Public Budgeting in
A Twentieth Century Retrospective
By Charlie Tyer and Jennifer Willand
ABSTRACT. Reviewing the development of budgeting in America in the twentieth century, this article assesses where public budgeting is as it approaches the twenty-first century. Five periods are identified in American budgeting, drawing upon the work of Schick and Rubin: control, management, planning, prioritization and accountability. Budgeting in the 1990s is described as characterized by accountability and a "new" performance budgeting emphasis. The authors argue that the budget reform movement is still alive and well in American government, with local governments once more leading the way.
Introduction: From New York City to Sunnyvale and Rock Hill
As the United States nears the end of the twentieth century it is appropriate that practitioners and students of public administration pause and consider what has occurred during this century in public administration and its many subfields. One of the most important subfields of public administration is budgeting. This article review’s American budgeting during the twentieth century to assess where we are as we prepare to enter the twenty-first century.
The twentieth century began with the focus of activity at the municipal level with an emphasis on budgeting, and in particular in New York City. An argument can be made that as the century ends attention is still upon cities as budgeting evolves in the United States. Admittedly the focus of budget innovation has not omitted the states and the national government during this century. But, we may be ending the century as we started it with attention focused upon local government.
Schick (1966) wrote that, depending upon conditions at a given time in history, budgets have tended to emphasize financial control, managerial improvements, or planning. Rubin (1996), writing thirty years later, suggests that two additional emphases should be added to reflect dominant trends in the 1970s and 1980s, and the 1990s: prioritization and accountability respectively. While none of these emphases are unique to any level of government, and certainly evidence of them can be found at every level, we will argue that the impetus for the latter emphases, just as for the first emphasis of control, appears to be coming from local government to a large extent. (1)
Rubin also emphasizes the importance of historical context as one looks at changes in American budgeting. Budget emphases depend upon the "time and circumstances in which the budget is drawn up." (Rubin, 1996: 112) We shall also argue, like Rubin and Schick, that this is an important observation since too often budgeting is considered a technical process removed from other ideas and forces current at a given time.
Origins and Historical Context of the Budget Idea
It is difficult looking back to imagine government without budgeting (Fleischman and Marquette, 1986). Unlike many other American institutions or practices, however, the concept of budgeting as we know it today did not come to the United States with the early colonists. Rather, it developed in the latter part of the nineteenth century.
At the turn of the century the United States was "the only great nation without a budget system" (Buck, 1929: 10). Congress raised and voted on the money needed to operate the national government in a more or less haphazard manner. The same characteristic was true of states, and local governments as well, with the exception that more state and local variations existed to any particular pattern due to their sheer numbers. In part this legislative dominance was due to the notion of separation of powers and the fear of a strong executive deriving from American colonial experience. The result was that budgeting, to the extent that it can be said to have existed in the sense we know it today, was the preserve of the legislative branch. This pattern was dominant at all levels of government in the United States.
It was the cities, however, that sparked the reform impulse. Patronage-based political machines of the nineteenth century may be said to have fostered the development of budgeting as we know it. These machines became powerful in large part due to a massive wave of immigration that lasted forty years, from 1880 to about 1920(2) (Ross and Levine, 1996: 150). In the 1880s immigration grew from figures at mid-century of approximately 2.5 million people a year to 5.25 million a year, reaching nearly 9 million yearly in the first part of the twentieth century (Cullingworth, 1993: 23-24). Up to 1880 the United States was rural, Yankee and Protestant (Richard Hofstadter, 1955). However, the industrialization of the United States offered jobs to the immigrants. Thus, the cities became the immigrants new home. With such massive immigration and internal population growth, cities grew in size. Moreover, the immigrants of the late 1800s and early 1900s were from southern and eastern Europe, different than earlier immigrants. As such , their religion, traditions and customs made it harder to assimilate them into American society.
The arrival of these immigrants brought a "clash of political orientations that dominated urban politics for most of the twentieth century" (Ross and Levine, 1996: 151). These ethnic arrivals had a "private-regarding" orientation toward politics which collided with the Yankee Protestants’ "public-regarding" orientation. Others have argued that native Protestants were simply unwilling to pay for projects or government programs which did not benefit them (Hennessey, 1970). Whatever the reason, immigration and the extensive rise of large urban political machines had enormous consequences for American public administration because of the growth of cities and their spending on public services.
In the last decade of the nineteenth century, budgeting was defined as "a valuation of receipts and expenditures or a public balance sheet, and as a legislative act establishing and authorizing certain kinds and amounts of expenditures and taxation" (Schiesl, 1977: 89). The idea of a budget as a control mechanism, however, had been developing since the 1830s but gained momentum after the Civil War with the growth of cities and the expansion of municipal services. By the end of the 1890s there were three basic forms of municipal budgeting. Some cities simply used a tax levy, an approach disliked by reformers due to the lack of control through inattention to the expenditure side of budgeting, coupled with dominance by the city council. Another approach was a tax levy accompanied by detailed appropriations. Missing there, of course, were details regarding revenue estimates. Still others used a tax levy but preceded it with detailed estimates of receipts and expenditures, a practice which found favor with business and middle-class reformers. However, city councils were not legally bound to adhere to these estimates (Schiesl, 1977: 89).
Middle class reformers and business interests united during this period, known as the Progressive Era, to fight the urban political machines in a struggle to reform government. The hallmarks of the Progressive reforms included a desire to establish executive responsiblility in municipal government and weaken the power of the city council or legislative body, to establish nonpartisan government, and to separate politics from administration (Buck, 1929; Fleischman and Marquette, 1986; and Schiesl, 1977). Thus, the public administation movement was born in the 1880s with Woodrow Wilson taking a prominent place as a theorist for the new discipline. Scientific management fit in nicely with the aims of the public administration movement and the urban reformers with its emphasis on efficiency and objective analysis of administrative or management practices to find the "one best way" to perform a task, a philosophy which was appealingly apolitical to reformers. In short, the "growing hostility to doing business in the dark, to ‘boss rule,’ [and] to ‘invisible government,’ became the soil in which the ‘budget idea’ finally took root and grew" (Schiesl, 1977: 90).
Extremely important and influential actors in promoting municipal finance reform were activists in the rising professions of accounting, administration and social work. Chief among these was the New York Bureau of Municipal Research, created in 1907. The Bureau highlighted poor fiscal procedures resulting in inefficiency. It worked to inject uniformity and responsibility in governmental finance. It deciphered how government operated and consequently recommended how to improve government. The New York Bureau of Municipal Research, like other reformers of the era, seized on the business corporation as the ideal model for bureaucratic organization, and promoted scientific management concepts that would promote planning, specialization, quantitative measurement and standardization--the ingredients of efficiency. Thus, the Bureau planted the seeds for training in public administration to produce a skilled pool of administrative technicians who could administer public services capably without regard to politics.
Hence, the municipal expert emerged as a central actor in "political progressivism" to promote and produce a safe, clean and economically managed city (Schiesl, 1977: 128). Budget or fiscal reform was one way to accomplish businesslike management. Other ways included strengthening the executive and civil service reforms. Put in this context, therefore, the stage was set for a progression of reform ideas in budgeting in the United States.
Budget Reforms and Innovations
The reporting of the muckrakers in the Progressive era brought to light public ineptitude and corruption, particularly in large cities.(3) The public administration movement with its scientific management ethic succeeded in creating widespread dissatisfaction with the budgetary methods of the time. Budgetary practices at most levels of government in the United States were dominated by the legislative branch of government. As such, departmental budget estimates at the local level, in most states and the national government were submitted directly to the legislative body. Seldom was supporting data included with estimates, and requests were usually lump sum. In fact, spending requests were not even related to revenue projections or overall spending. Moreover, little standardization existed in accounting. Thus, departments bargained with legislative appropriations committees directly, or city council members locally, and little central oversight existed of departmental spending.(4)
From the Legislative Budget to the Executive Budget
The focal point of initial budget or fiscal reform was the executive budget concept.(5)
Giants of American public administration, like Cleveland, Goodnow and Willoughby, were spokesmen for the idea of the executive budget. Some saw the budget as central to letting the executive make public policy, others saw it as a coordination tool, and still others wanted to use it to deter waste and inefficient government. In short, the budget was to be a method of control.
In 1910 President Taft initiated the Commission on Economy and Efficiency (often referred to as the Taft Commission). The Commission’s report, entitled The Need for a National Budget, was presented to Congress in 1912 and thereby focused national attention on budgeting and sound fiscal management. Among the major recommendations made were the following:
||The President should prepare and present a budget to
Congress (the executive budget idea).|
||A budget message should accompany the budget and should
outline policy proposals of the President as well as include summary
||The Secretary of the Treasury should submit a consolidated
financial report to Congress.|
||Each agency should submit to Congress an annual financial
||Agencies should establish and maintain a comprehensive
accounting system(6) (Cozzetto, 1995:
The Taft Commission’s recommendations became the foundation for the Budget and Accounting Act of 1921 which established an executive budget at the national level in the United States and became the foundation for present day budgeting at the federal level. Cozzetto, in fact, refers to this act as "the most comprehensive, sweeping attempt at budget reform in U. S. history" (Cozzetto, 1995: 21). But, the national government mirrored what was already underway at the state and local level of government in many areas of the United States.
Thus, budget reform in the United States began with the idea of strengthening the executive and simply establishing a budget with estimated revenues and expenditures and some accompanying information. The primary tool used to obtain control was the line-item, or object-of-expenditure, budget. Thus, the executive budget idea was coupled with the line-item budget.
Prior to line-item budgeting, most budgets were lump sum. Line-item budgets simply listed categories (line-items) of expenditure, such as salary, overtime pay, postage, gasoline, office supplies and so forth. These objects of expenditure could be collapsed into broad categories such as personnel, operating and capital expenses. Statutory or administrative controls could be imposed on the transfer of funds from one line-item to another, or between broad categories of expenditure. In addition, another level of oversight was established with the legislative body’s broad discretion in how detailed it appropriated funds.
Line-item budgets were relatively easy to use and understand. Thus, they were attractive to legislative officials. Politically they were attractive because they did not focus explicit attention on substantive policy issues or choices. Thus, line-item budgets had a number of appealing features. They allowed central control over inputs, or money, before they were used. They were uniform, comprehensive and exact. They allowed routines to be established. Line-items provided multiple opportunities for control to occur, such as in purchasing and hiring staff. And, they allowed for budget cutting. With line-items came central budget offices which perpetuated the idea of control (Schick, 1971: 14-43).
Line-items were to bring about more control over public spending. Even during the emphasis on line-item budgeting, however, some authorities had a more expansive vision for budgeting. An example of this early recognition of the limits of line-item budgeting comes from Lent D. Upson, writing in 1924, who said "the average city official confronted with the budget finds nothing in it that enables him to determine in a large way the value of the activities that are rendered the public; or in lesser way the degree of efficiency with which such activities are conducted" (Upson, 1924: 72). Thus, the limitations of line-item budgets were recognized by some observers soon after their adoption. The questions that Upson posed would later be addressed by the concept of performance budgeting.
The New York Bureau of Municipal Research had proposed early in its work that city budgets be on a unit cost basis and show work done as well as work proposed rather than just line-items. The Bureau was not successful in implementing the idea, however, and it took about thirty more years for these ideas to get significant attention again. This came with the report of the first Hoover Commision (the Commission on Organization of the Executive Branch of Government) in 1949. This Commission recommended that budget information for the national government be structured in terms of activities rather than line-items, and that performance measurements be provided along with performance reports (Burkhead, 1961; Mikesell,1995: 171). With the expansion of governmental activity during the New Deal, attention began to shift to management efficiency, particularly at the national level. [Interestingly, the effects of this period on the states was often the opposite of the experience of the national government. While it expanded, the states, due to inelastic taxes and debt restrictions, experienced constraints. Thus, they did not expand as did the national government during this period (Schick, 1971: 29)]. An awareness of the need for efficiency and interest in management improvement was evident also at the local level. This is illustrated by Ridley and Simon’s (1943) Measuring Municipal Activities. With the heightened interest in management came the concept of performance budgeting, the next phase of budget reform and innovation.
Performance budgeting emphasized the things that government does rather than the things it buys. It therefore shifted attention from the means of accomplishment to the accomplishment itself. The Municipal Finance Officers Association presented a model accounting classification emphasizing activity classifications within functions in 1939 and again in the 1940s and 1950s. This had considerable influence on municipal budget practice (Burkhead, 1961: 136). Governmental expansion during the New Deal and World War II led to wider interest in performance budgeting in order to more efficiently use financial resources. Thus, it focused on activities and outputs, things that could be identified and measured.
Performance budgeting encountered a number of problems, particularly at the national level. Budget estimates were "no more meaningful than those in line-item budgets" (Miller, 1996: 95). Work measurement presented problems. Measuring the output of governmental services was imprecise. Inputs could be easily measured, but not outputs. In addition, "performance budgeting lacked the tools to deal with long-range problems" (Miller, 1996: 95).
Schick’s studies of state budget practices in the late 1960s and early 1970s found that they showed a great deal of variation in adoption of key techniques of performance budgeting. His conclusion was that what they adopted did not compare "favorably with performance budgeting’s potential" (Schick, 1971: 59). The narratives added by the reform were not very helpful to policy makers. Workload statistics were introduced which usually gave some indication of the volume of governmental activity, but failed to relate work to costs or performance.(7) And, cost statistics had very little application. Schick’s conclusion was that performance budgeting as a reform was superficial. New information was provided but it did not push out the old (Schick, 1971: 59).
The next budget reform phase emphasized program budgeting and planning. Program budgeting, however, as Miller notes, suffered from a "severe identification crisis in the budgetary literature" (Miller, 1996: 95). Namely, it was used synonymously with performance budgeting and the planning, programming budgeting system budget reform. Jesse Burkhead in his 1956 budgeting text attempted to distinguish between performance and program budgeting by pointing out that a program could be higher in an organization than performance units, and, indeed, could encompass several organizational units. Program budgeting was more forward looking while performance budgeting tended to focus on what had been accomplished already. The key elements of program budgeting included long-range planning, goal setting, program identification, quantitative analysis such as cost-benefit analysis, and performance analysis (Burkhead, 1961: 139).
Planning, Programming, Budgeting System (PPBS)
Program budgeting was one of the key components of the planning, programming, budgeting systems reform (PPBS). It began in the 1960s and received its impetus during the Johnson Administration by Robert McNamara in the Defense Department, and quickly surpassed and shunted aside the notion of performance budgeting. Interestingly the impetus for PPBS did not come from budgeters but from three other sectors: economics, the data sciences, and planning (Schick, 1971: 32).
Keynesian economics’ emphasis on government achieving full employment brought about a restatement of the budget function to one that would provide direction to the economy. From there it was a few steps to using the budget to accomplish fiscal objectives. Thus macroeconomics brought economists into government. Among their analytic concepts were multi-year analysis and projections of costs and benefits. Along with this went systems analysis and operations analysis using new data technology. The third sector influencing PPB was, of course, planning. In addition, the introduction of systems analysis in 1961 in the U. S. Defense Department by the RAND Corporation spurred the development of PPB. After some success in Defense, President Johnson introduced the concept in the remainder of the federal agencies in 1965 as a way in which budgeting could accomplish departmental goals or objectives.
Publicity of the federal budget reform promoted efforts to spread PPB to other units of government in the United States. A State-Local Finances Project (the 5-5-5 project) was funded by the Ford Foundation to test the implementation of the concept in five cities, five counties and five states from 1967 until 1969. Thus, the spread of PPB appeared to be "comparable to that of the executive budget and probably swifter than the dissemination of performance budgeting" (Schick, 1971: 86).
PPBS was an attempt to use rational means of "fusing planning processes, programming efforts, and the budget system" (Miller, 1996: 97). While little was really new among these components, the uniqueness was in the attempt to combine the various elements. Planning was to be used to determine goals and programs to help achieve them. Programming would assist in administering efforts to efficiently accomplish goals. Budgeting would come up with financial estimates of resources needed by agencies to execute the plans.
PPBS failed to live up to its potential in the federal government, although elements of the experiement are said to remain in budget frameworks of several federal agencies (Mikesell, 1995: 175). At the state level, while a great many states said they were using or developing a PPB system, with the exception of one or two states, it had not really penetrated the decision making arenas of state governments (Schick, 1971: 86). Similar comments could be made about local governments.
Interestingly, if PPBS was used as its proponents advocated, the concept included a zero-base budget idea since program analysis would be applied to all programs, old and new. And, it had been tried for a year in 1962 without much success in the Department of Agriculture (Wildavsky, 1975: 278-280; Tyer, 1977). The concept did not gain national prominence, however, until Peter Pyhrr wrote about Texas Instrument’s experience with it in the Harvard Business Review in 1970. In 1972, then Governor Jimmy Carter read the article and the rest is, as they say, history. Carter introduced the idea to Georgia state government and then to Washington when he was elected President in 1976.
Theoretically, ZBB required that programs be justified over and over again so that the traditional base budget which received little or no scrutiny in traditional budget processes was no longer sacroscant. The concept called for identification of decision units, decision packages, ranking of units within packages and evaluation of alternative spending levels for units in the packages. Managers were to provide estimates of different levels of funding, such as below current levels of support, maintenance of the current level, or a higher level of support with explanation of the impact of such alternative funding levels upon their program. Thus, the uniqueness of ZBB was in the formatting of information and the redefinition of budget base to include decrements and not just increases in funding. ZBB at the national level lasted only as long as the Carter Administration and was quickly abandoned by the Reagan Administration upon taking office ( Schick, 1978) or, as one observer put it, "some butterflies were caught, no elephants stopped " (Wildavsky, 1975: 278). No states can be said to have implemented the system as described by Pyhrr, although some did experiment with the concept(8) (Wildavsky, 1975: 294-296). State efforts might be summarized as one observer said of New Mexico’s experiment--the effort was a "small and shaky first step at budget reform..." (LaFaver, 1974: 109), or as in the case of Kansas, ZBB terminology was adopted but existing processes continued which already used a rotating review of state programs (Bibb, 1984: 126-127). The concept was adapted and used by a number of local governments. Two of the earliest cities to experiment with the idea were Garland, Texas and Wilmington, Delaware (Leininger and Wong, 1976; Singleton, Smith and Cleaveland, 1976). Assessments of cities using ZBB usually came to similar conclusions: it was "neither a panacea nor placebo" (Fukuhara, 1978), nor a "magic elixir" which could balance the demands of "inflationary cost increases and citizen anti-tax militancy" (Moore, 1980: 257). Sometimes cities used the concept under another name. Thus, Kansas City, for example, is reported to have used a Balanced-Base-Budget (BBB). Others have simply used something referred to as Decremental Budgeting. Still others have used a variant called Target Base Budgeting (TBB). (See Lewis, 1988; McCaffey, 1981; Miller, 1996; and, Wildavsky, 1975.) All are or can be decremental budgets designed to practice what earlier scholars called Revenue Budgeting, or allowing the availability of revenue to dictate the level of appropriation in a governmental entity, a practice with a long history in American local government. The difference was that ZBB and its offspring became popular in a time when budget constraints were common. Revenue growth had slowed for most governments. Tools were sought which would assist in restraining, if not reducing, public spending.
No "major budgeting system dominated the 1980s public sector landscape" (Hyde, 1992: 328). Rather, the late 1970s and 80s witnessed significant changes in American politics. It was a period of reexamination of public support for government. Demographic changes which had been underway for some time in the United States cluminated in the dawn of the suburban century. With this came public preferences for lower taxes, reduced support for government social services, and more emphasis on personal responsibility. "Doing more with less" became a popular expression which many in government found to be a mandate, if not the motto of the decade. Tax and spending limitation proposals gained popularity after a successful initiative (Proposition 13) in California in 1978 (Sears and Citrin, 1982; Hale, 1993; Kuttner, 1980). Nineteen states added some form of limit on themselves after 1978 ( Joyce and Mullins, 1991: 241). By 1994, 43 states limited local taxes or expenditures in some fashion (Mullins and Joyce, 1996: 77). Thus, the 1980s, and even the 1990s can be characterized as a period of tax resistance if not outright revolt. Before coming to the 1990s, however, it is appropriate that we pause and briefly review the state of budgeting at the end of the 1980s.
Critiques of Budgetary Reform
Traditional budgeting as it evolved in the twentieth century has been characterized as focused upon a single year, relying upon line-items or objects of expenditure to provide control over appropriations, using incremental decision techniques that dealt with inputs and emphasized a concept of budget base that preserved past decisions without subjecting them to reexamination. V. O. Key, in 1940, decried the "lack of a budgetary theory" which overemphasized the mechanics of the budget process rather than confront how to decide how to allocate "X dollars to activity A instead of activity B?" As governmental involvement in society grew during the New Deal and following World War II, choices became even more important.
Verne Lewis, in a 1952 article, introduced the idea of incremental budget requests that would focus upon budget alternatives in terms of levels or quality of service. Meanwhile, Charles Lindblom and Aaron Wildavsky defended the concept of incrementalism setting off a debate about decision making
(Lindblom, 1959; and, Wildavsky, 1961 and 1964). The incrementalists dominated the budgeting literature for nearly two decades (1960s and 1970s). Scholars like Thomas Anton (1966) studied state government and Arnold Meltsner (1971) focused on local government. Incrementalists and budget reformers have debated the pros and cons of reform ideas regularly since the early 1960s. The major reform initiatives have been highlighted in the preceding pages. Interestingly, scholars differ on assessments of budget reform.
Irene Rubin illustrated this debate in her 1990 article "Budget Theory and Budget Practice: How Good the Fit?" Assessing the reform efforts of this past century she wrote:
Some of the most discouraging of the evaluations have been at the federal level. But there is only one federal government, it is highly complex and unusual, and it is not typical of the states or local governments or of public budgeting in general. Historically, state and local governments have often innovated first successfully and then the innovation has spread to the federal government. That such innovation should be judged essentially by what happens in the federal government seems unjustifiable. Budget innovations have been much more widely adopted and implemented at state and local levels... (Rubin, 1990: 181).
Rubin went on to argue that budget innovations are hybridized and adapted, using parts of different reforms to meet the needs of the governmental entity in question. (Schick had earlier noted the hybridization of reforms at the state level in his 1971 book, Budget Innovation in the States.)
Thus, Rubin concluded that state and local government budgeting in the United States reflected many of the practices recommended by budget reformers, acknowledging that the modified reforms had not always worked as advocates wished they had. Thus, reform was not dead, nor necessarily a failure.
Not everyone agreed with this assessment, however. Just a few years earlier, Allen Schick wrote the following: "The age of budgetary reform has passed. . . . ...[T]he cupboard of budgeting innovation appears to be bare; little on the horizon is comparable in scope and ambition to the major reforms that dominated budgeting in previous decades" (Schick, 1986: 124). Perhaps, however, both Schick and Rubin are correct.
In 1953 Catheryn Seckler-Hudson observed about performance budgeting that it was a continuous, on-going process which was not a destination but a pilgrimage--"never perfect, but being perfected--as the light of experience and careful research point the way to greater improvements in the management of public affairs" (Seckler-Hudson, 1953: 32). If budget reform is a never ending, continuous process then assessments of failure are premature since the process continues. And, as Rubin notes, the federal government’s experience is insufficient to generalize about state and local government reform efforts. Given that there are fifty states and over 85,000 local governments in the United States, however, the task of monitoring their activities is daunting at the least. Nevertheless, some efforts have been made which provide insight into budget practice and reform efforts.
CLICK HERE FOR FIGURE 1
Budget Reform in the 1990s: The "New" Performance Budgeting
In the 1990s considerable attention has been refocused upon performance budgeting resulting in a "new" notion of performance budgeting to use Mikesell’s term, or what others have called "Entrepreneurial Budgeting" (Cothran, 1993; Lynch, Hwany and Lynch, 1996). As is usually the case, however, these concepts did not suddently spring upon the scene, but rather became the object of renewed attention and interest as fiscal constraints persisted in many governmental entities.(9) Several things converged though to refocus attention on performance budgeting.
One influence was the 1992 publication of Reinventing Government, How the Entrepreneurial Spirit Is Transforming the Public Sector by David Osborne and Ted Gaebler. They noted among other things what was widely known--Americans are cynical about their government. (See, for example, Kanter, 1989.) As one remedy they proposed a results-oriented budget system (although the term was not unique to Osborne and Gaebler). The idea was to hold governments accountable for results rather than focus upon inputs as traditional budgets and management did. Cost-savings and entrepreneurial spirit would be rewarded. A long term view would be facilitated in terms of strategy, costs and planning for programs. Gaebler was a former city manager turned consultant and Osborne was a writer and consultant. Thus, they had exposure to a wide variety of governments. From this experience they focused on examples they found of enptrepreneuial management in government. A local government example they cited as a "performance leader" was Sunnyvale, California and its focus on outcomes rather than inputs (1992: 142). Other examples of "innovation" at the federal and state level were also cited.
Interestingly, as is often the case, efforts to improve performance and increase economy in the public sector were underway before Reinventing Government was published.(10) At the federal level, for example, the Chief Financial Officers Act of 1990 (P. L 101-576) required the development and reporting of systematic measures of performance for twenty three of the larger federal agencies. The Governmental Accounting Standards Board had already examined the use of service efforts and accomplishments (SEA) reporting for state and local government entities. Beginning in the early 1980s it had encouraged governments to report not just financial data in budgets and financial reports but also information about service quality and outcomes and in 1992 issued a Preliminary Views report on SEA reporting (Wholey and Hatry, 1992) followed by another statement in 1994 (GASB, 1994).
Federal Reform Efforts in the 1990s
One thing that popular ideas like reinventing government do, however, is get the attention of the media and political leaders. Drawing on this attention, the Government Performance and Results Act (GPRA) of 1993 (P. L. 103-62) was passed by Congress. The GPRA drew upon earlier antecedents, such as a report submitted during the Reagan Administration and a bill introduced in 1991 by Senator William Roth that had not been enacted, but was revised and became the GPRA. (See Groszyk, 1995.) This act specifically focused attention on results and performance budgeting. The act requires federal agencies to prepare strategic plans by 1997, to prepare annual performance plans starting with fiscal year 1999, and submit an annual program performance report to the President and Congress comparing actual performance with their plans beginning in the year 2000. Due to its relatively recent passage and phase-in schedule, the GPRA will obviously need some time for assessment.
As the GPRA was becoming law, the National Performance Review (NPR) was coming to the forefront also as an initiative for Federal government reform led by Vice President Al Gore. The NPR embraced many of the ideas of the GPRA and added more attention to performance and results management, calling also for a move toward budgeting based on results.(11) The ‘New" Performance Budgeting, however, draws from earlier performance budgeting ideas and from program budgeting/PPBS concepts as well. It differs from those ideas in that it does not advocate crossing agency lines like program budgeting and PPBS did, however. And, according to Mikesell (1995: 189), it does not concentrate on tasks, activities or outputs as much as the old performance budgeting did, rather emphasizing an outcome focus.
As a result of the activity and interest at the national level in managing for results and performance budgeting, both the General Accounting Office (GAO) and the Congressional Budget Office (CBO) have studied the reform proposals in recent years. The CBO, in a 1993 study, Using Performance Measures in the Federal Budget Process, concluded that performance measurement "is limited in its ability to bring about substantial change" (1993: 44; see also Joyce, 1993). It noted, however, that some of these limitations had nothing to do with commitment but rather with the difficulty of measuring government performance itself, and particularly that of the national government. The greatest obstacle it found was the identification of the measures themselves, in large part because at the national level "so many programs [are] influenced by other actors, including state and local governments, private businesses, and individuals" (Congressional Budget Office, 1993: 44). In so far as performance budgeting itself is concerned, the CBO, after studying state and local government experience, concluded that performance measures did not appear to significantly influence the allocation of budgetary resources. Rather, they were used more to carry out budgets than to make decisions. The GAO (1993) came to similar conclusions as well.
State Reform Efforts in the 1990s
State interest in the "New" Performance Budgeting in the 1990s is evident in a number of ways. The National Governors’ Association (NGA), for example, published An Action Agenda to Redesign State Government in 1993 which called for creating performance based state government with measurable goals, such as benchmarks and performance measures, in order to move to performance budgeting. A year later, the National Conference of State Legislatures (NCSL) published a study entitled The Performance Budget Revisited: A Report on State Budget Reform (Carter, 1994). Together these two studies found interest in performance budgeting and measurement in a number of states, including Oregon, Minnesota, Montana, Iowa, Texas, Idaho, Ohio, Florida, Mississippi, California and Virginia, to name a few.
The NCSL, like the GAO study in 1993, found that performance measures and budgeting had not yet attained the credibility needed to influence budget allocation decisions at the state level, due often to constraints on time, resources and data. Conceptual as well as political issues remain according to these studies regarding performance measurement and budgeting. Still, performance measurement was viewed as useful for internal agency management.
One is reminded when reading accounts of interest in concepts like performance budgeting of Premchand’s "fortune cycle" that consists of "great anticipation, quick acceptance, partial implementation, partial dissatisfaction, search for new techniques--and the rediscovery of continuing themes" (Premchard, 1981; see also Lewis, 1988). The "rediscovery" or renewed interest in performance budgeting at the state and national level appears to be drawing on a continuous theme in American budgeting--the need for a way to make resource allocation decisions based on more than the inputs that will be used to carry out public programs. That pressures would build at the state (and local) level in particular for such devices is not surprising given their relatively inelastic revenue sources and requirements for balanced budgets, not to mention their proximity to the citizen and voter.
What we may be missing, however, is the slow, incremental process by which change is occurring in governmental budgeting and management. Periodically one gets a glimmer of evidence of change occurring, such as when changes are studied over extended periods of time. Lee’s research, for instance, on developments in state budgeting between 1970 and 1990 found "considerable change" such as more program effectiveness and productivity information being required of state programs, measures being included in budget documents, analysis being conducted by the central budget office and legislature and so on (Lee, 1991). Earlier indications of progress being made in state budgeting outside the glare of periodic reform proposals include changes made in Kansas, particularly involving the introduction of planning into state government and its linkage to state budgeting. (See Bibb, 1984) Thus, managing for results and performance measurement are the focal point in many states as they prepare to enter the 21st century. While they may not have actually initiated formal performance budgeting programs, this should not obscure the direction that many of them appear to be headed in.
The national and state interest in the "New" Performance Budgeting draws upon a common source. That is a cynicism and loss of confidence in government in the United States. The 1970s saw the tax and spending limits movement begin, first in California and then in Massachusetts. Since then it has spread to a number of other states and local governments. In many ways this movement is symptomatic of the loss of public confidence in government. Limitations have often been most severe for local governments, especially when coupled with mandates from higher levels of government and existing restrictions on revenue raising capability. Accordingly, local governments have been forced to find ways to respond to this era of limits and scarcity.
Local Reform Efforts in the 1990s
Some local governments have responded by becoming entrepreneuial. One local government in particular has received a great deal of attention for its entrepreneuial efforts--Sunnyvale, California. Sunnyvale was the inspiration for the Government Performance and Results Act and was cited by Osborne and Gaebler in their book Reinventing Government. A Council-Manager city of about 120,000 people located south of San Francisco, Sunnyvale is unique in its application of performance measurement and budgeting at the local government level. It has a General Plan looking 5 to 20 years into the future. The plan comprises seven elements and 20 subelements that set goals and policies for the city. Its Resource Allocation Plan is a 10-year budget to implement the General Plan. Each year the annual budget is a performance budget that targets specific service objectives and productivity measures linked to the larger plan. Its budget therefore is a service oriented document rather than the traditional line-item, input oriented budget. In many ways, this city appears to be the embodiment of the contemporary interest in performance budgeting. Yet, observers note that it is atypical of other cities in terms of its demographic characteristics (Lewcock and Rogers, 1988; Mercer, 1994; and "Better Government, A Clockwork City," 1993).
On the other side of the United States is another city which has also received some national attention for its innovative management, Rock Hill, South Carolina (Wheeland, 1993). Rock Hill has been actively involved with strategic planning for a number of years. And, it has also received the Government Finance Officers Distinguished Budget Award, most recently in 1996. This national award was begun in 1984 for outstanding budget presentations by state and local governments. To date over 700 local governments have received the award (including Sunnyvale). Rock Hill is smaller (population 41,600), however, than Sunnyvale and is not located in a high tech growth corridor. Thus it is in many ways more typical of many cities having to struggle with a declining economic base (the demise of the textile industry) and facing competition from nearby growth centers (in this case the Charlotte-Mecklenburg SMA in North Carolina). Like many other cities in its population range, it has the council-manager form of government (as does Sunnyvale, although cities over 100,000 do not commonly use this form). Also, like others, Rock Hill has regularly sought recognition for its financial management and budget practices. In some ways Rock Hill’s budget might be what ICMA (1993) calls "Strategic Budgeting." This is a budget process that is built on strategic planning and which uses the budget as a policy guide, a financial plan, an operational guide, and a communications device with citizens and taxpayers. Briefly, the budget includes all funds and addresses all organizational needs through goals and objectives clearly stated and where possible measurable. A longer time horizon than one year is used as well.
When one examines the fiscal year 1996 budget for Rock Hill and compares it with previous years, for example, one notices one clear difference--there are no expenditure line-items in the budget. Departmental expenditures are summarized in terms of program goals, program objectives and performance measures. Thus, like a number of other local governments, Rock Hill is shifting its focus to accountability and results. While cities like Sunnyvale may be described as entrepreneuial, Rock Hill may be more symbolic of what more local governments, particularly cities, are doing to respond to revenue constraints and scarcity, namely engaging in more planning and management improvement using what are viewed as "state of the art" techniques such as strategic planning and strategic budgeting, or the "New" Performance Budgeting. Some evidence exists that productivity and quality improvement efforts at the local level of government are having some impact nationally as well, although more information needs to be collected (Cope, 1995).
CONCLUDING REMARKS: Prospects for Budgeting in the 21st Century
Budgeting in the United States has experienced at least five emphases, starting with control at the turn of the century, moving to management in the New Deal and post-World War II period, to planning in the 1960s, prioritization in the 1970s and 1980s and now to accountability in the 1990s. By all accounts the initial emphasis on control has been successful if one interprets the adoption of line-item budgeting as an indication of that emphasis. It appears that at least eight out of ten cities and counties use line-item budgeting in some form today (Cope, 1995: 43). As Cothran writes: "Although none of these efforts, such as performance, program, or zero-base budgeting, entirely supplanted incremental line-item budgeting, elements of these reforms endure in the budgeting process of many governments" (1993: 445).
Assessing the impact of the remaining reforms becomes somewhat more difficult, in part due to the American federal system and its diversity. In addition, there are methodological challenges to studying large numbers of governments. Survey research is often used and as Schick (1971) notes surveys are not entirely accurate if exclusively relied upon when assessing budget approaches. (The CBO and GAO studies also reflect the need for other research methods, such as case studies and expert panels.)
One thing that most scholars and practitioners agree on is that most reforms are oversold. Consequently, because the expectations are unrealistic, assessments conclude that they have failed. Conclusions of general failure may not be entirely accurate, however. Rubin (1990) makes an excellent point when she notes that budget reforms have been more successful than many people in public administration think. While some reforms may indeed be fads, in other cases some changes have occurred.(12) Partially this is due to overemphasis on the federal level of government by scholars. Innovations often begin and continue at the state and local level of government without much fanfare.
But Rubin and Rose make another point as well that we feel needs to be emphasized. Namely, observers may look too quickly for results. As Rose has written: "The absorptive character of government, gradually adapting and incrementally augumenting its activities, suggests that change may more easily be measured on a time scale congenial to a forester or a geologist than to a Congress or a White House in a hurry" (1977: 64). Many innovations are clumsily introduced and require adaptation (Rubin, 1990) and, ideas are frequently adapted to local circumstances and needs (Walters, 1996). Thus, reforms or innovations have to be evaluated over a period of time using a scale of achievement.
If we take this longer view, it appears that budget reform is alive and well in the United States. The federal government and many states are continuing to experiment with program and performance information as are local governments. Professional organizations, like the Governmental Finance Officers Association, continue to nurture change and advancement in budget presentation and financial reporting.
Cities like Sunnyvale gain attention as they illustrate a willingness to change and experiment resulting in the use of terms like Entrepreneurial Budgeting. Perhaps more often, cities like Rock Hill strive to advance their decision making using more commonly understood notions of performance budgeting and performance measurement in response to taxpayer resistance and revenue scarcity.
Thus, as the twentieth century ends, local governments are a focal point once more for budget innovation and change. Part of the reason for this is that they were at the forefront of the movement in the United States to establish strong executive forms of government. Along with that movement went also the council-manager form of government. Budgeting in the United States is heavily influenced by both the federal system and executive-legislative conflict (Hyde, 1992: 3). Competition between the executive and legislative branches is most evident at the national and state levels of government. It is the local level, and then in the mid-size population range of cities, that we find truly strong executives with weak, part-time legislators in the professionally managed council-manager cities. Whatever the merits of the council-manager form of government, a good case can be made that it has allowed more innovation and reform to occur. Thus, change and continued progress can be expected in the field of American budgeting in the twenty first century building upon both what was begun at the turn of this century and the trends underway in the latter part of this century.
1. There are over 85,000 governments in the United States including the national government, fifty state governments and local governments. Generalizations become difficult when one discusses local government. Thus, we will focus upon trends recognizing that exceptions exist.
2. Ross and Levine (1996: 150) note that patronage-based machines existed in American cities before the arrival of massive numbers of immigrants from Eastern and Southern Europe. Examples they give include Denver, Memphis, Kansas City, New Orleans, Nashville and Richmond. But they go on to argue that political machines would probably not have gained so much power in so many cities had it not been for massive immigration.
3. A good example of the muckraker exposures of inefficiency and other problems can be found in Steffens, 1904.
4. Numerous accounts document practices during this period. See, for example, Cleveland, "Evolution of the Budget Idea in the United States," and Willoughby, "The Movement for Budgetary Reform in the States," in Hyde, 1992; Schick, 1971; and, Buck, 1929 and Smithies, 1955.
5. A good account of the executive budget concept can be found in Caiden, 1987.
6. Buck writes (1929: 13-14) that the Taft Commission made the "single largest contribution to the promotion of public interest in the budget system...."
7. The difficulty of performance measurement was noted early by writers such as Burkhead (1956: 140) when he wrote: "It is always possible to identify an end product in a government activity; the things that are done are always recorded in some fashion or other. The difficulty is that frequently the objective things that are done are nonsignificant as a measure of accomplishment under a program"
8. See Lauth, 1978 for an excellent assessment of the ZBB experience in Georgia during Carter’s term as Governor.
9. An example of continuing interest in performance budgeting applications to government prior to the 1990s can be seen in a monograph written in 1982 by Richard Stillman, Budgeting for Results. In addition, the Government Finance Officers Association (GFOA) continued to encourage state and local governments to move beyond traditional budgets by integrating performance information in budget documents with their Budget Presentation Achievement Award begun in 1984.
10. It should be noted that earlier popular authors had also successfully drawn upon an interest in the United States in finding outstanding examples of management and leadership in both public and private sectors. See, for example, Peters and Waterman (1981) and Peters and Austin (1985). Others also noted that the key ideas of Osborne and Gaebler, such as contracting out, decentralized and participative management, public-private partnerships and strategic planning, were hardly new to public administration. (Goodsell, 1993)
11. The NPR drew on the reinventing government theme. In part this was because David Osborne had written a chapter in the Progressive Policy Institute’s book Mandate for Change which advised the Clinton Administration about reforms necessary to take the reinventing movement to the federal government. The goals of the NPR closely mirrored those identified by Osborne. The NPR issued its report September 7, 1993. (See Joyce, 1993)
12. For discussions of management fads, including budgeting fads, see "Business fads..." (1986), and Walters (1996).
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Budget Reform Stages
|Early 1900s||Line-item budget
Economy and efficiency
|1970s and 1980s||ZBB
|1990s||New Performance Budget||Accountability|
Efficiency and Economy
Line-item budgeting listed categories of expenditure or objects of expenditure which could be collapsed into board categories. The executive budget concept placed budget making responsibility in the executive thereby focusing responsibility and accountability in the minds of reformers. They were relatively easy to use and understand. Performance budgeting differed in that it emphasized the things that government does rather than the things it buys. It shifted attention therefore to accomplishments and away from the means used emphasizing activities and outputs. Program budgeting emphasized program planning and budgeting using goals. Key elements were long-range planning, quantitative analysis and performance analysis. Zero-based budgeting in some ways was a component of PPBS, the most widely used facet of program budgeting. But it also took on a life of its own and referred to examining the base of the budget, or at least portions of it. Variations of it included target based budgeting and below base budgeting. The New Performance budgeting concept is a rebirth of the earlier notion of performance budgeting. It does not concentrate on tasks, activities or outputs as much as the older notion did, however, rather emphasizing outcomes or results.
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This article was published in the Journal of Public Budgeting, Accounting and Financial Management in Vol. 9, no. 2 (Summer 1997).
Charlie Tyer is Senior Fellow in the Center for Governance, Institute for Public Service and Policy Research at the University of South Carolina, and a faculty member in public administration. Jennifer Willand is a Ph. D. student in public administration at the University of South Carolina.