Budget Classifications and Reform

1. Budget Classificationsand Reform

2. Point of View • A CYNIC knows the price of everything and the value of nothing • A SENTIMENTALIST sees value in everything and doesn’t know the price of anything

3. What Budgets Do • Allocate public resources, control agency operations, manage service delivery • Stateplans, priorities, performance, and costs • Have been used more for control than for resource allocation • Have focused on inputs rather than outcomes

4. Budget Strategy Map • Inputs (what you bought) • Outputs (tasks, activities, what you did) • Outcomes (results, what you got)

5. Budget Classification • Your budget can be based on: • Organizations • Items Purchased • Activities or tasks • Function, purpose, or program

6. Budget Formats • LINE ITEM (INPUT) BUDGET • Based on items purchased • (e.g., cars, salaries, gallons fuel) • Control • PERFORMANCE BUDGET • Tasks, activities, or direct outputs • (e.g., miles of street swept, police patrol hours) • Management • PROGRAM BUDGET • Based on a program or purpose or final product • Defense, homeland security • Planning

7. Budgeting Flaws • Administrative-department basis • Big aggregate, not outcome-focused • Budget conventions • Easy to conceal true costs • Single-Year Basis • No profile or indication of progress over time • Input orientation • Do you get more if you spend more? • The question of value • Is the program worth the cost?

8. Line-Item or Input Budgets • Classifies according to what is bought • Simple • Easy to understand • Easy to compare to previous years • Good for small organizations

9. Problems withLine-Item or Input Budgets • Doesn’t tell you what is being done or why • Doesn’t tell the cost of an activity • Not really result oriented

10. Performance Budgets • Classifies according to activities • (miles paved, hours taught, gallons treated) • Activities are measured by cost and efficiency • ($150k/mile, $.02/gallon) • Performance is monitored (planned v actual) • Outputs can be tied to producing a result • Additional elements include: • Demand • Workload • Productivity • Effectiveness

11. Problems With Performance Budgets • Exposes managers to scrutiny, holds them accountable • Lawmakers not used to this format • Doesn’t question whether the activity is appropriate or worth the cost • Expensive to develop

12. Program Budgets • Expenditure according to consumer output or public objectives • Product/service lines • Missions • Outcomes

13. Problems With Program Budgets • Program may have more than one public objective • Is a military academy higher-education or defense? • Cost estimates can’t be used to manage • Shared costs throughout a program • Programs aren’t accountable…departments are • Little impact on decisions

14. New Performance Budgeting • Objectives / Strategic Plan (mission, vision) • Performance Measures (goals, measures) • Flexible execution (accountable but empowered) • Reporting (annual results published) Challenges: • Agree on what must be accomplished • How to deal with cross-agency issues • Costs must be tracked • Responsibility without control • Trust with no micromanagement • Refocused audit • Information overload • Outcome measurement

15. Program Assessment Rating Tool (PART) • Green/Amber/Red • Basic questions: • Do you have a plan? • Do you have strategic goals? • What are your measures? • Are you improving/declining? • DHS Seven Strategic Goals • Awareness • Prevention • Protection • Response • Recovery • Service • Organizational Excellence

16. Alternative Budget Formats • Planning, Programming, and Budgeting System (PPBS) • Zero-based Budgeting (ZBB) • Target-Based Budgeting

17. Conclusion • All models are wrong...some are useful (George Box) …This applies to budget formats also • Budgets can help to allocate, control, plan, or manage • Budgeting is becoming more sophisticated