SB 21-STRATEGIC PLANS FOR STATE AGENCIES  4:01:47 PM CHAIR KAWASAKI reconvened the meeting and announced the consideration of SENATE BILL NO. 21 "An Act relating to the Executive Budget Act; relating to strategic plans, mission statements, performance plans, and financial plans for executive branch agencies; and providing for an effective date." He stated this was the first hearing and the intention was to hear the introduction, take invited and public testimony, and hold the bill for future consideration. He asked Mr. Steininger to provide an overview of the current budget process. 4:02:22 PM NEIL STEININGER, Director, Office of Management and Budget (OMB), Department of Administration, Juneau, Alaska, stated that he was asked to review the current budget process and the documents that are included with the budget to explain what the agencies are doing with the money the legislature appropriates. He explained that the budget cycle the public sees begins when the governor releases the budget on December 15, continues when the legislature convenes in January, and completes when the legislature passes the budget and returns it to the governor. For the executive agencies, the budget is a year-round process. OMB works with state agencies to review the budget that passed, makes plans to execute the appropriations, and makes recommendations to the governor about potential veto actions. OMB works with the state agencies throughout the summer to understand needed realignments that are within OMB's statutory authority to make internally. The end product is the Management Plan, which is also the starting point for the next year's budget. It's analogous to what Legislative Finance calls the Adjusted Base Budget. This is produced in the same time period that agencies are closing their prior fiscal year's budget. Towards the end of July, OMB issues a Guidance from the Governor memo that informs state agencies about the executive's expectations for the next year's budget. Thereafter, the agencies develop and present their proposed budgets to OMB in the September timeframe. Throughout the process, agency staff has been working to provide the technical work and backup documentation that is additional information on the core mission and deliverables of each department. This work product is referred to as the Budget Books. This documentation, which is laid out in statute, is what SB 21 seeks to amend. MR. STEININGER explained that the Budget Books currently reference the statute attached to a given budget component and lists the existing or future challenges that impede achieving that component objective. The Budget Books also contain detailed reports about how the positions in a component are spent, the planned expenditures, expenditures in prior years, and descriptions of the year-over-year changes in the budget proposed by the governor. He described the performance measures in the Budget Books as inconsistent in value. Every state agency is supposed to provide performance measures that give objective statistics on how well the agency is delivering on their statutory missions. Some, but not all, of the information is useful to the budgeting process. Internally, OMB challenges state agencies to review the information in the Budget Books and improve their performance measures, but that's not always a high priority during a busy time. Ultimately, that information is the primary documentation for the public to understand what's done with the appropriations and the reason for current requests. 4:12:33 PM SENATOR CLAMAN asked whether the performance measures were written in statute, established by regulation, or metrics the departments believe are reasonable. MR. STIININGER replied that statute requires a system to measure performance. The system is a web portal that OMB maintains, but the measures are set by the agencies. What he's seen over eight legislative sessions is that the quality of the information is dependent on the culture of the given department and the commissioner's focus. SENATOR CLAMAN asked whether the measures the department determines are important are put into regulation or simply internal documents that could change at any time. MR. STEINGER replied that the measures that are on the website or in the Budget Books could change the following year. 4:15:53 PM SENATOR JAMES KAUFMAN, District F, Alaska State Legislature Juneau, Alaska, sponsor of SB 21, stated that his goal today is to make performance management, budgeting, and strategic plans exciting. He briefly summarized the sponsor statement that read as follows: SB 21 reorganizes the Executive Budget Act (EBA) to better integrate the planning and budgeting processes used by the executive and legislative branches. Alaska is often in the news for the wrong reasons. When national rankings of performance metrics in key social and economic areas are released, we often come in close to the bottom. This is true for education, health, public safety, and many other critical areas. We spend billions to serve a relatively small population, but somehow improvement seems elusive sometimes impossibleto achieve. We live in a beautiful and truly amazing state, but the performance of our state programs has not done justice to our potential. The State of Alaska is a vast and complex multi- billion-dollar enterprise, but we do not have a well- developed and fully integrated Operations Management System and Quality Management System (OMS/QMS). We have fragments of an appropriate enterprise-scale performance management system, but nothing that can properly manage an enterprise of our magnitude. So, the question is: How can we start to drive a higher level of performance in our state agencies? How can we rise to meet our many challenges while simultaneously successfully improving the cost to benefit ratio of our programs? Fortunately, the answer to that question is available, and has been successfully implemented by high performing organizations in both the public and private sector. We have adapted those successful systems into SB 21 as it is today. SB 21 reorganizes the Executive Budget Act. Under the new system, every annual budgeting cycle will occur within the framework of a 4-year strategic plan, biennial updates to that strategic plan, and yearly performance management & execution plans. The people managing and doing the work will set goals, objectives, and key performance metrics that honor the legislative intent confirmed with every budget cycle. That way, each year, the legislature will consider department budgets that are aligned with strategic and performance plans. Transitioning to this form of planning, budgeting, and performance management will put us on a path towards a more efficient and stronger future. Our Operations Management System will guide how our enterprise runs, while the Quality Management System will address how we continually improve and how those improvements are sustained. SB 21 does not provide an instant cure for all problems. But by reforming the EBAwhich is the foundation of how we plan, manage, measure, and fund our programswe will be able to pursue other, more comprehensive continuous improvement processes that will lead to a better future for Alaska. 4:18:46 PM MATHEW HARVEY, Staff, Senator James Kaufman, Alaska State Legislature, Juneau, Alaska, presented a PowerPoint during the introductory hearing on SB 21 relating to strategic planning, budgeting, execution, and reporting to improve outcomes and address longstanding performance and management issues. MR. HARVEY began on slide 2 with an overview of the presentation. • Problem Statement • Current State o AS 37.07 The Executive Budget Act (EBA) • Proposed Future State: SB 21 o Structural Changes to AS 37.07 o Plan Content Summaries o Boards and Commissions • Benefits • Examples MR. HARVEY advanced to slide 3, "Problem Statement," and spoke to the following: • Alaska's management of programs and projects has not been as strong as many citizens expect from their government • Alaska consistently scores lower than other states in key metrics o e.g. No. 45 overall in US News' best states square4 https://www.usnews.com/news/best-states/alaska o e.g. Received a C- Report Card for Infrastructure by ASCE square4 https://infrastructurereportcard.org/state- item/alaska/ • Alaska has fragments of an appropriate enterprise- scale management system, but not something that cohesively blends operational, performance, and quality management • How can we start to drive a higher level of performance while successfully improving our overall cost/benefit ratio? 4:20:29 PM MR. HARVEY continued to slide 4, "Current Executive Budget Act," and reviewed the following: • Title 37: Public Finance • Chapter 07: Executive Budget Act Sec. 37.07.010. Statement of policy. It is the purpose of this chapter to establish a comprehensive system for state program and financial management that furthers the capacity of the governor and legislature to plan and finance the services that they determine the state will provide for • Describes the role of the legislature, OMB, and the governor in the budgeting and program execution process • Includes two sections which deal mainly with planning and performance o 37.07.050 Agency program and financial plans; mission statements o 37.07.080 Program Execution 4:21:30 PM MR. HARVEY advanced to slide 5, "Proposed Future State: SB 21," and spoke to the following: • Responsibility Change (Measures/targets set by executive branch) • Planning Hierarchy and increased organization o Statewide Priorities (3-6 long-term priorities set by governor) o Strategic Plans (4-year plan, updated at least every two years) square4 Mission, goals, and objectives for each agency o Performance Plans (Annual Plan) square4 Program structure and performance history/targets o Financial Plans (Annual Plan) square4 Financial History and Budget information • Transparency and Reporting o Quarterly Performance Reports: Progress towards targets o All plans and reports are posted on a single, public website 4:22:40 PM MR. HARVEY explained that slide 6 is a graphic that illustrates the hierarchy of plan locations and planning cadence. Plan Location includes: Governor's Recommendations, Agency Strategic Plans, and Performance and Financial Plans Planning Cadence includes: Long-term priorities submitted annually with budget and rarely updated, 4-year plans that are updated every 2 years, and Annual plans 4:23:06 PM MR. HARVEY advanced to slide 7, "Structural Changes to AS 37.07," and spoke to the following: • Title Change of AS 37.07.016: Governor's use of strategic plans, mission statements, and performance plans • Title Change of AS 37.07.050: Agency strategic plans; mission statements o Refocuses this section on strategic plans and changes title due to moving performance and financial information • New Section AS 37.07.055: Specific requirements for Boards/Commissions • New Section AS 37.07.085: Performance and Financial Plan section 4:24:21 PM MR. HARVEY advanced to slide 8, "Agency Strategic Plans AS 37.07.050," and reviewed the following: • 4-Year Strategic Plans submitted at the beginning of each gubernatorial term • Updated at least once every two years • Includes: o Description of strategic plan and mission statement o 3-6 goals for the agency o Specific, measurable, realistic, and timely objectives o Methods of gathering user group opinions o Population served by the agency and population trends o Key external factors that could affect progress o Required legislation and regulatory changes 4:25:21 PM MR. HARVEY advanced to slide 9 "Agency Performance Plans New AS 37.07.085(b)," and spoke to the following: • Annual Plan submitted to Legislature by December 15th of each year • Includes: o Description of the agency's program structure and proposed changes o Identification of each program's constitutional or statutory authority o A program purpose statement: describes the services provided, customers served, and the benefit or intended outcome of the program o Identify performance measures aligned with strategic plan square4 Identify goals and objectives that the measures correspond to o Identify results for each performance measure over the past four years o Identify performance targets for each measure for the next fiscal year 4:26:28 PM MR. HARVEY advanced to slide 10, "Agency Financial Plans New AS 37.085(c)," and described the following: • Annual Plan submitted to Legislature by December 15th of each year • Includes: o Revenue and expenditures for each program for prior four fiscal years o Breakdowns: Amounts received by each revenue source and expended on each type of expenditure o Estimates of revenue and expenditures for current and next fiscal year o Budget requested for succeeding fiscal year o Number of positions employed or under contract o Cost of services provided by each program o Report of receipts made last year, estimates for current and next year o Other Information (expenditures authorized, required legislation, etc.) 4:27:16 PM MR. HARVEY advanced to slide 11, "Boards and Commissions New AS 37.07.055," and described the following additions: • Creates a section specific for Boards and Commissions • Boards and Commissions must annually provide a financial plan: o Budget requested for next year o Expenditures made last year, authorized this year, and proposed for next year o Explanation of services to be provided next year, including need for and cost of services o Number of total positions employed or under contract by the board or commission o A report of receipts made last fiscal year and estimated for the current and next fiscal year o Identified legislation • Boards and Commissions must annually provide a plan for operation of programs • Boards and Commissions shall develop a method of measuring results • A closeout report is required upon termination of the board, commission, and agency programs related to the board or commission 4:28:22 PM MR. HARVEY advanced to slide 12, "Benefits," and provided the following high-level overview: • Align the strategy of all agencies with a governor's statewide priorities • Link short term tactics/funding to mid-range, department-level strategy • Push responsibility for defining measures and targets to the executive branch. The people closest to the customers of services • Reduce duplication of goal-setting and financial information at a program or component level • Increase the level of detail regarding program structure and program definition 4:29:07 PM MR. HARVEY advanced to slide 13, "Examples," and described the following: • Federal Government (GPRAMA) o https://www.gao.gov/leading-practices-managing- results-government • AZ Strategic Plans: https://azospb.gov/ • North Carolina: o https://www.osbm.nc.gov/operational- excellence/strategic-planning/strategic- planning-guide • New Mexico: Accountability in Government Act o https://www.nmlegis.gov/entity/lfc/Documents/ Accountability_In_Goverment_Act/ Legislating%20For%20Results.pdf • Other Guides o https://www.osc.state.ny.us/files/local- government/publications/pdf/strategic_ planning.pdf o https://www.urban.org/sites/default/files/ publication/62616/410067-State- Approaches-to-Governing-For-Results-and- Accountability.PDF 4:30:08 PM SENATOR WIELECHOWSKI asked Mr. Steininger whether he supports the bill and thinks it will make his job easier and whether it's feasible and would be helpful for future planning. MR. STEININGER answered that the administration does not have an official position on the bill. His observations were that some of the things in the Budget Books don't add as much value as they could; some of the work that's drafted in the books is duplicative; and some of the work inserted by analysists and agencies isn't used in the budget deliberation process. To the question about whether the bill would benefit the state, he said he believes that it's beneficial to look at whether the legislature and public is using what agencies are required to produce for budget deliberations. 4:32:35 PM SENATOR WIELECHOWSKI commented that the goal of improving government efficiency and productivity has merit. He asked Mr. Steininger to comment on whether the state was operating at optimal efficiency. MR. STEININGER replied that he couldn't say that that the state would ever be 100 percent efficient. He supports having a mechanism to look at whether things are being done well. He noted that OMB requested a position for an internal auditor to look at whether the work being done by the agencies was achieving the intended goal. SB 21 seems to be a bill that could help that process. 4:34:17 PM SENATOR CLAMAN asked if there was anything in SB 21 that a department couldn't do today in terms of developing new or changing existing performance metrics. MR. STEININGER responded that departments currently could improve their performance metrics and some agencies have worked to do that within the existing statutory structure. He restated that this only happens when a particular commissioner has the organizational mindset to effectuate such a change. By contrast, SB 21 seems to mandate that focus and effort. SENATOR CLAMAN observed that regardless of the mandate, it would likely come down to how much the departments want to do. MR. STEININGER agreed. 4:37:32 PM SENATOR CLAMAN asked the sponsor what the bill adds that couldn't be done today if the governor wanted to push improved performance metrics. SENATOR KAUFMAN explained that the bill creates a standardized improved management framework for setting key goals and objectives. When governments and corporations have a good structure, the key goals and objectives flow down and strategic management plans come back up, are evaluated, and operating plans are set. This creates a conveyor belt for performance that is standard across the entire executive branch. It's not that this doesn't exist today, but not as a standardized performance management framework for operations. This standardization provides the opportunity to incrementally improve the management structure across the entire executive branch. 4:40:48 PM SENATOR MERRICK asked whether aligning the strategic plans with the gubernatorial terms might create unnecessary political overtones as opposed to the off years. SENATOR KAUFMAN acknowledged that timing was an important consideration and that separation of powers was another area that needed more attention. 4:43:36 PM CHAIR KAWASAKI opened public testimony on SB 21; finding none, he closed public testimony. SENATOR KAUFMAN thanked the committee for hearing the bill. 4:44:08 PM CHAIR KAWASAKI held SB 21 in committee.