Operating and capital budget reform in Minnesota: managing public finances like the future matters.

• Author: King, Laura M.

Minnesota's performance budgeting clearly relates the budget to the citizen's needs and to well-defined statewide policy objectives developed within a public process. A scoring system uses critical and strategic criteria to measure the need for and urgency of each capital budget request.

Editor's note: Each year the Government Finance Officers Association awards its prestigious Award for Excellence to recognize outstanding contributions in the field of government finance. This article describes the 1994 winning entry in the budgeting and financial planning policies and procedures category.

When Governor Arne H. Carlson first took office four years ago, he inherited the worst financial crisis in Minnesota's history. In order to forge a lasting solution to the state's chronic fiscal problems, Governor Carlson directed that operating and capital budgeting reforms be enacted to ensure accountability and long-term planning.

The governor understands that the public does not look upon government as a model of efficiency. Citizens believe that state and local government is distant and unresponsive to their needs. To address this problem, Minnesota developed a performance-based budget and reporting system with a focus on effectiveness and accountability of state services.

The new performance-based budget and reporting system is based on three principles: 1) government must be driven by the public's goals and mission rather than government's rules and regulations, 2) the taxpayer will pay for results rather than efforts and 3) government must be able to measure and communicate progress toward both goals and results.

Significant reform also was introduced into the capital budgeting process. A six-year planning horizon was initiated for projects to encourage long-range planning, specific criteria for project ranking were introduced to provide an objective analytical context for decisions, and an inventory of fixed assets is being developed. All of the capital budget planning now occurs within the context of six-year, debt management guidelines and planning.

Performance Reporting

Performance budgeting was introduced in Minnesota's 1994-95 biennial budget. The immediate goal was heightened management and legislative awareness of the concepts of program outcome definition and measurement. The longer-term goal would have funding decisions based on agreed-upon expected outcomes and results rather than on historical efforts and good intentions.

The movement toward citizen-oriented financial statements which improve both the readability and understanding of state budget materials has guided recent efforts. The concept of performance budgeting was woven through Minnesota's 1994-95 executive budget process and budget documents. The object was to clearly relate the budget to real citizens' needs and well-defined statewide policy objectives developed within a public process.

The key to success rests with the commitment of the governor and legislature to articulate program policy objectives and agree upon outcome measurements of success. State agencies now are required to define the results they will accomplish and are held accountable by elected officials and the public for their performance.

Historically, government has done a poor job of measuring results. It does an excellent job of measuring how much activity occurs - how much money is spent, how many forms are filed, how many reports are prepared, how many permits are issued. But government is less successful at measuring the results of those activities and efforts - whether they resulted in a safer or cleaner environment or a better life for Minnesota's citizens.

It is not a matter of how hard government tries but whether it makes a difference. Focusing on outcomes will enable action and elimination of things that have marginal value in order to concentrate resources on activities known to make a difference.

The state's performance budget and reporting process had two primary objectives, both based fundamentally on improved communication skills. Foremost was to describe the budget in terms that emphasized the link between state dollars and direct services in a fashion that both the legislature and the general public could...