DUE 3/26

The Road to PPB: The Stages of Budget Reform

Author(s): Allen Schick

Source: Public Administration Review , Dec., 1966, Vol. 26, No. 4 (Dec., 1966), pp. 243-258

Published by: Wiley on behalf of the American Society for Public Administration

Stable URL: https://www.jstor.org/stable/973296

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243

Planning-Programming-Budgeting System:

A Symposium

The Road to PPB: The Stages of Budget Reform

By ALLEN SCHICK

Tufts University

> Budgetary reform in the United States has evolved through three distinct stages, the last of which is as- sociated wtih the contemporary Planning-Programming-

Budgeting System. In the initial stage, the primary emphasis was on central control of spending and the budget was utilized to guard against administrative abuses. The detailed classification of objects of ex- penditure was the main control mechanism. The sec- ond stage was management-oriented. It was concerned with the efficient performance of work and prescribed activities. The performance budget, officially intro- duced by the Hoover Commission, was the major con- tribution of the management orientation. The third stage is reflected in the planning orientation of the new PPB system. It had roots in Keynesian economics and the new technology of systems analysis.

AMONG the new men in the nascent PPB

jl~ staffs and the fellow travellers who have joined the bandwagon, the mood is of "a

revolutionary development in the history of

government management." There is excited

talk about the differences between what has

been and what will be; of the benefits that

will accrue from an explicit and "hard" ap- praisal of objectives and alternatives; of the

merits of multiyear budget forecasts and plans; of the great divergence between the

skills and role of the analyst and the job of

the examiner; of the realignments in gov-

ernment structure that might result from

changes in the budget process. This is not the only version, however. The

-The author is indebted to Henry S. Rowen and Paul Feldman of the Bureau of the Budget and to the many Federal officials who guided him during a summer's sojourn along the road to PPB.

closer one gets to the nerve centers of budget life-the Divisions in the Bureau of the Bud- get and the budget offices in the depart- ments and agencies-the more one is likely to hear that "there's nothing very new in PPB; it's hardly different from what we've been doing until now." Some old-timers interpret PPB as a revival of the performance bud- geting venture of the early 1950's. Others be- little the claim that-before PPB-decisions on how much to spend for personnel or sup- plies were made without real consideration of the purposes for which these inputs were to be invested. They point to previous changes that have been in line with PPB, albeit without PPB's distinctive package of techniques and nomenclature. Such things as the waning role of the "green sheets" in the central budget process, the redesign of the appropriation structure and the develop- ment of activity classifications, refinements in work measurement, productivity analysis, and other types of output measurement, and the utilization of the Spring Preview for a broad look at programs and major issues.

Between the uncertain protests of the traditional budgeteer and the uncertain ex- pectations of the avant garde, there is a third version. The PPB system that is being devel- oped portends a radical change in the cen- tral function of budgeting, but it is anchored to half a century of tradition and evolution. The budget system of the future will be a product of past and emerging developments; that is, it will embrace both the budgetary functions introduced during earlier stages of reform as well as the planning function

PUBLIC ADMINISTRATION REVIEW / DECEMBER 1966

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244 PUBLIC ADMINISTRATION REVIEW

which is highlighted by PPB. PPB is the first budget system designed 'to accommodate the multiple functions of budgeting.

The Functions of Budgeting

Budgeting always has been conceived as a process for systematically relating the ex- penditure of funds to the accomplishment of planned objectives. In this important sense, there is a bit of PPB in every budget system. Even in the initial stirrings of budget reform more than 50 years ago, there were cogent statements on the need for a budget system to plan the objectives and activities of gov- ernment and to furnish reliable data on what was to be accomplished with public funds. In 1907, for example, the New York Bureau of Municipal Research published a sample "program memorandum" that con- tained some 125 pages of functional ac- counts and data for the New York City Health Department.'

However, this orientation was not ex- plicitly reflected in the budget systems-na- tional, state, or local-that were introduced during the first decades of this century, nor is it explicitly reflected in the budget sys- tems that exist today. The plain fact is that planning is not the only function that must be served by a budget system. The manage- ment of ongoing activities and the control of spending are two functions which, in the past, have been given priority over the plan- ning function. Robert Anthony identifies three distinct administrative processes, stra- tegic planning, management control, and operational control.

Strategic planning is the process of deciding on ob- jectives of the organization, on changes in these objectives, on the resources used to attain these objectives, and on the policies that are to govern the acquisition, use, and disposition of these re- resources.

Management control is the process by which man- agers assure that resources are obtained and used effectively and efficiently in the accomplishment of the organization's objectives. Operational control is the process of assuring that specific tasks are carried out effectively and effici- ently.2

I New York Bureau of Municipal Research, Making a Municipal Budget (New York: 1907), pp. 9-10.

2 Robert N. Anthony, Planning and Control Systems: A Framework for Analysis (Boston: 1965), pp. 16-18.

Every budget system, even rudimentary ones, comprises planning, management, and control processes. Operationally, these proc- esses often are indivisible, but for analytic pur- poses they are distinguished here. In the con-

text of budgeting, planning involves the de- termination of objectives, the evaluation of alternative courses of action, and the author- ization of select programs. Planning is linked most closely to budget preparation, but it would be a mistake to disregard the man- agement and control elements in budget preparation or the possibilities for planning during other phases of the budget year. Clearly, one of the major aims of PPB is to convert the annual routine of preparing a budget into a conscious appraisal and formulation of future goals and policies. Management involves the programming of approved goals into specific projects and ac- tivities, the design of organizational units to carry out approved programs, and the staffing of these units and the procurement of necessary resources. The management process is spread over the entire budget cycle; ideally, it is the link between goals made and activities undertaken. Control re- fers to the process of binding operating of- ficials to the policies and plans set by their superiors. Control is predominant during the execution and audit stages, although the form of budget estimates and appropriations often is determined by control considera- tions. The assorted controls and reporting procedures that are associated with budget execution-position controls, restrictions on transfers, requisition procedures, and travel regulations, to mention the more prominent ones-have the purpose of securing compli- ance with policies made by central authorities.

Very rarely are planning, management, and control given equal attention in the op- eration of budget systems. As a practical mat- ter, planning, management, and control have tended to be competing processes in budgeting with no neat division of functions among the various participants. Because time is scarce, central authorities must be selective in the things they do. Although this scarcity counsels the devolution of control responsi- bilities to operating levels, the lack of reli- able and relied-on internal control systems has loaded central authorities with control functions at the expense of the planning

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PPBS SYMPOSIUM 245

function. Moreover, these processes often re- quire different skills and generate different ways of handling the budget mission, so that one type of perspective tends to predomi- nate over the others. Thus, in the staffing of the budget offices, there has been a shift from accountants to administrators as bud- geting has moved from a control to a man- agement p o s t u r e. The initial experience with PPB suggests that the next transition might be from administrators to economists as budgeting takes on more of the planning function.

Most important, perhaps, are the differen- tial informational requirements of planning, control, and management processes. Informa- tional needs differ in terms of time spans, levels of aggregation, linkages with organiza- tional and operating units, and input-out- put foci. The apparent solution is to design a system that serves the multiple needs of budgeting. Historically, however, there has been a strong tendency to homogenize in- formational structures and to rely on a sin- gle classification scheme to serve all budget- ary purposes. For the most part, the infor- mational system has been structured to meet the purposes of control. As a result, the type of multiple-purpose budget system envisioned by PPB has been avoided.

An examination of budget systems should reveal whether greater emphasis is placed at the central levels on planning, management, or control. A planning orientation focuses on the broadest range of issues: What are the long-range goals and policies of the govern- ment and how are these related to particu- lar expenditure c h o i c e s? What criteria should be used in appraising the requests of the agencies? Which programs should be in- itiated or terminated, and which expanded or c u r t a i e d? A management orientation deals with less fundamental issues: What is the best way to organize for the accomplish- ment of a prescribed task? Which of several staffing alternatives achieves the most effec- tive relationship between the central and field offices? Of the various grants and proj- ects proposed, which should be approved? A control orientation deals with a relatively narrow range of concerns: How can agencies be held to the expenditure ceilings estab- lished by the legislature and chief executive? What reporting procedures should be used to

enforce propriety in expenditures? What limits should be placed on agency spending for personnel and equipment?

It should be clear that every budget system contains planning, management, and control features. A control orientation means the subordination, not the absence, of planning and management functions. In the matter of orientations, we are dealing with relative emphases, not with pure dichotomies. The germane issue is the balance among these vital functions at the central level. Viewed centrally, what weight does each have in the design and operation of the budget system?

The Stages of Budget Reform

The framework outlined above suggests a useful approach to the study of budget re- form. Every reform alters the planning-man- agement-control balance, sometimes inad- vertently, usually deliberately. Accordingly, it is possible to identify three successive stages of reform. In the first stage, dating roughly from 1920 to 1935, the dominant emphasis was on developing an adequate sys- tem of expenditure c o n t r o 1. Although planning and management considerations were not altogether absent (and indeed oc- cupied a prominent role in the debates lead- ing to the Budget and Accounting Act of 1921), they were pushed to the side by what was regarded as the first priority, a reliable system of expenditure accounts. The second stage came into the open during the New Deal and reached its zenith more than a decade later in the m o v e m e n t for per- formance b u d g e ti n g. The management orientation, paramount during -this period, made its mark in the reform of the appropri- ation structure, development of management improvement and work measurement pro- grams, and the focusing of budget preparation on the work and activities of the agencies. The third stage, the full emergence of which must await the institutionalization of PPB, can be traced to earlier efforts to link planning and budgeting as well as to the analytic criteria of welfare economics, but its recent development is a product of modem informational and de- cisional technologies such as those pioneered in the Department of Defense.

PPB is predicated on the primacy of the

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246 PUBLIC ADMINISTRATION REVIEW

planning function; yet it strives for a multi- purpose budget system that gives adequate and necessary attention to the control and management a r e a s. Even in embryonic stage, PPB envisions the development of crosswalk grids for the conversion of data from a planning to a management and con- trol framework, and back again. PPB treats the three basic functions as compatible and complementary elements of a budget system, though not as coequal aspects of central bud- geting. In ideal form, PPB would centralize the planning function and delegate primary managerial and control responsibilities to the supervisory and operating levels respec- tively.

In the modem genesis of budgeting, efforts to improve planning, management, and con- trol made common cause under the popular banner of the executive-budget concept. In the goals and lexicon of the first reformers, budgeting meant executive budgeting. The two were inseparable. There was virtually no dissent from Cleveland's dictum that "to be a budget it must be prepared and sub- mitted by a responsibile executive . .3 Whether from the standpoint of planning, management or control, the executive was deemed in the best position to prepare and execute the budget. As Cleveland argued in 1915, only the executive "could think in terms of the institution as a whole," and, therefore, he "is the only one who can be made responsible for leadership."4

The executive budget idea also took root in the administrative integration movement, and here was allied with such reforms as functional consolidation of agencies, elimina- tion of independent boards and commissions, the short ballot, and strengthening the chief executive's appointive and removal powers. The chief executive often was likened to the general manager of a corporation, the Bud- get Bureau serving as his general staff.

Finally, the executive budget was intended to strengthen honesty and efficiency by re- stricting the discretion of administrators in this role. It was associated with such innova- tions as centralized purchasing and competi-

8Frederick A. Cleveland, "Evolution of the Budget Idea in the United States," Annals of the American Academy of Political and Social Science, LXII (1915), 16.

4 Ibid., p. 17.

tive bidding, civil service reform, uniform accounting procedures, and expediture audits.

The Control Orientation

In the drive for executive budgeting, the various goals converged. There was a radi- cal parting of the ways, however, in the con- version of the budget idea into an opera- tional reality. Hard choices had to be made in the design of expenditure accounts and in the orientation of the budget office. On both counts, the control orientation was predom- inant.

In varying degrees of itemization, the ex- penditure classifications established during the first wave of reform were based on ob- jects-of-expenditure, with detailed tabula- tions of the myriad items required to operate an administrative unit-personnel, fuel, rent, office supplies, and other inputs. On these "line-itemizations" were built technical rou- tines for the compilation and review of esti- mates and the disbursement of funds. The leaders in the movement for executive budgeting, however, envisioned a system of functional classifications focusing on the work to be accomplished. They regarded objects-of- expenditure as subsidiary data to be included for informational purposes. Their preference for functional accounts derived from their conception of the budget as a planning in- strument, their disdain for objects from the contemporary division between politics and administration.5 The Taft Commission vigor- ously opposed object-of-expenditure appro- priations and recommended that expendi- tures be classified by class of work, organiza- tional unit, character of expense, and method of financing. In its model budget, the Com- mission included several functional classifica- tions. 6

In the establishment of a budget system for New York City by the Bureau of Munici- pal R e s e a r c h, there was an historic con-

5 See Frank J. Goodnow, "The Limit of Budgetary Control," Proceedings of the American Political Sci- ence Association (Baltimore: 1913), p. 72; also William F. Willoughby, "Allotment of Funds by Executive Offi- cials, An Essential Feature of Any Correct Budgetary System," ibid., pp. 78-87.

6 U.S., President's Commission on Economy and Ef- ficiency, The Need for a National Budget (Washing- ton: 1912), pp. 210-213.

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PPBS SYMPOSIUM 247

frontation between diverse conceptions of budgeting.

In evolving suitable techniques, the Bureau soon faced a conflict between functional and object budgeting. Unlike almost all other budget systems which began on a control footing with object classifications, the Bureau turned to control (and the itemization of objects) only after trial-and-error experimen- tation with program methods.

When confronted with an urgent need for effective control over administration, the Bu- reau was compelled to conclude that this need was more critical than the need for a planning-functional emphasis. "Budget re- form," Charles Beard once wrote, "bears the imprint of the age in which it originated." 7 In an age when personnel and purchasing controls were unreliable, the first consider- ation was how to prevent administrative im- proprieties.

In the opinion of those who were in charge of the development of a budget procedure, the most impor- tant service to be rendered was the establishing of central controls so that responsibility could be located and enforced through elected executives.... The view was, therefore, accepted, that questions of administra- tion and niceties of adjustment must be left in abey- ance until central control has been effectively estab- lished and the basis has been laid for careful scrutiny of departmental contracts and purchases as well as de- partmental work.8

Functional accounts had been designed to facilitate rational program decisions, not to deter officials from misfeasance. "The classi- fication by 'functions' affords no protection; it only operates as a restriction on the use which may be made of the services." 9 The detailed itemization of objects was regarded as desirable not only "because it provides for the utilization of all the machinery of control which has been provided, but it also admits to a much higher degree of perfec- tion than it has at present attained." 10

With the introduction of object accounts, New York City had a three-fold classifica- tion of expenditures: (1) by organizational units; (2) by functions; and (3) by objects.

7 Charles A. Beard, "Prefatory Note," ibid., p. vii. 8 New York Bureau of Municipal Research, "Some

Results and Limitations of Central Financial Control in New York City," Municipal Research, LXXXI (1917), 10.

9"Next Steps . . .," op. cit., p. 39. 10 "Next Steps . . .", op. cit., p. 67.

In a sense, the Bureau of Municipal Re- search was striving to develop a budget sys- tem that would serve the multiple purposes of budgeting simultaneously. To the Bu- reau, the inclusion of more varied and de- tailed data in the budget was a salutory trend; all purposes would be served and the public would have a more complete picture of government spending. Thus the Bureau "urged from the beginning a classification of costs in as many different ways as there are stories to be told." 11 But the Bureau did not anticipate the practical difficulties which would ensue from the multiple classification scheme. In the 1913 appropriations act

there were 3992 distinct items of appropriation. Each constituted a distinct apropriation, besides which there was a further itemization of positions and salaries of personnel that multiplied this number several times, each of which operated as limitations on administra- tive discretion.12

This predicament confronted the Bureau with a direct choice between the itemization of objects and a functional classification. As a solution, the Bureau recommended reten- tion of object accounts and the total "de- functionalization" of the budget; in other words, it gave priority to the objects and the control orientation they manifested. Once installed, o b j e c t controls rapidly gained stature as an indispensable deterrent to ad- ministrative misbehavior. Amelioration of the adverse effects of multiple classifications was to be accomplished in a different man- ner, one which would strengthen the plan- ning and management processes. The Bu- reau postulated a fundamental distinction between the purposes of budgets and appro- priations, and between the types of classifi- cation suitable for each.

. . . an act of appropriation has a single purpose-that of putting a limitation on the amount of obligations which may be incurred and the amount of vouchers which may be drawn to pay for personal services, sup- plies, etc. The only significant classification of appro- priation items, therefore, is according to persons to whom drawing accounts are given and the classes of things to be bought.18

Appropriations, in sum, were to be used as statutory controls on spending. In its "Next Steps" proposals, the Bureau recom-

""Some Results and Limitations . . .", op. cit., p. 9. 12 "Next Steps.. .", op. cit, p. 35. 18 Ibid, p. 7.

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248 PUBLIC ADMINISTRATION REVIEW

mended that appropriations retain "exactly the same itemization so far as specifications of positions and compensations are con- cerned and, t h e r e f o r e, the same protec- tion." 14

Budgets, on the other hand, were regarded as instruments of planning and publicity. They should include "all the details of the work plans and specifications of cost of work." 15 In addition to the regular object and organization classifications, the budget would report the "total cost incurred, clas- sified by functions-for determining ques- tions of policy having to do with service rendered as well as to be rendered, and lay- ing a foundation for appraisal of results." 16 The Bureau also recommended a new in- strument, a work program, which w o u 1 d furnish "a detailed schedule or analysis of each function, activity, or process within each organization unit. This analysis would give the total cost and the unit cost wherever standards were established." 17

Truly a far-sighted conception of budget- ingl There would be three documents for the three basic functions of budgeting. Al- though the Bureau did not use the analytic framework suggested above, it seems that the appropriations were intended for control purposes, the budget for planning purposes, and the work program for management pur- poses. Each of the three documents would have its specialized information scheme, but jointly they would comprise a multipurpose budget system not very different from PPB, even though the language of crosswalking or systems analysis was not used.

Yet the plan failed, for in the end the Bu- reau was left with object accounts pegged to a control orientation. The Bureau's distinc- tion between budgets and appropriations was not well understood, and the work-pro- gram idea was rejected by New York City on the ground that adequate accounting backup was lacking. The Bureau had failed to recognize that the conceptual distinction between budgets and appropriations tends to break down under the stress of informa- tional demands. If the legislature appropri-

""'Next Steps. . .", p. 39. 1 "Some Results and Limitations . . .", op. cit., p. 7. 1" Ibid., p. 9. 17 "Next Steps. . .", op. cit., p. 30.

ates by objects, the budget very likely will be classified by objects. Conversely, if there are no functional accounts, the prospects for in- cluding such data in the budget are dimin- ished substantially. As has almost always been the case, the budget came to mirror the appropriations act; in each, objects were paramount. It remains to be seen whether PPB will be able to break this interlocking informational pattern.

By the early 1920's the basic functions of planning and management were over- looked by those who carried the gospel of budget reform across the nation. First gener- ation budget workers concentrated on per- fecting and spreading the widely approved object-of-expenditure approach, and budget writers settled into a nearly complete preoc- cupation with forms and with factual de- scriptions of actual and recommended pro- cedures. Although ideas about the use of the budget for planning and management pur- poses were retained in Buck's catalogs of "approved" practices,18 they did not have sufficient priority to challenge tradition.

From the start, Federal budgeting, was placed on a control, object-of-expenditure footing, the full flavor of which can be per- ceived in reading Charles G. Dawes' docu- mentary on The First Year of the Budget of The United States. According to Dawes,

the Bureau of the Budget is concerned only with the humbler and routine business of Government. Unlike cabinet officers, it is concerned with no question of policy, save that of economy and efficiency.1

This distinction fitted neatly with object classifications that provided a firm account- ing base for the routine conduct of govern- ment business, but no information on policy implications of public expenditures. Fur- thermore, in its first decade, the Bureau's 'tiny staff (40 or fewer) had to coordinate a multitude of well-advertised economy drives which shaped the job of the examiner as being that of reviewing itmized estimates to pare them down. Although Section 209 of the Budget and Accounting Act had author- ized the Bureau to study and recommend im- provements in the organization and admin-

18See A. E. Buck, Public Budgeting (New York: 1929), pp. 181-88.

" Charles G. Dawes, The First Year of the Budget of the United States (New York: 1923), preface, p. ii.

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PPBS SYMPOSIUM 249

istrative practices of Federal agencies, the Bureau was overwhelmingly preoccupied with the business of control.

The Management Orientation

Although no single action represents the shift from a control to a management orien- tation, the turning point in this evolution probably came with the New Deal's broaden- ing perspective of government responsi- bilities.

During the 1920's and 1930's, occasional voices urged a return to the conceptions of budgeting advocated by the early reformers. In a notable 1924 article, Lent D. Upson argued vigorously that "budget procedure had stopped halfway in its development," and he proposed six modifications in the form of the budget, the net effect being a shift in emphasis from accounting control to functional accounting.20 A similar position was taken a decade later by Wylie Kilpatrick who insisted that "the one fundamental basis of expenditure is functional, an accounting of payments for the services performed by government." 21

Meanwhile, gradual changes were prepar- ing the way for a reorientation of budgeting to a management mission. Many of the administrative abuses that had given rise to object controls were curbed by statutes and regulations and by a general upgrading of the public service. Reliable accounting sys- tems were installed and personnel and pur- chasing reforms introduced, thereby freeing budgeting from some of its watchdog chores. The rapid growth of government activities and expenditures made it more difficult and costly for central officials to keep track of the myriad objects in the budget. With ex- pansion, the bits and pieces into which the objects were itemized became less and less sig- nificant, while the aggregate of activities per- formed became more significant. With ex- pansion, there was heightened need for cen- tral management of the incohesive sprawl of

20 Lent D. Upson, "Half-time Budget Methods," The Annals of the American Academy of Political and So- cial Science, CXIII (1924), 72.

21 Wylie Kilparrick, "Classification and Measurement of Public Expenditure", The Annals of the American Academy of Political and Social Science, C.XXXIII (1936), 20.

administrative agencies. The climb in activities and expenditures

also signaled radical changes in the role of the budget system. As long as government was considered a "necessary evil," and there was little recognition of the social value of pub- lic expenditures, the main function of budgeting was to keep spending in check. Because the outputs were deemed to be of limited and fixed value, it made sense to use the budget for central control over in- puts. However, as the work and accomplish- ments of public agencies came to be regarded as benefits, the task of budgeting was rede- fined as the effective marshalling of fiscal and organizational resources for the attain- ment of benefits. This new posture focused attention on the problems of managing large programs and organizations, and on the op- portunities for using the budget to extend ex- ecutive hegemony over the dispersed admin- istrative structure.

All these factors converged in the New Deal years. Federal expenditures rose rapidly from $4.2 billion in 1932 to $10 bil- lion in 1940. Keynesian economics (the full budgetary implications of which are emerg- ing only now in PPB) stressed the relation- ship between public spending and the con- dition of the economy. The President's Committee on Administrative Management (1937) castigated the routinized, control- minded approach of the Bureau of the Budget and urged that budgeting be used to coordinate Federal activities under presiden- tial leadership. With its transfer in 1939 from the Treasury to the newly-created Ex- ecutive Office of the President, the Bureau was on its way to becoming the leading man- agement arm of the Federal Government. The Bureau's own staff was increased ten- fold; it developed the administrative man- agement and statistical coordination func- tions that it still possesses; and it installed apportionment procedures for budget execu- tion. More and more, the Bureau was staffed from the ranks of public administra- tion rather than from accounting, and it was during the Directorship of Harold D. Smith (1939-46) that the Bureau substantially em- braced the management orientation.22 Ex-

22 See Harold D. Smith, The Management of Your Government (New York: 1945).

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250 PUBLIC ADMINISTRATION REVIEW

ecutive Order 8248 placed the President's imprimatur on the management philosophy. It directed the Bureau

to keep the President informed of the progress of activities by agencies of the Government with respect to work proposed, work actually initiated, and work completed, together with the relative timing of work between the several agencies of the Government; all to the end that the work programs of the several agencies of the executive branch of the Government may be coordinated and that the monies appropriated by the Congress may be expended in the most economical manner possible to prevent overlapping and duplica- tion of effort.

Accompanying the growing management use of the budget process for the appraisal and improvement of administrative per- formance and the scientific management movement with its historical linkage to pub- lic administration were far more relevant applications of managerial cost accounting to governmental operations. Government agen- cies sought to devise performance standards and the rudimentary techniques of work measurement were introduced in several agencies including the Forest Service, the Census Bureau, and the Bureau of Reclama- tion.23 Various professional associations de- veloped grading systems to assess adminis- trative performance as well as the need for public services. These crude and unscientific methods were the forerunners of more sophisticated and objective techniques. At the apogee of these efforts, Clarence Ridley and Herbert Simon published Measuring Municipal Activities: A Survey of Suggested Criteria for Appraising Administration, in which they identified five kinds of measure- ment- (1) needs, (2) results, (3) costs, (4) ef- fort, and (5) performance-and surveyed the obstacles to the measurement of needs and results. The latter three categories they combined into a measure of administrative efficiency. This study provides an excellent inventory of the state of the technology prior to the breakthrough made by cost-benefit and systems analysis.

At the close of World War II, the manage- ment orientation was entrenched in all but one aspect of Federal budgeting-the classi- fication of expenditures. Except for isolated cases (such as TVA's activity accounts and the project structure in the Department of

23 Public Administration Service, The Work Unit in Federal Administration (Chicago: 1937).

Agriculture), the traditional object accounts were retained though the control function had receded in importance. In 1949 the Hoover Commission called for alterations in budget classifications consonant with the management orientation. It recommended "that the whole budgetary concept of the Federal Government should be refashioned by the adoption of a budget based upon func- tions, activities, and projects." 24 To create a sense of novelty, the Commission gave a new label-performance budgeting-to what had long been known as functional or ac- tivity budgeting. Because its task force had used still another term-program budgeting -there were two new terms to denote *the budget innovations of that period. Among writers there was no uniformity in usage, some preferring the "program budgeting" label, others "performance budgeting," to de- scribe the same things. The level of confu- sion has been increased recently by the as- sociation of the term "program budgeting" (also the title of the Rand publication edited by David Novick) with the PPB movement.

Although a variety of factors and expecta- tions influenced the Hoover Commission, and the Commission's proposals have been interpreted in many ways, including some that closely approximate the PPB concept, for purposes of clarity, and in accord with the control-management-planning framework, performance budgeting as it was generally- understood and applied must be distin- guished from the emergent PPB idea. The term "performance budgeting" is hereafter used in reference to reforms set in motion by the Hoover Commission and the term "program budgeting" is used in conjunction with PPB.

Performance budgeting is management- oriented; its principal thrust is to help ad- ministrators to assess the work-efficiency of operating units by (1) casting budget cate- gories in functional terms, and (2) providing work-cost measurements to facilitate the effi- cient performance of prescribed activities. Generally, its method is particularistic, the reduction of work-cost data unto discrete, measurable units. Program budgeting (PPB) is planning-oriented; its main goal is to ra-

24 U.S. Commission on Organization of the Executive Branch of the Government, Budgeting and Account- ing (Washington: 1949), 8.

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PPBS SYMPOSIUM 251

tionalize policy making by providing (1) data on the costs and benefits of alternative ways of attaining proposed public objectives, and (2) output measurements to facilitate the effective attainment of chosen objectives. As a policy device, program budgeting departs from simple engineering models of effi- ciency in which the objective is fixed and the quantity of inputs and outputs is ad- justed to an optimal relationship. In PPB, the objective itself is variable; analysis may lead to a new statement of objectives. In order to enable budget makers to evaluate the costs and benefits of alternative expendi- ture options, program budgeting focuses on expenditure aggregates; the details come into play only as they contribute to an analy- sis of the total (the system) or of marginal trade-offs among competing proposals. Thus, in this macroanalytic approach, the accent is on comprehensiveness and on grouping data into categories that allow comparisons among alternative expenditure mixes.

Performance budgeting derived its ethos and much of its technique from cost account- ing and scientific management; program budgeting has drawn its core ideas from eco- nomics and systems analysis. In the per- formance budgeting literature, budgeting is described as a "tool of management" and the budget as a "work program." In PPB, budgeting is an allocative process among competing claims, and the budget is a state- ment of policy. Chronologically, there was a gap of several years between the bloom of performance budgeting and the first articu- lated conceptions of program budgeting. In the aftermath of the first Hoover report, and especially during the early 1950's, there was a plethora of writings on the administrative advantages of the performance budget. Sub- stantial interest in program budgeting did not emerge until the mid-1950's when a number of economists (including Smithies, Novick, and McKean) began to urge reform of the Federal budget system. What the economists had in mind was not the same thing as the Hoover Commission.

In line with its management perspective, the Commission averred that "the all-impor- tant thing in budgeting is the work or serv- ice to be accomplished, and what that work or service will cost." 25 Mosher followed this

26 Ibid.

view closely in writing that "the central idea of the performance budget . . . is that the budget process be focused upon programs and functions-that is, accomplishments to be achieved, work to be done."26 But from the planning perspective, the all-important thing surely is not the work or service to be ac-

complished but the objectives or purposes to be fulfilled by the investment of public funds. Whereas in performance budgeting, work and activities are treated virtually as ends in themselves, in program budgeting work and services are regarded as intermedi- ate aspects, the process of converting re- sources into outputs. Thus, in a 1954 Rand paper, Novick defined a program as "the sum of the steps or interdependent activities which enter into the attainment of a speci- fied objective. The program, therefore, is the end objective and is developed or budg- eted in terms of all the elements necessary to its execution." 27 Novick goes on to add, "this is not the sense in which the govern- ment budget now uses the term."

Because the evaluation of performance and the evaluation of program are distinct budget functions, they call for different methods of classification which serves as an intermedi- ate layer between objects and organiza- tions. The activities relate to the functions and work of a distinct operating unit; hence their classification ordinarily conforms to or- ganizational lines. This is the type of classi- fication most useful for an administrator who has to schedule the procurement and utiliza- tion of resources for the production of goods and services. Activity classifications gather under a single rubric all the expenditure data needed by a manager to run his unit. The evaluation of programs, however, re- quires an end-product classification that is oriented to the mission and purposes of gov- ernment. This type of classification may not be very useful for the manager, but it is of great value to the budget maker who has to decide how to allocate scarce funds among competing claims. Some of the difference between end-product and activity classifica- tions can be gleaned by comparing the Coast Guard's existing activity schedule with

20 Frederick C. Mosher, Program Budgeting: Theory and Practice (Chicago: 1954), p. 79.

27 David Novick, Which Program Do We Mean in "Program Budgeting?" (Santa Monica: 1954), p. 17.

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252 PUBLIC ADMINISTRATION REVIEW

the proposed program structure on the last page of Bulletin 66-3. The activity structure which was developed under the aegis of per- formance budgeting is geared to the operat- ing responsibilities of the Coast Guard: Vessel Operations, Aviation Operations, Re- pair and Supply Facilities, and others. The proposed program structure is hinged to the large purposes sought through Coast Guard operations: Search and Rescue, Aids to Navi- gation, Law Enforcement, and so on.

It would be a mistake to assume that per- formance techniques presuppose program budgeting or that it is not possible to collect performance data without program classifica- tions. Nevertheless, the view has gained hold that a program budget is "a transitional type of budget between the orthodox (traditional) character and object budget on the one hand and performance budget on the other." 28 Kammerer and Shadoan stress a similar con- nection. The former writes that "a perform- ance budget carries the program budget one step further: into unit costs." 29 Shadoan "en- visions 'performance budgeting' as an exten- sion of . . . the program budget concept to which the element of unit work measurement has been added." 30 These writers ignore the divergent functions served by perform- ance and program budgets. It is possible to devise and apply performance techniques without relating them to, or having the use of, larger program aggregates. A cost ac- countant or work measurement specialist can measure the cost or effort required to per- form a repetitive task without probing into the purpose of the work or its relationship to the mission of the organization. Work measurement-"a method of establishing an equitable relationship between the volume of work performed and manpower utilized"-31 is only distantly and indirectly related to the process of determining governmental pol- icy at the higher levels. Program classifica-

28 Lennex L. Meak and Kathryn W. Killian, A Man- ual of Techniques for the Preparation, Consideration, Adoption, and Administration of Operating Budgets (Chicago: 1963), p. 11. Il Gladys M. Kammerer, Program Budgeting: An

Aid to Understanding (Gainesville: 1959), p. 6. '0 Arlene Theuer Shadean, Preparation, Review, and

Execution of the State Operating Budget (Lexington: 1963), p. 13.

81 U.S. Bureau of the Budget, A Work Measurement System (Washington: 1950), p. 2.

tions are vitally linked to the making and implementation of policy through the allo- cation of public resources. As a general rule, performance budgeting is concerned with the process of work (what methods should be used) while program budgeting is concerned with the purpose of work (what activities should be authorized).

Perhaps the most reliable way to describe this difference is to show what was tried and accomplished under performance budgeting. First of all, performance budgeting led 'to the introduction of activity classifications, the management-orientation of which has already been discussed. Second, narrative descrip- tions of program and performance were added to the budget document. These state- ments give the budget-reader a general pic- ture of the work that will be done by the organizational unit requesting funds. But unlike the analytic documents currently being developed under PPB, the narratives have a descriptive and justificatory function; they do not provide an objective basis for eval- uating the cost-utility of an expenditure. In- deed, there hardly is any evidence that the narratives have been used for decision making; rather they seem best suited for giv- ing the uninformed outsider some glimpses of what is going on inside.

Third, performance budgeting spawned a multitude of work-cost measurement explora- tions. Most used, but least useful, were the detailed workload statistics assembled by administrators to justify their requests for additional funds. On a higher level of sophistication were attempts to apply the techniques of scientific management and cost accounting to the development of work and productivity standards. In these efforts, the Bureau of 'the Budget had a long in- volvement, beginning with the issuance of the trilogy of work measurement handbooks in 1950 and reaching its highest development in the productivity-measurement studies that were published in 1964. All 'these applica- tions were at a level of detail useful for man- agers with operating or supervisory responsi- bilities, but of scant usefulness for top-level officials who have to determine organiza- tional objectives and goals. Does it really help top officials if they know that it cost $0.07 to wash a pound of laundry or that

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PPBS SYMPOSIUM 253

the average postal employee processes 289 items of mail per hour? These are the main fruits of performance measurements, and they

have an importance place in the manage-

ment of an organization. They are of great

value to the operating official who has the limited function of getting a job done, but they would put a crushing burden on the policy maker whose function is to map the

future course of action.

Finally, the management viewpoint led to significant departures from PPB's principle that the expenditure accounts should show total systems cost. The 1949 National Se- curity Act (possibly the first concrete result of the Hoover report) directed the segrega-

tion of capital and operating costs in the de-

fense budget. New York State's performance -budgeting experiment for TB hospitals separated expenditures into cost centers (a concept derived from managerial cost ac- counting) and within each center into fixed and variable costs. In most manpower and work measurements, labor has been isolated from other inputs. Most important, in many states and localities (and implicitly in Federal budgeting) the cost of continuing existing programs has been separated from the cost of new or expanded programs. This separa-

tion is useful for managers who build up a budget in terms of increments and decre- ments from the base, but it is a violation of program budgeting's working assumption that all claims must be pitted against one an- other in the competition for funds. Like- wise, the forms of separation previously mentioned make sense from the standpoint of the manager, but impair the planner's cap- ability to compare expenditure alternatives.

The Planning Orientation

The foregoing has r e v e a 1 e d some of the factors leading to the emergence of the planning orientation. Three important de- velopments influenced the evolution from a management to a planning orientation.

(1) Economic analysis-macro and micro -has had an increasing part in the shaping of fiscal and budgetary policy.

(2) The development of new informa- tional and decisional technologies has

enlarged the applicability of objective analysis to policy making. And,

(3) There has been a gradual convergence of planning and budgetary processes.

Keynesian economics with its macroanaly- tic focus on the impact of governmental ac- tion on the private sector had its genesis in the underemployment economy of the Great Depression. In calling attention to the op- portunities for attaining full employment by means of fiscal policy, the Keynesians set into motion a major restatement of the cen- tral budget function. From the utilization of

fiscal policy to achieve economic objectives, it was but a few steps to the utilization of the budget process to achieve fiscal objec- tives. Nevertheless, between the emergence and the victory of the new economics, there was a lapse of a full generation, a delay due primarily to the entrenched balanced-budget ideology. But the full realization of the bud- get's economic potential was stymied on the revenue side by static tax policies and on the expenditure side by status spending policies.

If the recent tax policy of the Federal Gov- ernment is evidence that the new economics has come of age, it also offers evidence of the long-standing failure of public officials to use the taxing power as a variable constraint on the economy. Previously, during normal times, the tax structure was accepted as given, and the task of fiscal analysis was to forecast future tax yields so as to ascertain how much would be available for expenditure. The new ap- proach treats taxes as variable, to be altered periodically in accord with national policy and economic conditions. Changes in tax rates are not to be determined (as they still are in virtually all States and localities) by how much is needed to cover expenditures but by the projected impact of alternative tax structures on the economy.

It is more than coincidental that the ad- vent of PPB has followed on the heels of the explicit utilization of tax policy to guide the economy. In macroeconomics, taxes and expenditures are m i r r o r images of one another; a tax cut and an expenditure in- crease have comparable impacts. Hence, the hinging of tax policy to economic considera- tions inevitably led to the similar treatment of expenditures. But t h e r e were (and re- main) a number of obstacles to the utiliza-

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254 PUBLIC ADMINISTRATION REVIEW

tion of the budget as a fiscal tool. For one thing, the conversion of the budget process to an economic orientation probably was slowed by the Full Employment Act of 1946 which established the Council of Economic Advisers and transferred the Budget Bu- reau's fiscal analysis function to the Council. The institutional separation between the CEA and the BOB and between fiscal policy and budget making was not compensated by cooperative work relationships. Economic analysis had only a slight impact on expendi- ture policy. It offered a few guidelines (for example, that spending should be increased during recessions) and a few ideas (such as a shelf of public works projects), but it did not feed into the regular channels of budget- ing. The business of preparing the budget was foremost a matter of responding to agency spending pressures, not of respond- ing to economic conditions.

Moreover, expenditures (like taxes) have been treated virtually as givens, to be deter- mined by the unconstrained claims of the spending units. In the absence of central pol- icy instructions, the agencies have been al- lowed to vent their demands without prior restraints by central authorities and without an operational set of planning guidelines. By the time the Bureau gets into the act, it is faced with the overriding task of bringing estimates into line with projected resources. In other words, the Bureau has had a budget- cutting function, to reduce claims to an ac- ceptable level. The President's role has been similarly restricted. He is the gatekeeper of Federal budgeting. He directs the pace of spending increases by deciding which of the various expansions proposed by the agencies shall be included in the budget. But, as the gatekeeper, the President rarely has been able to look back at the items that have previ- ously passed through the gate; his attention is riveted to those programs that are de- partures from the established base. In their limited roles, neither the Bureau nor the President has been able to inject fiscal and policy objectives into the forefront of bud- get preparation.

It will not be easy to wean budgeting from its utilization as an administrative pro- cedure for financing ongoing programs to a decisional process for determining the range

and direction of public objectives and the government's involvement in the economy. In the transition to a planning emphasis, an important step was the 1963 hearings of the Joint Economic Committee on The Federal Budget as an Economic Document. These

hearings and the pursuant report of the JEC explored the latent policy opportunities in budget making. Another development was

the expanded time horizons manifested by the multiyear expenditure projections intro-

duced in the early 1960's. Something of a breakthrough was achieved via the revela- tion that the existing tax structure would yield cumulatively larger increments of un- committed funds-estimated as much as $5(

billion by 1970-which could be applied to a number of alternative uses. How much of the funds should be "returned" to the private sec tor through tax reductions and how much through expenditure increases? How

much should go to the States and localities under a broadened system of Federal grants?

How much should be allocated to the re- building of cities, to the improvement of education, or to the eradication of racial in- justices. The traditional b u d g e t system lacked the analytic tools to cope with these questions, though decisions ultimately would be made one way or another. The expan- sion of the time horizon from the single year to a multiyear frame enhances the op- portunity for planning and analysis to have an impact on future expenditure decisions. With a one-year perspective, almost all op- tions have been foreclosed by previous com-

mitments; analysis is effective only for the increments provided by self-generating reve-

nue increases or to the extent that it is feasible to convert funds from one use to an- other. With a longer time span, however, many more options are open, and economic analysis can have a prominent part in deter- mining which course of action to pursue.

So much for the macroeconomic trends in budget reform. On the microeconomic side, PPB traces its lineage to the attempts of welfare economists to construct a science of finance predicted on the principle of margi- nal utility. Such a science, it was hoped, would furnish objective criteria for deter- mining the optimal allocation of public funds among competing uses. By appraising

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PPBS SYMPOSIUM 255

the marginal costs and benefits of alterna- tives (poor relief versus battleships in Pi- gou's classic example), it would be possible to determine which combination of expendi- tures afforded maximum utility. The quest

for a welfare function provided the con- ceptual underpinning for a 1940 article on

"The Lack of a Budgetary Theory" in which V. 0. Key noted the absence of a theory which would determine whether "to allo- cate x dollars to activity A instead of activity B." 32 In terms of its direct contribution to budgetary practice, welfare economics has been a failure. It has not been possible to dis- till the conflicts and complexities of political life into a welfare criterion or homogeneous distribution f o r m u 1 a. But stripped of its normative and formal overtones, its princi- ples have been applied to budgeting by economists such as Arthur Smithies. Smithies has formulated a budget rule that "expend- iture proposals should be considered in the

light of the objectives they are intended to further, and in general final expenditure de-

cisions should not be made until all claims

on the budget can be considered." 33 PPB is the application of this rule to budget prac- tice. By structuring expenditures so as to juxtapose substitutive elements within pro- gram categories, and by analyzing the costs and benefits of the various substitutes, PPB has opened the door to the use of marginal analysis in budgeting.

Actually, the door was opened somewhat by the development of new decisional and informational technologies, the second item on the list of influences in the evolution of the planning orientation. Without the avail- ability of the decisional-informational capa- bility provided by cost-benefit and systems analysis, it is doubtful that PPB would be part of the budgetary apparatus today. The new technologies make it possible to cope with the enormous informational and analy- tic burdens imposed by PPB. As aids to cal- culation, they furnish a methodology for the analysis of alternatives, thereby expanding the range of decision-making in budgeting.

Operations research, the oldest of these

32 V. 0. Key, "The Lack of a Budgetary Theory," The American Political Science Review, XXXIV (1940), 1138.

38 Arthur Smithies, The Budgetary Process in the United States (New York: 1955), p. 16.

technologies, grew out of complex World War II conditions that required the optimal coordination of manpower, material, and equipment to achieve defense objectives. Op- erations research is most applicable to those repetitive operations where the opportunity for qualtification is highest. Another tech- nology, cost-benefit analysis, was intensively adapted during the 1950's to large-scale water resource investments, and subsequently to

many other governmental functions. Systems analysis is the most global of these tech- nologies. It involves the skillful analysis of the major factors that go into the attain- ment of an interconnected set of objectives. Systems analysis has been applied in DOD to the choice of weapons systems, the location of military bases, and the determination of sealift-airlift requirements. Although the ex- tension of these technologies across-the-board to government was urged repeatedly by members of the Rand Corporation during the 1950's, it was DOD's experience that set the stage for the current ferment. It cannot be doubted that the coming of PPB has been pushed ahead several years or more by the "success story" in DOD.

The third stream of influence in the trans- formation of the budget function has been a closing of the gap between planning and budgeting. Institutionally and operationally, planning and budgeting have run along separate tracks. The national government has been reluctant to embrace central planning of any sort because of identification with socialist management of the economy. The closest thing we have had to a central plan- ning agency was the National Resources Planning Board in the 1939-1943 period. Cur- rently, the National Security Council and the Council of Economic Advisors have plan- ning responsibilities in the defense and fis- cal areas. As far as the Bureau of the Budget is concerned, it has eschewed the planning function in favor of control and manage- ment. In many States and localities, plan- ning and budgeting are handled by separate organizational units: in the States, because limitations on debt financing have encour- aged the separation of the capital and oper- ating budgets; in the cities, because the pro- fessional autonomy and land-use preoccupa- tions of the planners have set them apart

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256 PUBLIC ADMINISTRATION REVIEW

from the budgeteers. In all governments, the appropriations

cycle, rather than the anticipation of future objectives, tends to dictate the pace and pos- ture of budgeting. Into the repetitive, one- year span of the budget is wedged all finan- cial decisions, including those that have mul- tiyear implications. As a result, planning, if it is done at all, "occurs independently of budgeting and with little relation to it." 34 Budgeting and planning, moreover, invite disparate perspectives: the one is conserva- tive and negativistic; the other, innovative and expansionist. As Mosher has noted, "budgeting and planning are apposite, if not opposite. In extreme form, the one means saving; the other, spending." 35

Nevertheless, there has been some rap- prochement of planning and budgeting. One factor is the long lead-time in the develop- ment and procurement of hardware and capital investments. The multiyear projec- tions inaugurated several years ago were a partial response to this problem. Another factor has been the diversity of government agencies involved in related functions. This has given rise to various ad hoc coordinating devices, but it also has pointed to the need for permanent machinery to integrate dis- persed activities. Still another factor has been the sheer growth of Federal activities and expenditures and the need for a rational system of allocation. The operational -code of planners contains three tenets relevant to these budgetary needs: (1) planning is fu- ture-oriented; it connects present decisions to the attainment of a desired future state of affairs; (2) planning, ideally, encompasses all resources involved in the attainment of future objectives. It strives for comprehen- siveness. The master plan is the one that brings within its scope all relevant factors; (3) planning is means-ends oriented. The allocation of resources is strictly dictated by the ends that are to be accomplished. All this is to say that planning is an economiz- ing process, t h o u g h planners are more oriented to the future than economists. It is not surprising that planners have found the traditional budget system deficient,36 nor is it

3' Mosher, op. cit., p. 47-48. 36 Ibid., p. 48. 36 See Edward C. Banfield, "Congress and the Budg-

surprising that the major reforms entailed by PPB emphasize the planning function.

Having outlined the several trends in the emerging transition to a planning orienta-

tion, it remains to mention several qualifi- cations. First, the planning emphasis is not predominant in Federal budgeting at this

time. Although PPB asserts the paramountcy of planning, PPB itself is not yet a truly operational part of the budget machinery.

We are now at the dawn of a new era in

budgeting; high noon is still a long way off. Second, this transition has not been preceded by a reorientation of the Bureau of the Bud- get. Unlike the earlier change-over from con- trol to management in which the alteration

of budgetary techniques followed the revi- sion of the Bureau's role, the c o n v e r s i o n from management to planning is taking a different course-first, the installation of new techniques; afterwards, a reformulation of the Bureau's mission. Whether this sequence

will hinder reform efforts is a matter that cannot be predicted, but it should be noted that in the present instance the Bureau can- not convert to a new mission by bringing in

a wholly new staff, as was the case in the late 1930's and early 1940's.

What Difference Does It Make?

The starting point for the author was dis- tinguishing the old from the new in budget- ing. The interpretation has been framed in analytic terms, and budgeting has been viewed historically in three stages correspond- ing to the three basic functions of budgeting. In this analysis, an attempt has been made to identify the difference between the exist- ing and the emerging as a difference be- tween management and planning orienta- tions.

In an operational sense, however, what difference does it make whether the central budget process is oriented toward planning rather than management? Does the change merely mean a new way of making deci- sions, or does it mean different decisions as well? These are not easy questions to answer, particularly since the budget system of the

et: A Planner's Criticism," The American Politicat Science Review, XLIII (1949), 1217-1227.

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PPBS SYMPOSIUM 257

future will be a compound of all three func- tions. The case for PPB rests on the assump- tion that the form in which information is classified and used governs the actions of budget makers, and, conversely, that altera- tions in form will produce desired changes in behavior. Take away the assumption that behavior follows form, and the movement for PPB is reduced to a trivial manipulation of techniques-form for form's sake without any significant bearing on the conduct of budgetary affairs.

Yet this assumed connection between roles and information is a relatively uncharted facet of the PPB literature. The behavioral side of the equation has been neglected. PPB implies that each participant will behave as a sort of Budgetary Man, a counterpart of the classical Economic Man and Simon's Admin- istrative Man.37 Budgetary Man, whatever his station or role in the budget process, is as- sumed to be guided by an unwavering com- mitment to the rule of efficiency; in every in- stance he chooses that alternative that opti- mizes the allocation of public resources.

PPB probably takes an overly mechanistic view of the impact of form on behavior and underestimates the strategic and voli- tional aspects of budget making. In the po- litical arena, data are used to influence the "who gets what" in budgets and appropria- tions. If information influences behavior, the reverse also is true. Indeed, data are more tractable than roles; participants are more likely to seek and use data which suit their preferences than to alter their behavior au- tomatically in response to formal changes.

All this constrains, rather than negates, the impact of budget form. The advocates of PPB, probably in awareness of the above limitations, have imported into budgeting men with professional commitments to the types of analysis and norms required by the new techniques, men with a background in economics and systems analysis, rather than with general administrative training.

PPB aspires to create a different environ- ment for choice. Traditionally, budgeting has defined its mission in terms of iden- tifying the existing base and proposed de- partures from it-"This is where we are;

S7 Herbert A. Simon, Administrative Behavior (New York: 1957).

where do we go from here?" PPB defines its mission in terms of budgetary objectives and purposes-"Where do we want to go? What do we do to get there?" The environment of choice under traditional circumstances is incremental; in PPB it is teletic. Presumably, these different processes will lead to different budgetary outcomes.

A budgeting process which accepts the base and examines only the increments will pro- duce decisions to transfer the present into the future with a few small variations. The curve of government activities will be continuous, with few zigzags or breaks. A budget-making process which begins with objectives will re- quire the base to compete on an equal foot- ing with new proposals. The decisions will be more radical than those made under in- cremental conditions. This does not mean that each year's budget will lack continuity with the past. There are sunk costs that have to be reckoned, and the benefits of radical changes will have to outweigh the costs of terminating prior commitments. Further- more, the extended time span of PPB will mean that big investment decisions will be made for a number of years, with each year being a partial installment of the plan. Most important, the political manifestations of sunk costs-vested interests-will bias decisions away from radical departures. The conserva- tism of the political system, therefore, will tend to minimize the decisional differences between traditional and PPB approaches. However, the very availability of analytic data will cause a shift in the balance of eco- nomic and political forces that go into the making of a budget.

Teletic and incremental conditions of choice lead to still another distinction. In budgeting, which is committed to the estab- lished base, the flow of budgetary decisions is upward and aggregative. Traditionally, the first step in budgeting, in anticipation of the call for estimates, is for each depart- ment to issue its own call to prepare and to submit a set of estimates. This call reaches to the lowest level capable of assembling its own estimates. Lowest level estimates form the building blocks for the next level where they are aggregated and reviewed and trans- mitted upward until the highest level is reached and the totality constitutes a depart-

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258 PUBLIC ADMINISTRATION REVIEW

SOME BASIC DIFFERENCES BETWEEN BUDGET ORIENTATIONS

Characteristic Control Management Planning

Personnel Skill Accounting Administration Economics

Information Focus Objects Activities Purposes

Key Budget Stage (central) Execution Preparation Pre-preparation

Breadth of Measurement Discrete Discrete/ Comprehensive activities

Role of Budget Agency Fiduciary Efficiency Policy

Decisional-Flow Upward- Upward- Downward- aggregative aggregative disaggregative

Type of Choice Incremental Incremental Teletic

Control Responsibility Central Operating Operating

Management Responsibility Dispersed Central Supervisory

Planning Responsibility Dispersed Dispersed Central

Budget-Appropriations Classifications Same Same Different

Appropriations-Organizational Link Direct Direct Crosswalk

ment-wide budget. Since budgeting is tied to a base, the building-up-from-below approach is sensible; each building block estimates the cost of what it is already doing plus the cost of the increments it wants. (The build- ing blocks, then, are decisional elements, not simply informational elements as is often as- sumed.)

PPB reverses the informational and de- cisional flow. Before the call for estimates is issued, top policy has to be made, and this policy constrains the estimates prepared be- low. For each lower level, the relevant pol- icy instructions are issued by the superior level prior to the preparation of estimates. Accordingly, the critical decisional process- that of deciding on purposes and plans-has a downward and disaggregative flow.

If the making of policy is to be antecedent to the costing of estimates, there will have to be a shift in the distribution of budget re- sponsibilities. The main energies of the Bu- reau of the Budget are now devoted to budget preparation; under PPB these energies will be centered on what we may term preprepa- ration-the stage of budget making that deals with policy and is prior to the preparation of the budget. One of the steps marking the advent of the planning orientation was the inauguration of the Spring Preview several years ago for the purpose of affording an

advance look at departmental programs. If budget-making is to be oriented to the

planning function, there probably will be a centralization of policy-making, both within and among departments. The DOD experi- ence offers some precedent for predicting that greater budgetary authority will be vested in department heads than heretofore, but there is no firm basis for predicting the de- gree of centralization that may derive from the relatedness of objectives pursued by many departments. It is possible that the mantle of central budgetary policy will be assumed by the Bureau; indeed, this is the expecta- tion in many agencies. On the other hand, the Bureau gives little indication at this time that it is willing or prepared to take this comprehensive role.

Conclusion

The various differences between the budg- etary orientations are charted in the table presented here. All the differences may be summed up in the statement that the ethos of budgeting will shift from justification to analysis. To far greater extent than hereto- fore, budget decisions will be influenced by explicit statements of objectives and by a formal weighing of the costs and benefits of alternatives.

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