Literature on punctuated equilibrium theory (PET) explains the reasons organizations undergo incremental and punctuated policy changes. This study examines PET within the budgeting process. Alongside disproportionate information processing and institutional friction, recent innovations in PET have incorporated organizational history and theories from public administration to explain budgetary fluctuations. Part of the work merging PET with public administration has demonstrated how policy feedback (measured as the absolute level of performance) influences budgetary changes. Building upon this work, this study adds to the literature by examining another measure of policy feedback—organization performance gaps. This is a theoretically interesting question in how managers respond to performance growth and decline over time. It addresses performance budgeting and evidence-based policy making. Results show that while incremental budgetary changes are the most prevalent no matter the performance change, the probability of negative and positive budgetary changes differ across the spectrum of positive and negative performance gaps.