The Role of Performance Indicators During Fiscal Stress

By: Anthony Rainey

Anthony Rainey is treasurer and CFO of Hyattsville, MD.

In 1975 Peter Drucker (Management: Tasks, Responsibilities and Practices) identified five prioritization and performance approaches of successful organizations:

They clearly define the nature and scope of their function, mission and activities.
They set clear objectives.
They set priorities, concentrate on the objectives and set standards of performance for themselves.
They measure performance, analyze the results and work to correct deviations from established standards.
They regularly conduct audits of performance to ensure that the management system continues to function properly.
Federal, state and municipal governments attempt to utilize these approaches until there is a significant reduction in revenues that will adversely affect the ability to fund the current public service and public product levels. Rarely are significant revenue reductions transformed into a fiscal planning process where the executive and legislative branches base expenditure reductions upon “priorities” and “levels of performance.” This often results in the third “P” of budgeting—politics—to fill the vacuum of leadership in priorities and performance in fiscal decisions. Interest groups who receive public goods or public services, or who are the providers of public goods and public services through government contracts or grants, enter the picture with their respective “priorities” but rarely with new “performance levels.” How can we change this?

Look at What Government Provides

Government provides public goods and public services. The actual production of goods and or the provision of public services are typically classified by their “non-excludability” and/or “non-rivalry.” Non-excludability designates that the difficulty to exclude any person, group, or organization from benefiting from the public good or public service—even if they do not or will not pay for it. Non-rivalry designates that the consumption of the good or receipt of the service by a person, group or organization does not prevent the consumption of that good or receipt of that service by others. In the private sector, a private good or service has excludability for it can be excluded from a person, group, organization benefiting from the good, or service if the consumer or receiver does not pay. Private goods have a rivalry in that consumption of the good or receipt of the service by a person, group, or organization prevents its consumption or receipt by others.

Look at the Cost of Public Services and Goods

In our current economic environment, particularly the decline in federal, state and municipal revenues, the cost of the provision of public goods and services affect short and long-term expenditures, debt service and fund balances. Budget balancing discussions about revenue shortfalls typically focus on immediate or phased in expenditure reductions not tied to prior priorities or stated levels of performance. The federal government’s debt service capacity will soon put them in the same situation as state and municipal governments. Faced with significant revenue shortfalls, budget processes become expenditure reduction exercises greatly influenced by the consumers of public goods, recipients of public services, and the payers of the public revenues for these goods and services. Without utilizing having a “prioritized” list of products and services as well as the expected “performance levels,” the resolution of required expenditure reductions must often be revisited.

Q1. WHY NOT SOLICIT ASSISTANCE FROM PROFESSIONAL ORGANIZATIONS, FOUNDATIONS, AND UNIVERSITIES TO DEVELOP AN INVENTORY OF FOR EACH RESPECTIVE SERVICE OR PRODUCT PROVIDED BY A GOVERNMENT? A table, as depicted below, would be created:

1
Public Service
2
Public Products
3
Budget By Fund
4
Structural Funding Require-
ment
5
Levels of Perfor-mance
6
Pri-ority

The “Public Service” column would identify all the public services and the “Public Products” would identify all of the public products in the budget. The “Budget By Fund” column would identify the amount of each “Public Service” by fund. The professional organization, foundation, or university could be utilized to assist the governmental entity in matching services and products with budgets by fund.

The “Structural Funding Requirement” would serve to identify whether laws, statutes, contracts, or agreements require these services and products to be funded. The “Levels of Performance” would depict those measures of performance that was approved based on the budget by fund.

Q2. AFTER THESE FIVE COLUMNS WERE CONSTRUCTED, WHY NOT ENGAGE THE INSPECTOR GENERALS AND STATE AND MUNICIPAL AUDITORS TO ASSESS AN ANNUAL PRIORITIZATION BY THE ELECTED OFFICIALS AND FIND OUT WHAT THEIR ANTICIPATED LEVELS OF PERFORMANCE ARE? When it comes to performance, many in the Legislative Branch may delegate the assessment of performance to the auditor. The auditors would serve as the objective interpreter of the information identified. I would expect that there could be different priorities by agencies, departments, divisions, bureaus, directors, agency or department heads, budget offices, executive offices, legislative offices. Such disclosure at the beginning of a process could aid in resolving differences.

Q3. RATHER THAN AWAITING THE PRIORITIZATION OF A GOVERNMENT’S PUBLIC SERVICES AND PUBLIC PRODUCTS DURING A FISCAL CRISIS, WHY NOT HAVE THE ABOVE CONDUCTED ON AN ANNUAL BASIS? Note, may governments or agencies will assert that this already happens within their budget process. Citizens and others often question the proper role of government, and often have concerns about government intrusion. This approach could clarify the specific product and/or service. Citizens and policy makers often question the effectiveness and efficiency of government programs. I see a program providing a bundle of services and products. This approach could identify redundancy and duplication as well as what constitutes an acceptable level of service or even quality of a product.

Q4. WOULD THIS TYPE OF PERFORMANCE REPORTING SPECIFICALLY TIED TO PUBLIC SERVICES AND PRODUCTS, ASSIST MANAGEMENT, STAFF, DECISION-MAKERS AND CITIZENS DURING TIMES OF FISCAL STRESS? When a reduction in force is undertaken or a budget gap filled by a “one-time” versus “ongoing” revenue, would this depict the effect on the particular public service or public good?