A New Approach to Performance Budgeting: Agency Strategic Planning and Service-Based Budgeting Richard D. Brown Director, Virginia Department of Planning and Budget

The Basics Many Factors and Perspectives Influence State Government Budget Development Changes in regulations and laws Demand for services Increase in number of clients Automation Increases/decreases in federal funds Traditional practices Public sentiment Priorities of the Governor and General Assembly

The Basics Most States View Budget Development as a Zero-Sum Game Whereby Competing Demands Must Be Balanced Fiscal Conditions (increases/decreases in available revenues) Fixed Costs (mandatory demands vs. discretionary actions) Economy (efficiency and cost savings, i.e. price per unit of service) Effectiveness (continuing need for existing programs and agencies) Priorities (agency budget requests vs. Governor’s agenda) Overall performance (quality of operations, focus on outcomes and return on investment).

The Issues Agency Strategic Planning vs. State Budget Development Agency strategic plans may not be based on fiscal realities (visionary vs. practical) Agency goals and objectives may not address statewide priorities (agency budget requests vs. statewide priorities) Agency performance measures may not adequately address overall performance (hard to measure desired outcomes and degree of state influence to achieve results may be limited) Agency strategic plans almost never address potential enterprise-wide or efficiency improvements (planning silos)

The Issues All Spending Decisions Are Not Focused on Results Types of Spending Decisions: Maintenance or fixed costs requirements (rent, insurance, gas, retirement/social security, etc.) Case load or unit cost thresholds (school enrollment, cost per unit, $xx per capita, etc.) Political considerations (budgeting is a compromise process) Results oriented actions (true investments, deal or no deal!)

Bringing It Together Guidelines For Improving Performance Budgeting Tie agency planning efforts to state goals (be really strategic in approach) Some things are more important to measure than others (concentrate efforts on what moves the needle; decisions that are true investments and results-oriented) Don’t just record performance, evaluate it (have a thrust for what works and why it works) Look outside agency silos (create new enterprises for desired results) Recognize results and reward performance (promote consistency and desired behavior)

The Virginia Experience

Virginia’s Budgeting System is Evolving 1980: Program Budgeting and Evaluation 1995-96: Agency strategic planning and Performance Measures 2005: Service Planning & Performance-Based Budgeting

Previous Budget Structure Program structure Level of control   Function Subfunction Program   Central budget control (by fund, by positions)   Subprogram Element Cost center Object of expenditure Agency budget control

Previous Performance Budgeting Process

Previous Dual Structure Orientation Budgeting Programs/Subprograms = Accounting System Strategic Planning Activities = Virginia Results

The Task At Hand

Establishing a Vision and Goals for the Commonwealth

Making a Change Establishing a Statewide Vision The Council for Virginia’s Future Created in 2003 (Code of Virginia 2.2-2684) to advise the Governor and the General Assembly on the implementation of a Roadmap for Virginia's Future. Responsibilities include: developing a set of guiding principles that are reflective of public sentiment and relevant to critical decision-making; establishing a long-term vision for the Commonwealth; conducting a situation analysis of core state service categories; setting long-term objectives for state services; aligning state services to the long-term objectives; instituting a planning and performance management system consisting of strategic planning, performance measurement, program evaluation, and performance budgeting; and performing plan adjustments based on public input and evaluation of the results of the Roadmap.

Composition of Council on Virginia’s Future The Council shall be composed of 18 members that include eight legislative members and ten nonlegislative members as follows: The Governor, The Speaker of the House, The majority and minority leaders of the House of Delegates, The Chairman of the House Committee on Appropriations, The President Pro Tempore of the Senate, The majority and minority leaders of the Senate, The Chairman of the Senate Finance Committee, One nonlegislative citizen member appointed by the Speaker of the House, One nonlegislative citizen member appointed by the Senate Committee on Rules, Two Cabinet Secretaries appointed by the Governor, and Five nonlegislative Citizen members appointed by the Governor.

Organizational Framework LEGISLATIVE BRANCH COUNCIL ON VIRGINIA’S FUTURE EXECUTIVE BRANCH Planning Group Council Steering Committee Planning, Budgeting & Assessment Advisory Sub-Committee Governor’s Performance Leadership Group CEO Advisory Group Private Sector Reengineering Advisory Group Innovation & Improvement Advisory Sub-Committee Performance Leadership Steering Group Private Sector Reengineering Support Teams MAP

The Council on Virginia’s Future Has Articulated Seven Long-Term Objectives For Virginia Be recognized as the best managed state in the nation. Be a national leader in the preservation and enhancement of our economy. Elevate the levels of educational preparedness and attainment of our citizens. Inspire and support Virginians toward healthy lives and strong and resilient families. Protect, conserve, and wisely develop our natural, historical, and cultural resources. Protect the public’s safety and security, ensuring a fair and effective system of justice and providing a prepared response to emergencies and disasters of all kinds. Ensure that Virginia has a transportation system that is safe, enables easy movement of people and goods, enhances the economy, and improves the quality of life.

Scorecard at a Glance

Linking Strategic Planning and Performance Budgeting at State Agency Level

A Mandate for Change at Agency Level HB2097(03) (affecting § 2.2-2681 - 2.2-2687) “…each agency shall develop and maintain a strategic plan for its operations” defined in the legislation as “the systematic clarification and documentation of what a state agency wishes to achieve and how to achieve it. The objective of strategic planning is a set of goals, actions steps, and measurements constructed to guide performance.”  HB1838(03) (affecting § 2.2-1508) “The Executive Budget document is to include a statement of “major goals, objectives, and specific outcomes related to expenditures for programs” in each agency.”

Process Design – Strategic Plan Service area structure is key: Generally, “service areas” are what agencies do for the citizen or for other agencies They consist of allocations of resources toward a specific objective Each service area forms the basic unit of both budgeting and of planning Principal objectives of these plans are: To provide agencies with a tool to assist them in self-management To give decision makers uniform and dependable data for budgeting and accountability To link state resources to results To eliminate current fragmented processes of strategic planning, budget development, workforce planning, capital planning, and technology planning

Service Area Structure Current Structure Programs/Subprograms = Budgeting Accounting System Strategic Planning Activities = Virginia Results Future Structure Budgeting Service Areas = Accounting Strategic Planning Performance Measurement

Service Area Structure Current Programs/Subprograms Recommended Service Structure Proposed Services = “*” Current Activity Planning, Budgeting, and Evaluation Services (71500) Budget Development and Execution Services (715 02) Budget Development and * Budget Execution Services* Budget Development and Budget Execution Legislation and Executive Order Review Service * Legislative Review Service Performance Management Service Forecasting and Regulatory Review Services* Regulatory Review Service Program Evaluation Service * Program Evaluation Service Federal Budget Service Executive Orders Service Administrative Services (71598) Administrative Services * Support Service

Budget Bill Display

Process Design

Agency Strategic Plan Content

Looking At The Enterprise The Executive Progress Report Current Performance Productivity Major Initiatives and Related Progress Virginia ranking Customer Trends and Coverage Future Direction and Priorities Impediments

Agency Strategic Plan Content

The Revised Budget System Will Foster Transparency By Linking Together Expected Results, Funding, and Actual Performance For State Government Service Product Contents Agency Strategic Plan Establishes strategic and operational plan for the agency and its service areas Service Area Plan Articulates expected results (objectives) for each service area and defines performance criteria to measure progress toward expected results (sets baseline and target data for results). Budget Bill Allocates funding among the various service areas of state agencies Budget Document Brings together and begins to explain relationships between expected results and proposed funding in the budget for service areas and state agencies Budget Execution Accounts for actual spending by service area and monitors accomplishments and results though reporting system for performance measured data. The Service Area is the link between all of the above. It is the common unit at which strategic planning, funding (budget), and performance information (results) is presented.

Integrating Planning and Budgeting Old New COVF Vision & Objectives Guiding Principles DPB Data Repository Legislators Agency Strategic Plan Agency Budget & Performance Measures X objectives and measures submitted to DPB/VaResults B U D G E T P R O C S S E R V I T C I E E D A R T E O B S U T D R G C E T T U Service Area Budget Performance Service Area Budget Performance Agency Selects X objectives and measures Service Area Budget Performance Service Area Budget Performance Program Program Service Area Budget Performance

Tying Agency Planning and Budgeting Efforts to Statewide Goals

Virginia’s Performance Leadership System for State Government Organization & Leadership Development (2006) Subject Area Results Teams Analysis and Strategy Formulation to Improve Quality-of-Life Outcomes (Transforming Virginia) Management Results Teams Analysis and Strategy Formulation to Improve Management Outcomes (Transforming Government) Planning & Budgeting Innovation & Improvement (2006) Transforming Government Virginia VISION (2003) & LONG-TERM GOALS (2004) Government & Citizens Economy, Education, Health & Family, Transportation Public Safety, Natural / Historic / Cultural Resources ENTERPRISE LEADERSHIP AGENDA High-Level Priorities and Enterprise Quantifiable Objectives AGENCY LEADERSHIP AGENDAS Initial Agency Strategic & Service Area Plans & Budgets (2005) Refinement of Plans and Implementation of Strategies to Improve Outcomes (2006) Enterprise Indicators Agency Management & Programmatic Measures (2005) Societal Indicators Assessment

Virginia’s Performance Leadership System Levels of Results Accountability DESIRED SOCIETAL RESULTS Council’s vision and long-term goals  SOCIETAL-BASED INDICATORS Environmental Scan: How is Virginia doing? AGENCY LEADERSHIP AGENDAS Agencies’ strategic and service area plans AGENCY PERFORMANCE MEASURES Are agency programs that serve our customers producing desired results? ENTERPRISE LEADERSHIP AGENDA Targeted quantifiable objectives for long-term goals (Includes Gubernatorial, Legislative & Cabinet priorities) MEASURES TO MONITOR PROGRESS Are we achieving desired results? Are we improving the factors that influence the results?

Bringing It Together Guidelines For Improving Performance Budgeting Tie agency planning efforts to state goals (be really strategic in approach) Some things are more important to measure than others (concentrate efforts on what moves the needle; decisions that are true investments and results-oriented) Don’t just record performance, evaluate it (have a thrust for what works and why it works) Look outside agency silos (create new enterprises for desired results) Recognize results and reward performance (promote consistency and desired behavior)

VISIT www.dpb.virginia.gov Virginia Department of Planning and Budget www.future.virginia.gov Council on Virginia’s Future