OUTCOME BUDGETING: ASSESSMENT OF ITS GOALS AND OBJECTIVES ACROSS GOVERNMENT LEVELS By Mwabilu L. Ngoyi, Gerald J.

Miller, and Marc Holzer [email protected]

ABSTRACT OF THE ARTICLE What is outcome budgeting conceptually, in terms of its goals and objectives? There is no generally agreed upon definition of outcome budgeting in the public administration literature. Moreover, many efforts for its implementation have been, unfortunately, marred by confusion about its basic definition, resulting in the multiplicity of goals and objectives. An academic debate in the theory and practice of administrative reform has implicitly cast doubts on the potential for outcome budgeting as a future major budgetary reform. These doubts are compounded by the fact that budgetary reforms are often oversold and do not always fulfill their promises. There are considerable challenges, at the political level, for acceptance of a rational model of budgeting. This article attempts to introduce empirical evidence that would bring some resolution to the debate concerning the merits of outcome budgeting. We investigated the perspective of some experts, direct participants, and experienced users that believe constitutes an outcome budgeting system, in terms of its goals and objectives. We administered an outcome budgeting survey to budget and finance officers, analysts, and auditors working in federal, state, and local governments. Results show, in some cases, some degree of agreement in respondents perceptions across levels of government with respect to some outcome budgeting objectives. However, most of the respondents disagreed that outcome budgeting implementations root lay in increasing program effectiveness by promoting a focus on results. The respondents also did not believe that the motive behind outcome budgeting implementation lay in the improvement of fiscal discipline by limiting growth in expenditure. This study represents a portion of a research project attempting to ascertain whether fashioning the budget into a contract for performance in government could be successful to the extent it would lessen the impact of political decisions into the budgetary process.

INTRODUCTION An era of entrepreneurial budgeting, in particular outcome budgeting, is emerging within the reinvention framework, which guides the general effort toward achieving management improvement. Clearly, outcome-based budgeting, which is now being touted for implementation by some government agencies, signals the emergence of an important tool for effective governmental management and accountability. As Miller, Hildreth, and Rabin (2001, 3) indicate, the focus on inputs, outputs, and outcomes, along with citizen participation in assessing and resolving issues of their concern, are the characteristics of outcome budgeting, a potential major budgetary reform of the 21st century. Outcome budgeting is seen as a concept built upon earlier fiscal practices in that: 1) its use of strategic planning and program structure draws upon the Planning-Programming-Budgeting-System; 2) the setting of objectives and targets is derived from Management by Objectives; and 3) its designation of expected levels of performance for each level of expenditure was introduced with the Zero-Based Budgeting (Southern Growth Policies Board, 1996). But unlike these past reforms, which aimed to optimize programs, outcome budgeting seeks to improve organizations (Schick, 1990). Paradoxically, the research on outcome budgeting is still very weak (Forrester1, 2001), and the consensus is that there exists no generally agreed upon definition of this concept in the literature of public administration (Martin, 1997). Unfortunately, many efforts to implement outcome budgeting have been marred by confusion about its basic definition, which has resulted in the multiplicity of goals
1

John Forrester is a Senior Analyst in the Division of Strategic Issues/Budget at U.S. GAO in Washington, D.C.

and objectives. Indeed, in various places, either in the literature or in practice, outcome budgeting is known by different names, with varying goals and objectives. On the other hand, criticisms that a rational model of budgeting, such as this one, goes against political norms and is unworkable in a pluralist and individualist society, have arisen and have not yet been settled (Wildvasky, 1997, 9). Wildvasky contended that budgeting techniques would not substitute for political decisions about who wins and loses in the budgetary process, and the inability to account for such a shortcoming might explain the failure of Planning, Programming Budgeting System. Hence, the use of outcome budgeting is a subject of debate in the theory and practice of administrative reform. The debate has cast doubts on the potential for its success as a future major budgetary reform, which could provide momentum to move governments toward being entrepreneurial and innovative in the delivery of services. Regrettably, these doubts are compounded by the fact that budgetary reforms are often oversold and do not always fulfill their promises. The article is to introduce empirical evidence that will bring some resolution to the debate concerning the merits of outcome budgeting as a future major budgetary reform. The issue inherent in the study is to explore whether there are grounds for doubting that outcome budgeting can fulfill its promise of improving organizations. In particular, this work aims to ascertain what constitutes an outcome budgeting system, in terms of its goals and objectives. Agreement in perceptions across levels of government about the goals and objectives of outcome budgeting would facilitate widespread acceptance of this budgetary reform.

DIFFICULTIES IN DEFINING OUTCOME BUDGETING Some states have implemented performance-based budgeting to enhance communication and improve programs, while others were motivated by cost savings

(Melkers and Willoughby, 2001). Some others found interest in this budget reform in order to demonstrate government responsiveness to the citizenry and to indicate awareness that taxpayers are no longer willing to pay for efforts, but only for results (King, 1995). King also reported that actual performance-based budgeting systems might have a variety of goals in that they may or may not require measurement of outcomes; and that they may support strategic planning or focus on measurement development. But Campbell (1997) describes performance-based budgeting as a budgeting system in which performance measurement has been fully integrated into the budget process. According to him, this type of system is designed to reduce or eliminate the micromanagement of inputs by elected officials, keeping them focused instead on getting the best results for the publics money. He also asserts that the focus is not on the unit cost of providing a service, but rather on achieving a particular outcome. Mission-driven budgeting, or budgeting for results at the federal level as provided under the Government Performance and Results Act of 1993 (GPRA), is purported to achieve improved Congressional decision-making with objective information. It is also linked to increased federal program effectiveness and public accountability by promoting a new focus on results, service quality and customer satisfaction (NPR, 1994). Cothran (1993) termed the budgetary reform of the 1990s entrepreneurial budgeting, a new approach to budgeting using decentralization, with increased accountability to entice entrepreneurial behavior in government in order to improve management performance. He distinguished three types of this reform, which he termed: a) expenditure control budgeting, also called profit sharing and various other things, experimented in by U.S. cities and used by city councils to set expenditure limits; b) budgeting for results, practiced by a number of national governments, especially those from the Organization for Economic Cooperation and

Development (OECD) countries, in response to the fiscal stress and cutbacks of the 1970s and 1980s, in order to achieve central control of total spending, decentralization of authority to departments in the use of the funds and enhanced accountability for results; c) mission budgeting, proposed as a way to improve U.S. defense budgeting at the Pentagon. This system entails centralized priority setting, decentralized implementation, and enhanced accountability. Hendrick and Forrester (1999) indicated that outcome budgeting or resultsoriented budgeting system, also called performance or mission-driven budgeting is a system of budgeting in which decisions focus on programs, performance, and outcomes. They asserted that the bounds of accountability are broadened to closely parallel the notion of accountability used by non-profit and private sector organization. Anthony and Young (1995) point to a redefinition of accountability under outcome budgeting in order to emphasize control over program performance. Kettner, Moroney, and Martin (1990, 162, 177-178) describe outcome budgeting as an extension of program budgeting and the linking of outcome goals and objectives to those programs in order to derive unit costs per outcome. Osborne and Gaebler (1992, 161), who were not the first to venture a definition but who certainly have popularized the concept in their influential book Reinventing Government, have referred to outcome budgeting as a budget system that focuses on the outcomes of the funded activity. Gianakis (1996, 141) asserted that outcome-based performance measurement systems help to realize the promises of the executive budget and of professional public management. He pointed out that the exercise of policy and financial controls (which are unavoidable elements of public management) through the oversight of program inputs could compromise the effectiveness of program managers. Using program outcome measures in the resource allocation process enable these oversight functions to focus on program results. He sees such focus as

less intrusive to public managers and allows them greater discretion in deciding how inputs will be used to accomplish targeted results. Thus, managers can focus their energies on achieving those results instead of concentrating them on the political games necessary to secure inputs in the absence of results-oriented measures of performance. Such promise, he added, can act as catalyst for program managers to participate in a meaningful way in the development effort (1996, 142).

CENTRAL QUESTION AND HYPOTHESES Considering the difficulties in defining outcome budgeting and the resulting multiplicity of goals and objectives, this essay investigates the perspective of some experts, direct participants, and experienced users that believe constitutes outcome budgeting, in terms of its goals and objectives. and objectives? This research question seeks to determine a certain level of agreement about three most considered objectives of outcome budgeting, which are: a. Improvement of fiscal discipline by limiting expenditures;
b.

The study specifically addresses

this main question: What is outcome budgeting conceptually, in terms of its goals

Increase of program effectiveness and public accountability by promoting a new focus on results and service quality; and

c. Improvement of decision-making with objective information. The researcher hypothesized that: H.1.) There is a difference in terms as to outcome budgeting goals and objectives at the federal and state government levels. H.2.) There is a difference in terms as to outcome budgeting goals and objectives at the federal and local government levels.

H.3.)

There is a difference in terms as to outcome budgeting goals and objectives at the state and local government levels.

This study provides some insights into the concept of outcome budgeting and how such budgeting system could deliver on its promises and potentially receive serious consideration as a future major budgetary reform in the public administration literature. The potential success of such rationale budgeting system could lessen the impact of political decisions into the budgetary process. The efforts at reinvention in terms of administrative reforms, in particular outcome budgeting reforms, will play an important catalytic role for improving organizational effectiveness and the budget process in the 21st century. Such efforts will certainly provide momentum in moving governments around the world toward being more democratic, entrepreneurial and catalytic in the delivery of services. Thus, this study will be meaningful in the academic field and practice of administrative reform. RESEARCH METHODOLOGY The study used a quantitative approach to collect and analyze data focusing on outcome budgeting conceptualization and implementation at all levels of government in the United States. Through the use of a survey instrument, the researcher collected quantitative data focused on the ABFM2, AABPA3, GFOA4, and NASBO5 member assessment of what constitutes an outcome budget. A thousand surveys were distributed to members randomly drawn from the directories maintained by above-mentioned
2 3

ABFM Association of Budget and Finance Management AABPA American Association of Budget and Program Analysis 4 GFOA Government Finance Officers Association 5 NASBO National Association of State Budget Officers

organizations. The survey questions relating to the three hypotheses of difference in terms as to outcome budgeting goals and objectives across government levels are the following:

Please tell us to what extent you agree or disagree with the following question: Why do organizations implement outcome-based budgeting? SA Improvement of fiscal discipline by limiting growth in expenditures. Increase of public accountability by promoting a focus on results. Increase of program effectiveness by promoting a focus on service quality. Improvement of executive decision-making with objective information. A N D SD*

*SA- Strongly Agree; A-Agree; N-Neutral; D-Disagree; and SD-Strongly Disagree

The sample size was split into three sub-samples of 500, 250, and 250 for the local, federal, and state government levels respectively. Overall response rate increased to 22% (Federal level, 28%; State level, 38%; and Local level, 11%), after two mailings, email messages, and telephone calls. The data collected were subjected to univariate and chi-square analyses, and Scheffes procedure whenever the separation of means was deemed appropriate (for ordinal data that were treated as if converted to interval level). RESEARCH FINDINGS AND DISCUSSION OF DATA The findings are presented for each question asked on the survey and the tables depicted below include summary statistics on the responses, for each level of government, provided by members of ABFM, AABPA, NASBO, and GFOA.

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When the cross-tabular analysis and the Scheffes procedure were significant for a particular question, we considered both results if these tests did not lead to a conflicting conclusion. In the affirmative, we considered only, for the conclusion, the results of the cross-tabular analysis, which provides more information. Generally, we counted opinion categories agree and strongly agree together as yes, or considered these categories as constituting an agreement by levels of government to a requirement for outcome budgeting. On the other hand, we counted opinion categories disagree and strongly disagree together as no, or considered these categories as constituting a disagreement by levels of government to a requirement for outcome budgeting. Four questions or statements relate to the three hypotheses and probe the multiplicity of views, among public employees, with respect to outcome budgeting goals and objectives. 1. Improvement of fiscal discipline Respondents were asked whether government agencies implement outcome budgeting to improve fiscal discipline by limiting growth in expenditures. The findings are summarized in Table 1.

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Table 1. Government respondents opinions on whether outcome budgeting is implemented to improve fiscal discipline by limiting growth in expenditures.

Please tell us to what extent you agree or disagree with the following question: Why do organizations implement outcome-based budgeting? SA 1. . Improvement of fiscal discipline by limiting growth in expenditures A N D SD

Government Level Federal Local State Total (N)

Opinion Category 1-SD (%) 8.70 3.57 3.30 11 2-D (%) 24.64 28.57 31.87 62 3-N (%) 33.33 23.21 38.46 71 p-value = 0.7060 Standard deviation 1.01 1.04 0.88 4-A (%) 30.43 37.50 24.18 64 5-SA (%) 2.90 7.14 2.20 8

Mantel-Haenszel Chi-Square = 0.14 Federal Local State

MeanSM 2.94a 3.16a 2.90a

Significant at 5%. Highly significant at 1%. SM Separation of means--Any two means with the same superscript a, or b, or c within a column are not significantly different at the five percent level of probability using Scheffes method.

The results fail to support the three hypotheses of difference in terms as to outcome budgeting goals and objectives across government levels, as they indicate that there is no statistically significant difference in perceptions across levels of government with respect to outcome budgeting as implemented to improve fiscal discipline by limiting growth in expenditures (Table 1). The percentages indicate little support for this proposition.

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Overall, the mean values of public employees perceptions indicate that federal and state respondents tended to disagree, whereas local respondents expressed neutral views with respect to this outcome budgeting objective (although results were not statistically significant). 2. Increase of program effectiveness and public accountability Two questions or statements below relate to these three hypotheses of difference in terms as to outcome budgeting goals and objectives across government levels and probe whether there is a difference among public employees perceptions with respect to public agencies implementing outcome budgeting in order to increase program effectiveness and public accountability. The first question probes whether outcome budgeting activities are implemented by government agencies with a view of increasing public accountability by promoting a focus on results. The findings to this question are reported in Table 2.

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Table 2. Government respondents opinions on whether outcome budgeting is implemented to increase public accountability by promoting a focus on results.

Please tell us to what extent you agree or disagree with the following question: Why do organizations implement outcome-based budgeting? SA 2. Increase of public accountability by promoting a focus on results. A N D SD

Government Level Federal Local State Total (N)

Opinion Category 1-SD (%) 1.45 0.00 0.00 1 2-D (%) 7.25 3.57 1.10 8 3-N (%) 21.74 8.93 12.09 31 p-value = 0.0007** Standard deviation 0.88 0.67 0.68 4-A (%) 52.17 66.07 53.85 122 5-SA (%) 17.39 21.43 32.97 54

Mantel-Haenszel Chi-Square = 11.50 Federal Local State

MeanSM 3.77b 4.05ab 4.19a

Significant at 5%. Highly significant at 1%. SM Separation of means--Any two means with the same superscript a, or b, or c within a column are not significantly different at the five percent level of probability using Scheffes method.

These results show a statistically significant difference in the magnitude of public employees perceptions with respect to outcome budgeting as implemented to increase public accountability by promoting a focus on results (2MH**, Table 2). Generally, an overwhelming majority of local and state respondents (about 86.00%, at each level), compared to a lesser proportion of federal respondents (69.56%), agreed with the view that outcome budgeting is implemented to achieve this objective. These results, while lending considerable support to the three hypotheses

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of differences in terms as to outcome budgeting goals and objectives across government levels, yet fall in line with one of the stated purposes of the GPRA (OMB, 1993). This is because differences are only in magnitude: the majority of respondents, at each level of government, expressed an agreement with respect to outcome budgeting as implemented to increase public accountability by promoting a focus on results. On the other hand, when considering the statistical significance of the results of separation of the mean values of public employees perceptions, only the first hypothesis (H.1.) of difference, in terms as to outcome budgeting goals and objectives between the federal and state government levels, is supported. But, the results of separation of means of public employees perceptions do not support the hypotheses of differences between the federal and local government levels (H.2.), on the one hand, and the state and local government levels (H.3.), on the other hand. This is reflected in the fact that state and local respondents were more likely to have means that suggest agreement with respect to outcome budgeting as implemented to increase public accountability by promoting a focus on results.

The next question probes whether outcome budgeting activities are implemented by government agencies with a view of increasing program effectiveness by promoting a focus on service quality. The findings to this question are reported in Table 3.

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Table 3. Government respondents opinions on whether outcome budgeting is implemented to increase program effectiveness by promoting a focus on service quality.

Please tell us to what extent you agree or disagree with the following question: Why do organizations implement outcome-based budgeting? SA 3. Increase of program effectiveness by promoting a focus on service quality. A N D SD

Government Level Federal Local State Total (N)

Opinion Category 1-SD (%) 0.00 0.00 0.00 0 2-D (%) 4.35 5.36 3.30 9 3-N (%) 27.54 12.50 14.29 39 p-value = 0.6746 Standard deviation 0.79 0.72 0.59 4-A (%) 49.28 64.29 73.63 137 5-SA (%) 18.84 17.86 8.79 31

Mantel-Haenszel Chi-Square = 0.18 Federal Local State

MeanSM 3.83a 3.95a 3.88a

Significant at 5%. Highly significant at 1%. SM Separation of means--Any two means with the same superscript a, or b, or c within a column are not significantly different at the five percent level of probability using Scheffes method.

The results in Table 3 indicate that there is no statistically significant difference in public employees perceptions across levels of government with respect to outcome budgeting as implemented to increase program effectiveness by promoting a focus on service quality. Thus, these results do not offer support for the three hypotheses (H.1., H.2., and H.3.) of differences in terms as to outcome budgeting goals and objectives across government levels.

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These results are consistent with one of the stated purposes of the GPRA (OMB, 1993) and findings obtained by Melkers.and Willoughby (2001). There seems to be some degree of agreement, across government levels, reflected in the majority of respondents having expressed an agreement with respect to this objective. 3. Improvement of decision-making with objective information The question or statement below relates to the three hypotheses (H.1., H.2., and H.3.) of differences, across government levels, and probes whether there are differences among public employees perceptions with respect to government agencies implementing outcome budgeting in order to improve decision-making with objective information. Respondents were asked whether outcome budgeting system is implemented by government agencies in order to improve executive decision-making with objective information. The findings to this question are reported in Table 4.

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Table 4. Government respondents opinions on whether outcome budgeting is implemented to improve executive decision-making with objective information.

Please tell us to what extent you agree or disagree with the following question: Why do organizations implement outcome-based budgeting? SA 4. Improvement of executive decision-making with objective information. A N D SD

Government Level Federal Local State Total (N)

Opinion Category 1-SD (%) 0.00 0.00 0.00 3 2-D (%) 2.90 1.79 0.00 47 3-N (%) 30.43 16.07 18.68 107 p-value = 0.0615 Standard deviation 0.81 0.71 0.69 4-A (%) 42.03 55.36 51.65 117 5-SA (%) 24.64 26.79 29.67 29

Mantel-Haenszel Chi-Square = 3.50 Federal Local State

MeanSM 3.88a 4.07a 4.11a

Significant at 5%. Highly significant at 1%. SM Separation of means--Any two means with the same superscript a, or b, or c within a column are not significantly different at the five percent level of probability using Scheffes method.

The results in Table 4 indicate that there is no statistically significant difference in public employees perceptions across levels of government with respect to outcome budgeting as implemented to improve executive decisionmaking with objective information (although results are statistically significant at 10% level). Thus, these results do not offer support for the three hypotheses (H.1.,

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H.2., and H.3.) of differences in terms as to outcome budgeting goals and objectives across government levels. There seems to be some degree of agreement, across government levels, reflected in the majority of government respondents (at least 67%, at each government level) who generally expressed an agreement with respect to this objective. (2001). CONCLUDING REMARKS AND IMPLICATIONS The findings from this study are, while applicable to the samples drawn from the directories maintained by the Association of Budget and Finance Management (ABFM), the American Association of Budget and Program Analysis (AABPA), the National Association of State Budget Officers (NASBO), and the Government Finance Officers Association (GFOA), most, next most, and least likely generalizable to the broader budgeting and finance population, respectively at the state, federal, and local government levels. agencies. However, the study has limited applicability when considering the context of the budgets of the various government The study is directly applicable to business-like activities of the government. There are concerns that the study may not be applicable to nonbusiness-like activities of government such as research and development, education and training, healthcare, regulation, and recreation (including museum) agencies or institutions. In these cases, the issue of performance measures, in particular outcome measures, and their connection to the budget is far more complex and beyond the scope of this study. The results show a statistically significant difference in the magnitude of public employees perceptions with respect to outcome budgeting as implemented to increase public accountability by promoting a focus on results. Generally, an These results are consistent with those of Melkers and Willoughby

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overwhelming majority of local and state respondents (about 86.00%, at each level), compared to a lesser proportion of federal respondents (69.56%), agreed with the view that outcome budgeting is implemented to achieve this objective. These results indicate some degree of agreement in perceptions across levels of government as reflected in the majority of respondents, at each level of government, who have expressed agreement with respect to this objective. These results are in conformity with one of the stated purposes of the GPRA (OMB, 1993). Overall, the results show some degree of agreement, across government levels, with respondents who have expressed overall agreement with respect to outcome budgeting as implemented to: with objective information. The respondents did not believe that the motive behind outcome budgeting implementation lay in the improvement of fiscal discipline by limiting growth in expenditure. Considering that the respondents were consistent in their answers to the survey questionnaire, across all levels of government, the conclusions drawn from this study are of considerable interest, as they highlight the lack of agreement about outcome budgetings conceptualization across government agencies in the United States. The results, suggesting the lack of agreement in perceptions across levels of government about the goals and objectives of outcome budgeting, raise some concerns. Outcome budgeting would not gain widespread acceptance if the concept were not well defined and agreed upon by many government stakeholders. 1) increase program effectiveness by promoting a focus on service quality; and 2) improve executive decision-making

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