May 19, 1997
The Honorable Newt Gingrich
Speaker of the House
U.S. House of Representatives
Washington, D.C. 20515
Dear Mr. Speaker:
I am pleased to transmit to the Congress the report required by Section 6 of the Government Performance and Results Act of 1993. As we near the date when the major provisions of the Act take effect government-wide, our efforts, and those of the agencies, to meet successfully the requirements of the law are intensifying. I have growing confidence that the initial products of this Act will be of significant value as we mutually work toward achieving a balanced budget while bringing about greater effectiveness in the programs and services we provide to the public.
The interest being shown by Congress in this Act will be important for its overall success. We appreciate the commitment and initiative shown by you and your colleagues and look forward in the months ahead to joining with you to ensure that the implementation of this law results in better government for the American people.
Franklin D. Raines
Identical Letters Sent to The Honorable Albert Gore, Jr.
The Honorable New Gingrich
The Honorable Trent Lott, The Honorable Thomas Daschle
The Honorable Richard Armey, The Honorable Richard Gephardt
The Honorable Ted Stevens, The Honorable Robert Byrd
The Honorable Bob Livingston, The Honorable David Obey
The Honorable Fred Thompson, The Honorable John Glenn
The Honorable Pete Domenici, The Honorable Frank Lautenberg
The Honorable John Kasich, and The Honorable John Spratt
This report fulfills the requirement of the Government Performance and Results Act of 1993 (GPRA) that the Office of Management and Budget (OMB) report to Congress on agency pilot projects on performance measurement and managerial accountability and flexibility. The report is also to include any recommended changes in the requirements and provisions of GPRA. The Congress requested that this report further include: a recommendation on whether the Central Intelligence Agency should be subject to this Act; a recommendation on whether the qualifying criterion for exempting certain small agencies from complying with GPRA should be changed; a framework for conducting periodic analyses of the effects of tax expenditures in achieving performance goals; and a list of those statutory requirements that Congress, in future legislation, should consider authorizing waivers from these requirements, for the purpose of improving program performance and increasing managerial flexibility.
In addition to the specified content, OMB is also including information regarding implementation of certain other provisions of the Act, including strategic planning and exemption of small agencies. This information provides a more complete picture of agency progress and efforts in meeting GPRA requirements.
The third set of pilot projects are for performance budgeting. These pilots will examine the practicability of determining and presenting the changes in performance levels that result from different funding levels. These calculations will involve several variables, and rely on baseline performance and financial data. The performance budgeting concept that will be tested by these pilot projects is the only provision in GPRA that cannot be implemented government-wide without further legislation.
The sequence of pilot projects in GPRA proceeds in stages through different levels of complexity. The performance measurement pilots test tasks that every agency should be capable of doing. Agencies designated as managerial accountability and flexibility pilots will need basic performance measurement data, as well as an understanding of how different administrative requirements affected the agency's performance. Performance budgeting pilots will rely on an extensive performance information database, and be able to correlate how performance for several or more variables would change with varying levels of funding. There were no pilot projects for strategic plans under the law. The three sets of pilot projects are described below.
1. Introduction. GPRA required that at least ten departments or agencies be designated as pilot projects for performance plans and program performance reports. The pilot projects were to span fiscal years 1994, 1995, and 1996, and test the ability of agencies to establish performance goals, and subsequently measure and report actual performance against these goals. A representative range of government functions and agency performance measurement capabilities were to be covered. The pilot project agencies were to use a strategic plan when preparing one or more of the annual performance plans; this strategic plan did not need to meet the strategic planning requirements of GPRA.
The schedules in GPRA were initially set in the Summer of 1992, and remained unchanged in subsequent months as first the 102nd Congress, and then the 103rd Congress, considered this legislation. When signed into law a year later on August 3, 1993, the performance measurement pilot project timelines had become compressed and it was impracticable for these pilots to follow a schedule for submission and review similar to that for the performance plans for fiscal year 1999. The fiscal year 1994 performance plan for the pilot projects became a half-year plan covering the period from April 1 through September 30, 1994. Fiscal year 1995 plans would be submitted after Congressional action on the budget was largely done. Fiscal year 1996 plans would be submitted after the President's budget was sent to Congress. (The fiscal year 1999 plans required of agencies throughout the government will be sent to OMB in September, 1997, the equivalent of 6-18 months earlier than the comparable submission schedule for the pilot project annual plans.) These schedule adjustments did not affect the annual program performance reports prepared by these pilot projects.
2. Pilot Project Nomination Process. The first action taken to carry out GPRA was to begin designating these pilots projects. Two months after GPRA was enacted, OMB Memorandum 94-2 (October 8, 1993) solicited agency nominations of pilot projects. (Attachment A contains a list of all GPRA-related OMB guidance issuances.) This was immediately followed by a memorandum (October 13, 1993) to the agencies from OMB's Deputy Director for Management with additional information regarding these nominations.
Nominations needed to meet few criteria to qualify for designation. This threshold was set purposefully. GPRA specified that the pilots were to cover a range of functions and agency capabilities, and OMB believed that agencies should use these pilot projects to gain experience in meeting GPRA requirements.
By January 31, 1994, 21 departments and agencies were designated as performance measurement pilot projects. There were 53 individual pilot projects covered by these designations, as some agencies had more than one pilot project. (An agency with several individual pilot projects counts as one agency for the purpose of meeting the GPRA requirement of designating at least ten departments and agencies as pilots.) All but one of the 53 pilot projects were for the fiscal year 1994-96 period specified in the law.
While the designations had already doubled the number required by GPRA, OMB invited agencies to nominate additional pilots (OMB Memorandum 94-11, January 31, 1994). These pilots would constitute a second round of designations, and cover fiscal years 1995 and 1996. OMB later sought additional pilots to create a third round of designations. Pilots were particularly sought for major functional activities not covered by the earlier designations.
When the three rounds of performance measurement pilot project designations had ended, all 14 Cabinet departments and an equal number of independent agencies had been designated as pilots. (The Social Security Administration was originally included in the Department of Health and Human Services pilot project designation, but became the 28th agency designated when it became independent of the Department.) The 28 designations included over 70 individual pilots in the departments and agencies. Attachment B is a list of the designated pilot projects by round.
OMB sought to have the pilot projects encompass the great range of functional activities undertaken by different agencies across the government. This scope would be critical to drawing any conclusions on the feasibility of developing and using performance measures in virtually everything the government does. Pilot projects were designated in 28 of the 30 major categories of functional activities. For the two categories in which no pilots were designated -- health care and electric power generation and distribution -- a large set of performance measures already exist and are in use elsewhere.
The list below displays the functional activity categories and the number of pilots designated within each category. The pilots were placed in a category based on the activity primarily done by the pilot. Several pilots are listed in more than one category. These functional activity categories are not the same as the functions and subfunctions appearing in the budget.
3. Designations. The performance measurement pilot projects became a major initiative of great scope. Approximately a quarter of the entire Federal civilian workforce were covered by the pilots; or, using a different comparison, about ten percent of all civilian, military, and postal employees were covered. In the aggregate, the number of employees in the pilot projects exceeded the total workforce of most national governments, including those that had spent a half-decade or more in moving to a performance-based system of management.
The size of individual pilots ranged from complete agencies to small component organizations. The largest pilots included the entirety of the Internal Revenue Service, Social Security Administration, Defense Logistics Agency, and the Forest Service. Several agencies, for example, the Agriculture and Treasury Departments, covered a large proportion of their programs through individual pilots.
Approximately 10 percent of the individual nominations proposed by an agency to be part of its pilot were not included in the designation. Decisions not to include these as pilots were mainly based on having sufficient coverage of a functional activity by designated pilots; a likelihood that the proposed pilot would not materially contribute to greater knowledge of performance measurement processes; or uncertainty over the substantive scope of the pilot itself. As other individual pilot projects were used in making the designations, no agency was precluded from becoming a pilot because these particular nominations did not become part of the designation.
Over the course of the three year pilot project period, about ten percent of the pilot project designations were withdrawn. The reasons for withdrawing included: reorganization of the component office; an inability to generate performance data from which to set goals and report on actual performance; and program restructuring.
4. Performance Plans and Program Performance Reports. The basic content of the performance plans and program performance reports prepared by the pilot projects is defined generally in section 4 of GPRA (31 U.S.C. S1115 and 1116). The performance plans contain the following elements:
The performance goals and indicators would establish target levels of achievement for the programs and activities covered by the pilot project. These goals and indicators should primarily be those used by program managers to determine how well a program or activity is doing in achieving its intended objectives.
The program performance reports prepared by the pilot projects should contain the following elements:
GPRA allows agencies to use their annual financial statement as the program performance report, and this was also allowed for the pilot projects. If used, the financial statement must cover the programs, activities, or components encompassed by the pilot project, and include the specified content described above. Pilot projects designated during the first round prepared three annual performance plans and three program performance reports. Pilots designated in the second and third rounds prepared a fewer number of plans and reports.
To assist the pilot project agencies in preparing the annual plans and reports, OMB issued a series of guidance memoranda covering the preparation and submission of these documents. Guidance for the annual performance plans was communicated through OMB Memoranda 94-15 (March 3, 1994); 94-32 (September 23, 1994); and 95-05 (March 8, 1995). These memoranda iteratively covered the plans for FY 1994, 1995, and 1996, and were modified, as needed, to reflect early lessons and the timing and changing nature of the planning process. For example, agencies were allowed to submit a revised annual plan for fiscal year 1996, to reflect the effect of Congressional action on budget requests.
The guidance for the annual performance plans was developed collaboratively by OMB and the agencies. An interagency task group was established for this purpose, and became the precursor for other interagency groups that would work jointly with OMB on guidance for strategic plans and the annual performance plans required in the post-pilot phase of GPRA implementation.
A corresponding set of three memoranda covering the preparation and submission of annual program performance reports by the pilot project agencies has been issued. These are OMB Memoranda 95-07 ( March 23, 1995), 96-18 (March 22, 1996), and 97-11 (April 14, 1997). The basic guidance in these memoranda also reflected a mutual developmental effort between OMB and the agencies.
For reference, agencies were sent a copy of an Executive branch policy on service contracting and inherently governmental functions. This policy, issued by OMB's Office of Federal Procurement Policy, would guide those agencies who would be aided by non-Federal parties in preparing the pilot project plan or report ( Policy Letter 92-1, September 23, 1992).
Early experience with the performance measurement pilot projects led to a conclusion that all agencies, whether a pilot or not, should begin preparations to meet GPRA requirements well before the September, 1997 date when GPRA comes into effect. Delaying preparations lost the opportunity, afforded by the law's phasing, to experiment with various approaches, gain experience, and expand the amount of performance data.
To advance agency efforts, OMB initiated a series of special reviews for the purpose of developing and using greater amounts of performance information in the budget process. OMB Memorandum 94-26 (August 5, 1994) outlined OMB's intention to use performance data to inform or influence decisions on the fiscal year 1996 Budget. To increase OMB staff understanding and use of performance information, an OMB-wide orientation on performance was held in September, 1994. This marked the first of three OMB-wide discussions covering performance measurement and strategic planning. As part of this first orientation, OMB produced a primer' on performance measurement, containing definitions for different types of measures, attributes of the measures and their application, and illustrative examples of various measures. The primer' as well as other material used for OMB staff was distributed to the agencies for their reference and use (OMB Memorandum 94-33, September 23, 1994).
In 1995, OMB conducted a Spring Review on program performance. This review was designed to produce significantly greater amounts of performance information for key agency programs, and to use this information in the course of reviewing budget requests for fiscal year 1997 (OMB Memorandum 95-04, March 3, 1995). During 1996, OMB had both a Summer and Fall reviews focussed on GPRA implementation. (The Summer review is discussed in the strategic plan section of this report.) Fall review concentrated on obtaining consensus between OMB and the agencies on the performance goals and indicators that agencies would be including in their fiscal year 1999 annual performance plans. Recognizing that consensus would not likely be quickly reached, this review was scheduled to continue into 1997. Guidance for Fall reviews was sent to the agencies as OMB Memorandum 96-22 (April 11, 1996), Supplement No. 1 to this Memorandum (May 31, 1996), and Supplement No. 2 to this Memorandum (September 9, 1996).
5. Findings. The most important conclusion reached on completion of the performance measurement pilot projects is that -- without these pilots and the time afforded agencies across the government to gain practice, understanding, and experience in performance-based management -- there would be little prospect for a successful implementation of GPRA government-wide. The scope and dimension of these pilots affirmed that virtually every activity done by government can be measured in some manner. The measurement may be difficult, it can be imperfect. But very few would concede an inability to measure at all. The performance measurement pilots reflected a volunteered interest in and commitment to this process and these plans and reports by the participating agencies.
Over the course of the three years, improvement was generally seen in the pilot projects' ability to set goals, and measure and report performance against these goals. The improvement was uneven, and not always immediate. Goals often were changed or refined from year to year. While this is to be expected in any pilot project process, it also indicates that the first several years of government-wide implementation will be lumpy as well. Some agencies, often either because of their long-standing use of planning and measurement, or the relative facility in measuring their programs, may appear significantly advanced compared to others. At the beginning of implementation, it would be unrealistic to expect that there will be a uniformly high level of quality of agency plans and reports across the government. With time, and with the ability to compare and adapt successful approaches to performance management and measurement, the overall quality of agency plans and reports should improve significantly.
Several pilot project agencies cut substantially the number of performance goals and indicators for their programs. These agencies were able to identify key measures for determining program success and accomplishment, and this helped in producing concise, brief, and informative plans.
The pilots also demonstrated basic GPRA concepts. Those few pilots that started without a strategic plan or a sense of strategic direction had a difficult time in defining their performance goals. Without the compass of a strategic plan, uncertainty over where and how to go became a prevalent characteristic.
Frequently, goals in the pilot project plans were, to any practical extent, unmeasurable. These were not expressed in quantitative terms, nor did these goals rely on the alternative form of descriptive statements of a successful and a minimally effective program if a quantitative goal was not appropriate.
Some agencies often substituted the means or processes they would use in achieving a program goal for the program goals. Processes are usually under the direct control of agency managers, and there is often a reluctance to measure what one does not control. Agency staff recurringly voiced concerns over being held accountable for achieving program goals where the actions of other parties will have much greater consequence. Federally funded programs that are administered by States or local governments are a particular area where definition of substantive program goals will be a challenging task for some agencies.
Investment and recurring costs for preparing performance plans and reports were low, but have not been calculated in the aggregate. No pilot project received additional funding to prepare the plans and reports required. Any additional cost was of a scale that agencies either could absorb it, or were able to convert resources, data, and management processes from related efforts to the pilot project.
Agencies may also have been reluctant to request significant new resources. A particular premium was placed on including in the plan those performance measures that agency managers were using to manage. Seeking new funding could be seen as a concession that agency managers had either used no measurement information when managing, or had been using measures inappropriate to good management.
1. Introduction. An important facet of GPRA is the concept of giving managers more latitude in managing, and pairing this with greater individual or organizational accountability for achieving program results and improving performance. Incentives can be critical to securing this accountability. Managerial flexibility is viewed as an important incentive, and used successfully in other countries where a performance-based approach to management has been put in place.
Under GPRA, managerial flexibility is provided through the waiver of administrative requirements and controls established by other agencies. The administrative requirements and controls that could be waived are those related to the internal allocation and use of resources and the administration and management of programs and activities. Waivers do not directly affect individuals or entities outside the Federal government. For example, waivers could not cover benefit amounts, eligibility qualifications for Federal assistance, grant distribution formulas, scientific or engineering specifications, etc. GPRA imparts no new authority to waive statutory requirements. Requirements in agency regulations issued under the rulemaking provisions of the Administrative Procedures Act cannot be waived without appropriate notice and comment.
The GPRA waiver provision applies to requirements which either apply government-wide or to specific agencies. Limitations and controls imposed by an agency solely on itself are not subject to this waiver process.
2. A Changing Government. An unanticipated combination of circumstance and timing had a major effect on the flexibility pilots. GPRA was substantially drafted in 1992, and became law the following year. Two initiatives subsequently reduced the universe of possible waivers. These were the Workforce Restructuring Act of 1994, and the elimination of many non-statutory requirements by several central management agencies.
The Workforce Restructuring Act set a ceiling on the number of employees in the Executive branch, and reduced the size of the workforce by nearly 273,000. Many agencies had expressed interest in becoming a pilot with the waiver of FTE ceilings being a featured element. This workforce reduction and statutory cap precluded OMB from approving any FTE ceiling waiver requests at the time when these pilot project nominations were solicited and reviewed.
Of perhaps greater consequence was the effort led by the National Performance Review to eliminate and simplify many requirements affecting the operation of Federal agencies. The Federal Personnel Manual was eliminated by OPM, and thousands of pages of instructions and requirements disappeared. Procurement regulations were substantially streamlined. With far fewer requirements in place, waiver demand was lessened as well.
As the process for nominating flexibility pilot projects began, a separate but similar endeavor was well underway. An early priority of the National Performance Review was the creation of Reinvention Labs across the government. These labs sought to re-engineer agency work processes, in part by eliminating burdensome or unnecessary requirements. While many labs emphasized simplifying agency requirements that were self-imposed, approximately a third of all waivers sought by the Labs were from requirements established by other agencies. Receiving a waiver was not predicated on a Reinvention Lab either projecting or reporting the waiver's effect on performance. Waivers associated with being a Reinvention Lab were easier to obtain.
The phasing of the performance measurement pilot projects and the flexibility pilots may have contributed to the relatively small number of nominations and the limited set of waiver requests. Most agencies have concentrated on defining their performance goals, and setting in place the means for measuring their performance against these goals. Without a completed set of performance goals, agency managers cannot assess what waived requirements might contribute to achieving these goals. Agencies continue to develop and refine their performance goals, and until this is largely done, any focus on waivers may be deferred.
Finally, when some agencies considered submitting pilot project nominations, they concluded that the requirements that most affected managerial flexibility were self-imposed, and not those originating in the central management agencies.
3. Pilot Project Nomination Process. Through a memorandum to agencies on October 24, 1994, OMB solicited nominations of pilot projects for managerial accountability and flexibility (OMB Memorandum 95-01). GPRA required that the flexibility pilot projects be selected from the previously designated pilot projects for performance plans and reports. This pre-requisite underscored the importance of having the flexibility pilot projects assess the effects of waivers on achieving their performance goals.
To build a basis for this assessment, agencies were asked, for each nomination, to indicate the potential effect of waivers on the performance goals or indicators in the performance plan. This and several other criteria set a substantially higher qualifying threshold for designation as a flexibility pilot project than prevailed for the performance measurement pilots. This was done for three reasons. First, flexibility waivers are not a mandated GPRA provision; agencies seek waivers voluntarily. Thus, a need to gain widespread experience in complying with GPRA requirements was not as critical as it was for the performance measurement pilots. Second, if a waiver is authorized, an agency must subsequently describe in its annual report how performance was affected through use of the waiver. This reporting would be key in determining the efficacy and value of any waiver. Third, requirements presumptively exist for good reason, and waivers of them should be sufficiently merited.
OMB has no authority to waive requirements established by another agency. Nearly all government-wide administrative-type requirements and controls not directly prescribed by statute are imposed by four agencies: the Financial Management Service in the Department of the Treasury; the General Services Administration (GSA); OMB; and the Office of Personnel Management (OPM). OMB collaborated with these other central management' agencies on the process to be followed in reviewing and approving waiver requests.
With the memorandum soliciting pilot project nominations from the agencies, OMB also distributed a document informally titled as Listings of Metes and Bounds for Waivers'. This document contained information from the Department of the Treasury, GSA, OMB, and OPM, on those requirements these agencies would consider waiving. This document also identified those requirements that would not be waived. Agencies were expected to use the listing of metes and bounds' in developing nominations and identifying prospective waivers.
The metes and bounds' served as a guide to possible waivers. Listing a requirement as one that might be waived did not obligate an agency to approve requested waivers of that requirement.
4. Pilot Project Nominations. Nominations were received from seven Cabinet departments and one independent agency, and encompassed 14 individual pilot projects. The nominations represented approximately 30 percent of the departments and agencies designated as pilot projects for performance measurement. A total of 61 waivers were sought for the nominated pilot projects. The nominating agencies and their individual pilot projects were:
*The Bureau of Health Professions was not a designated performance measurement pilot project, and thus ineligible for designation as a managerial flexibility pilot. The Bureau also requested designation as a performance measurement pilot, but this designation was never made. The Bureau requested a single waiver, which is not included in the above total of 61.
The range of waivers requested varied markedly. Two agencies sought only a single waiver, while four nominated pilots accounted for 41 of all waivers requested. Few requirements were the subject of more than one waiver request. Six waivers sought relief from limiting controls on data collection or surveys; personnel (FTE) ceilings and Government Printing Office (GPO) requirements each had three waiver requests. The largest number (25) of waiver requests were from GSA requirements, followed by OMB with 15 and OPM with 11. In the aggregate, the waivers had no discernible pattern and could not be used to define a template that might be applied elsewhere.
Few waivers were of sufficient scope to affect significantly the operational or administrative activities of the pilot project. Those that were sought relief from requirements grounded in statute. For several pilot nominations, most or all the waivers were from a small sub-unit of the pilot project organization. Appendix 3 in the General Accounting Office's report on the managerial accountability and flexibility pilots (GAO/GGD 97-36 (April 10, 1997)) contains a summary description of each requested waiver.
5. Review of the Pilot Project Nominations and Waivers. All waiver requests were first informally reviewed by OMB staff. For waivers of OMB-established requirements, the review also examined whether a waiver could be authorized. Nearly half the waivers sought from OMB involved clearance and approval of customer or public survey instruments. As these were judged to be only indirectly related to managerial flexibility, OMB decided to act on these waivers outside the pilot project process. OMB's Office of Information and Regulatory Affairs coordinated directly with the requesting agencies on these survey-related waivers.
This informal OMB review, while helpful in gauging the overall scope and nature of the nominated pilots, was not used to screen proposed waivers from receiving a dispositive review by the agency establishing the requirement. The Treasury Department, GSA, and OPM received copies of waivers related to their agency, and were asked to approve or deny these waivers. When approving a waiver, these agencies could set terms and conditions, and an effective date for any waiver.
Five requested waivers were not sent by OMB to an establishing agency for an approval determination. These were three waivers from Government Printing Office (GPO) requirements, a waiver from a statutorily-based requirement of the Small Business Administration, and a waiver sought from the Internal Revenue Service's tax information reporting requirements. As GPO is not an Executive branch agency, it is not subject to GPRA, nor need it act on requested waivers. A requested waiver from an Executive Order was not acted on, as no agency had authority to approve it.
Over 25 percent of the waivers were authorized in some fashion. Nine waivers were approved as part of the GPRA pilot project process, although a flexibility pilot project was not designated. An additional seven waivers were addressed by working with the agency on accommodating their needs outside the pilot project process.
Nearly 60 percent of the waivers requested were not approved. Most were denied because the requirement was statutorily based, and GPRA conveys no authority to waive such requirements. Waivers of FTE (employee) ceilings were denied because the Federal Workforce Restructuring Act had established FTE ceilings for the entire Executive branch. Waivers of GPO requirements as well as from requirements established by agencies other than GSA, OMB, OPM, and the Department of the Treasury's Financial Management Service, were also denied.
Only one waiver was denied because it was not permissible by agency policy. About 15 percent of the waivers were neither approved nor denied. Five waiver requests were moot because the requirement no longer existed; one waiver request was withdrawn before a decision was made on it. No decision was made on four waivers.
6. Decision Not to Designate Pilot Project. Following agency determinations on the waivers requested by the 14 individual pilot project nominations from the eight agencies, OMB concluded that too few waivers were being authorized to designate any pilot project, and have that pilot serve as a credible test of the managerial accountability and flexibility provisions of GPRA.
Not only were there too few approved waivers, but, by the end of the review, most nominations had no approved waivers. Waiver requests from 11 of the pilot candidates were either denied, mooted because the requirement no longer existed, or authorized outside the GPRA pilot project process. The absence of waivers precluded these nominees from being designated as pilot projects. The National Technical Information Service had one waiver request on which no decision was made, and its other waiver was accommodated outside the pilot project process.
Two pilot projects received multiple approved waivers, the Defense Logistics Agency (DLA) and the Internal Revenue Service (IRS). The DLA had four waivers approved, but these could not be associated with either performance goals or descriptions of program or organizational activities in the agency's performance plan. The IRS also had four waivers approved, and these were similarly of such small scale and effect that no association could be drawn between these waivers and the performance goals and indicators in the IRS annual performance plan. To meet the GPRA requirement that an agency's program performance report include an assessment of the effectiveness of any waiver in achieving a performance goal would have required these two agencies, if designated as pilot projects, to modify their annual performance plan. This modification would have introduced new performance goals at a micro-level, and produced a plan distorted in its presentation of both significant and secondary goals, the latter's appearance warranted only because they are related to a waiver.
OMB concluded that it was better to have no flexibility pilots than to proceed with designations that would be viewed as not being a serious demonstration or test of the managerial flexibility and accountability provisions of GPRA.
7. Forthcoming Government-wide Implementation of GPRA's Managerial Accountability and Flexibility Provisions. Beginning with fiscal year 1999, the managerial accountability and flexibility provisions of GPRA take effect government-wide (31 U.S.C. S9703). Two significant differences exist between the procedures to be followed government-wide and those in effect for the pilot projects. The first is that waiver requests are first sent to the establishing agency before being submitted to OMB with the agency's annual performance plan. If the establishing agency authorizes a waiver, an endorsement, conveying that authorization, is also included in the annual performance plan. The second change is a requirement that OMB list all approved waivers in the government-wide performance plan that is part of the President's budget.
A major effort currently underway to create Performance Based Organizations (PBOs) may be the preferred means for some agencies to obtain managerial flexibility in the near-term. PBOs are given greater personnel and procurement flexibility for a commitment to achieve specific improvements in performance. The PBOs must be legislatively authorized, and their flexibility may encompass relief from selected statutory requirements as well as administrative requirements. The PBOs present a much closer analog to the flexibility given managers in other countries using a performance-based approach to management then is available under GPRA.
OMB expects that most agencies will begin identifying needed waivers only after the agency's performance goals and indicators are set, and agency managers are able to identify where added flexibility could affect how well these goals are achieved. This expectation indicates that more waivers will be sought during the second and third years of implementation than for fiscal year 1999.
Guidance to the agencies on the process for submitting and reviewing waivers from administrative requirements will be issued by OMB this year. Based on the flexibility pilot project experience, this guidance is likely to suggest that for requested waivers that will be small-scale or of limited application, that agencies pursue these separate from the flexibility process provided by GPRA. This will avoid having to include performance goals of much less significance in the annual performance plans and reports, simply because they are associated with a waiver.
The guidance is also likely to request agencies seeking waivers to have their staff work more closely with agency managers to help them define waivers that can make a substantive difference and be used synergistically.
While no flexibility pilot projects were designated, the collaboration among the four central management agencies both in defining a process for reviewing and deciding on waivers and identifying possible waivers, forms a good foundation for government-wide implementation of this aspect of GPRA.
The Committee Report for GPRA invited OMB to include in this report a list of statutory requirements for which Congress, in future legislation, should consider authorizing waivers. Any list was to describe the performance-related benefits of such waivers, as well as other effects or consequences. At this time, OMB does not have a list of statutory requirements for which waiver authority would be sought on a government-wide basis. The government-wide implementation of GPRA may help OMB identify such requirements. Any requirements identified would be included in a future report to Congress. The Performance Based Organizations (PBOs) are selectively seeking relief from certain statutory requirements. While PBOs are being proposed and considered on a case-by-case basis, they are being designed pursuant to a template of statutory changes that may prove, with experience, to be applicable government-wide.
GPRA further specifies that OMB include the performance budgets of the designated pilot agencies as an alternative presentation in the fiscal year 1999 budget. Alternative budget presentations show different or new ways of displaying the budget beyond what is legally required. The performance budgets in an alternative presentation would not replace the pilot project agency's budget in the traditional "unified budget" currently used. OMB must also report to Congress, not later than March 31, 2001, with an assessment of the performance budgeting pilot projects and recommendations on whether performance budgets should be required in the future (31 U.S.C. S1119). Performance budgeting is the only provision of GPRA that requires additional legislation before it could take effect government-wide.
OMB plans to defer the start of the performance budgeting pilot projects by one year. This would reschedule the alternative presentation of the pilot project performance budgets until the fiscal year 2000 budget. A letter sent to the chairmen of the Senate Committee on Governmental Affairs and the House Committee on Government Reform and Oversight discussing this deferral is appended as Attachment C. This deferral affects neither the schedule nor content requirements for agency strategic plans and annual performance plans.
Correlating different levels of performance with different funding levels can be seen as one form of performance budgeting. Performance is measured using a single variable. Another form, outlined in the Senate Committee Report on GPRA envisions the use of multi-variate analysis. In doing this analysis, the performance budgeting pilots would examine the varying performance levels for each measure in a group of measures, and how these levels relate to funding amounts and changes in these amounts. As certain performance levels are emphasized above others, the pilot projects would describe the choices and tradeoffs made in the course of defining the preferred performance levels for a program.
This technique often also known as optimization analysis, is largely beyond the current capacity of many Federal agencies to do.
Agencies designated as a performance budgeting pilot project, and doing multi-variate analysis, should have adequate cost accounting systems. For the programs or operations covered by the pilot projects, the agencies should also possess baseline data for both performance measures and the cost of achieving different performance levels for each measure. This will be needed if agencies are to calculate how marginal changes in funding incrementally affect the performance levels.
Significant progress has occurred in recent years in establishing a cost accounting capability in the Federal agencies. A cost accounting standard has been issued, and the final requirements for managerial cost accounting systems should be published in the Fall of 1997. Some agencies have begun putting cost accounting systems in place, others will start in forthcoming months. The pace of progress should accelerate, but all agencies will need a significant period of time before such a system becomes operational. For the few agencies presently having a cost accounting capability, their ability to develop marginal cost information is very limited. OMB's assessment of the current extent of cost accounting capability among the agencies was an important factor in deciding to defer the start of the performance budgeting pilot projects.
OMB Memorandum 96-26 established a process for submitting exemption requests, and for OMB's review of the requests that were received. General criteria to be used in evaluating the requests were described.
The exemption process is not static. As agency resource levels change, they may qualify or lose their eligibility for an exemption. Agencies established in the future may qualify as well. When an agency's exemption ends, they will given a transition period before having to submit the strategic and annual performance plans required by the Act.
The following agencies were given an exemption:
Every exemption, but one, is for an indefinite period. The exemption for the President's Crime Prevention Council is for a fixed period, ending on December 31, 1997. OMB has reserved the authority to review any exemption at a future time.
Agencies receiving an exemption are expected to increase the amount and value of performance-related data in their budget justifications and reports. Agencies denied an exemption were encouraged to work with OMB staff on adapting, to a scale proportionate with their spending and staffing levels, their performance information for use in meeting GPRA requirements.
The strategic plan spans a minimum six year period: the fiscal year it is submitted, and at least five fiscal years forward from that fiscal year. A strategic plan is to be revised and updated at least once every three years.
Nearly three years before strategic plans would be sent to Congress, the process for developing these plans began. On November 18, 1994, OMB sent a memorandum to the heads of selected agencies and the deputy secretaries of Cabinet departments, inviting the agencies to join OMB in a collaborative effort to develop guidance on the preparation and submission of strategic plans. An interagency task group would be established to help prepare this OMB guidance. Relying on an interagency group was not an approach traditionally followed in writing OMB guidance. But, as agency strategic plans were seen primarily as products to be used by the agencies in defining and carrying out their programs, their early and extensive involvement in drafting this guidance would be critical to realizing this end.
This memorandum also outlined GPRA's strategic planning requirements and identified a dozen potential issue areas that the group might address. Representatives from approximately 35 departments and agencies joined this group, which first met in February 1995, and continued working through the Spring of that year. Over this period, the task group reached a consensus on over 20 issues, setting the stage for the drafting of the strategic planning guidance. Draft guidance was given to the agencies for review and comment.
The product of the task group and these reviews was the issuance, in September, 1995, of Part 2 to OMB Circular No. A-11, Preparation and Submission of Strategic Plans. Part 2 covered the preparation of strategic plans and their transmittal to Congress and OMB. For many decades, OMB has used Circular No. A-11 to provide agencies with guidance and instructions on preparation and submission of agency budget requests and related budget material. This budget-specific guidance now continues as Part 1 of this Circular. Creating a new Part 2 to this Circular signaled the close linkage existing between GPRA plans and the budget. Providing for early involvement by the agencies and issuing the guidance well in advance of when plans were due were seen as critical pre-conditions to any agency successfully meeting GPRA's strategic planning requirements.
Part 2 was reissued with minor changes in June 1996, and is being reissued in May 1997, with no substantive changes to the strategic planning guidance. As Part 2 covers only the preparation and submission of the initial strategic plan, future guidance will be needed covering requirements for the periodic revision and update of the strategic plan. The lack of any need for change in the guidance reflects the basic soundness of the underlying strategic planning concepts in GPRA.
The strategic plan guidance was designed to provide agencies with substantial flexibility in how plans were formatted and the content presented. Preparation of a plan would be governed by broad parameters, not narrowly-drawn specifications. This would allow agencies of greatly varying size and program responsibility to develop plans that informed the reader, while also serving as an internal guide to agency officials and staff.
Developing a strategic plan should not be a task easily or quickly done. Agencies have followed different paths in developing their plans -- some have started bottom-up, some began top-down, and others have used both approaches, often concurrently. There is no magic route; each agency must find and use an approach that will be successful for that agency.
A model plan was deliberately not prepared, as use of a template might impede agency examination of its role and mission, and development of its goals. As one agency's process might not be successful elsewhere, so also, one agency's plan may not be suitable for another.
A conclusion reached after a Summer review of agency strategic planning efforts in 1996, was that further guidance on Congressional consultation was needed. On November 12, 1996, OMB issued Memorandum 97-03, reinforcing the importance of early consultation with Congress on strategic plans. This memorandum also outlined OMB's role in assisting agencies in this consultation.
On February 25, 1997, the Speaker of the House of Representatives, the Senate Majority Leader, the House Majority Leader, and seven Senate and House Committee chairmen joined in a letter to OMB setting out Congressional expectations for the consultation process under GPRA. This letter, and OMB's March 17, 1997 response to it, became the basis for a second OMB issuance on Congressional consultation. Supplement No. 1 to OMB Memorandum 97-03 (April 14, 1997) appended this correspondence, and contained further instructions on Congressional consultation.
1. Summer Review. Simultaneously with the issuance of the Part 2 guidance on strategic plans, OMB also announced its intention to call on agencies to provide OMB with selected parts of their strategic plans in 1996, even if these were still being developed (OMB Memorandum 95-19, September 14, 1995). Subsequently, OMB set in process a Summer Review to be conducted during June-July of 1996 that would assess how agencies were progressing in developing these plans (OMB Memorandum 96-22, April 11, 1996). Specifically, the Summer Review had three main objectives:
To prepare for these reviews, an extensive series of OMB-wide staff orientation and discussion sessions were held. From these sessions, OMB developed a set of questions and answers covering the content and policy for strategic and the Summer Review process. These questions and answers were sent to the agencies prior to the start of Summer Review (Supplement No. 1 to OMB Memorandum 96-22, May 31, 1996). OMB further went on to share with the agencies, in advance, OMB's internal instructions for conducting the Review and the questions that agencies might be asked.
After the agency assessments were completed, a letter was sent to the head of each agency participating in the review. The letters outlined a set of findings regarding overall status and progress government-wide, as well as specific comments related to the agency's strategic plan.
The most important conclusion of Summer Review was that most agencies were sufficiently advanced in their planning, and that a sustained, committed effort through the Summer of 1997 should produce plans that meet GPRA requirements. At that mid-1996 point in the development of strategic plans, the effort had become an earnest and substantial undertaking in many agencies.
The Review also identified several areas of concern, which were widespread. These were:
2. Strategic Assessment. Currently ongoing is a strategic assessment of agency goals and commitments. This assessment is being conducted during the Spring of 1997 and is a review jointly being done by the agencies and OMB. A featured part of the strategic assessment is on the agency implementation of GPRA, and the preparation of the strategic plans and the annual performance plans that are due in September. The strategic assessment should generally conclude this June, although follow-through actions from the assessment are expected and will carry through into the future.
The framework used to evaluate tax expenditures is expected to follow the basic structure for performance measurement, which is concerned with inputs, outputs, and outcomes. The framework is also expected to promote comparisons of tax expenditures with other means of addressing their main objectives or budget functions, such as spending or regulatory programs. Estimation of the performance indicators and economic effects is likely to entail use of economic modeling and tax data.
In the case of tax expenditures, the principal input is likely to be the tax revenue loss. Related public and private resource inputs may also be relevant. Outputs are quantitative or qualitative measures of goods and services, or changes in income and investment, directly produced by these inputs. Outcomes, in turn, represent the changes in the economy, society, or environment that are the ultimate goals of programs. Thus, for a provision that reduces taxes on investment in a certain activity, an increase in the amount of investment might be a key output. The resulting production from that investment, and the associated improvements in national income, welfare, or security, could be the outcomes of interest. For other provisions, such as those designed to address a potential inequity or unintended consequence in the tax code, an important performance measure might be how they change effective tax rates (the discounted present-value of taxes owed on new investments or incremental earnings) or excess burden (an economic measure of the distortions caused by taxes). Distributional effects on incomes may be an important concern for certain provisions.
To explore methods for tax expenditure evaluation, the Department of the Treasury this year will have lead responsibility for pilot evaluations of several selected tax-expenditure provisions. These provisions involve individual, business, and international taxation issues. This approach will enable Treasury to gather experience on a cross-section of issues and also to spread the evaluation effort across its staff resources. The provisions expected to be evaluated in these pilot studies relate to the exclusion of worker's compensation benefits; the tax credit for production of non-conventional fuels; and the exclusion for income earned by individuals abroad. It is anticipated that Treasury and other Administration departments and offices will work together, as appropriate, on determining a set of useful measures and in developing quantitative and other estimates of the provisions' impacts. As this work progresses, the General Accounting Office and the Joint Committee on Taxation will also be consulted. The expectation is that a schedule of additional evaluations of tax expenditures will be included in the governmentwide performance plan that will be published as a part of the President's Fiscal Year 1999 Budget.
The discussion below provides an illustrative discussion of the types of measures that might be useful for some major programmatic groups of tax expenditures. This general framework is expected to be utilized and refined in the pilot studies.
One major set of tax expenditures benefits retirement savings, through employer-provided pensions, individual retirement accounts, Keogh plans and other instruments, such as annuities. These provisions might be evaluated in terms of their effects on boosting retirement incomes and private savings. In considering the provisions' distributional effects, it may be of interest to consider beneficiaries' incomes while retired and over their entire lifetimes.
Individuals also benefit from favorable treatment of employer-provided health insurance. Measures of these benefits could include increased coverage and the distribution of this coverage across different income groups. In principle, the effects of insurance coverage on final outcome measures of actual health (e.g., infant mortality, days of work lost due to illness, or life expectancy) or intermediate outcomes (e.g., use of preventative health care) could also be investigated.
Other provisions principally have income distribution, rather than incentive, effects. For example, tax-favored treatment of social security benefits provides increased incomes to eligible groups; the distribution of these increased incomes may be a useful performance measure. The earned-income tax credit, in contrast, should probably be evaluated both for its effects on labor force participation and its distributional properties.
Housing investment also benefits from tax expenditures, including the mortgage interest deduction and preferential treatment of capital gains on housing. Measures of the effectiveness of these provisions could include consideration of their effects on increasing the extent of home ownership and the quality of housing. The effects of the capital gains provisions in terms of offsetting inflationary gains are also likely to be relevant. Deductibility of State and local property taxes assists with making housing more affordable as well as easing the cost of providing community services through these taxes. Provisions that are intended to promote investment in rental housing could be evaluated for their effects on making rental housing more available and affordable.
A series of tax expenditures also reduce the cost of other forms of investment, both in specific activities -- such as research and experimentation, extractive industries, and certain financial activities -- and more generally, through accelerated depreciation for plant and equipment. These provisions can be evaluated along a number of dimensions. For example, it could be useful to consider the extent of the incentive delivered, by measuring the provisions' effects on the cost of capital (the interest rate which investments must yield to cover their pretax tax costs) and effective tax rates. Another set of measures could reflect the impact of these provisions on the amounts of corresponding forms of investment -- such as research spending, exploration activity, or equipment. A third group of measures could, in turn, consider the provisions' effects on production from these investments -- such as numbers or value of patents, energy production and reserves, and industrial production. Other measures could consider objectives which are less directly attributable but still are ultimate goals, such as assisting the U.S. technological base, energy security, or economic growth.
Developing a framework that is appropriately comprehensive, accurate, and flexible to reflect the objectives and effects of the wide range of tax expenditures will be a significant challenge. It is expected that this framework will evolve and improve over the next several years and that quantitative estimates will be made to the extent possible. The measures developed could then be compared with the costs of the provisions and with the costs and benefits of other means of achieving similar performance goals.
OMB Circular No. A-11, Part 2 (September 1995) Preparation and Submission of Strategic Plans
OMB Circular No. A-11, Part 2 (June 1996) Preparation and Submission of Strategic Plans
OMB Circular No. A-11, Part 2 (May 1997) Preparation and Submission of Strategic Plans and Annual Performance Plans
|Memoranda for Heads of Departments and Agencies:|
|M-94-2||(October 8, 1993)||Government Performance and Results Act of 1993 (GPRA)|
|M-94-11||(January 31, 1994)||Pilot Projects under the Government Performance and Results Act|
|M-94-15||(March 3, 1994)||Submission of Performance Plans for Pilot Projects (FY 1994 plans)|
|M- 94-26||(August 5, 1994)||FY 1996 Budget Planning Guidance and Use of Performance Information in the FY 1996 Budget Process|
|M-94-32||(September 23, 1994)||Submission of FY 1995 performance plans to OMB|
|M-94-33||(September 23, 1994)||OMB Materials on Performance for pilot projects ( includes primer on performance measures and internal guidance on use of performance information in the FY 1996 budget process)|
|M-95-01||(October 24, 1994)||Submission of Nominations for Managerial Accountability and Flexibility Pilot Projects|
|M-95-04||(March 3, 1995)||Spring Review on Program Performance (included a revised primer on Performance Measurement)|
|M-95-05||(March 8, 1995)||Submission of FY 1996 Performance Plans for Pilot Projects under P.L. 103-62, the Government Performance and Results Act of 1993 (GPRA)|
|M-95-07||(March 23, 1995)||Submission of FY 1994 Program Performance Reports for Pilot Projects under P.L. 103-62, the Government Performance and Results Act of 1993 (GPRA)|
|M-95-19||(September 14, 1995)||Strategic Plans, Budget Formulation and Execution|
|M-96-18||(March 22, 1996)||Submission of FY 1995 Program Performance Reports|
|M-96-22||(April 11, 1996)||Implementation of GPRA (Summer Review and Fall Review)|
|M-96-22||Supplement 1 (May 31, 1996)||Additional information on Summer and Fall Reviews|
|M-96-22||Supplement 2 (September 9, 1996)||Additional information on Summer and Fall Reviews|
|M-96-26||(May 16, 1996)||Exemptions for Selected Agencies from GPRA requirements|
|M-97-03||(November 12, 1996)||Congressional Consultation|
|M-97-03||Supplement 1 (April 14, 1997)||Additional Information on Congressional Consultation|
|M-97-11||(April 14, 1997)||Submission of FY 1996 program performance reports for pilot projects|
Un-numbered memoranda and letters to agencies:
Summer review critique (by individual letter) August-September 1996
Spring assessment (by individual letter) March 1997
Metes and bounds' mailed concurrently with OMB M-95-01 on Managerial Accountability and Flexibility Pilots
OFPP policy letter, 92-1 (September 23, 1992) on Inherently Governmental Functions
October 13, 1993, Additional Information on Nominations of Pilot Projects
Defense Logistics Agency
May 20, 1997
The Honorable Fred Thompson
Committee on Governmental Affairs
Washington, DC 20510
Dear Mr. Chairman:
I am writing to inform you that we plan to delay, by one year, the start of the performance budgeting pilot projects required by the Government Performance and Results Act (the "Act"). The Committee Report accompanying the Act recognized that implementation would be difficult, and might lead to a need to defer certain provisions.
Delaying the start of this set of pilot projects from fiscal year 1998 to fiscal year 1999 will allow the agencies to concentrate on the more important task of developing their performance plans. Having agencies develop useful performance plans must be our first priority.
The pilot projects would continue to span a two year period, now fiscal years 1999 and 2000. The required alternative budget presentation on performance budgeting would now appear in the fiscal year 2000 President's budget, rather than the fiscal year 1999 budget.
Under the Act, OMB is to report to Congress by March 31, 2001, on these pilots. This report will assess the advisability and feasibility of including a performance budget as part of the annual budget, and make recommendations on whether legislation to this effect should be proposed and considered. Delaying the start of these pilots to fiscal year 1999 will not affect the submission date for this report.
The performance budgeting pilots are the sole provision of this Act that do not lead to government-wide implementation. Instead, OMB is to report to Congress by March 31, 2001, on these pilot projects. This report will assess the advisability and feasibility of including a performance budget as part of the annual budget, and makes recommendations on whether legislation to this effect should be proposed and considered. Delaying the start of these pilots will not affect the submission date for this report.
In forthcoming months, we will be consulting with the agencies to identify potential candidates for these pilots. We believe that delaying the start of these pilot projects by one year will allow the agencies to develop better performance plans, will result in better pilot projects, and will not delay the submission of the report on the pilot projects.
We would be happy to discuss this matter further with you or the Committee.
Franklin D. Raines
Identical Letter to The Honorable John Glenn
The Honorable Dan Burton, and The Honorable Henry A. Waxman