Archive

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Document Name: MISSION DRIVEN, RESULTS ORIENTED BUDGETING
Date: 09/30/93
Owner: National Performance Review
_________________________________________________________________________________
Title: Mission Driven, Results Oriented Budgeting
Author: NPR
Date: September 1993

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MISSION DRIVEN, RESULTS ORIENTED BUDGETING
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Accompanying Report of the National Performance Review
Office of the Vice President
Washington, DC

September 1993

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This accompanying report, prepared by the staff of the National
Performance Review (NPR), laid the groundwork for the
recommendations in the NPR report "From Red Tape to Results:
Creating a Government that Works Better and Costs Less," released
on September 7, 1993. This report is based on the best information
available at that time. The specific recommendations within these
reports have been and will continue to be given priority as part
of the FY95 Budget, legislative proposals, or other administration
initiatives, as appropriate.
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CONTENTS

Executive Summary 1

Strengthen Accountability for Results

BGT01: Develop Performance Agreements with Senior Political
Leadership that Reflect Organizational and Policy Goals 9

BGT02: Effectively Implement the Government Performance and
Results Act of 1993 15

Empower Managers to Achieve Results

BGT03: Empower Managers to Perform 27

BGT04: Eliminate Employment Ceilings and Floors by Managing
Within Budget 37

BGT05: Provide Line Managers with Greater Flexibility to
Achieve Results 41

Make the Budget Process More Efficient and Meaningful

BGT06: Streamline Budget Development 51

BGT07: Institute Biennial Budgets and Appropriations 57

BGT08: Seek Enactment of Expedited Rescission Procedures 65

Appendices

A. Summary of Actions By Implementation Category 71

B. The Traditional Budget Process 73

C. Major Budget Laws and Regulations 79

D. Budget Functions and Subfunctions 81

E. Accompanying Reports of the National Performance Review 83

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Implementation Categories

Each action is followed by a number in parentheses that indicates
the necessary avenue for effective implementation. Appendix A
organizes all actions according to these categories.

(1) Agency heads can do themselves

(2) President, Executive Office of the President,
or Office of Management and Budget can do

(3) Requires legislative action

(4) Good idea, but will require additional work, or may be
better suited for future action
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Abbreviations

ACUS Administrative Conference of the United States

BEA Budget Enforcement Act

CASU Cooperative Administrative Service Units

CBO Congressional Budget Office

CFO Chief Financial Officer

DOD Department of Defense

EPA Environmental Protection Agency

FCCSET Federal Coordinating Committee for Science, Engineering
and Technology

FTE FullTime Equivalent

GAO General Accounting Office

GPRA Government Performance and Results Act

GSA General Services Administration

HHS Department of Health and Human Services

HUD Department of Housing and Urban Development

NAPA National Academy of Public Administration

NPR National Performance Review

OMB Office of Management and Budget

OPM Office of Personnel Management

OSD Office of the Secretary of Defense

PAYGO Pay As You Go

SAP Statements of Administration Policy

SES Senior Executive Service

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EXECUTIVE SUMMARY
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To understand the overarching role that budgeting plays in the
federal government, consider just one figure: 60 percent of all
roll call votes in Congress are on budget-related issues.

However striking, this figure should not surprise us. If, after
all, Washington is a quintessentially political town, budgeting is
a quintessentially political process. A half-century ago,
political scientist Harold D. Lasswell defined politics as "who
gets what, when, how." [1] The budget, in essence, answers
Lasswell's question. It shows which groups., the elderly, the
poor, children get what benefits. At the same time, it shows who
pays taxes to finance those benefits.

The budget, however, should tell us much more. Indeed, budgeting
should be a managerial process that sets direction for management
improvement and efficiency. It should be a financial process that
assimilates and ties together a wealth of financial data. It
should be a marketing process, by which the government sells its
programs and services. And finally, it should be an accountability
process, through which government communicates its decisions about
priorities and expected performance.

But the traditional budget process the government's procedures for
crafting a budget has not been up to par. In both the executive
branch and Congress, it has consumed far too much time, often by
forcing policymakers to address the same issues numerous times
during the course of one year. It has revolved around inputs, not
outputs, thus reducing accountability for results. It has not
forced senior officials, such as cabinet secretaries, to state
their goals and report on their progress.

FOCUS ACCOUNTABILITY ON ACHIEVING RESULTS

In its budgeting, the federal government needs to undergo a kind
of cultural revolution, like the one experienced by many
businesses and some states and localities. It must better link
purposes, resources, and results to help government better serve a
nation of 250 million citizens and cost less. By adopting mission-
driven, results-oriented budgeting, it can:

* provide leaders with better means to make political choices,
set goals, and establish priorities among many competing demands
and desirable ends for customer services;

* encourage long-term thinking, define goals, translate them
into desired results, and use performance measures more
effectively to make more informed decisions on program priorities
and resource allocations;

* translate choices about goals and priorities into
actions/performance objectives and standards and communicate those
objectives and standards more effectively to the 2 million federal
employees;

* remove needless constraints on managers' uses of resources
to encourage innovation and provide positive incentives to manage
effectively and cut wasteful spending; and

* convert accountability for spending money to accountability
for achieving results within resources allocated to meet or exceed
performance standards and objectives.

CURRENT PROCESS NEEDS TO FOCUS MORE ON ACHIEVING RESULTS

In Washington, budgeting does not occur in a vacuum. It is
strongly influenced by two basic realities: the federal
government's budget deficits, and the relatively small share of
federal spending that must, by law, come up for executive and
congressional review each year.

Spending in FY 1993 totaled about $1.4 trillion, while revenues
tot
financed by borrowing, thus adding to the national debt. At the
same time, only a third of the budget about $540 billion is
subject to annual decisions. This "discretionary" spending
includes most of the grant funding for education, law enforcement,
Head Start, and environmental protection. It also includes total
spending for the operation of the federal government defense,
national parks, salaries of federal employees, etc.

About half of annual spending goes for "mandatory" spending, such
as social security, Medicare, Medicaid, and Aid to Families with
Dependent Children. The rest about 14 percent of annual spending
pays net interest costs on the debt.

The massive size of the budget, when combined with year-to-year
adjustments, means that small changes in interest rates,
inflation, employment levels, or the size of beneficiary
populations can add or subtract billions in federal spending. For
instance, a 1 percent rise in unemployment increases Food Stamp
participation by about a million persons, costing about $1 billion
a year.

Were it easy to greatly reduce the deficit, past Presidents and
Congresses would have done so. Needs greatly outweigh resources,
so demand far exceeds supply. Everyone wants more, feels justified
in seeking more, organizes to get more. Changes in the budget
process won't alter that reality. Nor, alone, will they close the
gap between revenues and spending. Nevertheless, changes in the
budget process can make the solutions more obvious and easier to
implement and will create a focus on achieving results.

CHANGING THE PROCESS TO MAKE IT MORE MEANINGFUL

During the budget process, most attention focuses on justifying
new spending proposals, not examining what the money buys or
ensuring that it accomplishes its purpose. Managers often do not
get clear instructions on which results have the highest priority,
nor on the results-oriented performance measures to which they
will be held accountable. Few government managers get the clear
charge, tools, and flexibility to provide quality services to
customers. Because programs' purposes and priorities are not
always clear, and recipients' interests are, the process focuses
on complying with controls to ensure that the money goes for those
interests.

A Focus on Performance. Congressional testimony in support of the
Government Performance and Results Act2 (which President Clinton
signed August 3, 1993) stressed the need for a fundamental shift
in the federal government's accountability system from one
oriented to accountability for processes and who gets which
"inputs" (in this case, fiscal resources) to one focusing
accountability on performance and results.

A 1992 General Accounting Office (GAO) survey on program
performance measures found that nearly two-thirds of 103 agencies
contacted had long-term strategic plans, and more than three-
quarters said they were collecting various program performance
data. But fewer than half made substantial use of performance
information in assessing progress toward strategic objectives.
Even fewer used performance measures for external performance and
accountability reporting. In a more detailed examination of 14
sample agencies, GAO found only a very limited application of
performance information in program and policy decision making.3

No wonder. The budget process does not focus on performance
information. It wastes inordinate time on detail and numbers only
loosely tied to achieving missions and results. The effort diverts
time and energy from the tough policy and managerial judgments
needed to cut the deficit.

A labor-intensive Process. Specifically, budgetmaking is a labor-
intensive process, full of incentives to request maximum funding
and spend all appropriations, and a control-oriented process, in
which who makes spending decisions and who gets the money is more
important than results. It focuses more on the demands of
individual agencies than on interagency missions to meet broader
administration goals. It deals primarily with marginal spending
changes, not the base from which those changes are made, to
achieve missions, goals, and results. And it devotes an inordinate
amount of time to debating the use of discretionary funds compared
with the mandatory spending and tax expenditures that, more than
ever, fuel the ever-growing national debt.

Transforming the Process. This administration has already begun to
transform these processes. The focus of the budget is moving away
from seeking more, more, more. The process must be transformed to
focus on what managers produce and citizens get for their
money/results, performance, value, quality, and customer service.

As veteran public servant Elliot Richardson put it: "Whether or
not an administration succeeds or fails depends on how clearly,
forcefully, and persuasively it defines its goals and creates
understanding of the necessity for sacrificing desirable ends that
do not have sufficient priority to claim a share of the available
[time and monetary] resources. Given the deficit on the one side
and ever-increasing demands on the other, the crunch between
claims and resources is more brutal than ever. Leadership that
squarely addresses this crunch is therefore more needed than
ever."4

The deficit is fueling the rethinking, but our recommendations
represent a logical, rational way for government to plan for,
allocate, and manage resources with or without a deficit.
Underpinning the recommendations is a commitment to deliver the
best value, quality, and service for taxpayers' money.

For government to meet 21st century challenges and regain taxpayer
confidence, its focus on processes and inputs must give way to
results and outputs. This report lays out three major initiatives
to develop mission-driven, results-oriented budgeting that
empowers policy leaders and managers to link purposes, resources,
and results to make government work better and cost less. These
three initiatives, and the recommendations that go with them, are
summarized below.

1. Strengthen accountability for results, with political
leadership defining political priorities first, then reaching
agreements with managers on what they are expected to accomplish
and how their accomplishments will be measured.

* The President should establish performance agreements with
his cabinet officers and agency heads to articulate what is
expected of them and how they will be accountable for their
performance.

* Each agency should develop a clear strategic plan, as
mandated by the 1993 Government Performance and Results Act, and
agency heads should use performance agreements to forge an
effective team committed to the accomplishment of organizational
goals and objectives.5

* Each agency and its sub-units should strive to be the "best
in its class"i.e., compare favorably in benchmark standards for
quality, service, and cost with other organizations carrying out
the same or similar operations.

* Policy officials, managers, agency budget offices, and OMB
should incorporate performance objectives and results as key
elements in management and budget development, review, and
deliberations.

* Agencies should identify teams, led by line managers, to
develop and coordinate the development and use of measures to
improve performance and ensure the quality and validity of
performance information.

2. Once decisions have been reached, empower managers to achieve
expected results by providing the necessary resources, unburdened
by excessively detailed restrictions.

* To enable managers to use resources effectively and
efficiently to achieve desired results, the number of detailed,
itemized limitations on spending should be substantially
decreased, including overly detailed and minutely divided
appropriation line items, earmarks in report language, object
class limitations, apportionments, allotments, and sub-allotments.
Appropriation accounts and line items ought to be more aligned
with programs designed to carry out policy decisions and charged
with the costs that their programs generate.

* Operational plans and performance goals should be updated
after enactment of appropriations. Agency heads should adjust
their operating plans to clarify performance goals and results
sought.

* Budgeting for, and managing within, funds provided for the
cost of direct federal operations should replace use of employment
ceilings and floors as a tool to control overall federal
employment levels.

* More appropriations should be converted from annual to multi
or no-year availability, and 50 percent of unobligated yearend
balances of operating funds in annual accounts should be rolled
over into the next year for use by managers to address unnecessary
end-of-year spending.

* The executive branch should evaluate its handling of
requests to move funds from one line item or organization to
another (i.e., for handling reapportionments, reprogrammings, and
reallotments), eliminating burdensome procedures that add little
or no value. Negotiations should be conducted with Congress toward
greater flexibility to transfer between appropriations and to
reprogram funds within appropriation accounts.

* Agency heads should submit reprogrammings to Congress, after
the advance notification and approval of OMB. OMB should
automatically approve reprogramming unless it objects within a set
period of time, such as five days.

* Revolving or working capital funds should be established to
finance administrative and other support services, where
appropriate.

* Managers should make greater use of flexibility currently
available to achieve results within limitations set by policy
determinations.

3. Streamline and improve the budget development process to give
managers more time to manage their programs, to provide them with
more timely information on policy priorities and funding levels in
order to more effectively use resources, and to provide links
between budgetary resources, missions, goals, and results.

* The President should propose a biennial budget. Congress
should adopt biennial budget resolutions and appropriations.

* The administration should develop an internal mechanism for
communicating total fiscal limits, allocating resources within
those limits, and enunciating multiyear spending targets. This
mechanism, analagous to the Congressional Budget Resolution,
should allocate funding by the broad missions of government cross-
tabulated by agency, thus avoiding months of effort spent
developing unrealistic budget requests. Policy discussions should
involve all affected agencies.

* The President should make extensive use of White House
policy staff to strengthen budget developments on priority issues
that involve multiple federal agencies.

* The former secretive, hierarchical development of the
President's budget should be replaced with a coordinated team
approach focused on achieving results.

* The President should have expedited rescission authority, a
form of line item veto, to support his managerial role in
effecting savings in government operations.

CHANGING THE PROCESS

The key recommendations summarized here and additional ones in the
following report are intertwined with other NPR recommendations,
especially those relating to leadership and management, financial
management, organizational structures, human resources, program
design, and customer service. Together, these recommendations
create the framework for changing the management culture in the
federal government to focus on results, quality, and customer
service. Major changes such as these will require years of hard
work.

Let us begin.

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Endnotes
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1. Lasswell, Harold D., Politics: Who Gets What, When, How (New
York: McGrawHill, 1936).

2. Government Performance and Results Act of 1993, Public Law
10362, signed by President Clinton August 3, 1993.

3. U.S. General Accounting Office, Program Performance Measures:
Federal Agency Collection and Use of Performance Data, GAO/GGD9265
(Washington, D.C., U.S. General Accounting Office: May 1992).

4. Memorandum from Elliot Richardson to Chris Williams of the
National Performance Review (NPR), dated July 29, 1993, providing
comments on draft NPR papers. Among his many contributions to
public service, Elliot Richardson has served as Secretary of
Health, Education and Welfare, Secretary of Defense, Attorney
General, and Secretary of Commerce.

5. Throughout this report the term "agency" refers to
organizational units reporting directly to the President. "Agency"
includes cabinetlevel departments (e.g., Labor, Commerce, and
Interior) as well as independent agencies (e.g., the Environmental
Protection Agency and the National Aeronautics and Space
Administration).

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Strengthen Accountability for Results
BGT01:
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Develop Performance Agreements with Senior Political Leadership
that Reflect Organizational and Policy Goals

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BACKGROUND
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When General Dwight D. Eisenhower was assigned to command the
Allied Expeditionary Force during World War II, the mission order
he received was clear and measurable: "You will enter the
continent of Europe and, in conjunction with the other United
Nations, undertake operations aimed at the heart of Germany and
the destruction of her armed forces."1 This simple, direct order
spelled out expectations for a vast organization of more than 1.5
million American men and women at its peak, required a working
relationship with other services and countries, and empowered one
of this century's great generals to change the course of history.2

Civilian government has been slow to set such clear expectations
for the performance of its top leaders. In general, there have not
been written agreementsor any other systematic approachesl inking
the goals of the President to the performance of top political
appointees and, in turn, to the civil servants below. Thus, the
chain of command in the executive branch is weakened at the
highest levels.

Faced with severe fiscal constraints and a desire to improve their
efficiency and effectiveness, a number of countries, states, and
localities as well as numerous American corporations are using
performance agreements with senior officials to set mutually
agreed upon objectives for organizational performance. For
example, many senior officials in Australia, Canada, New Zealand,
and the United Kingdom now have written agreements that are tied
to agency specific strategic plans (similar to those strategic
plans envisioned in the Government Performance and Results Act of
1993).3 The agreements establish priorities, set understandings
about expected performance, and grant specific delegations of
authority. Senior officials in these countries said that
performance agreements probably had a greater impact on
organizational performance than any other single aspect of
government reform.4

In the United States, a number of states and localities, from Ohio
to Seattle, Washington, have developed some type of performance
agreement with senior managers. For example, in Sunnyvale,
California, managers from the city manager on down have written
agreements that support city objectives. The experience of AT&T,
Microsoft, and many other American corporations has underlined the
importance of linking performance agreements to organizational
goals and team performance.5

At the federal level, there are precedents besides the military.
Ambassadors customarily receive two letters before going to a new
country a State Department letter of instruction describing a few
objectives for the ambassador to pursue and a presidential letter
that lays out the relationships among cabinet agencies with
overseas representation.6 In 1991, following a series of
management problems, the Deputy Director for Management of the
Office of Management and Budget and the three members of the
Railroad Retirement Board exchanged letters that committed the
resources and set out the actions necessary to achieve operational
improvements and "restore confidence in the operations and
integrity of the railroad retirement system."7

All career federal employees participate in some form of
performance evaluation system. Federal law requires that the
compensation, retention, and tenure of top civil servants, the
Senior Executive Service, be based on "individual and
organizational performance (including such factors as improvements
in efficiency, productivity, quality of work or service, cost
efficiency, and timeliness of performance and success in meeting
equal opportunity goals)."8

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NEED FOR CHANGE
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There are two critical weaknesses in the chain of command between
the President and the performance of federal agencies. One is the
lack of a systematic way to establish objectives for the
performance of presidential appointees with respect to their
agencies' performance. The second is the break between the
organizational and policy goals of political appointees who lead
the agencies and the career civil servants who carry out the
policies and programs. These two weaknesses undermine the
performance of the federal government in several ways. They
encourage distrust between political appointees and career
officials, contribute to confusion about organizational and policy
goals, diffuse lines of authority and accountability, and
undermine a sense of organizational cohesion, direction, and
fairness. These key weaknesses in line authority invite
intervention and interpretation by those in staff positions. Thus,
the lack of guidance and agreement on priorities results, not in
decentralized authority, but in the imposition of top-down
controls and micro-management.

The federal performance appraisal system traces its roots to 1842,
when the head of each agency was required to submit an "annual
individual employee service report" to Congress. Today,
presidential appointees belong to the only federal personnel
category without written performance agreements or a system of
accountability other than to the President.9

Surprisingly, regardless of political party there is no
established process by which senior appointees or even Cabinet
members of a new administration are oriented to policies and
priorities and reach consensus about an administration's goals and
objectives for departmental performance. Two months after he
arrived from Merrill Lynch to became Secretary of the Treasury,
Donald Regan recorded, "Never has [President Reagan], or anyone
else, sat down in private to explain to me what is expected of me,
what goals he would like to see me accomplish, what results he
wants. Since I am accustomed to management by objective, where
people have in writing what is expected, and explicit standards
are set, this has been most disconcerting. How can one do a job if
the job is not defined? I have been struggling to do what I
consider the job to be. . . . This is dangerous." He recalled
later, "From the first day to last at Treasury, I was flying by
the seat of my pants. The President never told me what he believed
or what he wanted to accomplish in the field of economics. I had
to figure those things out like any other American, by studying
his speeches and reading the newspapers."10 While this may be an
extreme case, senior government officials have confirmed that, at
least in the last several administrations, appointees have rarely
been given upfront guidance on priorities for their agencies'
policy or management agenda.

Although members of the Senior Executive Service, both career and
appointed, do have performance agreements, the effect of these
agreements is weakened since they are not effectively tied to
organizational goals or to the political leadership. In a General
Accounting Office study of the use of performance measures by
federal agencies, nearly half the agencies reported that the
goals, standards, or objectives of the organization were not
reflected at all or, if so, to only a minor or moderate extent in
Senior Executive Service or other senior management performance
contracts.11 Even where they are tied to organizational goals in a
personnel evaluation document, performance agreements do little to
enhance organizational performance when the document and the
system that produces it become ends in themselves.12

What is important is not the paperwork system but the fact that
priorities are established and that people in an organization both
political and career come to an understanding of clear
organizational goals.13 Only then can employees plan how to work
together to accomplish their objectives, obtain support and
feedback from their customers and colleagues, give and receive
assistance when groups are failing to meet their objectives, and
be fairly recognized for their contribution to the achievement of
organizational goals.

Having this kind of process flowing from the top can only
strengthen the effectiveness of the performance agreement system
below. Having such a process by which a public sector manager's
"mandate for action" or "bottom line" is negotiated is the
concrete way to establish the substantive terms of a manager's
accountability.14

As the federal government reinvents its human resource and other
systems and moves increasingly toward managing for results,
political appointees, senior career executives, and other civil
servants need to be joined in fair and coherent systems of
organizational accountability. It is essential to develop a more
effective link and clearer consensus with career executives about
the objectives and goals of the organizations that they are
leading and to base accountability and incentive systems on
progress toward the accomplishment of these goals and
objectives.15

The need to develop a more systematic approach is more urgent
today because of the number and importance of management roles
that political appointees have come to play in the federal
government. The Volcker Commission, the General Accounting Office,
and others have expressed concern about the growing number of
political appointees in management positions in federal agencies
over several administrations and, because of their short average
tenure, the impact of these appointees on program stability and
continuity.16 A more coherent system firmly based on
organizational mission and goals is needed to help ensure greater
continuity and stability in achieving organizational and policy
objectives.

Performance agreements should not only be vehicles for
accountability but also for empowerment. For example, a
performance agreement could include delegations of authority to
support the achievement of objectives. For example, limitations on
personnel, administration of the Paperwork Reduction Act, and
other authorities could be delegated from central agencies to
agency heads or designees as part of a performance agreement
between the President and an agency head.17 Agreement in advance
about priorities could also reduce the micromanagement that may
occur when priorities are not clear.

Certainly corporate and other organizational experience suggests
that managers at all levels should be held accountable for
achieving results from the activities under their direct
control.18 Managing for results, however, speaks about leadership.
It requires benchmarking performance against higher standards and
reaching beyond those things within the manager's direct control
and working with other organizations to achieve higher order
outcomes. It also requires continuous change to refine strategies,
respond to customer and employee feedback, and take advantage of
new information and technology.

Managing for results also requires making adjustments when desired
outcomes are not achieved and understanding the reasons for
success or failure. It means a willingness to terminate programs,
substantially alter them, increase or decrease funding, and
conduct research and evaluation to identify the sources of and
solutions to problems. Managers, in other words, can succeed even
when programs fail or fail even when everything is delivered.
Managers who aim high should not be penalized because ambitious
objectives are not achieved, if they are effectively managing for
results.

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ACTIONS
*********************

1. The President should develop written performance agreements
with department and agency heads. (2)

The President should develop performance agreements with agency
heads that reflect a mutual understanding of key organizational
objectives and delegations. These performance agreements should:

* focus on broad goals important enough to be followed by the
President;

* focus on a very limited number of mutually agreed upon
objectives specific to the organization and supportive of its
mission;

* include agreed upon delegations of authorities and
managerial flexibility that are within the power of the executive
branch and are related to areas of performance;

* be verifiable, reviewed on a regular basis, and updated as
appropriate; and

* avoid extensive reporting.

Performance agreements should be introduced incrementally by
beginning with: (1) the heads of the 14 cabinet departments and
the 10 largest agencies, and (2) very limited priority goals or
objectives as few as one, perhaps no more than three. The best
performance agreements are clear, simple, and measurable.19

There are many models for the content of agreements and for the
process by which the content is developed. New Zealand's
ministerial level agreements, for example, contain elements of
personal, organizational, and managerial performance. Agreements
with heads of agencies that are engaged with reform in the United
Kingdom called Next Steps Agencies are based on the strategic
plans of the agencies. The letters of instruction for ambassadors
are often prepared by a country desk officer and then widely
reviewed in the Department of State.

Whatever approach and model are adopted, they will need to be
flexible to reflect different agency missions, capacities,
approaches, and organizational cultures. For example, if
performance agreements contain budgetary agreements between the
agency head and the President, they will need to be adjusted if
appropriated funds are significantly higher or lower than planned.
Senior officials in agencies that have formulated clear goals and
a well developed capacity to measure their performance might have
agreements that include considerable delegation of authority and
administrative flexibility to manage within their agreed upon
budget. Although approaches may vary, key features of effective
performance agreements should include: "the substantive values,
goals or objectives that are to guide the manager's ACTIONS," an
agreement on how objectives will be measured, a method for
reporting and verification, and a system for making adjustments.20

Although there are compelling reasons to move to performance
agreements with senior political officials, there are also strong
reasons to proceed cautiously and incrementally. Perhaps the
greatest single risk is overloading the system and thereby sowing
the seeds of its collapse. This is what happened with efforts to
establish management by objectives during previous administrations
and contributed to their brief tenures. Too many objectives
diffuse focus. Too much reporting clogs critical communication
channels and will tend to be delegated to staff and lose
importance.

2. In every federal agency, use performance agreements and other
approaches to forge an effective team committed to the
accomplishment of organizational goals and objectives. (1)

Agency heads should lead, first, by example and, second, by
encouraging the development of mission-oriented, empowering
performance agreements throughout their departments and agencies.
Agency heads should ensure that performance contracts in the
Senior Executive Service focus clearly on organizational
objectives and inspire organizational performance. In most
agencies, this will require significant changes in how the Senior
Executive Service system of contract, evaluation, and rewards
functions. According to the Office of Personnel Management,
current laws and regulations governing personnel performance
evaluation also permit the use of other federal performance
planning and evaluation systems to reinforce organizational
performance; it is practice that has failed to make an effective
linkage.

If effectively used, the Senior Executive Service and other
performance systems should be important vehicles to link political
and career employees in common cause, set and reinforce
expectations for organizational performance, give senior managers
the authority and flexibility they need to perform, and hold them
accountable for managing for results. Giving managers the
authority and flexibility to perform effectively is an essential
complement to performance measurement systems, as described later
in BGT03, BGT04, and BGT05.

There are many approaches to implementing this recommendation. For
example, this past spring Secretary Henry Cisneros at the
Department of Housing and Urban Development (HUD) began the
process by developing a vision statement for his agency. He and
his senior staff led workshops, involving all 13,500 HUD employees
across the country, that clarified HUD's values and mission. Based
on this vision statement, Secretary Cisneros led his senior staff
in establishing agreements on program and management priorities
that will guide the specific ACTIONS of each department and be the
basis of benchmarks for HUD's performance. In the late 1970's,
General Bill Creech in the U.S. Tactical Air Command focused his
organization on two expectations: flying and fighting. "Wing
commanders (executives) were ordered to resume flying and wear
their flying suits around the base. . . . Every squadron member .
. . knew precisely what he/she had to do to meet the
flying/fighting expectations."21 As a result, the Tactical Air
Command was able to increase sorties an average of 11 percent
annually and reduce its budget 40 percent.

Agency heads and managers will need to use approaches that best
suit their organizational needs and culture. However, as one
management expert advised, "it's the last 3 million employees in
the federal government who really count."22 In other words,
everyone from the top leader to the person answering the phone
needs to understand and feel part of a mission-driven, results-
oriented agency. As Vice President Al Gore said in a talk to NPR,
"Part of the secret of any high-performing organization is having
a clear mission that is well known and internalized by every
single man and woman in that organization."23

CROSS REFERENCES TO OTHER NPR ACCOMPANYING REPORTS

Reinventing Human Resource Management, HRM03: Authorize Agencies
to Develop Programs for Improvement of Individual and
Organizational Performance; HRM04: Authorize Agencies to Develop
Award and Bonus Incentive Systems to Improve Individual and
Organizational Performance; and HRM11: Strengthen the Senior
Executive Service So that It Becomes a Key Element in the
Governmentwide Culture Change Effort.

Creating Quality Leadership and Management, QUAL02: Improve
Government Performance Through Strategic and Quality Management;
and QUAL03: Strengthen the Corps of Senior Leaders.

Streamlining Management Control, SMC02: Streamline the Internal
Controls Program to Make It An Efficient and Effective Management
Tool; and SMC03: Change the Focus of the Inspectors General.

*********************
ENDNOTES
*********************

1. Directive issued to Dwight D. Eisenhower, February 12, 1944,
cited in Forrest C. Pogue, United States Army in World War II, The
European Theater of Operations: The Supreme Command, Department of
the Army (Washington, D.C., 1954).

2. According to Pogue, cited above, there were 1.8 million
American troops in the European theater as of July 1944. By April
1945, that number had risen to more than 3 million plus additional
troops from European and other nations.

3. The Government Performance and Results Act of 1993, Public Law
10362, signed by President Clinton on August 3, 1993, calls for
all government agencies to prepare and submit strategic plans by
September 30, 1997.

4. U.S. General Accounting Office, Managing for Results:
Experience in Four European Countries and How They Might Be
Applied in the U.S. (Washington, D.C.: U.S. General Accounting
Office [GAO], January 1993), p. 15.

5. See U.S. Environmental Protection Agency, Administration and
Resources Management, Performance Management Quality Action Team,
Alignment Task Force Interim Report, Washington, 1992.

6. Discussion with Ambassador Dennis Kux, Oral History Program,
1993.

7. Exchange of letters between the Railroad Retirement Board and
the Office of Management and Budget, January 22, 1991, and March
1, 1991.

8. Title V, United States Code, Section 3131 (2).

9. U.S. Department of Defense, Navy Personnel Research and
Development Center, Team Oriented Performance Management (San
Diego, CA, December 1990), p. 1.

10. Regan, Donald T., For the Record: From Wall Street to
Washington (New York: 1988), p. 142.

11. See U.S. General Accounting Office, Program Performance
Measures: Federal Agency Collection and Use of Performance Data,
GAO/GGD9265 (Washington, D.C., May 1992).

12. In a 1986 survey, 41 percent of former members of the Senior
Executive Service (SES) said that the SES was ineffective in
basing pay and success on performance. See U.S. Merit Systems
Protection Board, The Senior Executive Service: Views of Former
Federal Executives (Washington, D.C. 1989), p. 14.

13. Richardson, Elliot, The Creative Balance: Government, Politics
and the Individual in America's Third Century (London: Hamish
Hamilton, 1976).

14. Moore, Mark H., Accounting for Change: Reconciling the Demands
for Accountability and Innovation in the Public Sector
(Washington, D.C.: Council for Excellence in Government, 1993), p.
142.

15. See National Academy of Public Administration, Beyond
Distrust: Building Bridges between Congress and the Executive
(Washington, D.C., 1992).

16. Volcker, Paul A., Leadership for America: Rebuilding the
Public Service (Washington, D.C., 1989). Also, U.S. Congress,
House, Committee on Post Office and Civil Service, "Political
Appointees in Federal Agencies," testimony by Bernard L. Ungar,
Director, Federal Human Resource Management Issues, General
Government Division, GAO, October 26, 1989.

17. Discussion with General Counsel, Office of Management and
Budget.

18. The issue of establishing accountability and incentives that
encourage teamwork rather than individual competition are
discussed more fully in the NPR Accompanying Reports Reinventing
Human Resource Management and Creating Quality Leadership and
Management.

19. The following agencies, identified under the Chief Financial
Officers Act, and the three central management agencies are
recommended for inclusion: the Departments of Agriculture,
Commerce, Defense, Education, Energy, Health and Human Services,
Housing and Urban Development, Interior, Justice, Labor, State,
Transportation, Treasury, and Veterans Affairs; the Environmental
Protection Agency; the National Aeronautics and Space
Administration; the Agency for International Development; the
Federal Emergency Management Agency; the General Services
Administration; the National Science Foundation; the Nuclear
Regulatory Commission; the Office of Management and Budget; the
Office of Personnel Management; and the Small Business
Administration.

20. Moore, p. 104.

21. Belasco, James A., Teaching the Elephant to Dance: Empowering
Change in Your Organization (New York: 1990), p. 155.

22. Discussion with James Belasco, July 1993. See also U.S. Office
of Personnel Management (OPM), The Fact Book (Washington, D.C.,
1992), p.3. The OPM reports executive branch employment at 3.04
million in 1991. This includes 0.8 million Postal Service
employees and just over 1 million Defense employees.

23. Vice President Al Gore, Remarks to the National Performance
Review, April 15, 1993.

****************************************************************
Effectively Implement the Government Performance and Results Act
of 1993
BGT02:
****************************************************************

***************
BACKGROUND
***************

To manage federal programs more effectively to "do the right
things better"managers need to know what the "right things" are
and how much they need to achieve. There are innovative federal
agencies that have clear, results-oriented objectives and use
performance measurement to continuously improve their programs.
However, surveys by the General Accounting Office and the
Congressional Budget Office suggest that strategic planning and
performance measurement remain a veneer in most federal agencies,
having little effect on program operations.1 Earlier efforts to
improve the performance or effectiveness of federal programs from
the "performance government" of the 1940's and 1950's and
programming, planning, and budgeting in the 1960's through zero
based budgeting of the 1970's and management by objectives in the
1980'shave had a limited impact.2

Current processes cause federal managers to be more concerned with
following rules and procedures, justifying new resources, and
reporting on compliance than with developing strategic plans,
measuring progress, and achieving results. In a sad parody of a
well known corporate motto, one federal employee lamented,
"Process is our most important product."

Since the 1970's, American industry has changed in response to
international competition. It has decentralized and streamlined
its operations, reoriented its focus toward customer service, and
placed an overall emphasis on quality. Managers are being asked to
measure their performance and make continuous improvements in
processes and products. Many managers are using bench marking
measuring performance, comparing it against a standard, and
constantly seeking to improve results. For example, Xerox
Corporation, a Malcolm Baldrige National Quality Award winner,
continuously benchmarks its performance against similar functions
in such companies as Nordstrom and L.L. Bean.

An emphasis on managing for results is also permeating state and
local government. As early as 1973, Sunnyvale, California, began
adopting comprehensive performance planning, measurement, and
budgeting as part of a new approach to city management.
Sunnyvale's success has stimulated results-oriented management in
other states and cities. Florida, Minnesota, Texas, and Phoenix,
Arizona, are among those that are changing their management
practices to emphasize results and improve performance.3

Oregon, for example, is using what it calls benchmarks "to guide
our state to a better future as a people, as a place, and as an
economy."4 The legislature adopted statewide measures unanimously.
According to Oregon Governor Barbara Roberts, "In state government
the benchmarks have already been adopted as a tool for stating
concrete objectives, setting program and budget priorities and
measuring performance. They are helping our agencies to focus
differently, work more closely together, and make better use of
existing resources.5 Other countries the United Kingdom,
Australia, New Zealand, Canada, Sweden, and others as cited
earlier have also increased their use of performance measurement
to guide management and budgeting over the last decade.6

Today, concerns with government inefficiency and mounting deficits
are spurring federal programs to improve performance. Building on
the total quality movement of the 1980's and the Chief Financial
Officers Act of 1990, a number of federal agencies are making
substantial progress. For example, the Internal Revenue Service
(IRS) has developed a strategic plan with a strong customer-
oriented mission, explicit performance objectives, and a strategy
for achieving those objectives. IRS pilot sites in Cincinnati and
elsewhere are collecting performance data and beginning to relate
them to financial measures. The Agency for International
Development (AID) is implementing a bottom-up strategic planning
and performance measurement system; more than 60 of its field
missions have begun to use performance information in program
decision making. AID programs, such as child survival and family
planning, have set clear goals and strategies, invested for more
than a decade in the development and collection of performance
indicators, and widely use performance information for planning,
operational decisions, and reporting.

The Government Performance and Results Act of 1993 (GPRA) provides
a sound basis for strengthening these and other ongoing agency
efforts to use strategic planning and performance measurement to
improve results. Signed by President Clinton on August 3, 1993,
the law's purposes are to:

* improve the confidence of the American people in the
capability of the federal government, by systematically holding
federal agencies accountable for achieving program results;

* initiate program performance reform with a series of pilot
projects in setting program goals, measuring program performance
against those goals, and reporting publicly on their progress;

* improve federal program effectiveness and public
accountability by promoting a new focus on results, service
quality, and customer satisfaction;

* help federal managers improve service delivery, by requiring
that they plan for meeting program objectives and by providing
them with information about program results and service quality;

* improve congressional decision making by providing more
objective information on achieving statutory objectives, and on
the relative effectiveness and efficiency of federal programs and
spending; and

* improve internal management of the federal government.7

This law requires all agencies to define their long-term goals,
set specific annual performance targets, and report annually on
performance compared to targets. It calls for some key components
strategic plans, annual performance plans, and annual performance
reports and provides the managerial flexibility that is crucial to
mission-driven, results-oriented budgeting and management. The law
begins with pilot programs in fiscal year 1994 before proceeding
to government-wide implementation in fiscal year 1999. In signing
the bill, President Clinton summarized the GPRA's provisions: "The
law simply requires that we chart a course for every endeavor that
we take the people's money for, see how well we are progressing,
tell the public how we are doing, stop the things that don't work,
and never stop improving the things that we think are worth
investing in."8

******************************************************************
Requirements of the Government Performance and Results Act of 1993
******************************************************************
All Agencies Pilot Agencies OMB and Others
******************************************************************
At least 10 three year OMB designates pilots
pilots in performance goal, OPM develops training
setting, measurement program
. and reporting for fiscal
years 1994-96
******************************************************************
Agencies develop At least five two OMB reports to
and submit year pilots on managerial Congress on initial
strategic accountability-flexibility pilots by May 1, 1997
plans (covering for fiscal years 1995 96. GAO reports to
at least 5 years) Congress on GPRA
to OMB and implementation by
Congress by June 1, 1997
September 30,
1997.

Agencies submit
annual performance
plan (including
targets and
proposed waivers)
beginning with
fiscal year 1999.
******************************************************************

Agencies begin At least five two year OMB submits
reporting in performance budgeting government wide
annually on fiscal year 1998-99 performance plan
performance for fiscal year 1999
beginning no (by February 1998).
later than OMB reports to
March 31, 2000 Congress on
performance budgeting
pilots by March 31,
2001
******************************************************************

******************
NEED FOR CHANGE
******************

As President Clinton noted when signing the GPRA, "This is an
effort that is long, long overdue."9 Testimony in support of the
GPRA and many government experts have emphasized the need for a
fundamental shift in the system of accountability in the federal
government from one oriented around accountability for processes
and "inputs" (i.e., activities or resources to achieve results) to
one that measures performance and is accountable for results
actually achieved. As a U.S. General Accounting Office (GAO)
report noted, "Whether the goal is defending the nation or
immunizing children against disease, government officials and the
public need to know how well government is accomplishing its
intended objectives."10

A recent survey of leaders in 75 major American corporations,
conducted by the U.S. Department of the Treasury, concluded that
federal program managers could learn "immeasurably" from corporate
best practices. The report noted that "measurement of the
effectiveness, efficiency and economy of products, services and
processes is the keystone for assessing current circumstances,
planning strategic goals, and monitoring incremental and
comprehensive improvements."11

A 1992 GAO survey on program performance measures found that
twothirds of the 103 agencies contacted had strategic plans and
more than three-quarters collected program performance data.
However, fewer than half of these agencies were making substantial
use of performance information in assessing progress toward
strategic goals and objectives. Even fewer were using performance
measures in external performance and accountability reporting. The
GAO's more detailed look at 14 sample agencies found only a very
limited application of performance information in program and
policy decision making.12

In contrast, when one looks at the most successful federal
programs and managers, it is clear that they not only measure
their performance, they act on what they learn. For example,
whenever one Assistant Commissioner at the Treasury Department's
Financial Management Service learns that checks going to
particular zip codes are arriving late, his staff immediately meet
with the Postal Service to resolve the problem. With this kind of
commitment, it's not surprising that this manager can attest that
he "directs the largest, most reliable, low-cost and productive
payment disbursing operation in the world and that he has the
data to support his claim.13

Agencies that have undertaken comprehensive strategic planning
exercises have usually emerged with a much clearer sense both of
the objectives they can reasonably achieve and how these
objectives should be pursued. Strategic planning at the Social
Security Administration, for example, resulted in measurable
customer service objectives and a set of activities to achieve
them. At the National Archives, strategic planning improved
employee motivation and helped managers make more informed
decisions by providing information about results. Strategic
planning has long characterized programs in the Department of
Defense (DOD). Recently, DOD has applied "business process
reengineering" and developed new corporate information management
systems to reorient its operations around common missions and
priority objectives.14

Everyone agrees that it is important to measure and manage for
results. Nonetheless, there are a number of challenges facing
federal managers. First, many federal programs encompass multiple,
contradictory, ambiguous, changing, or even unfunded objectives.
Yet, just as America's military commanders have insisted that no
American troops be committed to combat without clear objectives,
"if a public agency is asked to attack a particular problem, it
ought to be given a clear goal; it ought to know what it takes to
reach the goal and what intermediate successes can be achieved
along the way."15 This is not always easy. Setting objectives
requires choices. It can require careful consideration and
possible tradeoffs between competing objectives, between long and
short-term goals, or between innovation and certainty. What are
the tradeoffs between clean air and short-term economic growth?
What are the risks that expanding the availability of credit will
increase the number of bank failures?

Second, federal programs are diverse ranging from income security
to diplomacy, from research to national defense. These diverse
programs produce very different outputs, resulting in very
different outcomes, requiring very different performance measures.
Many federal programs co-fund activities administered by state and
local governments or private and nonprofit organizations and
interact only indirectly with the ultimate users or recipients of
these programs. Because of this diversity, federal managers
developing performance measurement will find some of their best
assistance from managers of programs similar to theirs who have
found useful ways to measure performance.

Third, federal managers need to keep performance measurement
simple and useful. The goal should be to adopt a few relatively
simple measures that tell line managers how programs are
performing, to use that information to find potential problems and
solutions, and to stimulate continuous improvement.

Finally, the relationship between customers and federal programs
is often less direct than in state or local government or in the
private sector, and customer feedback has rarely been built into
the assessment of federal programs. In reality, however, the
federal government has hundreds of millions of direct contacts
with the public every year. Better feedback from these customers
would provide extremely useful information about the performance
of many federal programs.

These are the challenges that federal managers will need to
address to implement the GPRA effectively. The findings and
recommendations in this report are consistent with the GPRA and,
in some cases, go beyond certain provisions of the legislation to
capitalize on the momentum as federal employees across the country
realize how they can make an important contribution toward
reinventing the federal government. Successfully implementing the
GPRA will improve federal program effectiveness and public
accountability by promoting a new focus on results, service
quality, and customer satisfaction. This will require strong
leadership from the top and from line managers across the federal
government. It will need caution to avoid establishing new
performance information bureaucracies. It will need active
participation from the bottom, expanded use of performance
information in management and budget decision making, and
effective systems for assuring that performance information is
valid and reliable.

******************
ACTIONS
******************

1. Accelerate planning and measurement to improve performance in
every federal program and agency. (2)

OMB, through its GPRA leadership role, and the Office of Personnel
Management (OPM), through its training, should encourage all
agencies to make greater use of performance planning and
measurement now, whether or not they are designated as pilot
agencies. Every agency, for example, could identify prototype
sites, assess current status, identify benchmarks, formulate
implementation milestones to cover its major mission areas, and
make much better use of currently available data. Agencies should
be encouraged to display performance measures in internal budget
submissions and to tie performance to budget decisions, where
possible, even before formal implementation of the performance
budgeting portions of GPRA. Although this will be difficult for
some agencies, others are in a position to try early
implementation and should be encouraged to do so.

Even small differences in federal program performance can make
large differences in people's lives whether they want a reliable
weather report before going on a picnic, the right answer to a tax
question, or the timely arrival of a government check before the
rent is due. The Department of Treasury's Financial Management
Service, for example, delivers 99.8 percent of its checks on time.
If this performance were to fall just one fifth of one percent to
99.6 percent an additional 1.6 million social security or other
payments would be late.

Some federal programs are already the best in their class. They
have established goals and standards for program achievements the
quantity and quality of goods and services the program will
deliver and can compare their performance with other programs,
agencies, or organizations delivering similar goods and services.

Other agencies and programs have farther to go. They need to begin
by establishing a clear understanding of their mission and goals
and of the strategies they will be pursuing to achieve those
goals, drawing on program legislation and policy, historical and
current data on program activities, and the needs and expectations
of the program's customers and stakeholders. Once the program's
objectives, and the kinds of goods and services it delivers, are
clear, managers can begin comparing the program with other,
similar programs in its "class" and establish performance
benchmarks based on what other programs in that class are
accomplishing. Finally, managers can develop operational plans and
short-term performance targets for reaching these benchmarks,
based on realistic appraisals of current activities and practical
steps for improvement.

For many federal programs, the only appropriate benchmarks might
come from another federal agency or from state government. For
some agencies, such as the Department of State's counselor
services, the best benchmarks might come from another country.
Other programs might look to industry for comparisons as, for
example, the Air Force commander who replaced lengthy written
guidelines for the quality of visiting airmen's temporary quarters
with a pithy benchmark: comparable to "a moderately priced hotel,
like Ramada."

Such a process can help managers more rationally identify customer
needs and serve as a powerful process for fact-based continuous
improvement by providing a broader, outward-looking perspective
that enables managers to challenge "business as usual." There will
be additional benefits from benchmarking. Identifying similar
activities in other organizations helps sharpen managers'
understanding of constraints and opportunities. It also provides a
framework for discussing and managing expectations with customers
and stakeholders. "What special legislative or other governmental
constraints make us different from industry?" "Are our patients
older or younger than another hospital's?" "Why can't our cars be
as clean as the cars at Hertz or Dollar?" Seeking external
standards taps into external expertise and experience that can be
immediately relevant to one's own activities. And, the standards
and measures for program achievement are drawn from actual
practices, rather than theoretical models of causality. In effect,
one can jump-start performance measurement by beginning not with
complex models or training on abstract principles of strategic
planning and indicator development, but with the people who are
already doing something similar.

2. Build effective teams to improve performance and strengthen
organizational accountability. (1)

Agency heads should assign line managers, not staff offices or
central agencies, to lead strategic planning and performance
measurement in the programs for which they are accountable. Line
managers should establish networks and teams to develop program
strategies, identify performance indicators and targets, and
collect and use performance data. These teams should include other
program managers and staff as well as outside persons to provide a
broader perspective, ensure that line managers aim high enough and
consult their customers, encourage work across organizational
boundaries, provide training, and ensure that indicators are valid
and data are reliable. Staff offices and central agencies should
report, verify, and consolidate information, but not manage agency
efforts.

In addition to program staff, teams might typically include
persons from other programs in the agency; from other agencies
that have similar programs; from planning, evaluation, budget, and
finance staffs; and from some central agency analytical group such
as OMB. Information technology specialists could also be included
to ensure that information is integrated into existing systems and
that paperwork is minimized. The team should identify
characteristics of importance to customers and stakeholders in the
program. The team might invite staff of legislative committees
with oversight over their programs, or the General Accounting
Office. To obtain customer input, the agency could, for example,
include customer representatives on the team, use focus groups
covering major categories of customers, and have the team role-
play as customers and public interest groups. This team procedure
worked well with the State of Minnesota's Department of Trade and
Economic Development and the State of Maryland's Department of
Economic and Employment Development. Both departments convened
working groups and held focus groups of customers to help identify
performance indicators for selected programs in their
departments.16

Line managers are generally in the best position to chose relevant
and useful performance indicators, and the full participation of
line managers in selecting performance measures and using
performance information is critical. Indeed, the single most
important element for ensuring both the quality of performance
information and the achievement of improved results is the
effective use of that information in program decision making. If
performance information is used by line managers to make
operational decisions that improve programs' outcomes, those
managers who are accountable for the management of the programs
will have a direct interest in ensuring the accuracy and integrity
of that information.

Teams can help ensure that, whatever objectives and indicators are
chosen, performance information is simple, valid, and reliable.
For example, the Departments of Labor, Education, and Health and
Human Services have created performance indicator teams including
line managers, financial managers, strategic planners, and budget
analysts. Teams help ensure that performance information is
relevant to actual program activities. Negotiations and
discussions across the organization also provide checks and
balances that will keep performance information valid and
honest.17

3. Develop common goals and data collection efforts for
crosscutting issues. (2)

The multi-agency coordination initiated by OMB under the Chief
Financial Officers (CFO) Act to encourage cooperative development
of common measures, benchmarking, and data collection in programs
with a similar commercial function provides some useful experience
in this area. The selection of common goals should not be
prescribed by OMB, but should be the joint responsibility of the
agencies involved. Interagency groups should develop a limited
number of core goals and measures in related programs and reduce
the costs and burden of data collection where a common approach is
appropriate. Agencies could add agency specific measures and data
collection as needed to reflect the unique aspects of their
programs. The interagency group working on ecosystem management
and the President's Community Enterprise Board's community
empowerment efforts are examples where these interagency measures
could be considered.18

4. Incorporate performance objectives and results as key elements
in budget and management reviews. (2)

Over time, both the Executive Office of the President and
individual agencies should use performance information as a key
element in program and policy decision making and as a basis for
management and budget reviews. The incorporation of performance
objectives and results as key elements of budget and management
reviews should be clearly reflected in White House policy
guidance; in a substantially revised OMB Circular A11 (which
guides budget formulation); in agency budget guidance and review
procedures; in strategic and operational plans; and in revised
position descriptions and training for budget, management, and
program analysts. This recommendation can be more fully
implemented as agencies develop strategic plans, performance
measures, and targets by September 30, 1997, as required by the
GPRA.

At first, managers may not have sufficient experience to set
reasonable performance targets. Even with indicators on which a
program has been collecting data for many years, the program is
likely to have quite limited information on the relationship
between outcomes and the program's staffing and budget. Users of
information comparing annual goals to actual achievement need to
understand these inherent difficulties. The numerical goals will
likely be much less useful than the data on actual outcomes. The
process by which the program attempts to link resources to
outcomes may itself, however, help agencies in their annual
planning. It should also be remembered that performance
measurement is not meant to replace research or evaluation, but
rather to signal potential problems for which more information or
attention is needed.

Agencies should reallocate sufficient resources for performance
planning and measurement for the long term. This reallocation of
human and financial resources to performance planning and
measurement should occur as part of the normal budget development
and review process. While some funds may need to be reallocated
explicitly to performance data collection and analysis, the
primary issue is ensuring that managers devote sufficient time and
attention to planning for results and to applying performance
information in decision making.

OMB's budget analysts can provide some of the feedback and broad
oversight that is necessary for an effective system for example,
by asking agencies to improve on indicators that are clearly
inadequate. OMB should, for example, actively discourage the use
of work activity measures masquerading as output or outcome
measures. Since there can be disagreement, even among "experts,"
over what is or is not an outcome measure, OMB's Deputy Director
for Management should probably exercise overall oversight of the
appropriateness of outcome measures to avoid uneven implementation
across OMB divisions and performance indicator shopping.

Other action steps to ensure more results-oriented program and
budget reviews by agencies and OMB include formal training
programs for staff, internal consulting arrangements, and joint
management/budget review teams. Training is needed, for example,
to counter the frequent misconception that outcome data indicates
that the government alone produced (caused) those outcomes. This
leads to employee blame-setting that is usually unwarranted and is
also a major source of manager resistance to outcome measurement.
An explicit educational effort will be needed to clarify that in
most, if not all, cases, outcomes are produced only in part by
program activities.

5. Clarify the objectives of federal programs. (3)

The executive branch should work with Congress to clarify the
goals and objectives of federal programs and identify those
programs where lack of clarity about legislative intent is
affecting execution. Congress should review existing and new
legislation for clarity of objectives and, where needed, take
steps to clarify legislative intent so as to encourage and
facilitate improved executive branch performance in executing
legislation.

Cross References to Other NPR Accompanying Reports

Improving Customer Service, ICS02: Customer Service Performance
StandardsInternal Revenue Service; ICS03: Customer Service
Performance Standards Social Security Administration; ICS04:
Customer Service Performance Standards-Postal Service; and ICS05:
Streamline Ways To Collect Customer Satisfaction and Other
Information From the Public.

Rethinking Program Design, DES01: Activate Program Design as a
Formal Discipline.

Reinventing Environmental Management, ENV02: Develop CrossAgency
Ecosystem Planning and Management.

Improving Financial Management, FM03: Fully Integrate Budget,
Financial, and Program Information; FM09: Simplify the Financial
Reporting Process; and FM10: Provide an Annual Financial Report to
the Public.

Strengthening the Partnership in Intergovernmental Service
Delivery, FSL01: Improve the Delivery of Federal Domestic Grant
Programs; and FSL06: Strengthen the Intergovernmental Partnership.

Reinventing Human Resource Management, HRM03: Authorize Agencies
to Develop Programs for Improvement of Individual and
Organizational Performance; HRM04: Authorize Agencies to Develop
Incentive Award and Bonus Systems to Improve Individual and
Organizational Performance; and HRM06: Clearly Define the
Objective of Training as the Improvement of Individual and
Organizational Performance; Make Training More MarketDriven.

Transforming Organizational Structures, ORG03: Establish a List of
Specific Field Offices to Be Closed; and ORG05: Sponsor Three or
More Cross-Departmental Initiatives Addressing Common Issues or
Customers.

Reinventing Federal Procurement, PROC16: Promote Excellence in
Vendor Performance.

Creating Quality Leadership and Management, QUAL01: Provide
Improved Leadership and Management of the Executive Branch;
QUAL02: Improve Government Performance Through Strategic and
Quality Management; QUAL03: Strengthen the Corps of Senior
Leaders; and QUAL04: Improve Legislative/Executive Branch
Relationships.

Streamlining Management Control, SMC01: Implement a Systems Design
Approach to Management Control; SMC02: Streamline the Internal
Controls Program to Make it an Efficient and Effective Management
Tool; SMC03: Change the Focus of the Inspectors General; SMC06:
Reduce the Burden of Congressionally Mandated Reports; and SMC08:
Expand the Use of Waivers to Encourage Innovation.

Agency for International Development, AID01: Redefine and Focus
AID's Mission and Priorities.

Department of Agriculture, USDA03: Reorganize the Department of
Agriculture to Better Accomplish Its Mission, Streamline Its Field
Structure, and Improve Service to Its Customers.

Department of the Interior, DOI12: Create a New Mission for the
Bureau of Reclamation.

Department of Education, ED11: Build a Professional MissionDriven
Structure for Research.

Department of Health and Human Services, HHS01: Promote Effective
Integrated Service Delivery for Customers by Increasing
Collaboration Efforts.

Executive Office of the President, EOP05: Reinvent OMB's
Management Mission; and EOP06: Improve OMB's Relationship with
Other Agencies.

******************
Endnotes
******************

1. See U.S. General Accounting Office, Program Performance
Measures: Federal Agency Collection and Use of Performance Data,
GAO/GGD9265 (Washington, D.C.: U.S. General Accounting Office
[GAO], May 1992); U.S. Congress, Congressional Budget Office,
Using Performance Measures in the Federal Budget Process
(Washington, D.C., July 1993).

2. See, for example, Schick, Allen, Performancebased Budgeting
System for the Agency for International Development, Program and
Operations Assessment report #4 (Washington, D.C.: Agency for
International Development, 1993); and DiIulio, John, Gerald
Garvey, and Donald Kettl, Improving Government Performance: An
Owner's Manual (Washington, D.C.: Brookings Institution, July
1993).

3. Osborne, David, and Ted Gaebler, Reinventing Government: How
the Entrepreneurial Spirit is Transforming the Public Sector
(Reading, MA: AddisonWesley, 1992); Epstein, Paul, "Get Ready: The
Time for Performance Measurement is Finally Coming!" Public
Administration Review (September/October 1992), pp. 513519; Texas
Performance Review, "Performance Measurement Should be Improved to
Ensure Better Outcome Measurement and Cost Accounting," Breaking
the Mold: New Ways to Govern Texas (Austin, TX: State of Texas,
July 1991), pp. 1730.

4. State of Oregon, Oregon Benchmarks, Standards for Measuring
Statewide Progress and Government Performance, Report to the 1993
Legislature, Oregon Progress Board, December 1992, p. 1.

5. Ibid., p. iii.

6. Kamensky, John, and Julie Tessauro, Performance Measurement in
the United Kingdom and Australia, presentation to the National
Academy of Public Administration Performance Measurement Seminar,
Washington, D.C., May 1992.

7. The Government Performance and Results Act of 1993, Public Law
10362, Sec. 2, Findings and Purposes.

8. President William J. Clinton, President's Statement at Bill
Signing for the Government Performance and Results Act of 1993,
August 3, 1993.

9. Ibid.

10. U.S. General Accounting Office, Managing the Cost of
GovernmentBuilding An Effective Financial Management Structure,
GAO/AFMD8535 (Washington, D.C.: GAO, 1985).

11. U.S. Department of Treasury, Financial Management Service,
Performance Measurement: Report on a Survey of Private Sector
Performance Measures (Washington, D.C.: Project USA, Financial
Management Service, January 1993), p. 12.

12. U.S. General Accounting Office, Program Performance Measures:
Federal Agency Collection and Use of Performance Data, GAO/GGD9265
(Washington, D.C.: GAO, May 1992).

13. Serlin, Michael D., "Payment Initiatives: The Plane Truth
About Electronic Fund Transfers," Speech to the Treasury
Management Institute, Department of the Treasury, Washington,
D.C., March 26, 1990.

14. As, for example, through the DOD "Enterprise Model" being
developed and implemented by the Assistant Secretary of Defense
for C3I (Command, Control, Communications, and Intelligence).

15. Behn, Robert D., BottomLine Government (Durham, North
Carolina: Institute for Public Policy, Duke University, 1993), pp.
7 and 12.

16. Letter from Harry P. Hatry, Director, State and Local
Government Research Program, The Urban Institute, to David
Osborne, Senior Advisor, National Performance Review, July 8,
1993.

17. See, for example, the discussion of management controls in the
NPR Accompanying Report Streamlining Management Control.

18. Omnibus Reconciliation Act of 1993, Public Law 10366, signed
by President Clinton on August 10, 1993. See also "FSL01: Improve
the Delivery of Federal Domestic Grant Programs" in the NPR
Accompanying Report Strengthening the Partnership in
Intergovernmental Service Delivery.

******************************************************************
Empower Managers to Achieve Results

BGT03:
******************************************************************
Empower Managers to Perform

************
BACKGROUND
************

Managers find that funds arrive in many small, separate "checking
accounts," each with restricted purposes and other detailed
limitations. Some of these detailed limitations take away the
manager's capacity to decide how to do the job, defining the use
of inputs like personnel, travel, or purchase of computers, for
example. These detailed restrictions absorb excessive time and
energy as managers figure out how to comply and yet get results.

As Dale Robertson, Chief of the U.S. Forest Service, has observed,
"On our best days government will be only mediocre in performance
unless we can figure out how to focus more of our time and energy
on the end results that benefit the American people."

Some restrictions on spending are necessary to reflect policy
priorities and decision show much to spend on which food and
nutrition programs, for example. But restrictions frequently run
to the other extreme, becoming excessively detailed and intrusive
for no real policy purpose mousemilking" was the term one budget
officer used to describe them.

Two ACTIONS are necessary to empower managers to perform better:

* To develop with managers what they are expected to
accomplish and how it will be measured. This is the theme of Part
1 of this report.

* To provide the necessary resources without excessively
detailed restrictions. Removing or decreasing these itemized
limitations is the major theme of this section of the report.

Excessively detailed limitations are restrictions on spending
money that are not needed for policy control, take away the
manager's capacity to perform, and impede the accomplishment of
results.1 These detailed limitations are imposed on line managers
by several means.

* Enacting statutory requirements in appropriations, such as
defining periods of availability for funds, earmarking funds for
certain projects or activities, and breaking accounts down into
subaccounts (activities). In addition, Congress may include
detailed instructions and earmarkings in the committee reports
that accompany appropriation bills.

* Inserting footnotes in apportionments, the means by which
the President makes appropriations available to ensure that funds
are spent without either overspending the appropriation or
creating pressures for a supplemental appropriation to complete
the year.

* Including restrictions in allotments, the system of
documents by which agencies (1) ensure that deficiencies will be
prevented, usually referred to as administrative control of funds,
and (2) allocate, distribute, and delegate spending authority down
the chain of command to program and field managers, often
accomplished through a financial operating plan.

Appropriations. There are over 1,000 appropriation accounts in the
federal budget the number varies slightly from year to year.
Appropriation account totals are usually divided into activities
and sometimes subactivities, for which separate funding totals are
provided (i.e., line items). For example, in the President's
budget, appropriations for military construction are divided among
the three activities of major construction, minor construction,
and planning, each with a discrete funding total.

Congressional subdivision of appropriation amounts into line items
is usually more detailed than is shown in the President's budget.
For example, the President's budget divides the appropriation for
the Office of the Secretary in the Department of the Interior into
six activities; the support table for the Interior and Related
Agencies appropriation for the same office subdivides the
appropriation among 29 line items.2 Overall, there are many
thousands of activities, subactivities, and projects subject to
line item control in appropriations acts; the total number is
unknown.

General provisions in each appropriations bill impose additional
limitations on how funds should or should not be spent. The 1993
Defense Appropriations Act has 219 general provisions, compared to
47 in the 1963 Act.3 Report language adds an extensive array of
earmarks and instructions. For example, the Department of the
Interior found that language in the House, Senate, and Conference
Committee Reports and the 1992 Appropriations Act for Interior and
Related Agencies contained about 2,150 directives, earmarks,
instructions, guidance, and prohibitions.4

Report language is not law, but agencies not following report
language may be cross-examined closely in future hearings and may
find the language written into the general provisions of future
appropriations acts.

Any member of Congress may request the insertion of earmarking and
report language. If the appropriations committee agrees, the
earmarking and report language is inserted in the House, Senate,
or Conference Committee Reports. The House Appropriations
Committee received more requests for such report language in 1993
than in any prior year. The requests are thought to be in reaction
to the need to cut back to meet the caps on discretionary spending
set in the Budget Enforcement Act, which in turn places a premium
on protecting spending in a member's district or items of
particular interest to a member. There are also instances where
federal employees have asked members of Congress to include items
in report language. In the years when Congress was controlled by
one political party and the presidency by another, report language
was a mechanism used by Congress to ensure that its will was
carried out. The House Appropriations Committee is moving, in the
fiscal year 1994 appropriation bills, to have fewer requirements
in report language.5

Apportionments. OMB has been delegated the President's authority
to apportion make available for obligation almost all
appropriation and fund accounts.6 The statutes specify that "any
appropriation subject to apportionment shall be distributed by
months, time periods, or by activities, functions, projects, or
objects, or by a combination thereof."7 Apportionments:

* Provide a mechanism by which the President can prevent
agencies from spending money too quickly by limiting the amount
that can be spent by month or by quarter of the year. For example,
spending funds meant to last the whole fiscal year in the first
half of the year would create pressure for supplemental
appropriations to continue operations. Funds can be apportioned so
that only one-half of the amount appropriated is available in the
first half of the year, avoiding a second-half shortfall.

* Provide a mechanism to effect management ACTIONS, such as
(a) achieving savings made possible by changes in requirements or
greater efficiency of operations, (b) providing for contingencies,
or (c) those specifically provided by law, such as carrying out
sequestrations. Proposed savings for reasons (a) and (b) are
required to be reported to Congress for their action as deferrals
or rescission proposals.8

Spending in excess of the amount in an appropriation or fund
account has been less of a problem in the last decade than in
earlier periods. Between 1982 and 1993, there have been 51
violations of the Anti-deficiency Act (which restricts both
obligations and expenditures from each appropriation to the amount
available in the appropriation or fund) reported to the President.
This time period coincides with the installation of better
financial management systems in federal agencies at the urging of
the General Accounting Office, OMB, Treasury, and Congress.9

Apportionments can be more extensive than appropriations in
setting detailed limitations, since for example they can break
down spending authority by time period during the fiscal year, by
object class, or by program activity. Also, OMB sometimes includes
footnotes with instructions concerning spending or requiring
reports to be submitted.

Allotments. Allotments subdivide apportionments and incorporate
appropriation limitations within agency accounting systems.10 Most
federal agencies develop financial operating plans that include
appropriation limitations and distribute funds among
organizational components as the appropriation process draws to a
close in August and September. Financial operating plans are
finalized after enactment of appropriations and include the means
by which allotments are issued to organizational components.

It is in the carrying out of statutory requirements, apportionment
footnotes, and allotment restrictions that problems and costs
occur. Each limitation usually involves a system of controls and
reports to ensure that the limitations are not exceeded and/or are
carried out as set in the law or report. The control system
requires subdividing the total amount of funds from discrete
appropriation accounts among the managers who will be responsible
for spending those funds. Control also requires an information
system that feeds back to the managers and to monitors along the
chain of command,current status compared to the limitation and
assurance that the money is properly spent. Depending upon
organizational structure, this subdivision of funds and controls
can multiply into ever smaller allocations through the whole
pyramid of managers and staff. Allotment control systems and
efforts to manage large numbers of restrictions on small
allocations of funds are labor and overhead-intensive.

For example, the Forest Service, a bureau in the U.S. Department
of Agriculture, has managers who receive allotments and sub-
allotments from the Forest Service's 29 appropriations activity
accounts through nine regional offices, 122 forest supervisor
offices, 633 ranger districts, and 69 research locations.11 One of
these national forests, the Ochoco National Forest in central
Oregon, administers funds from 19 of these 29 activities. For
financial management, these 19 activities translate into 70
separate accounts, 556 separate management codes, and 1,769
accounting lines for the Ochoco National Forest. The budget is
split into such small increments that tracking and balancing
amounts becomes the major consumer of managers' time.12

Ochoco participated in a Forest Service pilot project to test the
results of greater managerial flexibility.13 The 70 internal
accounts were reduced to six and the emphasis was changed to
"output targets accomplished" rather than maintaining elaborate
records to control how the individual allocations of money were
spent. Productivity in terms of "output targets accomplished"
jumped 25 percent in the first year and an additional 35 percent
in the second year. Resource managers who had spent 4560 days a
year in the office "crunching numbers" found they could adequately
develop budgets in one day.14

Operating Costs. Operating costs are sometimes defined as the
costs associated with direct federal operations. The National Park
Service is a direct federal operation providing services to the
public, and the operating costs associated with providing these
services are in an account aptly named "Operation of the National
Park System." The Social Security Administration provides payments
to beneficiaries. The payments themselves are not direct federal
operations, but the staff and machinery to make those payments are
direct federal operations. In some federal programs, the direct
federal operating portion and the grant or service provider
portion are mixed and not easily identified or separated. The
intramural and extramural research programs of the Public Health
Service are an example. Cancer research serves the same goal,
whether done in-house or by contract or grant.

For sound management, it is important to identify, monitor, and
control all direct operating costs. This does not require that
they be subject to detailed limitations; rather, that the
financial system provide management with timely, accurate, ongoing
reports on the cost of operations. Ideally, these costs should
include full costs, not only of federal personnel but also all
support of direct operations, so that financial analyses and
comparisons are even and tell the full story. Presently, federal
operations do not include the full costs of federal employee
benefits, excluding some expenses for retirees. The National
Performance Review Accompanying Report Improving Financial
Management includes a recommendation (FM13) to charge agencies for
the full cost of employee benefits. The Federal Accounting
Standards Advisory Board (FASAB) has a project under way to
account for costs, which is intended to address this problem.

Revolving Funds. The Department of Defense (DOD) has used the
revolving fund concept in many of its support operations for more
than 40 years. Most of its shipyards and aircraft repair depots
have operated under this financing arrangement since 1975.
Revolving fund activities operate with no, or very little, direct
appropriated funds. They are instead financed on a reimbursable
basis from appropriated funds. These funds are appropriated to
customers of those activities a Navy sea command or an Air Force
tactical fighter squadron who in turn purchase goods and services
from the revolving fund activity much like any private business.
These support activities financed by revolving funds operate more
efficiently and effectively without the constraints of fiscal year
limitations and excessively detailed administrative restrictions.

Separating support activities from their customers and giving the
customer the funding create a check and balance situation that
ensures the revolving fund activity engages only in efforts for
which there is customer demand. Better yet, there is competition
for customers based on price and quality of service, and customers
have a choice of suppliers.

DOD has developed a method of budgeting called Unit Cost
Resourcing, used primarily for organizations that operate within a
revolving fund. Unit Cost Resourcing accounts for expenditures in
terms of their impact upon work outputs/buying uniforms or payroll
account processing. Budget authority is given to an activity in
terms of cost per output. That is, if the output's estimated cost
is $100, then the activity "earns" $100 per output. There are no
frontend limitations imposed on the activity, such as spending
only so much for personnel, training, travel, etc. Budget
formulation and execution are based on cost per output and
mission-oriented measures, such as the percentage of tactical
aircraft that are mission-capable. Managers make the same
essential tradeoff decisions among various outputs and their costs
that are taken for granted by private industry managers.15

In some federal activities, this type of budgeting would be
difficult, but many federal organizations can learn from DOD's and
other agencies' experience to manage their resources to achieve
results more efficiently. While some agencies work to overcome
difficulties in performance budgeting for their operations, others
will make progress based on their experience with working capital
funds and cooperative administrative service units (CASU's).

Matching Mission with Appropriations. Historically there has been
no mechanism by which the decisions reached in proposing missions
and functions in the president's budget are updated and adjusted
after final appropriations action. If agencies jointly put
considerable effort into mission and functional planning and
budget formulation, agencies should then follow up, after
appropriations became available, to make necessary updates and
adjustments to manage resources made available in the budget for
results.

The apportionment and allotment systems required under the Anti-
deficiency Act focus on administrative control of funds. While
such compliance is important, there are other critical issues that
must be considered in budget execution in order to manage for
results. The missions of the federal government will be more
effectively accomplished if some executive branch staff and
attention are shifted from budget development to policy
implementation, budget execution, and review of results being
achieved.

*****************
NEED FOR CHANGE
*****************

As long as the emphasis is on compliance with detailed
restrictions on inputs rather than outputs and accomplishment,
many managers will see the goal of federal programs as spending
money or preserving options to do so. Incentives for savings are
absent. As one manager put it, "If you as a manager showed at the
end of the year that you spent less money than you had been
allocated at the beginning of the year, the difference is taken
away from you for the upcoming year on the assumption you don't
need it. However, no manager likes to be faced with a shrinking
budget, i.e., fewer resources, since 1) your budget tends to be
symbolic of your program's importance and your own sphere of
influence and 2) because you never know what new responsibilities
may come your way during the next fiscal year that you need
resources for. Since new responsibilities often come unfunded and
pools of resources are generally not available (OMB and Congress
are the first ones to strike any such pool of unallocated
reserves) it is currently not in any manager's interest to "admit
to" savings. It is much more rewarding to spend all your money and
then claim a need for more next year than to show genuine
savings."16

There should be incentives to save money, to attend less to new
budget requests and detailed control of inputs and more to
performance and results. Excessively detailed limitations and
failure to focus on outputs cost money adding several percent or
more in direct federal operations than would otherwise be
necessary. Such constraints force managers to spend large amounts
of time in the financial administration of their work, distort
work program priorities, encourage spending, and bloat overhead
and support costs through labor-intensive activities to maintain
and monitor all of the controls. Many of these limitations direct
spending to matters of political concern; efficient or effective
management is not a consideration.

Operations that have consolidated resources into a small number of
accounts without excessively detailed front-end limitations and
have simplified other internal rules have reduced operating costs
by 10 percent or more while improving the quality of their
services.17 To achieve both savings and productivity improvements,
there is a need to eliminate expensive but unnecessary itemized
restrictions while reducing the mind-numbing volume of internal
regulation, as recommended in the National Performance Review
Accompanying Report Streamlining Management Control.

There must be an explicit agreement here: more flexibility, fewer
restrictions, more accountability for managers, but also smaller
budgets. Some of the savings will go for training, tools to
enhance productivity, and positive incentives, like bonuses, but
some must also go to reduce the overall cost of government.

The executive branch uses too much time developing and justifying
budget proposals for which there is little hope of approval and
then takes too little time to examine how to use appropriations
enacted to meet mission needs and priorities more effectively.
Strategic planning is sketchy. Managers haven't been told what
results to achieve and then held accountable for results. Tools
like revolving funds, full cost accounting, and competition among
suppliers are underutilized in efforts to supply quality services
to customers at lower costs.

Accountability for resources and results without detailed
limitations can be maintained through sound financial management
systems and through reporting systems on accomplishments. Given
timely, accurate information, management can intervene in
operations and take action to achieve performance objectives
during the operating year, based on spending patterns and results
they see emerging through their information systems and other
feedback mechanisms.

***************
ACTIONS
***************

1. Revise operational plans and performance goals to reflect
actual appropriations by mission and function. (2)

The President should direct agency heads to review appropriations
to determine if changes are needed in policy priorities and
performance goals. Agency heads should consult with the White
House Policy Councils and the Office of Management and Budget
about suitable modifications to operating plans. This update
should begin with the fiscal year 1995 appropriations and spread
in subsequent years as performance measurement is implemented more
broadly throughout government.

After appropriations are enacted, agencies develop their financial
operating plans and internal allocations. It is also at this point
that senior managers need to revisit presidential policies and
priorities presented in proposals to Congress and to adjust for
final appropriations action.

Agency heads need to review appropriations as soon as
congressional directions are known and discuss with the White
House Policy Councils and the Office of Management and Budget how
to match policy priorities and performance goals with the revised
availability of funds. Performance plans and targets throughout
the agency should be updated and refined based upon the enacted
availability of resources.

2. Restructure appropriations accounts to reduce over-itemization
and to align them with programs. (3)

Agency heads should begin now to identify appropriation accounts
and overly itemized limitations that seriously impede cost-
effective management and to develop and propose better structures.
Restructuring should begin as quickly as possible, although early
discussions with OMB and with appropriations subcommittees are
recommended. A long-term and more extensive restructuring should
be proposed to Congress in the fiscal year 1996 budget.
Congressional consideration and action is necessary, since the
support tables to the appropriations bills establishing line items
are usually more detailed than the information submitted in the
Budget Appendix.

The goals of this restructuring are to consolidate appropriations
accounts and activities more closely along the lines of programs
providing services to the public or internally and to minimize the
number of detailed limitations that impede efficient management.
These program accounts would receive appropriations for the full
cost of the program, including the usual administrative expenses
as well as the accruing cost of retiree benefits.18 The
appropriation would also cover the purchase of support services
(e.g., supplies, equipment, payroll services) from support
accounts in or outside the agency or from the private sector. This
restructuring should be undertaken in conjunction with the
implementation of the Government Performance and Results Act
(GPRA) of 1993.

3. Ensure that direct operating costs can be identified. (1)

Agency heads should issue internal guidance to ensure that
operating costs can be readily identified and to implement any
changes necessary in financial management systems in the execution
of the fiscal year 1995 budget.

It is important that total operating costs be readily identifiable
under any restructuring, so that the direct operating costs of
programs can be measured, compared to results, and controlled by
policy decisions, incentives, and good management rather than by
detailed spending limitations. They can also be weighed against
total program costs, including amounts for grants to
beneficiaries, to ensure that program operating costs are not
excessive. The capacity to identify, track, and control operating
costs is necessary to trade across-the-board full-time equivalent
(FTE) limitations for a managerially more sound control through
funding allocations.

Operating costs need not be set in separate appropriation accounts
with detailed restrictions and breakdowns. Estimates for operating
costs can be shown in the budget, and financial management systems
can track actual expenditures during the operating year.
Deviations from plan, inevitable with the passage of time and
dynamic management, should be documented and justified. There is
ample precedent for this treatment.

The effort to identify and track operating costs should be
initiated for the fiscal year 1996 budget formulation cycle.

4. Propose revolving funds for those agencies that do not have
them. (3)

Agency heads should assess their needs for revolving or working
capital funds and propose legislation for them where appropriate
in the fiscal year 1996 budget cycle.

Support accounts should be organized in the form of revolving fund
accounts, replacing separate line items for administrative
activities and services.19 Support accounts would cover most
commercially available items, such as office space, supplies,
automobiles, personnel and payroll services, building maintenance,
and legal, accounting, and auditing services. This effort should
be completed in the fiscal year 1996 cycle.

DOD is a good model of the desired approach. The DOD revolving
fund approach incorporates many of DOD's support activities as
business areas that provide goods and services to mission-related
activities or customers. The appropriation-funded, mission-related
activities purchase goods and services from organizations or
business areas that operate within the fund. The Unit Cost
Resources methodology allows DOD to budget by mission (showing
full costs of the mission) and to control unit costs at the same
time. Incentives in the form of bonuses to employees are provided
to those organizational elements that show savings below their
unit cost targets. Other agencies, such as the General Services
Administration and the Department of Justice, also have
reimbursable revolving funds through which support services are
purchased.

Revolving funds do require good financial management systems to
succeed. Review of periodic financial management statements is
also required. Concerns have been expressed that working capital
and revolving funds will build up "profits" that amount to "slush
funds" and that any such funds could potentially be used to avoid
the detailed limitations on other funds. Appropriate policy and
management oversight is therefore necessary.

5. Reduce overly detailed restrictions and earmarks in
appropriation and report language. (3)

Agency heads should identify the overly detailed restrictions and
earmarks in the fiscal year 1995 appropriations and reports that
seriously impede the missions or the most efficient management of
their agencies. They should be prepared to discuss how to
eliminate or reduce the need for them with the chairpersons of
their appropriations subcommittees.

Restrictions and earmarks in appropriation and report language add
expensive limitations to management ACTIONS and take time and
attention to track. A number of agencies have been working with
their appropriations subcommittee staffs to document concerns with
and reduce general language provisions and earmarks and directives
in report language that are expensive to administer for the
advantage gained. Some may be there as a matter of history rather
than current need. This effort should be continued and accelerated
in the fiscal year 1995 and 1996 budgets.

6. Simplify the apportionment process. (2)

The OMB Director should immediately issue internal guidance to
staff to use simple letter apportionments and process
apportionments within the time frames called for in the law (i.e.,
within 30 calendar days after approval of the appropriations act
or by September 10, whichever is later).20 Policy decisions should
be relayed by OMB policy officials to agency policy officials by
means other than apportionments. OMB is already encouraging
automation of apportionment submissions and working with the
Department of the Treasury on an automated monthly reporting
system. These efforts should be completed by fiscal year 1995 to
assist in timely review.

Any exceptions to the letter apportionment process should be
explained to the affected agency. Examples of reasons for
exceptions are:

* to force discipline on an agency that is violating the Anti-
deficiency Act;

* to sequester funds under the Budget Enforcement Act;

* where the time phasing of obligations during the fiscal year
is of critical interest to government-wide management; or

* when rescissions or deferrals are proposed that require
formal apportionment action.

This change in the apportionment process would be implemented by
OMB internal instructions to its staff. Changes to the
apportionment process should be developed in consultation with
Department of the Treasury and agency staff as in the past. Any
revisions to OMB Circular A34, "Instructions on Budget Execution,"
necessary to accommodate the changes should also be made.

Related to this recommendation, OMB, the Department of the
Treasury, and federal agencies should proceed as soon as possible
with an integrated budgeting and financial management information
system to promote better and more effective use of financial
management information in budget formulation and more effective
oversight of budget execution.21

7. Reduce the excessive administrative subdivision of funds in
financial operating plans. (1)

Agency heads should internally review their procedures for
developing financial operating plans at the beginning of the
operating year to reduce the excessive subdivision of allotments
subject to Anti-deficiency Act controls and penalties. This review
should be completed in fiscal year 1995.

The standard for developing and implementing financial operating
plans is that allotments and allocations are made to responsible
managers within 30 days of enactment of an appropriation or
continuing resolution. Any agencies not able to meet this standard
should be held accountable for corrective action first by their
internal managers at all levels and, failing there, by OMB,
Treasury, and GAO.

Experience by agencies that have looked into simplifying detailed
limitations is that the majority of the problem limitations are
self-inflicted by the agency and can be corrected internally. The
concern frequently expressed is that some managers deliberately
overspend their budgets, leaving to the official accountable under
Anti-deficiency Act penalties the problem of balancing accounts.

Good financial management and other support information systems
(e.g., personnel/payroll, procurement) can amply provide
accountability for the use of inputs. Those systems should be
upgraded to provide real-time, on-line information feedback to all
managers and on-line, read-only summary reports to higher levels
of management and external monitors, such as Inspectors General,
without separate systems for reports. Two effective incentives for
better accountability in open systems are peer pressure, where
managers serve as a check and balance on one another, and
visibility, where there is less ability to hide questionable
transactions to delay their discovery until an audit years later.

Cross References to Other NPR Accompanying Reports

Improving Financial Management, FM01: Accelerate the Issuance of
Federal Accounting Standards; FM03: Fully Integrate Budget,
Financial, and Program Information; FM04: Increase the Use of
Technology to Streamline Financial Services; FM06: "Franchise"
Internal Services; FM07: Create Innovation Funds; FM12: Manage
Fixed Asset Investments for the Long Term; and FM13: Charge
Agencies for the Full Cost of Employee Benefits.

Reengineering Through Information Technology, IT01: Provide Clear,
Strong Leadership to Integrate Information Technology Into the
Business of Government; IT11: Improve Methods of Information
Technology Acquisition; and IT12: Provide Incentives for
Innovation.

General Services Administration, GSA01: Separate Policymaking from
Service Delivery and Make the General Services Administration a
Fully Competitive, RevenueBased Organization.

Reinventing Human Resource Management, HRM01: Create a Flexible
and Responsive Hiring System; and HRM04: Authorize Agencies to
Develop Incentive Award and Bonus Systems to Improve Individual
and Organizational Performance.

Transforming Organizational Structures, ORG01: Reduce the Costs
and Numbers of Positions Associated with Management Control
Structures by Half; and ORG03: Establish a List of Specific Field
Offices to Be Closed.

Reinventing Federal Procurement, PROC01: Reframe Acquisition
Policy; PROC08: Reform Information Technology Procurement; and
PROC18: Authorize Multiyear Contracts.

Streamlining Management Control, SMC03: Change the Focus of the
Inspectors General; SMC06: Reduce the Burden of Congressionally
Mandated Reports; SMC07: Reduce Internal Regulations by More than
50 Percent; and SMC08: Expand the Use of Waivers to Encourage
Innovation.

***************
Endnotes
***************

1. See Handy, Charles, "Balancing Corporate Power: A New
Federalist Paper," Harvard Business Review (November/December
1992), pp. 5972. He notes that "subsidiarity . . . means that
power belongs to the lowest point in the organization" and that
"all managers are tempted to steal their subordinates' decisions"
(page 64). The article is provocative and provides insights about
the successful management of large, diverse organizations.

2. U.S. Office of Management and Budget (OMB), Budget of the
United States Government, Fiscal Year 1994 (Washington, April 8,
1993), p. 745; and U.S. Congress, House, Committee on
Appropriations, Interior and Related Agencies Subcommittee,
Interior Support Table (Washington, D.C., June 15, 1993), pp.
2122.

3. OMB, pp. 502 to 509 and 352355. The prior fiscal year's
appropriation language is shown marked up as proposed for the next
fiscal year by the administration.

4. Data from unpublished paper by the Department of the Interior
budget staff, Washington, D.C., July 17, 1992.

5. Interview with House Appropriations Committee staff, June 23,
1993.

6. 31 U.S.C. 1516 provides that certain categories may be exempted
from apportionment, such as working capital and revolving funds;
certain trust funds; payments of claims, judgments, or refunds;
and interest on the public debt.

7. See 31 U.S.C. 1512 through 1519 for laws concerning
apportionment.

8. Deferrals are proposals to postpone spending, while rescissions
are proposals to cancel spending. Sequestration is a process to
take away spending authority to meet spending limits or caps. For
a good description of these, see Collender, Stanley E., A Guide to
the Federal Budget (Washington, D.C.: Urban Institute, 1992).

9. Information supplied by Office of Management and Budget staff,
July 16, 1993.

10. In theory, allotments should not be overly detailed. 31 U.S.C.
1514 calls for a simplified system for administratively dividing
appropriations, with the objective of financing each operating
unit from not more than one administrative division for each
appropriation affecting the unit.

11. U.S. Congress, Senate, Committee on Government Affairs,
"Organization of the Federal Executive Departments and Agencies as
of 1 January 1992," Senate Committee Print 102107, Part 1. (Wall
chart).

12. U.S. Department of Agriculture, Forest Service, "Proposal for
Change: Ochoco National Forest," Washington, D.C., undated.

13. A description of the Forest Service pilot program appears in
U.S. General Accounting Office, Forest Service: Evaluation of
"EndResults" Budgeting Test (Washington, D.C.: U.S. General
Accounting Office (GAO), March, 1988) and in Overcoming Barriers
to Productivity: An Agency Call to Action (Washington, D.C.:
Interagency Barriers Working Group, May 1988), pp. 89.

14. U.S. Department of Agriculture, Forest Service, Summary of
Experience (Washington, D.C., undated). Also interviews with Rod
Collins, business manager for the Ochoco National Forest,
Washington, D.C., June 16, 1993.

15. Memorandum from Elvon Lloyd, Directorate for Business
Management, Comptroller of the Department of Defense, Washington,
D.C., July 20, 1993, p. 3.

16. Letter to Vice President Al Gore from Helga B. Butler,
Executive Officer to the Deputy Administrator, Environmental
Protection Agency, Washington, D.C., March 3, 1993.

17. Summary of experience from pilot efforts in DOD, the U.S.
Forest Service, and the Department of Veterans Affairs. For
example, the Eastern Regional Office of the U.S. Forest Service
was able to reduce its operating costs from $15 million to $13
million and staff from 223 people to 183 between 1989 and 1993
through internal improvement efforts, according to an article by
Leslie Kaufman, "The U.S. Forest Service: Decentralizing
Authority," Government Executive (Washington, D.C.), pp. 2334.

18. For discussion and recommendations concerning full costs for
federal employees, see NPR Accompanying Report Improving Financial
Management, FM13: Charge Agencies for the Full Cost of Employee
Benefits.

19. See McCann, S. Anthony, Government Revolving Funds and
Cooperative Admi