Performance-based financing in Interreg post-2027 – building on shaky foundations?

Author: Irene McMaster

With talk of the application of performance-based financing for Cohesion policy post-2027, do existing challenges linked performance indicators, mean that the foundations for pursuing performance-based financing for Interreg programmes are ‘shaky’?

The European Court of Auditors define performance budgeting as “the systemic use of information about outputs, results and/or impacts to inform, influence and/or determine the allocation of public funds.”1 Performance budgeting responds to concerns over waste/misuse of funding by conditioning funding on outputs and encouraging completion of projects in a cost efficient way. In theory, it sharpens focus on policy priorities and results and rules out ‘roads to nowhere’.2

Performance budgeting can take various forms, including ‘financing not linked to costs’ where financing is based on non-financial parameters rather than expenditure incurred. A European Court of Auditors Special Report states that ‘financing not linked to costs will become the dominant EU funding model in the coming years, mainly due to its mandatory use under the Resilience and Recovery Facility.’3 Current debates in relation to Cohesion policy post-2027 draw heavily on the experience of the Recovery and Resilience Fund (RRF) which is described as ‘performance-based’ with ‘funding based on the achievement of results’.

Over successive programme periods and particularly over the 2014-20 and into 2021-27 periods, Interreg programmes have made significant strides to develop ‘performance-based systems’ which do include milestones, targets, indicators and detailed monitoring systems. However, capturing and conveying the most meaningful outputs, results and impacts of Interreg remains a long-standing challenge. Setting associated performance milestones and targets for reporting purposes has proved equally difficult. Based on past and contemporary experience, key challenges and issues include the following.

  • Interreg programmes and projects are commonly strong in areas where perceived benefits are ‘soft’ and more intangible, as opposed to the core ‘growth and jobs-based’ measures used for Cohesion policy more generally.4 Programmes and projects commonly address complex and long-term challenges, with results not fully apparent during the life of the Programme. Much of the value of Interreg projects lies in their innovative work, diverse partnerships and work across a number of territories. However, as a consequence, projects and programmes face a higher level of risk, linked to the experimental nature of their activities, complex relationships, and exposure to a variety of domestic demands and pressures.
  • Interreg programmes cover large and diverse geographic areas, and broad themes of shared interest, but they have limited financial resources and fund comparatively small projects, making it challenging to demonstrate measurable outputs and results at a Programme level. Related, notable contributions at national, regional and local levels can be missed as key measures are reported for the cross-border/transnational area.
  • For Interreg, identifying and reporting on robust measures of performance have proved methodologically challenging and financially costly, e.g. with programmes having to commission external experts to develop tailored indicator frameworks, milestones and targets. Challenges are compounded by a lack of comparable regional statistics covering relevant thematic and geographic areas which limits the scope to measure progress over time and in specific areas. Even mainstream Cohesion policy programmes have faced significant challenges in producing realistic targets and many are subject to frequent and significant amendments over the course of the programme period.5

Overall, setting and recording robust targets, milestones and results is a challenge and could become even more so in the future with more weight attached to quantitative measures of progress though performance budgeting. For Interreg, going forward key issues to bear in mind are:

  • Proportionality is key to the European Commission’s efforts to simplify the management and implementation of Cohesion policy. How this goal fits with the application of potentially complex performance budgeting options, to comparatively small Interreg programmes is, therefore, open to question. Additional issues include:
    • A notable reaction to the increased emphasis on milestones, targets, and indicators, and a lesson drawn by programmes from the 2014-2020 period, is to greatly reduce/limit the number of indicators used. This is due to the administrative complexity of working with numerous indicators and the availability of common indicators produced by the European Commission. A simpler system sharpens programme focus and can aid implementation. However, it also narrows definitions of ‘good performance’ to a very limited range of measures and could ‘miss out’ notable areas of progress.
    • Mobilising and operationalising Interreg programmes and projects take a significant amount of investment ‘up front’. For partners, the prospect of potentially not recovering those costs if targets are not met could lead to programmes struggling to attract good quality and innovative project applications.
  • Perspective is vital. Crucially, a broad perspective is helpful. Performance-based financing is not limited to ‘financing not linked to costs’. Options like simplified costs, involving standard scales of unit costs, lump sums, and flat-rate financing, are already widely used by programmes and could offer further opportunities for simplification in the future. Current discussions in relation to Cohesion policy post-2027 draw heavily on the experience of the Recovery and Resilience Fund (RRF). However, in practice, application of the performance based approach has been challenging and patchy, for example some National Recovery Plans even lack results indicators.6 Authorities have faced significant challenges in setting, and revising, appropriate milestones and targets. Over the coming months, before extending the any elements of the RRF’s approach, lessons still need to be drawn on how well it really works in practice, (e.g. from its mid-term evaluation published in February 2024).

Looking to the future, for Interreg, performance ‘informed’7 approaches with less direct links to financing could be more practical means to combine the calls for rigour and accountability but still allow an ex post  systematic review of indicators and progress to determine if targets (and wider results and impacts) have been achieved.

 

Notes

1 ECA (2021) ‘Performance-based financing in Cohesion policy: worthy ambitions, but obstacles remained in the 2014-2020 period’, Special Report 24/2021, European Court of Auditors, available at https://www.eca.europa.eu/en/Pages/DocItem.aspx?did=%7bF0370F47-0A28-47A3-816D-6E908AC98FA1%7d

2 Darvas, Z, Welslau, L. and Zettelmeyer, J. (2023) The EU Recovery and Resilience Facility falls short against performance-based funding standards, <https://www.bruegel.org/analysis/eu-recovery-and-resilience-facility-falls-short-against-performance-based-funding >

3 European Court of Auditors, (2021) Performance-based financing in Cohesion policy: worthy ambitions, but obstacles remained in the 2014-2020 period, European Court of Auditors Special Report, 24, 2021 <https://op.europa.eu/webpub/eca/special-reports/performance-24-2021/en/ >

4 McMaster, I. and Macguire, R (2023) Territorial Cooperation: Widely Pursued and Widely Questioned? EoRPA Report 23/4, European Policies Research Centre, University of Strathclyde and EPRC Delft.

5 Molica, F Santos, A. M and  Conte, A  (2023) Can a more performance-based setting bring additional efficiency to EU Cohesion policy? JRC WORKING PAPER JRC Working Papers on Territorial Modelling and Analysis No 12/2023

6 Darvas, Z, Welslau, L. and Zettelmeyer, J. (2023) The EU Recovery and Resilience Facility falls short against performance-based funding standards, <https://www.bruegel.org/analysis/eu-recovery-and-resilience-facility-falls-short-against-performance-based-funding >

7 Dubrow, G (2020) Performance-Based Budgeting: a ‘Whole of Government’ Initiative, WFD Financial Accountability Series Briefing Paper 8, October 2020.

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