Improving Budget Execution (Geocities Rescue)

The biggest difference between budgeting between the public and private sectors is the lack of a bottom line in government. This deprives public managers of a tool which private sector managers find essential. The lack of a profit motive takes away a serious incentive to cut costs. A further disincentive to cost cutting is the likelihood of budget cuts resulting from cost savings. Agencies need an incentive to cut spending that they currently do not have. Recent administrations have proposed adding fifty percent of the operations (administrative) budget returned in a fiscal year to the appropriation of the next fiscal year. I favor this approach and offer the following methodology.

As part of either the authorization or the appropriations process, Congress sets mission output goals for each agency. The Air Force uses flying hours, Social Security use benefits paid, etc. Next, agencies categorize their costs into three categories: mission related, mission support, and administrative support. This categorization is reviewed and approved by both the Office of Management and Budget and the General Accounting Office. As part of this process the agency amends its accounting system at the sub-program level, designating activities using the three categories above. If a budget activity is mixed between categories it is broken down into the needed number of activities. For example, the Department of the Air Force budgets at the Program Element level. This is the level that receives Congressional and Headquarters attention. Each Major Command breaks its Program Elements into Budget Program Activity Codes. Separate codes exist for research and development, payroll, and support. Each of these is definable into one of the three categories. If an overlapping code is found it is split in two by the Department.

Managers who save costs are encouraged to give some of this money back to the Treasury. Some of this money is reprogrammed to mission, or mission support, functions. Managerial financial performance are judged by how much is given back to the Treasury and transferred to mission activities. However, as in the private sector, false economies are discouraged by the emphasis on outcome measures.

At the end of the fiscal period each agency (or Major Command) compares its results. Agencies summarize mission, mission support, and administrative support costs at the program level, sub-agency level, agency level, et cetera. Each agency also assesses mission output performance. Mission support costs are multiplied by the performance factor. The product is added to the direct mission figure. The mission spending is then divided by total spending, yielding the efficiency ratio. This calculation is done at all levels. This gives agencies an incentive to fully meet their operational goals, budget for items that improve performance and cut costs that serve no operational purpose.

Agencies use the efficiency ratio to justify increased spending authority. An agency that improves over time, or has an impressive efficiency ratio gets more money than those who are less efficient. This allocation scheme is useful at all levels, from programmatic through departmental. It is even useful to rank departments in terms of efficiency for preparation of the President's Budget Proposal. Efficiency ratios are subject to audit by the General Accounting Office, with severe penalties promulgated in cases of fraud.

Each agency reports on their efficiency ratios at the program level when submitting their detailed Appropriations requests. The Appropriations Committee then uses them for allocation purposes. This provides the answer to the question, "on what basis shall money be allocated to activity A over activity B?" The ability to spend it well.

The enactment of this proposal brings more information to the appropriations process, thus improving budgetary allocation. It will provides agencies and managers with the incentive to save money while maximizing the mission of the agency.