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Testimony: Mr. Tillett discussed many aspects of capital budgeting for Virginia. He said exemplary capital budgeting should have six characteristics: 1) a limitation on debt financing to control credit quality; 2) quality information including an inventory of assets and their condition; 3) integration of capital budgeting with strategic planning to properly recognize priorities; 4) good communication among all levels of an organization; 5) a long-range planning horizon; and 6) performance monitoring to ensure accountability and provide feedback for future projects. He defined a capital project as a tangible asset costing more than $250,000 to construct or improve. He said Virginia's Appropriation Act contains operating and capital budgets. The operating budget contains activity and program expenditures for State agencies and higher education institutions, and the capital budget contains large, non-recurring expenditures. He said the Commonwealth uses both "pay-as-you-go"(cash) and "pay-as-you-use"(debt) financing techniques for capital expenses. He said cash financing is advantageous, because costs are not passed on to future generations and projects cost less because there are no interest charges or expenses to issue debt. Although the Commonwealth began relying more on debt since the early 1990's, debt financing has subsided in an effort to maintain the Commonwealth's triple A bond rating. He described the Commonwealth's debt capacity management and debt financing programs in detail. He described the Commonwealth's long-term capital planning process. The Commonwealth's Appropriation Act requires the Governor to ensure that capital projects conform to master plans. The Commonwealth's performance budgeting process requires agencies to formulate six-year strategic plans linking capital projects to their mission. He said the Commonwealth's capital outlay process has three phases: budget development, legislative review, and execution. He highlighted and described five aspects of this process: 1) central review of the agency's six-year capital requests; 2) the impact of capital development on the operating budget; 3) Virginia's statewide six-year plan; 4) an inventory of assets; and 5) performance monitoring. Questions from the Commissioners: The questions focused on the impact of a political process on strategic planning, the split between cash and debt financing of capital projects, the justification or evaluation process for including a project in the strategic plan, the impact of capital planning on investments, and the need for an inventory of capital assets. Q. How do changes in administration priorities impact
the strategic planning?
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