Using Performance Data to Budget, States Are Saving Money

As governors and policy leaders put together their budgets this year in the face of serious shortfalls, states that use performance data to make decisions about where to cut and what to keep are saving taxpayer dollars.

More and more states, spurred by one of the most difficult fiscal environments in years, are making policy decisions based on research measuring the performance of government programs. Trade-off Time: How Four States Continue to Deliver, a  report released today by The Pew Center on the States, features four states—Indiana, Maryland, Utah and Virginia—that are leaders in measuring the performance of government programs, and are making smarter budget decisions as a result.  

“States that make good budget decisions now can help stabilize the economy, soften the impact of the crisis on families, and spur a recovery that benefits the entire nation,” said Susan Urahn, managing director of The Pew Center on the States. “In the midst of economic downturn, there is an opportunity to re-think how to run state government.”

The trend toward “performance-driven budgeting” is growing. Thirty-nine states now include performance measures in agency budget requests, and 42 states report some level of these measures online; 22 legislatures reported using performance measures in their budget decision making, according to recent budget analyses.

The report profiles the effective practices of Indiana, Maryland, Utah and Virginia—which have made and will continue to make substantial cuts, but are in a better position to discern cost-saving decisions because they have implemented measures to evaluate the efficacy of government programs.

• Utah introduced four-day work weeks with 10-hour days, saving the state an estimated $3 million in energy costs, and saving state employees $6 million in annual commuting costs. Other benefits: Constituents can access state services before and after their own workdays, traffic is down, and employee sick day and annual leave usage has even dropped 9 percent.
• Virginia saved nearly $1 million by replacing private food service contracts at several prisons when calculations showed that the services could be provided more cheaply in-house.
• Indiana employed performance-driven budgeting practices—which measure the results achieved for every tax dollar spent—to identify cuts to ineffective programs as well as areas that required increased investment to succeed, such as the state's department of child services.
• Maryland implemented StateStat, a data management system that monitors 10 major departments, to identify where to trim to achieve savings and better results. Consequently, the state closed an under-capacity juvenile justice detention facility, saving the state $1.5 million. Of that money, $600,000 was reallocated to less expensive community-based youth initiatives which use evidence-based family therapy and education programs proven to be more effective than incarceration.

“There's no question today's economy is a serious challenge to state budgets—but the current crisis also presents an incredible opportunity to make targeted, performance-based reforms,” said Virginia Governor Tim Kaine. “Making decisions about our budget based on what works and what doesn't means when the economy does improve, we can focus taxpayer dollars on our most important priorities and services that deliver for the public—not just keep doing the same old things in the same old ways.”

“From day one, we've demanded proof that government programs work before spending additional money on them.  That must continue to be the standard operating procedure, especially in tough economic times,” Indiana Governor Mitch Daniels added.

Pew has followed state government performance for more than a decade, studying good and bad practices and analyzing what works. Pew research shows that results-based budgeting can aid states during economic downturns by cutting wasteful spending on programs that are not showing results, and directing resources to programs that evidence has shown to be more effective. Such an approach can also lay the foundation for a leaner, more effective government when the economy recovers.

Additionally, the report provides a primer on state budgets, detailing the categories of state revenue, spending and savings. For example, the “general fund” is the largest category of spending. When budgets are tight, states look to this category to cut first because the money has the fewest restrictions. That said, 45 percent of the general fund supports education, and nearly 20 percent is spent on health care for the poor—areas that are extraordinarily difficult to cut without significant consequences for the public.

“The stakes for improving state budgeting could not be higher,” Urahn said. “In their unique roles as fiscal stabilizers and policy innovators, states can help our nation weather the most profound threat to its economy in modern times.”