Legislative Budget Procedures
The state budget process is central to the administration of state government. Budgets allocate resources, set policy, review and evaluate policy, and lay the foundation for future planning and program review. These tables addresses key elements of the budget process that are found in most states.
Although state practices are fairly similar, differences include annual or biennial budget cycles, the nature of requirements to balance the budget, whether states are subject to tax and expenditure limits, the nature of requirements to maintain budget reserves (rainy day funds), and whether federal funds are subject to the appropriations process. Some of this information is available in the following NCSL publications:
- Corina Eckl, "States Broaden the Scope of Rainy Day Funds." The Fiscal Letter (National Conference of State Legislatures) 17, no. 2 (March/April 1995).
- Arturo Pérez, "Legislative Oversight of Federal Funds," Legislative Finance Paper, (National Conference of State Legislatures) no. 98 (June 1995).
- Mandy Rafool, "State Tax and Expenditure Limits," Legislative Finance Paper, (National Conference of State Legislatures) no. 100 (November 1996). Also see State Tax and Expenditure Limitations.
- Ronald Snell, "State Balanced Budget Requirements." (National Conference of State Legislatures, 1996).
- Ronald Snell, "Annual and Biennial Budgeting: The Experience of State Governments" (National Conference of State Legislatures, 1997).
See also Constitutional Provisions Requiring a House of Origin for Revenue Bills for related information.
Budget Framework. State budget cycles are either annual or biennial; they last for a fiscal year (FY) or a biennium (two years). Twenty states enact budgets on a biennial schedule: 11 adopt separate budgets for two fiscal years at once, and nine pass true biennial budgets. The relative advantages of annual and biennial budgets have been debated at length, and states occasionally change from one to the other. The overall experience of states, however, is that neither budget cycle has overwhelming advantages or disadvantages.
Fiscal years begin on July 1 in all but four states. July 1 is the date on which the federal fiscal year began until the federal government changed to October 1 in 1974. Alabama and Michigan adopted the federal practice. New York's fiscal year begins April 1 and Texas begins its fiscal year on September 1. States with a fiscal year that begins in or after the middle of a calendar year have an advantage with respect to their legislative session calendars. July as the beginning of the new fiscal year, for example, allows time for states where legislatures do not meet all year to enact a budget because the legislature usually convenes in January or February.
Because almost all states have balanced budget requirements, an accurate revenue forecast is even more important for them than it is for the federal government, which can routinely borrow to maintain planned expenditures. With balanced budget requirements and restrictions on borrowing, states are less able to do so. In addition, many states mandate that total expenditures may not exceed the official revenue forecast for the budget period; in these 26 states, the revenue forecast "binds" the budget.
Appropriations Bills and the Budget Document. The average number of appropriations bills states use ranges from one in about a third of the states to 500 in Arkansas. Ten states have either two or three. In the states with two or three, the bills are usually for capital, transportation and operating expenditures.
The layout and appearance of budget documents vary among states, just as approaches to budgeting differ. Most states use a budget method that is incremental--previous appropriations are increased or decreased by small increments. Due to ongoing funding requirements, a large portion of the previous year's budget is assumed to be committed. And with an emphasis on accounting and control, the focus is on what money buys (inputs) rather than on the service that is provided (outcomes). Incremental budgeting states tend to produce budget documents that include detailed information by line-item.
Other states have shifted to budgeting methods that emphasize performance and results. These approaches include performance-based, program-based, and zero-based budgeting. With a focus on outputs rather than inputs, performance-based budgeting allocates resources based on expected agency performance levels. The budget document may include information about performance measures and performance objectives for the ensuing budget period. Program-based budgeting, focusing on granting agencies greater flexibility in determining how best to provide their services, allocates resources by programs or by service delivery groups. Program budgets often display goals and activities of a program and then relate these goals to program inputs and outputs. Zero-based budgeting, as originally developed, disregards current funding levels and operations as a basis for budget decisions. Instead, budget decisions begin at zero and build from there. This process, which is intended to review, evaluate, and analyze all proposed expenditures, is used in its original form only by the Northern Mariana Islands.
Although some states have implemented a single budget approach, many use a combination of approaches. Each method has advantages and disadvantages, and states have had mixed results switching from traditional incremental budgeting to approaches that emphasize performance and results.
Development of the Recommended Budget. Most states follow the executive budgeting model, where executive budget staff draft a proposed budget to submit to the legislature. With the possible exceptions of state authorities and enterprises that generate their own revenue, the governor's budget recommendation includes all sources of funding and expenditures. It also includes proposals for the budgets of other elected officials--many states elect officials such as the treasurer, the attorney general, the auditor and the superintendent of public schools--who may have substantial budgets to administer. The budgets for the legislature and judiciary are not included in the governor's budget proposal. These branches of government propose their own budgets.
The political importance of the governor's budget varies from state to state. In most, the proposed executive budget dominates the legislative budgeting process; it establishes the agenda for budget discussion and negotiation. In some of these states, it is adopted with relatively few changes. However, strong legislative budget processes dominate in a few states--Arizona, Colorado and Texas, for example. In those states the executive budget may be largely disregarded.
Legislatures have unlimited power to change the budget proposed by the executive and judicial branches in all the states except three. Maryland, Nebraska and West Virginia limit the power of the legislature to increase or decrease budget items. The Maryland Legislature may decrease but not increase appropriations proposed by the executive (and may not reallocate funds among programs). A three-fifths vote is required for the Nebraska Legislature to increase the governor's recommendations; a majority vote is required to reject or decrease them. In West Virginia, the Legislature may increase or decrease any item within the budget and can add items and accounts, but it cannot reduce the judiciary budget or create a deficit.
Deliberation on the Recommended Budget. The time the legislature and the budget committees have to consider the budget varies widely among states. Time limits for the legislature range from just over four weeks in Maine (in an even-numbered year) to the entire session in 12 other states, where there are no time limits. For the budget committees, time for deliberations ranges from just over three weeks in Maine (in an even-numbered year) to the entire session in 10 other states, where there are no limits. The main goal of imposing time limits on budget deliberations is to help ensure budget passage by the beginning of the fiscal year.
Enactment of the Budget. Like the structural differences mentioned earlier, political differences exist among states with respect to their budget processes. The most important is the balance between legislative and executive authority in composing the budget. Line-item veto power of the governor is one element in the legislative-executive balance, but tradition and partisanship are equally decisive. Generally, far more cooperation exists between the legislative and executive branches than is typical for Congress and the president. The agenda-setting role of the executive budget in many states is one reason. The executive line-item veto is another reason in the 43 states where it exists. A final reason is the political expectation--that is almost always met--that a state will enact a balanced budget before the beginning of its fiscal year. Late budgets and vetoes are most likely when a state is experiencing serious fiscal difficulties. Otherwise, executive and legislative negotiations are intended to resolve budget disagreements and avoid vetoes and late budgets.
Post-Enactment Budget Revisions and Supplemental Appropriations. Although budgets become effective only after legislative enactment and executive approval, many states allow revisions to be made in budgets without the involvement of the entire legislature. Most legislatures are not in session throughout the year, and some legislatures meet for only a few months every other year. Requiring legislative consent for every change in a budget would impose delays or the costs of special sessions. Therefore, most states allow governors some degree of authority to reduce spending when it is necessary to maintain a balanced budget, even if enacted budgets call for specific expenditure amounts.
In addition to budget cuts, many legislatures make supplemental appropriations for current-year budgets, depending on needs that develop in the course of the fiscal year. About half the states have procedures to address such funding needs when the legislature is not in session. Twenty-six states can make open-ended--or "sum-sufficient"--appropriations, which fund regular or formula-driven obligations such as contributions to state retirement funds or foundation aid to schools.
Budget administration is the responsibility of the executive branch, although the legislative and judicial branches protect their independence by maintaining control of their budgets.
Budget administration usually is centralized in a budget or accounting office, which releases funds to agencies on a schedule (the allotment process). Such offices usually are reseponsible fore monitoring revenues and expenditures and issuing monthly reports at least for internal use, and increasingly for public information. Financial auditing and program reveiw, however, often are the responsibilit of a legislative agency and are closely tied to legislative budget oversight.
Updated February 2008.
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