Saskatchewan Alternative Budget, 2009-2010: Expenditure Management

8/14/2019 Saskatchewan Alternative Budget, 2009-2010: Expenditure Management

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Treasury Board2009- 2010 Budget Recommendations

GSPP 835 Alternative Saskatchewan BudgetProf. John Wright

Sean McConnachie200 270 499

Wednesday, April 15, 2009



INDEX

Pag

e

Strategic Plan 1

Summary of Key Issues 1

A. Government Expenditure 1

B. Government Performance 3

Policy Actions 4

A. Amendments to the Growth and Financial Security Act, 2008 4

B. Performance-Based Expenditure Management System (PBEMS) 5

C. Program Review 7

D. Performance-Based Management Framework (PBMF) 8

Communications Strategy 9

References 11



I. Strategic Plan

Over the next year, the Ministry of Finance intendeds to develop an allencompassing expenditure management framework in order to review and manage

all expenditures within the privy of the Executive Branch of government. Thisdevelopment process will be conducted over the 2009-2010 fiscal year by the

Treasury Board Branch of the Ministry of Finance. From this a consolidated systemof expenditure and performance management will be housed within the newlycreated Treasury Board Division of the Ministry of Finance.

The design of these processes will be largely based on those principles advocatedby David Good (2007); that is: (1) allow managers to manage by reducing theircurrent auditing responsibilities; and (2) re-establish and strengthen the roles of

Treasury Board (TB) within the system and (3) ensuring administrative simplicity.

This management system will be entitled the Performance–Based Expenditure

Management System (PBEMS) and will largely consist of:

• Program Review• Multiyear Strategic Budgeting• Results-Based Management

It is estimated that PBEMS will become fully operational by the beginning of thebudgetary cycle of 2010-2011.

II. Summary of Key Issues

A. Government Expenditure

In its 2008-2009 budget estimates, the government predicted that the provincewould be running a fairly significant budgetary surplus as indicated by Table 1.However, due to the current economic conditions that are facing the province, it isprojected that the government will be running a deficit for 2009-2010.

Though the projected 2009-2010 deficit is partly due to by a sudden decline inrevenues, as based in lower non-renewable resource prices and a low Canadiandollar, it is also due to constant expenditure increases over the last two decades.Although government revenues have outpaced expenditures over this timeline, ataverages of 3.7% to 3.6%, it is easy to see that revenues are much more volatilethen expenditures. Even in light of the volatility of revenues, the government hascontinued and significant expenditure growth resulting in high deficit risks as we are

witnessing in Ontario and Alberta. These trends are illustrated in Graph 1. Sincereducing expenditures to one of their lowest levels in 1997, the government hasincreased its expenses by 78% at an average increase of 4.6% per year.



This constant and significant expansion of government expenditures has resulted inthe government continually increasing its representation within the Saskatchewaneconomy. Graph 2 shows this trend since 1997. Even though the government hasbeen reducing its net debt and associated mandatory interest payments,government expenditure as a portion of the economy has been increasingconsistently at approximately 1% of GDP per annum.

The level to which government expenditures represent a portion of the provincialeconomy is placed in a different light by comparing it across jurisdictions. As isillustrated in Graph 3, Saskatchewan expenditures are significantly higher than thelevel of private sector investment within the economy. This graph also shows apossible correlation between the level of government expenditure and the level of private investment in the economy. Though this graph does not infer causality; it ispossible that a cause and effect relationship between the two variables could beheld, thus further analysis is warranted. Nevertheless, many economists from theneo-classical school believe that the level of government expenditure will have an

inverse relationship with private investment (Bernheim 1989, Ahmed and Miller2000, and Kormendi 2000). Thus the level of expenditure growth could have anegative impact on the long-term economic growth of the province.

As it is difficult to predict long-term economic outcomes, it is prudent to focus onmitigating the risks associated with potential deficit spending by limiting the growthof expenditures.

B. Government Performance

One of the main ways in which the government manages its expenditures and

program activities is through the process of performance management. This is oneof the major issues that are currently facing executive government due to currentdifficulties in its implementation and usage.

At present the Provincial Auditor evaluates the government’s performance plansand reports based on the Canadian Comprehensive Auditing Foundation’s nineprinciples as outlined in their Reporting Principles – Taking Public Performance toNew Level (2002). However, it needs to be noted that the Provincial Auditorcurrently does not assess the plans and reports that are prepared by each ministry,but rather, evaluates the guidelines that are created and administered by theMinistry of Finance. For the fiscal year of 2007-2008, the Provincial Auditor gave thegovernment a failing grade, stating that the government is only fully meeting three

of the nine principles in full with four not being met in a satisfactory manner(Saskatchewan 2007b). This is of particular concern for the provincial government,as the Ministry of Finance uses the Provincial Auditor’s evaluation as the soleindicator for its performance (Saskatchewan 2007c).

Based on these results it is important to see how and to what extent each ministryis meeting the performance criteria in regards to the publication of their individualdocuments. As the annual performance reports for 2008-2009 have not beentabled, an evaluation of these documents can only be conducted for those publicly



provided in 2007-2008. Graph 4 evaluates the government’s performancemanagement performance based on the evaluation criteria outlined in Appendix A.

This index is based on a scale of 0 to 10, with 7 being an adequate level of planning

and reporting based on the criteria. As the index illustrates, a large proportion of ministries are well below what could be considered adequate, indicating the qualityof the current performance management processes.

IV. Policy Actions

Based on the analysis provided above, it is evident that the current systems of government expenditure and performance management are not up to the task of tackling the new and evolving issues within these areas. In light of this the followingpolicy recommendations have been made for the government to implement in anattempt to mitigate the current policy issues within this area.

A. Amendments to the Growth and Financial Security Act, 2008

Recommendation

It is recommended that the government amend the Growth and Financial Security Act, 2008 so that it is more conducive with the establishment of a government wideexpenditure and performance management program.



Implementation and Structure

The amending of the Growth and Financial Security Act, 2008, will involve directalterations support the implementation and continued and effective use of an

expenditure and performance management system. The amendments that havebeen recommended are outlined in Appendix B.

These amendments are to be table for the beginning of the next parliamentarysession starting in the fall and will come into affect for the next fiscal year.

Outcomes and Implications

The main purpose of these amendments is not only to establish new fiscal tools forthe purpose of expenditure management, but is designed to increase the incentivesfor the use of existing mechanisms. By controlling government expenditures andestablishing balance budget targets at the aggregate level the government willincrease the incentives associated with the use and tabling of multi-year rolling

budget plans and Program Review. This also increases the performancemanagement of government as the medium-term performance of the governmentwill be judged based on its four-year targets.

Though the specific act of drafting and implementing amendments will not consumea significant amount of resources, its financial ramifications in the long-run could besignificant. First and foremost the implementation of these recommendations willresult in long-term expenditure cuts that will result in billions of dollars of savings(see Program Review). Though there will be substantial cuts in expenditure in thelong-run, there will be additional expenditures and human resources associatedwith this program as the process of continue program review will need staff andfinancing.

These amendments will allow the government to work towards the achievement of a sustainable future in Saskatchewan through the controlling of governmentexpenditure in both times of surplus and deficits. This will be the main tool by whichgovernment will achieve long-term fiscal sustainability.

B. Performance–Based Expenditure Management System (PBEMS)

Recommendation

It is recommended that the government establish a new and defined budgetary andperformance management system to increase the overall effectiveness andefficiency of government. It is further recommended that the government establish

this new system under the name of the Performance–Based ExpenditureManagement System (PBEMS).


The main objective of PBEMS is to re-establish and improve the central role of TBand the Provincial Comptroller within the budgetary and performance process.Based on this objective the powers of both entities will be house within a singlebranch of the Ministry of Finance. First, this involves the removal of Provincial



Comptroller’s Division and the extraction of the Treasury Board Branch from theBudget Analysis Division. From this a new independent branch of the Ministry of Finance will be created, called the Treasury Board Division. The composition of thisnewly created division is provided in Appendix C.

As is illustrated by Appendix C, this new division within the Ministry of Finance will

also house the Performance Management Branch, formally with the Budget AnalysisDivision. This will also see the creation of the Treasury Board Operations Secretariatwhich will deal with all matters pertaining to the Treasury Board CabinetCommittee.

This new structure will facilitate an increased role for TB within the budget processby providing with increased information for decision making. For the purpose of thecompletion and final tabling of the budget, the Budget Analysis Division and the

Treasury Board Division will work closely together upon the budget submission to Treasury Board. The way in which PBEMS will affect the budgetary cycle of government in is illustrated in Appendix C.

The major stages of change are that of the Treasury Board Division’s analysis of thebudget and Treasury Board’s decisions on the budget. Under this system, the Treasury Board Division’s Budget and Submissions Section would analyze alldepartmental estimates based on the information provided through Program Reviewand the Performance-Based Management Framework. From this currentdepartmental estimates would be table alongside recommendations to TreasuryBoard for approval. Under this framework, the Budget and Submissions Sectionwould work within the confines of the priorities selected by Cabinet in the earlierstages of this process.

PBEMS will also change the way in which special warrants are used by thegovernment, mandating that all submissions be analysed by the Budget andSubmissions Section prior to their tabling to TB by the Associate Deputy Minister of the Treasury Board Division. Further, only those initiatives that have been indicatedby the Premier as being of the utmost importance will be able to skirt this processand be submitted directly to Cabinet.


The implementation of the PBEMS will provide the provincial government with anintegrated, sophisticated, and clearly defined expenditure management frameworkfor the establishing of an all government approach to the collection and evaluationof all financial and non-financial performance reporting information.

The main objectives of this system are to increase the influence and presence of TB

and its departmental arms within the budgetary and performance processes of government. To this degree, it will result in long-term efficiency gains ingovernment through better program observation and executive governmentdecision making.

The establishment of this system will have significant costs in the short-run as theMinistry of Finance will need to be restructured and re-staffed. This includes themoving of employees from one division to another and the hiring of new staff totake on the new mandates of Program Review and Performance-Based



Management. It will also involve an extensive educational campaign for alldepartmental senior management so that they are aware of the importance and theprocesses of this new system. It is estimated that this will cost approximately$2million over the next year. However, the long-run expenditure reductions will bemore than enough to offset the initial cost of establishing this system.

All the components of this system will act as the main mechanism for theachievement of long-term fiscal sustainability. The success of this system will behighlighted by the extent to which government is able to reduce and maintain is A-based spending, while implementing and developing programming that is in-linewith the mandate and priorities of government.



C. Program Review

Recommendation

It is recommended that the government of Saskatchewan amended clause 32 of theGrowth and Financial Security Act, 2008, and all applicable subsections for thecreation of an annual Program Review mechanism. It is recommended that thisbecome the main tool by which the Ministry of Finance evaluates and attempts tocontrol expenditure increases within departments.


Based on the authorities provided to the Provincial Comptroller and Treasury Board,as granted by the Financial Administration Act, 1993, program review and theneeded human resources will be housed within the Office of the ProvincialComptroller under the newly constructed Treasury Board Division.

The newly created Program Review Branch, as an extension of the Office of theProvincial Comptroller, will be granted the authority to systematically review allprogramming within all ministries. This will be conducted on a four-year rolling basiswith a group of ministries, and their associated agencies, being selected for eachyear of review. Tentatively it is suggested that the Program Review cycle beconstructed in a manner that is similar to that outlined in Table 3. In order toconduct these reviews the Office of the Provincial Comptroller will also have theability to contract outside experts to assist their auditors and evaluators.

Table 1: Program Review Cycle

(millions of dollars)

Year Ministry of Review

2008-09Expenditure Levels

PotentialSavings(5% level)

1 – Corrections,Public Safetyand Policing

– Office of theProvincialSecretary

– Public ServiceCommission

– GovernmentServices

– Information Technology Office

– Justice andAttorney General

$482 $24

2 – Health $3,745 $187

3 – AdvancedEducation,Employment,and Labour

– Energy andResources

– Immigration– Agriculture– Tourism, Parks,

Culture, and Sport

$1,425 $71



– Environment

4 – Social Service– Housing– Highways and

Infrastructure

– IntergovernmentalRelations

– Municipal Affairs– Education

$2,120 $106

Total $7,772 $338

Program Review will run alongside the traditional budgetary processes of government and will be incorporated into the main estimates at the later stages of the process. Appendix D illustrates the Program Review process and how this will beintegrated in to the PBEMS process described above. This process will begin soonafter the submission of final Program Review reports to Treasury Board.

All cost savings that are achieved through the process of Program Review will besubmitted to TB for further action to be taken. Based on the current priorities of thegovernment, TB will decide on the usage of these cost savings.

Program Review will come into full affect for the fiscal year of 2010-2011.


The implementation of this program will establish TB as a central factor in thedetermination of the overall level of government expenditure by providing it a toolfor current expenditure evaluation and data accumulation.

It is estimated that this program will be able to significantly reduce the growth of A-base expenditure as highlighted in Table 3. The freeing of various funds throughthis process will provide the government with a greater ability to meet its short-term and long-term objects. This will allow for the long-term sustainability of government in its service to the Saskatchewan people.

The main objective of this policy initiative is to provide the Ministry of Finance withan effective tool to constantly evaluate the expenditure performance of governmentprogramming and examine whether or not these programs are in line with thecurrent priorities of government.

Program Review is the single largest cost driver of the physical process of conducting effective reviews as it requires a significant amount of intellectualmanpower. In many cases the Program Review Branch will have to canvas theacademic and professional arenas for evaluators that can assist in the process.Furthermore, departmental staff will be required to assist the Treasury BoardDivision staff in their review efforts. This results in substantial human resource coststhroughout the process of Program Review. It is estimated that this would increasethe current Ministry of Finance operational costs between $500thous and $2millionper year.



Though the operational cost of this program is significant the cost savings that canbe achieved are much larger. If the program is able to reduce departmental A-basedexpenditures by 3-5% per year, which is comparable to rates found at the federallevel. Over the full cycle of Program Review it is estimated that the governmentcould save a maximum of $338million within its first cycle.

D. Performance-Based Management Framework (PBMF)

Recommendation

It is recommended that the government of Saskatchewan establish a centralized,coherent and useable performance management system through theimplementation of the PBMF. It is recommended that PDMF become the guidingmechanism for the achievement of program effectiveness and efficiency in thegovernment of Saskatchewan.


The first component of the PBMF is the creation of an implementation architecture

that focuses on the ease of use for all departments. This architecture will outline therequirements and processes involved in the implementation and continuation of PMBF as an effective tool of performance management. The design andimplementation of this architecture is to be overseen by the PerformanceManagement Branch of the Treasury Board Division. It is hoped that PBMF will befully implemented by the next fiscal year. Nevertheless, it is recognized that this willtake time to become fully implemented within all departments and to be of significant use for government.

The PMBF will require departments to develop their performance managementactivities based on the framework provided in Appendix F.

The implementation of these various components will ensure that programs arebeing delivered in a logical, effective, and efficient manner. These components alsolay the foundation for effective processes with regards to Program Review andprogram evaluation.

The information that is generated through this process will be accumulated andstored through the current MIDAS system located in the Data Management Branchof the Treasury Board Division.

In order to ensure that departments are faced with an incentives structure that isconducive with the effective and continued use of PBMF, the government will makesenior managements’ bonuses and benefits contingent on their department’sperformance in this regard. That is, if departments are not meeting the planningand reporting criteria of PBMF to a satisfactory level, they will be personallypenalized for this failure.


The information that is to be provided through the implementation of PBMF willincrease the effectiveness and efficiencies of future Program Review activities andspecific program evaluation. The programming reporting processes that are to be



established will ensure that timely and relevant quantitative and qualitativeinformation is available to the government for its decision making processes.

This will require the increasing of the current staff allocated to the PerformanceManagement Branch, but not to a significant level. Cost will also be mute in thearea of data accumulation and storage as the Data Management Branch current has

the capacity to take on this influx of information. The major costs associated withthe implementation of PBMF are short-term in nature and are associated with thedevelopment of departmental usage of the framework. However, it is estimated thatit will cost $3million in design and training expense to have the program properly upand running within the proposed timeline.

V. Communications Strategy

The main goals associated with the development of a communications strategy forPBEMS is to raise public awareness of the importance of expenditure andperformance management and how it effects the average citizen, as well asproviding a comprehensive, yet understandable information to the public. In order

to achieve these goals, it is recommended that the government create a newwebsite link, www.finance.gov.sk.ca/PBEMS, which provides all informationpertaining to PBEMS and its results.

This website will highlight the successes of PBEMS and how costs savings have beenspent. This will provide the public with a better understanding of expenditure andperformance management and how it positively affects their lives.

It is estimate that this will cost $2million in the first two years for development andadvertising will have minimal costs associated with upkeep for all years there after.

VI. Conclusion

Based on the information provided above, the Ministry of Finance believes that itwould be in the best interests of the government of Saskatchewan to implementthese four recommendations. By implementing these recommendations, thegovernment will be moving towards a stable and sustainable future for theprovince.

The overall costs/cost savings associated with the implementation of PBEMS areprovided in Table 2.

Table 2: Consolidated PBEMS related expenditures(millions of dollars)

2009-

10

2010-

11

2011-

12

2012-

13

Tota

lPDEMS -2 - - - -2ProgramReview

- 23.5 185 70 278.5

PBMF -1 -2 - - -3Communications

-0.5 -1.5 - - -2

Total -3.5 20 185 70 275

http://www.finance.gov.sk.ca/PBEMS

http://www.finance.gov.sk.ca/PBEMS





References:

Ahmed, Habib and Stephen M. Miller. 2000. Crowding-Out and Crowding-In Effectsof the Components of Government Expenditure, in Contemporary EconomicPolicy 18(1): 124-33.

Canadian Comprehensive Auditing Foundation. 2002. Reporting Principles: TakingPublic Performance Reporting to a New Level. Ottawa: CCAF.

Canada. 2005. The Management, Resources, and Results Structure Policy:Instructions to Departments for Developing a Management, Resources, and Results Structure. Ottawa: Treasury Board Secretariat.

Diamond, jack, and Barry H. Potter. 1999. Guidelines for Public ExpenditureManagement. Washington, DC: International Monetary Fund.

Kormendi, Roger C. 1983. Government Debt, Government Spending, and PrivateSector Behaviour, in the American Economic Review 73(5): 994-1010

Saskatchewan. 2006. 2006 Report - Volume 3. Regina: Office of the ProvincialAuditor of Saskatchewan.

---------. 2007a. 2007 Saskatchewan Provincial Budget: Performance Plan. Regina:Saskatchewan Finance.

---------. 2007b. 2007 Report - Volume 3. Regina: Office of the Provincial Auditor of Saskatchewan.

---------. 2007c. 07-08 Annual Report: Ministry of Finance. Regina: Ministry of Finance.

---------. 2008. Planning, Measurement and Reporting: Content Guidelines for 2008-10 Planning Process. Regina: Ministry of Finance.



Appendix A: Performance Management Indicators

The use of performance management indicators for the analysis of government’sperformance management system is a key element of the transparency and

expenditure process of government. The use of such indicators provided insight onthe extent to which the government is meeting its intended goals and allows formanalysis for the development and implementation of improved performancemanagement processes.

The government of Saskatchewan descries performance management as a processof regularly assessing progress towards achieving the outcomes intended bygovernment and demonstrating the effectiveness and efficiencies of theseprocesses (Saskatchewan 2008). Reviews and reporting of this process has largelybeen conducted by the Ministry of Finance’s Performance Management Branch andthe Provincial Comptroller.

Indicator Name Discretion Scale Transparency The publications of both

performance plans andreports for the same fiscalyear

Nominal Scale2= Plan and Report

1 = Plan or Report

0 = Neither

Consistency Are the plans and thegoals outlined within themconsistent with thoseoutlined in the annualperformance report.

Ordinal Scale:2 = Yes

1 = Some what

0 = No

Outcomes Are departments focusingon the outcomes of programming as opposedto outputs


1 = Some what

0 = No

Program Implementation Do plans and reportshighlight the effectivenessand efficiencies of program implementation

and delivery


1 = Some what

0 = No

Risk Analysis Do departments outlinethat risks that areassociated with theimplementation of theirprogramming


1 = Some what

0 = No



Source:

Saskatchewan. 2008. Planning, Measurement and Reporting: Content Guidelines for 2008-10 Planning Process. Regina: Ministry of Finance.



APPENDIX B: Amendments to the Growth and Financial Security Act, 2008

Amendments to the Growth and Financial Security Act, 2008Part/Clause

Original Alteration

Amendments

3(2) Every four-year financial planis to set out the minister’splan for expenses andrevenues for the first fiscalyear covered by the plan andthe following three fiscalyears.

Every four-year financial plan is to setout the minister’s plan for expenses,revenues, and review related reductionsfor the first fiscal year covered by theplan and the following three fiscal years.

VI Efficient Service in

Government

Performance–Based Expenditure

Management System32 Program Review Program ReviewRemovals/Replacemen

ts

5 For each fiscal year, theactual total expenses for thefiscal year must balance withor less than the actual totalrevenues for the same year.

For every fiscal year, governmentexpenditures from the general revenuefund must meet of be lower than thosefunds accumulated within the generalrevenue fund based on the average of allaccounts over the previous four years.

11(a) Transfer 50% of the amountof the pre-transfer surplus tothe Growth and FinancialSecurity Fund established

pursuant to Part IV

N/A

IV Growth and Financial SecurityFund

N/A

33 Limits on the size of publicservice

N/A

Additions

6(1)(c) N/A A reduction in revenue has occurred as aresult of a 5% or more reduction realgross domestic product growth hasoccurred within the same fiscal year.

33 N/A Limits on the size of governmentexpenditure: Limiting the size of government expenditure by 3.0 averagegrowth rates over the designated fouryear budget cycle.

N/A Multi-year budget submission shouldoutline all revenue and expenditureplans for all ministries in a similarmanner to that of their main estimates,



just not to the same level of detail.34 N/A Performance-Based Management



APPENIX C: Performance-Based Expenditure Management System (PBEMS)

Structure of the Treasury Board Division



PBEMS Budgetary Cycle



APPENDIX D: Program Review

Chart 3: Program Review Cycle



APPENDIX E: Performance-Based Management Framework (PBMF)

Major Components of PBMF

Component DescriptionStrategic Outcomes – The defining of long-term outcomes of programming, in a measurable fashion, that is inline with the priorities of government.

– The defining of the long-term outcomes of aggregated departmental actions based on thepriorities of government.

Program ActivityArchitecture

– A structured inventory of all departmentalprogramming and their logical achievement of departmental long-term objectives.

– The development of indicators that highlight theextent to which departmental outcomes are beingachieved.

Program Logic Models – Program specific logic models that make a directconnection between program outputs anddepartmental long-term outcomes.

Risk Analysis andManagement

– The identifying of all major risks and liabilities withinthe department and outside the department, on aper program basis.

– The publication of strategies to mitigate and controlthese identified risks.

Program Reporting andEvaluation Schedule

– The creation and maintenance of an annualschedule that outlines the program reporting andevaluation processes.

Saskatchewan Alternative Budget, 2009-2010: Expenditure Management

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