The Big Squeeze

The coming fiscal crisis compels an effort to wring savings out of the budget by cutting poor-performing programs.

Thousands of migrant and seasonal farm workers-who earn low wages and minimal benefits and face considerable uncertainty about when they'll see their next paycheck-can turn to a handful of federal programs administered by at least five Cabinet departments for help finding a steady year-round job.

The various programs serve a population severely in need, but they inevitably are uneven in both effectiveness and the return on tax dollars invested in them. With a fiscal storm on the horizon, the luxury of multiple programs serving similar needs with varying degrees of success is one that the government probably can't afford.

Comptroller General David M. Walker of the Government Accountability Office says that to address a rapidly approaching budget crisis, the U.S. government must:

• Adopt new approaches to accounting and reporting and new budget control mechanisms to consider the long-term implications of spending and tax policies.
• Develop ways to measure the effectiveness of government programs over the long run.
• Re-examine the base of current federal activity, and question the need for, or adequacy of, existing programs and policies.

Unless political leaders act to right the fiscal ship, Walker says, by 2040 they might be forced to cut total federal spending by 60 percent to balance the budget.

Federal managers can make an important contribution to re-evaluating the baseline, Walker says. By honing techniques for measuring whether programs work as intended, they can arm administration officials and legislators with information needed to allocate scarce money efficiently.

Such an effort is already under way and has gradually gained momentum since the passage of the Government Performance and Results Act in 1993. But the looming fiscal imbalance "should serve as an additional incentive for people to move to performance-based budget concepts," Walker says. "The question is: Will it?"

Starting With PART

Most agencies already are making strides in performance measurement, says Robert Shea, an Office of Management and Budget official who heads a Bush administration management initiative aimed at connecting budget decisions to program performance.

Shea oversees agencies' use of the administration's Program Assessment Rating Tool, a questionnaire designed to help OMB evaluate programs. It's difficult to define what constitutes a "program," and even more of a challenge to find credible data to assess results, but the PART is a start.

OMB uses answers to the questionnaire to assign programs one of five ratings: effective, moderately effective, adequate, results not demonstrated, or ineffective. So far, OMB has evaluated 40 percent of all federal programs. Another 20 percent will be assessed in the 2006 budget that's about to be sent to Congress. The remainder will be covered in the 2007 and 2008 budget cycles.

Shea thinks of the PART more as a management tool than as a means of identifying targets for budget cuts. But as money gets tighter, "we have to focus more resources on what works, and the PART is the primary tool to make that judgment," he says.

Through the PART process, for example, OMB officials noticed that one of the programs designed to assist itinerant agricultural workers-the Labor Department's Migrant and Seasonal Farmworkers grant program-duplicated other efforts. A nationwide network of 3,500 one-stop career centers operated by the Labor Department provides similar career counseling, evaluators found. They also noted that the program focuses too heavily on temporary support services, such as emergency cash assistance, that haven't been shown to make sustainable improvements to the workers' economic well-being. The White House has recommended cutting the Labor grant program based on its PART results.

The Bush administration developed the PART to put a magnifying glass to specific programs. But agencies' growing emphasis on achieving results stems from the Government Performance and Results Act, which requires them to set goals and establish methods for evaluating progress toward meeting them. Annual performance and accountability reports required under GPRA, combined with PART evaluations, have helped federal executives sharpen their focus. "Indisputably, more program [managers] can tell you what their goals are than before," Shea says.

Budget pressures also will compel managers to pay more attention to investigating fraud, boosting worker productivity and rethinking the role their agencies and programs play in achieving societal goals, analysts predict. Better management alone won't solve the coming budget problems, but could make a significant contribution, Walker says.

Outside Looking In

There's little way of knowing how much money the PART evaluation will save the government, because the ratings are simply a device that could be used to prioritize spending and cut waste in tough times, Shea says. But observers outside government suggest that management improvements, spurred by the PART or other performance critiques, could produce substantial savings.

In a 2004 study published in the McKinsey Quarterly, Thomas Dohrmann, an associate principal at the consulting company's Washington office, and Lenny Mendonca, director of its San Francisco office, note that in recent years, the federal government hasn't boosted productivity as much as the private sector.

Federal data suggest that the rates of gain in the two sectors were similar until 1987, when the private sector began to shoot ahead. The government stopped publishing productivity data for the public sector in 1994, but the McKinsey team thinks it's unlikely that there's been a significant gain in government productivity in the past decade. Meanwhile, private sector productivity has been growing at an annual average rate of 3 percent since 1995.

By cutting in half the gap in growth rates, the government could boost productivity by 5 percent to 15 percent during the next decade, saving between $104 billion and $312 billion each year, the McKinsey study notes. Government productivity could be enhanced by leveraging technology, streamlining services, consolidating purchases to capitalize on the government's buying power, and outsourcing services that are not mission-related, such as real estate management, the study authors say.

A group of experts at the consulting firm Accenture is developing a method for assessing the value of investment in public programs. The firm's "public sector value" model is intended to help agencies weigh program costs against benefits. It is based on the shareholder value concept that private sector companies use to assess their performance. It's tricky to apply the model in the public sector, because government agencies aren't concerned about profits, acknowledges Mark Younger, an Accenture partner based in Manchester, England. But agencies that have collected performance data can use it to good effect, he says.

Better evaluation of federal programs also is the principal focus of the nonprofit Coalition for Evidence-Based Policy, begun in 2001 under the auspices of the Council for Excellence in Government and devoted to promoting government policymaking based on rigorous evidence of program effectiveness. Coalition founder Jon Baron says the government could learn from scientific practices-for example, medical research in which test treatments are administered to one group of patients while another receives placebos.

The coalition has convinced OMB to add a section in its PART guidance encouraging agencies to use the results of such randomized control experiments as evidence that programs are working. Congress likely would be receptive to such results, Baron says, because the randomized control concept is widely understood.

Such initiatives, however, probably will not be enough to satisfy conservatives who insist that government simply has grown too big. They sometimes list among their goals the idea of "starving the beast"-forcing government to become leaner by depriving it of revenues through tax cuts.

So far, that strategy has not worked, and borrowing has replaced tax revenues as a means of financing a government that's been growing. But there is a blueprint for an assault on the spending side, developed last year by the Cato Institute, a Washington-based libertarian think tank whose chairman is former Council of Economic Advisers member William Niskanen.

Cato set out five criteria, any one of which, it said, justified eliminating a federal program. Programs should be dropped if they are:

• Wasteful: having high levels of fraud and abuse; duplicative, obsolete, mismanaged or ineffective.
• Promoting unjustified redistribution of wealth.
• Actively damaging society-for example, by distorting the economy or reducing individual freedom.
• Better performed by state and local governments.
• Better performed by private businesses or charities.

Among the larger programs that flunked at least three of these tests, according to Cato, were the elementary and secondary education programs of the Education Department ($25 billion); the low-income housing assistance programs of the Housing and Urban Development Department ($22 billion); and the Agriculture Department's Farm Service Agency ($17 billion). The Interior Department's Bureau of Reclamation ($1.2 billion) flunked all five.

Termination, privatization or devolution of the programs in the Cato study would save $300 billion a year, which would go a long way toward balancing the budget by 2009, says Chris Edwards, director of tax policy studies at Cato.

Deaf Ears

It's not clear, Edwards notes, that Congress is inclined to pay much attention to program evaluations produced by Cato, OMB or anyone else. NASA, for example, "has floundered with poor management, cost overruns and unclear goals," he argues, but has continued to receive regular funding increases.

Unlike Cato's list, OMB's program evaluations aren't necessarily aimed at reducing funding, administration officials say. A poor PART score could mean that a program needs more money to realize its potential. Conversely, a failing grade or the inability to demonstrate results doesn't necessarily produce a cut unless the program is judged as duplicative or there seems no chance of improvement.

In his fiscal 2005 budget proposal, President Bush recommended axing 13 programs that performed poorly on the PART, including the Labor Department's Migrant and Seasonal Farmworkers grant program. But in appropriations bills enacted last year, Congress funded all but one of the 13-the Small Business Administration's Business Information Centers, which earned a "results not demonstrated" mark. Not only were the programs retained, but most received close to the same level of money as the previous year.

Shea concedes that this isn't exactly the result he'd hoped for after stepping up efforts to familiarize lawmakers with the PART. "They may well determine that a program we propose to terminate should instead be reformed," he says. But OMB would like to see "some action to address the concerns we've raised" in the evaluations.

Some of the programs are required by law and would have had to be cut at the authorization, not appropriations, stage, agency managers noted. Such is the case with Labor's migrant worker program, which was established under the 1998 Workforce Investment Act. The White House has asked lawmakers to consider dropping the program when they take up legislation to reauthorize the act this year.

Administration officials will continue to promote the PART on Capitol Hill, Shea says, and will renew efforts to "explain to Congress what budget and performance integration is all about." As part of those efforts, he will discuss the administration's request that agencies submit budget justifications organized around performance goals. The requirement has forced many agencies to submit both a traditional and a performance-based justification, because some appropriations subcommittees have been slow to embrace the reorganized document.

The Veterans Affairs Department started submitting its budget in a performance-based format in the fiscal 2004 cycle, says Mark Catlett, VA's principal deputy assistant secretary for management. VA formerly split its submission into 45 different appropriations categories, he says. But starting in fiscal 2004, the department organized its justification into broader categories based on services provided for veterans. "We were consolidating information," Catlett says. "We would still have the same amount of detail there . . . just organized differently."

Even though VA officials met with appropriators before submitting the performance-based budget justification, explained the changes and provided a document to link the old format to the performance-based one, appropriators weren't satisfied. They said the new documents lacked detail and the new format made it harder for them to find information. So the agency came up with a compromise format for its 2006 budget submission.

Congressional skepticism notwithstanding, the VA has bene-fited from the effort to organize its budget justifications around performance goals. The department now has an easier time seeing where money is spent and how investments could translate to better services, says William Campbell, who preceded Catlett as head of VA's budget efforts.

Authorization and oversight committees are showing more interest in performance information, Shea says. OMB has offered to brief every committee on the PART, he says, and many have accepted the offer. Rep. Todd Platts, R-Pa., chairman of the House Government Reform Subcommittee on Efficiency and Financial Management, convened hearings on budget and performance integration and introduced legislation in the last session of Congress that would require future administrations to continue performing PART-like program analyses. The bill didn't pass, but he reintroduced it in early January.

"The budget is and will always be a political document," Platts says. "It sets forth the priorities of the president, as it should. Performance information is valuable independent of the budget process."

The majority-about 80 percent-of recommendations coming out of the PART process aren't "necessarily about taking money away [from programs] or redirecting money" but are simply seeking to improve management, Platts says. "A program might be identified as having problems and get the same amount of money, but that doesn't mean nothing has changed. It will hopefully get a better outcome for that money."

Statistical State of the Nation

If program performance information doesn't necessarily provide a basis for reducing federal spending, then the question naturally arises as to how decisions will be made if the government simply cannot tolerate the rising debt load that current spending and taxing policies cause. So far, the easy way out has been to inflict across-the-board reductions, such as the 0.8 percent cut Congress voted for domestic programs in 2005. That approach, of course, spares lawmakers from actually judging the merits of the programs they're funding.

How much better would it be if the government actually were able to re-examine the base of taxing and spending decisions that have accumulated in the past 60 years or so? Walker is working on tools that might give Congress and the president the wherewithal to make such evaluations.

In November, GAO published a long report (GAO-05-1) proposing a program to develop a system of national indicators with which to "assess the U.S.A.'s position and progress at home and as compared to other nations." In a letter to Congress, Walker noted that the United States already has measurement systems that track health care and aspects of economic growth, among others. But, he said, "We could use comprehensive key indicator systems on a broader array of critical issues to help generate a broader perspective, set priorities, test effective solutions and track progress toward achieving results. . . . Across the federal government, such systems could inform a much needed re-examination of the base of existing programs, policies, functions and activities."

Such indicators would take years to develop. For the shorter term, Walker has been working on a series of what he calls "21st century questions" that policymakers might ask themselves as they consider what roles government will play in the coming era of fiscal crisis.