Senate Joint Resolution No. 350, adopted by the 1997 Session of the General Assembly, established the Commission on the Commonwealths Planning and Budget Process. The commission was charged with examining (i) the feasibility of providing an integrated six-year budget projection for major budget drivers with each biennial budget, (ii) methods for preparing and presenting such a budget projection, and (iii) mechanisms to evaluate the effort of proposed legislation on the budget and the projections.

During its first year the commission addressed five topical themes: the Commonwealth's current planning and budgeting process; performance budgeting; revenue forecasting; long range expenditure forecasting; and legislative impact statements. The complexity of the issues addressed by the commission prevents its work from being adequately addressed in a single year. Accordingly, the commission finds that the study should be continued for a second year.

Recommendation: The commission's study of the Commonwealth's planning and budgeting process pursuant to Senate Joint Resolution 350 should be continued for a second year.

Virginia's executive budget process can be traced in large measure to legislation enacted in 1918. The Governor, as chief planning and budget officer, is responsible for submitting a budget, and corresponding budget bill, by December 20 of odd-numbered years. The Governor submits amendments to the budget then in effect by December 20 of even-numbered years. Responsibility for preparing the budget is vested in the Department of Planning and Budget.

The existing statutory requirements relating to the budgeting process are not strictly followed. Since 1993, state agencies have been directed to submit estimates of amounts needed for the four fiscal years following the next biennium with their budget submissions to the Governor. This requirement has been largely overlooked. Moreover, as the Joint Legislative Audit and Review Commission (JLARC) noted in its 1991 report on the executive budget process, since the early 1980s there has been a lack of systematic implementation of statutory requirements that the executive budget include, among other items, an articulation of program goals and objectives, establishment of program priorities, and articulation of program needs.

The commission finds that the Chapter 27 of Title 2.1 of the Code of Virginia, relating to the Planning and Budgeting Process, contains several technical errors that should be corrected.

Recommendation: Legislation correcting technical errors in statutory provisions relating to the planning and budgeting processes should be introduced.

Through language in the appropriations act and executive order, over the past five years Virginia has adopted a system of performance budgeting. Performance budgeting focuses on setting goals, designing the strategies needed to meet the goals, and measuring how well they are met. As part of their budget submissions for the 1998-2000 biennium, executive-branch agencies were required to develop six-year strategic plans. Agencies have also been required to develop activity-based budgets and performance measures. The Commonwealth's performance budgeting system has received national recognition for its strategic planning and performance measurement components.

Performance budgeting is being implemented to some extent in nearly every state. The experiences of other states reveal difficulties in integrating performance budgeting into their budgeting processes. While performance budgeting's major benefit is as a management tool that helps agencies use resources more efficiently, it is not yet apparent how it can be used in allocating state resources and related budgetary decisions.

Virginia's six-year revenue forecasting process is sound. Revenue forecasts are required to be prepared for a six-year period. The process is conducted by the Department of Taxation and other state agencies with input from the Governor's Advisory Board of Economists and the Governor's Advisory Council on Revenue Estimates. Its results compare favorably with those of other states, the federal government, and national economic forecasting firms. JLARC has noted that a greater General Assembly role in Virginia's revenue forecasting process would benefit the process. The legislative branch, in nearly half of the states, prepares revenue forecasts.

The commission finds that the establishment of a legislative revenue forecasting capability is not appropriate at the current time. The executive branch should work to address concerns regarding the timing of its release to the legislature of revised revenue forecasts, primarily in short sessions.

The Commonwealth and most other states do not forecast general fund expenditures beyond the current budget period with the same comprehensiveness that characterizes revenue forecasting. Some long-range expenditure forecasting is underway in nearly all states for specific programs. In Virginia, population or expenditure estimates extending beyond the two-year budgeting cycle are being prepared by the Department of Planning and Budget and other state agencies for several major budget drivers.

In the mid-l970s, the Bendheim Commission produced six-year expenditure forecasts on a statewide basis, and in 1975 the General Assembly enacted a statutory requirement that agencies prepare six-year estimates of anticipated capital outlays and operational expenditures. This mandate was repealed after three years.

The commission finds that the Commonwealth's current long-range expenditure forecasting requirements are inadequate. Expenditure forecasting that looks beyond the two-year budgeting period can be a valuable planning tool. The Department of Planning and Budget should be required to provide the Senate Finance and House Appropriations Committees with (i) the long range agency expenditure estimates required under § 2.1-394 B and (ii) the format to be used by agencies in reporting these estimates.

Recommendation: The Department of Planning and Budget should be required to provide to the chairmen of the House Appropriations and Senate Finance Committees, within thirty days following receipt, copies of (i) the agency estimates prepared under § 2.1-394 B and (ii) the format prescribed for such reports and any amendments thereto.

North Carolina's general fund financial model provides an example of a long range expenditure forecasting capability based within the legislative branch. The model provides simulations, not predictions, of state expenditures over a ten-year horizon. Developed by the legislature's Fiscal Research Division and the Barents Group, an affiliate of KPMG Peat Marwick, the model allows the state to assess the impact of changes in underlying economic and other assumptions on the future cost of providing current services. In addition, it serves as a tool for analyzing the fiscal impact of adding or eliminating programs.

The commission believes that the North Carolina General Fund Financial Model deserves further study. As an alternative to relying on the executive branch to provide expenditure forecasts and related information, the commission recommends that further study be given to reviewing the feasibility of developing the capability to conduct long-range expenditure forecasting within the legislative branch. The commission should examine whether an expenditure simulation model would be appropriate for the Virginia General Assembly.

Recommendation: During its second year, the commission should examine the feasibility of implementing long-range expenditure forecasting within the legislative branch, such as is in place in North Carolina.

Most legislative impact statements are prepared by the Department of Planning and Budget, the Department of Taxation, or other agencies, pursuant to executive order. The commission conducted a survey of members of the General Assembly to assess satisfaction with the current processes for preparing and distributing legislative impact statements. Survey respondents were fairly evenly split on the issue of whether the current system is working adequately. By a modest margin, most disagreed with the proposition that the impact statement preparation and distribution processes are satisfactory. Areas of the greatest dissatisfaction involved the timeliness and availability of statements. Most of the criticisms noted in respondents' comments focused on timeliness, lack of objectivity, the quality of analysis, and the inaccessibility of statements.

Notwithstanding concerns expressed regarding various aspects of the legislative impact statement process, there is no clear consensus that major revisions to the impact statement process are appropriate. The commission finds that codifying the current legislative impact statement process would provide greater clarity and certainty regarding members' expectations and ensure that the General Assembly is involved in any future revisions in the process.

Recommendation: The current process of preparing and distributing legislative impact statements should be codified.