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Budgeting for results.

California is about to dip a toe the waters of performance-based budgeting to see if it really does get results.

Mired in fiscal quicksand that already has brought about IOUs and a record-setting budget stalemate, California is considering a dramatic change in management.

The plan would eventually free bureaucrats to run their departments with minimal interference from lawmakers, but hold them more accountable for their performance.

While the new management style is not expected to generate immediate savings, it could reshape the way the state does business and force program managers to produce results that could be measured by the Legislature and the taxpayers.

Borrowed from the state of Texas and the San Francisco Bay area city of Sunnyvale, "performance-based" budgeting relies on a seemingly simple notion: Judge state programs not so much on how they spend their money, but on whether they get the job done.

Under California's current system, the Legislature and the Department of Finance scrutinize every item in the budget of each department and agency in state government. If a program's managers want to shift a dollar from travel to printing, for instance, they have to get permission.

And generally, as problems worsen, more money is allotted to deal with them. Schools, welfare, prisons and other programs annually report the anticipated increase in demand for their services and seek additional funds to cover the expansion.

"The entire state has grown accustomed to thinking, 'How much money am I getting?'" said Deputy Finance Director Steve Olsen, a chief architect of the plan proposed by Governor Pete Wilson. Instead, Olsen said, the question should be: "What are we trying to accomplish, and what's the best way to get there?"

As Olsen sees it, the line-item budget would be replaced by a broad document in which department managers and law-makers would agree on goals, but the bureaucrats would have wide latitude to spend their money as they see fit.

The Social Services Department might be rated on the number of people it moves from welfare to work. The Department of Parks and Recreation could be judged by asking campers if their state park visit was satisfactory. The Department of Alcohol and Drug Programs would track the clients served and determine how many kicked their habits and how many did not.

In return for signing performance "contracts" with the Legislature, the participating departments would be given new flexibility to run their programs. They would get new powers over personnel decisions, procurement and contracting. They might get to keep for the next fiscal year 50 percent of any budgeted funds that they save. Unlike other performance-based systems, California managers won't be getting personal bonuses for a job well done. The administration wants to emphasize teamwork instead.

Larry McCarthy, president of the California Taxpayers' Association, applauded the move as long overdue. He said the state in recent years has focused too much on what goes into programs, namely money, and not enough on what comes out.

"It's a cultural change here in the way we conduct public affairs," McCarthy said. "There's been so little focus on what the outcome is. That's what the public is expecting. They want to know the money they put forward for these programs achieves a beneficial result."

Unlike Texas, which is moving quickly toward performance-based budgeting, California will start small by setting up contracts between four departments and the Legislature to see how the theory works in practice. The first will be the departments of Parks and Recreation, General Services, Consumer Services and the state's computer data processing center.

The administration chose these programs because their managers already are trying new methods and were eager to participate. The Parks and Recreation Department has already begun surveying its customers and plans to track the results over time.

The goal is to use a handful of small departments to create a success story that will make it easier to spread the idea throughout state government. There were fears that a flop in a giant and highly visible department, such as Health or Social Services, would have been a setback from which the concept could not have recovered.

The first hurdle for the Republican administration will be to persuade Democratic lawmakers to give up some of their control over programs. Some Democrats suggest the plan is simply a way for Wilson to divert attention from the state's fiscal problems, which have resulted in huge deficits in each of the past three years.

"This is absolutely meaningless," said Democratic Assemblyman Steve Peace, a frequent critic of Wilson. "It's mumbo jumbo. They're saying, 'We give up. We're incapable of managing, of setting goals. Legislature, tell us how to do it.'"

But other Democrats suggest that they will be eager to turn the state's budgeting upside down.

"Our method of budgeting is screwy," said Assemblyman Phillip Isenberg. "It makes no sense. It removes incentives from agencies and employees to conserve and save because they don't get any benefit from it.

"We reward lethargy. An agency that spends more and more money and claims it needs more and more money to do increased work, as opposed to being more efficient, is going to be rewarded. We give them more money. And efficient organizations? We take their money away. It's insane."

Democratic Assemblyman John Vasconcellos, longtime chairman of the Assembly's budget committee, said he was "game" to try Wilson's idea. But Vasconcellos suggested that the first candidate to have its performance evaluated be the Department of Corrections, which runs the state prison system. He has been highly critical of the department.

The corrections department budget is the fastest growing part of state government, but one that Wilson, who built his career as a "law and order" Republican, has been reluctant to tamper with. Vasconcellos said he would not mind rewarding the department for rehabilitating criminals--and penalizing it every time a former felon was returned to prison after committing a new crime.

Some analysts suggest that in the end, the new system, even if it looked different, would work the same as the current one. Fred Silva, the top budget aide to Senate President Pro Tem David A. Roberti, said the new-style budget tug-of-war might look like this:

"We would look at higher education, and we'd say, 'These are the outcomes that we want.' The universities would say, 'That's fine, it will cost $8 billion.' And we would say, 'Well, you only get $4 billion.' And the university would say, 'Well, you can't get those outcomes with $4 billion.'"

In other words, Silva said, no matter what you call it, the result is the same--a fight over the size and cost of every state program.

"Things stay the same because the system is still a political system," says George Goerl, a California State University public administration professor and a skeptic about budget reform. "You're still going to have the same clash over taking money from some programs and giving it to others."

Even if the political battles barely change, the administration's Olsen said the new system still could change the way departments operate, making them more creative and less restricted by the traditional way of doing things.

"We want people to keep their eye on the ultimate objective so they don't focus excessively on the rules of the game," Olsen said.

Daniel M. Weintraub is a staff writer in the Sacramento Bureau of the Los Angeles Times.
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Title Annotation:California's performance-based budgeting
Author:Weintraub, Daniel M.
Publication:State Legislatures
Date:Jun 1, 1993
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