What We're Paying For

The federal government faces an extreme budget crunch, with the deficit exploding upward after financial bailouts and the economic stimulus package. President Obama knows he must cut unnecessary spending wherever he can find it, while squeezing maximum value out of every remaining dollar.

In announcing his government reform agenda last fall, Obama said he would create a White House SWAT team "to improve results and outcomes for federal government programs while eliminating waste and inefficiency." At the helm, he said, will be a chief performance officer, who "will work with federal agencies to set tough performance targets and hold managers responsible for progress." He also called for eliminating middle management positions in Washington and shifting those staff resources to front-line positions in the field.

To succeed, the Obama administration must bring about a dramatic transformation in transparency and accountability throughout the federal government. The best way is through a system of cascading performance budgets that show how spending is linked to planned results in every program at every level of an agency.

The traditional line-item budget shows program costs by type -- salaries, benefits, supplies, utilities, travel, etc. It reveals how funds are spent, but it says nothing about what agencies should get for that money. These budgets provide little guidance in identifying ineffective programs or uncovering waste.

A performance budget, on the other hand, shows the relationship between spending and results. It provides each organization in the agency measurable, outcome-oriented goals linked to dollar amounts. Performance budgets also offer strategy summaries explaining how each goal should be met and which manager is leading the effort.

The key to making this type of budget work is in not stopping at just the highest levels of a department. A cascaded performance budget shows the relationship between spending and results down through every level and manager in an agency, even out to remote field offices. It shows what service levels and results should be expected each step of the way, including how those results support higher-level goals and link to lower-level ones.

The Government Performance and Results Act of 1993 laid a foundation for moving toward performance budgeting, by requiring federal agencies to have strategic plans and annual performance plans with measurable goals. OMB has built on this requirement in recent years with its budget and performance integration initiative, aimed at getting agencies to link their budget costs to planned results. However, this initiative has been limited to just the goals and measures of the higher-level organizational units, which is where OMB's attention is focused. There is no linkage down to program activities in the field. This is inadequate because it is the local office activities that often determine the success of a program.

Some agencies have moved toward performance budgeting. But their plans generally lack the cascading details showing how costs are expected to generate results. They fail to track goals, strategies, and costs all the way through the organization down to first-line supervisors. They give little clue as to who will do what, why, where and at what cost -- or how those plans support agencywide goals. This is exactly what the Obama administration will need to see if its government accountability reforms are to succeed.

Government organizations often are reluctant to show detailed cost and performance relationships on a program-by-program or manager-specific basis. And they aren't being pushed to do so by OMB or Congress, which has shown no interest in this type of transparency.

Congress has been remiss in its lack of attention to the relationship between spending and measurable results. Committees have ignored performance-based budgeting almost entirely, showing little knowledge of or interest in this crucial reform. Justifying favored spending based on the size or importance of a problem is much easier than basing it on objective measures of expected outcomes. You won't find many congressional earmarks highlighted in an agency's annual performance plan, because their relationship to a program's planned outcomes often is nonexistent.

Since 1998, a cost accounting standard in government has been aimed at showing the unit costs of program activities and outputs, such as per inspection conducted or client served. This data would be especially revealing in performance budgets when linked to program results. But according to a 2007 Government Accountability Office report, few agencies meet this standard. Unfortunately, OMB and Congress don't seem to mind, since neither has pressed agencies for better compliance.

If the new administration requires real performance budgets from agencies, the new chief performance officer and SWAT team will have powerful tools to do their jobs. So, too, will agency managers, congressional appropriators and oversight committees.

And if these cascaded budgets were posted online for public viewing, government transparency and accountability would be truly revolutionized. This would be the type of change Obama promised.

John Mercer is the former counsel to the Senate Governmental Affairs Committee, where he proposed and developed the 1993 Government Performance and Results Act. Previously, he was deputy assistant secretary for program policy development and evaluation at the Housing and Urban Development Department.