Reforming the planning, programming, and budgeting system in the Department of Defense: A study of budget process and rules

This study of public budgeting reform assesses the explanatory strength of traditional public administration theory on administrative action versus the power of the public choice paradigm. The research compares two major budget and accounting reforms (the Primary Management Effort and Unit Cost Resourcing) in the Department of Defense (DoD) that affect the organization, financing and accounting of operating and support costs within the Planning, Programming, and Budgeting System. Using an ordinal, three level classification of the major budgetary rules, the study tests hypotheses that (1) the justification for reform shifted over time from administrative rationality to agency, (2) agents resist budgetary reforms in proportion to the perceived reduction in pay-offs, and (3) higher levels of rules offer principals greater opportunity to capture discretionary resources of the agent. To test the theory, evidence was drawn from 26 elite interviews and extensive documentation on both reforms. The evidence strongly supported an alternative hypothesis that increased control of the principal was the predominant reason behind both reforms. Hypotheses two, as specified, and three were not rejected. An implied conclusion is that the public administration focus on budgetary format and increased information for rational decision making is misplaced. An agency theory interpretation better fits the observed rule changes implemented by the Office of the Secretary of Defense (OSD) principals and the negative reactions of their agents.;Because public policy is so dependent on funding, the treatment of budgetary reforms is central to the field of public administration and public choice economics. In the case of the DoD, the divergent interests between OSD and the Services support the public choice paradigm of self-interested actors. Thus, the improved controls are a logical response. But because OSD is also composed of self-interested actors, it is not surprising that the study found that principals gained control of over 20 percent of the department's resources since the creation of OSD as a centralizing force in 1947. Further research in public budgeting should focus on the power shifts gained through new rules and the structure of rules and incentives which best balances the slack tendencies of both principals and agents.