1. Incentives, Certification and Targets in Performance Budgeting Gerald J. Miller Professor, School of Public Affairs Arizona State University Phoenix, Arizona Research originally published with co-authors Donijo Robbins Associate Professor Grand Valley State University Grand Rapids, Michigan Jaeduk Keum Program Evaluation Bureau National Assembly Budget Office of South Korea

2. Research Purpose Investigate which reforms an incentive approach, certification approach, and target approach a seasoned public manager thinks will allocate discretion most decisively, will allocate discretion most decisively, control aggregate spending, and control aggregate spending, and which can produce trust in government which can produce trust in government Develop hypotheses for future research Assume budget reform selection is á la carte 2

3. Incentive approach Reverses spend it or lose it end of year behavior Allows carryover of unspent funds Sometimes includes a pay for performance, bonuses, out of true savings 3

4. Certification approach Requires internal audit of performance measures and underlying activity they represent Requires internal audit of performance measures and underlying activity they represent Some forms require benchmarking Some forms require benchmarking 4

5. Target approach Ceiling set for expenditure Ceiling set for expenditure Combined with performance levels to form performance contracts in theory Combined with performance levels to form performance contracts in theory 5

6. The Model Trade the details for the totals, a result- reward system Trade the details for the totals, a result- reward system Top down targets or ceilings at one end of a scale Top down targets or ceilings at one end of a scale Management oriented lump sum or decentralized budgeting at the other end of the scale Management oriented lump sum or decentralized budgeting at the other end of the scale Hinge is the role for performance data Hinge is the role for performance data TBB Performance Measures Rewards? TBB Performance Measures Rewards? 6

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8. The Research Questions To confirm what exists of our model, we ask four questions: To confirm what exists of our model, we ask four questions: do Target, Performance Measurement, and Incentive elements of the model exist? do Target, Performance Measurement, and Incentive elements of the model exist? what configuration of the three elements do managers believe allocates discretion most decisively? what configuration of the three elements do managers believe allocates discretion most decisively? what configuration do managers prefer to control aggregate spending? what configuration do managers prefer to control aggregate spending? what elements produce trust in government? what elements produce trust in government? 8

9. Methods & Findings Two focus groups Two focus groups Insiders view of three approaches Insiders view of three approaches Publics view (through manager eyes) on ability to improve trust Publics view (through manager eyes) on ability to improve trust A survey and interviews as a pilot study A survey and interviews as a pilot study 8 cities known for cutting-edge management reforms 8 cities known for cutting-edge management reforms 9

10. First focus group Only targets – ceilings not contracts - will produce savings Only targets – ceilings not contracts - will produce savings Certification of performance could justify increased spending Certification of performance could justify increased spending Retained savings will inevitably get cut; the more elastic the revenue system, the more inevitable the cut, GF, others less so Retained savings will inevitably get cut; the more elastic the revenue system, the more inevitable the cut, GF, others less so No consensus on decisive allocation of discretion No consensus on decisive allocation of discretion 10

11. Figure 2: Second Focus Group on Trust in Government 11 1, 2, etc = Group member 1, GM 2, etc.

12. 8 Reform Cities No city uses all three: Targets, Performance Measurement, and Retained Savings, but – 5 cities used targets with retained savings (savers) 1 city used retained savings with benchmarked performance measures (performance-informed) 1 city used performance measures and retained savings but no targets 1 city centers all on performance measurement, employs no targets, and allows no retained savings 12

13. Our conclusion Variation is the rule-integrating budgeting with management follows no pattern other than contingency 1 – board of directors model – leaders guard the tax rate levels, a budget first, target or ceiling, performance management later 1 – board of directors model – leaders guard the tax rate levels, a budget first, target or ceiling, performance management later 2 – checks and balances model in which budgets (FinResources) tradeoff against allocations in staff (HR) and technology (IR) 2 – checks and balances model in which budgets (FinResources) tradeoff against allocations in staff (HR) and technology (IR) 3 – line-staff model in which management leads budget. Top managers define goals, divide core from peripheral programs, and use budget and finance as just another staff advisor 3 – line-staff model in which management leads budget. Top managers define goals, divide core from peripheral programs, and use budget and finance as just another staff advisor 13

14. Which model when? Board of directors model is fiscal or political crisis dominated Board of directors model is fiscal or political crisis dominated Checks and balances system reflects indecisive management, a divided leadership in the governing structure, or both strong line and budget departments Checks and balances system reflects indecisive management, a divided leadership in the governing structure, or both strong line and budget departments Line-staff model requires stable or growing resources Line-staff model requires stable or growing resources All of these environments form part of the traditional reform budgeting literature All of these environments form part of the traditional reform budgeting literature 14

15. Conclusions Limited forms of retained savings Limited forms of retained savings Savings linked to targets Savings linked to targets Targets not linked to performance Targets not linked to performance 15