SJR 94

Commission on the Commonwealth's Planning and Budgeting Process

October 12, 1998, Richmond

The Commission on the Commonwealth's Planning and Budgeting Process was established in 1997 to examine the feasibility of providing an integrated six-year budget projection for major budget drivers with each biennial budget. SJR 94, which continued the study for a second year, directed the commission specifically to examine the feasibility of developing, within the legislative branch, a long-range expenditure forecasting model.

Long-Range Expenditure Forecasting Model

North Carolina's legislative fiscal research division and the Barents Group have developed a long-range budget simulation model, used by the North Carolina General Assembly to develop ten-year budget forecasts and simulation horizons for the general fund and highway funds. Detailed economic and demographic "drivers" are used to forecast revenues, expenditures and budget balances in order to simulate the budget impacts of changes in service levels, input costs, tax bases and rates and economic and demographic factors. Representatives from the Barents Group conducted a demonstration of the model for the commission.

The commission was impressed with the potential such a model could have on the planning process in the Commonwealth. However, development of such a model would require a high level of cooperation and the free exchange of information between executive branch agencies and the legislature. The staffs of JLARC, the House Appropriations Committee and Senate Finance Committee were requested to report to the commission at its November meeting on how such a model may enhance their capabilities, and to suggest alternative approaches and options.

Fiscal Impact Statements

Pursuant to its duty to examine mechanisms to evaluate the effect of proposed legislation on the budget, in 1997 the commission reviewed the processes for preparing and distributing fiscal impact statements. The commission found that while there was dissatisfaction with some aspects of the impact statement process, there was no consensus for major changes in the current process. To provide greater clarity and certainty, the commission recommended that the current process, which for most types of statements has been implemented by executive order, be codified.

Senate Bill 401, which would have implemented this recommendation of the commission, was amended during the 1998 Session to transfer responsibility for fiscal impact statements from the Department of Planning and Budget (DPB), the Department of Taxation, the State Corporation Commission, and other agencies to the Division of Legislative Services (DLS). The statute shifting the process to DLS was enacted with a delayed effective date of July 1, 1999.

The commission was advised that preparation of accurate and timely fiscal impact statements, which are essential to the development of a balanced budget, require substantial input from executive agency personnel. Establishing an office with the capacity to prepare good impact statements will require a sufficient number of staff with detailed knowledge of programs across the range of state government; immediate and ready access to data on clients, costs, and trends; experience with the state budget; and good quantitative and budget skills.

DPB reported that all of the approximately 40 budget analysts spend 90 percent of their time working on impact statements during legislative sessions. Starting with the 1999 Session, DPB will provide impact statements directly to the chairmen of all committees through the House and Senate Clerks offices. The implementation of SB 401 is not expected to reduce DPB's workload, because the agency is likely to continue preparing impact statements for the Governor's Office.

DLS reported that in 22 states both executive and legislative agencies prepare impact statements, and in 14 states impact statements are prepared only by legislative agencies. Based on an assumption that 10 analysts and two support positions would be needed to implement SB 401, DLS estimated that implementation would cost $699,087 in the first year and $590,087 in future years.

It was suggested that whether or not the duty of preparing impact statements is moved to DLS, putting the statements on the Internet would improve the statements' accessibility. While DLS took no position for or against implementation of SB 401, it was suggested that a pilot project be conducted prior to any shift of the process to the division.

The chair noted that while the legislative branch may need some independent ability to determine the implications of pending legislation, the legislation transferring the impact statement process to DLS needs to be revisited. The commission requested JLARC and the money committee staffs to identify the legislature's needs with respect to the impact statement process and to identify steps that can be taken to address them.

The Honorable Joseph V. Gartlan, Jr., Chairman
Legislative Services contact: Franklin D. Munyan