The Budget Process - The budget process is the premier arena in which public priorities are articulated and debated, and ultimately where important choices are made by elected officials. The budget process is also a balancing act in which the “separate but equal” branches of government struggle with one another based upon the checks and balances established in the United States and individual state constitutions. The budget process has developed over time into a number of substantial parts: operating budgets, capital budgets, debt management practices, tax expenditure budgets, forecasting processes for both revenues and expenditures, and inflation adjustments. To the uninitiated, the budget can easily be mistaken for an expenditure plan. But as government has grown, so has the awareness that budgeting involves both expenditures and tax policies.

Types Of Budgets And Their Applications - Each state must budget for current operating costs and for capital expenditures. In addition, the state must operate with a fiscally sound program of debt management. The operating budget for a state agency consists of current expenditures required to satisfy a particular mission and/or mandated purpose. The capital budget is separate from the current operating budget and provides for the state’s major long-term capital investment. Funding for capital projects may span two or more years. Managing the state’s debt is an integral part of a balanced budget. Decisions to acquire, construct, and equip facilities may increase the state’s obligation for debt service, and analysts must be aware of how bonding levels are set and how authority to issue bonds is acquired.

Revenue And Expenditure Projections - Revenue projections forecast the amount of revenues that a government will have available to support operating costs and capital expenditures over a given period of time. Expenditure projections quantify the net financial resources required to meet specific needs for a specific period. Both revenue and expenditure projections may be limited to an individual receipt, program, or department, or may project total state receipts and expenditures. Additionally, these projections can be short or long term in nature.

Budgeting In Times Of Fiscal Strain - If unlimited resources were available, a state’s budget could be built to accommodate the public service needs of every resident of the state. But in reality, there will never be unlimited funds and in many budget years the resources will be much less than the perceived needs. Generally, if resources are not sufficient to address the many varied needs of the public, two simple options to cope emerge: increase resources or decrease demand. Historically, a middle course has been taken that is a combination of enhancing resources and controlling demand. For the analyst during times of fiscal strain, the budget debate moves from the marginal changes against the past year’s budget to a more in-depth examination of programs within the base to determine whether continuation is still warranted. The key to an analyst’s contribution is the early recognition of whether the economic situation is permanent (structural) or short-term (cyclical) because these circumstances will dictate the nature of the budget proposal.

The Legislative Process - State governments follow a variety of practices in appropriating state funds. For the great majority of states, the legal authority for formulation of the proposed budget rests with the governor. In most states, there is a special budget review agency in the legislative branch that reviews the proposed budget and prepares the agenda for the legislature. During legislative hearings, the executive branch officials that were responsible for preparing the proposed budget and its document typically defend the proposals. Expenditures are authorized in the annual or biennial appropriation act(s) that is adopted by the legislature and signed by the governor.

Fiscal Note Analysis - During legislative sessions, state agencies are required to prepare fiscal notes for many bills being considered. In some states, executive and/or legislative budget staff also prepare fiscal notes for bills with financial implications. Fiscal notes must assess the full financial impact of proposed legislation, including probable impact on state and local revenues, expenditures, staffing levels, and types of service. The fiscal note analysis usually includes: the impact in dollars, the statutes affected, an estimate of the increase or decrease in revenues and/or expenditures, and any long-range fiscal or program implications.

Function And Role Of The Executive Budget Office - The state’s budget is the definitive policy statement of the decision makers in government. The role and function of a budget office is to develop and define the budget process, present a financial plan which recognizes program priorities within fiscally responsible parameters, and consider and acknowledge all outside forces which may have an impact on the final product and decisions related to it. The process will clearly define the competing priorities for state resources. The budget office staff is responsible for assisting decision makers in ranking these priorities.

Executive And Legislative Budget Staffs - The executive and legislative budget offices provide technical analysis and assistance in the development, enactment, and implementation of the state’s budget. The executive budget office is the governor’s professional staff with respect to the budget. Typically, the legislative budget staff perform similar services for the legislature. Whether or not the two staff agree on the political aspects of the budget, it is in the interest of both branches and their respective budget staffs to bring some order and consistency to the process. Analysts can cooperate in addressing individual agency or program issues, within the parameters of their respective budget guidelines or policies.

Relationship With Legislative Staff, Legislators, Agencies - The development of the budget and decision making process requires the involvement of many parties working in a cooperative way to build consensus, while recognizing and not compromising their respective roles. The executive budget analyst must be capable of playing different roles at different times with different groups, while maintaining integrity and credibility. The same data that convinced the executive analyst must also be provided to legislators and the legislative staff, with all the arguments and supporting information. Timely, accurate, and complete information from the agencies is critical to the success of an analyst. Knowing the people, programs, and processes as well as or better than the agency’s managers gives the analyst an edge in the process.

The Players And The Role Of Politics - The process of budgeting requires the collaboration and interaction of a variety of entities and individuals. Key players in the formulation and execution of a budget include: state agencies, the governor, the executive and legislative budget offices, elected officials, special interest groups, and the media. Each of these groups has an impact on the final outcome of a state’s budget. The role of elected officials is to set the broad policies under which government operates. Budget analysts act as intermediaries between agencies and elected officials. Special interest groups organize based on specific areas of concern and lobby the legislature and other elected officials to secure funding for their concerns. The summaries provided by the media, the self-appointed “watchdog” for the budget process, are interpretations of the process and may affect all the participants, as well as the environment in which the process takes place. The budget is the final product of the political interaction among all of these players and reflects the priorities that emerge after consideration of all the interests expressed by various entities.

Dealing With The Media - It is obviously in the governor’s best interest to make every effort to communicate the issues accurately for the news media. Cultivating a positive relationship with the news media is an ongoing process and a worthwhile one. The staff of the state budget office will sometimes organize press conferences and be questioned by the media. In some state offices, only the director or a designee is authorized to speak to the media, while in other cases, the analyst will be expected to deal directly with the press.

Ethics In State Budgeting - In any professional environment, there are generally accepted standards of conduct. High ethical standards are an important component in public service. Earning and maintaining the public trust is a “critical success factor” in governance that is determined in large part by the performance of elected, appointed and civil service officials. Ethics or standards of conduct are usually defined in relation to personal behavior (for example, honesty) or in relation to the conduct of one’s official duties (for example, full disclosure). Ethical dilemmas are not created equally, some are simply more important than others. In nearly all cases, there are consequences to any action that is taken. Rather than trying to avoid those consequences, experience has demonstrated that it is better to manage the consequences of an action in which you believe, than the converse. In an effort to provide a starting point for considering ethics in the workplace, NASBO has developed its own “Standards of Professional Conduct” (see Module 12).