1. Philip G. Joyce November 3, 2010

2.  Sustained economic recovery ◦ 2008-present  Ballooning budget deficits ◦ 2009-?  Bringing more of a performance orientation to the budget process ◦ 1960-present (in fits and starts, but not when something else is more important)  How can these three coexist peacefully or happily?

3. YearDeficit /Surplus % GDP Debt Held by Public % GDP 1940-2.9-3.042.844 1950-3.1-1.121980 19600.30.1238.846 1970-2.8-0.3283.228 1980-73.8-2.7711.926 1990-221-3.92411.642 2000236.22.43409.835 2010 Est-1342.0-9.19221.061 3

4. August 2010 CBO Baseline Projections  Actual deficits: ◦ 2007: $161 billion (1.2% of GDP) ◦ 2008: $455 billion (3.2% of GDP) ◦ 2009: $1,413 billion (9.9% of GDP)  Under “current law”, deficits are very large in short run and decline in later years (but remember: only with no significant change in laws/policy) ◦ FY10--$1,342 billion (9.1% of GDP) ◦ FY11--$1,066 billion (7.0% of GDP) ◦ FY12--$665 billion (4.2% of GDP) ◦ FY13--$525 billion (3.1% of GDP)  These projections assume the scheduled expiration of the tax cuts enacted in 2001 and 2003 (most cuts expire after 2010) 4

5. Ten-Year Cost (2011-2020) of Policy Alternatives Not Included in the CBO Baseline  Extending all expiring tax provisions--$6.1 trillion  Extend only Bush tax cuts—$3.3 trillion  Extend Bush tax cuts for only taxpayers < $250k—$2.6 trillion  Index the alternative minimum tax for inflation--$720 billion  Increase discretionary spending at rate of GDP growth- -$2.1 trillion  Freeze discretionary expenditures at 2010 level--$1.65 trillion (savings)  Reduce troops in Iraq and Afghanistan to 30,000 by 2013--$1.5 trillion (savings) 5

6. With Tax Cuts Extended and AMT Indexed Budget Deficit or Surplus Percentage of GDP

7. Debt Burden Across Countries in 2007 Percentage of GDP Source: OECD.

8. Projected Federal Spending Over the Long Term TheCapitol.Net 202-678-16008 Percentage of GDP

9.  Will the U.S. restore fiscal responsibility?  Will there be targets, and what will they be?  What will be the impact of the Obama deficit commission?  What effect will the 2010 midterm election have?  How substantial will the effort be to reduce the deficit in the President’s fiscal year 2012 budget (February 2011)?  If so, will this include an effort to reduce programs based on performance considerations?  What about the “big four” spending programs (Social Security, Medicare, Medicaid, and Defense), which represented 60 percent of federal spending in 2009? 9

10.  Federal Performance-Informed Budgeting  The Bush Agenda and Legacy  The Obama Agenda  Observations about the Obama Agenda in Historical Context 10

11.  Efforts date back 50 years  GPRA brought more attention  Focus has typically been on OMB/Congress  Performance-informed budgeting is multidimensional  In particular, lots of activity in budget execution  Enduring challenges ◦ Identifying and measuring outcomes ◦ Getting performance information used ◦ Establishing a culture of performance 11

12.  Traffic light” scorecard ◦ Apparent substantial progress—from 1 “green” to 72; from 110 “red” to 14  PART--1000 programs in 6 years ◦ Effective or moderately effective—30% to 51%  Conclusions by studies of PART ◦ Agencies said PART lacked credibility ◦ Decentralized approach does not work for crosscutting functions ◦ Too much work/ too little payoff for OMB/agencies ◦ Congress was apathetic or hostile ◦ One size fits all approach ◦ Measures improved, but still need work ◦ Hard to reconcile PART with GPRA 12

13.  Uneven progress made in measuring outcomes  Attempts made to reduce programs based on performance (PART) not supported by Congress  Much more success in budget execution (management) than government-wide resource allocation  Uneven commitment from top leadership in departments/agencies  Some confusion as to the appropriate locus of performance (department or agency v. program)

14.  Evaluating effects of economic stimulus  Determining programs to reduce or eliminate as part of deficit reduction  Establishing “high priority performance goals”  Significant investment in a limited number of more in-depth program evaluations

15.  Current estimate--$814 billion in total costs  Major goal is job creation/saving ◦ Administration estimates that 6.8 million jobs will be created/saved  Recovery.gov tracks spending and jobs ◦ Very difficult to track jobs reliably ◦ Current definition—anyone who works in an ARRA-funded job  Broader definition involves tracking “multiplier effect” of jobs

16.  Obama 2010 Budget identified 121 programs for reduction or elimination ($17 billion) ◦ OMB says 60% of cuts enacted by Congress  Obama 2011 budget included 126 terminations, reductions and savings totaling $23 billion (FY11) ◦ Those savings would represent a.7% reduction in spending for FY11 ◦ It is uncertain how much will be approved by Congress since they left town without passing any appropriation bills  In both FY10 and FY11 these reductions were argued on the basis of lack of program effectiveness

17.  These are agency directed  Emphasis on goals where progress can be shown within 12 to 24 months  “The ultimate test of an effective performance management system is whether it is used, not the number of goals and measures produced.”  Majority of goals are specific and measurable, although some are ambiguous ◦ Social Security—”achieving an average speed of answer of 264 seconds by the national 800-number” ◦ Education—”a system with rigorous processes for determining teacher effectiveness”

18.  “ Performance measures can answer only so many questions. More sophisticated evaluations” necessary to draw conclusions  It is necessary to “isolate the effect of government action from other possible influencing factors”  Obama administration established competitive process to secure funds for evaluation ◦ 17 agencies funded to do evaluations of 36 programs ◦ In some cases funds provided to improve agency evaluation capacity  A centralized approach to SELECTION of evaluation topics, but a decentralized approach to the CONDUCT of evaluations

19.  Agencies instructed to identify 5% of budgets as lowest priority ◦ Unclear how performance plays out  Also ongoing effort to reform procurement ($40 billion savings estimate)  Continued suggestion that agencies that do evaluations will be favored  Will deficit commission findings be embraced? ◦ Timing is problematic  Transparent and open government ◦ Creation of performance dashboards

20.  Not as high a priority as other issues (health reform, the economy)  Short-term could force out long-term  More targeted, in-depth evaluation  Transparency is major stated focus  Quantitative measures may force out qualitative ones  Performance agenda must fit with pressures to reduce spending and the deficit  Stated goal is use, but not at all clear how that will be achieved  Continued uneven results