State Board of Education Topic Summary s10

STATE BOARD OF EDUCATION – TOPIC SUMMARY Topic: Budgeting to Results Update Date: March 16, 2006 Staff/Office: Bret West, Office of Finance & Administration; Vickie Fleming, Office of Superintendent Action Requested: Information only First Reading Policy Adoption Policy Adoption/Consent Calendar Policy Discussion Signal Field Stakeholder Input Bd. Leanings Identified Stakeholder Input Policy Decision

Priority: Alignment 3 R’s Assessment Resources/Accountability Communication

ISSUE BEFORE THE BOARD: The Oregon Department of Education is exploring how to shift the focus of the budget process to one of outcomes. To that end, it has contracted with the Public Strategies Group. This presentation is to update the board on that work.

BACKGROUND: Budgeting to Results (BTR) was pioneered by Governor Gary Locke of Washington at a time when his state faced a $2.5 billion shortfall in its budget. In traditional budgeting, leaders start with last year's costs, then add or subtract. In Outcome Budgeting, they start with the results citizens value. This approach eliminates the opportunity for agencies to pad costs to protect itself against cuts. It focuses squarely on the real issue: producing results citizens value at a price they are willing to pay. The key steps in Budgeting for Outcomes include:

Set the price of government: Establish up front how much citizens are willing to spend. Get agreement on a revenue forecast and any tax or fee changes.

Set the priorities of government: Define the outcomes or results that matter most to citizens, along with indicators to measure progress.

Set the price of each priority: Divide the price or revenue among the priority outcomes on the basis of their relative value to citizens.

Develop a purchasing plan for each priority: Create "results teams" to act as purchasing agents for the citizens. Ask each one to decide which strategies have the most impact on their desired outcome.

Solicit offers to deliver the desired results: Have the results teams issue "requests for results" to all comers including their own government's agencies or department, other governmental jurisdictions, unions, non-profits and businesses. Invite them to propose how they would deliver the result and at what price. Then choose those proposals that will provide the best results for the money.

Negotiate performance agreements with the chosen providers: These should spell out the expected outputs and outcomes, how they will be measured, the consequences for performance, and the flexibilities granted to help the provider maximize performance.

March Update Two half-staff meetings were held in February to kick off the project. The purpose of these meetings was to provide a forum for all staff members to learn about this approach to developing the operational budget and to provide the opportunity for questions to be asked.

Results teams have been formed around the three priority areas discussed in the following documents and work continues on developing the “requests for results” and finalizing the indicator measures on which proposals will be judged. (Note: this work is driven by the strategic framework of priorities, which is also an agenda item for the March 16 State Board meeting.) Training will be provided to the “Sellers Teams” on March 22nd. These teams, which will be lead by ODE Directors, will develop the proposals that align with the requests for results.

40 SUCCESS FOR ODOE – EDUCATION OUTCOMES DESIRED BY OREGONIANS

Based on our conversations last week, the educational results that the new budget process would produce – or align with – need to be built on the strategic work already done inside the department. Thus, we will align the effort with these three education results: . Student success . Quality schools . Accountable systems

The measurement of these outcomes must be coordinated with the work being done for the Oregon Progress Board and Legislative Audit Commission. A few indicators need to be chosen. We have included a few candidates based on what we heard/ reviewed last week:

Educational Outcome Draft Indicator Measures

Student success  % of students ready for kindergarten  % of students across K-3 who are proficient in reading  Proportion of students “on track” to graduation  Student achievement growth (year’s worth of learning in a year’s time)  Graduation rates of ninth graders  Graduate success in college/ on the job 2 years later

Quality schools  % of schools meeting AYP (NCLB) expectations  % of students who report safe, learning conducive environments at school  % of schools making progress with School Improvement Plans

Accountable systems  Citizen trust and confidence in P-20 system  Value/ price return on investment

SUCCESS FOR THE ODOE-PSG PARTNERSHIP

. Neither partner wants to feel manipulated to pre-determined conclusions . Both partners want: o An open, candid partnership --“tell the truth”, even when we may not want to hear o Truly hearing and using what we each know - Customize to the ODOE context o Mutual, honest, direct feedback – both positive and negative, as close to the event as possible. Specific times will be built in to do periodic feedback conversations.

PSG will primarily serve as coach and guide, in order to best support the transfer of knowledge to Department leaders and staff. PSG will be accessible by email and phone, supplemented with in person visits as needed.

41 Draft Project Plan: Oregon Department of Education BUDGETING FOR OUTCOMES STEPS

1. Define success

This step explores what constitutes success from our partnership. We want clarity of: . Project success . Relationship success . Statement of education results desired by Oregonians, and . Preliminary work plan that fits with the decision dates you are facing.

Deliverable: . See Definition of Success

2. Chartering teams There are a number of key teams that need to function well in order for the new process to be successful. We suggest that each of these groups a) be given a carefully crafted “charter” that spells out the results it is to produce and its decision making authority, and b) “just-in-time training and/or coaching from PSG. PSG will do the first drafts of the charters. Because we are primarily ‘guides’, we will also be available by email and phone. However, the results teams need a named lead and facilitator.

Potential teams that should be chartered include:

Communications Team - a 1-3 person team of communication professionals that will be responsible for developing and implementing an internal and external communications plan. Suggested names include Mark Hunt, Gene Evans and Ginger Redlinger.

Leadership Team – This small group is responsible for providing steering and direction to the entire project. The leadership team is an important decision-making body regarding the process of preparing the budget. The Board and Superintendent, of course, make the final budget decisions for submission to the Governor. The Leadership Team will consist of the Deputy Superintendent, members of the Management Team, and key members of the public and broader P20 Education Enterprise.

Three Results Teams – A Result Team would be organized for each of the three results. Acting as ‘preliminary purchasers’ on behalf of the Board and Superintendent, they would create “Requests for Results” and rank the offers into prioritized lists.

Project Team – A small group of people responsible for seeing to the successful implementation of various aspects of the budget process. It is assumed the project team would consist of the Bret West, Mark Patterson, Diane Roth, and Debby Ryan, and others, such as a technology support person.

3. Interview Plan and Document Review

42 To help ‘get grounded’ in the ODOE context, PSG will interview the individual members of the Management Team serving on the Leadership Team, Ed Dennis, Ginger Redlinger, E.J. Ayres, and Sylvia Gilpatrick.

4. Deciding on Total Allocations and Allocations to Results

The “price” for purposes of ODOE budget development is the sum total of all expected revenues, all funds. (The inverse of ‘all funds are on the table’ is that ‘nothing is funded without an offer.’ This includes mandated areas, grants, and pass-through funds.) The Project Team could prepare a simple 5 x 5 grid of an estimate of the funds available.

One job of the Leadership Team is to allocate the total allocations available across the results. As part of this discussion, the Team could ‘hold back’ or set aside for cross-office strategic investment. For example, the 10% additional ‘funding’ (or $3million GF) could be designated for a Strategic Investment Allocation.

5. Results Teams Create “Requests for Results” In order to guide offers in terms of what they are looking for, Results Teams will:

1. Affirm the indicator measures for each result 2. Develop a results map for each result. A result map is a causal diagram that shows the primary, and sometimes secondary, factors that lead to that result. It is based on evidence from research and/or best ‘proven or promising’ practices in the field. 3. Summarize purchasing strategies for each result. While the results identify what will be purchased, purchasing strategies indicate focus. This is important strategic information that helps sellers know what kind of offers to prepare. For example, purchasing strategies might say: ‘emphasize the early grades to prevent problems in later grades’. Together, these Requests for Results, or RFRs, comprise a critical communication from the buyers to the sellers. Timing: . Results Teams named and chartered by 2/10 . Results team training (all day) for team leads, facilitators, and members – 2/23 . RFRs due to Project Team by March 10th . RFRs presented to Leadership Team on March 14th and BOE on 3/16-17

6. Train “Sellers”

In budgeting for results, the metaphor of a marketplace is used. The RFRs say what is being sought. Then, everyone who requests some of the allocation is a “seller.” On January 20th, the Executive Team felt that, this first year, the list of sellers include department offices and units certainly, and possibly ESD’s for certain results or Employee Unions.

Sellers will also need to be supported. PSG would help ODOE design a “seller orientation,” at which participants will learn the following:  What the RFR’s are looking for  How to think about preparing offers to more than one result area  How to prepare offers so that they bring the best value for the money  How to think about specific measurable contributions that tie to the results and indicators  How to collaborate with other units or innovate current practice

Timing:

43 . Seller training: March 22nd . Offers due week of April 10

7. Receive Offers – Ranking and Re-Ranking

Offers will be received and associated with a particular result. The Project Team will review each offer to make a judgment about the quality of the price associated with the offer and the measures associated with it.

The Results Teams would need to read and understand the offers. Based on the quality of the offer, the strength of association between the offer and the result sought, the offer price, and the congruence of the offer with purchasing strategies, the Result Team will rank all of the offers for each result. Then, the money allocated to each result area is used to purchase the offers, moving down the list as far as the money will go. When the money runs out, a line under that last funded offer demarks those offers that will be funded from those that were of a lower priority. We call this a “drilling platform.”

This step represents “crunch time” in the budget process as the decisions involve making tough choices. Timing:  Offers due: April 10  Policy ideas identified and fed into Legislative concepts discussion – April 10  Results Teams review offers and rank offers - by April 17  Sellers can make revised offers – April 28th  Round 2 Ranking – May 5th  Results Teams present “orders of purchase”, with rationale to Leadership Team on 5/9

8. Budget Communication from Superintendent to Board Of Education

 Leadership Team presents recommended budget to Superintendent by May 17th  Board of Education work session: 5/18-5/19  Superintendent Castillo presents the total budget to Board of Education – June 15-16

During this period of time, the emphasis shifts to communication about what has been funded and why. The focus should be on the results, not various units or programs. It is a good idea to create a simple document that ties the funding decisions to the RFRs so that people can see the logic of the decisions and how they contribute to maximizing the three educational results. If the budget has to be presented in a traditional format, it may be necessary during this time for the Project Team ‘cross-walk’ the decisions back to traditional lines of expenditure and/or programmatic units.

9. Ongoing Performance Accountability Each funded offer could become a “performance contract” between the seller and the Management Team. The seller gets money in return for a promise of results delivered. So, the department needs a performance management system that tracks actual results relative to expected results. The Department could also publish its results. A web site can help citizens track the results associated with each offer. Performance on the three results – or with individual offers - could be published monthly or quarterly.

44 DRAFT OREGON DEPARTMENT OF EDUCATION LEADERSHIP TEAM CHARTER

Purpose: The purpose of the Leadership Team is to be a “purchasing agent” of performance-based education results, to steer the overall process, and to prepare the Superintendent of Public Instruction and the Board of Education for making FY07-09 budget decisions.

The results sought from the overall budget process are these: . A budget aligned with the goals contained in the department’s strategic framework . ODOE serves as a “pilot lead” in transparent budgeting within the P-20 Education Enterprise . The Governor is presented with outcome-based spending proposals, backed by evidence . The Superintendent of Public Instruction and ODOE leaders feel prepared to communicate the choices and trade-offs made.

Members: Members of the Management Team: Vickie Fleming Salam Noor Steve Nelson Doug Kosty Nancy Latini Jim Scott Bret West Pat Burk Brian Reeder Mark Patterson

Work: In pursuit of the above results, the Leadership Team will:  Provide guidance to the overall budget process, including providing solutions to barriers encountered  Develop a short set of educational results that Oregonians desire around which the budget is built. Provide Results Teams with draft indicator measures  Affirm “request for results” (RFR) for each result. Based on work by Results Teams, each RFR will include the result, the measure, a results map that shows evidence of factors that lead to the result, and purchasing strategies.  For budget development purposes, decide the monies available for purchasing results, and the allocation of the monies across the results. If monies are allocated to a Strategic Investment Fund, draft guidelines for its offers and use.  Affirm or adjust the ranking of offers associated with each result, and underlying rationale  Affirm the communications plan  Act as key spokes persons for this budgeting for outcomes process – informing and acting upon the communications plan  Identify and assign the development of cross office, high leverage offers  Assess the overall budget process and make recommendations for improvements in subsequent cycles of use

Resources: The Project Team, Communication Team, Results Teams and PSG will be available as resources to the Leadership Team in carrying out this charter.

Decision-making: The Leadership Team recommends a 2007-09 budget based on this process to the Superintendent of Public Instruction. In deciding what to recommend, the Leadership Team will seek to develop a consensus. If a consensus cannot be achieved, Vickie Fleming, or her designee, will make the decision.

45 OREGON DEPARTMENT OF EDUCATION TIMELINE: 2/2/06 Date Activity 2/3 Leadership Team meeting  Results and indicators 2/10 Communications Plan completed 2/23 all day Results Teams trained 2/24 9-12 Leadership Team meeting #1  Determination of price and allocated to results  Decide set of sellers  Brainstorm cross-office ideas  Reflection on process and support from PSG 2/16-17 Board of Education briefed on process and affirm results 3/10 Requests for Results completed 3/14 9-12 Leadership Team meeting #2  Reviews and gives feedback on RFRs  Hear strategic opportunities from PSG  High leverage/cross-office offer ideas identified and assigned for development 3/16-17 Board of Education gives feedback on RFRs 3/22 Seller training 3/30 Presentation to JLAC 4/10 Offers due to Result Teams w/policy implications identified 4/17 First ranking of offers completed by Results Teams (i.e.– first drilling platform). 4/18 Leadership Team meeting #3  Hear policy issues/legislative concepts raised by offers 4/28 Revised offers due from Sellers to Results Teams 4/20-21 Board of Education reviews proposed policy implications/legislative concepts 5/5 Second ranking of offers completed by Results Teams 5/9 Leadership Team #4  Review and adjust “orders of purchase” – drilling platforms, with rationale

5/17 Leadership Team #5  Present budget proposal to Superintendent 5/18-19 Board of Education Budget Work Session: discussion of drilling platforms to Superintendent 6/15-16 Superintendent presents proposed budget to Board of Education for approval 6/16 Leadership Team meeting #6  Reflection on process/improvements for next round  Learnings for P-20 enterprise 7/3 Budget submitted to DAS 7/15 Leadership Team meeting #7  Glide path discussion 06-07