Legislative Report
Performance-Based Budgeting in Pennsylvania
Pennsylvania Act 48 of 2017, known as the Performance-Based Budgeting and Tax Credit Efficiency Act (the “Act”), gives the Governor and General Assembly performance-based tools to draft future state budgets. The Act requires Pennsylvania agencies, boards, and commissions under the Governor’s jurisdiction (each, an “Executive Agency”) to undergo performance-based budget reviews based on existing outcomes and criteria sought by the Independent Fiscal Office (“IFO”). The IFO reports to the newly created Performance-Based Budget Board (the “Board”) on these Executive Agencies and Pennsylvania tax credits (“Tax Credits”). Plans approved by the Board are made available to the Governor and General Assembly for the state budget process. The goals of the Act stated in its findings include the following: to “counter the tendency toward perpetuation of outmoded state programs” and to “ensure that the Commonwealth is being a good stalwart of the support of tax programs.”
The Act began in the Senate as SB 181 with a House version known as HB 410. Senator Bob Mensch (R‑24) introduced SB 181 as the restated performance-based budget bill that he introduced during the 2015‑2016 legislative season which ended before that earlier bill could be reported out of the House. SB 181 applies private enterprise performance metrics to Executive Agencies and Tax Credits. The Secretary of the Budget of the Commonwealth (“Secretary”) must initiate performance-based budget reviews for the 2018‑2019 fiscal year. The Secretary is to schedule performance-based budget reviews (each, a “Review”) of the Executive Agencies so that each Executive Agency is subject to a Review at least once each five years. The General Assembly, by concurrent resolution, may prompt the Secretary to schedule the Review of a specific Executive Agency. The Secretary is to notify each Executive Agency to prepare and submit to the IFO all information required for the IFO to prepare a Performance-Based Budget Plan (a “Plan”).
The information from each Executive Agency must include: (1) detailed description of all agency line item appropriations, including populations served, grants owed, and subsidies provided for grant and subsidiary appropriation, (2) information regarding existing performance measures for agency appropriations and programs, (3) an agency mission statement and agency goals and objectives for the next budget year and later years, and (4) other information required by the IFO.
The IFO prepares a Plan for each Executive Agency based on information it supplies. The IFO develops performance measurements for each agency program or line item appropriation. Those performance measurements shall include, as the IFO determines applicable, outcome-based measures including efficiency measures, activity cost analysis, ratio measures, and measures of status improvement of recipient populations, economic outcomes, or performance benchmarks against similar state programs or similar programs of other states or jurisdictions.
The Secretary and the Director of the IFO establish a schedule for review of all Tax Credits, covering each at least once every five years, and, for subsequently enacted Tax Credits by January 1 of the fifth year following its enactment. Any Tax Credit with an expiration date must be reviewed by January 1 of the year preceding its termination date. The General Assembly, by concurrent resolution, may direct the IFO to review any particular Tax Credit.
The IFO must submit a report applicable to any Tax Credit (“Tax Credit Report”) to the Board, the Chair and Minority Chair of the Senate Finance Committee and the Chair and Minority Chair of the House Finance Committee, as well as posting a copy of the Tax Credit Report on the IFO website.
The Tax Credit Report must include: (1) the purpose of the Tax Credit, (2) whether the Tax Credit is accomplishing its legislative intent, (3) whether it could be more efficiently implemented, (4) the methods, if any, that would make the Tax Credit more efficient, and (5) the costs of providing the Tax Credit including administrative costs and lost revenues.
In addition to the Tax Credit Report, the IFO must prepare a Tax Credit plan (the “Tax Credit Plan”). The IFO must evaluate each Tax Credit and develop related performance measures. These measures are to include the following as the IFO finds appropriate: outcome-based measures, including efficiency measures, measures of status improvement of recipient population, economic outcome or performance benchmarks against similar state programs or similar programs of other states or jurisdictions.
IFO submits its Tax Credit Plans and Executive Agency Plans to the Board for review. The Board is comprised of the Secretary and the Chairs and Minority Chairs of the Senate and House Appropriations Committees. The Board reviews each Executive Agency Plan in a public meeting where the Executive Agency head or a deputy secretary-level representative attends and is available to offer further information. The Board either approves or disapproves the Executive Agency Plan within 45 days of submission or it is deemed approved. Disapproved Plans are resubmitted to the IFO with Board recommendations. Approved Plans are published on the IFO’s website.
The Governor and the General Assembly are required to consider Executive Agency Plans and related performance measurements in the annual budget process. The General Assembly is to consider also whether or not a Tax Credit is efficient in the annual budget process. Senator Bob Mensch said, “I believe that through a performance-based budgeting process we can identify effective programs and get rid of the ineffective ones.” Governor Wolf approved SB 181 on October 31, 2017 with the Act to be effective 60 days later.
Ó 2017 Robert J. Hobaugh, Jr.