Background: why budgeting for outcomes is valuable
“Budgeting for outcomes” is a strategy for achieving greater accountability and transparency, and for creating alignment between what the public wants and what their government provides. This approach has been in use for about 15 years and is becoming an important part of culture change in government toward greater focus on results and performance, rather than on inputs and processes.
The National Association of State Budget Officers notes that despite widespread interest and growing use of performance budgeting practices such as budgeting for outcomes, “the process of actually tying performance information to funding decisions in an effective, meaningful, and practical manner continues to be a major challenge for all levels of government.” Despite this reality, the goal is worth pursuing as the benefits are considerable.
Budgeting for outcomes defined
In their book The Price of Government, David Osborne and Peter Hutchinson argue that the problem with typical budget processes in government is that we focus on what is cut and not on what is kept. They argue we should stop focusing on the 10 to 15 percent of the budget that we cut and instead devote ourselves to improving the effectiveness of the 85 to 90 percent of the budget that we keep. They ask, what value are we getting for our money? Is government delivering services that make a difference in peoples’ lives? They suggest we begin creating a budget not by looking at last year’s budget as a baseline, but rather by asking what the priorities are and then deciding how government will address those priorities.
Their idea recalls “zero-based budgeting” but with a twist. In zero-based budgeting, each program is reviewed with the assumption that it must prove itself in order not to be zeroed out. Budgeting for outcomes looks at desired results across government, rather than by spending line item in each individual organization. An excerpt from the book summarizes the authors’ approach:
The first step is to turn the budget process on its head, so that it starts with the results we demand and the price we are willing to pay rather than the programs we have and the costs they incur. The second is to build the budget by deciding to buy only those programs that deliver the results we want and leave the rest behind. Then we must cut government down to its most effective size and shape, through strategic reviews, consolidation, and rightsizing; use competition to squeeze more value out of every tax dollar; make every program, organization, and employee accountable for results; use technology to empower customers and save money; and reform how government works on the inside (its management systems and bureaucratic rules) to improve its performance on the outside. 
One central element of budgeting for outcomes is that it is done across an entire government enterprise — a state, county, or city. The outcomes desired by citizens often cut across departments, and the budget then is driven by outcome instead of by department. Budgeting for outcomes practitioner, Roger Neumaier, a former finance director of Snohomish County (Washington), said, “We do not fund processes: we fund outcomes.”
 Osborne, David, and Peter Hutchinson, The Price of Government: Getting the Results We Need in an Age of Permanent Fiscal Crisis (New York: Basic Books, 2004), xiii.
 Spray Kinney, Anne, and Beverly Stein, “A Solution for Uncertain Times: Budgeting for Outcomes,” California Counties (May/June 2008).
The budgeting for outcomes process
The budgeting for outcomes process is described in full detail in The Price of Government. The process is also described in a high-level summary in “Your Budget: From Axe to Aim,” an article published by the International City/County Management Association. The Government Finance Officers Association (GFOA) promotes budgeting for outcomes as a best practice and conducts research and writing to support implementation of this approach. The recently named executive director of GFOA, Christopher Morrill, has implemented budgeting for outcomes successfully himself at the local level. With abundant resources to describe the process in detail, a very brief overview is provided here.
The first step in the process is to determine the amount of funding available. Then goals are created and ranked. Money is then allocated beginning with the highest priority goal items and then continuing down the priority list until the money is spent. Any new budget proposals, or proposals to fund something that is below the priority cutoff, must simultaneously propose knocking a higher priority item off the funding list.
A key part of this innovation is that once resources are allocated to priority goals, then “results teams” are formed to determine how to “buy” the results. Results teams have latitude to find innovative ways to buy the results constituents need. This requires the existing government service provider to submit a proposal for how they will effectively deliver the services, which opens them to competition from other governments, and nonprofit or for-profit service providers. The results teams select from among the proposals the one that will most likely deliver the results the public wants. Implementing the budget as determined in this method will buy the best results possible for the available funds.
Results teams also measure progress toward the priority outcomes of government. When results are not achieved, they have the power to discontinue the service and reallocate the funding to services that are effective at delivering results. Redundant, obsolete, and ineffective programs are terminated, freeing up funding for more effective ones.
Reflecting on the positive impact of results teams on both the employee participants and the government as a whole, Osborne and Hutchinson said,
One of the unexpected benefits of Budgeting for Outcomes was the effect of participation in results teams on employees. The process gave them an overview of city priorities, strategies, and spending, giving them a much broader understanding of city government. People really valued that. And it helped management spot rising stars within the city, people who could think strategically and creatively about how to get more bang for the buck from the city budget.
One powerful element of budgeting for outcomes is gainsharing, whereby employees who identify savings opportunities get to keep a portion of savings, either as an individual payment or as an agency allowance. When Seattle instituted gainsharing for its wastewater treatment operation, employees got to keep $2.5 million in savings generated by their ideas over four years. In implementing a gainsharing program, Osborne and Hutchinson recommend that the amount employees keep is enough to inspire their participation, and suggest that 50 percent of the savings may work.
 Spray Kinney and Stein, “Solution,” 250.
Budgeting for outcomes pioneer: Washington state
Among the first to adopt budgeting for outcomes was Washington state during the 2002–2003 budget cycle, when then-Governor Gary Locke needed to trim the budget by $2 billion. Rather than across-the-board cuts, he chose to focus on the “keeps” rather than the “cuts.” He said, “Closing the $2 billion gap we face in the next biennium would require an across the board cut of 15 percent — if that’s all we did. And that is not what we are going to do. I don’t want to thin the soup. I want state government to do a great job in fulfilling its highest priorities.”
The results were impressive. Not only did the governor succeed in cutting the budget and keeping his top priorities protected, but he also achieved recognition from a variety of sources. One local newspaper said, “Few Washingtonians will find much to like about the brutal state spending plan Governor Gary Locke recommended Tuesday. But as ugly as the result was, there’s a lot to like about the way Locke and his staff arrived at it, using a new process that forced hard choices about the core priorities of state government.”
Perhaps most important is that the public approved of the results. In a survey, 64 percent agreed that “Whether or not I agree with all of the governor’s budget recommendations, I respect his leadership and vision to solve the current problem and get the state’s economy back on track.”
Examples of other governments that have implemented budgeting for outcomes include the states of Washington, Iowa, Michigan, and South Carolina; the cities of Baltimore, Los Angeles, Spokane (WA), Denver, Dallas, Fort Collins (CO), Azusa (CA), Eugene (OR), and Redmond (WA); counties such as Mesa County in Colorado and the Washington counties of Multnomah and Snohomish County. Several of the budgeting for outcomes practitioners from these locales have created a network, both online and with in-person gatherings to support idea-sharing.
 Osborne and Hutchinson, The Price of Government, 6.
 Quoted in The Price of Government from the Tacoma News Tribune.
 Osborne and Hutchinson, The Price of Government, 11.
Budgeting for outcomes: consistent success in Baltimore
One of the consistent leaders in budgeting for outcomes is the city of Baltimore, which has achieved significant organizational change in government as a result of the strategy’s implementation. The budgeting for outcomes approach has been sufficiently successful there to transcend mayoral administrations and become part of the city’s high-performance culture. Baltimore Budget Director Andrew Kleine describes the difference between traditional budgeting and budgeting for outcomes this way:
In traditional budgeting it’s “What did they spend last year”? Then you make across the board cuts to get into balance. With Budgeting for Outcomes we start with “What are we trying to accomplish for the future?” and decide “How do we get there”?
Kleine notes that using budgeting for outcomes has allowed his city to fund high priority goals and to protect from budget cuts the most effective services. For example, even in the most difficult years for budget, high-priority items were not cut, such as maternal child health, afterschool programs, and violence prevention. This was done by prioritizing efforts that are getting results over those that are not.
Likewise, the services that do not demonstrate value have been eliminated. For example, the city eliminated a mentoring program for children of prisoners because it was found to be ineffective, as well as a program for high school dropouts to prepare them for the workforce, an office that was supposed to help neighborhoods with redevelopment projects, and a mini-grant program for arts organizations. By eliminating these ineffective programs, the city was able to redirect funds to more effective methods of achieving its goals.
New efficiencies have been identified and city government has become more entrepreneurial, self-sufficient, and innovative — true culture change has occurred due to the persistence of the budgeting for outcomes approach. As a leader among peers, Kleine and his city hosted a conference in 2015 for other budgeting for outcomes practitioners to share ideas and best practices among peers.
Kleine’s perspective on budgeting for outcomes is:
It’s common sense. Most people agree a city should have a strategic plan, should set goals, and should measure progress. But it’s not easy to connect the dots. Even if you do those things a budget is sometimes a bureaucratic relic that’s not easy to change. It took a lot of work, incrementally over a few years to get our budget aligned with the strategic plan. But we had to because that’s the best way for us to achieve our goals.
Baltimore’s city budget is now aligned to the six priorities of the city, and each priority has measurable results that are tracked on an ongoing basis — 23 indicators that not only drive city performance but that are shared with the public via the city’s OutcomeStat program. The mayor’s six priorities — thriving youth and families, safe neighborhoods, healthy communities, vibrant economy, sustainable infrastructure, and high-performing government — encompass the overarching goals the city hopes to achieve and the results it seeks to deliver for its residents. The city’s strategic plan now ties activities to funding in each of the priority areas, in a way that had never been done before budgeting for outcomes was implemented.
In addition to now having a budget that is aligned to the agreed priorities of the city, the city has embedded a drive for efficiency and cross-agency collaboration to achieve the best outcomes for the public. For example, results teams spanning the Fire and Health departments decided to assign nurses to frequent 911 callers to prevent repeat calls. This innovation reduced 911 call volume for these so-called “frequent flyers” by 50 percent, which improves response time and saves money. The results team working toward a “cleaner and healthier city” identified duplication of effort and recommended that the city’s Transportation Department piggyback on an existing Recreation and Parks Department mowing contract to reduce the cost of median strip mowing by $1.5 million. One of the results teams invited proposals for building-code enforcement and increased revenue $500,000 because the Housing Department was able to more efficiently perform the burglar alarm registration program than the Police Department, which had been running the program.
Results teams are now very successful and are a sought-after role in city government. But it was not always that way. In the beginning, participation on results teams included a mix of those who volunteered and those who were drafted into serving. The level of interest in participation in the results teams has increased each year. In the last three years, there have been far more people interested than could participate — 150 applicants for 20 slots. Working on a results team is not a full-time job but is done in addition to regular duties. There is an intense period of about six weeks per year that the results team is time-consuming and nearly a full-time job. Results teams include city employees as well as members of the public. Baltimore is now using the city website to gather citizen input with some innovative budget simulation games.
Implementing budgeting for outcomes has created a more inclusive budget process. Before, budgets were created by budget officers who may have operated in isolation from their program staff, and program managers didn’t have visibility into their budget. Now, fiscal and program staff work together to create the budget and each has gained appreciation of the other’s role in advancing citywide goals.
Baltimore Budget Director Kleine has this advice for governments considering implementing budgeting for outcomes:
- Make sure you have a strategic plan. Kleine notes that strategic plans sometimes get written and then put on a shelf. He advises instead to making them living documents that address practical question and help guide what government should do. He advises not trying to do too much, but to focus on the handful of things that you can do to really make a difference. He suggests that planning focus on key questions like “What are you trying to accomplish?” “How do you measure it?” “What do we know about where we are now and why?” “Where do we want to be in 5 years?” “What do we know about what works (addressing problems such as heroin addiction, shootings, affordable housing)?” and “What do we need to do to get from here to there?” He suggests that these practical questions should guide government strategic planning efforts.
- Define the services that government will provide, and then measure outcomes. Kleine notes that at the start of budgeting for outcomes, they looked at the budget program and activity structure. The Department of Recreation and Parks had four programs — general recreation services, regular recreation services, special recreation services, and administration. But none of those programs were specific about what outcomes were being delivered to the public. So the department was asked to redefine their work according to how citizens interact with what they’re delivering. They now have 12 services — urban forestry, aquatics, senior recreation, youth recreation, and so on. That makes so much more sense from a results perspective because those are the services the city is buying from that department. Now, for each of the 12 services there are outcome measures to assess the degree to which the public is getting value for its dollar.
- Don’t get discouraged. When Kleine started as budget director, one of his first assignments was to write up how the budget aligned to the mayor’s objectives, after the budget had been passed. After a considerable amount of searching, he was able to locate the mayor’s priorities by visiting the Communications office. If a city where the budget was so far removed from strategy can become a leader, no municipality should be discouraged.
Budgeting for outcomes is an increasingly valuable tool now that so many governments are faced with recurring annual deficits. It provides a way to be strategic and to do something more powerful and with long-term benefit, rather than cutting all programs equally across the board. It forces leaders to make tough choices that directly address the highest priority needs of the public.