Performance Budgeting and Cost Accounting in Brazil: The State of São

Paulo´s recent experience

Asia-Pacific and Latin-America Interregional Forum on Managing

for Results Decentralization and the Changing Role of Central

Finance Agencies

Inter-American Development Bank

Manila, November, 2012

Sources: World Bank (2011), SEADE (R$/USD = 1,66)

2011 Data Brazil Argentina São Paulo

Population (million) 191 40 41

GDP 2011 (US$ billion) 2,492 447.64 839.72*

GDP per capita (US$) 13,051 11,191 20,481

*GDP between the Netherlands ( US$ 840 – 17th) and Turkey (US$ 778 – 18th)

34% of the total Brazilian GDP:- 7% of the agribusiness production;- 40% of the industrial production;- 34% of the services activities;

23% of total exports and 36% of total imports of Brazil and 40% of the total tax collection;

Main gas reserves of Pre-Salt and estimated oil production of 1.8 million gallons/day (2015 a 2031).

2

The State of São Paulo

3

São Paulo´s Fiscal adjustment

The Fiscal Adjustment process in the State of São Paulo began in 1995, focusing mainly on three major aspects:

1. 1. Asset restructuring and implementation of a broad privatization program;

2. 2. Debt restructuring: states fiscal agreement with the Federal Government (PAF), which refinanced most of the state´s debt;

3. 3. New management procedures and control systems – which improved tax collection and reduced tax evasion without raising taxes; more efficiency in government spending mainly by reducing public expenditures.

4

São Paulo´s Fiscal adjustment

Institutional Framework

The fiscal adjustment has been nationally implemented under the strict limits imposed by •The States Debt Restructuring and Fiscal Agreement (PAF: Programa de Reestruturação e Ajuste Fiscal, 1997) between the central government and most of the states of Brazil, including São Paulo•The Fiscal Responsibility Law (FRL), 2000 and the Fiscal Crimes Law (FCL), 2000

5

São Paulo´s Fiscal adjustment

Fiscal Adjustment Program in the State of São Paulo: Important Measures

Expenditures control included: the revision of services and construction contracts and the adoption of programs for voluntary retirement (15,000 employees retired between 1995 and 1998); Control of public expenditures was implemented through various measures, specially the modernization of existing IT infrastructure, which also improved transparency, accountability and social control of the state management, such as: Financial Administration and Execution System (SIAFEM) and the State level public purchases and procurement System (Bolsa Eletrônica de Compras - BEC).

Total Revenues (R$ billion)

DataGrowth

rateAverage

growth rate

Nominal Growth 170.3% 18.9%

Real Growth (IPCA – index)

62.6% 7.0%

6

Total Expenditures (R$ billions)

DataGrowth

rateAverage

growth rate

Nominal Growth

172.2% 19.1%

Real Growth (IPCA – index)

64.5% 7.2%

7Source: São Paulo State

8Source: SIGEO Investments distribution

Investments distribution

*Non-Depedent SOE Companies do not depend on the State’s treasury resources to fund their current expenditures.

R$ BillionPPA

2003 - 2007PPA

2008-2011PPA

2012- 2015

Total Investment

28,674 67,029 85,200

Average 7,168 16,657 21,300

Growth(%)

57.0 27.8

São Paulo fiscal overview

Primary Surplus (R$ billion)

9

Net Debt/Net Current Revenues

10Source: São Paulo State

11

Performance Budgeting

Background – the introduction of Performance Budgeting in the State of São Paulo1988 Federal Constitution: program budgeting already incorporated in the multi-year plan (PPA) - in the State of São Paulo: fully adopted in the PPA (2000-2003) 1995 Federal State Reform Plan (Plano Diretor de Reforma do Aparelho do Estado - PDRAE): established management autonomy and commitment to results in all the three levels of government and in the three branchesIn the State of São Paulo: LC 846/98 – contract management, Payment by Results (Sec. Education and Finance)Results-oriented strategic management and contractualization

FAD (IMF) technical assistanceImplementation of both Programs: Performance Budgeting and Public Cost Accounting System

12

Performance Budgeting

Performance Budgeting:Set goals with sector linkage regarding the strategic guidelines of the government defined in the PPA;Identify data and information that are required to generate indicators, and define the goals to be reached based on the timeliness of the PPA;The current PPA needs to incorporate some changes to improve its management for results approach on information, standard nomenclature and concepts, and allow for its execution to effectively generate useful information on decision-making;Pilot project - Secretariat of Penitentiary Administration (2013) opportunity for training, testing and adjusting the new methodology;Implementation of the new methodology on the existing financial execution systems (SIAFEM) by 2014;Training program - implementation of the new methodology

13

Performance Budgeting

Performance Budgeting:Preparation of a Manual on Managing for Results on Performance Budgeting - gradually implement the new methodology in all the state´s entities Effective implementation horizon of the new PPA methodology is 2016-2019, the next three years should be used to test and refine the instrument.

14

The State of São Paulo´s Public

Cost Accounting System (SCSP)

FAD (IMF) technical assistance, IDB loan (PROFISCO) Provide consistent information to support decision making; strong link

between costs of services and the activities, according to the multi-year plan (PPA) → a ‘toolbox’ that enables managers to improve the operational and strategic management of their public sector units.

Benchmark costs for public services (provided by public entities of the same sector, such as: schools, hospitals, prisons...) by using a standard methodology for all the state´s entities: using the data of the existing financial execution systems (SIAFEM)

Support the formulation of the multi-year plan (PPA) as well as the budget plan itself, bringing more realism and accuracy to the financial forecasts

Better accountability and transparency with quality information on the costs of public services

15

The State of São Paulo´s Public Cost Accounting System (SCSP)

In its first stage, the system will aim at estimating the cost of public services at the cost center level (hospitals, schools, penitentiaries, etc.), Due to its conceptual and operational complexity, the implementation will be gradual and based on pilot projects in four different secretariats, such as: Health, Education, Penitentiary Administration and Social & Educational Services for criminal teenagers (CASA Foundation).Pilot projects: identify the products and services provided by each unit, as well as its organizational structure; describe its responsibilities, activities, existing physical and financial resources, its clients and its main operational systems.

16

The State of São Paulo´s Public

Costs System (SCSP)

The definition of services to use the new system should be aligned with the services identified in the PPA 2012-2015 and its subsequent revisions, according to the new methodology of managing for results on performance budgeting. The Finance Secretariat (SEFAZ) will be responsible for the regulation, supervision and quality control of the cost accounting generated data, as well as the validation and production of cost accounting reports.

Information Systems

SIAFEM (incl.payroll)PPA (SIMPA)Property/EstateWarehouseSiafísico/BEC (public purchasesand procurement state system)

Systems?

Information on Costs

Ajdusted Financial Execution

Decision making

GovernorPPA (planners)Budget authoritiesSectorial SecretariesSec.of FinanceSec. of ManagementPublic Entities Managers

State AssemblyState Audit CourtsSociety

What kind of information

does each of these agents

need?

$

#

Quant.

Cost objects

Cost center Aggregated Service 1

PPA (activities)Budget

Proposed Methodology

SUCCESS CRITERIA:

- Alignment- Sustainability- Availability- Use - Utility-Replicability

- Academic research- International experience- Characteristics of public services - Decision making models - Adherence to the State of SP´s reality - Availability of systems and resources - Existing legislation

MAIN PRODUCTS:- Working Papers- Manual (handbook) on Costs- Reports on pilot projects - Specifications on the conceptual model for costs using existing systems- Reports on Costs model- Training program- Communication model

-WP1 – Publc Services-WP2 – Cost Methods-WP3 – SIAFEM -WP4 - Questionnaire

Methodology?

Conceptual and Logic Model of São Paulo´s Public Cost Accounting System

MethodologyManagementEvaluation

and Control

1) Health,2)Education,3) Prisions and 4)Soc.Educational services for criminal teenagers (Fundação CASA).

General

Specífic: 4 pilot projects

Public Private Partnerships Projects

(traduzir)

18

Thank you.

Giulia Puttomatti

Cabinet Advisor – Foreign Funding Dept.

Finance Secretariat of the State of São Paulo

giulia@fazenda.sp.gov.br

Av.Rangel Pestana, 300 – 3th floor

01017-911 São Paulo - SP