The first topics forum in 2001 dealt with a subject that has occupied and preoccupied our minds for many months now: "Current and Future Budget Issues -The Budget Blues". Jane Smith, DENR's Budget Director, interacted with department managers for a three hour session on the topic. The forum was held in three locations convenient to our mangers in the eastern, central, and western part of the state. At a time when travel restrictions were heavy, the department's senior management considered this event a priority and encouraged it to occur.

Jane Smith structured the forum agenda to provide the following things:

• a budget primer,
• a discussion of current issues,
• state of the budget,
• budget review process, and
• group breakout sessions exploring ways to maximize our resources.

Jane reminded participants of the types of budgets we manage:

1. Continuation - maintains current program level with no increase in service. Also known as the base budget.

2. Expansion - expands or changes the program scope.

3. Capital - covers building new or expanding the footprint of existing structures.

4. Repair and Renovation (R & R) - covers modifications or changes to existing structures without changing the footprint.

5. Performance Based Budget - attaches a budget based on program targets and objectives and has been used by the legislature for the past 5 years. This year, as always, the Legislature will look at eliminating duplication of activities.

Our budget is a combination of appropriations and revenue (fees, grants,etc.). A program can count on appropriations, but revenue fluctuates. Because of fluctuations, we must monitor revenue and be diligent with our billing to maintain a high level of receipts.

The Legislature is working on the next two-year budget cycle (fiscal years 2001-2002 and 2002-2003).
Beginning with the continuation budget, the State Budget Office and the Legislature look at projections based on reversions(i.e. money not spent in the past year) and revenue (tax receipts and estimated impact from tax cuts). This year's revenue fell short of expectations creating a focus on reversion money. Revenue shortfalls will affect projections for the next two years. North Carolina's constitution requires the state to balance the budget and not operate at a deficit.

So where do we stand on the basic budget categories for the upcoming year? Expansion is not anticipated unless unexpected revenue is generated. Capital spending is not known for 2003. The R&R (also known as "rich and rare") is set aside based on the credit balance at the end of June, and will probably be very small for year 2002.

The governor's plan does not include employee layoffs, however there may be a redirection of staff. The department is releasing federal funding where the state match has already been made. If a program has a federal position and has already met the state match, then the position may be unfrozen.

The April figures will tell us how bad the budget really is. In November, 2000, the estimated state deficit was $200 million. DENR's portion of that money to be made up was $6.6 million. The figure was based on reversions from the previous five years plus 1 % and DENR was able to achieve the cuts. In January, 2000, the anticipated deficit was $500 million making DENR's portion $8.1 million. At the time
of the forum presentation (February and March 2001), the projection was $700 million or more. To put this into perspective, the state shortfall in 1991 was $1.2 billion.

A governor tries to avoid going into emergency status, but in this year, deficit estimates required an emergency budget plan. By meeting the budget plan, North Carolina's AAA bond rating can remain intact. Emergency status allows the governor to take control of funds regardless the intended use. All statutory authority for protection of non reverting funds is off. Money that is not committed goes into a holding fund until June 30th and will be returned to the agency if not spent. Only critical spending is allowed and is defined as that which is necessary to maintain health and safety, respond to emergencies, and take care of people in state custody (i.e. health care and corrections).

What are some current actions to balance the budget? There is a freeze on vacant positions. Travel restrictions are in place. Purchasing has been limited. R & R money is frozen. Layoffs are not under consideration and early retirement is not an option being
explored.

The Division of Pollution Prevention and Environmental Assistance provides North Carolina industries, local governments, and state agencies free technical assistance on cost-effective ways to save money and conserve natural resources. Their web site discusses options at: w w w . p 2 p a y s . o r g

Jane talked about how the department prepares to answer questions from the legislative budget oversight committee; the Natural and Economic Resource Committee (NER). We try to anticipate questions and have answers ready at the time of NER meetings. Divisions are given a list of items to prepare for budget discussions. The fiscal research division provided items for our review that reflect the use of a modified zero based budgeting approach for next fiscal year. Zero based budgeting assumes the "zeroing out" of certain programs, line items and funds from the continuation/base budget to allow legislative subcommittees to hear information from state agencies and nonprofits that justify the continuation of expenditures for those programs. Items being considered by appropriation subcommittees for zero based budgeting include:

• new programs or items added to the continuation budget since the 1996 session
• direct appropriations and grants to nonprofit organizations
• contracted miscellaneous and personal services
• rental/lease of equipment
• travel and other employee expense
• cellular phone services
• furniture and equipment replacement schedules
• loans, discretionary grants, and other aids and grants
• special fund cash balances
• positions vacant for six months or more as of January 23, 2001
• budget flexibility, UNC system
• performance budgeting program, community college system
• other programs/expenditures identified by subcommittees as appropriate for zero based budgeting

During the last hour of the forum, participants divided into small groups and had discussions around two questions:

What are we doing that wastes time/money resources?
What are we doing that maximizes time/money resources?

Discussion yielded many ideas that have been captured and forwarded to Chris Russo, who iscompiling a list of efficiencies for DENR senior management.

Some examples of the responses...

What are we doing that wastes time/money resources?

• we don't make sure assigned cars are used first
• burning all the lights
• using cell phones on the way back to the office
• not monitoring building temperatures
• use contracts that limit competitive pricing
• multiple redundant steps in administrative processes
• paying for regional office space that we aren't using
• using paper checks for travel reimbursements
• multiple distribution of documents: fax, email, and regular mail
• paper copies of position vacancies (career bulletin)
• having meetings that could be accomplished by conference calls
• costly purchasing process ($10 business cards cost $90 to process)
• equipment maintenance contracts vs. repair as needed
• printing emails

What are we doing that maximizes time/money resources?

• telework pilots
• field staff sharing office space
• setting computers on energy efficient mode and turning them off when not in use
• take advantage of audits from the Divison of Pollution Prevention and Environmental Assistance
• electronic reporting
• using natural lighting
• establishing a reuse area to pool unused inventory (e.g. paint, paper)
• using the right vehicle for the trip (i.e. 4X4 vehicles cost more to operate)
• internal training vs. sending folks outside
• manage workload increases by reworking our processes
• limiting the number of commission meetings during budget situation
• sending fewer folks to training and having them bring back information
• using letterhead on computer instead of preprinted
• reviewing state/federal surplus lots before purchasing new items

Forum sessions in all three locations (Raleigh, Winston-Salem, Washington)covered the topic according to the same agenda. Each session was characterized by lively discussion and sustained interest. The Managers'Forum work group thanks Jane Smith for taking time to host three forums across the state and talk about budget issues.