This is the accessible text file for GAO report number GAO-05-127 
entitled 'Performance Budgeting: Efforts to Restructure Budgets to 
Better Align Resources with Performance' which was released on March 
16, 2005. 

This text file was formatted by the U.S. Government Accountability 
Office (GAO) to be accessible to users with visual impairments, as part 
of a longer term project to improve GAO products' accessibility. Every 
attempt has been made to maintain the structural and data integrity of 
the original printed product. Accessibility features, such as text 
descriptions of tables, consecutively numbered footnotes placed at the 
end of the file, and the text of agency comment letters, are provided 
but may not exactly duplicate the presentation or format of the printed 
version. The portable document format (PDF) file is an exact electronic 
replica of the printed version. We welcome your feedback. Please E-mail 
your comments regarding the contents or accessibility features of this 
document to Webmaster@gao.gov. 

This is a work of the U.S. government and is not subject to copyright 
protection in the United States. It may be reproduced and distributed 
in its entirety without further permission from GAO. Because this work 
may contain copyrighted images or other material, permission from the 
copyright holder may be necessary if you wish to reproduce this 
material separately. 

Staff Study: 

February 2005: 

Performance Budgeting: 

Efforts to Restructure Budgets to Better Align Resources with 
Performance: 

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-117SP]: 

GAO Highlights: 

Highlights of GAO-05-117SP: 

Why GAO Did This Study: 

Efforts to better align and integrate budget and performance 
information raises many issues, including the question of budget 
structure—should appropriations accounts or congressional budget 
justifications or both be restructured to tighten the link between 
resources and performance? If so, how and to what extent? The 
administration elevated attention to this issue by including budget 
restructuring as part of the President’s Management Agenda in 2001. 

To provide an overview of the various budget restructuring efforts 
underway in the federal government, GAO: (1) summarized steps taken by 
the Office of Management and Budget (OMB) and nine selected agencies to 
better align their budgets with performance and to better capture the 
cost of performance in the budget; (2) discussed the potential 
implications of these efforts for congressional oversight and executive 
branch managerial flexibility and accountability; (3) described the 
experiences and implementation challenges associated with these 
efforts; and (4) identified lessons learned that can provide insights 
useful in considering current and future budget restructuring efforts. 

What GAO Found: 

Budget restructuring—changes to the congressional budget justifications 
and in some cases appropriations accounts to better align budget 
resources with programs and performance—has the potential to help 
reframe budget choices and is one tool among many that can advance 
results-oriented management. The administration has pursued budget 
restructuring, requiring agencies to submit a “performance budget” 
beginning with fiscal year 2005. Agencies took a variety of approaches, 
and these different approaches have different implications for agency 
management and congressional oversight. 

The budget structure reflects fundamental choices about how resource 
allocation choices are framed and the types of controls and incentives 
considered most important. As such, budget restructuring involves 
significant tradeoffs between the type of information provided and 
accountability frameworks used and has implications for the balance 
between managerial flexibility and congressional control. Accordingly, 
our work revealed differing views on the potential benefits and 
shortcomings of budget restructuring. OMB and agency officials credited 
budget restructuring with supporting more results-oriented management 
by increasing attention to strategic planning, performance, and 
results, providing more complete information on the budget resources 
associated with performance, and in some cases, enhancing agencies’ 
flexibility and incentives to make tradeoffs necessary to increase 
efficiency and effectiveness. 

However, budget changes did not meet the needs of some executive branch 
managers and congressional appropriations subcommittees. Officials from 
two case study agencies said that restructuring may complicate resource 
management. For example, by allocating administrative expenses across 
programs, the restructuring has the potential to reduce their ability 
to shift resources among programs to address unanticipated needs. Also, 
congressional appropriations subcommittee staff expressed general 
support for budget and performance integration but objected to changes 
that substituted rather than supplemented information traditionally 
used for appropriations and oversight, such as object class and 
workload information. In addition, questions have been raised about the 
ability of agencies’ performance and financial management systems to 
support the new budget structures. 

Going forward, infusing a performance perspective into budget decisions 
may only be achieved when the underlying information becomes more 
credible, accepted, and used by all major decision makers. Thus, 
Congress must be considered a partner. In due course, once the goals 
and underlying data become more compelling and used by Congress, budget 
restructuring may become a more compelling tool to advance budget and 
performance integration. 

What GAO Recommends: 

This staff study does not contain recommendations. 

www.gao.gov/cgi-bin/getrpt?GAO-05-117SP. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Susan J. Irving at (202) 
512-9142 or irvings@gao.gov. 

[End of section]

Contents: 

Executive Summary: 

Purpose: 

Results in Brief: 

Background: 

GAO Analysis: 

Budget Restructuring Has Potential to Help Reframe Budget Choices: 

Budget Restructuring Viewed by Some as Supporting Results-Oriented 
Management and Oversight: 

Some Noted Limitations and Concerns: 

Lessons Learned: 

Agency Comments: 

Section 1: Introduction: 

1.1: Recent Budget Restructuring Efforts Are Part of Broader Efforts 
toward a More Results-Oriented Federal Government: 

1.2: Lessons Learned in Performance Budgeting Initiatives Provide 
Insights for Considering Current Restructuring Efforts: 

1.3: Challenges Confront Efforts to Better Align Budget and Performance 
Structures: 

1.4: Clarification of Report Focus and Terminology Used: 

Section 2: Variety of Efforts Undertaken to Restructure Budgets to 
Better Align Budget Resources with Programs and Performance: 

2.1: OMB Recently Placed Greater Emphasis on Budget Restructuring: 

2.2: Agencies Took Differing Approaches to Restructure Budgets to 
Better Align Resources with Programs and Performance: 

Section 3: Restructuring Budgets May Help Reframe Budget Choices and 
Raises Tradeoffs Among Different Decision Makers' Needs: 

3.1: Restructuring Appropriations Accounts and Congressional Budget 
Justifications Has the Potential to Help Reframe Budget Choices: 

3.2: Approach Used and Corresponding Changes Affect the Extent to Which 
Budget Restructuring May Influence Management and Oversight: 

3.3: Some Viewed Budget Restructuring as Supporting Improved Management 
and Oversight, but Concerns and Limitations also Raised: 

Section 4: Budget Restructuring Efforts Face Challenges: 

4.1: Lack of Consensus between Congressional Appropriators and Other 
Decision Makers Creates Challenges for Budget Restructuring Efforts: 

4.2: Budget Restructuring Requires Sustained Commitment and Leadership: 

4.3: Concerns Raised about Ability of Agencies' Systems to Accurately 
Link Budget Resources to Performance and to Track Cost in the New 
Budget Structures: 

4.4: Budget Restructuring May Be a Long-Term, Iterative Process 
Requiring Flexibility to Explore Different Approaches: 

Section 5: Lessons Learned and General Observations: 

Appendixes: 

Appendix I: Objectives, Scope, and Methodology: 

Methodology for Selection of Agencies: 

Methodology for Agency and Congressional Interviews: 

Methodology for Panel Discussions: 

Appendix II: Department of Labor: 

Background: 

Objectives and Implementation Time Line: 

Summary of Labor's Budget Restructuring Approach: 

Agency Views on Implications of Budget Restructuring for Management and 
Oversight: 

Future Direction: 

Appendix III: Department of Veterans Affairs: 

Background: 

Objectives and Implementation Time Line: 

Summary of VA's Budget Restructuring Approach: 

Agency Views on Benefits and Limitations of Budget Restructuring for 
Management and Oversight: 

Future Direction: 

Appendix IV: Environmental Protection Agency: 

Background: 

Objectives and Implementation Time Line: 

Summary of EPA's Budget Restructuring Approach: 

Agency Views on Implications of Budget Restructuring for Management and 
Oversight: 

Future Direction: 

Appendix V: National Aeronautics and Space Administration: 

Background: 

Objectives and Implementation Time Line: 

Summary of NASA's Budget Restructuring Approach: 

Agency Views on Implications of Budget Restructuring for Management and 
Oversight: 

Future Direction: 

Appendix VI: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Acknowledgments: 

Tables: 

Table 1: Where Agencies Made or Proposed Changes to Better Align Budget 
Resources with Programs and Performance: 

Table 2: Statutory Framework for Improving Accountability of Federal 
Government, 1990 through 1996: 

Table 3: Overview of Some Previous Initiatives: 

Table 4: Where Agencies Made or Proposed Changes to Better Align Budget 
Resources with Programs and Performance: 

Table 5: Program Activity Listing for EPA's Environmental Programs and 
Management Appropriations Account (Fiscal Years 1998, 1999, and 2005 
Budgets): 

Table 6: Comparison of EPA's Appropriations Account Structure and 
Organizing Framework for Its Fiscal Year 2005 Congressional Budget 
Justification: 

Table 7: Level of Program or Performance to Which Agencies Showed or 
Requested "Full Cost" in Congressional Budget Justifications: 

Table 8: Resource Table Presented in Labor's Fiscal Year 2005 
Congressional Budget Justification for Job Corps: 

Table 9: Agencies Considered for Review: 

Table 10: Agencies Selected for Case Studies: 

Table 11: Resource Table Presented in the Fiscal Year 2005 
Congressional Budget Justification for Job Corps: 

Table 12: Performance Goal Cost Allocation Presented in the Fiscal Year 
2005 Congressional Budget Justification for Job Corps: 

Table 13: Labor's Main Cost Categories: Definitions and Examples: 

Table 14: Example of Relationship between VA's Strategic and 
Programmatic Frameworks: 

Table 15: Program Activity Changes Since Fiscal Year 1998 Budget: 
Environmental Programs and Management Appropriations Account Example: 

Table 16: Resource Table Presented in EPA's Fiscal Year 2005 
Congressional Budget Justification: Resources by Goal/Appropriation: 

Table 17: Resource Table Presented in EPA's Fiscal Year 2005 
Congressional Budget Justification: Resources by Goal/Objective: 

Table 18: Cost Definitions and Examples: 

Figures: 

Figure 1: Relationship among the PMA, the BPI, and Budget 
Restructuring: 

Figure 2: Time Line of OMB and Agency Efforts to Align Appropriations 
Accounts and Congressional Budget Justifications with Performance: 

Figure 3: Appropriations Accounts Funding the Medical Care Program 
under VA's Fiscal Year 2003 Enacted and Fiscal Year 2004 Proposed 
Appropriations Account Structure: 

Figure 4: Appropriations Accounts Funding General Operating Expenses 
under VA's Fiscal Year 2003 Enacted and Fiscal Year 2004 Proposed 
Appropriations Account Structure: 

Figure 5: Supplemental Table from DOT's Congressional Budget 
Justification: 

Figure 6: Example of Labor's Strategic Framework: 

Figure 7: Labor's Implementation Time Line: 

Figure 8: VA's Implementation Time Line: 

Figure 9: Comparison of Appropriations Accounts Funding Each Major 
Program under Fiscal Year 2003 Enacted Appropriations Account Structure 
and Fiscal Year 2004 Proposed Appropriations Account Structure: 

Figure 10: Program Activity Listing: Medical Care Appropriations 
Account: 

Figure 11: Comparison of Appropriations Accounts Funding Each Major 
Program under Fiscal Year 2004 Enacted Appropriations Account Structure 
and Fiscal Year 2005 Proposed Appropriations Account Structure: 

Figure 12: Example of EPA's Budget Structure Organized by Strategic 
Goal and Objective: 

Figure 13: The Relationship between Strategic Goals and Objectives, 
Program Projects, and Appropriations Accounts: 

Figure 14: EPA's Implementation Time Line: 

Figure 15: Excerpt from EPA's Fiscal Year 2005 Congressional Budget 
Justification: 

Figure 16: Example of Relationship between NASA's Strategic and 
Organizational Frameworks: 

Figure 17: NASA's Implementation Time Line: 

Figure 18: NASA's Appropriations Account Structure Incrementally 
Changed between Fiscal Years 2001 and 2005 to Reflect Organizational 
Framework: 

Abbreviations: 

BLS: Bureau of Labor Statistics: 

BPI: Budget and Performance Integration: 

CFO: Chief Financial Officers: 

CoF: Construction of Facilities: 

Commerce: Department of Commerce: 

CPPR: Center for Program Planning and Results: 

DOJ: Department of Justice: 

DOT: Department of Transportation: 

EBSA: Employee Benefits Security Administration: 

EEOICF: Energy Employees Occupational Illness Compensation Fund: 

EPA: Environmental Protection Agency: 

ETA: Employment and Training Administration: 

ESA: Employment Standards Administration: 

FAA: Federal Aviation Administration: 

FASAB: Federal Accounting Standards Advisory Board: 

FFMIA: Federal Financial Management Improvement Act: 

FMCSA: Federal Motor Carrier Safety Administration: 

FTA: Federal Transit Administration: 

FTE: Full-time equivalent: 

G&A: General and Administrative: 

GMRA: Government Management Reform Act: 

GOE: General Operating Expenses: 

GPRA: Government Performance and Results Act: 

HUD: Department of Housing and Urban Development: 

IFMP: Integrated Financial Management Program: 

IFMS: Integrated Financial Management System: 

IG: Inspector General: 

IT: Information Technology: 

Labor: Department of Labor: 

MAMOE: Medical Administration and Miscellaneous Operating Expenses: 

MBO: Management by Objectives: 

MRB: Management Review Board: 

MSHA: Mine Safety and Health Administration: 

NASA: National Aeronautics and Space Administration: 

NCA: National Cemetery Administration: 

NPA: National Program Administration: 

NPR: National Performance Review: 

OMB: Office of Management and Budget: 

OPPTS: Office of Prevention, Pesticides, and Toxic Substances: 

ORD: Office of Research and Development: 

OSHA: Occupational Safety and Health Administration: 

P&F: Program and Financing: 

PART: Program Assessment Rating Tool: 

PBAA: Planning, Budgeting, Analysis, and Accountability: 

PBGC: Pension Benefit Guaranty Corporation: 

PMA: President's Management Agenda: 

PPBS: Planning, Program-Budgeting System: 

S&E: Salaries and Expense: 

SBA: Small Business Administration: 

VA: Department of Veterans Affairs: 

VBA: Veterans Benefit Administration: 

VHA: Veterans Health Administration: 

VR&E: Vocational Rehabilitation and Employment: 

ZBB: Zero-based Budgeting: 

[End of section]

Executive Summary: 

Purpose: 

Over the last decade, Congress, the Office of Management and Budget 
(OMB), and other executive agencies have worked to implement a 
statutory and management reform framework to improve the performance 
and accountability of the federal government. Key components of this 
framework include the Government Performance and Results Act (GPRA), 
the Chief Financial Officers (CFO) Act, and the Government Management 
Reform Act (GMRA). These reforms are designed to inform congressional 
oversight and executive decision making by providing objective 
information on the relative effectiveness and efficiency of federal 
programs and spending. As a result of this framework, there has been 
substantial progress in the last few years in establishing the basic 
infrastructure needed to create high-performing federal organizations. 

However, the federal government is in a period of profound transition 
and faces an array of challenges--including diffuse security threats 
and homeland security needs and a growing long-term fiscal imbalance-- 
and opportunities to enhance performance, ensure accountability, and 
position the nation for the future. GAO has sought to assist Congress 
and the executive branch in considering the actions needed to support 
the transition to a more high-performing, results-oriented, and 
accountable federal government.[Footnote 1] This report focuses on one 
strategy--budget restructuring--suggested to increase the focus on 
performance and results during budget deliberations. 

The current administration has taken several steps to strengthen the 
integration of budget, cost, and performance information for which 
GPRA, the CFO Act, and GMRA laid the groundwork. This administration 
has made the integration of budget and performance information one of 
five governmentwide management priorities under its President's 
Management Agenda (PMA).[Footnote 2] This initiative includes efforts 
such as the Program Assessment Rating Tool (PART), improving outcome 
measures, and improving monitoring of program performance. Another 
effort is budget restructuring--changes to congressional budget 
justifications and in some cases appropriations accounts--to better 
align budget resources with performance. 

Improving connections between budget and performance information is 
neither a new nor a simple undertaking. Since about 1950 the federal 
government has attempted several governmentwide initiatives designed to 
better inform spending decisions based on expected 
performance.[Footnote 3] Efforts such as the Planning, Program-
Budgeting System (PPBS) and Zero-based Budgeting (ZBB) were limited in 
part because their performance structures were not clearly linked to 
the budget. GPRA was established to provide improved connections 
between planning and budgeting by requiring performance plans to cover 
all program activities[Footnote 4] listed in the budget. The 
expectation was that agency goals and measures would be taken more 
seriously if they were perceived to be useful and used in the resource 
allocation process. Thus, GPRA established a basic foundation for 
linking resource allocation decisions and results. Together with the 
CFO Act GPRA seeks to improve decision making by providing information 
on the relative effectiveness and efficiency of federal programs and 
spending and to help federal managers improve service delivery by 
providing them with information about program results, costs, and 
service quality. 

Efforts to integrate performance information formally into budget 
decisions raise many issues, including the question of budget 
structure--should appropriations accounts or congressional budget 
justifications or both be restructured to tighten the link between 
resources and performance? If so, how and to what extent? The federal 
budget is organized into about 1,100 appropriations accounts, and most 
accounts have subsidiary program activities that allocate budget 
authority to more specific levels of inputs, outputs, or outcomes 
funded by the account. Our previous review of appropriations accounts 
revealed a complex and varied structure characterized by a mix of 
account orientations--object, organization, process, and program--that 
reflect a specific focus or interest of Congress.[Footnote 5] While the 
current account structure may help satisfy congressional control and 
oversight objectives, it does not always align well with performance 
goals, nor does it always readily capture the "full costs" of 
programs.[Footnote 6] For example, certain performance goals cut across 
multiple program activities and appropriations accounts. Also, the 
costs of a single program can sometimes be split among multiple 
accounts, such as accounts for salaries and expenses and accounts for 
other expenditure items such as capital or construction. Although 
clearer and closer associations between performance information and 
budget requests could more explicitly inform and help focus budget 
discussions on performance, this is easier said than done. Planning and 
budget structures serve different purposes, and any effort to achieve 
meaningful connections between them highlights tensions between their 
differing objectives. 

In 2001, OMB elevated attention to this issue by including budget and 
performance integration (BPI) as a key initiative within the PMA. As 
part of this initiative, OMB has pursued budget restructuring to better 
align budget resources with programs and performance. OMB provided 
agencies guidance on ways to restructure their appropriations accounts 
and congressional budget justifications and, beginning with the fiscal 
year 2005 budget, OMB required agencies to submit a "performance 
budget" that would integrate the annual performance plan and the 
congressional budget justification into one document.[Footnote 7] The 
"performance budget" should reframe budget requests around what 
agencies intend to accomplish with the resources requested and enhance 
public and congressional understanding of government performance. 

"Performance budgeting" may be thought of as an umbrella of various 
initiatives, including OMB's PART, to better infuse performance 
information into the budget process. The focus of this report is budget 
restructuring. Our objectives in this study were to (1) summarize the 
steps taken by OMB and selected agencies to better align their budgets 
with performance and to better capture the cost of performance in the 
budget, (2) discuss the potential implications of these efforts for 
congressional oversight of budget resources and for executive branch 
managerial flexibility and accountability over budget resources, (3) 
describe the experiences and implementation challenges associated with 
these efforts, and (4) identify lessons learned that might be useful in 
considering future efforts for linking resources to results in the 
budget. Observations and lessons learned in this study together with 
lessons learned from previous "performance budgeting" initiatives 
provide insights useful in consideration of current and future budget 
restructuring efforts and other steps to improve the use of cost and 
performance information in the budget process. 

To provide an overview of the various budget restructuring efforts 
underway in the federal government, we reviewed nine[Footnote 8] 
agencies' account structures and congressional budget justifications. 
These nine agencies were judgmentally selected based on a combination 
of their scores for Budget and Performance Integration in the Executive 
Branch Management Scorecard in the President's fiscal year 2004 
budget,[Footnote 9] OMB's published statements highlighting agencies' 
progress in this area, and the types and extent of budget structure 
changes made. The nine agencies are: 

1. Department of Commerce (Commerce),

2. Department of Housing and Urban Development (HUD),

3. Department of Justice (DOJ),

4. Department of Labor (Labor),

5. Department of Transportation (DOT),

6. Department of Veterans Affairs (VA),

7. Environmental Protection Agency (EPA),

8. National Aeronautics and Space Administration (NASA), and: 

9. Small Business Administration (SBA). 

To gain a deeper understanding of the implications of agencies' efforts 
for managerial flexibility and accountability and implementation 
experiences and challenges, we selected four of the nine agencies-- 
Labor, VA, EPA, and NASA--for more in-depth case study review. To help 
select case study agencies from the nine in our review, we divided the 
agencies into three general groupings based on the type of changes 
made: (1) those with changes to the appropriations account structure 
(VA, NASA, DOJ, DOT); (2) those with changes within the account 
structure at the program activity level (EPA, SBA); and (3) those with 
changes only to the congressional budget justification (Labor, 
Commerce, HUD). From each category, we judgmentally selected at least 
one agency[Footnote 10] for case study based on how well they had been 
implementing the BPI initiative and then on the extent of their 
changes. Thus, agencies that received higher scores for BPI on the 
Executive Branch Management Scorecard and made or proposed more 
apparent budget structure changes were more likely to be included in 
our study.[Footnote 11] For a more detailed discussion of how we 
selected our agencies and addressed the study's objectives, see 
appendix I. 

We conducted our work from May 2003 through December 2004 in 
Washington, D.C. in accordance with generally accepted government 
auditing standards. 

Results in Brief: 

Budget restructuring is one effort among a broader initiative to 
improve government performance and outcomes. Because the budget is the 
basis for resource allocation decisions, strengthening the link between 
resources and performance in congressional budget justifications is 
viewed as an important step to increase the focus on performance in 
budget deliberations. Moreover, changing the appropriations account 
structure is intended to provide managers with the incentives to manage 
resources more efficiently. According to OMB staff, aligning authority 
and accountability--or appropriating budget authority[Footnote 12] by 
programs and outcomes--provides both the information and flexibility to 
allocate resources and execute the budget with a focus on 
effectiveness. 

Given the multiplicity of budgetary actors in our system, any budget 
restructuring effort represents more than structural or technical 
changes. It reflects important trade-offs among different and valid 
perspectives and needs of these different decision makers. The 
structure of appropriations accounts and congressional budget 
justifications reflects fundamental choices about how resource 
allocation choices are framed and the types of controls and incentives 
considered most important. As such, changes to the account structure 
have the potential to change the nature of management and oversight and 
ultimately the relationship among the primary budget decision makers--
Congress, OMB, and agencies. Accordingly, our work revealed differing 
views on the potential benefits and shortcomings of restructuring 
budgets to better align budget resources with performance. 

The nine agencies in our review took a variety of approaches to 
restructure their appropriations accounts and congressional budget 
justifications over the past several years. These approaches differed 
in terms of the: 

* specific budget structures affected (e.g., appropriations account 
structure, program activities within the appropriations account 
structure, or congressional budget justification);

* orientation or organizing framework used to restructure the budget 
(e.g., bureaus, strategic goals, programs, etc.);

* level of performance for which budget resources were shown or budget 
authority was requested (e.g., strategic goals, performance goals, 
programs, etc.); and: 

* types of resources (e.g., central administration, Inspector General 
(IG) offices, etc.) distributed within the performance-based budget 
structure to reflect "full cost."

OMB staff and agency officials credited budget restructuring with 
supporting results-oriented management by increasing attention to 
strategic planning, performance, and results and providing more 
complete information on the budget resources associated with 
performance. Beyond providing better information, OMB staff and 
officials in six agencies said budget restructuring enhanced agencies' 
flexibility and incentives to make trade-offs necessary to increase 
efficiency and effectiveness. NASA officials in particular said that 
their restructured budget, which allocated all direct and indirect 
resources to programs, gives managers greater information and 
incentives to use these resources more efficiently. 

However, budget changes did not meet the needs of some executive branch 
managers and congressional appropriations committees. For example, 
officials from two case study agencies said budget restructuring had 
the potential to complicate resource management. These case study 
agencies proposed allocating administrative expenses to program 
appropriations accounts. While this change would better capture the 
program's "full cost," paying each program's administrative expenses 
from separate appropriations accounts could make it more difficult for 
agencies to shift administrative resources across programs to address 
emerging needs because transferring resources between appropriations 
accounts requires statutory authority. 

Congressional appropriations subcommittee staff for the most part 
continued to state a preference for and rely on previously established 
budget structures. Appropriations subcommittees and staff said that the 
changes in budget accounts and presentations shifted the focus away 
from programs and items of expenditures of interest to congressional 
appropriators and instead highlighted strategic and performance goals. 
While these staff expressed general support for budget and performance 
integration, they objected to changes that replaced information, such 
as workload and output measures, traditionally used for congressional 
appropriations and oversight with the new performance perspective. The 
importance of workload and output measures for making budget decisions 
is also important at the state level. In our recent review of state 
performance budgeting efforts, state officials indicated this 
information was most relied upon by legislators when determining 
funding levels and desired levels of service relative to funding. 

Agencies' implementation experiences to date highlight a number of 
challenges and issues for current and future budget restructuring 
efforts, such as gaining congressional support and improving financial 
and performance information. Achieving better alignment and integration 
between budget and performance planning structures has the potential to 
promote greater attention to performance issues in budgeting, but only 
if supported by key executive and congressional decision makers. While 
some agencies have demonstrated sustained commitment by agency 
leadership, this commitment has not yet been shared by congressional 
appropriators and other decision makers. Some congressional staff were 
concerned about what they described as insufficient consultation in 
developing the new budget structures. Questions have also been raised 
about the ability of agencies' performance and financial management 
systems to support the allocation and tracking of resources adequately 
within the new budget structures. Some budget experts and agency 
officials suggested that improving underlying financial and performance 
information should be a prerequisite to restructuring budgets and that, 
in their opinion, this step is more important to improving management 
and oversight than the recent budget restructuring efforts. To the 
extent budget decisions are to be based on this information, the 
credibility of the underlying systems supporting the allocation of 
costs to performance becomes more critical. 

Budget restructuring is one tool among many that can advance results-
oriented management. However, it involves significant trade-offs 
between different types of information and accountability frameworks 
and has implications for the balance between managerial flexibility and 
congressional oversight and control. Thus, Congress must be considered 
a partner in the effort. While congressional buy-in is critical to 
sustain any major management initiative, it is especially important for 
performance budgeting given Congress' constitutional role in setting 
national priorities and allocating the resources to achieve them. The 
concerns raised by appropriations staff suggest that when creating 
"performance budgets" OMB and agencies should find ways to supplement, 
rather than replace, key information used by the appropriations 
committees to make decisions. The greatest challenge of budget 
restructuring may be discovering ways to reflect both the broader 
planning perspective that can add value to budget deliberations and 
foster accountability in ways that Congress considers appropriate for 
meeting its appropriations and oversight objectives. Moving forward 
without agreement on whether and how to structure budgets, without 
agreement on how to measure and report cost and performance 
information, and without the ability to track and explain how resources 
are spent in various ways may result both in more work--as agencies 
prepare budgets in multiple forms--and in structures that fall short of 
achieving their objectives. 

Going forward, the important goal of infusing a performance perspective 
into budget decisions may only be achieved when the underlying supply 
of information becomes more credible, compelling, accepted, and used by 
all significant decision makers in the system. Indeed, if budget 
decisions are to be based on this cost and performance information, 
there is a more compelling need to improve the integrity of the data. 
As OMB's own PART reviews suggest, much work remains to be done in 
improving the underlying information, evaluations, and systems within 
agencies to support performance goals. Ultimately, once the goals and 
underlying information become more compelling and used by Congress, 
budget restructuring may come to be viewed as a strategy to advance 
congressional budgeting and oversight objectives. In other words, the 
budget structure may come to reflect--rather than drive--the use of 
performance and cost information in budget decisions. 

Background: 

Consistent with GPRA, OMB sought to forge stronger linkages between 
plans and budgets and to prompt greater attention to results in the 
resource allocation process. Over the last 10 years, OMB has discussed 
the need to reexamine appropriations account structures to better align 
them with program outputs and outcomes and to charge the appropriate 
account with significant costs used to achieve these results. OMB said 
that multiple accounts leading to the same output or outcome may 
inhibit a manager striving to achieve results. Also, some program 
activities within appropriations accounts show either inputs or only a 
portion of the funding for an output and make it difficult to show the 
full annual cost of resources used to achieve results. For example, the 
budget resources used to achieve VA's burial program performance goals 
are not readily apparent under its current appropriations account 
structure. The burial program is funded by six appropriations accounts 
spread across separate volumes of its congressional budget 
justification. 

GAO Analysis: 

Variety of Efforts Undertaken to Restructure Budgets to Better Align 
Budget Resources with Performance: 

More recently, OMB placed greater emphasis on budget restructuring by 
including it as one effort in the BPI initiative of the PMA that was 
issued in August 2001. Beginning with the Circular A-11 for the fiscal 
year 2004 budget, OMB provided guidance to agencies on ways to 
restructure their appropriations accounts and congressional budget 
justifications and later required agencies to submit a "performance 
budget" for fiscal year 2005 to OMB and Congress. While the PMA and 
OMB's recent "performance budget" requirements provided greater 
incentives to move in this direction, some case study agencies began 
thinking about budget restructuring and ways to better align the budget 
with performance before the PMA was introduced. One case study agency's 
effort to better align budget resources with performance could be seen 
in the budget as early as 1998. 

The nine agencies we reviewed took different approaches to 
restructuring budgets to better align budget resources with 
performance. Table 1 shows that the budget structure (e.g., 
appropriations account, program activity listing, or congressional 
budget justification) affected in the nine agencies in our study 
varied. 

Table 1: Where Agencies Made or Proposed Changes to Better Align Budget 
Resources with Programs and Performance: 

Changes to appropriations account structure: Changes to accounts; 
VA: Yes; 
NASA: Yes; 
DOJ: Yes; 
EPA: No; 
SBA: No; 
COMMERCE: No; 
HUD: No; 
LABOR: No; 
DOT: [A]. 

Changes to appropriations account structure: Changes within accounts to 
program activities; 

VA: Yes; 
NASA: Yes; 
DOJ: Yes; 
EPA: Yes; 
SBA: Yes; 
COMMERCE: No; 
HUD: No; 
LABOR: [B]; 
DOT: [A]. 

Changes to congressional budget justification; 
VA: Yes; 
NASA: Yes; 
DOJ: Yes; 
EPA: Yes; 
SBA: Yes; 
COMMERCE: Yes; 
HUD: Yes[C]; 
LABOR: Yes; 
DOT: Yes. 

Source: GAO analysis. 

[A] Some bureaus within DOT made or proposed changes to their account 
structure and program activities within accounts to better align with 
performance, but DOT as a whole did not restructure its budget 
accounts. 

[B] The Pension Benefit Guaranty Corporation and the Employment and 
Training Administration made or proposed changes to the program 
activities within their appropriations accounts, but according to Labor 
officials these changes reflect policy changes. Labor as a whole did 
not restructure its appropriations accounts to better align resources 
with programs or performance. 

[C] For the fiscal year 2004 budget only. The House Appropriations 
Committee directed HUD not to submit a "performance budget" for fiscal 
year 2005 and consequently, HUD did not resubmit a "performance budget" 
for fiscal year 2005. 

[End of table]

While some changes or proposed changes sought to modify the way 
resources are appropriated and thus the framework for resources trade-
offs, other changes sought to provide additional information on the 
connection between budget resources and programs and performance for 
presentational purposes. The three agencies proposing account structure 
changes--NASA, VA, and DOJ--requested that budget authority be 
appropriated to cover the "full cost" of programs or collections of 
programs that support common goals.[Footnote 13] The remaining six 
agencies--Commerce, Labor, DOT, EPA, HUD, and SBA--for the most part 
maintained their existing appropriations account structures that 
reflected a mix of orientations and either restructured their 
congressional budget justifications to reframe their budget request 
around the "full cost" of performance or provided supplemental 
crosswalk tables to show the "full cost" or "total budgetary resources" 
of performance units for presentational purposes. In addition, some 
agencies also sought corresponding changes to other methods by which 
Congress oversees resource use, including transfer authority and 
reprogramming guidelines.[Footnote 14]

In most of the selected agencies, the organizing framework of each 
agency's congressional budget justification followed its appropriations 
account structure; however, three agencies in our study-
-EPA, SBA, and HUD--used organizing frameworks for their congressional 
budget justification that did not match their appropriations account 
structures. For example, EPA's appropriations account structure 
generally reflects a mix of orientations, including object (items of 
expense) and organization. However, EPA organized its congressional 
budget justification by strategic goal. Any one strategic goal might 
have been funded by multiple appropriations accounts. As a result, it 
was easier to see the resources associated with strategic goals and 
objectives in the congressional budget justification but more difficult 
to see the resources associated with each appropriations 
account.[Footnote 15]

Agencies linked budget resources to various levels of performance in 
their congressional budget justifications. Most agencies in our review 
aligned budget resources to programs or collections of programs that 
support common strategic goals. Four agencies--EPA, SBA, HUD, and DOT-
-aligned budget resources to strategic goals or objectives or both, and 
three agencies--Commerce, Labor, and DOT--aligned budget resources to 
performance goals. 

While agencies included in our study all took steps to more completely 
capture the "full cost" of programs and performance, the types of 
resources agencies allocated to program and performance units varied. 
In particular, the treatment of central administrative resources and IG 
office resources differed. For example, EPA allocated 100 percent of 
its resources to its strategic objectives. NASA and SBA each allocated 
almost all resources except for the IG to their programs and goals. 
Other agencies, including VA and DOJ, did not allocate central 
administrative resources to their programs. Thus, what was described as 
"full cost" or "total budgetary resources" was not the same in all 
agencies. This lack of consistency has the potential to complicate the 
understanding of what is meant by "full cost" and "total budgetary 
resources." For more information on how the resources allocated to 
programs and performance differed, see section 2.2c. 

Budget Restructuring Has Potential to Help Reframe Budget Choices: 

Recent budget restructuring efforts have sought to help reframe budget 
choices and to focus decisions more on the expected results of budget 
resources and less on inputs or line items. The different approaches 
used by agencies in our review provide different information and 
incentives and thus have different implications for management and 
oversight. For example, appropriations account structure changes, which 
change the statutory control over resources, generally have a greater 
potential to change management and oversight than changes to 
congressional budget justifications alone, which may be primarily 
presentational. Regardless of the approach used, a full understanding 
of the implications of budget restructuring efforts cannot be 
understood without looking also at the effect of corresponding changes 
to the other methods by which Congress and agencies oversee and manage 
budget resources, such as earmarks and reprogramming guidelines. (See 
section 3.2b for a more detailed discussion.)

Budget Restructuring Viewed by Some as Supporting Results-Oriented 
Management and Oversight: 

OMB staff and agency officials credited these appropriations account 
and congressional budget justification changes with supporting results-
oriented management. Officials we spoke with or documents we reviewed 
from five agencies indicated that the restructured budgets increased 
the attention to strategic planning, performance, and results during 
internal budget deliberations and, in some of these agencies, increased 
the coordination of programs supporting common strategic goals or 
objectives. Also, OMB staff and officials from seven agencies credited 
budget restructuring with providing more complete information on the 
budget resources associated with performance. 

Officials we spoke with from six agencies also emphasized that the 
changes went beyond providing more complete information on the 
resources associated with programs or performance to providing 
incentives to recognize resource trade-offs and the flexibility to make 
them. For example, a key objective of NASA's restructuring was to 
provide incentives for improved resource management. According to NASA 
officials, because NASA's program budgets now include direct and 
indirect budget resources associated with a project and managers are 
responsible for these resources, managers have better information and 
incentives to be cost effective and the flexibility to make trade-offs 
between various resources, such as administrative costs, supplies, 
direct civil servants, and contractors or consider whether lower cost 
alternatives exist. In addition, NASA officials credited "full cost" 
budgeting with helping to identify underutilized facilities. Because 
service pool[Footnote 16] resources are allocated to NASA's programs 
and included as part of program budgets based on use, NASA said 
underused service pools became more visible. If programs did not cover 
a service pool's costs, NASA officials said that it would raise 
questions about whether that capability was needed. (See section 3.3a 
for a more detailed discussion of the perceived benefits of budget 
restructuring.)

Some Noted Limitations and Concerns: 

Despite these perceived benefits, officials from two case study 
agencies raised concerns that budget restructuring has the potential to 
complicate resource management by, among other things, reducing 
flexibility to respond to changing needs across program accounts, 
creating budget execution difficulties, or adversely affecting the 
balance between maintaining institutional capacity--its physical assets 
and workforce--and operational efficiency. For example, some VA 
officials raised concerns that VA's proposed account structure might 
affect their ability to respond to changes in benefit claims. 
Currently, administrative costs are funded through one appropriations 
account so VBA can shift administrative funds among multiple programs 
throughout the year to address performance issues or respond to changes 
in benefit claims that might arise. Under the proposed appropriations 
account structures for fiscal years 2004 and 2005, each benefit 
program's administrative expenses would have been funded from separate 
appropriations accounts; as a result, shifting administrative funds 
among program appropriations accounts throughout the year would require 
transfer authority and VBA's ability to respond to changing needs would 
have been more limited. 

Appropriations committee reports and subcommittee staff for the most 
part reflect congressional concerns and sometimes disapproval of budget 
restructuring efforts. Although some appropriations committee reports 
and staff we spoke with expressed general support for efforts to better 
link budget resources to performance, they were generally less 
comfortable with specific proposed changes. For the most part, 
committees continued to state a preference for and use previously 
established structures. For example, of the three agencies that 
proposed agencywide appropriations account changes--NASA, VA, and DOJ-
-only NASA was appropriated under the new structure. Several staff said 
that the organizational frameworks agencies used to restructure budgets 
did not align with how the agency operated, relied on units for which 
the agency was unable to track spending, did not provide useful 
information, or did not align with the focus of congressional 
appropriations committees. For example, appropriations subcommittee 
staff for EPA said that because appropriators generally focus on and 
fund resources by program, the congressional budget justification 
structured around strategic goals and objectives did not provide 
information they need. In 2004, after receiving justifications 
structured around performance for 7 years, the House and Senate 
appropriations subcommittees urged EPA to reformat its congressional 
budget justification.[Footnote 17] In response, EPA structured its 
fiscal year 2006 budget justification around appropriations accounts 
and program/projects. 

Further, several staff said the restructured congressional budget 
justification not only introduced new perspectives but omitted 
information that appropriators have come to rely on such as changes to 
appropriations language and funding levels, historical information, 
funding levels by program or state, object class information, workload 
information, and detailed cost information. Lastly, some subcommittee 
staff said they found the narrative included in performance-based 
congressional budget justifications too voluminous and that, while it 
might be useful information, it is too cumbersome and difficult to use. 
As expressed in one committee report, "In the place of critical budget-
justifying material, the Committee is provided reams of narrative text 
expounding on the performance goals and achievements of the various 
agencies."[Footnote 18] (Section 3.3b provides a more detailed 
description of congressional concerns.)

Executive branch officials and staff with whom we spoke expressed 
differing views on the extent to which appropriations account structure 
changes are important for efforts to advance results-oriented 
management. Some saw the changes in appropriations accounts structures 
as necessary to reinforce transformations in agency culture and 
accountability processes. However, most did not view these changes as 
critical to their efforts to advance results-oriented management at 
this time. In the view of some officials, budget restructuring alone 
does not necessarily provide the detailed cost and performance 
information most useful for advancing results-oriented management and 
addressing some key management challenges. Some agency officials, 
congressional appropriations committee staff, and budget experts 
suggested that improving underlying financial and performance 
information should be a prerequisite to restructuring budgets and that, 
in their opinion, this step is more important to improving management 
and oversight than the recent budget restructuring efforts. Others 
noted that efforts to develop improved performance measures and metrics 
have a much greater impact on results-oriented management than budget 
restructuring. These officials noted that management initiatives were 
generally advanced when internal management and accountability 
processes were recast to focus on performance and results, but budget 
restructuring was not viewed as essential to foster this shift in 
managerial perspective. 

Budget Restructuring Efforts Face Challenges: 

History has shown that designing effective approaches to achieve 
meaningful connections between performance and budget structures is a 
complex undertaking. Restructuring budgets inevitably requires trade-
offs among the needs and perspectives of Congress and other decision 
makers because budget structures reflect fundamental choices about how 
to frame budget choices and influence controls and incentives. In many 
cases, Congress and other key decision makers--OMB and different levels 
of agency management--have not reached consensus on the value of 
restructuring budgets or the frameworks used to do so. This is not 
surprising given the different roles these decision makers have within 
our constitutional system of separated powers. However, developing 
budget structures that balance the needs of both the executive and 
legislative branches is made more difficult if there is no 
consultation; some agency officials and congressional appropriations 
subcommittee staff we spoke with said there was insufficient dialogue 
between agencies and appropriators on agencies' budget restructuring 
efforts. 

This lack of consensus, whatever the cause, has and will likely 
continue to raise challenges for those attempting to develop and 
implement restructured budgets. Agencies' experiences have shown that 
pursuing restructured budgets without the agreement--or at least 
acquiescence of appropriations subcommittees--can result in significant 
resources being used to develop budget structures that are rejected or, 
if accepted, do not fully meet congressional needs. For example, 
although Congress accepted EPA's fiscal year 1999 through 2005 
congressional budget justifications structured around strategic goals 
and objectives and allowed reprogramming within strategic objectives, 
Congress required that EPA provide program information and continued to 
set specific funding levels in committee reports based on 
programs.[Footnote 19] Appropriations subcommittee staff said that they 
generally did not use the performance-based budget to conduct their 
work; rather they used the program-based information they requested 
from EPA. 

Structuring budgets to better capture the "full cost" of programs and 
performance involves numerous judgments, such as the contribution of 
various programs to achieve goals and objectives and the allocation of 
resources among these programs and goals. However, questions have been 
raised about agencies' capacity to develop meaningful allocations and 
track costs within the new frameworks. Indeed, both GAO and IGs have 
reported weaknesses in several of our case study agencies' financial 
management systems in providing reliable, useful, and timely financial 
information, including cost data.[Footnote 20] Thus, while budget 
restructuring might provide a more complete picture of the resources 
associated with expected results, it is dependent on these underlying 
systems and assumptions. 

Lessons Learned: 

These challenges suggest that budget restructuring may be a long-term, 
iterative process requiring flexibility to explore different 
approaches. Budget restructuring is one tool that can support results-
oriented management. However, it involves significant trade-offs 
between information provided and accountability frameworks used. 
Congress, OMB, and agencies hold differing views on the information and 
incentives necessary to support effective decision making and 
oversight. Recent efforts to increase the focus on results in 
congressional budget justifications have generally reduced the 
visibility of other information, such as workload and output measures, 
that congressional appropriations committees consider important for 
making resource allocation decisions. The need for workload and output 
measures for making resource allocation decisions is not unique to the 
federal government. State officials indicated this information is used 
by legislators in making resource allocation decisions, as discussed in 
our most recent review of state performance budgeting efforts. 

The history of budget reform suggests that budget structures will 
necessarily reflect multiple perspectives on resource allocation. 
Performance goals and planning structures can clearly add value to 
budget debates by focusing attention on the broad missions and outcomes 
that individual programs and activities are intended to address. 
However, budget structures also serve the legitimate role of helping 
Congress control and monitor agency activities and spending by 
fostering accountability for inputs and outputs within the control of 
agencies. The greatest challenge of budget restructuring may be 
discovering ways to address these competing values that are mutually 
reinforcing, not mutually exclusive. The concerns raised by 
appropriations staff suggest that when creating "performance budgets" 
OMB and agencies find ways to tailor the agencies' performance 
information to meet those needs and to supplement, rather than replace, 
key information used by Congress to make decisions. 

While congressional buy-in is critical to sustain any major management 
initiative, it is especially important for performance budgeting given 
Congress' constitutional role in setting national priorities and 
allocating the resources to achieve them. Experience suggests that 
Congress needs to be comfortable with the appropriateness and utility 
of the new budget structures since budget structures fundamentally 
shape the focus of appropriations decisions as well as the nature of 
the controls through which Congress oversees executive agencies' 
spending. Accordingly, if performance goals and measures are to become 
the basis for the new budget structures, Congress must view them as a 
compelling framework through which to achieve their own budgetary 
objectives. Indeed, GPRA itself was premised on a cycle where measures 
and goals were to be established and validated during a developmental 
period before they were subjected to the rigors of the budget process. 

This suggests that the goal of enhancing the use of performance 
information in budgeting is a multifaceted challenge that must build on 
a foundation of accepted goals, credible measures, reliable cost and 
performance data, tested models linking resources to outcomes, and 
performance management systems that hold agencies and managers 
accountable for performance. Restructuring appropriations accounts and 
presentations to better capture the "full cost" of performance is part 
of this agenda as well. However, creating performance budgets without 
establishing and validating the requisite foundation and consensus on 
measures and goals among primary decision makers will likely not 
succeed in gaining support in the budgetary decision-making process. 
While some argue that budget restructuring might be necessary to 
provide incentives to take the performance goals seriously and improve 
the underlying information, our work suggests that restructuring can 
only take root once support exists for the underlying performance goals 
and metrics. In due course, once the goals and underlying information 
become more compelling and are used by Congress, budget restructuring 
may become a more compelling tool to advance performance budgeting. In 
other words, the budget structure will more likely reflect--rather than 
drive--the use of performance and cost information in budget decisions. 

Agency Comments: 

We provided a copy of the draft report to OMB and the nine agencies in 
our review for comment. OMB said they generally agreed with the 
report's findings and had no specific comments. VA, Commerce, and DOJ 
did not provide any comments. NASA, Labor, EPA, DOT, HUD, and SBA 
provided technical comments, which we incorporated as appropriate. 

[End of section]

Section 1: Introduction: 

Budgeting--the allocation of resources among multiple claims--is the 
process for making choices among often-conflicting objectives. How the 
budget is structured matters a great deal because these structures 
frame fundamental choices about resource allocation and the types of 
controls and incentives provided. Over the past 50 years, various 
efforts have sought to restructure budgets so as to link budgetary and 
performance information. The Office of Management and Budget (OMB) and 
agencies are again looking at these issues as part of the President's 
Management Agenda (PMA). These efforts fall under the PMA's Budget and 
Performance Integration initiative (BPI). One element of BPI involves 
budget restructuring[Footnote 21]--changes to appropriations accounts 
and congressional budget justifications to better align budget 
resources with programs and performance (i.e., to better capture the 
"full cost" of programs and performance). Past efforts at budget 
restructuring have proven complex and posed challenges. These 
challenges have included structuring budgets in ways that can meet the 
multiple perspectives and needs of Congress, OMB, and different levels 
of management at executive branch agencies. Lessons learned from past 
initiatives can provide insights useful in considering today's efforts, 
such as understanding that no single definition or structure 
encompasses the range of needs and interests of federal decision 
makers. 

1.1: Recent Budget Restructuring Efforts Are Part of Broader Efforts 
toward a More Results-Oriented Federal Government: 

Recent OMB and agency efforts to restructure appropriations accounts 
and congressional budget justifications to better align budget 
resources with programs and performance are part of broader efforts 
toward achieving a more results-oriented government. Over the last 
decade a statutory and management framework was established, and 
Congress, OMB, and other executive agencies have worked to implement it 
to improve the performance and accountability of the executive branch 
and to enhance executive branch and congressional decision making. Key 
components of this framework include the Government Performance and 
Results Act (GPRA), the Chief Financial Officers (CFO) Act, and the 
Government Management Reform Act (GMRA). Among their complementary 
purposes, these acts seek to inform congressional oversight and 
executive decision making by providing information on the relative 
effectiveness and efficiency of federal programs and spending and to 
help federal managers improve service delivery by providing them with 
information about program results, costs, and service quality. As a 
result of this framework, there has been substantial progress in the 
last few years in establishing the basic infrastructure needed to 
create high-performing federal organizations. 

However, the federal government is in a period of profound transition 
and faces an array of challenges and opportunities to enhance 
performance, ensure accountability, and position the nation for the 
future. A number of overarching trends, such as diffuse security 
threats and homeland security needs, increasing global interdependency, 
the shift to a knowledge-based economy, and the looming fiscal 
challenges facing our nation drive the need to reconsider the role of 
the federal government in the 21ST century, how the government should 
do business (including how it should be structured), and in some 
instances, who should do the government's business. GAO has sought to 
assist Congress and the executive branch in considering the actions 
needed to support the transition to a more high-performing, results-
oriented, and accountable federal government.[Footnote 22] This report 
focuses on one strategy--budget restructuring--suggested to increase 
the focus on performance and results during budget deliberations. 

GPRA explicitly sought to promote a connection between performance 
plans and budgets with a key objective of helping Congress, OMB, and 
other executive branch agencies develop a clearer understanding of what 
is being achieved in relation to what is being spent. The expectation 
was that agency goals and measures would be taken more seriously if 
they were perceived to be useful and used in the resource allocation 
process. By requiring that an agency's annual performance plan cover 
each program activity[Footnote 23] in the President's budget request 
for that agency, GPRA established a basic foundation for linking 
resource allocation decisions and results. However, recognizing that 
agencies' program activity structures are often inconsistent across 
appropriations accounts, the act did not specify a level of detail or 
components needed to achieve this coverage. Agencies are provided 
flexibility to consolidate, aggregate, or disaggregate program 
activities so long as no major function or operation of the agency is 
omitted or minimized. 

The CFO Act, as amended, also provides a foundation for understanding 
the connection between resources and results. The act sought to remedy 
the government's lack of timely, reliable, useful, and consistent 
financial information. Twenty-four agencies are required to prepare 
financial statements annually and have them audited. The required 
statements include, among other things, a statement of net cost. The 
statement of net cost is intended to provide timely and reliable cost 
information to (1) help ensure that resources are spent efficiently to 
achieve expected results, and (2) compare alternative courses of 
action. 

Other core components of this framework include financial management 
statutes that expanded and amended the CFO Act, such as GMRA and the 
Federal Financial Management Improvement Act (FFMIA) (see table 2). In 
addition, the Federal Accounting Standards Advisory Board 
(FASAB)[Footnote 24] developed managerial cost accounting standards 
aimed at providing reliable and timely information "on the full cost of 
federal programs, their activities, and outputs."[Footnote 25] If 
successfully implemented these reforms provide the basis for improving 
accountability of government programs and operations as well as 
routinely producing valuable cost and performance information that can 
inform resource management and oversight decisions. All these efforts 
recognize that improving cost and performance information to better 
understand the connection between resources and results is essential to 
promoting a more results-oriented government. And, taken together, they 
lay the groundwork for current and future reform effects to better 
integrate performance, budget, and cost information. 

Table 2: Statutory Framework for Improving Accountability of Federal 
Government, 1990 through 1996: 

Reform: Government Performance and Results Act of 1993, P.L. 103-62; 
Description: A key part of the statutory framework, GPRA requires 
executive branch agencies to complete strategic plans in which they 
define their missions, establish results-oriented goals, and identify 
the strategies that will be needed to achieve those goals. GPRA also 
requires executive branch agencies to prepare annual performance plans 
that articulate results-oriented annual goals for the upcoming fiscal 
year that are aligned with their long-term strategic goals. GPRA also 
requires that annual performance plans be tied to budget requests by 
linking annual goals to the program activities displayed in the budget 
presentations. Agencies also are required to annually issue performance 
reports that provide important information to agency managers, 
policymakers, and the public on what each agency accomplished with the 
resources it was given. 

Reform: Chief Financial Officers Act of 1990, P.L. 101-576; 
Description: The CFO Act laid the legislative foundation for the 
federal government to provide taxpayers, the nation's leaders, and 
agency program managers with reliable financial information. The CFO 
Act provided a framework for improved federal government financial 
systems, with a focus on program results in part by centralizing within 
OMB the establishment and oversight of federal financial management 
policies and practices. The CFO Act also set up a series of pilot 
audits whereby certain agencies were required to prepare agencywide 
financial statements and subject them to audit by the agencies' 
inspectors general. 

Reform: Government Management Reform Act of 1994, P.L. 103-356; 
Description: The Government Management Reform Act expanded the CFO Act 
by, among other things, extending financial statement preparation and 
audit requirements to 24 agencies beginning with fiscal year 1996 and 
for the preparation and audit of consolidated financial statements for 
the federal government beginning with fiscal year 1997. The covered 
agencies are to prepare the statements in accordance with federal 
standards developed by FASAB, including a requirement for cost 
information. 

Reform: Federal Financial Management Improvement Act of 1996, P.L. 104-
208, Div. A, Title I, sec. 101(f) [Title VIII], 110 Stat. 3009-389; 
Description: The purpose of FFMIA is to ensure that agency financial 
management systems comply with federal financial system requirements, 
applicable federal accounting standards, and the United States 
Government Standard General Ledger to provide uniform, reliable, and 
more useful financial information, including managerial cost accounting 
information, to evaluate program and activities on their "full costs 
and merits," to make fully informed decisions, and to ensure 
accountability on an ongoing basis. 

Source: GAO analysis. 

[End of table]

The federal government is moving into an important and more difficult 
phase of implementation--formally using results-oriented performance 
and cost information as part of agencies' day-to-day management and 
congressional and executive branch decision making. Within this area, 
one important and long-standing issue is how to better integrate 
performance, cost, and budget information to better support resource 
allocation decisions. Among the issues to be resolved are if, how, and 
to what extent the budget might be restructured to help and encourage 
better understanding of the connection between budget resources and 
performance and to support more effective and efficient resource use. 
The federal budget is organized into about 1,100 appropriations 
accounts, and most accounts have subsidiary program activities that 
show budget authority of more specific levels of inputs, outputs, or 
outcomes funded by the account. While the current account structure may 
help satisfy congressional control and oversight objectives, it does 
not always align well with performance goals, nor does it always 
readily capture the "full cost" of programs. For example, program 
activities may show only a portion of the funding for an output or 
outcome and certain performance goals cut across multiple program 
activities and appropriations accounts. Also, the costs of a single 
program can sometimes be split among multiple accounts, such as 
accounts for salaries and expenses and accounts for other expenditure 
items such as capital or construction. 

Concerns continue that a general lack of integration among performance, 
budget, and financial management functions and reporting structures 
impedes transparency and may hamper efforts to understand fully the 
relationship between performance, requested resources, and resources 
consumed. We have reported that closer integration among performance, 
budgeting, and financial management functions and information might 
provide greater reinforcement of results-oriented management efforts 
and could help improve the quality and availability of budget, 
financial, and performance information. Clearer and closer associations 
between performance information and budget requests could more 
explicitly inform and help focus budget discussions on performance. 

However, it is important to recognize that budget and planning 
structures serve different purposes. Achieving a connection between 
these structures is easier said than done. There will almost always be 
tension between these structures. Our past work suggests that the 
account structure has evolved over time to help Congress control and 
monitor agencies activities and spending and, as such, is geared more 
to fostering accountability for inputs and outputs.[Footnote 26] On the 
other hand, performance plans need to be broad and wide-ranging if they 
are to articulate the missions and outcomes agencies seek to influence. 
Efforts to align budget and performance structures represent more than 
structural or technical changes but important trade-offs among 
different and valid perspectives and needs of Congress, including 
appropriators and authorizers, and different levels of Executive Branch 
management. 

The current administration has taken several steps to strengthen the 
integration of budget, cost, and performance information for which 
GPRA, the CFO Act, and GMRA laid the groundwork. The administration 
included BPI as one of its management initiatives under the umbrella of 
the PMA. The PMA, by focusing on a number of targeted areas (including 
five mutually reinforcing governmentwide goals and a number of program 
initiatives), seeks to improve the performance and management of the 
government. As shown in figure 1, BPI is one of five crosscutting 
initiatives within the PMA and the initiative includes efforts such as 
the Program Assessment Rating Tool (PART), improving outcome measures, 
and improving monitoring of program performance. Budget restructuring 
to better align budget resources with programs and performance is one 
effort within the BPI initiative. As will be discussed in more detail 
in section 2, two aspects of budget restructuring discussed as part of 
the BPI initiative included: 

1. alignment: structural and format changes to congressional budget 
justifications, and in some cases, appropriations accounts to better 
align resources with programs and performance; and: 

2. "full cost: " changes to the way certain budget resources are 
distributed or measured to better reflect where and when resources are 
consumed. 

Figure 1: Relationship among the PMA, the BPI, and Budget 
Restructuring: 

[See PDF for image] 

[End of figure] 

In outlining its BPI initiative, the current administration expressed 
concern that the structure of the federal government budget "makes it 
impossible to identify the full cost associated with individual 
programs."[Footnote 27] The administration stated that it would seek to 
"integrate more completely information about costs and programs 
performance in a single oversight process." According to the 
administration, the initiative would include "budgeting for the full 
cost of resources where they are used, making budget program and 
activity lines more parallel with outputs, and, where useful, improving 
alignment of budget accounts." With regard to "full cost," the 
administration transmitted legislative changes that proposed to more 
completely recognize the accruing costs of federal employee retirement 
benefits. The administration noted that additional legislative changes 
may be necessary to better align other resources with results in the 
budget. 

OMB officials and staff we spoke with described restructuring budgets 
to better align budget resources with programs and performance as 
supporting efforts to achieve a more results-oriented government. 
Because the budget is the basis for resource allocation decisions, 
strengthening the link between resources and performance in 
congressional budget justifications is viewed as an important step to 
increase the focus on performance in budget deliberations. Moreover, an 
OMB staff member said changing the appropriations account structure 
could help better inform and drive budget decisions by providing not 
only the information but also the incentives to recognize and make 
resource trade-offs to manage resources more efficiently. According to 
the fiscal year 2004 Analytical Perspectives, "a program manager who is 
authorized to manage the program, controls budget authority that covers 
the 'full cost' of resources used, and has authority over program staff 
can focus his attention on getting results." Thus, according to OMB 
staff, aligning authority and accountability--or, appropriating budget 
authority[Footnote 28] by programs and outcomes--provides both the 
information and incentives to allocate resources and the flexibility to 
execute the budget with a focus on effectiveness. 

OMB staff said appropriations account structure changes may not be 
necessary. Beginning with the fiscal year 2005 budget, OMB required 
agencies to change their congressional budget justification. According 
to OMB the structure of a "performance budget" justification--by 
explaining goals, how they will be achieved, and what resources are 
required--encourages an analytical congressional budget justification 
that answers key questions in an organized format and might enhance 
public and congressional understanding of government 
performance.[Footnote 29]

1.1a: Alignment of Budget and Performance Structures Is a Long-Standing 
and Complex Issue: 

Improving the connections between budget and performance information is 
not a new or simple task. Since about 1950 the federal government has 
attempted several governmentwide initiatives designed to better align 
spending decisions with expected performance.[Footnote 30] These 
efforts provide insights into both the potential limitations of 
establishing performance structures that are not clearly linked to the 
budget as well as some of the challenges associated with trying to 
better align performance and budget structures. Table 3 provides a 
brief overview of the objectives of some previous initiatives as well 
as some of the challenges faced in terms of better aligning budget and 
performance structures. 

Table 3: Overview of Some Previous Initiatives: 

Previous initiative: Hoover Commissions; 1949 and 1953; 
Brief description: In 1949 the first Hoover Commission's 
recommendations were intended to shift the focus away from the inputs 
of government to its functions, activities, costs, and accomplishments. 
Rather then emphasizing items of expenditure, such as salaries, a 
"performance budget" was to describe the expected outputs resulting 
from a specific function or activity. Consistent with the Commission's 
recommendations, Congress enacted the Budget and Accounting Procedures 
Act of 1950 that, among other things, required the President to present 
in his budget submission to Congress the "functions and activities" of 
the government, ultimately institutionalizing as a new budget 
presentation "obligations by activities." These presentations continue 
today although they are now referred to as "obligations by program 
activity" or more informally "program activities." However, reflecting 
on the implementation of the first Commission's recommendations, the 
Second Hoover Commission observed that many programs did not have 
adequate cost information and suggested that budget activities and 
organizational patterns be made consistent and accounts established to 
reflect this pattern. The Commission suggested that budget 
classification, organization, and accounting structures should be 
synchronized. 

Previous initiative: Planning, Program-Budgeting System (PPBS); 1965; 
Brief description: PPBS, mandated governmentwide in 1965, introduced a 
decision-making framework to executive branch budget formulation that 
involved presenting and analyzing choices among long-term policy 
objectives and alternative ways of achieving them. As originally 
designed, PPBS information systems were not expected to correlate to 
the President's budget submission to Congress. However, a later Bureau 
of the Budget bulletin directed agencies to provide crosswalks between 
their PPBS and appropriations structures. This "two-track system" was 
found to be burdensome, and subsequent efforts to align PPBS program 
structures with the federal budget were ultimately unsuccessful. While 
the Department of Defense continues to use PPBS procedures, the 
governmentwide initiative was formally discontinued in 1971. 

Previous initiative: Management by Objectives (MBO) 1973; 
Brief description: Initiated in 1973, MBO put in place a process to 
hold agency managers responsible for achieving agreed-upon outputs and 
outcomes. While in its first year no attempt was made to establish an 
explicit connection between MBO and the budget process, ultimately a 
link between agencies' stated objectives and their budget requests was 
sought. Although certainly affected by President Nixon's resignation, 
MBO suffered from its initial separation from existing budget 
formulation processes and from problems in identifying and measuring 
objectives. The last objectives under MBO were requested in 1975. 

Previous initiative: Zero-based Budgeting (ZBB); 1977; 
Brief description: ZBB was an executive branch budget formulation 
process introduced in 1977. Its main focus was on optimizing 
accomplishments available at alternative budget levels. Under ZBB, 
federal agencies were expected to set priorities based on program 
results that could be achieved at alternative spending levels, one of 
which was to be below current funding. In concept, ZBB sought a clear 
and precise link between budget resources and program results. The 
initiative, however, faced a number of challenges. Initially there was 
no attempt to explicitly connect the ZBB structure with agencies' 
organizational structures or congressional budget justifications, and 
crosswalks between the ZBB structure and the budget structure were 
viewed as obscuring the analysis of alternative spending levels and 
performance. Paperwork burdens also were cited as a problem for both 
agencies and appropriators. 

Previous initiative: National Performance Review (NPR) 1993; 
Brief description: In the mid-1990s, NPR--an executive branch reform 
effort aimed at making the government "work better and cost less"--
included hundreds of recommendations generally intended to emphasize 
results and managerial flexibility.[A] Among these recommendations, NPR 
included several proposals to deal with "mission-driven, results 
oriented budgeting," including restructuring appropriations accounts to 
reduce overitemization and align them with programs. In a 1994 report 
on the status of NPR implementation,b GAO cautioned that the degree of 
"overitemization" is a matter of interpretation and political judgment. 
Further, GAO noted that one reason for congressional attention on 
processes rather than on results has been the absence of reliable 
performance data. 

Source: GAO analysis. 

[A] Office of the Vice President, From Red Tape to Results: Creating a 
Government that Works Better and Costs Less, Report of the National 
Performance Review (Washington, D.C.: Sept. 7, 1993). 

[B] GAO, Management Reform: Implementation of the National Performance 
Review's Recommendations, [Hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO/OCG-95-1]. 

[End of table]

1.2: Lessons Learned in Performance Budgeting Initiatives Provide 
Insights for Considering Current Restructuring Efforts: 

As previous efforts have shown, determining effective approaches to 
achieve meaningful connections between performance and budget 
structures is a large and complex undertaking. 

The lessons and common themes that have emerged from previous 
initiatives provide insights for considering the most recent budget 
restructuring efforts discussed in this report. First, previous efforts 
have shown that any effort to link plans and budgets must actually 
involve both the executive and legislative branches of our government. 
While congressional buy-in is critical to sustain any major management 
initiative, it is especially important for performance budgeting given 
Congress' central role in setting national priorities and allocating 
the resources to achieve them. Past initiatives often faltered because 
the executive branch developed plans and performance measures in 
isolation from congressional oversight and resource allocation 
processes. Second, previous efforts that did not initially attempt to 
explicitly connect performance with the budget showed the difficulty 
associated with using crosswalks and in maintaining congressional 
interest in performance structures disconnected from the congressional 
oversight and budget processes. For example, past federal government 
performance budgeting initiatives have resulted in unique and often 
voluminous presentations unconnected to the structure and processes 
used in congressional decision making. 

Third, past initiatives demonstrate that there is no single definition 
of "performance budget" that encompasses the range of needs and 
interests of federal decision makers.[Footnote 31] For example, while 
to some "performance budgeting" might mean increasing the focus on 
results during budget deliberations, it might mean greater flexibility 
and discretion in operations to another. Finally, past initiatives 
showed that performance budgeting cannot be viewed in simplistic terms. 
Ultimately, budgeting is and will remain an exercise in political 
choice in which performance can be one factor, but not necessarily the 
only factor underlying decisions. 

Building on the lessons of these previous efforts, GPRA aimed for a 
closer and clearer linkage between requested resources and expected 
results. As noted previously, the act established a basic connection 
between an agency's performance and budget structures by requiring an 
agency's performance plan to cover each program activity in the 
President's budget request for that agency. Our previous review of 
performance plans found that agencies have made progress in 
demonstrating how their performance goals and objectives relate to 
program activities in the budget. Similarly, agencies' initial efforts 
to link performance plans to their statements of net cost are 
improving, but some presentations are more informative than others. 
Despite these improvements, we found that additional effort is needed 
to more clearly describe the relationship between performance 
expectations, requested funding, and consumed resources.[Footnote 32] 
In addition, the measures and goals used were to be established and 
validated during a developmental period before being subjected to the 
rigors of the budget process. 

1.3: Challenges Confront Efforts to Better Align Budget and Performance 
Structures: 

Efforts to align budget and performance structures confront the 
multiple perspectives and needs of Congress, including congressional 
members and staff serving on appropriations and authorizing committees, 
and other decision makers such as officials and staff at OMB, and 
different levels of agency management. These multiple perspectives are 
manifested in the following three challenges, and any efforts to 
restructure budgets to better align budget resources with programs and 
performance must address these challenges: 

* a fundamentally heterogeneous appropriations account structure that 
serves many different needs and objectives,

* a variety of ways "costs" can be described and measured, and: 

* a variety of understandings of what constitutes and might be expected 
from "performance budgeting."

1.3a: Appropriations Account Structure: 

Appropriations accounts are established by law and facilitate 
congressional allocation and oversight responsibilities. Appropriations 
accounts frame resource allocation decisions and the types of 
incentives provided as well as serve as the unit of control. The 
appropriations account structure, developed over the last 200 years, 
was not created as a single integrated framework but rather developed, 
for the most part, as separate accounts over time in response to 
specific needs. Although appropriations acts generally establish 
appropriations accounts, the appropriations account structure serves 
the needs and objectives of many users of the budget and an intricate 
network of relationships among Congress and these users. A continual 
challenge in structuring appropriations accounts is finding ways to 
balance managerial flexibility and congressional control. 

Our previous review of appropriations accounts revealed a complex and 
varied structure characterized by a mix of account 
orientations.[Footnote 33] Each of the four orientations used in our 
previous analysis--object, organization, process, and program--reflects 
a specific focus or interest of Congress. An object orientation 
emphasizes the items of expense while an organization orientation 
focuses on the responsible government unit. A process orientation 
concentrates on the specific operations or approaches underlying the 
federal activities. A program orientation focuses on the missions and 
objectives of government units.[Footnote 34] All orientations were 
found throughout the appropriations account structures. Within this 
varied structure, a number of additional complexities related to better 
aligning budget and performance structures exist. One complexity is 
that some appropriations accounts with a program orientation include 
the resources for a number of programs within a single account. 
However, other appropriations accounts with a program orientation do 
not necessarily capture all related program resources. For example, 
some programs separate an appropriations account for salaries and 
expenses from other program expenditure appropriations accounts. 

1.3b: Concept of "Cost"

Recent efforts to better align budget and performance structures often 
use terms such as "full cost" and aim to provide improved and 
comparable cost information. However, the various users of performance, 
budget, and cost information may have different but valid perspectives 
on what is meant by "cost." These differences determine how information 
and incentives are framed and thus, the extent to which particular cost 
information might be considered useful for a given purpose and user. 
Understanding these different perspectives and approaches to cost 
provides insights into the challenges associated with restructuring 
budgets in ways that will support the various users' perspectives and 
needs. 

"Cost" generally can be thought of as the value of resources that have 
been, or must be used or sacrificed to attain a particular objective. 
However, what is meant by "cost" in a given situation depends on: 

* when costs are recognized,

* what unit of cost is being measured (e.g., strategic goal or 
program), and: 

* the extent to which individual cost components (e.g., salaries, 
materials, general administrative costs) are included in the measure. 

When costs are measured varies based on the intended purpose. Users 
focused on control over spending may want to recognize the complete 
costs when a decision is made to commit resources. For example, the 
obligations-based budget helps ensure upfront control over asset 
acquisition costs by requiring budget authority for the full cost of 
the asset when it is purchased. Conversely, users focused on 
performance assessment (including cost efficiency and cost 
effectiveness) may want to recognize resources when they are used to 
produce goods and services. For example, accrual-based measurement 
records transactions in the period when the underlying economic 
activity generating the revenue, consuming the resources, or increasing 
the liability occurs, regardless of when the associated cash is 
actually paid or received. Each method provides different information 
on the "cost" of an object or activity. 

What unit of cost is being measured helps frame decisions and has 
implications for how cost information might be used, including the 
types of questions that might be answered. For example, cost 
information could be aligned to strategic or performance goals, to 
programs or activities, or to more detailed levels of analysis such as 
the unit cost of a specific output. 

The extent to which individual cost components are included in "full 
cost" may differ among users. "Full cost" is generally viewed as 
including both direct costs (costs that can be specifically identified 
with a cost object, such as an output, etc.)[Footnote 35] and indirect 
costs (costs of resources that are jointly or commonly used to produce 
two or more types of outputs but are not specifically identifiable with 
any of the outputs).[Footnote 36] However, differences about what cost 
components to recognize as "full cost" will arise in part due to 
different perspectives on what "costs" are critical to achieving a 
given objective. 

1.3c: The Concept of "Performance Budgeting"

The concept of "performance budgeting"--essentially the process of 
linking budget levels to expected results, rather than to inputs or 
activities--has and continues to evolve. For many years, numerous 
experiments have attempted to change the emphasis of budgeting from its 
traditional focus on inputs to the allocation of resources based on 
program goals and measured results. As noted earlier, past initiatives 
demonstrate that there is no single definition of a "performance 
budget" that encompasses the range of needs and interests of federal 
decision makers.[Footnote 37] As such, Congress, OMB, and the agencies 
might hold a range of views and perceptions about what is meant by 
"performance-based budgets" and "performance budgeting" as well as what 
might be achieved. For example, "performance budgeting" might be viewed 
in simplistic terms--that is, resource allocation is mechanically 
linked to performance or as presenting the varying levels of 
performance that would result from different budget levels. However, 
performance information will not provide mechanistic answers for budget 
decisions, nor can performance data eliminate the need for considered 
judgment and political choice. Alternatively, "performance budgeting" 
might be viewed as providing performance information in ways that 
inform resource allocation decisions. The different interpretations of 
the term "performance budgeting" increase the importance of 
understanding the objectives of any particular initiative and its 
elements. 

"Performance budgeting" might best be thought of as an umbrella of 
tools to increase the focus on performance during the budget process. 
An example of a current initiative to increase visibility and focus on 
performance information during budget deliberations is OMB's PART. The 
PART is a diagnostic tool meant to provide a consistent approach to 
evaluating federal programs as part of the executive branch budget 
formulation process, thereby more explicitly infusing performance 
information into the budget at a level at which funding decisions are 
made. Efforts might involve increasing credible cost and performance 
information and improving the government's capacity to account for and 
measure the total cost of federal programs and activities. Lastly, 
improving the alignment of the account structure to align authority 
with accountability and relate resources used to the results produced 
can also fall under the umbrella of "performance budgeting."

1.4: Clarification of Report Focus and Terminology Used: 

While "performance budgeting" may be thought of as an umbrella of 
various initiatives to better infuse performance information into the 
budget process, the focus of this report is budget restructuring, which 
involves: 

1. alignment: structural and format changes to congressional budget 
justifications, and in some cases, appropriations accounts to better 
align budget resources with programs and performance; and: 

2. "full cost: " changes to the distribution or measurement of certain 
budget resources to better capture the cost of those resources where 
and when they are used. 

Although OMB's concept of "full cost" initially included efforts to 
change the budgetary measurement of certain items to better recognize 
costs in the budget when resources are consumed, this effort has not 
been a primary focus of reform efforts. Rather, reform efforts to date 
have focused on changes in the structure of appropriations accounts or 
congressional budget justifications and the distribution of resources 
within these structures to more completely align budget resources with 
programs and performance. As a result, these efforts are the primary 
focus of this report. 

In describing efforts to restructure budgets to better align budget 
resources with performance, OMB and other agencies use terms such as 
"full cost" and "total budgetary resources." In most but not all cases, 
these terms are used to refer to the alignment of requested budget 
authority with programs and performance within congressional budget 
justifications or appropriations accounts. However, various users of 
performance, cost,

and budget information,[Footnote 38] including users across agencies, 
may interpret "full cost" and "total budgetary resources" differently. 
Thus, for the purposes of this report, we use the term "budgetary 
resources" generally to describe the budget information within 
appropriations accounts and congressional budget justifications that 
has been aligned to programs and performance during restructuring 
efforts. When we use terms "full cost" and "total budgetary resources" 
as used by OMB or the agencies or both, we place them in quotations. 

In this report "performance budget" refers to congressional budget 
justifications that are structured around agency strategic and 
performance goals and not to any process or approach in which resource 
allocation decisions are being more generally linked to performance. We 
place the term in quotations because different users may interpret 
"performance budget" differently. 

[End of section]

Section 2: Variety of Efforts Undertaken to Restructure Budgets to 
Better Align Budget Resources with Programs and Performance: 

The Office of Management and Budget (OMB) has been discussing the need 
to reexamine appropriations accounts within the last decade, and 
beginning with the fiscal year 1999 budget, some agencies' efforts to 
better align budget resources with programs and performance could be 
seen in the budget. Recently, OMB has placed greater emphasis on budget 
restructuring by including it as one effort in the Budget and 
Performance Integration (BPI) initiative. OMB has also increased the 
focus on changing the congressional budget justification by requiring 
agencies to submit "performance budgets" to both OMB and Congress that 
integrate the performance plan and congressional budget justification 
into one document. The nine agencies we reviewed exemplify a variety of 
approaches taken, differing in terms of the: 

* specific budget structure affected (e.g., appropriations accounts, 
program activities within the appropriations account structure, or 
congressional budget justifications);

* orientation or organizing framework used to restructure the budget 
(e.g., strategic goals, bureaus, programs, etc.);

* level of performance (e.g., strategic goals, performance goals, 
programs, etc.) for which budget resources were shown or budget 
authority requested; and: 

* types of resources (e.g., central administration, Inspector General 
(IG) offices, etc.) distributed within the performance-based budget 
structure to reflect "full cost."

2.1: OMB Recently Placed Greater Emphasis on Budget Restructuring: 

After discussing budget restructuring in the Analytical Perspectives 
for a number of years, in 2001 OMB placed more emphasis on it by 
including it as one of several efforts in the BPI initiative of The 
President's Management Agenda (PMA). Then, in 2003, OMB required 
agencies to restructure their congressional budget justifications 
creating a "performance budget" for fiscal year 2005. During the same 
period, some agencies were also taking steps to restructure their 
appropriations accounts or congressional budget justifications to 
better align budget resources with programs and performance. OMB staff 
told us that they saw budget restructuring as a process that would 
evolve over time and that they had no single vision of the right 
approach. 

2.1a: OMB and Some Agencies Made Concurrent Efforts to Restructure 
Budgets: 

Building on the statutory framework established in the early 1990s, OMB 
and some agencies made concurrent efforts to restructure budgets to 
better align budget resources with performance. Figure 2 provides a 
time line of recent efforts by OMB and our four case study agencies. 

Figure 2: Time Line of OMB and Agency Efforts to Align Appropriations 
Accounts and Congressional Budget Justifications with Performance: 

[See PDF for image] 

[End of figure] 

OMB's interest in budget restructuring did not originate with the PMA. 
Over the last 10 years, OMB has discussed the need to "reexamine 
account structures to better align them with program outputs and 
outcomes and to charge the appropriate account with significant costs 
used to achieve these results."[Footnote 39] More recently, OMB placed 
greater emphasis on budget restructuring by including it as one effort 
in the BPI initiative of the PMA that was issued in August 2001. 
Beginning with the Circular A-11[Footnote 40] for the fiscal year 2004 
budget, OMB included guidance for agencies on ways to restructure their 
congressional budget justifications and appropriations accounts to 
better align budget resources with programs and performance. OMB later 
required agencies to submit a "performance budget" to OMB and Congress 
beginning with the fiscal year 2005 budget. 

During the same period, some agencies were taking steps to restructure 
their appropriations accounts or congressional budget justifications to 
better align budget resources with programs and performance. Some case 
study agencies began restructuring their budgets or thinking about ways 
to better align the budget with performance before the PMA in 2001. For 
example, beginning with its fiscal year 1999 budget, the Environmental 
Protection Agency (EPA) made changes to the program activity listing 
within its appropriations accounts and to its congressional budget 
justification to better align budget resources with its strategic goals 
and objectives. Beginning with its fiscal year 2002 budget, the 
National Aeronautics and Space Administration (NASA) began taking steps 
toward restructuring its appropriations accounts and congressional 
budget justification and, for the fiscal year 2004 budget, requested 
budget authority for the "full cost" of its programs. 

Some officials reported that the Government Performance and Results Act 
(GPRA) requirements and other results-oriented management initiatives, 
such as the Federal Financial Management Improvement Act (FFMIA), led 
them to think about ways to better incorporate a planning perspective 
into budget decisions and capture the "full cost" of their programs and 
activities. Officials from some agencies noted however that the PMA, 
which holds agencies publicly accountable for achieving goals of the 
management initiatives, and OMB's recent "performance budget" 
requirements provided greater incentives to move in this direction. 

2.1b: OMB Provides Budget Restructuring Guidance and Requires a 
"Performance Budget"

Beginning with the fiscal year 2005 budget, OMB required agencies to 
submit a "performance budget" to OMB and Congress that would integrate 
an agency's annual performance plan and congressional budget 
justification into one document.[Footnote 41] The agency's strategic 
plan was to be the template for the "performance budget." Agencies were 
instructed to provide an overview of strategic goals, past and expected 
outcomes for each strategic goal, how supporting programs would work 
together toward those goals, and how past shortcomings would be 
remedied. Tables would show the "full cost" paid by the agency toward 
each strategic goal and for each program. Each bureau or other 
organization was instructed to analyze its contribution to strategic 
goals followed by a detailed analysis of supporting programs. OMB said 
agencies should consult with congressional committees before submitting 
their budget to ensure Congress is aware of changes being made to the 
budget structure. 

OMB also provided guidance to agencies on ways to change their current 
account structure to better align resources with programs and 
performance in the budget. The Circular A-11 guidance for the fiscal 
years 2005 and 2006 budgets said, "where possible" agencies should 
restructure the budget to align accounts and program activities with 
"programs or the components of the programs that contribute to a single 
strategic goal or objective."[Footnote 42] In addition, the guidance 
for the fiscal years 2005 and 2006 budgets also suggested that agencies 
align program activities with Program Assessment Rating Tool (PART) 
programs. Agencies should also, where possible, include the "full cost" 
of a program in the "performance budget."[Footnote 43]

OMB described two ways in which agencies could restructure accounts to 
better capture "full cost." The Circular A-11 said that in some cases 
agencies might consider requesting budgetary resources to cover all 
direct and indirect costs in the budget account or program activity 
that funds the program. This might involve changing the program 
activities in the program and financing (P&F) schedules or changing the 
appropriations account structure or shifting resources between 
accounts. In other cases, agencies might request budget authority for 
some support services in central accounts; in these cases, OMB 
suggested including a table showing the "full cost" of budget resources 
used by each program. 

OMB defined "full cost" as "the sum of all budget resources used by an 
agency to achieve program outputs."[Footnote 44] These resources were 
to include not only traditional elements of costs, such as salaries and 
expenses, procurement of goods and services, grants, and transfers but 
also the cost of all support services and goods used and provided for 
centrally. In addition, these resources were to include accruing 
retiree pension and health benefits. OMB said that the "full costs" 
should be included in restructured accounts or displayed in 
informational tables. As part of these efforts, the administration 
proposed legislation that would change the budgetary measurement to 
recognize the accruing cost of retiree pension and health benefits in 
the budget. (See text box 1.) Congress, however, did not pass this 
legislation and OMB dropped the discussion from the Circular A-11. 

OMB Proposed Legislation to Change How Certain Costs Are Captured in 
the Budget; 

The U.S. budget is a cash and obligation-based budget. An obligation 
serves as the primary point of fiscal control in the budget process. 
Obligational budgeting involves three stages: (1) Congress must enact 
budget authority up front before government officials can obligate the 
government to make cash outlays, (2) government officials incur 
obligations (i.e., commit the government to make outlays) by entering 
into legally binding agreements, and (3) outlays (cash disbursements) 
are made to liquidate obligations. With limited exceptions,[A] budget 
authority, obligations, outlays, and receipts are measured on a cash-or 
cash-equivalent basis and the unified deficit or surplus--the key focus 
of policy debate--represents the difference between cash receipts and 
cash outlays in a given year. That is, receipts are recorded when 
received and outlays are recorded when paid without regard to the 
period in which the taxes and fees were assessed or the costs resulting 
in the outlay were incurred; 

The cash and obligation-based budget has several advantages, including 
that the deficit (or surplus) closely approximates the cash borrowing 
needs (or cash in excess of immediate needs) of the government and, in 
most cases, costs are recognized at the time decisions are made to 
commit the government to spending. However, OMB, GAO, and others have 
raised concerns that, for certain items, the current budget does not 
recognize the complete cost up front when decisions are made or provide 
policymakers with comparable cost information.[B]; 

The budgetary focus on annual cash flows does not match the "full cost" 
of an employee with the services the employee provides. For example, 
some deferred compensation (e.g., some federal employee pensions and 
federal retirees' earned health care benefits) is currently only 
recorded in the federal budget when benefits are paid rather than when 
benefits are earned by employees. Federal employees earn pension 
benefits while they are working but receive pension benefits after they 
have stopped working. The accruing cost of the pensions earned by 
current employees is part of the costs of the goods and services they 
provide, but the budget does not capture the full extent of these 
costs. Instead total budget outlays include the cash payments made to 
current retirees. The failure to align budget recognition with the 
consumption of resources can affect the government's efforts to assess 
its performance by making it more difficult to assess and compare the 
costs associated with a given level of performance; 

Also, some federal agencies acquire assets that generate hazardous 
substances that the agency is required by law to clean up at the end of 
the asset's operating life. Since the budget is primarily measured on a 
cash basis, these costs are paid after the asset is acquired. 
Information on the estimated cleanup costs is currently not included in 
the budget when budgeting decisions are being made about such 
activities. As a result, not only are the government's ultimate costs 
not fully recognized at the time the commitment is made, these costs 
are not properly matched with the provision of government goods and 
services.[C]; 

Capital is another area where the current budgetary treatment does not 
match resource use with the provision of goods and services. By 
requiring up-front budget authority for the asset's full cash purchase 
price, the cash-and obligation-based budget importantly recognizes the 
complete cost of capital assets and permits congressional control 
before the purchase is made. However, this treatment does not match the 
cost of the use of the asset with the provision of goods and services 
and performance. As a result, the budget resources requested in a 
period may misstate the costs of achieving performance in that period; 

To better capture retiree costs in the budget, OMB proposed legislation 
titled Budgeting and Managing for Results: Full Funding of Retiree 
Costs Act of 2001. This legislation proposed to charge the employer's 
share of the full accruing cost of retirement benefits to federal 
employers as they are earned and each agency included the accrued cost 
in their fiscal year 2003 budget requests. Congress, however, did not 
pass this legislation. The administration instead listed the accrued 
cost as a notational entry to the P&F schedules of the President's 
fiscal year 2004 budget. In the Analytical Perspectives for the fiscal 
year 2005 budget, OMB stated that its proposals to include the "full 
cost" of accruing federal employee retiree benefits in the budget 
should be reexamined and proposed to continue working with Congress to 
address concerns.[D]; 

OMB has also discussed how to better consider the cost of capital 
assets and environmental liabilities. In the Analytical Perspectives 
for the fiscal year 2004 budget, OMB said that one way to show a more 
"uniform annual cost for the use of capital" without changing current 
requirements for up-front budget authority would be to create capital 
acquisition funds (CAF).[E] To pay the up-front costs of new capital 
assets for an agency's program accounts, the CAF would request budget 
authority to borrow from the Treasury. The CAF would then charge the 
program account annually for a share of the principal and interest and 
use those collections to repay Treasury. This idea is still conceptual 
and would need studying. Similarly, programs that generate hazardous 
waste could request budget authority for the annually accruing cleanup 
costs and pay these amounts to a designated fund.[F] 

[A] One exception is the treatment of credit programs for which budget 
authority, obligations, and outlays for the estimated cost to the 
government of a credit program are measured on an accrual basis. 
Certain interest payments are also measured on an accrual basis. 

[B] See, for example, GAO, Accrual Budgeting: Experiences of Other 
Nations and Implications for the United States, GAO/AIMD-00-57 
(Washington, D.C.: Feb. 18, 2000); Long-Term Commitments: Improving the 
Budgetary Focus on Environmental Liabilities, [Hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-03-219] (Washington, D.C.: Jan. 
24, 2003); and Fiscal Exposures: Improving the Budgetary Focus on Long-
Term Costs and Uncertainties, GAO-03-213 (Washington, D.C.: Jan. 24, 
2003). 

[C] For more information, see GAO-03-219, p. 2. 

[D] The 2005 budget included a limited proposal that would permit the 
Patent and Trademark Office to use fees it collects to cover the 
current accruing cost of postretirement annuities and health and life 
insurance benefits. 

[E] Office of Management and Budget, Analytical Perspectives, Budget of 
the U.S. Government, Fiscal Year 2004 (Washington, D.C.: February 
2003), p. 13. 

[F] This was one of several approaches discussed in [Hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-03-219]. 

[End of table]

In discussing appropriations account restructuring efforts, OMB staff 
said that although it is beneficial to align the appropriations account 
structure to give program managers authority over the budget resources 
needed to achieve results, there are other factors to consider, and 
restructuring is not always necessary. OMB staff recognized that 
appropriations account structure changes must be negotiated with 
Congress and that each agency's account structure may reflect the 
agency's programmatic and performance frameworks and organizational 
structure. For example, some agencies' strategic goals may be more 
program-specific while others may be more crosscutting and supported by 
multiple programs. Given these differences, appropriations account 
structure and activity alignment should be "considered with 
care."[Footnote 45] OMB said there often is a good managerial reason 
for bureaus or offices to be funded by more than one appropriations 
account but that "multiple small accounts for similar purposes are 
usually unnecessary,"[Footnote 46] and that appropriations accounts 
should be consolidated or modified when the current structure inhibits 
good management. An OMB staff person said appropriations account 
structures that lack incentives to manage more effectively and do not 
allow managers the flexibility to make resource trade-offs might 
provide barriers to achieving goals. 

2.2: Agencies Took Differing Approaches to Restructure Budgets to 
Better Align Resources with Programs and Performance: 

Agencies took differing approaches to restructuring budgets to better 
align budget resources with programs and performance. Some agencies 
proposed changing their appropriations account structure or the program 
activities within that structure while others made changes solely to 
their congressional budget justification. Some agencies also sought 
corresponding changes to their transfer authority and reprogramming 
guidelines. In addition, the orientation or organizational frameworks 
for restructured budgets varied both among and within agencies. 
Further, agencies showed or requested budget resources for the "full 
cost" of various levels of performance-such as strategic goals, 
performance goals, and programs-and the types of resources agencies 
allocated within the performance-based budget structure varied. As 
discussed in section 3, understanding an agency's particular approach 
is important because different approaches provide different information 
and incentives to the users of the budget. As a result, these 
approaches have potentially different implications for the management 
and oversight of budget resources. 

2.2a: Agencies Differed on Whether They Changed Their Appropriations 
Account Structure, Congressional Budget Justification, or Both: 

Some agencies proposed changing the appropriations account 
structure[Footnote 47] or the program activities within their accounts 
while others made changes solely to their congressional budget 
justification. Table 4 highlights where changes were made or proposed 
by all nine agencies in our study and that the budget structure 
affected varied.[Footnote 48]

Table 4: Where Agencies Made or Proposed Changes to Better Align Budget 
Resources with Programs and Performance: 

Changes to appropriations account structure: Changes to accounts; 

VA: Yes; 
NASA: Yes; 
DOJ: Yes; 
EPA: No; 
SBA: No; 
COMMERCE: No; 
HUD: No; 
LABOR: No; 
DOT: [A]. 

Changes to appropriations account structure: Changes within accounts to 
program activities; 

VA: Yes; 
NASA: Yes; 
DOJ: Yes; 
EPA: Yes; 
SBA: Yes; 
COMMERCE: No; 
HUD: No; 
LABOR: [B]; 
DOT: [A]. 

Changes to congressional budget justification; 
VA: Yes; 
NASA: Yes; 
DOJ: Yes; 
EPA: Yes; 
SBA: Yes; 
COMMERCE: Yes; 
HUD: Yes[C]; 
LABOR: Yes; 
DOT: Yes. 

Source: GAO analysis. 

[A] Some bureaus within the Department of Transportation (DOT) made or 
proposed changes to their account structure and program activities 
within accounts to better align with performance, but DOT as a whole 
did not restructure its budget accounts. 

[B] The Pension Benefit Guaranty Corporation and the Employment and 
Training Administration made or proposed changes to the program 
activities within their appropriations accounts, but according to 
Department of Labor (Labor) officials these changes reflect policy 
changes. Labor as a whole did not restructure its appropriations 
accounts to better align resources with programs and performance. 

[C] For the fiscal year 2004 budget only. The House Appropriations 
Committee directed the Department of Housing and Urban Development 
(HUD) not to submit a "performance budget" for fiscal year 2005 and 
consequently, HUD did not resubmit a "performance budget" for fiscal 
year 2005. 

[End of table]

Changes to Appropriations Account Structure: 

Three agencies in our study--NASA, VA, and the Department of Justice 
(DOJ)--proposed agencywide appropriations account structure changes to 
better align budget resources with performance.[Footnote 49] These 
agencies also made corresponding changes to the program activity 
listing within their appropriations accounts and congressional budget 
justifications. NASA, for example, proposed to eliminate its mission 
support appropriations account that funded, among other things, 
construction projects, personnel expenses for NASA's civil service 
workforce, and its central administrative functions. VA and DOJ also 
proposed to eliminate appropriations accounts funding construction but 
chose to maintain separate appropriations accounts for departmental 
administration. 

The following description of VA's proposed changes illustrates how 
these proposed appropriations account structure changes looked. VA 
proposed to consolidate resources from multiple accounts and split some 
appropriations accounts among multiple programs. In VA's enacted 
appropriations account structure for fiscal year 2003, each of VA's 
programs was funded by multiple appropriations accounts. Figure 3 shows 
that the Medical Care program was funded by five appropriations 
accounts in fiscal year 2003. Under VA's proposed account structure for 
fiscal year 2004, resources from these five appropriations accounts 
would have been consolidated into one appropriations account called 
Medical Care.[Footnote 50]

Figure 3: Appropriations Accounts Funding the Medical Care Program 
under VA's Fiscal Year 2003 Enacted and Fiscal Year 2004 Proposed 
Appropriations Account Structure: 

[See PDF for image] 

[A] Portions of these accounts were allocated to other program 
accounts. 

[End of figure] 

Some of VA's accounts, such as Major Construction or General Operating 
Expenses (GOE), provided resources associated with multiple programs. 
VA proposed that these accounts be disaggregated and the resources 
allocated to the programs they support. Figure 4 illustrates this for 
the GOE account, which funded the Veterans Benefit Administration (VBA) 
program administration for seven programs and general administration. 
VA proposed to disaggregate this account and allocate the resources to 
eight different appropriations accounts. Similarly, VA proposed to 
eliminate its Construction accounts and allocate those resources among 
program accounts. 

Figure 4: Appropriations Accounts Funding General Operating Expenses 
under VA's Fiscal Year 2003 Enacted and Fiscal Year 2004 Proposed 
Appropriations Account Structure: 

[See PDF for image] 

[End of figure] 

In addition to VA, NASA and DOJ also proposed to eliminate 
appropriations accounts that funded construction projects. However, the 
extent to which resources for construction remained visible in the 
proposed appropriations account structure differed. VA showed the 
resources for construction as a separate, identifiable program activity 
line in the P&F schedule of the President's Budget Appendix. In 
contrast, NASA and DOJ's construction resources were allocated to 
program activities within appropriations accounts and thus were not 
separately identified within the appropriations accounts.[Footnote 51]

Of these three agencies, the appropriations account structure for only 
one agency changed. An agency cannot change its appropriations account 
structure on its own because appropriations accounts are established by 
law. Thus, agencies' appropriations account structure proposals must be 
enacted by Congress to take effect. Congress appropriated funds for 
NASA under its proposed account structure beginning with the fiscal 
year 2002 budget. However, for the most part, Congress did not accept 
VA and DOJ's proposed appropriations account structure changes for 
either fiscal year 2004 or 2005.[Footnote 52]

Changes to Program Activity Listing: 

Two other agencies in our study--EPA and the Small Business 
Administration (SBA)--did not change their appropriations account 
structures but rather made changes within appropriations accounts to 
the program activity listing in the P&F schedule. Both EPA and SBA also 
made changes to their congressional budget justifications to better 
align budget resources with performance. Beginning with the fiscal year 
1999 budget, EPA changed the program activities within its 
appropriations accounts from programmatic areas (e.g., Pesticides, 
Radiation) and individual items of expense (e.g., Regional Management) 
to strategic goals such as Clean Air and Clean Water (see table 5). For 
the fiscal year 2005 budget, EPA consolidated the number of program 
activities to reflect changes to its strategic plan, which reduced the 
number of strategic goals from 10 to 5. Importantly, since a strategic 
goal might have been supported through multiple appropriations 
accounts, the amount shown for a strategic goal in any one 
appropriations account did not necessarily represent the total budget 
resources associated with that goal. 

Table 5: Program Activity Listing for EPA's Environmental Programs and 
Management Appropriations Account (Fiscal Years 1998, 1999, and 2005 
Budgets): 

Fiscal year 1998 budget: Program activities: 
Air; Water Quality; Drinking Water; Hazardous Waste; Pesticides; 
Radiation; Multimedia; Toxic Substances; Mission and Policy Management; 
Agency Management; Regional Management; Support Costs; Superfund; 
Fiscal year 1999 budget: Program activities: 
Clean Air; Clean Water; Safe Food; Preventing Pollution; Waste 
Management; Global and Cross-border; Right to Know; Sound Science; 
Credible Deterrent; Effective Management; 
Fiscal year 2005 budget: Program activities: 
Clean Air and Global Climate Change; Clean and Safe Water; Land 
Preservation and Restoration; Healthy Communities and Ecosystems; 
Compliance and Environmental Stewardship; Reimbursable program[A]. 

Source: President's Budget Appendix for EPA for fiscal years 1998, 
1999, and 2005. 

[A] This program activity is not a strategic goal. 

[End of table]

In the fiscal years 2004 and 2005 budgets, SBA maintained its 
programmatic and functional program activities but eliminated one 
program activity called "administrative expenses" and allocated those 
resources to the other program activities within that appropriations 
account. One bureau in DOT, the Federal Aviation Administration (FAA) 
also made changes to its program activity listing without changing its 
appropriations account structure. FAA changed the program activities 
under two appropriations accounts--(1) Facilities and Equipment and (2) 
Research, Engineering, and Development--to describe FAA's performance 
goals. 

Changes to Congressional Budget Justifications: 

While every agency in our study restructured its congressional budget 
justification to better align budget resources with programs and 
performance, four of the nine agencies did not make corresponding 
agencywide changes to or within their appropriations account 
structures. As shown in table 4, four of the nine agencies for the most 
part maintained their existing account structure and program activity 
listing and made agencywide changes only to their congressional budget 
justifications.[Footnote 53] These agencies--the Department of Commerce 
(Commerce), HUD, Labor, and DOT--maintained appropriations accounts 
that generally reflected a mix of orientations--object, organization, 
process, and program--and embedded additional information on the "full 
cost" of programs and performance within their congressional budget 
justifications. 

In most of the selected agencies, the organizing framework of the 
congressional budget justification followed the appropriations account 
structure; however, three agencies in our study used organizing 
frameworks for their congressional budget justification that did not 
match their appropriations account structures. EPA, SBA, and HUD each 
maintained their previously established appropriations accounts, which 
generally reflected a mix of orientations, but restructured their 
congressional budget justifications around strategic goals.[Footnote 
54] For example, as shown in table 6, EPA's fiscal year 2005 
appropriations account structure and congressional budget justification 
were organized differently. EPA had five appropriations accounts, 
including Environmental Programs and Management and State and Tribal 
Assistance Grants. However, EPA's fiscal year 2005 congressional budget 
justification was organized by strategic goal. The congressional budget 
justification included chapters for Clean Air and Global Climate Change 
and Clean and Safe Water followed by information for strategic 
objectives and programs. While it was easier to see the resources 
associated with strategic goals and objectives in the congressional 
budget justification, it was correspondingly more difficult to see the 
resources associated with each appropriations account because any one 
strategic goal, strategic objective, or program might have been funded 
by multiple appropriations accounts. EPA provided crosswalk tables 
showing the relationship between appropriations account, strategic 
goals, and programs as supplemental information.[Footnote 55]

Table 6: Comparison of EPA's Appropriations Account Structure and 
Organizing Framework for Its Fiscal Year 2005 Congressional Budget 
Justification: 

2005 Appropriations Accounts: 

Environmental Programs and Management; 
Science and Technology; 
State and Tribal Assistance Grants; 
Building and Facilities; 
Office of Inspector General; 

2005 Annual Performance Plan and Congressional Justification: 

Table of Contents: 
Introduction and Overview. 
Resource Tables. 
Goal 1: Clean Air and Global Climate Change. 
Goal 2: Clean and Safe Water. 
Goal 3: Land Preservation and Restoration. 
Goal 4: Healthy Communities and Ecosystems. 
Goal 5: Compliance and Environmental Stewardship. 
Enabling/Support Programs. 
Annual Performance Goals and Measures. 
Special Analysis. 

Source: GAO analysis. 

[End of table]

2.2b: Agencies Showed or Requested "Full Cost" of Different Levels of 
Performance: 

As illustrated in table 7, agencies showed or requested budget 
resources for the "full cost" of programs or different levels of 
performance in their congressional budget justifications. Most agencies 
in our review aligned budget resources with programs or collections of 
programs that support common strategic goals. For example, VA aligned 
budget resources with each of its nine "business lines," or main 
programmatic areas, such as Medical Care. The lowest level to which 
NASA aligned budget resources was programs, such as Flight Hardware and 
Ground Operations, within a "theme" such as the Space Shuttle.[Footnote 
56] Four agencies (EPA, SBA, HUD, and DOT) aligned budget resources 
with strategic goals or objectives or both. Three agencies (Commerce, 
Labor, and DOT) aligned budget resources with performance goals. 

Table 7: Level of Program or Performance to Which Agencies Showed or 
Requested "Full Cost" in Congressional Budget Justifications: 

Program or Performance Level: Strategic goal; 
VA: Yes; 
NASA: No; 
DOJ: Yes; 
EPA: Yes; 
SBA: No; 
COMMERCE: Yes; 
HUD[A]: Yes; 
LABOR: Yes; 
DOT: Yes. 

Program or Performance Level: Strategic objective; 
VA: No; 
NASA: No; 
DOJ: No; 
EPA: Yes; 
SBA: Yes; 
COMMERCE: No; 
HUD[A]: No; 
LABOR: No; 
DOT: No. 

Program or Performance Level: Performance goal; 
VA: No; 
NASA: No; 
DOJ: No; 
EPA: No; 
SBA: No; 
COMMERCE: Yes; 
HUD[A]: No; 
LABOR: Yes; 
DOT: Yes. 

Program or Performance Level: Collection of programs (themes, decision 
units); 
VA: No; 
NASA: Yes; 
DOJ: Yes; 
EPA: No; 
SBA: No; 
COMMERCE: No; 
HUD[A]: No; 
LABOR: No; 
DOT: No. 

Program or Performance Level: Program; 
VA: Yes; 
NASA: Yes; 
DOJ: No; 
EPA: Yes; 
SBA: Yes; 
COMMERCE: No; 
HUD[A]: Yes[B]; 
LABOR: Yes; 
DOT: No. 

Source: GAO analysis. 

Note: Shaded area denotes the performance level for which agency is 
proposing budget authority be appropriated in the restructured 
framework. See discussion following this table. 

[A] For fiscal year 2004, HUD submitted two congressional budget 
justifications--one in the previously established program-based 
structure and the other in a new performance-based structure. Our 
analysis focuses on the performance-based justification. HUD did not 
resubmit a "performance budget" for fiscal year 2005. 

[B] "Full cost" was not shown in cases where a program supports more 
than one strategic goal. 

[End of table]

While some changes or proposed changes sought to modify the way 
resources are appropriated and thus the framework for resources trade-
offs, other changes sought to provide additional information on the 
connection between budget resources and programs and performance for 
presentational purposes. The three agencies proposing appropriations 
account structure changes--NASA, VA, and DOJ--requested that budget 
authority be appropriated to cover the "full cost" of programs or 
collections of programs that support common goals. (The program levels 
for which NASA, VA, and DOJ have requested that funds be appropriated 
in the new framework are shown as shaded cells in table 7.) The 
remaining six agencies restructured their congressional budget 
justifications to generally reframe their budget request around the 
"full cost" of performance or to provide supplemental crosswalk tables 
to show the "full cost" or "total budgetary resources" of performance 
units for presentational purposes. 

Table 8 shows one such table from Labor's fiscal year 2005 
congressional budget justification. Beginning with the fiscal year 2004 
congressional budget justification, for example, Labor showed the 
"total budgetary resources" (both direct and indirect costs) associated 
with strategic goals, programs, and related performance goals. Prior to 
restructuring its budget, Labor showed only the direct resources 
associated with its programs. Currently, as shown in table 8, Labor 
presents program budget requests together with the administrative 
resources and full-time equivalents (FTEs) related to the program. 
Importantly, resources included in the "Program Admin" row are 
appropriated in a different appropriations account than the other Job 
Corp program resources and are also presented elsewhere in the 
congressional budget justification. 

Table 8: Resource Table Presented in Labor's Fiscal Year 2005 
Congressional Budget Justification for Job Corps: 

Dollars in thousands. 

Job Corps appropriation; 
Fiscal year 2004: $1,537,074; 
Fiscal year 2005 estimate: $1,557,287; 
Difference fiscal year 04/05: $20,213. 

Program Admin; 
Fiscal year 2004: $28,670; 
Fiscal year 2005 estimate: $29,496; 
Difference fiscal year 04/05: $826. 

Reimbursables; 
Fiscal year 2004: $4,000; 
Fiscal year 2005 estimate: $4,000; 
Difference fiscal year 04/05: $0. 

Total resources; 
Fiscal year 2004: $1,569,744; 
Fiscal year 2005 estimate: $1,590,783; 
Difference fiscal year 04/05: $21,039. 

FTE; 
Fiscal year 2004: 187; 
Fiscal year 2005 estimate: 187; 
Difference fiscal year 04/05: 0. 

Source: Department of Labor's Fiscal Year 2005 Budget Justification of 
Appropriations Estimates for Committee on Appropriations, Volume 1. 

[End of table]

DOT provided supplemental crosswalk tables illustrating the links 
between the department's budget request and its six strategic goals. 
Figure 5 is an excerpt from DOT's fiscal year 2005 budget 
justification. 

Figure 5: Supplemental Table from DOT's Congressional Budget 
Justification: 

[See PDF for image] 

[End of figure] 

2.2c: Agencies Allocated Different Types of Resources to Performance: 

While the agencies included in our study all took steps to more 
completely capture the "full cost" of programs and performance, the 
types of resources agencies allocated to programs and performance units 
varied. In particular, the treatment of central administrative 
resources and IG office resources differed. For example, EPA allocated 
its total budget request, including the IG's office, to strategic goals 
and objectives. Other agencies did not allocate all resources to 
programs and performance. NASA, for example, did not allocate resources 
from the IG's office; it did, however, allocate all other direct and 
indirect resources including procurement, civil servants, the program's 
share of service pool resources, and portions of administrative 
resources from its field offices and headquarter offices. Similarly, 
SBA allocated most central administrative resources to its programs and 
goals but did not allocate the IG's office. Labor allocated some 
central administrative (i.e., departmental) resources including legal 
services and some information technology resources but did not allocate 
all central administrative resources, such as the Office of the 
Secretary or the Office of the Chief Financial Officer, to programs and 
performance. Commerce, HUD, and DOT allocated most central 
administrative resources to a separate management goal. EPA did this as 
well in its fiscal year 2004 congressional budget justification. 
However, in its fiscal year 2005 budget, its management goal was 
eliminated and central administrative resources were allocated to its 
five mission-related strategic goals. VA and DOJ did not allocate 
central administrative (i.e., departmental) resources. The lack of 
consistency in what is included in "full cost" or "total budgetary 
resources" has the potential to complicate the understanding of what is 
meant by "full cost" and "total budgetary resources."

2.2d: Some Agencies Sought Corresponding Changes to Transfer or 
Reprogramming Guidelines or Both: 

Some agencies also sought corresponding changes to methods by which 
Congress oversees resource use, including their transfer authority or 
reprogramming guidelines or both. Providing transfer authority, or the 
ability to shift all or part of the budget authority provided in one 
appropriations account to another, provides agencies greater 
flexibility because transferring funds between accounts is prohibited 
by law. For example, after NASA's Mission Support appropriations 
account was eliminated and those resources were allocated to its two 
mission-related appropriations accounts in fiscal year 2002, NASA 
received authority to transfer funds as necessary for administrative 
resources, including federal salaries and benefits, training, travel, 
and facilities, between its two mission-related accounts.[Footnote 57] 
VA also sought transfer authority when proposing account structure 
changes for the fiscal years 2004 and 2005 budgets. Specifically, VA 
requested transfer authority for operations and construction expenses 
among different business line accounts. Appropriators did not accept 
VA's proposed account structure and so did not provide VA this 
authority. 

While a transfer of funds involves shifting funds from one 
appropriations account to another, reprogramming involves shifting 
funds within an appropriations account to use for different purposes 
than those contemplated at the time of appropriation. Agencies are 
implicitly authorized to reprogram funds as part of their general 
responsibility to manage funds. Sometimes committee oversight of 
reprogramming is prescribed by statute requiring that the agencies 
either notify or consult with the appropriate congressional committees 
when reprogramming funds that have certain program impacts or are above 
a certain threshold. Guidelines also may include what types of 
reprogramming are allowable without notifying or consulting with the 
committee. For example, reprogramming may be expressly permitted among 
programs, activities, or object classes under certain dollar 
thresholds. For the fiscal year 2004 budget, NASA requested that 
appropriations committees change its reprogramming guidelines to allow 
reprogramming within a theme (a collection of programs and projects 
that support a common strategic goal). NASA also sought to increase its 
reprogramming threshold to $10 million.[Footnote 58] Congress accepted 
neither change. When EPA made its budget changes for the fiscal year 
1999 budget, its reprogramming dollar threshold remained the same but 
Congress changed EPA's reprogramming guidance to allow funding shifts 
within broad strategic objectives, such as Healthier Outdoor Air. Prior 
to restructuring, EPA's reprogramming guidance only allowed shifting 
funds within specific program elements, such as Air Quality Planning 
and Standards and Air Quality Management Implementation. Section 3 
discusses how changes or lack thereof to an agency's transfer authority 
and reprogramming guidelines will influence how and to what extent 
budget structure changes might change resource management and 
oversight. 

[End of section]

Section 3: Restructuring Budgets May Help Reframe Budget Choices and 
Raises Tradeoffs Among Different Decision Makers' Needs: 

Different approaches to restructuring budgets provide different 
information and create different incentives and ultimately have 
different implications for management and oversight of budget 
resources. Understanding the specific approach used by an agency, what 
issues the approach raises, and what might be achieved is important to 
evaluate the impact on resource management and oversight. In addition, 
restructuring budgets should not be considered in isolation but rather 
in the context of any other changes occurring to the methods or 
structures for congressional and agency resource management and 
oversight. In this report, the specific approach of one agency may be 
used to illustrate a number of different issues that can arise. 

Our work revealed differing views on the potential benefits and 
shortcomings of restructuring budgets to better align budget resources 
with programs and performance. These differing views reflect the 
multiplicity of roles, perspectives, and needs of Congress, OMB, and 
different levels of agency management. OMB and agency officials 
credited changes in appropriations accounts and congressional budget 
justifications with supporting results-oriented management. However, 
budget changes did not meet the needs of some executive branch managers 
and congressional appropriations committees, leading some to raise a 
number of issues. For example, officials from two case study agencies 
said budget restructuring had the potential to create new resource 
management challenges. And although some appropriations committee 
reports and subcommittee staff we spoke with expressed general support 
for budget and performance integration efforts, almost all 
appropriations subcommittee staff we spoke with said that the 
organizational frameworks used to restructure budgets did not meet 
their needs. 

Agency officials' views differed on whether appropriations account 
structure changes were necessary to advance results-oriented 
management. It is not practical for a single reform to address all 
possible budget decision makers' needs. Therefore, understanding what 
realistically can be expected from any particular effort and how 
various efforts fit together is necessary to permit judgments about 
whether, how, and to what extent the budget might be restructured given 
limited resources. 

3.1: Restructuring Appropriations Accounts and Congressional Budget 
Justifications Has the Potential to Help Reframe Budget Choices: 

The structure of appropriations accounts and congressional budget 
justifications reflects fundamental choices about how resource 
allocation choices are framed and the types of controls and incentives 
considered most important. Different budget structures frame budget 
choices differently and affect the range of possible resource trade-
offs. For example, budgets could be structured to focus on individual 
items of expenses (e.g., program administration or construction), on 
individual programs, or on an agency's broader strategic and 
performance framework. A budget structure in which a single 
appropriations account funds total administrative costs--administrative 
costs for a number of programs are contained in one account--may 
increase the focus of congressional decision making and oversight on 
the costs of administering programs but make it difficult to see the 
"full cost" of the associated programs. During budget execution, such 
an account may allow managers to shift administrative resources among 
different programs to meet needs. Alternatively, a budget structure in 
which a single appropriations account contains the total resources 
associated with a program--funding the "full cost" of a program in one 
appropriations account, including direct and indirect resources such as 
administration or construction--might increase the focus on programs; 
however, information on individual items of expense might be obscured 
in such a budget structure. Such an account could allow trade-offs 
among different items of expense within a program during budget 
execution, but it would hinder the ability of managers to shift 
administrative resources across programs. By changing the information 
and incentives provided, restructuring budgets has the potential to 
change both the nature of resource management and oversight and the 
information readily transparent and available in the budget. This means 
budget restructuring represents more than structural or technical 
changes and involves important trade-offs among different perspectives 
and needs of Congress and executive branch agencies. Not surprisingly, 
the perceived benefits and shortcomings of various approaches are 
likely to vary based on the role and perspectives of particular budget 
decision makers as well as the nature of the programs in question. 

3.1a: Recent Budget Restructuring Efforts Have Sought to Help Reframe 
Budget Choices: 

Recent efforts to restructure budgets have sought to help reframe 
budget choices to establish clearer and closer associations between 
expected performance and budget resources and to focus decisions more 
on the expected results associated with budget resources and less on 
inputs or line items. OMB has suggested that restructured "performance 
budgets," with the strategic plan serving as the template, should frame 
budget requests around what agencies intend to accomplish with the 
resources requested. 

Appropriations account structure and congressional budget justification 
changes made or proposed by our case study agencies help illustrate how 
budget restructuring might help reframe budget choices and so change 
the nature of resource management and oversight. In some cases, 
agencies restructured the budget to reduce the focus on individual 
items of expense and instead sought to focus on program resources as a 
whole. For example, NASA proposed and Congress agreed to eliminate its 
mission support appropriations account and to allocate those resources 
across programs. While information on construction, personnel, and 
travel resources are provided as supplementary information in the 
congressional budget justification, these resources are no longer 
separately appropriated and are no longer intended to be the focus of 
NASA's budget request. Rather, resources for mission support are 
included in program budgets to better reflect the "full cost" of 
programs. 

Similarly, VA's proposed appropriations account structure for fiscal 
years 2004 and 2005 would have also helped reframe budget choices and 
change the nature of resource allocation, management and oversight. 
VA's fiscal year 2004 appropriations account structure included 
accounts for direct benefits, construction, grants, and program 
administration. VA officials sought to provide Congress with more 
information on total program resources, thereby shifting the resource 
debate from inputs to outcomes and results. In doing so, VA would go 
from the current structure, under which trade-offs generally are made 
between similar types of spending among programs, to one in which trade-
offs would be made across all types of spending within a program. Today 
if a minor construction project costs more than anticipated or a new 
need arises, managers might make trade-offs among other construction 
projects by, for example, deferring another construction project. 
Similarly, a larger than anticipated utility bill might defer other 
operating expenses. Under the proposed change, construction, grants, 
and program administration appropriations accounts would be eliminated 
and those resources allocated among program appropriations accounts. 
Under the proposed structure, resource trade-offs would be focused 
within a program and managers might, for example, defer a new minor 
construction project to cover increased operating expenses, once 
appropriate reprogramming requests were processed.[Footnote 59]

3.1b: When Reframing Budget Choices, Some Information May Be Less 
Transparent or No Longer Included: 

When changing budget structures to better align budget resources with 
programs and performance, the total resources associated with programs 
and performance may be more visible. However, information that had 
previously been readily transparent in either the appropriations 
account structure or congressional budget justification may be less 
transparent or no longer included. As the focus on programs or how 
programs fit together to support the agency's strategic and performance 
framework is increased, information on individual items of expense may 
become less apparent. In moving toward the theme-based budget 
structure, for example, NASA provided more information on how programs 
and resources fit together to achieve goals, but provided less detail 
about its individual programs. In the fiscal year 2003 congressional 
budget justification, the distribution of the Space Shuttle resources 
among the various programs within that theme, such as Flight Hardware 
and Program Integration, was visible.[Footnote 60] Further, beneath 
these programs, NASA provided information on program elements. For 
example, for Flight Hardware, NASA showed the resources requested for 
external tank production, main engine production, and main engine test 
support. These program elements and the associated resources are not 
visible in either the fiscal year 2004 or 2005 congressional budget 
justifications. 

VA provides another example. For the fiscal years 2004 and 2005 
budgets, as noted, VA proposed eliminating construction, grants, and 
program administration appropriations accounts and allocating these 
resources among program appropriations accounts. While one objective 
was to make the budget resources associated with programs more readily 
apparent, some previously reported information was either less 
transparent or not included in the fiscal year 2004 and fiscal year 
2005 budgets. For example, we found that total resources requested for 
construction were less transparent in the fiscal years 2004 and 2005 
budgets than in the fiscal year 2003 budget. In fiscal year 2003, total 
construction for VA was appropriated in two accounts--Construction, 
Major and Construction, Minor--and was shown in a separate volume of 
the congressional budget justifications. In both fiscal years 2004 and 
2005, total construction resources were allocated among eight of VA's 
nine major programs and to Departmental Administration and the 
Inspector General.[Footnote 61] Further, VA no longer provided a 
separate volume for Construction in its congressional budget 
justification. 

Different budget structures may focus attention on direct resources or 
on all the budget resources--both direct and indirect--associated with 
programs. For example, while NASA's new structure provides more 
complete information on budget resources associated with programs, the 
direct and indirect cost components are not clearly delineated, making 
it harder to distinguish between them. In contrast, NASA's old 
congressional budget justification format included only direct 
procurement costs in program budgets. This format did not represent all 
the resources associated with operating the programs, but budget 
decision makers could clearly see direct program resources. Similarly, 
while EPA's fiscal year 1998 congressional budget justification showed 
the direct resources for programs, the restructured congressional 
budget justification for fiscal years 2004 and 2005 showed more 
completely the resources associated with programs, including office-
level administrative resources. While centralized administrative 
resources are clearly delineated from direct program resources, the 
office-level administrative resources are not. 

3.2: Approach Used and Corresponding Changes Affect the Extent to Which 
Budget Restructuring May Influence Management and Oversight: 

As described in section 2, agencies took a variety of approaches. Each 
approach has different potential implications for resource management 
and oversight. Appropriations account structure changes, which change 
the statutory control over resources, are more likely to change 
management and oversight than changes to congressional budget 
justifications. In either case a complete view of the implications for 
resource management and oversight requires looking at other elements of 
resource control, such as reprogramming and transfer rules. 

3.2a: Appropriations Account Structure Changes Generally Have More Far-
Reaching Implications for Management and Oversight than Changes to 
Program Activities or Congressional Budget Justifications Alone: 

Restructuring appropriations accounts changes the statutory framework 
for appropriating and overseeing funds. Appropriations accounts are 
established by law to facilitate congressional resource allocation and 
oversight responsibilities. Appropriations accounts generally restrict 
obligations to a specific amount, purpose, and time availability. 
Changing the appropriations account structure changes the legal 
framework governing the availability and use of federal funds, and thus 
a central aspect of congressional oversight. 

Some of the appropriations account structure changes proposed by 
agencies in our study would change the way Congress has traditionally 
appropriated funds and potentially give managers more flexibility over 
some resources. Two of our case study agencies (NASA and VA) and one 
agency included in our general review (DOJ) made or proposed agencywide 
changes to their appropriations account structures. NASA's 
appropriations accounts were consolidated and its mission support 
account was eliminated. NASA's resources for mission support are now 
funded through two mission-related appropriations accounts. Under this 
new structure, NASA managers have more flexibility to make trade-offs 
among budget resources for procurement, facilities, or general 
administration without requiring transfer authority. Managers at VA and 
DOJ, which both proposed eliminating appropriations accounts funding 
construction and funding construction projects through program 
appropriations accounts, could also gain some flexibility if Congress 
enacted the proposed account structures. 

Changing solely the program activity listing or congressional budget 
justification may not change the framework for resource management and 
oversight because unless otherwise explicitly stated in statutory 
language agencies are not legally bound by funding levels shown for 
program activities in the Program and Financing (P&F) schedules of the 
President's budget or presented in the congressional budget 
justifications submitted to Congress by agencies. However, the program 
activity listing and budget estimates included in an agency's 
congressional budget justification form some of the bases for assessing 
agency needs and making appropriations and, together with congressional 
hearings and statements in committee reports indicating how funds 
should or should not be spent, reflect an understanding of how federal 
funds will be used by an agency during the fiscal year. As such, the 
program activity listing and congressional budget justification play an 
important role in budget deliberations and execution. 

EPA and SBA made agencywide changes to both their program activities 
and congressional budget justifications, and four other agencies 
(Labor, Commerce, HUD, and DOT) made agencywide changes only to their 
justifications.[Footnote 62] Although the statutory framework for 
budget resource trade-offs and oversight did not change in these six 
agencies, in one (EPA) it served as the basis for corresponding changes 
in reprogramming guidelines--part of the management and oversight 
framework for budget resources. When EPA restructured its budget to 
better align with its strategic plan, Congress changed EPA's 
reprogramming guidance to allow funding shifts within strategic 
objectives, such as "Healthier Outdoor Air." Prior to restructuring, 
EPA's reprogramming guidance only allowed shifting funds within 
specific program elements. This change could potentially give managers 
more flexibility. The other departments changed the congressional 
budget justification without related changes to their reprogramming 
guidelines. 

3.2b: Other Congressional Controls Influence Management and Oversight 
of Budget Resources: 

Budget restructuring alone may not necessarily change management and 
oversight of budget resources because of other ways Congress and 
agencies oversee and manage budget resources. In addition to creating 
appropriations accounts, Congress oversees resource use through various 
methods, including statutory language (e.g., earmarks[Footnote 63] or 
restrictions in appropriations acts), transfer authority,[Footnote 64] 
reprogramming guidelines,[Footnote 65] and appropriations committee 
report language indicating how funds should or should not be spent. For 
example, as stated in committee report language, agencies are usually 
required to notify or consult with the appropriate congressional 
committees about reprogramming. Agencies also have more detailed 
mechanisms required by law such as systems of administrative control of 
funds--project and activity plans maintained by program managers to 
monitor and control obligations and expenditures.[Footnote 66]

For example, although VA's proposed consolidation of some 
appropriations accounts would on its own have changed the resource 
trade-offs available to managers, VA also proposed appropriations 
language that would have limited some trade-offs among budget 
resources. For fiscal years 2004 and 2005, VA proposed to include all 
medical-care related expenses--including facilities operations and 
maintenance, provision of care, construction, grants, and 
administration--under one appropriations account. This change might 
have allowed greater flexibility to make trade-offs among these 
components, but the proposed appropriations language included ceilings 
for central administration and grants--a limitation on the Veterans 
Health Administration's (VHA) ability to make trade-offs among these 
resources. Under the proposed language, VHA would have been allowed to 
shift funds from construction to administration but not from 
administration to construction. Appropriations language providing 
similar limitations was included for the other VA administrations. For 
example, in the proposed Disability Compensation Administration account 
for fiscal year 2005, construction funding would have been limited. As 
a result, the Veterans Benefit Administration (VBA) would have been 
able to shift funds from construction to operations but not from 
operations to construction. 

While EPA's budget restructuring focused on managing resources by 
strategic goals and objectives, appropriations language and committee 
report language have continued to focus on the program/project level. 
As a result, resource trade-offs would be limited. Prior to 
restructuring, EPA was required to notify appropriations committees 
when shifting funds among "programs, activities, or elements." Since 
its fiscal year 1999 budget (the first budget structured around 
strategic goals and objectives), appropriations committees changed 
EPA's reprogramming guidelines to allow funding changes within more 
aggregated strategic objectives, such as Healthier Outdoor Air. This 
change potentially would allow EPA to make resource trade-offs among 
program/projects that support a common strategic objective (e.g., 
between the Clean School Bus Initiative and Administrative Projects 
within the Healthier Outdoor Air strategic objective). However, 
appropriations language specified funding for a number of EPA's 
programs and appropriations committee report language also included 
funding directives for programs or projects.[Footnote 67] EPA officials 
said that they execute the budget based on congressional intent 
reflected in committee reports. Thus, EPA incorporates congressional 
funding directives into the agency's operating plan. An added 
limitation to EPA's ability to make trade-offs among programs that 
support a common strategic objective is that some program/projects are 
funded from different appropriations accounts, and EPA does not have 
authority to transfer resources among appropriations accounts. 

Although NASA's restructuring provides flexibility for some additional 
resource trade-offs, internal management controls and reprogramming 
guidelines limit other trade-offs. Consolidated appropriations accounts 
provide program managers with more flexibility and influence over the 
resources used by their programs, but that flexibility is limited by 
the fixed cost nature of services and labor; in particular, resource 
trade-offs among items of expense, such as general administration and 
civil personnel salaries, are limited during budget execution. NASA 
officials told us that during budget formulation, all resources within 
a program (excluding center and corporate G&A)[Footnote 68] are 
interchangeable, but during budget execution trade-offs among resources 
for civil servants and other resources are limited because contract 
agreements are established for some services and civil service 
regulations must be followed. Also, while NASA restructured its budget 
to help manage at the more aggregated theme level, its ability to 
reprogram remained tied to its programs. This limits the resource trade-
offs that can be made among programs within a theme to a certain dollar 
threshold.[Footnote 69] For example, under its reprogramming 
guidelines, NASA must notify the appropriations committees before 
making resource trade-offs above the reprogramming threshold between 
Flight Hardware and Ground Operations within the Space Shuttle Theme. 

3.3: Some Viewed Budget Restructuring as Supporting Improved Management 
and Oversight, but Concerns and Limitations also Raised: 

Our work revealed differing views on the potential benefits and 
shortcomings of restructuring budgets to better align budget resources 
with programs and performance. These differing views reflect the 
multiplicity of roles, perspectives, and needs of Congress, OMB, and 
different levels of management within agencies. OMB staff and agency 
officials we spoke with described benefits or anticipated benefits of 
budget changes, including increasing agency management's understanding 
of and attention to strategic planning, performance, and results and 
providing more complete information on the budget resources associated 
with programs and performance. Beyond enhancing information, some 
agency officials saw incentives to recognize and make resource trade-
offs. 

However, some executive branch managers and congressional staff 
indicated that budget restructuring did not meet their needs. Agency 
officials from two of our case study agencies noted that budget 
restructuring might create new resource management challenges. 
Officials and program managers from most of the nine agencies we 
reviewed as well as appropriations staff we spoke with viewed 
appropriations account restructuring as unnecessary to advance results-
oriented management. While some appropriations committee reports and 
subcommittee staff we spoke with gave general support to budget and 
performance integration efforts, including aligning resources with 
programs and performance, appropriations staff raised a number of other 
concerns in several appropriations committee reports or in interviews 
with us. Further, some congressional appropriations staff and agency 
officials noted that, in their opinion, the changes did not result in 
information they consider most useful for improving management and 
oversight. 

3.3a: Budget Restructuring Viewed by Some as Supporting Results-
Oriented Management and Oversight: 

OMB staff and agency officials credited appropriations account 
structure and congressional budget justification changes with 
supporting results-oriented management and oversight by: 

* increasing attention to strategic planning, performance, and results;

* providing more complete information on the budget resources 
associated with performance; and: 

* in some cases, enhancing incentives and flexibility to make resource 
trade-offs. 

Increasing Attention to Strategic Planning, Performance, and Results: 

OMB staff emphasized the importance of budget restructuring for 
increasing attention to results during the budget process. One of OMB's 
objectives for this initiative is for agencies to justify their budget 
requests based on the resources needed to make planned progress toward 
strategic goals. Through its budget guidance, OMB said the agency's 
strategic plan was to be the template for the "performance budget" and 
encouraged agencies to change their current budget account structures 
to enhance the understanding of programs and measures of performance. 
Further, OMB said that structuring the budget this way presents a more 
complete picture of what an agency is trying to achieve and enhances 
public and congressional understanding of government performance. 

Officials we spoke with or documents we reviewed from five agencies 
indicated that the restructured budgets were intended to increase the 
attention to strategic planning, performance, and results during budget 
deliberations. For example, some EPA and Labor officials credited 
changes with increasing their agency's focus on strategic and 
performance goals. In the case study agencies, some officials said that 
managers now have a greater incentive to better understand and pay 
attention to the strategic and performance frameworks because they must 
tie budget requests to goals. According to an EPA official, the move to 
the performance-based budget structure was part of an effort to more 
fully integrate the budgeting and planning system. Without changing and 
combining the congressional budget justification and performance plan, 
changing EPA's culture would have been more difficult. NASA officials 
credited budget restructuring with helping to ensure that funding 
decisions are aligned with its strategic plan, noting that prior to 
budget restructuring, NASA could not show how some activities related 
to its strategic plan. In its fiscal years 2004 and 2005 congressional 
budget justifications, VA stated that the new structure would better 
position VA to make resource decisions based on programs and results 
and improve planning, among other things. Officials from several 
agencies also said that they anticipate that changes would help provide 
a more complete picture for external users of their agencies' overall 
missions and how budget resources support their missions. 

OMB and officials from four agencies also credited the budget changes 
with facilitating increased coordination among programs that support 
common goals and objectives. For example, OMB staff credited EPA's 
budget restructuring with leading to greater integration of 
program/projects that support common goals and objectives. OMB staff 
explained that there is more coordination among EPA's program offices 
because programs that support common goals and objectives have to 
"sell" themselves together under the new planning and budget structure. 
For example, the Endocrine Disruptor Screening Program[Footnote 70] 
(within the Office of Prevention, Pesticides, and Toxic Substances 
(OPPTS)) and the Office of Research and Development (ORD) both support 
EPA's strategic objective Enhance Science and Research. OMB staff said 
the OPPTS reviewed ORD's research plans to ensure the research and 
development would support the program. This type of coordination did 
not happen prior to the strategic planning and budget structure 
changes, according to an OMB program examiner. 

A NASA official also credited the agency's new theme-based budget 
structure, which shows the collection of programs that support common 
strategic goals and objectives, with showing how program elements 
relate to each other in achieving strategic plan objectives. A VA 
official also credited the process of restructuring its congressional 
budget justification with bringing managers together in a more 
coordinated manner. For example, VA works toward goals for increasing 
veteran access to burial space in two ways: (1) VA builds cemeteries 
incurring the maintenance and operational costs associated with them, 
or (2) provides grants to states. VA officials explained that prior to 
budget restructuring efforts, VA tended to work "in stovepipes" and did 
not look at all resources used to provide burial services. In the 
officials' views, budget restructuring, which pulled together resources 
that were presented separately in prior congressional budget 
justifications, provides managers with a better picture of the total 
resources of the program. 

Providing More Complete Information on the Budget Resources Associated 
with Performance: 

OMB staff and officials from seven agencies also credited budget 
restructuring with providing more complete information on the budget 
resources associated with performance. For example, prior to the fiscal 
year 1999 budget, EPA's justification had been organized with a chapter 
for each appropriations account and sections within each chapter for 
each EPA office. The justification contained a Science and Technology 
chapter, which in turn included sections for EPA's offices funded by 
that appropriations account, which was followed by program information. 
Beginning with the fiscal year 1999 budget justification, EPA's budget 
information was organized by strategic goals and objectives and EPA 
tied both direct and indirect budget resources to strategic goals and 
objectives.[Footnote 71] EPA officials credited its restructured 
congressional budget justifications with highlighting the program 
funding levels associated with achieving goals and objectives and 
providing a better understanding of how resources fit together to 
achieve goals and objectives. 

A Labor official and OMB staff also credited changes with giving 
decision makers a better idea of resources needed to achieve 
performance. In its previous congressional budget justification, Labor 
tied only direct budget resources to its programs and highlighted, but 
did not tie budget resources to, its annual performance goals. Now, 
Labor shows the direct and indirect budget resources associated with 
its programs and their associated performance goals, including some 
indirect costs, such as legal services and bureau administration. The 
Labor official said this information gives budget decision makers a 
better idea of what can be expected to be achieved with a given level 
of resources. 

OMB staff and agency officials also said that NASA and VA's budget 
restructuring efforts provide more complete information. OMB staff, a 
NASA official, and a congressional staff we spoke with said "full cost" 
is useful because it provides context for institutional costs, 
including the cost of civil servants and facilities, and provides 
better information on total program costs. Some VA officials also noted 
the anticipated benefits of improving information on the budget 
resources used to achieve the program performance goals and helping 
highlight potential trade-offs among resources. 

According to VA officials and program managers, the budget resources 
used to achieve the program performance goals are not readily apparent 
under VA's current appropriations account structure. The burial 
program, for example, is funded by six appropriations accounts[Footnote 
72] and the program's budget resources were shown in separate volumes 
of the congressional budget justification prior to restructuring. 
According to VA officials, this format complicated discussions about 
the relationship between the program's performance goals and the 
resources needed to achieve them. For example, performance measures 
related to ensuring that veterans and eligible family members have 
reasonable access to veteran cemeteries are supported by the operating, 
construction, and grant appropriations accounts, which previously were 
shown in separate volumes of the congressional budget justification. 
After presenting the burial program's budget resources together, VA 
officials said that presenting these budget resources together provided 
a better understanding of the resources needed to achieve the Burial 
program's performance goals and helped highlight potential trade-offs 
among resources. For example, some officials noted that consolidating 
Burial program resources would have helped to highlight the potential 
trade-offs between federal construction and grants to states to 
construct veteran cemeteries. 

In addition, officials from several agencies in our general review 
noted that the new format provided more insight into the resources 
associated with programs and performance. For example, an official from 
DOJ said that appropriations account structure changes would provide a 
fuller picture of resources being used to achieve its performance 
goals. When talking about overcrowded prisons, for example, one would 
have to look at two accounts under the existing account structure to 
get the full picture of resources being used to achieve related 
performance goals. DOJ proposed to merge salaries and expenses accounts 
with construction accounts, thereby showing all the resources used in 
one place. 

Enhancing Incentives and Flexibility to Make Resource Trade-offs: 

OMB stressed the importance of aligning budget authority and 
accountability with programs and performance to provide not only the 
information but also the incentives and flexibility to allocate 
resources and execute the budget with a focus on effectiveness. 
Although OMB staff said information could be provided on the cost of 
programs or performance in crosswalk tables, it is the appropriations 
account structure that provides the framework for management incentives 
and resource trade-offs. According to OMB, "a program manager who is 
authorized to manage the program, controls budget authority that covers 
the full cost of resources used, and has authority over program staff 
can focus his attention on getting results. With this combination of 
authority and some flexibility, a program manager has the tools 
necessary to be accountable for results, efficiently producing 
effective outputs."[Footnote 73]

Officials we spoke with from six agencies also emphasized that the 
appropriations account structure changes not only provided more 
complete information on the resources associated with programs or 
performance but also provided incentives to recognize and flexibility 
to make resource trade-offs to improve efficiency and effectiveness. 
For example, a key objective of NASA's budget restructuring was to 
provide incentives for improved resource management. According to NASA 
officials, because NASA's program budgets now include all direct and 
indirect budget resources associated with a project and managers are 
responsible for these resources, managers now have better information 
and incentives to consider trade-offs between various items of expense, 
such as administrative costs, supplies, direct civil servants, and 
contractors to use resources more efficiently. Before budget 
restructuring, program managers' budgets only included procurement 
dollars and not the cost of civil servant salaries, so that civil 
servants appeared "free" to program managers. Under NASA's restructured 
"full cost" budget, civil servants' salaries are included in program 
managers' budgets, and NASA officials said that they view this change 
as making program managers more accountable for these resources because 
these managers have greater incentives to use civil servants' time more 
efficiently. In addition, they believe that the allocation of a portion 
of central administrative costs to each program makes program managers 
more likely to pay attention and question these costs, which in turn 
increases pressure on headquarters and centers to reduce costs. 

Similarly, some OMB staff said that VA's proposed appropriations 
account structure would provide the incentives and flexibility to make 
resource trade-offs to improve program management. For example, VA 
proposed to include all medical care related expenses (i.e., facilities 
operations and maintenance, provision of care, construction, grants, 
and administration) under one appropriations account. OMB staff said 
that because construction projects would be included in program 
budgets, managers would be more accountable for those resources and 
would be more compelled to make trade-offs between capital and human 
assets. Under the proposed structure, VHA, which is responsible for 
providing medical care, would be able to shift funds from 
administration and grants to construction or operations without 
transfer authority.[Footnote 74] OMB staff said that only showing the 
total resources associated with programs through presentational changes 
would not provide the incentive for managers to more carefully consider 
resource use and use them more efficiently. 

In addition, NASA officials credited "full cost" budgeting with helping 
to identify underutilized facilities, such as service pools--the 
infrastructure capabilities that support multiple programs and 
projects. NASA's service pools include wind tunnels, information 
technology, and fabrication services. Prior to "full cost" budgeting, 
service pool resources were shown and budgeted for separately from the 
programs that used them and were not aligned with NASA's strategic 
plan. Now these resources are allocated to NASA's programs and included 
as part of program budgets based on use. NASA officials credit this 
approach with making underused service pools more visible. If programs 
do not cover a service pool's costs, NASA officials said that it raises 
questions about whether that capability is needed. NASA officials also 
explained that when program managers are responsible for paying service 
pool costs associated with their program, program managers have an 
incentive to consider their use and whether lower cost alternatives 
exist. As a result, NASA officials said "full cost" budgeting provides 
officials and program managers with a greater incentive to improve the 
management of these institutional assets. 

3.3b: Some Noted Limitations and Concerns: 

Proposed budget restructuring did not meet with universal approval: 
concerns were raised both by some executive branch managers and 
congressional appropriations committees. Officials from two case study 
agencies noted that the changes had the potential to create new 
resource management challenges. Appropriations subcommittee staff 
expressed concerns and sometimes disapproval of agencies' efforts to 
restructure budgets. Even among those supportive of advancing results-
oriented management, universal agreement on the necessity of account 
structure changes did not exist. In addition, both agency staff and 
appropriations subcommittee staff said that budget restructuring did 
not provide some information they saw as most useful to advancing 
results-oriented management. 

Some Expressed Concerns that Budget Restructuring Has the Potential to 
Create New Resource Management Challenges: 

Some VA and NASA officials expressed concern that budget structure 
changes have the potential to create new resource management 
challenges. These concerns stem, in part, from differences between the 
proposed appropriations account structure and how an agency currently 
operates as well as concerns about the ability to accurately allocate 
resources within the new structure. One area in which restructured 
budgets were seen as likely complicating resource management at VA was 
where resources that were previously provided in a single 
appropriations account are disaggregated to flow through multiple 
appropriations accounts to better align with programs and performance. 
For example, under VA's fiscal year 2003 account structure, the General 
Operating Expenses (GOE) appropriations account funded administrative 
expenses for VBA's benefit programs. Within this appropriations account 
and within reprogramming guidelines, VBA could shift administrative 
funds among programs throughout the year to address performance issues 
or changes in benefit claims that might arise due to war or legislative 
changes. Under the proposed account structures for fiscal years 2004 
and 2005, each program's administrative expenses would have been paid 
from separate appropriations accounts. Disaggregating appropriations 
accounts would limit the ability to shift administrative funds among 
programs throughout the year to address emerging needs because 
transferring resources between appropriations accounts generally 
requires further congressional action. VA officials raised concerns 
about how the changes might affect their ability to respond to changes 
in benefit claims. 

In addition, some expressed concerns that estimation uncertainty 
surrounding the allocations of administrative costs may have 
implications for executing the budget properly and avoiding 
antideficiency violations.[Footnote 75] Currently in VA, a VBA employee 
who administers compensation, pensions, and burial benefits is paid 
from the GOE appropriations account. Under the proposed appropriations 
account structures for fiscal years 2004 and 2005, a VBA employee's 
salary would have been paid from more than one appropriations account. 
Splitting a VBA employee's salary among three appropriations accounts 
would require estimating the time the employee spent on each program. 
Similar concerns were raised by VHA officials because doctors that 
spend time providing medical care and conducting medical research would 
be paid through two appropriations accounts under the fiscal years 2004 
and 2005 proposed account structures. VA officials told us that 
estimation uncertainty surrounding the allocations of administrative 
costs was one reason VA requested transfer authority for operational 
expenses between six program accounts.[Footnote 76]

OMB staff's response to VA's concerns was that the proposed 
appropriations account structure would have provided needed incentives 
for the department to address long-standing cost estimation and 
financial management issues. OMB staff said that changing the 
appropriations account structure to align budget resources with 
programs and performance creates an incentive for managers to consider 
more seriously the budget resources of their programs during budget 
formulation, including whether the requested amount is adequate in 
terms of operating the program and meeting performance goals and to 
develop the systems to better track spending. 

At NASA, views differed about the potential implications of the budget 
structure changes for managers' ability to respond to changing needs. 
Some program managers expressed concerns that the changes could limit 
their ability to respond to staffing uncertainties. Under NASA's 
previous budget structure, program budgets were not charged for civil 
servants working on their projects and staffing uncertainties were 
covered in center budgets. A program needing additional staff would 
request them from the center, which retained additional full-time 
equivalents (FTEs). Under the new budget structure, civil servants and 
the associated budget authority are requested and funded through 
program budgets. Some NASA program managers expressed concern that they 
might not be able to deal with an unexpected increase in workload 
because NASA program managers will have to come up with the money to 
pay for the civil servants, which might limit the extent to which they 
can shift budget resources among programs. Another program manager, 
however, suggested that since control over civil servants has moved 
from center managers to program managers, "full cost" budgeting would 
reduce some "red tape" in dealing with sudden needs or emergencies and 
that as a result, program managers could move FTEs more 
quickly.[Footnote 77]

Another area of concern is how budget structure changes would affect 
the balance between maintaining strategic or institutional capacity--
its physical and human capital--and creating incentives for operational 
efficiencies. Specifically, some at NASA expressed concerns that its 
changes created incentives that could over time erode the agency's 
commitment to institutional assets such as central facilities and 
service pools. Under the new structure, budget authority for 
institutional assets are allocated to and requested by program budgets. 
The rate used to charge program budgets is determined by the operating 
cost of the facility and the units of consumption. As a result, a 
declining number of users can lead to increasing service charges for 
others using centers or service pools. Some speculated that this could 
in turn lead to a "death spiral" as increasing user charges drove out 
other programs, resulting in even higher user charges. Consequently, 
assets not adequately covered by user charges might be eliminated even 
though they might be valuable to the institution as a whole. A NASA 
official told us, however, that any asset considered to be mission 
critical would be maintained even if underused. These underused assets 
could be funded through general administration, which is allocated 
across all programs or by directing other work activities to the asset. 

Some Appropriations Subcommittees Noted General Support for Budget and 
Performance Integration Efforts but Raised Concerns about Agency Budget 
Restructuring Efforts: 

While some appropriations committee reports and subcommittee staff we 
spoke with gave general support to budget and performance integration, 
including efforts to better link budget resources to performance, they 
raised a number of concerns about the agencies' budget restructuring 
efforts. For the most part, subcommittees continued to state a 
preference for and rely on previously established budget structures. 
Several key concerns were raised: 

* organizational frameworks used to restructure budgets did not meet 
appropriators' needs,

* reduced visibility of items of particular interest to appropriations 
subcommittees, and: 

* overly cumbersome and difficult-to-use congressional budget 
justifications. 

Regardless of General Support for Budget and Performance Integration 
Efforts, Appropriations Subcommittees Continue to State a Preference 
for and Rely on Previously Established Structures: 

Some appropriations committee reports and subcommittee staff with whom 
we spoke expressed general support for budget and performance 
integration efforts, including efforts to better align resources with 
programs and performance. Some recognized the potential value of budget 
restructuring efforts for agency strategic and performance management. 
However, for the most part subcommittees continued to state a 
preference for and rely on previously established structures. Several 
stated that congressional budget justifications are intended for the 
congressional appropriations subcommittees and should be done to meet 
the needs of congressional members and their staff. In some cases, 
appropriations committees generally objected to changes that replaced 
information traditionally used for congressional appropriations with 
new performance information, which they viewed as supplemental at best. 

In our review of appropriations committee reports, we found some 
general expressions of support for budget and performance integration 
efforts. Further, appropriations subcommittee staff we spoke with could 
see the potential value of budget restructuring efforts for agency 
management. For example, in its reports for VA's fiscal years 2004 and 
2005 appropriations, the committee stated that it "supports the 
administration's efforts to align costs and funding with each program 
and to simplify the account structure."[Footnote 78] Also, in the House 
Appropriations Committee report on fiscal year 2005 appropriations for 
DOJ, Commerce, and SBA, the committee stated that it "is supportive of 
budget and performance integration so that government programs can 
become more results-oriented."[Footnote 79] An appropriations 
subcommittee staff we spoke with said that the budget structure changes 
aligned the agency's facilities and infrastructure to its programs and 
provided the information needed--total program cost. In its report on 
Labor's fiscal year 2004 appropriations, the House Appropriations 
Committee urges agencies under its jurisdiction "to manage themselves 
based on performance and outcomes" and to "use outcome and performance 
measures as the primary management tool for resource allocation and the 
evaluation of programs and individuals."[Footnote 80] Also, while 
expressing concerns about EPA's restructured budget for their purposes, 
appropriations subcommittee staff we spoke with said the information in 
EPA's congressional budget justification might be useful for agency 
managers. Another staff said "performance budgeting is a good concept," 
and that agency managers should know whether and how they are achieving 
goals. 

However, general support did not translate into acceptance of the 
specific proposed changes, and for the most part appropriations 
subcommittees continued to state a preference for and rely on 
previously established budget structures and presentations. For 
example, although the appropriations subcommittee accepted EPA's 
congressional budget justification, which was structured around its 
strategic goals and objectives, the subcommittee required that EPA 
provide program information. In committee reports on EPA's fiscal year 
2005 budget, the House and Senate appropriations subcommittees urged 
EPA to reformat its congressional budget justification to increase 
clarity and transparency.[Footnote 81] Only in NASA's case did Congress 
adopt the proposed appropriations account structure to appropriate 
funds. 

Appropriations subcommittees rejected the proposed appropriations 
account structure changes for VA and DOJ.[Footnote 82] VA's House and 
Senate Appropriations Committees did not adopt VA's proposed 
appropriations account structure for fiscal year 2004 or for fiscal 
year 2005. In fact, the House Appropriations Committee moved in a 
different direction, proposing a new account structure for VHA that 
differed from what VA had proposed.[Footnote 83] Further, the House 
Committee report for fiscal year 2004 directed VA "to refrain from 
incorporating 'performance-based' budget documents in the 2005 budget 
justification submitted to the Committee, but keep the Performance Plan 
as a separate volume."[Footnote 84] However, VA resubmitted a 
restructured performance-based budget for fiscal year 2005. In the 
House Appropriations Committee report for the fiscal year 2005 budget, 
the committee reiterated its concerns about the performance-based 
structure. While the committee recognized "the right of the executive 
branch to propose whatever structure it deems necessary," it stated, 
"If the Department wishes to continue the wasteful practice of 
submitting a budget structure that will not serve the needs of the 
Congress, the Congress has little choice but to reject that structure 
and continue providing appropriations that serve its 
purposes."[Footnote 85] Also, for the most part, Congress did not 
accept DOJ's proposed account structure changes that would merge 
construction funding with the salaries and expense accounts for either 
fiscal year 2004 or 2005.[Footnote 86]

In some cases, the House Appropriations Committee directed DOT to 
submit the fiscal year 2006 congressional budget justification in a 
format similar to fiscal year 2003 or earlier congressional budget 
justifications. For example, for the salaries and expenses of the 
Office of the Secretary, the committee directed the department "to 
submit its fiscal year 2006 Congressional justification materials at 
the same level of detail provided in the Congressional justifications 
presented in fiscal year 2003."[Footnote 87] Also, while the House and 
Senate Appropriations Committees used FAA's restructured budget to 
appropriate funds for fiscal years 2003 and 2004, the House committee 
returned to the fiscal year 2002 structure--the structure used prior to 
restructuring--for the fiscal year 2005 budget. The committee 
explained, "After testing this structure for the past two years, the 
Committee finds that it is inferior to the previous structure" and "To 
avoid confusion, the Committee encourages the agency to follow this 
organization in future budget requests."[Footnote 88]

Similarly, the House Appropriations Committee stated a preference for 
previously submitted budget structures and presentations, saying that 
it considered HUD's "performance-based budget" a "strategic planning 
document for departmental managers, rather than a detailed budget 
justification document." The committee directed HUD "not to submit or 
otherwise incorporate the strategic planning document or its structure 
into its fiscal year 2005 Budget Justification submission to the 
Committee."[Footnote 89] At least in part because of congressional 
concerns, HUD did not submit a "performance budget" for fiscal year 
2005 and instead included links between resources and results in a 
separate performance plan. In the fiscal year 2005 report, the 
committee expressed appreciation and continued its direction that 
"strategic planning document, formats or materials are not to be 
incorporated into the [budget] submission."[Footnote 90]

While Labor's Senate appropriations committee stated that displaying 
performance-based budgets is a "commendable goal" in its fiscal year 
2004 committee report, the committee "continues to rely on the 
traditional display of appropriations account information provided 
prior to fiscal year 2004."[Footnote 91] In its fiscal year 2005 
report, the Senate Appropriations Committee encouraged Labor "to 
continue using outcome and performance measures as the primary 
management tool for resource allocation and the evaluation of programs 
and individuals," but required Labor "to submit its fiscal year 2006 
congressional budget justifications in the traditional budget structure 
rather than in a 'performance' budget structure."[Footnote 92] 
Additional performance information should be submitted as a separate 
appendix in the budget justification. 

Organizational Frameworks Used to Restructure Budgets Did Not Meet 
Appropriators' Needs: 

OMB instructed agencies to structure the "performance budgets" like 
their strategic plans and, where possible to align budget accounts with 
programs or the components of programs that contribute to a single 
strategic goal or objective. While some appropriations subcommittee 
staff we spoke with said that performance information is useful, they 
did not agree with structuring the appropriations account and 
congressional budget justifications around this type of information. 
Some appropriations subcommittee staff explained that, in their 
opinion, the organizational frameworks agencies chose did not align 
with how the agency operated or with how the subcommittee appropriated 
funds, did not rely on units by which the agency was able to track 
spending, or did not provide useful information. 

Appropriations committee reports or subcommittee staff we spoke with 
highlighted several examples of how the frameworks used to restructure 
the budget did not meet their needs. For example, a fiscal year 2005 
House Appropriations Committee report stated that VA's proposed account 
structure was not adopted "because it does not address the needs of the 
Congress in its role of reviewing and allocating federal budgetary 
resources."[Footnote 93] Specifically, one appropriations subcommittee 
staff person noted that the proposed framework did not align with how 
the agency operated. For example, in the staff person's view, the 
organizational framework for VBA's proposed account structure, which 
would structure its budget around programs and fund administration 
resources from several different program accounts, did not align with 
how regional offices operated, in which one staff person's time may be 
split across multiple programs. The staff person indicated a preference 
for information organized around functional area, such as 
administration. 

EPA offers another example. House appropriations subcommittee staff 
said that the organizational framework used for EPA's restructured 
congressional budget justification did not align with how the 
subcommittees appropriated funds. They explained that EPA's new 
structure around strategic goals and objectives didn't match 
appropriators' interests or the structure used for appropriations 
because appropriators generally focus on and provide resources by 
program. Staff said that tracing program funding changes back to goals 
or determining the effect of changes in goal funding to programs was 
difficult. 

Others expressed concern that the performance-based organizational 
structure focused on units with which staff did not agree. For example, 
appropriations subcommittee staff said that the goals presented in the 
congressional budget justification did not reflect those of the 
subcommittee. Further, an appropriations subcommittee and its staff 
expressed concern that organizing the budget around performance goals 
or missions might obscure information about how agencies are spending 
money. For example, in its committee report for the fiscal year 2005 
budget, the House Appropriations Committee explained that FAA's 
restructured budget "depends on overlapping budget categories and 
subjective judgments among agency officials concerning a program's 
predominant purpose."[Footnote 94]

Subcommittee staff also expressed concern that agencies request 
appropriations in the performance-based frameworks but are unable to 
track spending in this framework. For example, some of the nine 
agencies in our review have structured their congressional budget 
justification around their strategic or performance plans and show or 
request funding by goals or objectives. However, according to some 
appropriations subcommittee staff, some agencies do not track spending 
by these goals and objectives and thus cannot report the amount spent 
by goal. In addition, these appropriations subcommittee staff thought 
this shift could make it more difficult to track historical spending 
trends since goals might change from year to year. GPRA requires an 
agency to develop a strategic plan at least every 3 years to cover the 
following 5-year period, and GAO has reported that changes in political 
leadership may also result in a new agenda with new objectives. 

A concern was also raised that the organizational framework used did 
not provide useful cost information. An appropriations subcommittee 
staff said that VA's allocation of resources among its programs and 
offices seemed "incomplete and inconsistent." Specifically, according 
to the staff, claim adjudication was included as part of the Disability 
Compensation program's administrative costs, but appeals and court 
costs, which cover the lawyers in the Office of General Counsel who are 
a large part of the claim adjudication process, were not included. 
Also, the staff questioned why a portion of the department's 
construction resources were allocated to and requested by VA's 
Inspector General office. Generally, to the extent staff were 
uncomfortable with agencies' ability to meaningfully allocate 
resources, they expressed concerns about the value of the information 
provided by the restructured budgets. 

Reduced Visibility of Items of Particular Interest to Appropriations 
Subcommittees: 

As agencies increased the performance perspective in congressional 
budget justifications, some appropriations subcommittee staff we spoke 
with said some information they needed was either less transparent or 
not provided within the restructured budgets. For example, several 
staff said they found that the restructured congressional budget 
justification failed to include information appropriators are most 
interested in, such as changes to appropriations language and funding 
levels, historical information, funding levels by program or state, 
object class information, and more detailed cost and performance 
information, such as unit cost, workload information, and output 
measures. This information lends itself to the budget process. For 
example, workload measures, in combination with cost-per-unit 
information, can be used to help develop appropriations levels, and 
legislators can more easily relate output information to a funding 
level to help define or support a desired level of service. Other staff 
explained that appropriators also focus on agencies, offices, and 
activities and need object class and workload-related information to 
make decisions. 

The importance of workload and output measures for making budget 
decisions is also important at the state level. In a recent review of 
state performance budgeting efforts, some state officials said that 
outcome measures and performance evaluations were useful in budget 
deliberations, but that legislators rely most on workload and output 
measures when determining funding levels and desired levels of service 
relative to funding.[Footnote 95]

Concerns that performance information replaced information needed to 
make budget decisions were also expressed in committee reports. For 
example, a House Appropriations Committee report said that, "while the 
amount of performance data included in budget documents has increased, 
in many cases it has been at the expense of programmatic budget data 
and justifications that are critical to the work of the 
Committee."[Footnote 96] Similar concerns were raised in another 
committee report and the committee directed the department to "include 
in the budget justification funding levels for the prior year, current 
year, and budget year for all programs, activities, initiatives, and 
program elements."[Footnote 97] In addition, the committee said that 
one agency's restructured budget obscured information and made it 
easier for agencies to cover cost overruns with little scrutiny. 

Along these lines, some appropriations subcommittee staff said that 
they sought additional information from the agency instead of using 
what was included in the restructured congressional budget 
justifications or used the previous year's congressional budget 
justifications. For example, in response to congressional concerns that 
its fiscal year 1999 congressional budget justification lacked program 
information, EPA provided appropriations staff with supplemental 
information on the budget request broken down by program in its fiscal 
year 2000 through fiscal year 2004 justifications. Appropriations 
subcommittee staff said that Labor's fiscal year 2004 congressional 
budget justification failed to provide historical information and 
differences in funding for various training programs; appropriations 
subcommittee staff asked Labor for additional information or used 
earlier congressional budget justifications and constructed their own 
tables. 

Overly Cumbersome and Difficult-to-Use Congressional Budget 
Justifications: 

Some appropriations subcommittee staff felt strongly that the 
restructured congressional budget justifications were often overly 
cumbersome and difficult to use. Not only did the congressional budget 
justifications omit information the committees wanted, they sometimes 
included information the committees did not need. Several 
appropriations committee reports or subcommittee staff we spoke with 
stated that congressional budget justifications are intended for the 
congressional appropriations committees and should be prepared to meet 
the needs of congressional members and their staff. As expressed in one 
appropriations committee report, "In the place of critical budget-
justifying material, the Committee is provided reams of narrative text 
expounding on the performance goals and achievements of the various 
agencies."[Footnote 98] In the view of some staff, the type of 
performance information agencies provided is supplemental and including 
it in the congressional budget justification made it hard to use for 
their purposes. For example, some subcommittee staff said they found 
the narrative included in performance-based congressional budget 
justifications too voluminous and cumbersome, making any useful 
information contained in them too difficult to find. In its fiscal year 
2005 committee report, the House Appropriations Committee directed DOT 
and other agencies to refrain from including substantial amounts of 
performance data within the congressional budget justifications 
themselves, and to instead submit performance-related information under 
separate cover. 

Not only did appropriations subcommittee staff see the restructured 
congressional budget justifications as providing too much performance-
based information, but some also said that the performance-based 
justifications were poorly organized or formatted, making it even more 
difficult to find needed information. For example, in one case 
subcommittee staff pointed out that in the agency's restructured 
congressional budget justification, program performance goals were 
listed by number without sufficient information to identify the goals. 
In addition to using congressional budget justifications from previous 
years and creating their own tables, appropriations subcommittee staff 
said they needed to flip from section to section to find information 
that should be listed on the same page. In the staff's opinion it was 
much easier to use the previous congressional budget justifications. 
Further, staff also said that the congressional budget justification 
didn't clearly show how the programs contributed to the agency's goals 
and missions, and that it was difficult to understand the relationship 
between the administrative resources shown in "full cost" summary 
tables and those shown in the administrative appropriations accounts. 
Another issue was the imbalance between the amount of information 
provided and the amount of the funding request. For example, FAA 
provided over 170 pages of text discussing the relatively small share 
of its budget that is capital programs and only about 20 pages on the 
relatively larger operating portion of the budget. 

Agencies Address Congressional Concerns: 

Some agencies made changes to their performance-based budget structures 
in response to congressional concerns or direction. For example, both 
EPA and Labor reported that they made changes to their budget 
justifications for fiscal year 2006 to address congressional concerns. 
Specifically, in response to congressional direction to reformat its 
justification to increase clarity and transparency, EPA restructured 
its budget justification so that it is organized by appropriations 
account and program/projects. The new format provides information in a 
way that Congress makes decisions--at the program level. EPA continues 
to provide information on strategic goals and objectives and the 
resources associated with them, but it is streamlined and treated more 
like a supplement. According to Labor officials, since the submission 
of the fiscal years 2004 and 2005 budget justifications, they have 
worked with congressional appropriations committee staff to address 
concerns about the elimination of program-specific information. Several 
exhibits, including the 5-year funding histories, have been reinstated 
in Labor's "performance budget" for fiscal year 2006. 

Extent to Which Appropriations Account Restructuring Considered 
Necessary to Advance Results-Oriented Management Varied: 

Despite all the recent efforts to restructure the budget, little 
consensus exists on whether appropriations account restructuring is 
necessary to advance results-oriented management. OMB staff said that 
it is important to move beyond aligning budget resources to results for 
presentational purposes to appropriating budget authority with programs 
and performance, which will provide improved incentives for 
appropriators and program managers to recognize and make resource trade-
offs. However, OMB also noted that other factors must be considered and 
the restructuring appropriations accounts should be "considered with 
care."[Footnote 99] OMB staff we spoke with agreed that the need for 
appropriations account restructuring should be considered on a case-by-
case basis, noting that appropriations account restructuring may not be 
necessary for all agencies. 

Agency officials from the nine agencies in our review differed in the 
extent to which they viewed appropriations account structure changes as 
important for efforts to improve performance. Some saw the changes in 
appropriations accounts as necessary to reinforce performance-based 
cultural transformations and accountability processes within agencies. 
However, most expressed the opinion that appropriations account 
structure changes were not critical to their efforts to advance results-
oriented management at this time. Officials generally said that the 
structure itself did not present a significant impediment to efforts to 
improve performance, noting that other factors, such as underlying 
authorizing statutes and earmarks, might create more significant 
impediments. There were some agency officials who saw ways in which the 
appropriations account structure hindered efforts to improve 
performance. For example, some NASA officials said that, prior to 
restructuring, the previous appropriations account structure resulted 
in a lack of accountability over the resources used to achieve 
performance and limited managers' abilities to make resource trade-offs 
to use resources more efficiently. Others cited examples in which the 
current appropriations account structure complicates the discussion of 
performance. For example, a DOJ official noted that DOJ's 
appropriations account structure does not provide a full picture of the 
resources associated with meeting its performance goals. When talking 
about overcrowded prisons, for example, one would have to look at two 
appropriations accounts under the existing account structure to get the 
full picture of resources being used to achieve related performance 
goals. 

While officials from most agencies did not view appropriations account 
structure changes as critical to their results-oriented management 
efforts, some officials said that changing the congressional budget 
justification without making corresponding changes to the 
appropriations account structure might create new challenges. For 
example, a Commerce official explained that Commerce currently operates 
under a performance-based budget. However, Congress still appropriates 
under the previously established appropriations account structure. As a 
result, Commerce must translate from appropriations accounts to its 
strategic goals by creating crosswalks, which were described as time-
consuming. Similarly, EPA officials reported that, prior to the fiscal 
year 2005 budget, they formulated and executed the budget at the goal, 
objective, and subobjective level. However, once Congress appropriated 
by key program, the funds were translated to the performance-based 
framework. EPA was concerned that they couldn't track spending by key 
program and so, for the fiscal year 2005 budget, EPA implemented 
changes to its budget and financial management systems in order to 
include programs in budget formulation and execution. 

New Budget Structures Do Not Address Some Shortcomings in Cost and 
Performance Information Identified as Useful for Results-Oriented 
Management: 

Previous initiatives suggest that it is not practical for one reform to 
address the multiple needs and perspectives of Congress, OMB, and other 
executive branch managers. Accordingly, it is important to recognize 
that budget restructuring alone does not necessarily provide some 
detailed cost and performance information cited by agency officials and 
congressional staff as most useful in advancing results-oriented 
management and addressing some key management challenges. The need for 
detailed and adequate cost and performance information is a long-
standing challenge. OMB stressed that budget restructuring is one 
effort among many that are intended to work together to advance the 
integration of budget, cost, and performance information to support 
results-oriented management efforts. 

One objective of recent budget restructuring efforts is to provide 
better information on the "full cost" of achieving performance; 
however, some agency officials--mainly at the program manager level--
and appropriations subcommittee staff stressed the importance of more 
detailed cost and performance information, such as unit cost and 
workload information, as more useful for improving management and 
oversight than what is provided by budget restructuring. As an example, 
the ability to compare the unit cost of programs or activities across 
regions was cited as beneficial to highlighting potential 
inefficiencies. Similarly, some appropriations subcommittee staff said 
detailed unit cost information, such as cost per patient or cost per 
insurance claim, was potentially useful in making budget decisions. 
Further, a VA official cited the need for cost accounting information 
that could help VHA identify underused medical equipment and divert 
some of its resources to another medical facility to help cover costs. 
These congressional staff and the agency official pointed out that the 
restructured budgets did not provide this information. While 
restructured budgets are intended to better capture the "full cost" of 
programs and performance, the level at which budgets generally are 
organized is more aggregated than the detailed managerial cost 
information needed for this type of analysis. 

Some also expressed concern that budget restructuring would not provide 
information to help address some key agency management challenges. For 
example, NASA has had long-standing contracting issues that the 
information provided by budget restructuring would not necessarily 
address. NASA program managers we spoke with said budget restructuring 
would not help reduce or limit cost overruns, which has been a key 
performance issue. They said they need more detailed cost information 
on contract cost components, including labor and materials, to monitor 
contractor performance.[Footnote 100] Others noted that efforts to 
develop improved performance measures and metrics have a much greater 
impact on results-oriented management than budget restructuring. For 
example, an agency official said improving management is not only about 
managing dollars more effectively but also improving the level of 
service. In the official's view, performance measures about the 
accessibility and quality of services--not the budget structure--drive 
management decisions about whether or not to build a facility to expand 
services. 

Other officials noted that management initiatives were generally 
advanced when internal management and accountability processes, such as 
performance management systems, were recast to focus on performance and 
results, but budget restructuring was not viewed as essential to foster 
this shift in managerial perspective. For example, according to Labor 
officials, changes to Labor's performance management system that 
increase managers accountability for achieving results affect 
management more than budget structure changes. An official suggested 
that changes to the budget structure reflect, rather than drive, 
efforts to advance results-oriented management. 

Given these types of issues, some agency officials, congressional 
appropriations staff, and budget experts suggested that improving 
financial and performance information should be a prerequisite to 
restructuring budgets and some added that, in their opinion, this step 
is more important to improving management and oversight than the recent 
budget restructuring efforts. Since it is not practical for one reform 
to address all decision makers' needs, it is important to understand 
what can realistically be expected from any particular effort as well 
as how various efforts fit together so that effective judgments can be 
made on whether, how, and to what extent the budget might be 
restructured given limited resources. 

[End of section]

Section 4: Budget Restructuring Efforts Face Challenges: 

The history of performance budgeting efforts has shown that designing 
effective approaches to achieve meaningful connections between 
performance and budget structures is a complex undertaking. Current 
efforts face many of the same challenges faced by previous initiatives. 
Restructuring budgets inevitably requires trade-offs among the needs 
and perspectives of Congress and other decision makers because budget 
structures reflect fundamental choices about how to frame budget 
choices and influence controls and incentives. Structuring budgets to 
better capture the "full cost" of programs and performance also 
involves numerous judgments about such issues as the relative 
contribution of various programs to achieve performance and the 
appropriate allocation of resources among these programs and goals. 
These complexities suggest that designing and implementing budget 
restructuring proposals will be a long-term and experimental process. 

While some agencies have demonstrated that sustained commitment by 
agency leadership is important to move budget restructuring forward, 
this commitment has not yet been shared by congressional appropriators 
and other decision makers. A lack of consensus among Congress and other 
key decision makers exists on the value of budget restructuring and on 
the value of the organizing frameworks used to structure agencies' 
performance-based budgets. In some cases this lack of consensus has 
increased agencies' workloads and raised questions about the 
sustainability of budget restructuring efforts. Questions have also 
been raised about the ability of agencies' performance and financial 
management systems to support the allocation and tracking of resources 
adequately within the new budget structures. Congressional staff and 
others expressed concerns about moving forward on budget restructuring 
without adequate performance and financial information. 

Experiences to date highlight a number of implementation challenges and 
issues for current and future budget restructuring efforts including: 

* lack of consensus between congressional appropriators and other 
decision makers,

* need for sustained commitment, and: 

* need for adequate systems to support allocation and tracking of costs 
within new frameworks. 

These challenges suggest that budget restructuring may be a long-term, 
experimental process requiring flexibility to explore different 
approaches. 

4.1: Lack of Consensus between Congressional Appropriators and Other 
Decision Makers Creates Challenges for Budget Restructuring Efforts: 

In many cases, Congress and other key decision makers--OMB and 
different levels of agency management--have not reached consensus on 
the value of restructuring budgets or the frameworks used to do so. The 
multiplicity of roles and needs of Congress and other decision makers 
may mean complete consensus is unattainable because no one structure or 
approach is likely to satisfy all. However, in some cases, there has 
been no dialogue between Congress, OMB, and the agencies. The lack of 
any consensus creates and will continue to create significant 
challenges and frustrations for those attempting to develop, implement, 
and use restructured budgets. 

As noted in section 3 of this report, agreement has not been reached 
about either the value of restructuring budgets around performance or 
the specific organizational frameworks used to do so. Any frameworks 
used to structure performance budgets--such as strategic goals, 
performance goals, programs, or individual item of expense (e.g., 
salaries and expenses or construction)--will meet some needs but not 
others. This is not surprising given the different roles decision 
makers have within our constitutional system of separated powers. For 
example, appropriations subcommittee staff highlighted their oversight 
role and accountability for resource use. They also cited the demands 
of allocating limited resources within the time constraints of the 
appropriations process. All of these factors led them to want 
consistently presented information in areas such as object classes, 
program funding, major new initiatives, changes in policy, and 
historical spending trends for key functional areas and organizational 
units. 

In contrast, OMB staff and agency officials tended to emphasize the 
importance of linking resource allocation decisions to strategic and 
performance goals and the need for increased authority and flexibility 
over the resource use to improve efficiency and effectiveness. The 
various roles of decision makers within agency management also create 
differing needs. As discussed in section 3 of this report, aligning 
resources with high-level strategic and performance goals may be useful 
for strategic management and assessing performance, but it may not 
provide the detailed information needed to inform operational 
management decisions to improve efficiency and effectiveness. 

These contrasting perspectives were evident in the different reactions 
of appropriations staff and OMB officials and staff to agencies' 
appropriations account or congressional budget justification changes. 
While OMB and some agencies were pursuing efforts to implement 
restructured budgets, several appropriations subcommittees were 
specifically directing some agencies in their jurisdiction to use 
previously established structures and refrain from incorporating 
performance-based information into congressional budget justifications. 
For example, one House Appropriations Committee report directed 
agencies to, "refrain from incorporating 'performance-based' budget 
documents in the 2005 budget justification submission to the Committee, 
but keep the Performance Plan as a separate volume."[Footnote 101] 
Meanwhile, for the fiscal year 2005 budget, OMB required agencies to 
submit a "performance budget" that would integrate an agency's annual 
performance plan and congressional budget justification into one 
document. 

Determining whether it is possible to develop any approach to 
restructuring budgets around performance acceptable to all decision 
makers is made more difficult if there is no consultation. OMB said 
agencies should consult with congressional committees before submitting 
the budget to ensure they are aware of changes being made to the budget 
structure, and OMB recognizes that account structure changes must be 
negotiated with Congress. However, some agency officials and 
congressional appropriations subcommittee staff we spoke with cited 
insufficient dialogue between the agencies and appropriators. For 
example, some appropriations subcommittee staff said that they had not 
been sufficiently consulted about proposed budget structure changes. 
Moreover, some appropriations subcommittee staff said agency officials 
had presented the changes without providing enough detail about the 
changes or, in other cases, did not adequately seek and respond to 
their input. One Senate Appropriations Committee report also reflected 
these concerns about the need for communication on the framework used 
to restructure budgets, stating that "[the Committee] expects the 
Department to work with the Committee to make sure that the fiscal year 
2004 budget justifications meet Committee needs."[Footnote 102]

The lack of consensus, whatever the cause, has and will likely continue 
to raise challenges for those attempting to develop and implement 
restructured budgets. Agencies' experiences have shown that pursuing 
restructured budgets without the agreement--or at least acquiescence--
of appropriations subcommittees can result in significant resources 
being used to develop budget structures that are rejected or, if 
accepted, do not fully meet congressional needs. This leads in turn to 
increased agency and appropriations subcommittee staffs' workloads or 
frameworks that are not fully used by congressional appropriators. For 
example, to satisfy OMB's requirement to submit a performance budget, 
some agencies likely expended significant resources to create 
performance-based budgets only to be appropriated and have to execute 
based on previously established structures. Furthermore, appropriations 
subcommittee staff said they used alternative methods to get the 
information they needed, including asking agency staff to provide 
supplemental information and creating crosswalks between the 
performance-based framework and the previously established framework 
because some formerly reported information was not included in the new 
performance-based congressional budget justifications. 

The lack of agreement on the framework used to structure the budget may 
not only increase workload but also raise questions about the extent to 
which the restructured budget will in fact reframe budget choices. This 
can be true even in cases where restructured budgets are adopted. For 
example, although Congress accepted EPA's fiscal years 1999 through 
2005 congressional budget justifications, which were structured around 
its strategic goals and objectives and changed EPA's reprogramming 
guidance to expressly allow funding shifts within strategic objectives, 
Congress required that EPA provide program information and continued to 
set specific funding levels in committee reports based on 
programs.[Footnote 103] Appropriations subcommittee staff said that 
they generally did not use the performance-based budget to conduct 
their work but rather the program-based information they requested from 
EPA. Although Labor submitted a "performance budget" for fiscal years 
2004 and 2005, appropriations subcommittee staff we spoke with said 
they either relied on the fiscal year 2003 congressional budget 
justification to find information they needed or requested supplemental 
information from Labor. In short, they did not generally use the 
performance-based budget. 

Given the differing needs and perspectives of appropriators and agency 
officials there may always be some gaps. Therefore, the challenge will 
be to seek alternatives beyond and complementary to budget 
restructuring that can both provide the information decision makers 
need and improve the use of performance information during various 
stages of the budget process. 

4.2: Budget Restructuring Requires Sustained Commitment and Leadership: 

Successfully changing appropriations accounts and congressional budget 
justifications requires sustained commitment by key decision makers. 
Most of our case study agencies had been working on the framework and 
methods used to better capture the cost of programs and performance in 
the budget for several years prior to proposing appropriations account 
structure changes or submitting a restructured congressional budget 
justification to Congress. Even after the initial changes, agencies 
continue to refine the appropriations account structure and 
congressional budget justification to reflect revised strategic plans 
or address concerns. EPA, for example, changed its budget framework to 
reflect changes to its strategic plan. At the same time, EPA 
implemented additional changes to improve financial management. 
Furthermore, some officials from our case study agencies told us that 
it might take time to see the benefits of any changes for management 
and oversight. For example, NASA officials said that they began working 
on the "full cost" initiative in 1995. The formulation of the fiscal 
year 2004 budget was primarily a headquarters exercise and the fiscal 
year 2005 budget was the first budget program managers formulated in 
"full cost." As a result, according to NASA officials, program managers 
have limited experience with budgeting and managing in "full cost," and 
it may take a few more years to completely achieve the benefits of 
"full cost" management. 

Some agencies said that commitment by agency leadership and staff, 
early involvement of OMB, and integration of agencies' budget and 
planning staff were helpful in their long-term effort to better link 
resources to performance in the budget. For example, EPA officials 
credited their senior leadership with supporting budget restructuring 
efforts and integrating planning and budget staff. Labor and NASA 
officials reported that they involved OMB in task forces or decisions 
related to the design of restructured budgets. Labor officials said 
that integrating its budget and planning staff to provide central 
coordination, direction, and planning on department goals and 
objectives facilitated increased collaboration between budget and 
planning staff and supported budget restructuring. However, while a 
sustained commitment by agency leadership and staff appears necessary 
to advance budget-restructuring efforts, it is not sufficient. 

4.3: Concerns Raised about Ability of Agencies' Systems to Accurately 
Link Budget Resources to Performance and to Track Cost in the New 
Budget Structures: 

Structuring budgets to better capture the "full cost" of programs and 
performance involves numerous judgments, such as the contribution of 
various programs to achieve goals and objectives and the allocation of 
resources among these programs and goals. Restructuring budgets to 
better align budget resources with programs and performance might 
provide a more complete picture of the resources associated with 
expected results, but that is dependent on these underlying estimates 
and assumptions. To the extent performance and resource allocations are 
made on an arbitrary or misleading basis, the new structures cannot be 
assumed to provide improved information on the connections between 
performance and resources. Questions have been raised about agencies' 
capacity to: 

* develop meaningful allocations of resources to program and 
performance within the new frameworks,

* track costs within the new frameworks, and: 

* develop meaningful estimates of the contribution of programs to goals 
and objectives within the new framework. 

Agency officials and appropriations subcommittee staff we spoke with 
raised concerns about the ability of agencies' financial management 
systems to accurately allocate budget resources within the performance 
framework used to structure appropriations accounts and budget 
justifications as well as to adequately track costs. Officials from 
several agencies questioned their ability to accurately allocate 
resources, including staff time, among programmatic or goal areas. 
Indeed, both GAO and inspectors general have reported weaknesses in 
several of our case study agencies' financial management systems in 
providing reliable, useful, and timely financial information, including 
cost data.[Footnote 104] Also, OMB's PART reviews suggest that much 
work remains to be done in improving the underlying information, 
evaluations, and systems within agencies to support performance 
goals.[Footnote 105] Some OMB staff said that budget restructuring 
would provide a much-needed incentive to address these issues. 
Officials from a number of agencies noted that they are in the process 
of improving financial management systems or developing managerial cost 
accounting systems, which they expected to better inform the estimates 
used in the budgets in the future. 

Agencies face two broad challenges in seeking to align budget resources 
to performance in the budget structure. The first challenge is that 
unless each program or activity is linked directly to one and only one 
goal or objective, the performance contribution of a program must be 
allocated across goals or objectives. This places greater importance on 
exploring the analytical linkage between programs and goals. The second 
challenge is allocating resources, such as central administration, 
across goals. If one VBA staff's salary will be funded from multiple 
appropriations accounts, accurate estimates of the amount of time they 
spend on each program becomes important. Allocating resources requires 
establishing a basis on which to spread resources and having the 
supporting data to support allocation estimates. Officials we spoke 
with used a variety of bases to allocate resources to programs and 
performance, ranging from specific projects, full-time equivalents 
(FTEs), workload estimates, etc. To the extent the basis used reflects 
true resource needs, allocating resources has the potential to provide 
more complete information on the resources associated with programs and 
performance. If the basis used is arbitrary or does not reflect true 
resource use, then information and incentives will not be improved. The 
appropriate basis may vary. For example, FTEs may be an appropriate 
basis to allocate some resources but not others. An agency that uses 
FTEs as a method to allocate publishing costs might wrongly assume that 
an office with many FTEs should be allocated a greater share of 
publishing resources despite the fact that an office with fewer FTEs 
might publish more (or need more expensive types of published products) 
and thus have higher publishing costs than the office with more FTEs. 

Regardless of the basis of allocation, the systems and underlying data 
to support resource allocation is important for agencies to have. Some 
agency officials and congressional staff questioned the ability of 
agencies' systems and data to support resource allocation and track 
costs in new structures. For example, VA officials explained that VBA 
staff often divide their time between administering disability 
compensation, pension, and burial claims. Under the current structure, 
the staff's salary is paid from the General Operating Expense (GOE) 
account regardless of which activities the staff is undertaking. Under 
the proposed structure, the staff's salary would be paid from three 
different appropriations accounts depending on the activities 
undertaken. VA officials said that allocating salaries among the three 
accounts would be difficult to properly estimate. 

Some also expressed concerns about potential difficulties arising from 
executing budgets within a structure built from uncertain resource 
allocation estimates. Accounting systems and budget execution concerns 
have led some agencies to request transfer authority; that is, the 
ability to shift resources among appropriations accounts. For example, 
when it began allocating administrative resources to its programs in 
two separate appropriations accounts, NASA requested and received 
transfer authority for administrative expenses between its two 
appropriations accounts. NASA officials said this flexibility is needed 
because of the inherent difficulty in correctly estimating resource 
allocations since staff divide their time among projects. Also, VA 
requested transfer authority for administrative expenses to avoid 
antideficiency violations because estimation uncertainties exist around 
separating administrative resources into multiple program 
accounts.[Footnote 106] Appropriators did not accept VA's proposed 
account structure and so did not provide VA this authority. 

Concerns were also raised about agencies' ability to track costs within 
the new structure and to provide supplemental cost information by 
organizational unit or functional area. For example, VA's budget office 
does not track what is spent by strategic goal and objective throughout 
the year because its financial system does not track costs in this way; 
rather, VA applies assumptions to spread costs among strategic goals 
and objectives. Without adequate performance and financial information 
systems, agency managers may be unable to accurately track these costs 
and help make informed resource management decisions. Although Labor 
allocates both direct and indirect resources to performance goals, 
costs are not tracked at this level during budget execution, and 
managers are not bound to spend the amounts shown for performance goals 
in the budget justification. Without adequate performance and financial 
information, some agency officials and congressional appropriations 
subcommittee staff expressed concerns about moving forward with budget 
restructuring. For example, appropriations subcommittee staff we spoke 
with said that given agencies' inability to report how funds were being 
spent in both the previously established and new performance-based 
budget structures, the staff were unwilling to accept proposed budget 
structure changes. 

While there was general agreement among the agency officials and budget 
experts we spoke with on the need for integrated financial management 
systems that provide reliable and timely information, they expressed 
differing views on the extent to which these systems need to be in 
place prior to restructuring budgets around programs and performance. 
Some agency officials, appropriations staff, and budget experts 
emphasized the importance of having integrated financial management 
systems in place that can accurately estimate and track spending before 
proceeding with budget restructuring. As such, some said that improving 
performance and cost information should be the first step, especially 
given that some approaches to budget restructuring provide increased 
managerial discretion over resource use. Some OMB staff and agency 
officials, however, expressed the differing view that requiring budgets 
to be structured around programs and performance provides much needed 
incentives for agencies to address long-standing financial management 
issues. 

4.4: Budget Restructuring May Be a Long-Term, Iterative Process 
Requiring Flexibility to Explore Different Approaches: 

These challenges suggest that budget restructuring may be a long-term, 
iterative process requiring flexibility to explore different 
approaches. As OMB and agencies have wrestled with the issues described 
above and the broader Budget and Performance Integration (BPI) 
initiative has evolved, OMB's guidance related to budget restructuring 
has changed. OMB staff we spoke with described budget restructuring as 
a long-term effort requiring experimentation to determine effective 
approaches. OMB staff said they have refined their guidance as they 
learn more about what is working for agencies at the forefront of 
budget restructuring efforts. Moreover, they said their intention is 
not to dictate specific approaches. Instead they want to encourage 
agencies to change congressional budget justifications--and in some 
cases appropriations accounts--to better align budget resources with 
programs and performance in ways that meet agencies' and other users' 
needs while increasing the information and incentives to recognize and 
make resource trade-offs with a focus on results. However, while 
experimentation and flexibility may be needed to develop and implement 
a complex and evolving initiative, changes in specific guidance 
nevertheless may reduce clarity with respect to the objectives of and 
steps necessary for budget restructuring as well as the role of budget 
restructuring within broader budget and performance integration 
efforts. 

[End of section]

Section 5: Lessons Learned and General Observations: 

Budget restructuring is one tool that can advance results-oriented 
management. However, it involves significant trade-offs between 
information provided and accountability frameworks used. Congress, OMB, 
and the agencies hold differing views on information and incentives 
necessary to support effective decision making and oversight. While 
increasing the focus on results in budget decisions is important, 
recent efforts to increase the focus in congressional budget 
justifications have generally reduced the visibility of other 
information, such as object class, workload, and output measures that 
congressional appropriations committees consider important for making 
resource allocation decisions. The need for workload and output 
measures for making resource allocation decisions is not unique to the 
federal government. State officials indicated this information is used 
by legislators in making resource allocation decisions, as discussed in 
our most recent review of state performance budgeting efforts. 

The history of budget reform suggests that budget structures will 
necessarily reflect multiple perspectives on resource allocation. 
Performance goals and planning structures can clearly add value to 
budget debates by focusing attention on the broad missions and outcomes 
that individual programs and activities are intended to address. 
However, budget structures also serve the legitimate role of helping 
Congress control and monitor agency activities and spending by 
fostering accountability for inputs and outputs within the control of 
agencies. The greatest challenge of budget restructuring may be 
discovering ways to address these competing values that are mutually 
reinforcing, not mutually exclusive. 

Budget restructuring has implications for the balance between 
managerial flexibility and congressional oversight and control and 
ultimately the relationship among the primary budget decision makers--
Congress, OMB, and agencies. Thus, Congress must be considered a 
partner in this effort. While congressional buy-in is critical to 
sustain any major management initiative, it is especially important for 
performance budgeting given the Congress' constitutional role in 
setting national priorities and allocating the resources to achieve 
them. The concerns raised by appropriations staff suggest that when 
creating "performance budgets" OMB and agencies should find ways to 
tailor the agencies' performance information to meet those needs and to 
supplement, rather than replace, key information used by appropriations 
committees to make decisions. Lessons from previous initiatives and 
agencies' recent experiences suggest that Congress needs to be 
comfortable with the appropriateness and utility of the new budget 
structures since budget structures fundamentally shape the focus of 
appropriations decisions as well as the nature of the controls through 
which Congress oversees executive agencies' spending. Accordingly, if 
performance goals and measures are to become the basis for the new 
budget structures, Congress must view them as a compelling framework 
through which to achieve its own appropriations and oversight 
objectives. Indeed, GPRA itself was premised on a cycle where measures 
and goals were to be established and validated during a developmental 
period before they were subjected to the rigors of the budget process. 

This suggests that the goal of enhancing the use of performance 
information in budgeting is a multifaceted challenge that must build on 
a foundation of accepted goals, credible measures, reliable cost and 
performance data, tested models linking resources to outcomes, and 
performance management systems that hold agencies and managers 
accountable for performance. Restructuring appropriations accounts and 
presentations to better capture the "full cost" of performance is part 
of this agenda as well. However, creating performance budgets without 
establishing and validating the requisite foundation and consensus on 
measures and goals among primary decision makers will likely not 
succeed in gaining support in the budgetary decision-making process. 

Going forward, the important goal of infusing a performance perspective 
into budget decisions may only be achieved when the underlying supply 
of information becomes more credible, compelling, accepted, and used by 
all significant decision makers in the system. Indeed, if budget 
decisions are to be based on this cost and performance information, 
there is a more compelling need to improve the integrity of the data. 
As OMB's own PART reviews suggest, much work remains to be done in 
improving the underlying information, evaluations, and systems within 
agencies to support performance goals. Thus, improving the supply of 
credible cost and performance information as well as generating 
consensus for the goals themselves are essential parts of a longer-term 
strategy to infuse performance into budget decisions. 

While some argue that budget restructuring might be necessary to 
provide incentives to take the performance goals seriously and improve 
the underlying information, our work suggests that restructuring can 
only take root once support exists for the underlying performance goals 
and metrics. In due course, once the goals and underlying information 
become more compelling and used by Congress, budget restructuring may 
become a more compelling tool to advance performance budgeting. In 
other words, the budget structure will more likely reflect--rather than 
drive--the use of performance and cost information in budget decisions. 

[End of section]

Appendixes: 

Appendix I: Objectives, Scope, and Methodology: 

In this report we refer to budget restructuring as involving both (1) 
changes to the structure and format of appropriations accounts and 
congressional budget justifications to better align with programs and 
performance and (2) changes to distribution or measurement of certain 
budget resources to better capture the cost of those resources where 
and when they are used. Although the Office of Management and Budget's 
(OMB) concept of "full cost" originally included efforts to change the 
budgetary measurement of certain items to better capture "when" they 
are used, the primary focus of reform efforts to date and this report 
has been on changes in alignment of appropriations accounts or 
congressional budget justifications and the distribution of resources 
within these structures to more completely show the cost of resources 
"where" they are used. 

Our objectives for this report were to (1) summarize the steps taken by 
OMB and selected agencies to better align their budgets with 
performance and to better capture the cost of performance in the 
budget, (2) discuss the potential implications of these efforts for 
congressional oversight of budget resources and executive branch 
managerial flexibility and accountability over budget resources, (3) 
describe the experiences and implementation challenges associated with 
these efforts, and, (4) describe the lessons learned that might be 
useful in considering future efforts for linking budget resources to 
results in the budget. Observations and lessons learned in this study 
together with lessons learned from previous "performance budgeting" 
initiatives provide insights useful in consideration of current and 
future budget restructuring efforts and other steps to improve the use 
of cost and performance information in the budget process. 

To address our objectives, we reviewed OMB documents, such as the 
President's Management Agenda (PMA),[Footnote 107] Circular A-
11,[Footnote 108] as well as presentations of OMB officials and staff. 
We also analyzed appropriations account structures and congressional 
budget justifications for nine federal agencies for mainly the fiscal 
years 2003 through 2005 budgets.[Footnote 109] For four of the nine 
agencies, we conducted more in-depth case studies to gain a fuller 
perspective of the potential implications of the budget changes for 
executive branch management and agencies' experiences implementing 
these changes. For the four case study agencies, we held interviews 
with agency officials at various levels of management and with senior 
staff and budget examiners from OMB's Resource Management Offices. 

Also, to obtain views and gain insight about the potential implications 
for congressional oversight of budget resources, we met with House and 
Senate majority and minority staff of the appropriations subcommittees 
with jurisdiction over some of the nine agencies of our review. We had 
at least one interview with appropriations staff for each of our case 
study agencies. Furthermore, we reviewed House and Senate 
appropriations committees' reports for language about agencies' 
appropriations account and congressional budget justification changes. 

In addition, we conducted two panel discussions to obtain the views of 
officials from our case study and review agencies as well as budget 
experts in an interactive setting. We summarized the interviewees' and 
panelists' answers, identified recurring themes or observations, and 
considered insights provided by previous initiatives to describe the 
lessons learned that might be useful in considering future efforts. 

In some cases, budget restructuring efforts have only recently been 
implemented (and in some cases only in part). Thus, it may be too early 
to fully understand both the implications of budget restructuring on 
executive branch management and congressional oversight and the 
implementation experiences and challenges associated with these 
efforts. Also, while we describe the various approaches all nine 
agencies took, the approaches should not be directly compared because 
each agency is different and may have had different objectives for its 
budget restructuring efforts. Comparisons are also difficult because 
agencies start with different missions, organizational frameworks, and 
appropriations account structures. For example, the National 
Aeronautics and Space Administration (NASA) is a research and 
development agency and is almost entirely funded by discretionary 
accounts whereas the Department of Veterans Affairs (VA) is funded 
largely by mandatory accounts. Much of EPA's work is done with third 
parties (e.g., contractors and states), which involves the provision of 
grants and other pass-through resources to states, localities, and 
Indian tribes. Nevertheless, describing efforts undertaken at a variety 
of agencies provides a broader look at the implications of various 
approaches taken to link resources to performance. 

To provide specific information on each of our case study agencies' 
budget restructuring efforts, this report includes an appendix for each 
case study agency with a more in-depth description of each agency's 
approach as well as the benefits and limitations noted by agency 
officials and OMB staff we spoke with. In these appendixes, we neither 
evaluated agencies' choices nor critiqued their processes. We sent 
copies of the appendixes for technical review and comment to officials 
or staff at our case study agencies to ensure accuracy of our portrayal 
of their reform efforts. 

Given the objectives and scope of this work, we did not evaluate 
agencies' financial systems, the reliability and validity of data 
underlying agencies' budget requests, or internal controls related to 
the general management of the agencies. We also did not evaluate 
agencies' strategic or performance plans or the goals or measures to 
which agencies tied their resources. Of necessity, our evidence is 
largely based on testimonial evidence from individuals knowledgeable 
about these efforts. In many cases, efforts to align budgets with 
performance efforts are fairly recent and agencies may not have had 
time to fully realize the implications of their approaches. Thus, many 
agencies provided testimonial information about the anticipated 
benefits or limitations of these initiatives rather than specific 
examples. Where possible, we corroborate testimonial evidence with 
documentary evidence. 

We conducted our work from May 2003 through December 2004 in 
Washington, D.C. in accordance with generally accepted government 
auditing standards. We provided drafts of the report to OMB and the 
nine agencies in our review for comment. 

Methodology for Selection of Agencies: 

To provide an overview of the various budget restructuring efforts 
underway in the federal government, we reviewed nine agencies' 
appropriations account structures and congressional budget 
justifications. To gain a deeper understanding of the implications of 
agencies' efforts for managerial flexibility and accountability and 
implementation experiences and challenges, we selected four agencies 
out of the nine agencies for more in-depth case study review. The four 
case study agencies are: 

1. Department of Labor (Labor),

2. Department of Veterans Affairs (VA),

3. Environmental Protection Agency (EPA),

4. National Aeronautics and Space Administration (NASA). 

The five agencies for general review are: 

1. Department of Commerce (Commerce),

2. Department of Justice (DOJ),

3. Department of Transportation (DOT),

4. Department of Housing and Urban Development (HUD), and: 

5. Small Business Administration (SBA). 

Agencies were judgmentally selected based on a combination of their 
scores for Budget and Performance Integration (BPI) in the Executive 
Branch Management Scorecard in the President's fiscal year 2004 
budget,[Footnote 110] OMB's published statements highlighting agencies' 
progress in this area, and the types and extent of changes made. The 
Executive Branch Management Scorecard is a traffic-light grading system 
to report how well federal agencies are implementing the PMA's five 
governmentwide initiatives. OMB assesses agency "status" based on the 
"Standards for Success."[Footnote 111] Under each initiative, an agency 
is "green" if it meets all of the standards for success, "yellow" if it 
has achieved some but not all of the criteria, and "red" if it has any 
one of a number of serious flaws. OMB assesses agency "progress" on a 
case-by-case basis against the deliverables and time lines established 
under each initiative that are agreed upon with each agency. The 
"Standards for Success" describe expectations for the extent to which 
agencies incorporate financial and performance information into 
management decisions, the quality of strategic and annual performance 
plans, and the ability of agencies to report the "full cost" of 
performance goals. We considered agencies receiving higher scores on 
OMB's Scorecard, which indicates OMB's assessment of agency efforts in 
this area, because they might potentially provide lessons to other 
agencies. We also considered the type and extent of budget 
restructuring. Thus, agencies that received higher scores and made or 
proposed more apparent changes were more likely to be included in our 
study. 

As a starting point, we considered 11 federal departments and agencies 
out of 26 receiving scores in the Executive Branch Management Scorecard 
in the President's fiscal year 2004 budget for review (see table 9). 
First, we considered all agencies that received a "yellow light" for 
"status" in BPI.[Footnote 112] Nine of these agencies in total had a 
"yellow light" in status. We added to the list 2 agencies that had a 
"red light" for status because they were mentioned by OMB in the fiscal 
year 2004 Analytical Perspectives as having taken steps toward better 
capturing the cost of performance in the budget. 

Table 9: Agencies Considered for Review: 

Yellow light on status: 
Environmental Protection Agency; 
Department of Commerce; 
Department of Defense; 
Department of Labor; 
Department of Transportation; 
Department of Veterans Affairs; 
National Aeronautics and Space Administration; 
Small Business Administration; 
Social Security Administration; 

Red light on status; efforts highlighted: 

Department of Housing and Urban Development. 
Department of Justice. 

Source: GAO analysis of Budget of the United States Government, Fiscal 
Year 2004. 

[End of table]

For each of these 11 agencies, we then looked more specifically at 
budget restructuring efforts to better align budget resources with 
performance. We began by reviewing agencies' proposed appropriations 
account structures, as shown in Budget of the United States Government, 
Fiscal Year 2004--Appendix and agencies' congressional budget 
justifications. We identified the type of changes made and reviewed the 
extent of changes undertaken. Of the 11 agencies, we identified 9 
agencies that made the most significant changes to their 
budget.[Footnote 113] Consequently, all 9 of these agencies were 
included in our study. 

To help select case study agencies from these nine agencies, we divided 
the agencies into three general groupings based on the type of changes 
made: (1) those with changes to the appropriations account structure 
(VA, NASA, DOJ, DOT); (2) those with changes within the account 
structure at the program activity level (EPA, SBA); and (3) those with 
changes only to the congressional budget justification (Labor, 
Commerce, HUD). 

Within each category, we then judgmentally selected at least one agency 
for case study based on their "status" in the BPI initiative on the 
Executive Branch Management Scorecard and then by the extent of their 
changes. For example, within the group that made or proposed changes to 
their appropriations account structure, we selected two agencies--VA 
and NASA. The final selection of agencies for case studies is outlined 
in table 10. 

Table 10: Agencies Selected for Case Studies: 

Changes to account structure: Department of Veterans Affairs; 
Status/Reason: Selected for case study. 

Changes to account structure: National Aeronautics and Space 
Administration; 
Status/Reason: Selected for case study. 

Changes to account structure: Department of Justice; 
Status/Reason: Not selected for case study/Red light in status. 

Changes to account structure: Department of Transportation; 
Status/Reason: Not selected for case study/Proposed account structure 
changes not agencywide. 

Changes within account structure to program activities: Environmental 
Protection Agency; 
Status/Reason: Selected for case study. 

Changes within account structure to program activities: Small Business 
Administration; 
Status/Reason: Not selected for case study/Based on preliminary review 
it appeared that EPA had made more significant changes. 

Changes to congressional justification only: Department of Labor; 
Status/Reason: Selected for case study. 

Changes to congressional justification only: Department of Commerce; 
Status/Reason: Not selected/Based on preliminary review it appears that 
Labor had made more significant changes. 

Changes to congressional justification only: Department of Housing and 
Urban Development; 
Status/Reason: Not selected/Red light in status. 

Source: GAO. 

[End of table]

As discussed previously, we conducted a general review of the five 
agencies not selected for a case study.[Footnote 114] Because we 
reviewed only a subset of agencies, our study does not provide a 
complete view of all budget restructuring efforts underway in the 
federal government. Likewise, our findings are not generalizable to all 
federal agencies. However, we believe our observations apply more 
broadly across the federal government given their congruence to 
previous work done by GAO and others examining budget and performance 
integration efforts. 

Methodology for Agency and Congressional Interviews: 

To gain information and insights on the rationale for budget 
restructuring, the role the budget plays in broader efforts to improve 
management, the perceived benefits and limitations of budget changes 
for agency management, and the implementation issues associated with 
budget changes, we met with agency officials who were responsible for 
designing and implementing budget changes, including those responsible 
for presenting the changes to Congress. These same officials were also 
able to generally describe how budget restructuring had affected or was 
expected to affect agency management. To get a broader perspective on 
the potential implications of the budget changes for different levels 
of management, we met with program managers at three different program-
level offices within each case study agency. For our study, program 
managers are defined as those below the department level (for VA and 
Labor) or headquarter level (for NASA and EPA) who are responsible for 
formulating and executing a program's budget. Specifically, we spoke 
with directors and officers for budget, planning, and finance. These 
officials described generally how budget restructuring had affected or 
was expected to affect resource management. 

To select the program managers to interview, we mainly relied on 
department or headquarter budget officials' referrals. At each entrance 
conference, we asked agency officials to identify programs or program 
managers who could describe how the budgetary changes have affected 
program management. We indicated that it would be beneficial to talk 
with officials who could speak about how budgetary changes were 
implemented and how management has changed (i.e., experience with the 
budget before and after budget restructuring). In cases where examples 
were provided in initial interviews, we requested that we interview the 
related program officials. 

We also met with an OMB official and some staff to discuss OMB's 
overall objectives and vision for budget restructuring efforts. To 
discuss the potential implications for management and oversight at 
individual agencies, we met with senior staff and program examiners 
from OMB's Resource Management Offices responsible for our case study 
agencies. 

To discuss the potential implications for congressional oversight, we 
met with some House and Senate majority and minority appropriations 
subcommittee staff responsible for our case study agencies and in some 
cases, general review agencies. Although we attempted to meet with as 
many congressional appropriations committee staff as possible, given 
our time frames, the congressional schedule, and the schedules of 
appropriations staff, we were not able to interview all relevant staff. 
We contacted a majority and minority staff member from each of the 
House and Senate appropriations subcommittees with jurisdiction over 
our case study agencies (NASA, VA, EPA, and Labor), and interviewed 10 
staff members on the House and Senate appropriations subcommittees 
responsible for our case study agencies (7 majority staff and 3 
minority staff). In addition, we discussed two of our general review 
agencies--HUD and DOT--with appropriations staff. 

For each set of interviews, we developed a standard list of questions; 
however, we did not perform structured interviews. We tailored the 
questions to each agency because each case study agency had different 
objectives and took different approaches to this initiative. To the 
extent possible, we obtained supporting information, such as internal 
budget guidance and financial management guidelines, to corroborate 
testimonial evidence. We summarized the interviewees' answers and 
identified recurring themes or observations for our analysis. 

Methodology for Panel Discussions: 

To discuss the conceptual benefits and limitations of budget 
restructuring in an interactive setting, we conducted two panel 
discussions, on November 12, 2003, and December 18, 2003, at GAO. We 
invited officials from each of the nine agencies we reviewed to attend 
each panel. Out of the nine agency officials we invited, eight 
participated.[Footnote 115] To help contribute to identifying and 
assessing the implications of budget restructuring for management and 
oversight, we included two federal budget experts in each panel. We 
judgmentally selected four experts who provided expertise in wide-
ranging budget and management issues in both the executive and 
legislative branches. 

Prior to the panel meeting, each participant received a short summary 
of approaches agencies have taken to link resources to results in the 
budget as well as the list of questions to be discussed at the panel so 
they would be aware of our interests and be better able to provide us, 
where possible, with specific examples. Specifically, we asked panel 
participants to discuss: (1) the extent to which the previous budget 
structure and/or presentation impeded efforts to improve management and 
performance, (2) the objectives in making budgetary changes, (3) the 
rationale and the trade-offs agencies faced in determining the approach 
taken, and (4) specific examples of advantages and disadvantages budget 
restructuring had in terms of the information and incentives provided 
for strategic and day-to-day management and the agency's ability to 
communicate to Congress and OMB how resources tie to the agency's 
mission and strategic direction. The panels were intended to supplement 
information gathered in interviews. As with our interview summaries, we 
summarized the panel discussions to identify general themes or 
observations that emerged. 

[End of section]

Appendix II: Department of Labor: 

The Department of Labor (Labor) submitted its first integrated 
"performance budget" for fiscal year 2004, building on earlier efforts 
to better incorporate budget and performance in its performance plans 
and financial statements. Labor introduced uniform changes to its 
fiscal year 2004 congressional budget justification aimed at more 
directly linking budget resources to performance but did not make 
changes to its appropriations account structure. Within its 
congressional budget justification, Labor now presents the "total 
budgetary resources"[Footnote 116] for each program and the supporting 
performance goals. Labor officials we spoke with said they anticipate 
that these changes will support increased use of performance and cost 
information in decision making, but they also noted some areas for 
improvement and limitations. 

Background: 

Labor describes its mission as assisting job seekers, wage earners, and 
retirees by providing for better working conditions, increasing 
training and employment opportunities, securing benefits, improving 
free collective bargaining, and tracking national economic 
measurements. Labor is composed of 15 major bureaus and 
offices[Footnote 117] and employs over 17,000 staff. The department's 
fiscal year 2005 budget request was approximately $57.3 billion. Of 
this amount, approximately $17 billion is subject to the congressional 
appropriations process. The remaining $40 billion is permanent 
authority, which is under the jurisdiction of authorizing committees. 

Labor's strategic management framework is structured around four 
strategic goals--(1) a Prepared Workforce, (2) a Secure Workforce, (3) 
Quality Workplaces, and (4) a Competitive Workforce--and supporting 
outcome and performance goals. Below this level, some bureaus have 
additional, bureau-specific performance goals and may subdivide 
departmental performance goals into bureau-specific performance goals. 
For example, ESA's Wage and Hour Division further breaks down the 
departmental strategic goal for a secure workforce into three bureau-
specific performance goals. Figure 6 provides an example of this 
framework using Labor's Strategic Goal 2, a Secure Workforce. 

Figure 6: Example of Labor's Strategic Framework: 

[See PDF for image] 

[End of figure] 

Within this framework, strategic goals may cross bureaus (e.g., ETA and 
ESA support the Secure Workforce strategic goal) and bureaus may 
support multiple strategic goals (e.g., ETA supports three strategic 
goals: a Prepared Workforce, a Secure Workforce, and a Competitive 
Workforce). Generally, programs and performance goals align with 
bureaus and performance goals are associated with a particular program 
or activity. However, in some cases, multiple programs within a bureau 
support the same performance goal or goals. For example, all seven of 
OSHA's budget activities support the same two performance 
goals.[Footnote 118] As discussed in section 4 of the report, when 
there are multiple contributors and funding streams to strategic goals 
and objectives, determining the performance contributions of programs 
to goals or objectives within the new budget structures is challenging. 

Objectives and Implementation Time Line: 

Labor officials described the objectives of Labor's most recent efforts 
to link resources to performance as providing better cost and 
performance information to users of the budget, including Congress and 
executive branch management, to improve decision making. Labor focused 
on providing better information in the congressional budget 
justification about the department's goals and the budget resources 
needed to achieve them. 

Changing managerial flexibility over budget resources was not one of 
Labor's objectives since this type of flexibility already exists in the 
form of reprogramming and transfer authorities. According to Labor and 
OMB officials, the current appropriations account structure adequately 
aligns its budget resources with the department's management and 
performance structure at this time. Labor's appropriations account 
structure is organized around bureaus with a separate departmental 
administrative account, which, according to Labor officials, generally 
reflects the manner in which Labor conducts its business. Five of 
Labor's seven bureaus are funded through single appropriations 
accounts[Footnote 119] and Labor's reprogramming unit--"programs, 
activities, or elements"--is generally tied to its budget activities, 
which reflect direct and indirect program activities. 

Labor officials and program managers we spoke with said this 
appropriations account structure provides them sufficient flexibility 
over budget resources. For example, BLS officials said each of their 
budget activities (e.g., Labor Force Statistics, Prices and Cost of 
Living) contains the resources (e.g., data processing, analytic work, 
information technology (IT), field support) program managers need to 
manage effectively and they have sufficient flexibility to make 
resource trade-offs within each program. Similarly, ESA officials said 
they have sufficient flexibility to move resources within their five 
program activities (e.g., Enforcement of Wage and Hour Standards, 
Federal Programs for Workers Compensation) and rarely need to shift 
resources among them. While ETA officials noted that the structure of 
their program activities within their appropriations account structure 
is not as flexible as they would like for program management, they said 
their appropriations account structure, in conjunction with existing 
reprogramming and transfer authorities, generally provides the 
flexibility they need to manage effectively.[Footnote 120]

Labor's Efforts Have Progressed Over Several Years and Have Involved 
Staff Integration: 

Labor's efforts to link budget resources and performance in the budget 
progressed over the last several years, building on earlier efforts to 
better link resources to performance in its performance plans and 
financial statements. Figure 7 presents a time line of Labor's key 
efforts to link resources with performance. As the figure shows, Labor 
began linking budget resources to its strategic goals in its fiscal 
year 1999 Annual Performance Plan. Parallel to this effort, Labor began 
linking resources[Footnote 121] to strategic and performance goals in 
its fiscal year 1999 financial statements. For its fiscal year 2002 
Annual Performance Plan, Labor went further by tying budget resources 
to its 10 outcome goals, the level below strategic goals. For its 
fiscal year 2004 congressional budget justification, Labor took steps 
to shift the focus of its congressional budget justification from a 
process orientation to a performance orientation and, for the first 
time, to link "total budgetary resources" to its programs as well as 
strategic and performance goals within the congressional budget 
justification itself. 

Figure 7: Labor's Implementation Time Line: 

[See PDF for image] 

[End of figure] 

To put a more direct focus on results, in fiscal year 2002 the Center 
for Program Planning and Results (CPPR) was established within the 
Office of the Assistant Secretary for Administration and Management. 
According to Labor officials, establishing the CPPR while maintaining 
close integration with the Departmental Budget Center has allowed Labor 
to more effectively provide central coordination, direction, and 
planning on departmental goals and objectives and implement the 
President's Management Agenda component of the Budget and Performance 
Integration initiative. 

Both OMB and Labor officials and staff said the department collaborated 
with OMB to determine how to change the congressional budget 
justification. Labor convened a task force that included OMB staff and 
budget and planning staff from key bureaus within Labor. Another key 
player in implementing these budgetary changes was the department's 
Management Review Board (MRB), which oversees Labor's efforts under the 
President's Management Agenda. The MRB periodically meets with OMB 
leadership and is the overall steering committee for Labor's Budget and 
Performance Integration efforts. 

Summary of Labor's Budget Restructuring Approach: 

As noted, Labor made changes to its congressional budget justification, 
but did not make departmentwide appropriations account structure 
changes. Labor's congressional budget justification changes did not 
change the framework for either its transfer authority and 
reprogramming guidelines or its internal control of funds. For cost 
allocation, Labor uniformly defined "total budgetary resources." 
Bureaus had some discretion over determining how to allocate costs. 

Congressional Budget Justification Changed to Better Link Budget 
Resources to Performance, but No Department-wide Changes Made to 
Appropriations Account Structure: 

Labor redesigned the presentation of its fiscal year 2004 congressional 
budget justification to better link "total budgetary resources" to its 
programs and its strategic and performance goals. Labor continued this 
basic format in fiscal year 2005 with only minor refinements. Labor's 
efforts focused on three areas within its congressional budget 
justification. First, Labor replaced narrative that focused only on 
tasks with narrative that related tasks or activities to outcomes and 
results. Second, "total budgetary resources," including indirect costs 
(e.g., program administration), were shown with the programs they 
support, whereas in the past only some portion of indirect costs was 
shown with programs. Third, steps were taken to link "total budgetary 
resources" to strategic and performance goals. Labor officials said 
these changes were aimed at providing a more complete picture of the 
department's objectives and the budgetary resources associated with 
programs and supporting performance goals. 

Beginning in fiscal year 2004, Labor began replacing task-oriented 
narrative with information explaining the relationship of those tasks 
or activities to anticipated outcomes and results in its congressional 
budget justification. Labor formatted its congressional budget 
justification around the appropriations account structure (basically, 
each bureau or agency) and added a departmental overview section to 
bring every agency's programs and resources together, depicting at a 
higher level the department's intended performance and its resources. 
The departmental overview outlines the Secretary's vision for the 
department; lays out the department's strategic, outcome, and 
performance goals; and includes the budget resources requested to 
achieve its strategic goals. Bureau "performance budgets" include 
appropriations account information, strategic and performance goal 
information, and justifications for "budget activities" funded by those 
accounts. "Budget activities" are generally direct and indirect program 
activities one level lower than the bureau level. In each budget 
activity section, Labor provides a performance summary with the stated 
performance goal and past and planned performance, as well as critical 
strategies to meet those goals. However, according to Labor officials, 
to maintain the approximate size of the budget document, some 
previously reported information was eliminated. For example, 5-year 
funding histories were provided at the appropriations level but were no 
longer included with every budget activity, and some previously 
provided program-specific information was eliminated, such as Job Corps 
construction costs. According to Labor officials, since the submission 
of the fiscal years 2004 and 2005 budget justifications, they have 
worked with congressional appropriations committee staff to address any 
concerns about the elimination of program-specific information. They 
said several exhibits have been reinstated in the fiscal year 2006 
"performance budget," including the 5-year funding histories. 

Under the new format, Labor shows direct and indirect budget resources 
associated with programs. The section for each program in the bureau's 
"performance budget" includes a table that links direct and indirect 
resources to programs. Table 11 shows budget resource tables provided 
in the fiscal year 2005 congressional budget justification for the Job 
Corps program.[Footnote 122] To provide a more complete picture of 
resources associated with the Job Corps program, the fiscal year 2005 
table shows not only the direct program appropriation, but also 
indirect resources including Program Administration and Reimburseable. 
For example, the fiscal year 2005 table provides an estimate of 
approximately $29 million for program administration and $4 million for 
reimburseable--figures not provided with the Job Corps budget request 
prior to the fiscal year 2004 congressional budget justification. 
Resources included in the "Program Admin" row are appropriated in a 
different appropriations account than the other Job Corps program 
resources and are also presented elsewhere in the congressional budget 
justification. 

Table 11: Resource Table Presented in the Fiscal Year 2005 
Congressional Budget Justification for Job Corps: 

Dollars in thousands. 

Job Corps appropriation; 
Fiscal year 2004: $1,537,074; 
Fiscal year 2005 estimate: $1,557,287; 
Difference fiscal year 04/05: $20,213. 

Program admin; 
Fiscal year 2004: $28,670; 
Fiscal year 2005 estimate: $29,496; 
Difference fiscal year 04/05: $826. 

Reimbursables; 
Fiscal year 2004: $4,000; 
Fiscal year 2005 estimate: $4,000; 
Difference fiscal year 04/05: $0. 

Total resources; 
Fiscal year 2004: $1,569,744; 
Fiscal year 2005 estimate: $1,590,783; 
Difference fiscal year 04/05: $21,039. 

FTE[A]; 
Fiscal year 2004: 187; 
Fiscal year 2005 estimate: 187; 
Difference fiscal year 04/05: 0. 

Source: Department of Labor's Fiscal Year 2005 Performance Budget. 

[A] Full-time equivalent: 

[End of table]

The new congressional budget justification format also provided more 
information on the budget resources associated with strategic and 
performance goals. In the overview section of the congressional budget 
justification as well as each bureau "performance budget," Labor links 
budget resources to strategic goals. Beginning in the fiscal year 2004 
congressional budget justification, each program budget request 
includes information on the budget resources of associated performance 
goals. Table 12 presents a "performance goal cost allocation summary" 
from the fiscal year 2005 congressional budget justification for the 
Job Corps program performance goal, "to improve educational 
achievements of Job Corps students, and increase participation of Job 
Corps graduates in employment and education." The summary shows budget 
resources associated with the performance goal listed not only by 
appropriations (program appropriation, other appropriation, and other 
resources), but also by cost type (direct and indirect). The links 
between programs, performance goals, and Labor's strategic goals are 
presented in an appendix to each bureau's "performance budget."

Table 12: Performance Goal Cost Allocation Presented in the Fiscal Year 
2005 Congressional Budget Justification for Job Corps: 

Performance Goal 1.2B[A] Cost Allocation Summary: 

Job Corps appropriation; 
Cost (by type of appropriation)[B]: Resources in 000's: $1,557,287; 
Cost (direct and indirect)[C]: Direct cost of all outputs: Resources in 
000's: $1,585,682. 

Other appropriation: PA; 
Cost (by type of appropriation)[B]: Resources in 000's: $29,496; 
Cost (direct and indirect)[C]: Indirect cost: Resources in 000's: 
$5,101. 

Other resources: Reimbursements; 
Cost (by type of appropriation)[B]: Resources in 000's: $4,000; 
Cost (direct and indirect)[C]: Common Administrative Systems: Resources 
in 000's: N/A. 

Total resources for goal; 
Cost (by type of appropriation)[B]: Resources in 000's: $1,590,783; 
Cost (direct and indirect)[C]: Resources in 000's: $1,590,783. 

Source: Department of Labor's Fiscal Year 2005 Performance Budget. 

[A] Performance goal 1.2B is "To improve educational achievements of 
Job Corps students, and increase participation of Job Corps graduates 
in employment and education." Labor does not list this definition with 
this table, but rather it is listed elsewhere, such as the budget 
activity narrative. 

[B] Labor uses the following definitions: 

Direct Appropriation: Resources directly attributable to a program 
activity, such as employee salaries and travel. 

Other Appropriation: Resources appropriated elsewhere, but whose 
benefits accrue toward the operation of the budget activity. Examples 
include departmental administration, IT Crosscut, and legal and 
adjudication services. 

Other Resources: Resources available for a budget activity, but not 
appropriated. Examples include reimbursements and fee collections. 

[C] See table 13 for definitions and examples of direct and indirect 
costs. 

[End of table]

While the new congressional budget justification is aimed at providing 
a more complete picture of both total budget resources associated with 
goals, these changes were primarily presentational and it was not 
intended that managers be required to execute their budgets based on 
the allocations made to goals. No departmentwide changes associated 
with linking resources to performance were made to the appropriations 
account structure or within the structure to the program activity 
listing in the P&F schedule of the President's Budget Appendix for 
Labor.[Footnote 123] In addition, no changes were made to transfer 
authority, reprogramming guidelines, or internal control of funds. Both 
Labor and OMB officials and staff told us that it was not necessary to 
make departmentwide appropriations account structure changes at this 
time because the current structure adequately reflects the manner in 
which Labor conducts its business and managers have sufficient 
flexibility over resources to manage their programs. 

"Total Budgetary Resources" Is Uniformly Defined at Labor but Bureaus 
Have Discretion Determining How to Allocate Costs: 

Labor defined "total budgetary resources" uniformly across the 
department by issuing guidance on which categories of cost to be 
included. Labor defined three main cost categories: "Direct," 
"Indirect," and "Common Administrative Systems," as shown in table 13. 
A fourth category, "Other Program Mandates," which included costs not 
included in the previous three categories, was not allocated to 
performance goals or programs because, according to Labor, those costs 
were not associated with current performance goals. These costs were 
allocated to strategic goals (e.g., unemployment benefits).[Footnote 
124]

Labor does not allocate certain departmental costs (e.g., the Office of 
the Secretary, Office of the Chief Financial Officer, Office of the 
Assistant Secretary for Administration and Management, some information 
technology expenses, and program evaluation) to performance goals and 
programs. Although Labor officials said they are working toward 
allocating more resources in future iterations of the "performance 
budget," they and OMB staff cautioned that allocating some costs with 
non-material amounts could be of limited benefit. 

Table 13: Labor's Main Cost Categories: Definitions and Examples: 

Cost category: Direct; 
Definition: Costs that can be identified specifically with a particular 
final cost objective; 
Examples: Adult Activities program grant dollars received by states. 

Cost category: Indirect[A]; 
Definition: Costs that are (a) incurred for a common or joint purpose 
benefiting more than one cost objective, and (b) not readily assignable 
to the cost objectives specifically benefited; 
Examples: Departmental management, legal, working capital fund. 

Cost category: Common Administrative Systems; 
Definition: Costs that cut across the department; 
Examples: IT crosscut and legal and adjudication services. 

Source: GAO analysis of internal Labor guidance. 

[A] Internal Labor guidance states that indirect costs are generally 
allocated by direct program funding or FTE. 

[End of table]

While Labor uniformly defined "total budgetary resources" and issued 
guidance on which cost categories to include, bureaus have discretion 
in determining the appropriate method to allocate departmental and 
bureau-level costs to programs and performance goals. Labor centrally 
allocated Common Administrative Systems--costs such as legal and 
adjudication services that cut across the department--to bureaus 
according to standardized methods. Although bureaus were not able to 
negotiate departmental allocations, they did have discretion over how 
to allocate these costs within the bureau. Labor officials explained 
that one bureau's portion of Common Administrative System resources 
might only apply to a specific program within the bureau (i.e., legal 
costs might only apply to the enforcement program of an enforcement 
agency), in which case 100 percent of those funds would be applied to 
that program. In contrast, another bureau's portion of Common 
Administrative Systems might apply to two or more of its programs or 
budget activities, requiring the costs to be spread among them, as 
appropriate. For example, while ESA allocated its share of departmental 
costs to each of its program activities (e.g., Enforcement of Wage and 
Hour Standards), ETA allocated those costs only to its Apprenticeship 
Training, Employer and Labor Services program activity within its 
program administration appropriations account. Labor officials said 
that they did this because, in their view, it did not make sense to 
allocate relatively minor departmental costs among appropriations 
accounts and program activities. 

How bureaus allocate bureau-level costs also differs. For example, ESA 
allocated bureau-level administrative costs to its four program 
activities based on FTEs. BLS allocated IT costs based on number of 
users (e.g., LAN support based on number of personal computers and 
servers in the system for a particular program) and bureau 
administrative costs based on FTEs. While bureaus' cost-allocation 
methods vary, the methods most commonly used are direct funding and 
FTEs. Labor officials also noted that standardized methods for 
allocating costs might not be appropriate--even for agencies that serve 
similar goals--because each bureau is unique.[Footnote 125]

Agency Views on Implications of Budget Restructuring for Management and 
Oversight: 

Labor officials highlighted several benefits resulting from the new 
congressional budget justification. They credited the changes with (1) 
providing better information on the "total budgetary resources" 
associated with programs and performance goals, (2) prompting increased 
attention to overhead costs, and (3) helping increase the focus on 
performance. However, the officials we spoke with also noted some areas 
for improvement and limitations. 

Labor Officials Viewed Congressional Budget Justification Changes as 
Providing More Complete Information on "Total Budgetary Resources" 
Associated with the Department's Programs and Goals: 

Labor officials said that the new budget presentation provides a more 
complete picture of the budget resources associated with programs and 
strategic and performance goals. In their view, because both direct and 
indirect costs are presented with programs and performance goals, 
budget users should be better able to understand the relationship 
between performance and budget resources and thus, make decisions based 
on more complete information. For example, Labor officials said that 
showing direct and indirect costs gives more insight into the 
relationship between program administration costs and goals associated 
with program delivery. Labor officials further explained that looking 
at administrative resources associated with their programs helped ETA 
create a system that is less "siloed" and can serve multiple 
populations more efficiently because redundant administrative costs 
could be redirected to program delivery. ETA proposed to consolidate 
programs, such as the Adult and Dislocated Worker Grants programs, into 
the larger portfolio of Workforce Investment Act training programs. 
This legislative proposal focused on creating a system that wasn't 
"stovepiped" and creates one pot of money to serve multiple 
populations. ETA proposed an appropriations account structure change to 
accommodate the proposed policy and authorization change. Generally 
speaking, however, Labor officials and program managers cautioned that 
it is still too early to fully understand how program managers might 
use information provided under the new budget presentation to improve 
decision making. 

Labor Officials Credited Congressional Budget Justification Changes 
with Prompting Increased Attention to Overhead Costs: 

According to Labor officials we spoke with, changes in the budget 
presentation have increased the attention given to overhead costs. Some 
Labor officials and program managers noted that because these overhead 
costs are allocated to programs, managers have begun to pay more 
attention and raise questions about these costs. For example, BLS 
officials said they have been holding annual meetings with program 
managers to justify bureau-level overhead allocations.[Footnote 126] 
Officials said some allocations, such as retirement, are fixed, while 
others, such as new bureau-level initiatives, may be questioned by 
program managers. In a specific example, BLS officials told us that 
prior to showing total budget resources, recruiting efforts were 
decentralized; both programs and bureau-level staff were conducting 
similar recruiting efforts without coordination, leading to 
inefficiencies. According to BLS officials, the charge for bureau-level 
recruiting costs led bureau and program managers to better coordinate 
and eliminate duplicative efforts. 

Congressional Budget Justifications Changes Credited with Helping 
Increase Focus on Performance: 

According to Labor officials, because budget resources must be tied to 
performance goals and program managers need to justify their programs 
in terms of their contribution to the department's strategic goals, the 
congressional budget justification changes have increased managers' 
focus on the department's performance framework. Labor officials said 
they believe this effort has increased the attention managers give to 
performance issues when preparing their budgets and hoped the change 
will continue to increase the dialogue between bureau-level planning 
and budgeting staff on performance issues. For example, ESA officials 
credited the link between the congressional budget justification and 
performance goals with supporting the development of better, outcome-
based performance goals in the bureau's Wage and Hour 
Division.[Footnote 127] OSHA's performance budget narrative also 
suggests that Labor's new integrated budget and performance 
justification led to the bureau developing new performance goals. 

Some Labor Officials Noted Limitations of the Congressional Budget 
Justification Changes: 

While Labor officials pointed out several benefits as discussed above, 
some areas for improvement and limitations related to the congressional 
budget justification changes were also noted. Some program managers 
questioned the value of showing indirect costs--for which they don't 
have control--for improving program management and noted it is not 
particularly useful to know their share of the department's resource 
allocation.[Footnote 128]

Other officials said that, in some cases, knowing the usefulness of 
total budget resource information depends on the nature of a program's 
activities, and the added value of allocating certain costs should be 
considered. For example, the department allocates a share of its 
central legal costs (Solicitor's Office and Legal and Adjudication 
costs) to each bureau to provide a better picture of the budget 
resources used by each bureau. BLS officials said that because of the 
nature of their operations as a data collection organization and the 
relatively minimal legal costs they incur, it might not be as critical 
for them to know the legal costs associated with its programs. In 
contrast, they said that bureaus such as OSHA and MSHA, designed for 
regulatory purposes with relatively high legal costs, might find such 
information more useful. However, in bureaus such as BLS, legal costs 
are negligible as compared with enforcement agencies such as OSHA and 
MSHA where legal costs contribute significantly to the cost of doing 
business. 

In addition, program officials noted that the provision of total budget 
resources in the congressional budget justification might not provide 
the detailed cost information they need to improve program management. 
For example, some bureau officials said the new budget presentation 
does not provide unit and output/outcome cost information, such as cost 
per program participant, which they say is an important factor in 
providing more effective program management. Although this information 
might be available elsewhere in the agency. 

Future Direction: 

Moving into the future, Labor officials said the department plans to 
continue to use an incremental approach to link resources to 
performance in the budget to ensure that the choices it makes are 
useful for the department and acceptable to Congress. The department is 
focusing its current efforts on refining the allocation of resources to 
programs and performance. Labor officials added that another key and 
complimentary effort is the development of a cost accounting system, 
which they said could improve the budget process, resource allocation, 
and program management. 

[End of section]

Appendix III: Department of Veterans Affairs: 

The Department of Veterans Affairs (VA) budget restructuring efforts 
are intended to meet multiple objectives, including better positioning 
VA to more effectively evaluate program results and allowing managers 
to more readily recognize and make resource trade-offs. Beginning with 
the fiscal year 2004 budget, VA proposed changes to its appropriations 
account structure and made corresponding changes to the organizing 
framework of its congressional budget justification to more readily 
show the "full cost" requested for its nine major programs. VA also 
showed the budget resources associated with its strategic goals and 
objectives in its congressional budget justification and integrated its 
annual performance plan into its congressional budget justification. 
VA's proposed account structure for fiscal years 2004 and 2005 was not 
accepted by Congress. While some VA officials credited budget 
restructuring with providing a more complete picture of total program 
resources and helping to highlight resource trade-offs, some said that 
the proposed account structure might reduce flexibility to respond to 
changing needs and create budget execution difficulties. Some VA 
officials said that budget restructuring did not provide information 
they consider most useful to improving management and oversight. 

Background: 

VA's mission is to serve America's veterans and their families by 
assuring that they receive medical care, benefits, social support, and 
lasting memorials. VA is one of the world's largest health care, 
medical research, and insurance benefits organizations and is divided 
into three administrations: the Veterans Health Administration (VHA), 
the Veterans Benefits Administration (VBA), the National Cemetery 
Administration (NCA), and the staff offices of VA's central office. VHA 
is responsible for providing medical care, educating health care 
professionals, conducting medical research, and serving as a resource 
in the event of a national disaster or national emergency. VBA 
administers six programs: Disability Compensation, Pensions, Insurance, 
Education, Housing, and Vocational Rehabilitation and Employment 
(VR&E). VBA administers the monetary benefits and burial flag portions 
of the burial program, but NCA is responsible for the operations and 
maintenance of veterans' cemeteries and administers the grant program 
for aid to states in establishing, expanding, or improving state 
veterans' cemeteries. VA's budget is split between mandatory (e.g., 
disability compensation benefits, pension benefits) and discretionary 
(e.g., medical care, construction, program administration) spending. 
For fiscal year 2005, VA requested a budget of approximately $67.7 
billion--$35.6 billion in mandatory spending and $32.1 billion in 
discretionary spending. 

VA has five strategic goals--four mission-related goals and one 
administrative goal. Within each strategic goal there are three to five 
strategic objectives, which are supported by one or more of VA's major 
programs. Table 14 uses the strategic goal to restore the capability of 
veterans with disabilities to provide an example of VA's strategic 
framework. Within this goal there are four strategic objectives 
supported by one or more programs. 

Table 14: Example of Relationship between VA's Strategic and 
Programmatic Frameworks: 

Strategic goal 1: Restore the capability of veterans with disabilities 
to the greatest extent possible and improve the quality of their lives 
and that of their families. 

1.1: Maximize the physical, mental, and social functioning of veterans 
with disabilities and be recognized as a leader in the provision of 
specialized health care services; 
Programs: Medical Care; Medical Research. 

1.2: Provide timely and accurate decisions on disability compensation 
claims to improve the economic status and quality of life of service-
disabled veterans; 
Programs: Compensation; Staff Offices. 

1.3: Provide all service-disabled veterans with the opportunity to 
become employable and obtain and maintain suitable employment while 
providing special support to veterans with serious employment 
handicaps; 
Programs: Vocational Rehabilitation and Employment. 

1.4: Improve the standard of living and income status of eligible 
survivors of service-disabled veterans through compensation, education, 
and insurance benefits; 
Programs: Education; Insurance; Compensation. 

Source: Department of Veterans Affairs, FY2005 Budget Submission: 
Summary Volume 4 of 4 (February 2004). 

[End of table]

Objectives and Implementation Time Line: 

VA said the budget structure changes are intended to better position VA 
to more readily determine the "full cost" of each program and thereby 
help VA more effectively evaluate program results. VA officials said 
they also anticipate that budget restructuring would allow managers to 
more readily recognize and make trade-offs between resources, for 
example between capital and operating expenses. Lastly, some VA 
officials said VA's proposed budget structure will provide Congress and 
the American public a better understanding of what VA does. 

VA's budget restructuring efforts have been underway for quite some 
time, as shown in the time line in figure 8. According to VA officials, 
VBA began aligning budget resources, including indirect resources such 
as administration, with its major programs for presentational purposes 
in its fiscal year 1996 congressional budget justification. In 1998, VA 
and the Office of Management and Budget (OMB) established a joint 
working group, including the budget and finance staff from VA's central 
office and administrations, to identify options for account 
restructuring to bring about a closer connection between resources and 
results. VA submitted the Annual Performance Plan volume as a separate 
volume of its congressional budget justification for the first time for 
fiscal year 2000. According to VA officials, all three of VA's 
administrations showed the budget resources associated with their 
programs in the fiscal year 2001 congressional budget justification. In 
fiscal year 2004, VA proposed to restructure its appropriations 
accounts to better align budget resources with its major programs. VA 
also made corresponding changes to the organizing format of its 
congressional budget justification. Congress did not enact the proposed 
account structure and directed VA "to refrain from incorporating 
'performance-based' budget documents in the 2005 congressional budget 
justification" and to submit the justification with the traditional 
appropriations account structure.[Footnote 129] Despite congressional 
objections, VA proposed appropriations account structure changes for 
the fiscal year 2005 budget and also integrated its annual performance 
plan into its congressional budget justification, rather than 
submitting it as a separate volume as it had done previously. Again, 
Congress did not appropriate under the proposed account structure. 

Figure 8: VA's Implementation Time Line: 

[See PDF for image] 

[End of figure] 

Summary of VA's Budget Restructuring Approach: 

For the fiscal years 2004 and 2005 budgets VA both proposed changes to 
its appropriations account structure and made corresponding changes to 
the organizing framework of its congressional budget justification. 
These changes increased the focus on programs and associated resources 
but made information on individual items of expense less apparent. To 
facilitate transition to the new account structure, VA provided OMB and 
Congress with crosswalk tables to assist them in evaluating its budget 
request. In addition, VA proposed new transfer authority for some 
expense items between some program accounts. VA allocates budget 
resources other than Departmental Administration to its nine major 
programs. Different types of resources are allocated differently. 

VA Proposed Appropriations Account Structure Changes for Fiscal Years 
2004 and 2005: 

In its proposed changes to its appropriations account structure for 
fiscal years 2004 and 2005, VA chose to focus the proposed 
restructuring around VA's nine major programs, which are the eight 
direct benefits--Medical Care, Compensation, Pensions, Insurance, 
Education, Housing, VR&E, and Burial--and one indirect benefit--Medical 
Research and Support--that VA provides. The key features of VA's 
proposed appropriations account structure for fiscal year 2004 were: 

* Reducing the number of appropriations accounts by, for example, 
eliminating the medical administration account, two construction 
appropriations accounts, and two grant appropriations accounts. 

* Allocating indirect expense items, including program administration, 
construction, and grants for construction to the program accounts they 
support. 

* Funding a program's mandatory and discretionary components in one 
appropriations account. 

* Continuing to fund departmental administration in a separate account, 
General Administration. 

In VA's enacted appropriations account structure for fiscal year 2003, 
VA's programs were funded by multiple appropriations accounts. Some 
accounts, such as Major Construction or General Operating Expenses 
(GOE), provided resources associated with multiple programs and some 
accounts, such as MAMOE[Footnote 130] and Medical and Prosthetic 
Research, provided resources for only one program. Figure 9 compares 
the enacted appropriations account structure for fiscal year 2003 to 
the proposed appropriations account structure for fiscal year 2004 and 
illustrates how the proposed account structure would consolidate 
resources from multiple accounts and split some appropriations accounts 
among multiple programs. For example, under VA's proposed account 
structure for fiscal year 2004, resources from five appropriations 
accounts that support the medical care program would be consolidated 
and funded through one appropriations account. The GOE account would be 
split among eight appropriations accounts. 

Figure 9: Comparison of Appropriations Accounts Funding Each Major 
Program under Fiscal Year 2003 Enacted Appropriations Account Structure 
and Fiscal Year 2004 Proposed Appropriations Account Structure: 

[See PDF for image] 

Note: Excludes some trust funds, special funds, revolving funds, and 
nonbudgetary accounts. 

[End of figure] 

Despite some appropriations accounts being eliminated, VA is 
maintaining some visibility by showing the different types of resources 
funded within each program account in the program activity listing. For 
example, as shown in figure 10, the Medical Care account's program 
activity listing includes NPA-MAMOE, Major Construction, Minor 
Construction, and Grants to states for construction of extended care 
facilities. As a result, although appropriations accounts for 
construction and administration would be eliminated, the portion of 
VA's construction and administration resources related to a specific 
program could be found within each program account. 

Figure 10: Program Activity Listing: Medical Care Appropriations 
Account: 

[See PDF for image] 

[End of figure] 

VA's proposed appropriations account structure was not accepted by 
Congress for fiscal year 2004. Rather, Congress made different changes 
to VA's account structure. For the most part, VA continued operating 
under the same appropriations account structure. However, appropriators 
created three separate appropriations accounts for Medical Care--
Medical Services, Medical Administration, and Medical Facilities. 
According to appropriations subcommittee staff, the enacted account 
structure was intended to provide a better understanding that 
increasing funding for Medical Care does not necessarily result in an 
equal increase in medical services provided to veterans because there 
is associated infrastructure and overhead to finance. 

VA again proposed to change its account structure for the fiscal year 
2005 budget. The fiscal year 2005 proposed structure differed from the 
fiscal year 2004 proposed structure in that VA proposed separate 
appropriations accounts for the mandatory and discretionary portions of 
some benefits programs (see figure 11). For example, VA proposed 
funding mandatory benefits of the Compensation program in the 
Disability Compensation Benefits appropriations account and the 
associated discretionary spending, including GOE (i.e., program 
administration) and construction in the Disability Compensation 
Administration appropriations account. As in the fiscal year 2004 
budget proposal, VA proposed to fund Departmental Administration in a 
separate account. Again, VA's proposed account structure was not 
enacted for fiscal year 2005 and appropriators used the same account 
structure as used for the fiscal year 2004 budget. 

Figure 11: Comparison of Appropriations Accounts Funding Each Major 
Program under Fiscal Year 2004 Enacted Appropriations Account Structure 
and Fiscal Year 2005 Proposed Appropriations Account Structure: 

[See PDF for image] 

Note: Excludes some trust funds, special funds, revolving funds, and 
some nonbudgetary accounts. 

[End of figure] 

Changes to Congressional Budget Justification Followed Organizing 
Framework Used for Proposed Account Structure: 

For both fiscal years 2004 and 2005, VA changed the organizing 
framework for its congressional budget justification to reflect the 
proposed appropriations account structure framework (i.e., around its 
major programs). For the fiscal year 2003 congressional budget 
justification, budget information within each volume was generally 
organized by appropriations account and then programmatic area. For 
example, within the "Benefits Program" volume, there was a section for 
the Compensation and Pensions appropriations account and a discussion 
of the mandatory portion of three programs it funded. The extent to 
which the program discussion included individual items of expense 
associated with each program varied by administration. VHA's 
administrative budget request was discussed in the same volume as the 
direct program budget request, whereas VBA's administrative budget 
request was discussed in the "Departmental Administration" volume 
separate from the direct program budget. The congressional budget 
justification included one volume devoted solely to Construction 
providing an agencywide summary of the total resources requested for 
construction. The performance plan also was submitted as a separate 
volume of the budget justification. 

Key changes in the fiscal years 2004 and 2005 congressional budget 
justifications were the reorganization of program-related information 
and fuller incorporation of the annual performance plan. VA presented 
the direct program portion of each program and the administrative 
budget request for that program in the same volume for all 
administrations similar to VHA in fiscal year 2003. Also, VA eliminated 
the Construction volume and discussed construction projects along with 
the program-specific budget request. Further, beginning in the fiscal 
year 2005 budget, VA more fully incorporated its annual performance 
plan into the budget justification and no longer submitted it as a 
separate volume. 

As Focus on Programs Increased, Some Previously Reported Information 
Became Less Transparent: 

As the focus on programs increased in VA's fiscal years 2004 and 2005 
budget structure, information on individual items of expense became 
less apparent. For example, we found that total resources requested for 
construction were less transparent in the fiscal years 2004 and 2005 
budgets than in the fiscal year 2003 budget. In fiscal year 2003, total 
Construction for VA was appropriated in two accounts--(1) Construction, 
Major and (2) Construction, Minor--and was shown in a separate volume 
of the congressional budget justification. In contrast, in both the 
fiscal years 2004 and 2005 budget structures, total construction 
resources were allocated to eight of VA's nine major programs and to 
Departmental Administration and the Inspector General.[Footnote 131] 
Further, VA no longer provided a separate volume for Construction in 
its congressional budget justification. 

To facilitate transition to the new account structure, VA provided OMB 
and Congress with crosswalk tables to assist them in evaluating its 
budget request. These side-by-side tables presented VA's budget request 
under both the old and new appropriations account structures. A VA 
official said these tables were designed to assist OMB and 
congressional appropriations committee staff to become more familiar 
and comfortable with the proposed account structure. 

Requests for Transfer Authority Accompany Proposed Account Structure 
Changes: 

VA requested new transfer authority for administrative expenses between 
the Medical Care and Medical Research accounts of up to 5 percent in 
the first year, 2 ½ percent in the second year, and zero percent 
thereafter. Also, VA requested transfer authority for operational 
expenses between Compensation, Pensions, Insurance, Education, VR&E, 
and Burial of up to 10 percent in the first year, up to 5 percent in 
the next year, and zero percent in the third year. VA said that 
transfer authority was needed to facilitate the transition to the new 
appropriations account structure. Additionally, according to VA 
officials, this transfer authority was needed to avoid antideficiency 
violations that might arise for two reasons: (1) estimation 
uncertainties surrounding their allocations of administrative costs and 
(2) changes in benefit claims that might arise due to war or 
legislative changes. 

VA Allocates Budget Resources Other Than Departmental Administration to 
Its Nine Major Programs Using Different Methods to Allocate Different 
Types of Resources: 

VA allocates budget resources to its nine major programs. For the 
fiscal year 2004 budget, resources allocated to and requested by 
program budgets were benefit payments, program administration, 
operations, construction projects, and grants. For example, VA proposed 
that the Medical Care appropriations account include funding for 
medical administration, related Construction projects, related Grants 
to build extended care facilities, as well as the capital and operating 
expenses traditionally funded through this account. VA also proposed 
that VBA's administrative expenses and construction projects be funded 
through separate program appropriations accounts. However, VA did not 
allocate departmental administration to its programs, but rather 
continued to finance these costs in a separate account. 

VA used various methods, ranging from specific projects, full-time 
equivalents (FTEs), workload estimates, and cost accounting system 
estimates, to distribute different types of resources. For example, VA 
officials said construction costs were distributed to the 
administrations on a project basis. For example, resources for the 
construction of new cemeteries were distributed to NCA. VBA distributed 
construction project resources among its programs based on the number 
of program FTEs. VBA considers estimated workload (e.g., estimated 
number of pension, compensation, and burial claims received) and 
associated FTEs to distribute administrative costs among six programs-
-Compensation, Pensions, Education, VR&E, Housing, and Insurance. At 
VHA, physicians' salaries were divided between medical care and medical 
research based on information from its cost accounting system, which 
tracks time doctors spend providing service or conducting research. VHA 
officials questioned the value of distributing certain costs. For 
example, some VHA officials noted that distributing utilities among 
medical care and research is complicated and time consuming and, in 
their opinion, does not necessarily provide benefits commensurate with 
these costs. 

Agency Views on Benefits and Limitations of Budget Restructuring for 
Management and Oversight: 

VA officials credited budget restructuring with providing a more 
complete picture of total program resources and helping to highlight 
resource trade-offs. However, the extent to which resource trade-offs 
could be made might be limited by proposed appropriations language, 
among other things. Some program managers raised concerns that proposed 
appropriations account structure changes would create new problems such 
as reducing flexibility to respond to changing needs and creating 
budget execution difficulties. Lastly, some VA officials said that 
budget restructuring did not provide information they consider most 
useful to improving management and oversight. 

Changes Alter the Framework for Budget Choices: 

VA's budget restructuring efforts sought to increase the focus on 
program resources as a whole, rather than on individual items of 
expense. In doing so, VA's proposed appropriations account structure 
would reframe budget choices and change the nature of resource 
management and oversight. Whereas under the current structure trade-
offs are generally made between similar types of spending, trade-offs 
would be made across all types of spending within a program under the 
proposed structure. For example, under the current structure, if a 
minor construction project cost more than anticipated or a new need 
arose, managers might make trade-offs among other construction 
projects, by for example, deferring another construction project. 
Similarly, a larger than anticipated utility bill might defer other 
operating expenses. Under the proposed structure, however, resource 
trade-offs would be focused within a program among different types of 
spending. For example, managers might defer a new minor construction 
project to cover increased operating expenses once appropriate 
reprogramming requests were approved. 

Changes Provide a More Complete Picture of Total Program Resources and 
Help Highlight Trade-offs: 

According to VA officials, one objective of VA's proposed 
appropriations account structure and congressional budget justification 
changes is to provide a more complete picture of the resources used to 
achieve program performance. VA officials and program managers said the 
budget resources used to achieve program performance goals are not 
readily apparent under VA's current appropriations account structure. 
The burial program, for example, is currently funded by six 
appropriations accounts.[Footnote 132] Performance measures related to 
ensuring that veterans and eligible family members have reasonable 
access to veteran cemeteries are supported by the operating, 
construction, and grant appropriations accounts, which were shown in 
separate volumes of the fiscal year 2003 congressional budget 
justification. VA officials said this format complicated discussions 
about the relationship between the program's performance goals and the 
resources needed to achieve them. VA officials indicated that prior to 
budget restructuring efforts, VA tended to work "in stovepipes" and 
didn't look at all resources used to provide burial services. After 
presenting the burial program's budget resources together, VA officials 
said that budget restructuring provided a better understanding of the 
resources needed to achieve the burial program's performance goals. It 
also helped highlight potential trade-offs among resources used to 
achieve goals (e.g., federal construction projects and grants to states 
to construct veteran cemeteries). A VA program manager also credited 
changes with bringing managers together in a more coordinated manner. 

Ability to Make Resource Trade-offs Under Proposed Budget Structure May 
Be Limited: 

Under VA's proposed account structure, managers potentially would have 
some increased flexibility to make trade-offs within a program between 
individual items of expense including construction or program 
administration without requiring transfer authority. However, according 
to VA officials, several factors may limit a manager's ability to make 
trade-offs, including proposed appropriations language, authorizing 
legislation, and the nature of appropriated funds. For example, for 
both the fiscal years 2004 and 2005 budgets, VA's proposed 
appropriations language for a number of program appropriations accounts 
included a ceiling on construction costs. This ceiling would limit 
managers' ability to make trade-offs between program administration and 
construction; managers could shift funds from construction to 
administration but not from administration to construction.[Footnote 
133] Authorizing legislation, which requires VBA to provide specific 
services, would also limit VBA's ability to make trade-offs among 
programs or within a program between benefits (to which veterans are 
entitled) and operating expenses. Another reason, according to VA 
officials, it would be difficult for managers to make additional trade-
offs is the different nature or periods of time for which appropriated 
funds are available for obligation. For example, construction resources 
are generally available until expended while other resources are 
available for only 1 or 2 years. VA officials said that because 
resources are appropriated with different rules and tracked separately, 
it would be difficult to commingle them. 

Appropriations Account Structure Changes May Create New Resource 
Management Challenges: 

While some officials and managers noted potential advantages of 
appropriations account structure changes for resource management, 
others noted that appropriations account structure changes may create 
new resource management challenges. These concerns were raised in cases 
where budget resources that were previously appropriated in a single 
appropriations account are disaggregated and allocated among multiple 
appropriations accounts to better align with programs and performance. 
The concerns stem, in part, from differences between the proposed 
appropriations account structure and how VA currently operates as well 
as concerns about the ability to accurately allocate resources within 
the new structure. As a result, VA officials we spoke with raised the 
concern that budget restructuring may, among other things, reduce 
flexibility to respond to changing needs and create budget execution 
difficulties. 

For example, some VA program managers raised concerns that the proposed 
account structure might reduce VA's flexibility and ability to manage 
the workload during budget execution to respond to changes in benefit 
claims or performance needs. Under VA's fiscal year 2003 account 
structure, the GOE appropriations account funded administrative 
expenses for all VBA benefit programs. Within this appropriations 
account and within reprogramming guidelines, VBA could shift 
administrative funds among programs throughout the year to address 
performance issues or changes in benefit claims that might arise due to 
war or legislative changes. For example, to meet compensation workload 
goals, VBA sometimes used pension administrative funds to process 
disability compensation claims. In contrast, under the proposed account 
structures for fiscal years 2004 and 2005, the ability to shift 
administrative funds among programs throughout the year would be more 
limited because each program's administrative expenses would be paid 
from separate appropriations accounts. As a result, VA would make trade-
offs within a program among different types of spending. For example, 
if there were a surge in disability compensation claims due to a war or 
change in legislation and VBA had to increase compensation claims 
processing, VBA would have to either reduce other administrative costs 
associated with the disability compensation program, such as travel or 
operating expenses, or would face antideficiency violations.[Footnote 
134] Officials noted that, if the requested transfer authority were 
granted along with the enactment of the proposed account structure, 
possible antideficiency violations would be less of an issue during the 
first 2 years. 

In addition, some expressed concerns that estimation uncertainty 
surrounding the allocations of administrative costs may complicate 
paying administrative expenses and civil servant salaries having 
implications for executing the budget properly and avoiding 
antideficiency violations. For example, at VBA one employee might 
administer benefits from several different programs. Currently, that 
employee's salary is paid from the GOE appropriations account. Under 
the proposed appropriations account structures for fiscal years 2004 
and 2005, a VBA employee's salary would have been paid from more than 
one appropriations account. Splitting a VBA employee's salary among 
three appropriations accounts would require estimating the time the 
employee spent on each program. Similar concerns were raised by VHA 
officials because doctors that spend time providing medical care and 
conducting medical research would be paid through two appropriations 
accounts under the fiscal years 2004 and 2005 proposed account 
structures. VA officials told us that estimation uncertainty 
surrounding the allocations of administrative costs was one reason VA 
requested transfer authority for operational expenses between six 
program accounts. However, this authority was only to be in place for 2 
years. 

Budget Restructuring Does Not Provide Some Information Cited as Useful 
for Improving Management and Oversight: 

Some program managers and appropriations subcommittee staff said 
detailed cost information and performance measures were more important 
for improving management and oversight than the information provided by 
the budget restructuring effort. For example, VBA officials said 
performance information on quality and timeliness informs resource 
allocation decisions in VBA's field offices. Another official said cost 
accounting information could help VHA identify underused medical 
equipment and divert some of its resources to another medical facility 
to help cover costs. Similarly, some appropriations subcommittee staff 
said they needed more detailed cost information than what was provided 
under the proposed account structure. According to appropriations 
subcommittee staff, information such as cost per patient or cost per 
insurance claim was potentially useful in making budget decisions. 
Further, an appropriations subcommittee staff said that improving cost 
and performance information was important to have before moving forward 
with budget restructuring efforts. 

Future Direction: 

VA officials indicated that they plan to continue showing the budget 
resources associated with VA's programs in the congressional budget 
justification and fully integrating the performance plan, but said they 
were unsure at this time how they would proceed with appropriations 
account restructuring. They said that while budget restructuring put 
them in a better position to focus on how resources could be used more 
efficiently to achieve VA's access goals, they did not view the 
appropriations account structure changes as critical to these efforts. 

[End of section]

Appendix IV: Environmental Protection Agency: 

Beginning with the fiscal year 1999 budget, the Environmental 
Protection Agency (EPA) made changes within its appropriations accounts 
and congressional budget justification to better link budget resources 
to strategic goals and objectives. EPA changed its program activities 
within its appropriations accounts to better align with its strategic 
plan. EPA also integrated its annual performance plan into its 
congressional budget justification and restructured the justification 
around its strategic goals and supporting strategic 
objectives.[Footnote 135] However, EPA officials said that partly in 
response to congressional concerns, program information continues to be 
provided in the congressional budget justification. Moving forward, EPA 
plans to continue to make necessary adjustments every three years to 
reflect revised Strategic Plans required under the Government 
Performance and Results Act (GPRA) and to improve performance and cost 
data. 

Background: 

EPA's stated mission is "to protect human health and the environment." 
EPA's work involves five key areas: developing regulations, providing 
financial assistance, conducting environmental research, sponsoring 
voluntary partnerships and programs, and fostering compliance of 
national environmental standards. Much of EPA's work involves the 
provision of grants and other pass-through resources to states, 
localities, and Indian tribes to carry out environmental work. The 
agency is composed of 13 offices[Footnote 136] and employs 18,000 staff 
located in Washington, D.C., regional offices, labs, and other 
facilities located across the country. EPA requested $7.8 billion in 
discretionary budget authority for fiscal year 2005.[Footnote 137]

EPA's strategic plan served as the organizing framework for its budget 
changes. Figure 12 provides a simplified example of EPA's organizing 
framework using the Clean Air and Global Climate Change strategic 
goal.[Footnote 138] Each strategic goal is broken down into a number of 
strategic objectives. Objectives are supported by a number of 
program/projects.[Footnote 139] For example, the Clean Air and Global 
Climate Change strategic goal and the strategic objective, Healthier 
Outdoor Air, are supported by a number of program/projects, including 
the Clean School Bus initiative and Clean Air Allowance Trading 
Programs. Some program/projects may support one or more goals or 
objectives. For example, figure 12 shows that Clean Air Allowance 
Trading Programs support both the Healthier Outdoor Air and Enhance 
Science and Research strategic objectives. The same hierarchy is used 
for each of EPA's five strategic goals. 

Figure 12: Example of EPA's Budget Structure Organized by Strategic 
Goal and Objective: 

[See PDF for image] 

[End of figure] 

Within this framework, strategic goals and strategic objectives, 
appropriations accounts, and program/projects may cross. Figure 13 
shows these relationships. Strategic goals and objectives are supported 
by multiple program/projects, which may be funded by multiple 
appropriations accounts. For example, figure 13 shows the Clean Air 
goal and one of its supporting objectives--Healthier Outdoor Air--are 
funded by five appropriations accounts. Program/projects may also be 
funded by multiple appropriations accounts and, in some cases, support 
multiple strategic goals and objectives. For example, the Homeland 
Security: Critical Infrastructure Protection program/project receives 
funding through three appropriations accounts and contributes to a 
number of strategic goals and objectives. Similarly, appropriations 
accounts generally provide funding for multiple strategic goals and 
objectives. For example, the Environmental Programs and Management and 
Science and Technology appropriations accounts fund all five of EPA's 
strategic goals and their supporting strategic objectives. As discussed 
in section 4 of the report, when there are multiple contributors and 
funding streams to strategic goals and objectives, determining the 
performance contributions of programs to goals or objectives within the 
new budget structures is challenging. 

Figure 13: The Relationship between Strategic Goals and Objectives, 
Program Projects, and Appropriations Accounts: 

[See PDF for image] 

[End of figure] 

Objectives and Implementation Time Line: 

Beginning in the mid-1990's, EPA undertook steps aimed at better 
linking its budget to its strategic plan. EPA officials described the 
previous budget structure as focused on program inputs and lacking the 
strategic vision and consideration of performance to support decision 
making. According to EPA officials, the changes to the budget were made 
to provide a better picture of what EPA is trying to achieve with a 
given level of budget resources and to better incorporate a performance 
perspective in the budget process. 

EPA officials did not view changing managerial flexibility over budget 
resources as one of the primary objectives of EPA's budget changes. EPA 
officials and program managers we spoke with generally did not view the 
appropriations account structure as an impediment to management or as 
posing a barrier to incorporating a performance perspective into the 
budget. For example, some officials and staff from EPA's offices noted 
that although their programs are funded by multiple appropriations 
accounts, they generally have adequate authority and flexibility over 
those budget resources to manage their programs. 

As shown in figure 14, EPA's effort to better link budget resources to 
performance in the budget began in the mid-1990's. In fiscal year 1996, 
EPA created the Planning, Budgeting, Analysis, and Accountability 
(PBAA) process to meet requirements set forth in GPRA and better 
position EPA to focus on results. One of the PBAA's stated purposes was 
improving the link between long-term planning and annual resource 
allocation.[Footnote 140] During fiscal year 1997, EPA undertook 
efforts to better link its budgeting, planning, and financial 
management processes and to integrate relevant staff. Then, for the 
fiscal year 1999 budget, EPA integrated its performance plan within its 
congressional budget justification and restructured its program 
activities and its congressional budget justification to better align 
with its strategic plan. Most recently in its fiscal year 2005 budget, 
EPA modified the program activities within its appropriations accounts 
and its budget justification to reflect changes to its strategic plan. 

Figure 14: EPA's Implementation Time Line: 

[See PDF for image] 

[End of figure] 

Summary of EPA's Budget Restructuring Approach: 

After Congress restructured EPA's appropriations accounts in 1996, EPA 
made performance-related budget changes within its appropriations 
accounts and to the congressional budget justification rather than 
proposing changes to the account structure. Within its appropriations 
accounts, EPA changed program activities to better align with its 
strategic goals. EPA also integrated its annual plan into its 
congressional budget justification and organized the justification 
around strategic goals and objectives. Within the restructured budget, 
budget resources were aligned with strategic goals and objectives. At 
the same time these changes were made to the budget structure, EPA's 
reprogramming guidance also changed. However, partly in response to 
congressional concerns, EPA incorporated additional information to 
assist users, including funding by program and appropriations accounts. 

Some Changes Made to EPA's Appropriations Account Structure in the Mid-
1990s: 

Congress initiated appropriations account structure changes in the late 
1990s that were intended to allow EPA greater flexibility to manage its 
programs. After the release of a 1995 congressionally requested report 
by the National Academy of Public Administration,[Footnote 141] 
Congress restructured EPA's appropriations accounts for the fiscal year 
1996 budget. Specifically, Congress eliminated the Program and Research 
Operations account (which mainly funded administrative expenses, such 
as salaries) and the Abatement, Control and Compliance accounts (which 
funded activities, such as setting environmental standards and issuing 
permits). According to a 1995 conference report, a new Environmental 
Programs and Management account was created in an effort to provide EPA 
with increased flexibility to meet personnel and program requirements; 
it funded most of the items previously funded by the eliminated 
accounts. State categorical grants that were proposed under the 
Abatement, Control and Compliance account were moved to a newly created 
account, State and Tribal Assistance Grants. In addition, a Science and 
Technology account was created for research activities. 

Strategic Goals and Objectives Used as Organizing Framework for 
Appropriations Account Structure and Budget Justification Changes: 

EPA made its performance-related changes to the program activities 
within its existing appropriations account structure and the budget 
justification rather than change the account structure itself. Table 15 
uses the Environmental Programs and Management account to illustrate 
changes made to EPA's program activities since the fiscal year 1998 
budget. Beginning in the fiscal year 1999 budget, EPA changed the 
program activities within its appropriations accounts from programmatic 
and functional areas, such as Pesticides and Support Costs, to 
strategic goals, such as Clean Air and Clean Water. 

Table 15: Program Activity Changes Since Fiscal Year 1998 Budget: 
Environmental Programs and Management Appropriations Account Example: 

Fiscal year 1998 budget: Program activities: 
Air; Water Quality; Drinking Water; Hazardous Waste; Pesticides; 
Radiation; Multimedia; Toxic Substances; Mission and Policy Management; 
Agency Management; Regional Management; Support Costs; Superfund; 

Fiscal year 1999 budget: Program activities: 
Clean Air; Clean Water; Safe Food; Preventing Pollution; Waste 
Management; Global and Cross-border; Right to Know; Sound Science; 
Credible Deterrent; Effective Management; 

Fiscal year 2005 budget: Program activities: 
Clean Air and Global Climate Change; Clean and Safe Water; Land 
Preservation and Restoration; Healthy Communities and Ecosystems; 
Compliance and Environmental Stewardship; Reimbursable program[A]. 

Source: President's Budget Appendix for EPA for fiscal years 1998, 
1999, and 2005. 

[A] This program activity is not a strategic goal. 

[End of table]

The formats for the fiscal years 2000 through 2004 budgets used the 
same basic format as EPA introduced for the fiscal year 1999 budget. 
For the fiscal year 2005 budget, EPA consolidated the number of program 
activities to reflect changes to its strategic plan, which reduced the 
number of strategic goals from 10 to 5. Within each appropriations 
account, budget resources, including indirect office-level and central 
administrative resources, were aligned to strategic goals and 
objectives. Since a strategic goal might have been supported through 
multiple appropriations accounts, the amount shown for a strategic goal 
in any one appropriations account did not necessarily represent the 
total budget resources associated with that goal. 

EPA also made changes to its congressional budget justification. 
Beginning with the fiscal year 1999 budget, EPA integrated its annual 
plan into the congressional budget justification and reformatted the 
justification to better align its budget request with the agency's 
strategic goals and objectives. Previously, EPA's justification had 
been organized with a chapter for each appropriations account and 
sections within each chapter for each EPA office. For example, the 
previous justification contained a Science and Technology chapter, 
which in turn included sections for EPA's offices funded by that 
appropriations account, which was followed by program information. EPA 
staff said that previous congressional budget justifications included 
program elements,which were breakdowns of programmatic areas. For 
example, the Air Toxics program was broken down by several program 
elements, including Air Quality Planning and Standards and Air Quality 
Management Implementation. EPA's reprogramming guidance was tied to 
these program elements. 

For the fiscal year 1999 through 2005 justifications, EPA aligned 
budget resources to strategic goals and objectives. Budget information 
was shown by strategic goals and objectives in both summary tables at 
the front of the congressional budget justification and within chapters 
organized by strategic goal. For example, summary tables at the front 
of the fiscal year 2005 congressional budget justification showed (1) 
budget authority by goal and appropriations account, and (2) budget 
authority by goal and objective. Examples of these tables are shown in 
tables 16 and 17. 

Table 16: Resource Table Presented in EPA's Fiscal Year 2005 
Congressional Budget Justification: Resources by Goal/Appropriation: 

Dollars in thousands. 

Clean Air and Global Climate Change: 

Budget Authority; 
FY2003 Actuals: $882,811.6; 
FY2004 Pres. Budget: $915,983.1; 
FY2005 Pres. Budget: $1,004,615.5. 

Full-time equivalents (FTE); 
FY2003 Actuals: 2,702.6; 
FY2004 Pres. Budget: 2,737.9; 
FY2005 Pres. Budget: 2,756.6. 

Environmental Programs and Management: 

Budget Authority; 
FY2003 Actuals: $416,801.6; 
FY2004 Pres. Budget: $451,848.7; 
FY2005 Pres. Budget: $467,758.4. 

FTEs; 
FY2003 Actuals: 1,919.0; 
FY2004 Pres. Budget: 1,948.8; 
FY2005 Pres. Budget: 1,963.7. 

Environmental Programs and Management-reimbursable: 

FTEs; 
FY2003 Actuals: 1.2; 
FY2004 Pres. Budget: 0.5; 
FY2005 Pres. Budget: 0.6. 

Science and Technology: 

Budget Authority; 
FY2003 Actuals: $197,661.1; 
FY2004 Pres. Budget: $199,500.1; 
FY2005 Pres. Budget: $205,788.5. 

FTEs; 
FY2003 Actuals: 703.2; 
FY2004 Pres. Budget: 702.7; 
FY2005 Pres. Budget: 702.9. 

Science and Technology-reimbursable: 

FTEs; 
FY2003 Actuals: 3.2; 
FY2004 Pres. Budget: 3.0; 
FY2005 Pres. Budget: 3.0. 

Buildings and Facilities: 

Budget Authority; 
FY2003 Actuals: $8,560.5; 
FY2004 Pres. Budget: $8,710.1; 
FY2005 Pres. Budget: $9,387.0. 

State and Tribal Assistance Grants: 

Budget Authority; 
FY2003 Actuals: $252,531.8; 
FY2004 Pres. Budget: $247,750.0; 
FY2005 Pres. Budget: $312,750.0. 

FEMA -reimbursable: 

FTEs; 
FY2003 Actuals: 6.8; 
FY2004 Pres. Budget: 0.0; 
FY2005 Pres. Budget: 0.0. 

Inspector General: 

Budget Authority; 
FY2003 Actuals: $4,198.2; 
FY2004 Pres. Budget: $5,147.0; 
FY2005 Pres. Budget: $5,724.6. 

FTEs; 
FY2003 Actuals: 31.3; 
FY2004 Pres. Budget: 38; 
FY2005 Pres. Budget: 40.9. 

Hazardous Substance Superfund: 

Budget Authority; 
FY2003 Actuals: $3,058.4; 
FY2004 Pres. Budget: $3,027.2; 
FY2005 Pres. Budget: $3,207.1. 

FTEs; 
FY2003 Actuals: 18.7; 
FY2004 Pres. Budget: 17.3; 
FY2005 Pres. Budget: 18.2. 

Working Capital Fund-reimbursable: 

FTEs; 
FY2003 Actuals: 19.2; 
FY2004 Pres. Budget: 27.6; 
FY2005 Pres. Budget: 27.3. 

Source: Environmental Protection Agency 2005 Annual Performance Plan 
and Congressional Justification. 

Note: Strategic goal shown in bold text. Appropriations accounts shown 
in italics. 

[End of table]

Table 17: Resource Table Presented in EPA's Fiscal Year 2005 
Congressional Budget Justification: Resources by Goal/Objective: 

Dollars in thousands. 

Clean Air and Global Climate Change: 

Budget Authority; 
FY2003 Actuals: $882,811.6; 
FY2004 Pres. Budget: $915,983.1; 
FY2005 Pres. Budget: $1,004,615.5. 

FTEs; 
FY2003 Actuals: 2,702.6; 
FY2004 Pres. Budget: 2,737.9; 
FY2005 Pres. Budget: 2,756.6. 

Healthier Outdoor Air: 

Budget Authority; 
FY2003 Actuals: $557,907.1; 
FY2004 Pres. Budget: $579,059.2; 
FY2005 Pres. Budget: $659,876.2. 

FTEs; 
FY2003 Actuals: 1,706.6; 
FY2004 Pres. Budget: 1,751.5; 
FY2005 Pres. Budget: 1,765.9. 

Healthier Indoor Air: 

Budget Authority; 
FY2003 Actuals: $44,299.1; 
FY2004 Pres. Budget: $48,042.5; 
FY2005 Pres. Budget: $48,954.7. 

FTEs; 
FY2003 Actuals: 152.0; 
FY2004 Pres. Budget: 149.9; 
FY2005 Pres. Budget: 153.2. 

Protect the Ozone Layer: 

Budget Authority; 
FY2003 Actuals: $18,145.2; 
FY2004 Pres. Budget: 19,069.4; 
FY2005 Pres. Budget: $21,813.7. 

FTEs; 
FY2003 Actuals: 39.2; 
FY2004 Pres. Budget: 36.1; 
FY2005 Pres. Budget: 36.7. 

Radiation: 

Budget Authority; 
FY2003 Actuals: $30,046.8; 
FY2004 Pres. Budget: $34,858.9; 
FY2005 Pres. Budget: $34,718.0. 

FTEs; 
FY2003 Actuals: 168.1; 
FY2004 Pres. Budget: 185.0; 
FY2005 Pres. Budget: 183.9. 

Reduce Greenhouse Gas Intensity: 

Budget Authority; 
FY2003 Actuals: $99,836.4; 
FY2004 Pres. Budget: $106,936.5; 
FY2005 Pres. Budget: $108,389.3. 

FTEs; 
FY2003 Actuals: 251.3; 
FY2004 Pres. Budget: 244.1; 
FY2005 Pres. Budget: 244.6. 

Enhance Science and Research: 

Budget Authority; 
FY2003 Actuals: $132,577.0; 
FY2004 Pres. Budget: $128,016.6; 
FY2005 Pres. Budget: $130,863.6. 

FTEs; 
FY2003 Actuals: 358.2; 
FY2004 Pres. Budget: 371.2; 
FY2005 Pres. Budget: 372.4. 

Source: Environmental Protection Agency 2005 Annual Performance Plan 
and Congressional Justification (EPA's Proposed Budget). 

Note: Strategic goal shown in bold. Strategic objectives shown in 
italics. 

[End of table]

EPA's fiscal year 1999 through 2005 budget justifications were 
organized by strategic goal. In the fiscal year 2005 congressional 
budget justification, each strategic goal chapter began with a goal 
overview, including a summary table of budget resources for the 
strategic goal broken down by strategic objective and narrative 
describing the supporting strategic objectives and performance goals 
and strategies. A section for each strategic objective followed the 
goal overview. Each strategic objective section contained two main 
tables: (1) a resource summary table that broke down the budget request 
for the objective by appropriations account, and (2) a table that 
listed all of the program/projects and associated resources that 
support the objective. Figure 15 provides an example using the resource 
summary table and the program/project table for the Clean Air and 
Global Climate Change goal and Healthier Outdoor Air objective from the 
fiscal year 2005 congressional budget justification. 

Figure 15: Excerpt from EPA's Fiscal Year 2005 Congressional Budget 
Justification: 

[See PDF for image] 

[End of figure] 

EPA Reprogramming Guidance Change Potentially Provided More 
Flexibility: 

At the same time that EPA made changes within its appropriations 
accounts and congressional budget justification, Congress changed EPA's 
reprogramming guidance to allow funding shifts within strategic 
objectives, although its reprogramming dollar threshold remained the 
same.[Footnote 142] Previously, EPA's reprogramming guidance only 
allowed shifting funds within program elements, which was a tighter 
reprogramming unit than the more aggregated strategic objective unit. 
EPA officials and OMB staff said that the change to the strategic 
objective potentially provides more flexibility to make trade-offs 
among program/projects. 

EPA Showed Budget Resources by Strategic Goals and Objectives: 

As shown in the congressional budget justification, strategic goals and 
objectives included associated budgetary resources, including direct 
costs and indirect costs, such as central planning, facilities 
management, and human resources management. Resources were allocated to 
strategic goals and objectives through the program/projects that 
support them. EPA officials explained that most program/projects 
included direct program resources as well as all office-level 
administrative resources that are directly traceable to 
program/projects such as personnel and travel costs. However, central 
administrative resources were not allocated to program/projects; rather 
these resources were shown as separate program/projects, which were 
then allocated across strategic goals and objectives.[Footnote 143] For 
example, "Central Planning, Budgeting, and Finance" and "Facilities 
Infrastructure and Operations" were program/projects. These types of 
enabling or support programs were aggregated and listed as 
"administrative projects" beneath each objective and were included in 
the budget resources of the strategic goals and objectives they 
support.[Footnote 144]

While the tables within the strategic goal and objectives sections of 
the congressional budget justification included the budget resources--
both direct and indirect--associated with the strategic goal and 
objectives, only the portion of the appropriations account supporting 
the particular strategic goal or objective was included. Similarly, in 
cases where a program/project supported multiple strategic objectives, 
the program/projects listed under strategic goals and objectives 
included only the portion of the program/projects that supported the 
strategic goal and objectives. For example, the Homeland Security: 
Critical Infrastructure Protection program/project supported a number 
of strategic goals (e.g., Clean Air and Global Climate Change, Clean 
and Safe Water) and their supporting strategic objectives (e.g., 
Healthier Outdoor Air, Protect Human Health). The Healthier Outdoor Air 
strategic objective, for example, only included the portion of the 
program/projects associated with that objective. As noted below, EPA 
showed its total budget request by program/project in the back of the 
justification. 

Budget Justification Was Organized Around Strategic Goals but 
Additional Information Was Included to Assist Decision Makers: 

While restructuring its congressional budget justification based on 
strategic goals and objectives, EPA took steps to include additional 
information to assist in congressional decision making. EPA officials 
and staff told us that the focus of congressional interest and 
oversight remained at the program/project level. In response to 
congressional concerns that its fiscal year 1999 budget justification 
lacked program information, EPA included a list of "key programs" in 
its fiscal year 2000 justification. According to EPA officials, the 
list covered approximately 30 percent of EPA's programs at first but 
was later expanded to cover EPA's entire budget request. In its fiscal 
year 2005 congressional budget justification, EPA replaced "key 
programs" with "program/projects," which EPA officials said were a 
refinement because they were created using a more formal process. 
Program/projects covered both programmatic (e.g., Geographic Program: 
Chesapeake Bay) and central administrative functions (e.g., Facilities 
Infrastructure and Operations). EPA included a table providing a 
complete list of program/projects, the appropriations accounts they 
were funded through, and the resource request in the back of the 
congressional budget justification. 

EPA's congressional budget justification also included an 
"Enabling/Support Programs" appendix providing detailed information on 
these support programs, which mainly include central administrative 
functions such as Facilities Infrastructure and Operations, IT/Data 
Management, and Acquisition Management. This appendix was organized by 
office (e.g., Office of Environmental Information, Office of 
Administration and Resources Management) and included each 
enabling/support program's resource request and performance 
information. 

Agency Views on Implications of Budget Restructuring for Management and 
Oversight: 

EPA officials described several benefits or potential benefits of the 
appropriations account and congressional budget justification changes 
and noted some limitations. EPA central office budget staff and program 
managers also emphasized the importance of the agency's efforts to 
improve its financial management system for its performance management 
efforts. 

EPA officials viewed the changes within the appropriations accounts and 
congressional budget justification as enhancing the performance 
perspective initiated under GPRA. EPA officials said that the new 
structure better links budget resources to EPA's strategic plan and 
highlights the program/project funding levels associated with achieving 
goals and objectives. According to EPA officials and OMB staff, the 
current structure focuses on the achievement of goals and objectives 
rather than focusing on individual programs as the pre-fiscal year 1999 
budget did. Specifically, because managers now are required to justify 
their budgets in terms of the agency's strategic direction, some 
credited the changes with increasing understanding of and attention 
given to the agency's strategic and performance management framework. 
This new approach, which requires budget requests to be aligned to 
strategic goals and objectives, was credited by EPA officials with 
providing greater incentives for officials and program managers to 
understand the agency's strategic framework and explain how particular 
program/projects fit within that framework. Some staff credited the 
budget changes with leading to better integration of program/projects 
that support common goals and objectives. EPA officials also noted that 
these efforts have supported greater integration of and collaboration 
among planning and budget staff. 

Although central administrative resources were allocated to strategic 
goals and objectives, EPA officials noted that increasing management 
flexibility to make resource trade-offs among central administrative 
resources or between central administrative and program resources was 
not an objective of budget restructuring. For the most part, staff we 
spoke with said that sufficient flexibility over resources to manage 
programs already existed. An EPA official explained that their 
intention included ensuring that the new structure provided managers 
the ability to implement their programs with at least the same level of 
flexibility as in the old structure. EPA officials said administrative 
resources were allocated to strategic goals and objectives to provide a 
better picture of the resources associated with the achievement of 
those goals and objectives rather than to change the management of 
those resources. 

EPA officials said that budget restructuring helped focus budget 
decisions and resource management at the strategic objective level. EPA 
officials and OMB staff explained that changing EPA's reprogramming 
guidance from allowing funding shifts within specific program elements 
to allowing funding shifts within broader strategic objectives 
potentially provides more flexibility to make trade-offs among 
program/projects to achieve strategic objectives. Along these lines, 
officials from one program office explained that under the old 
structure funding was tied to a number of program elements. Under the 
current structure, EPA officials said that those program elements have 
been changed to program/projects that support strategic objectives. 
Because there are fewer strategic objectives than program elements, 
this change potentially provides managers with greater flexibility than 
previously available to make trade-offs within that objective. EPA 
officials noted that although increased flexibility was not a primary 
objective of the reforms, increased flexibility would be viewed as 
positive. 

While EPA's budget changes were described as supporting EPA's efforts 
to manage based on strategic goals and objectives and could potentially 
provide more flexibility to make resource trade-offs among programs, 
EPA officials also noted some limitations. First, the various 
program/projects that support a particular strategic objective are 
funded from different appropriations accounts, and EPA does not have 
authority to transfer resources between appropriations accounts. 
However, as discussed previously, EPA central office budget officials 
and program managers we spoke with generally did not view the 
appropriations account structure as an obstacle to management or as a 
barrier to incorporating a performance perspective into the budget. 
Secondly, EPA officials and OMB staff noted that much of Congress's 
focus remains on programs rather than on strategic goals and 
objectives. For example, appropriations committee report language for 
EPA specifies funding levels by program. EPA officials noted that they 
incorporate these congressional directives with respect to program 
funding into the operating plan, which may restrict the ability to make 
resources trade-offs among programs. 

Finally, some EPA central office budget officials and program managers 
emphasized the importance of integrating the budget and financial 
management and noted the agency's efforts to improve its financial 
management system.[Footnote 145] According to EPA officials, the agency 
has been implementing a new integrated accounting and budget 
formulation system to increase cost information. EPA officials noted 
that EPA's Integrated Financial Management System (IFMS)[Footnote 146] 
tracks EPA's budget to various levels including strategic goals, 
objectives, program/projects, and activities. Both EPA officials and 
program managers noted the improvements to the financial management 
system as useful to its budget restructuring efforts as well as its 
broader efforts to improve performance management. 

Future Direction: 

In response to congressional direction, EPA has significantly 
restructured its congressional budget justification for fiscal year 
2006 to organize by appropriations account and program, rather than 
strategic goal and objective. EPA continues to provide information on 
strategic goals and objectives in the budget justification, but its 
handled more as a supplement. EPA plans to continue to make necessary 
adjustments every 3 years to reflect revised Strategic Plans required 
under GPRA and to improve cost and performance information. 

[End of section]

Appendix V National Aeronautics and Space Administration: 

The National Aeronautics and Space Administration (NASA) restructured 
its budget to better align budget resources to programs and performance 
in the budget. The budget structure changes are intended to improve 
internal management and provide a better understanding of what it takes 
to do NASA's work. NASA officials said that these changes were part of 
a broader "Full Cost Initiative" and provide not only information but 
also incentives to make decisions on the most efficient use of 
resources. This has been a long-term process--NASA began putting the 
processes and tools in place in fiscal year 1995. NASA incrementally 
changed its appropriations account structure and congressional budget 
justification to support implementation of "full cost" practices and to 
better reflect the relationship of its budget to the Strategic Plan. 
Currently, NASA requests budget authority for the "full cost" of its 
programs and uses different methods to allocate different types of 
resources to its programs. While NASA officials anticipate that budget 
restructuring will support results-oriented management, some 
limitations and concerns were raised. 

Background: 

NASA is the nation's leading organization for research and development 
in aeronautics and space. NASA describes its mission as to understand 
and protect our home planet; explore the universe and search for life; 
and to inspire the next generation of explorers "as only NASA 
can."[Footnote 147] This mission is carried out by a workforce of 
federal employees (about 18,900 full time equivalents) and contract 
employees (over 100,000) in NASA's centers and other facilities across 
the country. NASA's budget has remained relatively constant in real 
terms over the last decade; its fiscal year 2005 budget request was for 
about $16 billion in discretionary funding. 

When preparing the fiscal year 2005 budget, NASA was organized around 
seven Strategic Enterprises, or main programmatic units: (1) Space 
Science, (2) Earth Science, (3) Biological and Physical Research, (4) 
Aeronautics, (5) Education, 6) Space Flight, and (7) Exploration 
Systems.[Footnote 148] Enterprises were composed of one or more themes, 
or groups of programs that could be attributed to related strategic 
goals. For example, the Space Science Enterprise included Solar System 
Exploration, Mars Exploration, and other themes. NASA had 18 themes, 
which were used as the basis for the agency's budget planning, 
management, and performance reporting. Within a theme there were 
multiple theme elements, or programs, that work together to achieve 
strategic goals. For example, the Mars Exploration Theme (within the 
Space Science Enterprise) included the Mars Global Surveyor, the 2003 
Mars Exploration Rovers, and 2005 Mars Reconnaissance Orbiter, which 
all supported NASA's strategic goal to explore the solar system and 
universe beyond. In June 2004 (following the fiscal year 2005 budget 
submission), NASA fundamentally restructured its enterprises into 
Mission Directorates to position the organization to better implement 
the vision set forth in A Renewed Spirit of Discovery, The President's 
Vision for U.S. Space Exploration.[Footnote 149] NASA's fiscal year 
2006 congressional budget justification reflected its new 
organizational framework. 

The relationship between NASA's organizational framework and its 
strategic plan was complex. NASA had 10 strategic goals--7 science-and 
research-related strategic goals and 3 enabling goals. Most strategic 
goals were supported by multiple themes and themes provide primary or 
contributing support to multiple strategic goals. Figure 16 shows the 
relationship between NASA's strategic and organizational framework 
using themes within the Space Science and Space Flight Enterprises. The 
complex relationship may raise challenges for agency efforts to better 
align resources with performance. 

Figure 16: Example of Relationship between NASA's Strategic and 
Organizational Frameworks: 

[See PDF for image] 

[End of figure] 

Objectives and Implementation Time Line: 

According to NASA officials, restructuring the budget to better align 
budget resources with programs and performance is intended to improve 
internal management and provide a better understanding of what it takes 
to do NASA's work. NASA's budget restructuring efforts were part of the 
broader "Full Cost Initiative," which involves changes to accounting, 
budgeting, and management. NASA officials emphasized that the pieces 
all fit together and support one another. The accounting and budgeting 
portions support the management decision-making process by providing 
not only better information, but also incentives to make decisions on 
the most efficient use of resources. According to NASA officials, 
accounting changes alone would not change managers' behavior. NASA also 
needs to budget and manage under "full cost" to realize the anticipated 
benefits of more efficient resource use. Under "full cost" budgeting, 
project managers are both expected to continue to control direct costs 
and have greater control or influence over indirect costs, such as 
service pools and administrative costs. Lastly, by tying resources to 
performance, this initiative is intended to provide internal and 
external parties with information about how programs and resources are 
tied to NASA's mission and strategic plan. 

NASA officials highlighted several limitations to the previous 
appropriations account structure and congressional budget 
justification. Specifically, NASA officials said the previous 
appropriations account structure and congressional budget justification 
did not align resources with its strategic plan and also limited 
program managers' accountability and flexibility to make resource trade-
offs to use resources more efficiently. For example, NASA officials 
said that prior to changing its budget justification it was difficult 
to show how some activities related to its strategic plan. They also 
said that because mission support resources were requested and funded 
in a separate appropriations account than its programs and projects, 
the resources requested may not have reflected the amount needed by 
NASA's programs and projects. In addition, since mission support 
resources were not included in program managers' budgets under the 
previous budget structure, program managers lacked accountability over 
the resources used to achieve performance and had limited ability to 
make resource trade-offs to use resources more efficiently. 
Specifically, whereas project managers had considerable control over 
contractor-supplied hardware and labor prior to budget restructuring, 
they had less control over the number and type of civil service 
personnel assigned to their projects and no control over the cost of 
the assigned personnel and other support costs. As a result, civil 
servants and other support costs appeared "free" to program managers 
and they had less incentive to use those resources efficiently. 

Budget restructuring, including NASA's efforts to better capture the 
"full cost" of its programs in the budget, has been a long-term process 
at NASA. NASA began putting the processes and tools in place in fiscal 
year 1995. (See figure 17.)

Figure 17: NASA's Implementation Time Line: 

[See PDF for image] 

[A] NASA's Full Cost Initiative Agency-wide Implementation Guide 
(February 1999). 

[End of figure] 

NASA implemented the Core Financial Module of the Integrated Financial 
Management Program (IFMP) in fiscal year 2003 with the objective of 
standardizing cost components across the agency. NASA said the 
integrated financial management system was necessary to support 
implementation of "full cost" practices and to submit its first "full 
cost" budget, which it did in fiscal year 2004. 

Despite the progress that has been made, the initiative remains 
relatively new. For example, the "full cost" allocations for 
formulation of the fiscal year 2004 budget was primarily a headquarters 
exercise and the fiscal year 2005 budget was the first budget program 
managers formulated in "full cost." As a result, according to NASA 
officials, program managers have only 1 year's experience with 
budgeting and managing in "full cost," and the agency has not yet 
achieved the complete benefits of "full cost" management. 

Summary of NASA's Budget Restructuring Approach: 

Beginning with the fiscal year 2002 budget, NASA incrementally changed 
its appropriations account structure and congressional budget 
justification to support implementation of "full cost" practices and to 
better reflect the relationship of its program budgets to the agency's 
strategic plan. The organizational framework of NASA's congressional 
budget justification followed its appropriations account structure and 
provided budget information by enterprises, themes and programs. 
Changes to its appropriations account structure and congressional 
budget justification were accompanied by changes to transfer authority 
and proposed changes to reprogramming guidelines. The extent of the 
linkage between resources and performance has progressed over time and 
now NASA links budget resources to its programs and projects within 
themes and enterprises. NASA uses different methods to allocate 
different types of resources. 

NASA's Appropriations Account Structure Changes Began in Fiscal Year 
2002: 

The first step in NASA's incremental changes to its appropriations 
account structure was made in the fiscal year 2002 budget. That year, 
NASA proposed to eliminate its mission support appropriations account 
and Congress accepted the account structure change. (See figure 18.) 
NASA spread the budget resources for research, program management, and 
Construction of Facilities (CoF) to NASA's mission-related accounts--
(1) Human Space Flight and (2) Science, Aeronautics, and Technology. No 
major changes were proposed or made to the appropriations account 
structure for fiscal year 2003. 

Figure 18: NASA's Appropriations Account Structure Incrementally 
Changed between Fiscal Years 2001 and 2005 to Reflect Organizational 
Framework: 

[See PDF for image] 

(R)= Renamed. 

[A] Although listed as a separate program activity like enterprises, 
Crosscutting Technology is a component of the Aeronautics Enterprise. 

Note: Accounts funding the Office of Inspector General and Trust Funds 
excluded because those resources were not allocated to NASA's programs 
or projects. 

[End of figure] 

In fiscal year 2004, NASA further refined its appropriations account 
structure and program activity listing within the accounts. NASA 
created two mission-related appropriations accounts--(1) Science, 
Aeronautics and Exploration (SAE) and (2) Space Flight Capabilities. 
Within these appropriations accounts, NASA also changed the program 
activity listing in the program and financing (P&F) schedule of the 
President's Budget Appendix to better align with NASA's enterprises. 
For example, between the fiscal years 2002 and 2004 budgets the Space 
Station and Space Shuttle program activity lines were combined to form 
the Space Flight program activity line (see figure 18). 

For the fiscal year 2005 budget, NASA's basic structure remained the 
same; however a new program activity line, Explorations Systems, was 
added to the Exploration Capabilities (formerly called Space Flight 
Capabilities) account. The new program activity line reflected NASA's 
newly created enterprise that was added to better align with the new 
vision for space exploration. 

Changes to the Budget Justification Followed Account Structure 
Organizing Framework: 

NASA also changed its congressional budget justification and more fully 
incorporated the annual performance plan into its budget justification 
beginning with the fiscal year 2004 budget. In the congressional budget 
justification, NASA provided budgetary information by appropriations 
account, enterprise, themes, and then program and projects that compose 
them. For example, in the fiscal year 2005 budget justification, within 
the chapter for the Exploration Capabilities appropriations account, 
there was discussion and presentation of budgetary information for the 
Space Flight Enterprise, followed by the International Space Station 
and Space Shuttle Program Themes. Within themes, the supporting 
programs and the associated budget resources were shown. Within the 
Space Shuttle Theme, NASA provided the budget resources associated with 
Shuttle programs such as Ground Operations, Flight Operations, Flight 
Hardware, and the Service Life Extension Program. 

NASA linked its themes to its strategic plan within the congressional 
budget justification. Each theme was linked to one or more of NASA's 10 
strategic goals. Themes, and the programs and projects that support 
them, were also linked to NASA's strategic objectives and annual 
performance goals. While resources could be linked to strategic goals, 
objectives, and performance goals through the themes, NASA did not show 
the "full cost" of strategic goals, objectives, and performance goals 
in the budget justification. For example, in the fiscal year 2004 
congressional budget justification, NASA showed the Space Shuttle 
Program Theme supported some mission-related goals, but it primarily 
contributed to the enabling strategic goal "to ensure the provision of 
space access and improve it by increasing safety, reliability, and 
affordability." This goal was also supported by other themes in the 
Space Flight and Aeronautics Enterprises. The dollar contribution of 
the Space Shuttle Theme was not distinguishable and the "full cost" of 
activities supporting that goal was not provided. 

Some Previously Reported Information Less Transparent or No Longer 
Included: 

As the focus on programs or how programs fit together to support the 
agency's strategic and performance framework increased in NASA's budget 
structure, information on individual program elements or items of 
expense became less apparent. For example, in the fiscal year 2003 
appropriations account structure, the Space Station and the Space 
Shuttle program were two program activities listed in the P&F schedule 
of the Human Space Flight account. Beginning with the fiscal year 2004 
budget, when NASA changed its program activity listing to align with 
its enterprises, the budget resources associated with the Space Station 
and the Space Shuttle Program Themes (and the programs or projects that 
compose them) were combined into one program activity line labeled 
"Space Flight" within the Space Flight Capabilities account. As a 
result, the resources requested for the Space Station and Space Shuttle 
programs were no longer transparent in the program activity listing of 
the President's Budget Appendix for NASA. 

Some resources were also less transparent in the fiscal years 2004 and 
2005 congressional budget justifications. Specifically, there was less 
information on program elements and direct and indirect cost components 
were not clearly delineated in the fiscal years 2004 and 2005 budget 
justifications. In the fiscal year 2003 congressional budget 
justification, one could see the distribution of Space Shuttle 
resources among various programs, such as Flight Hardware and Program 
Integration. Beneath these programs, NASA provided information on 
program elements. For example, for Flight Hardware, NASA showed the 
resources requested for external tank production, main engine 
production, and main engine test support. These program elements and 
the associated budget resources were not visible in the fiscal years 
2004 and 2005 budget justifications. Direct and indirect cost 
components were also less transparent in the fiscal years 2004 and 2005 
budget justifications. Under NASA's old congressional budget 
justification format, program budgets included only direct procurement 
costs and indirect costs were budgeted separately. While decision 
makers and other budget users could not see all the resources 
associated with operating the programs prior to the fiscal year 2004 
budget, they could clearly distinguish between direct and indirect 
resources. Under the restructured congressional budget justification, 
the direct and indirect cost components associated with NASA's programs 
were combined and not clearly delineated. 

Supporting information on NASA's institutional resource request was 
provided in supplemental tables in NASA's fiscal years 2004 and 2005 
congressional budget justifications. These tables provided information 
on general and administrative resources by center (i.e., Center G&A); 
direct travel and personnel in each center; full-time equivalents 
(FTEs) by center; and headquarter and agencywide general and 
administrative resources (i.e., Corporate G&A). They also provided 
information on CoF projects by center. 

Changes to Transfer and Reprogramming Authority Accompanied Budget 
Structure Changes: 

NASA's budget structure changes were accompanied by new transfer 
authority. Beginning with fiscal year 2002, NASA's mission support 
account was eliminated and the resources were allocated to its two 
mission appropriations accounts. Since then, NASA has been funded 
mainly by two appropriations accounts and has had transfer authority 
for administrative services, including federal salaries and benefits, 
training, travel, and facilities funding between these appropriations 
accounts. The legislation said this transfer authority was granted "to 
ensure the safe, timely, and successful accomplishment of 
Administration missions."[Footnote 150] NASA officials said this 
additional flexibility was needed because there is an inherent 
difficultly in estimating program resources because staff divide their 
time among multiple programs. 

In fiscal year 2004, NASA also requested that congressional 
appropriations committees change its reprogramming guidelines. 
Currently, NASA's reprogramming guidelines allow managers to shift 
funds among and within programs or other line items presented in the 
congressional budget justification up to certain dollar thresholds 
specified by appropriations committees without first notifying 
them.[Footnote 151] NASA requested that it be allowed to shift funds 
within and among its 18 themes (rather than programs) without the 
requirement to notify Congress first. NASA also asked that they 
increase the dollar threshold for such reprogrammings to $10 million. 
NASA said this change would provide theme managers additional 
flexibility during budget execution to make trade-offs between programs 
and projects within a theme that support a common goal. They saw it as 
is important to not only properly align resources with performance but 
also to allow for the most efficient use of resources within a theme. 
Currently, if additional funds are needed throughout the year, program 
managers must shift resources within that program. Under the proposed 
reprogramming guidelines, additional costs that arise throughout the 
year could be offset by reducing another program's costs within the 
same theme. Congress, however, did not change NASA's reprogramming 
guidelines for fiscal years 2004 or 2005 and they continue to be 
generally tied to programs.[Footnote 152]

NASA Requested Budget Authority for the "Full Cost" of Programs: 

The extent of NASA's resource linkage has progressed over time. 
Beginning in fiscal year 2002, NASA allocated mission support resources 
to its program appropriations accounts. In the fiscal years 2004 and 
2005 budgets, NASA allocated all budget resources (except the Inspector 
General's office) to the more detailed program/project level and 
combined program resources to show the budget resources associated with 
themes and enterprises. Program budgets include direct program costs, 
including procurement and personnel as well as a share of general and 
administrative costs from NASA's centers (Center G&A) and from NASA 
headquarters (Corporate G&A). Resources for the use of service pools, 
or centralized infrastructure, such as wind tunnel services and 
information technology, are also allocated to program budgets. Table 18 
describes these costs allocated to and requested by program budgets in 
more detail. 

Table 18: Cost Definitions and Examples: 

Cost type: Direct; 
Definition: Direct costs that can be related or traced to a specific 
project at the time costs are incurred; 
Examples: 
* Purchased goods and services; 
* Contracted support; 
* Direct civil service salaries/benefits/travel. 

Cost type: Service pool costs; 
Definition: Infrastructure capabilities supporting multiple program and 
projects at NASA centers that can be linked to programs and projects 
based on usage or consumption; 
Examples: 
* Facilities and related services; 
* Information technology; 
* Science and Engineering; 
* Fabrication; 
* Test Services; 
* Wind Tunnel Service. 

Cost type: Center G&A; 
Definition: Indirect costs from NASA's centers that are not related to 
specific programs and projects; 
Examples: 
* Center director and other indirect civil service 
salaries/benefits/travel; 
* Center training and awards; 
* Security; 
* Grounds maintenance; 
* Library; 
* Human resources department; 
* Medical services. 

Cost type: Corporate G&A; 
Definition: NASA headquarter operating costs and agencywide G&A costs 
(costs of corporate G&A function performed at NASA centers on behalf of 
the agency); 
Examples: 
* NASA administrator and immediate staff; 
* Enterprise level/management; 
* Headquarters Operations management. 

Source: NASA's fiscal year 2005 budget justification. 

[End of table]

Allocation Methods Vary Among Different Types of Resources: 

NASA uses different methods to distribute different types of resources. 

* Service Pool resources are funded by a specific program based on 
usage. The rate for its use is determined by the operating cost of the 
facility or function and the units of consumption. 

* Center G&A are distributed to programs operating in each center based 
on the number of direct and service pool FTEs and on-site contractors 
that work on a program or project. 

* Corporate G&A are distributed to programs based on the program's 
share of NASA's total direct and indirect costs. 

According to NASA officials, NASA's cost allocation methods have been, 
and may continue to be, refined. 

Agency Views on Implications of Budget Restructuring for Management and 
Oversight: 

NASA officials anticipate that budget restructuring to better align 
budget resources with programs and performance will support results-
oriented management by helping managers identify and address 
underutilized assets and by providing managers with information and 
incentives to recognize and make resource trade-offs. However, because 
this initiative is still relatively new, NASA officials said it is too 
early to see the full benefits of its budget restructuring efforts. 
Concerns were raised that the budget structure changes may, among other 
things, reduce flexibility to respond to changing needs or adversely 
affect the balance between maintaining institutional capacity and 
operational efficiency. 

Budget Restructuring Credited with Increasing Information and 
Incentives to Recognize and Make Resource Trade-offs; However, Trade-
offs Would Be Limited: 

NASA officials credited budget restructuring with providing managers 
the information and incentives to recognize and make resource trade-
offs. Before budget restructuring, program managers' budgets only 
included procurement dollars and not the cost of civil servant salaries 
or use of central facilities. NASA officials said that, as a result, 
civil servants and central facilities appeared "free" to program 
managers. Under NASA's restructured "full cost" budget, all costs 
associated with a program are included in program managers' budgets, 
and NASA officials said that they view this change as making program 
managers more accountable for these resources. As a result, managers 
are more likely to pay attention to these costs and have greater 
incentives to use civil servants' time more efficiently. In addition, 
given that programs are allocated a portion of central administrative 
costs, NASA officials noted that program managers are paying more 
attention to and questioning these costs, which in turn increases 
pressure on headquarters and centers to reduce costs. 

Changes to NASA's appropriations account structure and congressional 
budget justification would facilitate resource trade-offs. As discussed 
earlier, NASA's mission support account was eliminated and resources 
for mission support are now funded through NASA's two mission-related 
appropriations accounts. Under this new structure, managers can make 
trade-offs between direct program and mission support resources. In 
addition, changes to NASA's congressional budget justification have, in 
effect, increased NASA's ability to move funds within appropriations 
accounts during budget execution. For example, within the Flight 
Hardware program in the fiscal year 2003 congressional budget 
justification, resources were tied to program elements, such as 
external tank production, main engine production, and main engine test 
support. These items and their costs are not shown in the fiscal years 
2004 and 2005 congressional budget justifications. According to NASA 
officials, because reprogramming is essentially tied to any line item 
in the congressional budget justification, aggregating programs and 
providing less detailed information on program elements in the budget 
justification provides NASA with more flexibility to make resource 
trade-offs among program elements. As a result, managers have more 
flexibility to move resources among these program elements during 
budget execution. 

While NASA's restructuring changes provide some additional resource 
trade-offs, internal management controls and reprogramming guidelines 
limit other trade-offs. NASA officials said that flexibility is limited 
by the fixed-cost nature of services and labor. In particular, resource 
trade-offs among items of expense, such as general administration and 
civil personnel salaries, are limited during budget execution. NASA 
officials told us that during budget formulation, all resources within 
a program (excluding center and corporate G&A) are interchangeable, but 
during budget execution trade-offs among resources for civil servants 
and other resources are limited because contract agreements are 
established for some services and civil service regulations must be 
followed. Also, while NASA restructured its budget to help manage at 
the more aggregated theme level (e.g., Space Shuttle), its 
reprogramming unit remains tied to its programs (e.g., Flight Hardware, 
Ground Operations). This limits the resource trade-offs that can be 
made among programs within a theme. For example, NASA cannot make 
resource trade-offs (above the reprogramming threshold) between Flight 
Hardware and Ground Operations within the Space Shuttle Theme without 
notifying Congress first. 

Budget Structure Changes May Create New Resource Management Challenges: 

At NASA, views differed about the potential implications of the budget 
structure changes for managers' ability to respond to changing needs. 
Some program managers expressed concerns that the changes could limit 
their ability to respond to staffing uncertainties. Under NASA's 
previous budget structure, program budgets were not charged for civil 
servants working on their projects and staffing uncertainties were 
covered in center budgets. A program needing additional staff would 
request them from the center, which retained additional FTEs. Under the 
new budget structure, civil servants and the associated budget 
authority are requested and funded through program budgets. Some NASA 
program managers expressed concern that they might not be able to deal 
with an unexpected increase in workload because NASA program managers 
will have to come up with the money to pay for the civil servants, 
which might limit the extent to which they can shift budget resources 
among programs. Another program manager, however, suggested that since 
control over civil servants has moved from center managers to program 
managers, "full cost" budgeting would reduce some "red tape" in dealing 
with sudden needs or emergencies and that as a result, program managers 
could move FTEs more quickly. 

An official stated that NASA addressed these concerns and issued a 
policy statement describing how unexpected staffing needs would be met. 
If a program needed additional FTEs, program managers could obtain 
additional staff from other projects or from the center's "Workforce in 
Transition." The costs for the program receiving the staff would 
increase, and the program providing staff would have funds available to 
hire more staff or could carry over its excess funding to the following 
year. If NASA management determined cost increases were legitimate, the 
costs would be funded most likely from center reserve funds.[Footnote 
153] If they determined the increased costs are not legitimate, they 
would not be funded and the program would need to reconfigure its 
budget by negotiating resources with other programs. In either case, 
funds would move in accordance with current policies surrounding 
changes to operating plans or NASA management practices. 

Allocation of Service Pool Costs to Programs Credited with Providing 
Better Information and Incentives to Identify and Address Underutilized 
Assets: 

According to NASA officials, aligning budget resources with programs or 
projects provides the information and incentives to identify and 
address underutilized assets. Prior to the changes, central 
administrative facilities, such as service pools, were shown and 
budgeted for separately from the programs that used them. Now these 
resources are allocated to NASA's programs and included as part of 
program budgets based on use. NASA officials credited this approach 
with making underused assets more visible because if a service pool or 
other asset's costs were not covered by programs, questions would be 
raised about whether that asset or capability is needed. NASA officials 
also explained that when program managers are responsible for paying 
service pool costs associated with their program, program managers have 
an incentive to consider their use and whether lower cost alternatives 
exist. As a result, NASA officials said "full cost" budgeting provides 
officials and program managers with a greater incentive to improve the 
management of these institutional assets. 

Some NASA program managers raised concern that the budget structure 
changes might affect the balance between maintaining strategic or 
institutional capacity and creating incentives for operational 
efficiencies. Specifically, some expressed concerns that NASA's changes 
created incentives that could over time erode the agency's commitment 
to institutional assets such as central facilities and service pools. 
Under the new structure, budget authority for institutional assets are 
allocated to and requested by program budgets. The rate used to charge 
program budgets is determined by the operating cost of the facility and 
the units of consumption. As a result, a declining number of users can 
lead to increasing service charges for others using centers or service 
pools. Some speculated that this could in turn lead to a "death spiral" 
as increasing user charges drive out other programs, resulting in even 
higher user charges. Consequently, assets not adequately covered by 
user charges might be eliminated even though they might be valuable to 
the institution as a whole. 

A NASA official told us, however, that NASA would remain committed to 
assets considered by agency management to be important for achieving 
NASA's mission even if they are underused. The costs of underused 
assets determined to be of institutional value could be absorbed by the 
programs using the asset, funded by general administration, which is 
allocated across all program budgets, or by directing other work 
activities to the asset. Further, the NASA official said "death 
spirals" are unlikely to occur at centers in the short term for two 
reasons: (1) center directors have some control over where 
program/projects do their work and (2) program managers must execute 
the budget within the commitment made about resources and results 
during budget formulation, including the use of centers. However, the 
NASA official said, the "death spiral" phenomenon may be more likely 
with some service pools, such as fabrication shops. 

Budget Restructuring Not Intended to and Will Not Address Some Key 
Performance Issues: 

One objective of NASA's recent budget restructuring efforts is to 
provide better information and incentives to help managers focus on 
efficiency and effectiveness. However, budget restructuring alone does 
not necessarily provide some cost and performance information cited by 
some NASA officials and program managers as most useful in advancing 
results-oriented management and addressing some key management 
challenges. NASA program managers we spoke with said budget 
restructuring would not help reduce or limit cost overruns, which has 
been a key performance issue.[Footnote 154] They said they need more 
detailed cost information on contract cost components, including labor 
and materials, or at the task level to monitor contractor performance. 
In contrast, the information provided by budget restructuring--total 
program cost--is more aggregate than the data needed to monitor and 
improve contract management. Others noted that efforts, including 
developing improved performance measures and metrics, have a much 
greater impact on results-oriented management than budget 
restructuring. 

Future Direction: 

While the accounting and budget aspects of the "full cost" initiative 
have been implemented, the more difficult management aspect lies ahead. 
NASA officials said it may take a few more years to see the full 
benefits of the "full cost" initiative at NASA. 

[End of section]

Appendix VI: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Susan J. Irving, (202) 512-9142: 

Acknowledgments: 

In addition to the person mentioned above, Mark Keenan, Elizabeth 
McClarin, James Whitcomb, and Melissa Wolf made key contributions to 
this report. 

(450217): 

FOOTNOTES

[1] GAO has done constructive reviews of GPRA and various executive 
branch efforts to improve performance and accountability. See, for 
example, Results Oriented Government: GPRA Has Established a Solid 
Foundation for Achieving Greater Results, GAO-04-38 (Washington, D.C.: 
Mar. 10, 2004) and Performance Budgeting: Observations on the Use of 
OMB's Program Assessment Rating Tool for the Fiscal Year 2004 Budget, 
GAO-04-174 (Washington, D.C.: Jan. 30, 2004). 

[2] In addition to budget and performance integration, the other four 
priorities under the PMA are strategic management of human capital, 
expanded electronic government, improved financial performance, and 
competitive sourcing. 

[3] For a more detailed discussion of these initiatives, see GAO, 
Performance Budgeting: Past Initiatives Offer Insights for GPRA 
Implementation, GAO/AIMD-97-46 (Washington, D.C.: Mar. 27, 1997). 

[4] The term "program activity" refers to the listings shown in the 
Program and Financing (P&F) schedule of the Appendix portion of the 
Budget of the United States Government. Program activity structures are 
intended to provide a meaningful representation of the operations 
financed by a specific budget account usually by projects, activities, 
or organization. 

[5] GAO, Budget Account Structure: A Descriptive Overview, GAO-AIMD-95-
179 (Washington, D.C.: Sept. 18, 1995). 

[6] OMB and other agencies use terms such as "full cost" and "total 
budgetary resources" that in most cases refer to the alignment of 
requested budget authority with programs and performance. However, some 
may interpret these terms differently. Thus, when we use terms "full 
cost" and "total budgetary resources" we place them in quotations. 

[7] In this report "performance budget" refers to congressional budget 
justifications that are structured around agency strategic and 
performance goals and not to any process or approach in which resource 
allocation decisions are being more generally linked to performance. We 
place "performance budget" in quotations because different users may 
interpret the term differently. 

[8] Nine agencies were selected out of 26 federal departments and 
agencies receiving scores in the Executive Branch Management Scorecard 
in the President's fiscal year 2004 budget. 

[9] The Executive Branch Management Scorecard is a traffic-light 
grading system to report how well federal agencies are implementing the 
PMA's five governmentwide initiatives. 

[10] We selected two agencies--VA and NASA--within the group that made 
or proposed changes to their appropriations account structure. 

[11] When we initiated our study and chose agencies for review in May 
2003, no agency had achieved a green light for "status"--or met all of 
the administration's standards for success--in implementing the BPI 
initiative. Since then, eight agencies have achieved green lights, 
including four in our review--NASA, Labor, DOT, and SBA. All agencies 
in our review have a green light for progress. 

[12] Budget authority is authority provided by law to enter into 
financial obligations that will result in immediate or future outlays 
involving federal government funds. 

[13] Congress, specifically the appropriations committees, establishes 
appropriations accounts to facilitate congressional allocation and 
oversight responsibilities. The President's budget generally reflects 
these appropriations account structures, but the executive branch may 
propose changes to the structure. 

[14] Transfer authority is specifically authorized by law and allows 
shifting all or part of the budget authority provided in one 
appropriations account to another. Reprogramming is shifting funds 
within an appropriations account to use them for different purposes 
than those contemplated at the time of appropriation. Sometimes 
committee oversight of reprogramming is prescribed by statute requiring 
that the agencies either notify or consult with the appropriate 
congressional committees when reprogramming funds that have certain 
program impacts or are above a certain threshold. 

[15] This refers to changes made up through EPA's fiscal year 2005 
budget justification. For fiscal year 2006, EPA restructured its budget 
justification so that it is organized by appropriations account and 
program/project. 

[16] Service pools are infrastructure capabilities that support 
multiple programs and projects. 

[17] House Committee on Appropriations Report 108-674, Departments of 
Veterans Affairs and Housing and Urban Development, and Independent 
Agencies Appropriations Bill, 2005 (Sept. 9, 2004), p. 91; 
Senate Committee on Appropriations Report 108-353, Departments of 
Veterans Affairs and Housing and Urban Development, and Independent 
Agencies Appropriations Bill, 2005 (Sept. 21, 2004), p. 111, and H.R. 
Conf. Rep. No. 108-792, p. 1597 (2004). 

[18] House Committee on Appropriations Report 108-671, Departments of 
Transportation and Treasury and Independent Agencies Appropriations 
Bill, 2005 (Sept. 8, 2004), p. 5. 

[19] According to our analysis, over 50 percent of EPA's budget is 
dedicated to specific programs. 

[20] GAO, Financial Management: FFMIA Implementation Necessary to 
Achieve Accountability, GAO-03-31 (Washington, D.C.: Oct. 1, 2002). 

[21] For purposes of this report, the term budget restructuring is used 
to describe changes to budget structures and measurement to better 
align budget resources with programs and performance. Budget 
restructuring involves both (1) alignment: structural and format 
changes to congressional budget justifications, and in some cases, 
appropriations accounts to better align budget resources with programs 
and performance; and (2) "full cost: " changes to the way certain 
budget resources are distributed or measured to better reflect where 
and when resources are consumed. 

[22] GAO has engaged in constructive reviews of GPRA and various 
executive branch efforts to improve performance and accountability. 
See, for example, Results Oriented Government: GPRA Has Established a 
Solid Foundation for Achieving Greater Results, GAO-04-38 (Washington, 
D.C.: Mar. 10, 2004) and Performance Budgeting: Observations on the Use 
of OMB's Program Assessment Rating Tool for the Fiscal Year 2004 
Budget, GAO-04-174 (Washington D.C.: Jan. 30, 2004). 

[23] The term "program activity" refers to the listings shown in the 
Program and Financing (P&F) schedule of the Appendix portion of the 
Budget of the United States Government. Program activity structures are 
intended to provide a meaningful representation of the operations 
financed by a specific budget account usually by projects, activities, 
or organization. 

[24] The Comptroller General of the United States, the Director of OMB, 
and the Secretary of the Treasury established FASAB in October 1990 to 
develop accounting standards and principles for the U.S. government. To 
meet its unique mission, FASAB considers the information needs of the 
public, Congress, managers, and other users of federal financial 
information. 

[25] Federal Accounting Standards Advisory Board, Statement of Federal 
Financial Accounting Standards Number 4: Managerial Cost Accounting 
Standards and Concepts (Washington, D.C.: July 31, 1995). 

[26] GAO, Budget Account Structure: A Descriptive Overview, GAO/AIMD-95-
179 (Washington, D.C.: Sept. 18, 1995). 

[27] The President's Management Agenda, Fiscal Year 2002, p. 28. 

[28] Budget authority is authority provided by law to enter into 
financial obligations that will result in immediate or future outlays 
involving federal government funds. The basic forms of budget authority 
include (1) appropriations, (2) borrowing authority, (3) contract 
authority, and (4) authority to obligate and expend offsetting receipts 
and collections. Budget authority may be classified by its duration (1-
year, multiple year, or no-year), by the timing of the legislation 
providing the authority (current or permanent), by the manner of 
determining the amount available (definite or indefinite), or by its 
availability for new obligations. 

[29] Office of Management and Budget, Analytical Perspectives, Budget 
of the United States Government, Fiscal Year 2003 (Washington, D.C.: 
February 2002). 

[30] For a more detailed discussion of these initiatives, see GAO, 
Performance Budgeting: Past Initiatives Offer Insights for GPRA 
Implementation, GAO/AIMD-97-46 (Washington, D.C.: Mar. 27, 1997). 

[31] GAO, Performance Budgeting: Initial Agency Experiences Provide a 
Foundation to Assess Future Directions, GAO/T-AIMD/GGD-99-216 
(Washington, D.C.: July 1, 1999). 

[32] GAO, Managing for Results: Agency Progress in Linking Performance 
Plans With Budgets and Financial Statements, GAO-02-236 (Washington, 
D.C.: Jan. 4, 2002); and Performance Budgeting: Initial Experiences 
Under the Results Act in Linking Plans with Budgets, GAO/AIMD/GGD-99-67 
(Washington, D.C.: Apr. 12, 1999). 

[33] GAO, Budget Account Structure: A Descriptive Overview, GAO-AIMD-95-
179 (Washington, D.C.: Sept. 18, 1995). 

[34] The four orientations are a variation on a theme developed by 
Allen Schick in "On the Road to PPB: The Stages of Budget Reform," in 
Perspectives in Budgeting (Washington, D.C.: American Society for 
Public Administration, 1987). 

[35] According to FASAB No. 4, Managerial Cost Accounting Standards and 
Concepts, examples of direct costs include: salaries and other benefits 
for employees who work directly on the output, materials and supplies 
used in the work, office space, and equipment and facilities that are 
used exclusively to produce the output. 

[36] According to FASAB No. 4, Managerial Cost Accounting Standards and 
Concepts, examples of indirect costs include: general administrative 
services; general research and technical support; security; rent; and 
operations and maintenance costs for building, equipment, and 
utilities. 

[37] GAO, Performance Budgeting: Initial Agency Experiences Provide a 
Foundation to Assess Future Directions, GAO/T-AIMD/GGD-99-216 
(Washington, D.C.: July 1, 1999). 

[38] For example, in federal budgeting, "budgetary resources" refers to 
all available budget authority given to an agency allowing it to incur 
obligations. Budgetary authority includes appropriations, borrowing and 
contract authority, and authority to obligate and expend offsetting 
receipts and collections. 

[39] Office of Management and Budget, Analytical Perspectives, Budget 
of the United States Government, Fiscal Year 1996 (Washington, D.C.: 
February 1995), p. 100. Similar discussions were included in the 
Analytical Perspectives for the fiscal years 1997 through 2004 budgets 
as well. 

[40] Circular A-11 provides, among other things, guidance on how to 
formulate, develop, and submit materials required for OMB and 
presidential review of agency budget requests. 

[41] According to OMB, because the plan would be integrated into the 
"performance budget," a separate annual performance plan would not be 
needed to satisfy GPRA requirements. 

[42] OMB, Circular No. A-11: Preparation, Submission, and Execution of 
the Budget (Washington, D.C.: July 2003), p. 51-3 and OMB, Circular No. 
A-11: Preparation, Submission, and Execution of the Budget (Washington, 
D.C.: July 2004), p. 51-3. 

[43] OMB, Circular No. A-11 (July 2003), p. 51-3 and OMB, Circular No. 
A-11 (July 2004), p. 51-3. 

[44] OMB, Circular No. A-11 (July 2002), p. 221-5. 

[45] Office of Management and Budget, Analytical Perspectives, Budget 
of the United States Government, Fiscal Year 2003 (Washington, D.C.: 
February 2002), p. 10. 

[46] Office of Management and Budget, Analytical Perspectives, Budget 
of the United States Government, Fiscal Year 2003 (Washington, D.C.: 
February 2002), p. 10. 

[47] Congress, specifically the appropriations committees, establishes 
appropriations accounts to facilitate congressional allocation and 
oversight responsibilities. The President's budget generally reflects 
these appropriations account structures but the executive branch may 
propose changes to the structure. 

[48] For a fuller description of the approaches taken by our case study 
agencies, see apps. II thru V. 

[49] While some agencies did not propose agencywide appropriations 
account structure changes, some bureaus within such agencies proposed 
changes in part reflecting broader policy or authorizing language 
changes. For example, two bureaus within DOT--the Federal Transit 
Administration (FTA) and the Federal Motor Carrier Safety 
Administration (FMCSA)--proposed appropriations account structure 
changes to more closely align budget resources with performance and to 
reflect the administration's proposals to consolidate various programs. 
Congress did not accept FTA or FMCSA's proposed appropriations account 
structure for either fiscal year 2004 or fiscal year 2005. 

[50] See app. III for a fuller comparison of VA's current and proposed 
account structure. 

[51] For the fiscal years 2004 and 2005 budgets, NASA's program 
activities reflect its enterprises, or main programmatic units such as 
Space Science, Earth Science, and Biological and Physical Research. 
DOJ's program activities generally reflected its programs, activities, 
or "decision units" -major program activities that better align with 
DOJ's mission and strategic objectives. For example, within the Federal 
Bureau of Investigation's Salaries and Expense account, the program 
activities include National Security, Counterterrorism, Criminal 
Enterprises and Federal Crimes, and Criminal Justice Services. 

[52] For fiscal year 2005, Congress approved the proposed account 
structure for DOJ's Drug Enforcement Agency to merge construction and 
salaries and expenses (S&E) accounts. 

[53] As noted in table 4, certain bureaus within Labor and DOT made 
changes to their appropriations account structures or the program 
activities within the accounts; however neither Labor nor DOT made 
agencywide changes to its appropriations account structure. 

[54] While SBA lists resources by appropriations account in its 
congressional budget justification, the program descriptions are 
included in the performance plan section of the congressional budget 
justification that is organized by strategic goal. For fiscal year 
2004, HUD submitted two congressional budget justifications--one in the 
previously established program-based structure and the other in a 
performance-based structure. Our analysis focuses on the performance-
based congressional budget justification because HUD did not resubmit a 
performance-based justification for fiscal year 2005. 

[55] This refers to changes made up through EPA's fiscal year 2005 
budget justification. For fiscal year 2006, EPA restructured its budget 
justification so that it was organized by appropriations account and 
program/project. Information on strategic goals and objectives and the 
resources associated with them was provided as a supplement. 

[56] Themes were a key organizational unit in NASA's fiscal year 2004 
and fiscal year 2005 congressional budget justifications. However, 
during fiscal year 2004 (following the fiscal year 2005 budget 
submission), NASA fundamentally restructured its organization to 
position it to better implement the vision set forth in A Renewed 
Spirit of Discovery, The President's Vision for U.S. Space Exploration 
(National Aeronautics and Space Administration, February 2004). NASA's 
fiscal year 2006 congressional budget justification reflected its new 
organizational framework. 

[57] National Aeronautics and Space Act of 1958 (Pub. Law 85-568) as 
amended by Pub. Law 106-377, 114 Stat 1441, 1441A-57 (2000). 

[58] For fiscal year 2004, the House Appropriations Committee allowed 
reprogrammings between programs, activities, object classifications, 
and elements up to $500,000 without notifying the committee. The Senate 
Appropriations Committee allowed reprogrammings among programs, 
activities, and elements only up to $250,000. 

[59] Proposed appropriations language would limit the extent to which 
VA managers could make trade-offs among cost components. For more 
information, see app. III. 

[60] Themes were a key organizational unit in NASA's fiscal year 2004 
and 2005 budget justifications. However, during fiscal year 2004 
(following the fiscal year 2005 budget submission), NASA fundamentally 
restructured its organization to position it to better implement the 
vision set forth in A Renewed Spirit of Discovery, The President's 
Vision for U.S. Space Exploration (National Aeronautics and Space 
Administration, February 2004). NASA's fiscal year 2006 budget 
justification will reflect its new organizational framework. 

[61] VA did not allocate construction resources to the Medical Research 
budget. 

[62] While some bureaus within Labor or DOT proposed changes to their 
account structure or program activities, the departments as a whole did 
not restructure their budgets. Congress did not accept DOT's proposed 
appropriations account structure for either fiscal year 2004 or fiscal 
year 2005. According to Labor officials, its proposed changes reflect 
policy changes and were not part of this initiative. 

[63] Earmarking is dedicating collections by law for a specific purpose 
or program or dedicating appropriations for a particular purpose. 
Legislative language may designate any portion of a lump-sum amount for 
particular purposes. Earmarking may refer to statutory language (in 
appropriations acts) or nonstatutory language (in reports accompanying 
the acts). 

[64] Authority specifically authorized by law that allows shifting all 
or part of the budget authority provided in one appropriations account 
to another. 

[65] Reprogramming is shifting funds from one object to another within 
an appropriations account to use them for different purposes than those 
contemplated at the time of appropriation. 

[66] The Antideficiency Act requires that agencies prescribe, by 
regulation, a system of administrative control of funds. 

[67] According to our analysis, over 50 percent of EPA's budget is 
dedicated to specific programs. 

[68] Center G&A (General and Administrative) costs are center costs 
that cannot be related or traced to a specific project but benefit all 
activities. Corporate G&A are costs related to the business operations 
of NASA headquarters. While a share of these are allocated to program 
budgets and program managers may question their allocation of these 
costs during budget formulation, NASA's program managers cannot make 
trade-offs between them and other resources once allocations have been 
established. 

[69] For fiscal year 2004, the House Appropriations Committee allowed 
reprogrammings between programs, activities, object classifications, 
and elements up to $500,000 without notifying the committee. The Senate 
Appropriations Committee allowed reprogrammings among programs, 
activities, and elements only up to $250,000 without notifying the 
committee. NASA requested that appropriations committees change its 
reprogramming guidelines to allow reprogramming within a theme and also 
sought to increase its reprogramming level to $10 million; however, 
Congress did not accept these changes. 

[70] The Endocrine Disruption Screening Program is mandated to screen 
and test chemicals to identify potential endocrine disruptors, or 
substances that have adverse hormonal effects in humans. 

[71] For fiscal year 2006, EPA reorganized its justification so that it 
is organized by appropriations account and program/project. 

[72] These appropriations accounts include: (1) National Cemetery 
Administration, which funds the operations and maintenance of veterans 
cemeteries; (2) Compensation and Pensions, which funds the burial 
benefits provided, such as burial flags, graveliners, and headstones; 
(3) General Operating Expenses, which funds VBA's burial-related 
administrative expenses; (4) Grants for the Construction of State 
Veterans Cemeteries; (5) Major Construction, which funds new national 
cemeteries; and (6) Minor Construction. 

[73] Office of Management and Budget, Analytical Perspectives: Budget 
of the United States Government, Fiscal Year 2004 (February 2003). 

[74] This flexibility would be limited by both reprogramming guidelines 
and proposed appropriations language. VHA would have to notify Congress 
for shifts in funds above reprogramming guidelines. Also, proposed 
appropriations language for the medical care account included ceilings 
for central administration and grant spending. As a result, VHA would 
not be able to use construction or operations funding for central 
administration or grants. OMB staff said this proposed appropriations 
language was intended to address congressional concerns. 

[75] The Antideficiency Act, among other things, prohibits making 
expenditures or incurring obligations in excess of amounts available in 
appropriations accounts unless specifically authorized by law. 

[76] Transfer authority of up to 10 percent in the first year, up to 5 
percent in the next year, and zero percent in the third year was 
requested among the following accounts: Compensation, Pensions, 
Insurance, Education, Vocational Rehabilitation and Employment (VR&E), 
and Burial. 

[77] To address staffing concerns, NASA issued a policy statement 
describing how unexpected staffing needs would be met. For more 
information about this issue, see app. V. 

[78] Senate Committee on Appropriations Report 108-143, Departments of 
Veterans Affairs and Housing and Urban Development, and Independent 
Agencies Appropriations Bill, 2004 (Sept. 5, 2003), p. 8; and Senate 
Committee on Appropriations Report 108-353, Departments of Veterans 
Affairs and Housing and Urban Development, and Independent Agencies 
Appropriations Bill, 2005 (Sept. 21, 2004), p. 8. 

[79] House Committee on Appropriations Report 108-576, Departments of 
Commerce, Justice, and State, the Judiciary, and Related Agencies 
Appropriations Bill, Fiscal Year 2005 (July 1, 2004), pp. 7-8. 

[80] House Committee on Appropriations Report 108-188, Departments of 
Labor, Health and Human Services, and Education and Related Agencies 
Appropriation Bill 2004 (July 8, 2003), p. 8. 

[81] House Committee on Appropriations Report 108-674, Departments of 
Veterans Affairs and Housing and Urban Development, and Independent 
Agencies Appropriations Bill, 2005 (Sept. 9, 2004), p. 91; Senate 
Committee on Appropriations Report 108-353, Departments of Veterans 
Affairs and Housing and Urban Development, and Independent Agencies 
Appropriations Bill, 2005 (Sept. 21, 2004), p. 111; and H.R. Conf. Rep. 
No. 108-792, p. 1597 (2004). 

[82] In addition, for DOT, Congress did not accept the Federal Transit 
Administration's (FTA) and the Federal Motor Carrier Safety 
Administration's (FMCSA) proposed appropriations account structures for 
either fiscal year 2004 or 2005. 

[83] The House committee recommended an alternative account structure 
that included three separate appropriations accounts for the Medical 
Care program: (1) Medical services, (2) Medical facilities, and (3) 
Medical administration. According to the House committee report, the 
alternative account structure "will provide a better accounting of 
appropriated and receipt funds and will lead to better oversight of the 
costs and expenditures of VHA." House Committee on Appropriations 
Report 108-235, Departments of Veterans Affairs and Housing and Urban 
Development, And Independent Agencies Appropriations Bill, 2004 (July 
24, 2003), p. 9. 

[84] House Committee on Appropriations Report 108-235, Departments of 
Veterans Affairs and Housing and Urban Development, and Independent 
Agencies Appropriations Bill, 2004 (July 24, 2003), p. 4. 

[85] House Committee on Appropriations Report 108-674, Departments of 
Veterans Affairs and Housing and Urban Development, and Independent 
Agencies Appropriations Bill, 2005 (Sept. 9, 2004), p. 4. 

[86] For fiscal year 2005, Congress approved the proposed account 
structure for DOJ's Drug Enforcement Agency. 

[87] House Committee on Appropriations Report 108-671, Departments of 
Transportation and Treasury and Independent Agencies Appropriations 
Bill, 2005 (Sept. 8, 2004), p. 8. 

[88] House Committee on Appropriations Report 108-671, Departments of 
Transportation and Treasury and Independent Agencies Appropriations 
Bill, 2005 (Sept. 8, 2004), p. 22. 

[89] House Committee on Appropriations Report 108-235, Departments of 
Veterans Affairs and Housing and Urban Development, and Independent 
Agencies Appropriations Bill, 2004 (July 24, 2003), p. 79. 

[90] House Committee on Appropriations Report 108-674, Departments of 
Veterans Affairs and Housing and Urban Development, and Independent 
Agencies Appropriations Bill, 2005 (Sept. 9, 2004), p. 75. 

[91] Senate Committee on Appropriations Report 108-81, Department of 
Labor, Health and Human Services, and Education and Related Agencies 
Appropriation Bill 2004 (June 26, 2003), p. 41. 

[92] Senate Committee on Appropriations Report 108-345, Departments of 
Labor, Health and Human Services, and Education, and Related Agencies 
Appropriation Bill 2004 (Sept. 15, 2004), p. 34. 

[93] House Committee on Appropriations Report 108-674, Departments of 
Veterans Affairs and Housing and Urban Development, and Independent 
Agencies Appropriations Bill, 2005 (Sept. 9, 2004), p. 4. 

[94] House Committee on Appropriations Report 108-671, Departments of 
Transportation and Treasury and Independent Agencies Appropriations 
Bill, 2005 (Sept. 8, 2004), p. 22. 

[95] GAO, Performance Budgeting: States' Experiences Can Inform Federal 
Efforts, GAO-05-215 (Washington, D.C.: Feb. 28, 2005). 

[96] House Committee on Appropriations Report 108-576, Departments of 
Commerce, Justice, and State, The Judiciary, and Related Agencies 
Appropriations Bill, Fiscal Year 2005 (July 1, 2004), p. 8. 

[97] House Committee on Appropriations Report 108-671, Departments of 
Transportation and Treasury and Independent Agencies Appropriations 
Bill, 2005 (Sept. 8, 2004), pp. 8, 22. 

[98] House Committee on Appropriations Report 108-671, Departments of 
Transportation and Treasury and Independent Agencies Appropriations 
Bill, 2005 (Sept. 8, 2004), p. 5. 

[99] Office of Management and Budget, Analytical Perspectives, Budget 
of the United States Government, Fiscal Year 2003 (Washington, D.C.: 
February 2002), p. 10. 

[100] GAO has also reported that NASA program managers need systems 
with the ability to integrate these data with contract schedule 
information to monitor progress on the contract. See Business 
Modernization: Improvements Needed in Management of NASA's Integrated 
Financial Management Program, GAO-03-507 (Washington, D.C.: Apr. 30, 
2003). 

[101] House Committee on Appropriations Report 108-235, Departments of 
Veterans Affairs and Housing and Urban Development, and Independent 
Agencies Appropriations Bill, 2004 (July 24, 2003), p. 4. 

[102] Senate Committee on Appropriations Report 108-81, Departments of 
Labor, Health and Human Services, and Education, and Related Agencies 
Appropriation Bill, 2004 (June 26, 2003), p. 41. 

[103] According to our analysis, over 50 percent of EPA's budget is 
dedicated to specific programs. 

[104] GAO, Financial Management: FFMIA Implementation Necessary to 
Achieve Accountability, GAO-03-31 (Washington, D.C.: Oct. 1, 2002). 

[105] GAO, Performance Budgeting: Observations on the Use of OMB's 
Program Assessment Rating Tool for the Fiscal Year 2004 Budget, GAO-04-
174 (Washington, D.C.: Jan. 30, 2004). 

[106] The Antideficiency Act, among other things, prohibits making 
expenditures or incurring obligations in excess of amounts available in 
appropriations accounts unless specifically authorized by law. 

[107] The PMA, by focusing on 14 targeted areas (5 mutually reinforcing 
governmentwide goals and 9 program initiatives), seeks to improve the 
performance and management of the government. 

[108] Circular A-11 provides, among other things, guidance on how to 
formulate, develop, and submit materials required for OMB and 
presidential review of agency budget requests. 

[109] However, in some cases, agencies began budget restructuring prior 
to fiscal year 2004. In those cases, such as the Environmental 
Protection Agency (EPA), we looked at earlier account structures and 
justifications. 

[110] Budget of the United States Government, Fiscal Year 2004, 
Executive Office of the President, Office of Management and Budget 
(February 2003), p. 45. 

[111] "Standards for Success" were defined by the President's 
Management Council and discussed with experts throughout government and 
academe, including the National Academy of Public Administration. 

[112] At the time of our agency selection, no agency had received a 
"green light" for status on the budget and performance integration 
initiative. Since then, eight agencies have achieved green lights, 
including four in our review--NASA, Labor, DOT, and SBA. All agencies 
in our review have a green light for progress. 

[113] We eliminated the Department of Defense and Social Security 
Administration because we did not identify significant changes to their 
appropriations account structure or congressional budget 
justifications. 

[114] For HUD, we only reviewed its fiscal year 2004 budget because it 
did not submit a "performance budget" to Congress for fiscal year 2005. 

[115] Due to scheduling conflicts representatives from SBA did not 
attend the panel sessions. 

[116] Term used by Labor in its fiscal years 2004 and 2005 
congressional budget justifications. "Total budgetary resources" 
includes direct program funds, other funds appropriated within Labor 
(e.g., IT crosscut, legal services, and other indirect costs) and 
additional other resources available (e.g., reimbursements and user 
fees) associated with a particular program or project. 

[117] Labor's bureaus and offices are the Employment and Training 
Administration (ETA), the Employee Benefits Security Administration 
(EBSA), the Pension Benefit Guaranty Corporation (PBGC), the Employment 
Standards Administration (ESA), the Occupational Safety and Health 
Administration (OSHA), the Mine Safety and Health Administration 
(MSHA), the Bureau of Labor Statistics (BLS), the Office of the 
Solicitor, Bureau of International Labor Affairs, Office of the 
Assistant Secretary for Administration and Management, Women's Bureau, 
Office of the Chief Financial Officer, Veterans' Employment and 
Training Service, Office of Disability Employment Policy, and Office of 
the Inspector General. 

[118] The two performance goals are: (1) by 2008, reduce the rate of 
workplace fatalities by 15 percent from the baseline; and (2) by 2008, 
reduce the rate of workplace injuries and illnesses by 20 percent from 
the baseline. 

[119] BLS, EBSA, PBGC, OSHA, and MSHA are all funded through a single 
Salaries and Expense (S&E) appropriations account. Although ESA is 
funded through eight appropriations accounts--S&E, Special Benefits, 
Energy Employees Occupational Illness Compensation Fund (EEOICF), 
Administrative Expenses for EEOICF, Special Benefits for Disabled Coal 
Miners, Panama Canal Commission Compensation Fund, Black Lung 
Disability Trust Fund, and Special Workers' Compensation Expenses--
ESA's primary administrative functions are funded through the S&E 
account. ETA, however, is funded through multiple accounts, with a 
separate program administration account. 

[120] ETA officials said that consolidating their program activities, 
which are generally organized by population (e.g., Youth Activities, 
Adult Activities), would provide them with more flexibility to make 
trade-offs and better serve different populations. 

[121] Labor provides net costs, which are calculated on an accrued 
basis, to outcome goals in its financial statements. Resources are 
defined differently for financial management purposes than for budget 
purposes. 

[122] The fiscal year 2005 congressional budget justification followed 
the same general structure as the fiscal year 2004 justification. 

[123] While no departmentwide appropriations account structure changes 
were made, the Pension Benefit Guarantee Corporation (PBGC) made and 
the Employment Training Administration (ETA) proposed to make some 
account structure changes. For example, in fiscal year 2004, the PBGC 
divided the "Services related to terminations" program activity into 
"Pension insurance activities" and "Pension Plan terminations" to more 
accurately reflect their business activities within its PBGC Fund 
appropriations account. ETA proposed to consolidate Adult, Dislocated 
Worker, and Employment Service State Grants within the Training and 
Employment Services appropriations account. This corresponds with the 
changes to authorizing legislation being proposed by the administration 
to consolidate these programs into a single block grant. 

[124] Labor directed bureaus to include the budget authority and FTE 
for all other administrative or program costs not captured in program 
and performance goal resource tables in "Other Program Mandates." This 
category replaced the category, "Mission Critical," which Labor used 
for the fiscal year 2004 congressional budget justification. Labor 
defined "Mission Critical" as "the budget authority and FTE for the 
remainder of the budget activity, i.e., those resources not 
specifically identified with a performance goal." 

[125] However, if using common measures across government, Labor 
officials said that "full cost" should be consistently applied. 

[126] Although this process was initiated in BLS prior to the fiscal 
year 2004 performance budget, it is nonetheless worth noting that the 
allocation of indirect resources to programs and performance has led to 
discussion among the bureau and program managers over proper cost 
allocations. 

[127] The two new goals were "Improving Customer Satisfaction by 
Decreasing the Average Number of Days to Conclude a Complaint" and 
"Ensuring Timely and Accurate Prevailing Wage Determinations." Wage and 
Hour Division officials also credited PART with the development of 
these goals. 

[128] BLS officials did say that knowing their allocation of the 
department's Working Capital Fund (WCF) may be useful for future budget 
planning because program managers can plan for the resources they will 
require. The WCF includes financial and administrative services, field 
services, human resource services, and telecommunications, as well as 
an investment in reinvention fund and non-Labor reimbursements. 

[129] House Committee on Appropriations Report 108-235, Departments of 
Veterans Affairs and Housing and Urban Development, and Independent 
Agencies Appropriations Bill, 2004 (July 24, 2003), p. 4. 

[130] Medical Administration and Miscellaneous Operating Expenses. 

[131] VA did not allocate construction resources to the Medical 
Research budget. 

[132] These appropriations accounts are: (1) National Cemetery 
Administration, which funds the operations and maintenance of veterans 
cemeteries; (2) Compensation and Pensions, which funds the burial 
benefits provided, such as burial flags, graveliners, and headstones; 
(3) General Operating Expenses, which funds VBA's burial-related 
administrative expenses; (4) Grants for the Construction of State 
Veterans Cemeteries; (5) Major Construction, which funds new national 
cemeteries; and (6) Minor Construction. 

[133] VA would have to consult or notify appropriations committees of 
funding shifts among programs or activities above certain dollar 
thresholds depending on its specific reprogramming guidelines. 

[134] The Antideficiency Act, among other things, prohibits making 
expenditures or incurring obligations in excess of amounts available in 
appropriations accounts unless specifically authorized by law. 

[135] This report focused on budget restructuring efforts up through 
the fiscal year 2005 budget. EPA restructured its fiscal year 2006 
budget in response to congressional direction so that it is organized 
by appropriations account and program/project. Information on strategic 
goals and objectives is provided as a supplement. 

[136] EPA's offices are: (1) Office of Air and Radiation; (2) Office of 
Water; (3) Office of Prevention, Pesticides and Toxic Substances; (4) 
Office of Solid Waste and Emergency Response; (5) Office of Enforcement 
& Compliance Assurance; (6) Office of Research and Development; (7) 
Office of Environmental Information; (8) Office of Administration and 
Resources Management; (9) Chief Financial Officer; (10) Office of 
General Counsel; (11) Office of International Affairs; (12) Office of 
the Administrator; and (13) Office of Inspector General. 

[137] The Budget of the United States Government, Fiscal Year 2005--
Appendix, shows that this requested amount includes, for example, about 
$1.3 billion for the Superfund account, and $2.3 billion for the 
Environmental Programs and Management account. 

[138] EPA has four other strategic goals, including: (1) Clean and Safe 
Water, (2) Land Preservation and Restoration, (3) Healthy Communities 
and Ecosystems, and (4) Compliance and Environmental Stewardship. 

[139] Program/projects are defined as major program areas of 
responsibility and describe "what" EPA does based on specific statutory 
authority (programs) or "what" significant tasks or problems the agency 
is addressing (projects). 

[140] The PBAA had four stated purposes: (1) to develop goals and 
objectives for accomplishing the agency's mission, (2) to make better 
use of scientific information related to human health and environmental 
risks in setting priorities, (3) to improve the link between long-term 
planning and annual resource allocation, and (4) to develop a new 
management system to assess accomplishments and provide feedback for 
making future decisions. 

[141] Setting Priorities, Getting Results: A New Direction for the 
Environmental Protection Agency, National Academy of Public 
Administration, 1995. This report provides recommendations to EPA and 
Congress for strengthening EPA's management, including how EPA 
allocates its budget and how its managers think about the programs, 
priorities, and responsibilities. 

[142] According to the fiscal year 2004 House and Senate Appropriations 
Committee reports, the reprogramming threshold is $500,000, except for 
(1) in the Environmental Programs and Management account, up to 
$1,000,000 may be reprogrammed with prior congressional approval; and, 
(2) in the State and Tribal Assistance Grants account, reprogramming 
for performance partnership grants funds is exempt. 

[143] In its fiscal year 2004 budget justification, some indirect costs 
were captured in separate mission-support goals (e.g., Effective 
Management and Sound Science). In the fiscal year 2005 budget 
justification, EPA allocated these resources to its five mission-
related goals and their objectives. 

[144] EPA officials said that, in general, indirect resources are 
allocated to strategic objectives based on supporting program/projects 
FTE levels. 

[145] EPA received a "green light" for financial performance on the 
Executive Branch Management Scorecard for the fiscal year 2005 budget. 
According to OMB, EPA demonstrated the use of financial and performance 
information for day-to-day decision making. 

[146] The new IFMS structure includes a Program Results Code organized 
by goal, objective, National Program Manager, program/project, and 
activity. Activities describe how EPA conducts its work. 

[147] National Aeronautics and Space Administration 2003 Strategic 
Plan, p.2 . 

[148] Exploration Systems was created in fiscal year 2005 to better 
reflect the new vision for space exploration. 

[149] National Aeronautics and Space Administration, The Vision for 
Space Exploration (February 2004). 

[150] National Aeronautics and Space Act of 1958 (Pub. Law 85-568) as 
amended by Pub. Law 106-377, 114 Stat 1441, 1441A-57 (2000). 

[151] For fiscal year 2004, the House Appropriations Committee allowed 
reprogrammings between programs, activities, object classifications, 
and elements up to $500,000 without notifying the committee. The Senate 
Appropriations Committee allowed reprogrammings among programs, 
activities, and elements only up to $250,000. 

[152] NASA officials said, however, that because reprogramming guidance 
is essentially tied to any line item in the budget justification, 
aggregating program elements and providing less detailed information in 
essence changed the interpretation of the reprogramming guidance. The 
implications of this change are discussed in more detail later in this 
appendix. 

[153] According to NASA officials, centers have "investment accounts" 
that fund nonprogram Construction of Facilities and research and 
development. However, officials noted center managers face pressures to 
keep Center G&A down in order to compete for programs to operate at 
their center. 

[154] GAO has reported that NASA has had long-standing contracting 
issues in part because it lacked accurate and reliable information on 
contract spending. See Business Modernization: Improvements Needed in 
Management of NASA's Integrated Financial Management Program, GAO-03-
507 (Washington, D.C.: Apr. 30, 2003). 

GAO's Mission: 

The Government Accountability Office, the investigative arm of 
Congress, exists to support Congress in meeting its constitutional 
responsibilities and to help improve the performance and accountability 
of the federal government for the American people. GAO examines the use 
of public funds; evaluates federal programs and policies; and provides 
analyses, recommendations, and other assistance to help Congress make 
informed oversight, policy, and funding decisions. GAO's commitment to 
good government is reflected in its core values of accountability, 
integrity, and reliability. 

Obtaining Copies of GAO Reports and Testimony: 

The fastest and easiest way to obtain copies of GAO documents at no 
cost is through the Internet. GAO's Web site ( www.gao.gov ) contains 
abstracts and full-text files of current reports and testimony and an 
expanding archive of older products. The Web site features a search 
engine to help you locate documents using key words and phrases. You 
can print these documents in their entirety, including charts and other 
graphics. 

Each day, GAO issues a list of newly released reports, testimony, and 
correspondence. GAO posts this list, known as "Today's Reports," on its 
Web site daily. The list contains links to the full-text document 
files. To have GAO e-mail this list to you every afternoon, go to 
www.gao.gov and select "Subscribe to e-mail alerts" under the "Order 
GAO Products" heading. 

Order by Mail or Phone: 

The first copy of each printed report is free. Additional copies are $2 
each. A check or money order should be made out to the Superintendent 
of Documents. GAO also accepts VISA and Mastercard. Orders for 100 or 
more copies mailed to a single address are discounted 25 percent. 
Orders should be sent to: 

U.S. Government Accountability Office

441 G Street NW, Room LM

Washington, D.C. 20548: 

To order by Phone: 

Voice: (202) 512-6000: 

TDD: (202) 512-2537: 

Fax: (202) 512-6061: 

To Report Fraud, Waste, and Abuse in Federal Programs: 

Contact: 

Web site: www.gao.gov/fraudnet/fraudnet.htm

E-mail: fraudnet@gao.gov

Automated answering system: (800) 424-5454 or (202) 512-7470: 

Public Affairs: 

Jeff Nelligan, managing director,

NelliganJ@gao.gov

(202) 512-4800

U.S. Government Accountability Office,

441 G Street NW, Room 7149

Washington, D.C. 20548: