State Resource Allocation and Budget Formats: Towards a Hybrid Model

Article excerpt

ABSTRACT.

This article evaluates quantitatively the impact of four common budget approaches on disaggregated United States state spending data in the 1990s. Pooled time series cross sectional data of the 50 states is used to test the impact of incremental, program, zero-based, and performance-based budgeting on the dependent variables state total and functional expenditures. The results demonstrated that there was support for all of these approaches in terms of their impact on state budget outputs. These findings imply that budget decision-making should focus more on a systemwide approach, which takes into account many of the characteristics of these rival models, rather than exclusively focusing on each one singly. A possible suggestion is a hybrid form of budgeting, which is a combination of incremental and rational approaches.

INTRODUCTION

A report from the General Accounting Office (GAO) in 1993 argued that despite long-standing efforts in states regarded as leaders in performance budgeting, performance measures have not attained sufficient credibility to influence resource allocation decisions (GAO, 1993). Instead, according to most of the state legislative and executive branch officials interviewed by the GAO, resource allocations continue to be driven for the most part by traditional budget practices which focus on incremental changes in detailed categories of expenses. The GAO survey was conducted in the early 1990s. This was during the early stages of the implementation of performance measures in state governments. In this study, we examine the impact of performance budgeting along with other budget approaches on resource allocation during the 1990s. In contrast to the findings of the GAO report, we found evidence that performance budgeting along with other budgetary approaches had an impact on state resource allocation.

The re-introduction of performance budgeting in the 1990s may be viewed by many practitioners with a great amount of caution and skepticism primarily because of the demise of past reform efforts such as program budgeting and Zero-Based Budgeting (ZBB) (CBO, 1993). These approaches essentially were viewed as not living up to their expectations of producing a more systematic budgetary process. This study is an attempt to see if performance-based budgeting and other budget approaches achieved results, since at the end of the day they will be judged on their results. We found that performance budgeting is achieving results in terms of its impact on expenditure levels, but these results must be explained in combination with other budget approaches.

A study has examined quantitatively the impact of incrementalism on subnational budget outcomes in the UK (Boyne, Ashworth, & Powell, 2000). Furthermore, an extensive body of research using survey evidence examines performance budgeting in the U.S. states (Willoughby & Melkers, 1998; Lee & Burns 2000). There are very few studies that evaluate these approaches together to systematically demonstrate their impact on state budget outputs. In addition, most of the recent empirical work has focused on performance budgeting to the exclusion of other theories.

This article is a step back towards testing rival budget approaches instead of concentrating upon one at a time. State budget outputs are a mechanism for evaluating these approaches. This is demonstrated in Table 1, with survey evidence from the National Association of State Budget Officers (NASBO) from 1989 to 1999. The survey results indicate that most states use some combination of incremental budgeting, program budgeting, zero-based budgeting, and performance budgeting.1 Therefore, to focus entirely on one approach only provides part of the picture. In this study, we present the idea of hybrid budgeting. This is essentially an amalgamation of the various budget approaches (Grizzle, 1986).

This study is notably different from the existing literature in several important respects. …