Summary

Productivity is defined as the relationship between resources used and results achieved. Improvement in productivity means either obtaining more and better program output from a given level of resources or using fewer resources to maintain or improve a certain quality level of output. The federal government has a vital stake in improving the productivity of state and local governments for two primary reasons: (1) the national economy is strengthened as a result of improvements in the productivity and fiscal prospects of this key sector; and (2) the effectiveness and efficiency of the multitude of federal grant and regulatory programs using state and local governments to implement federal policies are directly related to the management capacity of those governments.

The productivity in state and local governments is lower than it could be, resulting in higher costs and/or lower levels of public services. State and local government operations do not have the profit incentive to improve productivity that exists in the private sector. However, substantial fiscal and performance benefits have been achieved by innovative state and local governments which have initiated productivity improvement programs. Productivity improvement has been used as a strategy to relieve growing fiscal pressures faced by state and local governments, but most state and local governments do not have significant, comprehensive productivity improvement programs. Major barriers preventing or limiting state and local improvement programs include internal resistance, the large initial investment needed to start a program, and the limited capacity of organizational systems. The most important impact of the federal government on state and local government productivity is the federal grants system, but most federal grant programs do not reward grantees for productivity performance.