review”
to link funding to performance measures and accom-
plishments for federal departments and agencies. As a
result of a Presidential initiative in August 2001, the
Office of Management and Budget already had targeted
review to improve performance in five areas of man-
agement: human resources management productivity,
competitive sourcing (i.e., contracting out), financial
management, e-government, and integration of perfor-
mance measurement and budgets. However, the change
in 2002 went beyond these objectives in establishing a
Program Assessment Rating Tool (PART) to be used in
budget review. What is provided here is not a compre-
hensive evaluation of the success of performance-based
budget review under the Bush administration, but mere-
ly a critique.

There is some evidence available to assess the efforts

and degree of success of OMB with this approach,
given that by 2003 more than 20% of federal programs
and virtually all departments and agencies were com-
plying with OMB budget submission requirements. For
FY 2004, 231 programs were graded by OMB using the
Program Assessment Rating Tool system (OMB, 2003).
However, whether and to what extent the PART review
improved department efficiency and effectiveness is
uncertain (Gilmour and Lewis, 2006). What can be said
is that OMB used PART to attempt to reduce budgets in
some instances. This is hardly surprising given the role
of OMB is, in part, to cut budgets and this is standard
practice as an element of most management and per-
formance review techniques employed by executive
budget control agencies (Jones and Euske, 1991;
PFM 10/3 497

McCaffery and Jones, 2001: 203-224, 281-320; Jones,

2001a; Jensen, 2001; Wanna et al., 2003; Guthrie et al.,
2004). Performance assessment using PART continued
in preparation of the FY 2003 through FY 2009 Presi-
dent’s Budgets under the Bush.

Performance review under the Bush administration

may be viewed as a continuation of a trend begun in the
1990s under OMB and at the direction of Congress
(Rodriquez, 1996; GAO, 1997a; 1997b; 1998; 1999;
2000a; 2000b; GPRA, 1993; GMRA, 1994). As ex-
plained earlier in this study, budgets have long been
reported to and analyzed by OMB using performance-
based criteria to link funding to performance measures
and accomplishments for federal programs within de-
partments and agencies. The Program Assessment
Rating Tool was used by OMB in analysis of 67 pro-
grams included in the FY 2003 President’s Budget.
PART was employed to score performance in 231
programs (about 20% of total on-budget federal pro-
grams) for the President’s FY 2004 Budget. An addi-
tional 20% were reviewed annually by OMB in prepara-
tion of the FY 2005 through FY 2009 President’s Budg-
ets (OMB, 2008).

PART scored programs using a multi-variate set of

criteria consisting of approximately 30 variables that
initially (for FY 2003-2008) culminated in what was
characterized as a “stop light” system: red for failing
performance, yellow for marginal performance, and
green for good performance. For FY 2004 the system
expanded the range of grading options to five catego-
ries: effective, moderately effective, adequate, results
not demonstrated, and ineffective. For FY 2004 14
programs were rated as effective, 54 moderately effec-
tive, 34 adequate, 11 ineffective and 118 results not
demonstrated. The large number in this last category
indicated that many programs have not attempted or
have been unable to develop useful measures of perfor-
mance. Reporting of the results was provided in a sepa-
498 Jones & McCaffery

rate volume of the President’s budget (OMB, 2003).

Programs were rated in four areas of performance:
program purpose and design, strategic planning, pro-
gram management, and program results.

7. PART GOALS AND PERFORMANCE

IMPROVEMENT

The overall objectives of PART were (a) to measure

and diagnose program performance, (b) to evaluate
programs in a systematic, consistent, and transparent
manner, (c) to inform agency and OMB decisions for
management, legislative or regulatory improvements
and budget decisions, and (d) to focus on program
improvements and measure progress against prior year
ratings. OMB extended the application of PART to all
programs in the budget in budget review. Doing so
proved to be a time-consuming effort for the reviewers
who were mostly line budget examiners. Budget ana-
lysts were tasked to review specific programs, i.e., they
assumed some degree of ownership of the budgets they
examined (McCaffery and Jones, 2001: 203-224; Wil-
davsky, 1964: 38, 40, 160). Consequently, there was a
problem of consistency in application of evaluative
criteria with OMB review of budgets and performance.

Given this problem, the executives and budget staff

of programs and agencies under review were wise in
taking Wildavsky’s advice (Wildavsky, 1964, pp. 20-
31) to be sensitive to the signals about priorities pro-
vided to it by budget analysts. Typically, after one or
two budget reviews by the same analyst, agency budget
officials became attuned to the preferences of the ana-
lyst and administration served. To fail to read such
feedback was to lose competitive advantage in the
budget game. The advantage of the PART system over
previous methods of budget review was that it provides
more feedback, i.e., more signals on how to achieve a
higher rating. Indeed, by 2003, PART had become
sufficiently institutionalized so that consulting firms
PFM 10/3 499

inside the Washington, D.C. beltway were offering

courses to teach program staff how to improve their
scores. With this much feedback and assistance, it is
surprising how many programs were rated for the FY
2004 Budget as ineffective or results not demonstrated
categories (129, or roughly 56% of the 231 programs
reviewed). However, from FY 2004 to FY 2006, many
agency performance ratings improved.

For FY 2003 through FY 2008, many programs

received failing PART scores – but improvements in
some programs continued to be reported (OMB, 2008).
Departments and agencies invested staff time and ener-
gy to achieving improved ratings in attempt to be re-
warded in the President’s Budget. The key incentive
supporting the PART system was the intent of OMB
directors and staff to integrate performance scoring with
OMB budget review. Presumably, programs that im-
proved their ratings were rewarded in the budget. Thus,
the advantages of the PART approach appear to be two-
fold. First, the scoring was relatively easy to understand
because it was simple – there were only five categories.
Second, PART scores were scaled relative to a set of
variables that represented the strategic and annual plan-
ning, management and execution performance by pro-
grams and agencies according to data developed and
reported to OMB by these agencies. OMB did not pro-
vide the data for PART reviews. Still, the opportunity
was ever present for programs to score better if they
wanted to, in part based on whether they were able to
measure and quantify results.

It may be observed that at least two biases are built

into any performance rating system in addition to the
inevitable issues concerning inter-rater reliability noted
above. First, some program performance results (or
outputs) are easier to measure and report than others.
The second is uncertainty about the relationship be-
tween achievement on measures and budget decisions.
For example, if programs solve some problems faced by
500 Jones & McCaffery

their clientele groups (Wildavsky’s term) but failed

others, should their budget be increased or reduced? On
one hand, the argument is to reward improvement, but if
clientele needs have been satisfied, does this indicate a
decrease in demand for program services and therefore
a budget cut?

Review of the PART system by departments and

agencies that were rated by OMB initially indicated
several recurrent criticisms (Jones, 2002a; 2002b;
2003). The PART questionnaire instrument required yes
or no answers to a number of questions about perfor-
mance. It was been suggested that a better system would
have departments and agencies rate their answers on a
scale, e.g., 1 (lowest) to 5 (highest). Scaled data are
more amenable to analysis than yes/no responses. A
second criticism concerned the way OMB defined the
units of analysis – as programs instead of departmental
or agency administrative entities. Some programs de-
fined by OMB were not administered as such by de-
partments and agencies (many programs cross agency
jurisdictions), thus making performance reporting more
difficult. In this regard, there seemed to be some in-
compatibility between PART and the Government
Performance and Results Act. PART evaluated pro-
grams while GPRA assesses agencies – and these enti-
ties are defined in different ways. This was confusing to
those under evaluation. A third criticism was that while
OMB provided some feedback on their assessment of
questionnaire responses and desired improvements in
program performance, more information of this type
was needed. Further, some program officials indicated
they wished to collect more data but were prevented
from doing so by various rules, including the require-
ments of the Paperwork Reduction Act, and OMB
insistence that they cut down the number of different
data elements to be measured and reported. Finally,
program staff reported the appearance of an inverse
relationship between effectiveness ratings and budget
decisions, i.e., better was not necessarily richer.
PFM 10/3 501

8. SUPPORT FOR PERFORMANCE-BASED RE-

VIEW

Testimony to Congress by David Walker (Walker,

2001; 2002), the Controller General of the U.S. gov-
ernment, and comments by representatives of the Gen-
eral Accounting Office, the Offices of the Inspectors
General and members of Congress indicate that impor-
tant institutional observers, including the key oversight
committees of Congress, have reviewed OMB assess-
ment of executive programs and management practices
for the FY 2003 and 2004 budgets. Until 2006, numer-
ous entities including the U. S. Comptroller General
were cautiously supportive of Bush administration
efforts.

The Government Accountability Office (GAO), the

auditor for Congress, was very specific in stating that it
had reviewed favorably the criteria supporting PART
and OMB evaluation of department and agency perfor-
mance. As noted, in 2002, Christopher Mihm of GAO
stated that in his view the approach and its execution
were methodologically sound (Mihm, 2002) GAO
reviews of performance management from the late
1990s through 2002 were supportive. (GAO, 1996a;
1997a; 1997b; 1998; 1999; 2000 a & b, Mihm, 2002a &
b; Posner, 2002).

GAO has favored performance measurement to the

extent that it recommended in 2002 that Congress adopt
a “Performance Resolution” process to measure and
report annually on executive agency progress. This
approach would function in a manner similar to the
Budget Resolution process (Posner, 2002). Such support
for performance budget review (as distinct from broad-
scale performance budgeting) may change, but it is
clear that virtually everyone in the nation’s capitol took
serious notice of and responded to the Bush administra-
tion OMB initiatives with performance measurement
502 Jones & McCaffery

and results reporting linked to budgets. And, it may be

anticipated that Congress and the Executive branch will
continue to be concerned with implementation of the
Government Performance and Results Act. However,
positive reviews of PART began to change when it
became evident after 2006 that OMB was using PART
merely to cut budgets. Eventually this became the Bush
budget legacy: a perversion of the purposes of perfor-
mance budgeting and growth of large annual and cumu-
lative budget deficits.

9. U.S. FEDERAL BUDGET REFORM: IS THERE

A ROLE FOR PERFORMANCE BUDGETING?

To put the initiatives of the Bush and Obama admin-

istration into the larger context of the status of federal
budgeting in 2010-2011, observers of the congressional
budget process have expressed the view that perfor-
mance assessment is not the most significant problem.
Rather, without caps on spending, and without the other
restraints from the Budget Enforcement Act of 1993
that expired in 2000, including Pay-Go (finance before
providing the benefit) for entitlement programs to con-
trol increases in the huge non-discretionary accounts
(approximately 70% of total federal spending annually)
including Social Security and Medicare, the federal
budget process was deemed to be “broken” and in need
of reform (Joyce, 2002; Meyers, 2002). Further evi-
dence abounds that federal government budgeting is in
trouble, both procedurally and substantively. After four
years of annual surpluses, from 1998 to 2001, the feder-
al budget moved back into deficit of $160 billion in FY
2002 and approximately $480 billion in FY 2003. Add-
ing to future deficits, Congress passed additional tax
cuts requested by President Bush and adding $475
billion in spending to Medicare in 2003. Congress also
approved additional funding of $79 billion in the spring
of 2003 for the war on terrorism, and in September
2003, President Bush requested another $87 billion in
the next budget (FY 2004) for pacification and rebuild-
PFM 10/3 503

ing Iraq and Afghanistan. Large supplemental budgets

have been approved routinely by Congress and the
President for national defense and security from the
period following the 9/11 terrorist attack on the U.S.,
continuing into 2010 under the Obama administration.

Given is that the annual federal budgets for fiscal

years 2010 and 2011 are projected to be in deficit by
more than $1 trillion, that total federal debt is
approximately $13 trillion and is projected to increase
through at least 2018 (Congressional Budget Office,
2010). Additionally, with the focus of the government
now on health care reform implementation, job creation,
the state of the economy, and armed conflicts abroad,
the result is that administrative reform, except in the
areas of regulation of financial institutions, national
security and transportation safety, has not been not high
on the agenda of the Obama administration or Congress.
What the Democratic Congress and President Obama
will do with respect to controlling spending and
reducing deficits over the longer term is uncertain,
although Obama has repeatedly promised to make such
reductions. Whether Congress will invest more energy
into performance review of the budget also is
impossible to forecast. Recent evidence suggests that
Congress will attempt to reduce spending and the deficit
through its Budget Resolution process (Congressional
Quarterly, 2010, p. 1). The Budget Resolution is, in
essence, the annual congressional spending plan.
However, the spending and other targets established in
the Budget Resolution are not binding on appropriations
committees, and Congress in fact is not required to pass
a Resolution (McCaffery and Jones, 2001, pp. 109-112).
As of May 2010, Congress was unable to negotiate a
Budget Resolution for FY 2011.

While the expressed interest of the Obama

administration in assessing the performance of federal
government agencies is evident, PART as employed by
the Bush administration has been abandoned and there
504 Jones & McCaffery

is no evidence to suggest that the administration will

attempt to implement performance budgeting per se as a
means to accomplish this end. Rather, performance is
now reviewed by OMB less formally than under PART,
as one set of inputs to budget decision making, which is
perhaps the best that advocates of performance
budgeting can hope for in the medium term. What it
would take to interest federal government decision
makers, particularly members of Congress, to accept
performance budgeting is unknowable. Congress
demonstrated such interest in the 1980s in passing the
Gramm-Rudman-Hollings budget deficit legislation and
in the 1990s in approving GPRA and GMRA. However,
in the 2000s regardless of what party has been in the
majority, spending control has not been a priority. And
for a variety of reasons this also has been the case for
both the Bush and Obama administrations in this period.

Implementation of performance budgeting seems

unlikely in the short term because Congress cannot even
manage the process it is supposed to follow to control
spending, even when one party controls both Houses of
Congress. Despite the GAO recommendation that Con-
gress use a performance resolution (Posner, 2002), it
seems unlikely that Congress has the institutional ca-
pacity or the inclination to apply performance mea-
surement in budgeting. Appropriations committees,
which hold the most budget power in Congress, shun
this approach because they believe it will reduce their
discretion over spending. Few members of Congress
want “budgeting by formula,” as performance budget-
ing often is perceived.

10. THE FUTURE OF PERFORMANCE-BASED

BUDGETING IN THE U.S. FEDERAL GOV-
ERNMENT

Whether Congress will ever take action to further

implement performance measurement and management,
strategic planning and budgeting, in conformance with
PFM 10/3 505

the Government Performance and Results Act of 1993

and the Government Management and Results Act of
1995, is uncertain. Given the likelihood of little or no
action by Congress to place greater emphasis on per-
formance in budget analysis and decision making in the
near-term future, we may ask how much difference it
makes whether Congress uses or ignores performance
budgeting and performance review? To some extent,
Congress has routinely used performance measures to
review and enact budgets since the 1950s and before. A
vast number of performance proxy measures are built
into federal budgets for Executive branch programs in
virtually all departments, ranging from the National
Forest Service and Bureau of Land Management to the
Department of Defense. By using formulas that equal
dollars, performance budgeting may reduce complexity
in congressional budgeting – and reducing complexity
is a necessity in federal budgeting, as Wildavsky ex-
plained years ago (Wildavsky, 1964, pp. 11-14-15; pp.,
147-152; Wildavsky, 1988, pp. 79-80, p. 412). Can
Congress be expected to do more?

With respect to executive branch budget reform, it

probably does not matter much how Congress budgets.
The executive branch can institute the types of reform it
deems fit and useful. Again, this is nothing new. Most
of the major budget reforms in the post-WW II period
have been developed and implemented in the executive
branch, e.g., program budgeting in the 1950s, PPBS in
the 1960s, management by objectives – and budgeting
by objectives – and zero-based budgeting in the 1970s,
top-down budgeting in the early 1980s, fixed-ceiling
budgeting in the mid-1980s and 1990s after passage of
the Gramm-Rudman-Hollings Acts, the Budget En-
forcement Acts of 1990 and 1993 and other similar
measures, and the performance/results orientation post-
2000 (McCaffery and Jones, 2001). While it may be
argued that GPRA was a congressional initiative, en-
forcement and implementation have been managed by
the President’s Office of Management and Budget. Thus
506 Jones & McCaffery

the conclusion may be drawn that if performance bud-

geting is to be implemented at some time in the future
in the U.S. federal government, it probably must come
at the initiative of the President and the Office of Man-
agement and Budget.

President Barack Obama has articulated the

importance of performance evaluation in public
pronouncements. However, as of 2010, OMB does not
appear to be moving any further towards implementing
a performance budgeting system – but it definitely
continues to emphasize use of performance information
in the budget process as explained below. While most
federal agencies have embraced GPRA and the idea of
performance measurement, some still are treating it as a
short-term phenomenon and waiting for it go away, as
did other budget reforms including Zero Based
Budgeting (ZBB) and Management by Objectives
(MBO), so as to allow them get on with what they
perceive as the “real” work of their agencies.
Performance measurement and performance budgeting
consume a significant amount of staff time and energy.
Unless decision makers are willing to use the
information produced from performance measurement,
staff and other observers of the process wonder whether
the cost is worth the effort and benefit. In particular, if
Congress is no longer interested in the GPRA approach
to performance measurement, they then wonder why
OMB continues to push it. This perception was
magnified when performance measurement and
evaluation were viewed as exclusively of interest to the
Executive branch for use in cutting budgets, as occurred
during the period 2006 to 2008 (and for fiscal year 2009
budget preparation under Bush).

If Congress appears to be ignoring to a great extent

the results of the GPRA and GMRA laws it passed, then
it remains to be seen whether the Obama administration
and the Executive branch will press forward on the
emphasis on performance measurement in budgeting
PFM 10/3 507

and management in 2010 and beyond. It may be ob-

served that some members of Congress remain interest-
ed in performance review. On May 13, 2010, Congres-
sional Representative Henry Cuellar (D-TX) presented a
draft bill to the House Oversight and Government
Reform subcommittee on Government Management,
Organization and Procurement intended to put perfor-
mance “at the heart of how federal government does
business”. Cuellar introduced similar legislation in 2009
intended to make PART law but Congress did not take
action on this legislative proposal. The emphasis of the
new legislation is revised so that PART has been
dropped, with the new legislation focused on perfor-
mance goals and more modern, crosscutting thinking
about performance measurement and management.
However, this legislation does not call for performance
budgeting. (Kohli, 2010)

The Obama administration is interested in assessing

the performance of federal government agencies. In
spring 2010, OMB announced that the President’s fiscal
year 2011 budget included a new approach to ensure
that executive branch departments and agencies focus
on performance. The Budget established 128 High
Priority Performance Goals (HPPGs) across federal
departments and agencies that define its priorities
(OMB 2010). According to OMB sources (who decline
to be cited) the Obama administration wants agencies to
integrate performance planning into their operational
plans more systematically with “less bureaucratic re-
porting and review” by OMB, as was the practice using
PART under the Bush administration. We have noted
that much of this has been already accomplished by a
number of agencies in implementation of GPRA. Fur-
ther, it is unclear how HPPG performance review by
OMB will be integrated into budget decision making, or
whether it is intended to be integrated at all. A reasona-
ble expectation is that high priority areas will receive
increased funding in Presidential budgets. If this is so, it
is unclear what performance results will need to be
508 Jones & McCaffery

demonstrated, and to whom, for agencies to justify

continuation of funding increases.

Despite this interest in careful assessment of the

performance of federal agencies, there is no evidence to
suggest that the Obama administration will attempt to
implement performance budgeting. Thus, the longer-
term issue for the Obama administration, and
administrations to follow, is to determine whether
performance assessment of the type they desire can and
should be done using performance budgets.

11. CONCLUSIONS AND RECOMMENDATIONS

Based on our review of performance budgeting and

performance-oriented budgeting initiatives at the federal
government level in the U.S., what advice may be given
to practitioners involved in developing performance
measurement tied to budgeting, regardless of what level
of government at which they work? In our view,
practitioners should consider the recommendations
provided below. Finally, after enumerating and
articulating our recommendations, we provide an
overall conclusion with respect to U.S. federal
government application of performance budgeting.

1. Agencies should first identify the primary mission

they perform and the most important services they
provide. It is critical to define and use performance
indicators that measure and report (a) the most
important work elements the agency is responsible for
performing, and (b) evidence of value added and
changes in productivity. Definition of agency mission,
strategy and prioritization of services needs to be
integrated and linked to performance plans and budgets.
This in turn helps in identifying the measures of
performance to be used in gauging these service
activities. Deciding which services are the primary
activities of the agency will clarify which measures to
PFM 10/3 509

develop to measure performance (Jones and Thompson,

2007; Grizzle and Pettijohn, 2002).

2. Agencies should keep performance budgeting

plans a simple as possible. Simplicity has seemed to be
the best way to approach GPRA performance planning.
Large convoluted measures that are difficult for outside
administrators or legislators to understand are not likely
to be beneficial in gauging performance. Moreover,
verbose explanations of future implementation plans or
of items not directly related to the measures themselves
add little value to plans. The plans should state the
mission and vision of the organizations. Specific
measures, their targets, baseline data if available, and
long-term goals should be identified. Clear definitions
of the measures used should be developed and
examined closely for clarity before they are reported
outside the agency. Finally, a means for validating the
measures as well as their relationship to the budget is
highly desirable and required by law in the GPRA.

3. Agencies should expect evolution of measures.

Several aspects of performance planning will take
considerable time to work out. Dialogue about the
satisfactoriness of measures needs to take place within
the agency, and between agencies and budget reviewers
and others who monitor performance externally, e.g.,
congressional oversight committees. Such dialogue is
needed to improve measures, measurement and linkage
to budgets. Subsequent performance plans may not look
anything like the initial ones developed by an agency.
Federal agencies changed many of their performance
measures after realizing the initial measures were not
appropriate. Additionally, the size of initial plans often
is significantly reduced over the first several years of
implementation (General Accounting Office, 2001; see
also General Accounting Office, 1996; 1997a & b;
1998; 1999; 2000 a & b). Moreover, outcomes may not
be measurable on an annual basis. Some outcomes take
years to achieve (e.g., in the area of social services or
510 Jones & McCaffery

education), depending on the service mission,

orientation and goals of the agency.

4. Agencies should concentrate on measures of

efficiency, effectiveness and cost reduction. Outcome or
output measures should be included if possible in
performance budgets. However, it may be more feasible
for agencies to focus on efficiency and effectiveness
measures that are more realistically attainable. Even
simple measures of output and performance are likely to
be perceived as more useful by both agency officials
and external budget examiners if accompanied by
efficiency, effectiveness and cost reduction initiatives.
In the current environment of budget deficits and
reductions, performance measurement and reporting
that includes means for improving agency operations
while cutting costs are more likely to be noticed and
supported.

5. Agencies should realize their measures may not be

interpreted as expected. Outcomes are by far the most
difficult to capture. Few agencies can include true
outcome measures in their GPRA plans. An outcome
measure at one level could be an input measure at
another level. Input measures are not required by GPRA
and usually are not of interest to outside stakeholders,
but they are often used by control agencies in budget
examination and reduction. Experience at the state
government level in the U.S. has demonstrated that
some of the consequences of use of performance
measurement and budgeting may have a broader range
of effects than initially anticipated (Melkers and
Willoughby, 2005; see also Willoughby, 2004).

6. Good accounting and performance measurement

systems are required to implement performance
budgeting in an effective manner. Agencies with good
service and cost information systems in place have a
significant advantage in developing performance
measurement and budgeting systems. Few agencies had
PFM 10/3 511

good information systems when GPRA was passed, but

as of 2010, most federal agencies have such systems,
given varying degrees of sophistication and accuracy.

7. Agencies should link together reform initiatives

where synergism is possible. GPRA fit rather neatly
into other reform initiatives in the 1990s, including
Total Quality Management and the National
Performance Review. Most of the pilot projects used
GPRA as a means to enhance initiatives already in
progress in their organization. Many of the tools of
TQM appeared to have benefited managers as they
attempted to create performance indicators and plans. In
addition, GPRA requirements matched reasonably well
with the Performance Assessment Rating Tool (PART).

8. Agencies should determine how performance

plans can be linked to resource allocation. Perhaps the
most difficult task to complete in all of performance
budgeting and in GPRA implementation is to define
whether and how various measures on hand may be tied
to costs and resource allocation. As noted above,
defining measures and relating them to costs requires
accurate and reliable databases and information
systems. Most federal agencies have improved their
accounting systems in efforts to comply with the
requirements of the Chief Financial Officers Act of
1990. However, better accounting for expenses and
costs is only part of what is needed for performance
budgeting. Measures of service performance must be
developed and matched to expenses and costs.

Over the past decade, some federal agencies have

achieved significant progress relating performance
measures to costs, while others have not made any real
progress, according to OMB (OMB, 2010). Initially, a
few agencies began the performance measurement
process by establishing performance contracts between
its field activity managers and the corporate office
(General Accounting Office. 2001, pp. 8-9). However,
512 Jones & McCaffery

by the early 2000s, most U.S. federal agencies, and

many of the other national governments that have used
extensive performance contracting in the past, had
abandoned them, e.g., New Zealand. A primary
stumbling block with the performance contract
approach is the object of expenditure and appropriation
base used in the U.S. federal budget process, which has
no performance orientation. For other nations,
performance contracts have been eliminated because
they were not found to produce the results desired,
especially given the significant effort consumed in
preparation and reporting. Still, performance measures
are used to allocate budgets to some extent as of 2010 in
the UK, Switzerland, Australia, New Zealand and in
other developed nations, and in the U.S. federal
government, as noted previously in this study. Some
developing nations are deeply involved in similar
efforts (Wescott et al, 2009). Still, such use typically
does not qualify as pure performance budgeting. Rather,
it is resource-allocation decision making, informed by
some performance indicators and trends. Only in
developing nations does it appear that pressure is
applied presently to implement full-scale performance
budgets. While this pressure is applied within national
governments by their treasury departments and central
budget control agencies, often it is directed more
rigorously to local governments and is driven most
directly by international development assistance
institutions including the World Bank and Asian
Development Bank (Srithongrung, 2009;
Punyaratabandhu and Unger, 2009; Kim, 2009; Netra
and Craig, 2009; Taliercio, 2009, p. 196; Wescott,
2009).

In summary, the extent to which longer-term U.S.

federal government experimentation with performance-
based budget reform will continue remains in doubt.
This is particularly the case as a result of the extensive
role of the federal government in assuming a large
amount of additional debt in its efforts to stabilize the
PFM 10/3 513

economy, beginning in the last quarter of 2008.

Rescuing the economy has dominated the U.S. federal
government monetary and fiscal policy agenda to the
extent that performance budgeting or performance-
oriented budgeting, even as employed during the period
2001-2008, has been pushed off the political landscape.
Still, given that it has been around for more than fifty
years, we can expect that performance budgeting, at
some point, is likely to rise again on the budget reform
agenda of the U.S. federal government.

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