Now is the Time for Performance-based Budgeting
The American Rescue Plan Act (ARPA) provides an opportunity for state and local governments to reorient budget processes around performance. Focusing on performance can help continually improve programs, increase accountability, and distribute resources more effectively. The framework provided in the SLFRF Overview of the Final Rule, and SLFRF Compliance and Reporting Guidance provides program objectives and measures that can act as a foundation for transitioning to performance-based budgeting.
What is Performance-Based Budgeting?
Performance-based budgeting allocates funds to programs based their contribution to priority goals, objectives, and services. Measuring results and tying them to the allocation of resources results in governments that are more effective, efficient, and accountable. To simplify reporting and make benchmarking easier, measures should match requirements of the funding source, industry standards, and metrics from evidence-based practice studies.
Transitioning to Performance-Based Budgeting
Define Programs and Program Structure – Programs should be defined based on the mandated activities, services delivered and alignment to the organizational structure. As recommended by the ARPA program, it is important to consider evidence-based practices when establishing your programs. Governmental organizations can do this by creating program mission statements, strategic goals, and service objectives. This process can identify programs with similar outcomes which can then be aligned to reduce duplication of efforts and improve effectiveness.
Identify Performance Measures – Governments should focus on two types of measures: output and performance. Output measures describe what was produced while performance focuses on what was achieved. For example, the output measure for a self-sufficiency program can be the number of participating households. The performance measure for the same program can be the amount of money saved by participants. Developing measures for both output and performance helps to capture both the efficiencies and effectiveness of a program.
Align the Organization – Employees and leadership should think about results and contributions to the mission and goals of the organization. Robust communication and strategic plans will aid the transition to performance-based budgeting and improve acceptance by staff. Engaging community stakeholders early in the process will build trust and better reflect what stakeholders want to achieve.
Develop a Data Collection and Monitoring Process – The measures must be paired with effective data collection and monitoring. The collection and reporting process provides opportunity to discuss ways to improve the program operations. The data provides a tool to engage employees in a discussion on how to remove obstacles to help make the program more successful.
Unintended Consequences
It is also important to watch for potential unintended consequences and adjust measures and management as needed. Common unintended consequences include:
“Creaming” – measuring only the work that is likely to show success. For example, encouraging participation by people who will likely succeed in a program while discouraging others who really need assistance.
“Neglecting” – deferring work that is not being measured until it becomes a crisis.
“Transferring” – moving a challenging service or program from one entity to another. For instance, evicting public housing residents behind on rent will improve Tenant Account Receivable scores, but will increase homelessness.
“Escalating” – driving to increase performance outcomes results in negative impacts such as poor-quality service.
Leveraging ARPA to Implement Performance-based Budgeting
Transitioning to a performance-based budgeting model and developing measures for performance can be a challenging process. Fortunately, the SLFRF component of ARPA can be leveraged to jump start the process for recipients. SLFRF requires program designs that are objective focused and produce measurable outcomes. State and local governments can use leverage the experienced gained through SLFRF and apply this framework to programs regardless of revenue source to achieve to increased accountability, transparency, and engagement with citizens.
Bronner’s team of experts can lead government entities through the process of being ARPA compliant, and in establishing a process for performance measurement.
Click here to learn how Bronner can assist your organization in developing performance measurement for budgeting.