May 2021

Every year, or every other year, states face the task of creating budgets that adequately address the needs of their residents while also maintaining their short-term and long-term fiscal objectives. Each state’s budget reflects an estimate of the amount of revenue the state will collect. Depending on the state, this figure is determined by the governor, the governor and the legislature, the legislature, or an independent commission.

The Budget Calendar

For most states, the fiscal year runs from July 1 to the subsequent June 30. The exceptions are New York (whose fiscal year starts April 1), Texas (September 1), and Alabama, the District of Columbia, and Michigan (October 1).

The public budget discussion typically starts when the governor issues his or her budget proposal by a date specified in the state’s laws or constitution, which generally takes place in January or February.

The budget cannot take effect until the legislature approves it and the governor signs it. This is supposed to take place before the start of the fiscal year. If states miss the deadline they must pass temporary spending bills to keep the government running until the budget is enacted and/or temporarily shut down.

State Budget Timeline

The budget cycle varies by state, though most follow a similar pattern. First, the state budget office (in the executive branch) sends instructions to state agencies to follow in preparing their budget requests. These instructions provide a template for presenting financial and descriptive information. They also set limits on certain types of requests and expectations depending on the fiscal environment.

Next, agencies submit these requests to the budget office who then develop the executive budget proposal based on the governor’s priorities. The governor’s budget deadline ranges across states from November to March and is submitted to the legislature. The legislature will then hold committee hearings and deliberate various sections of the budget. Once an agreement is reached, the legislature passes the budget which then goes to the governor for approval. From here, the governor must sign it in order for it to become law or veto it to revise the budget before signing.

Approaching the Budget

Different states use different methodologies to make budget decisions. Most states develop budgets on an incremental basis where they start with a baseline of current spending or service levels and focus more attention on justifications for relevant spending increases or decreases.

Additional ways states approach budgeting is through program budgeting or performance budgeting. Program budgeting brings more focus to programs or activities as the primary budget units, and incorporates information on program missions, goals, and effectiveness. Many states also use performance budgeting to allocate resources based on measurable results.

In addition, nearly all states have a rainy day fund or budget stabilization fund. These funds are only able to be expended if certain conditions are met. Most states also have separate reserve funds specifically for natural or manmade disasters.

Monitoring and Executing the Budget

State budgeting is a continuous process and must be monitored frequently. Throughout this cycle, expenditures and revenues are monitored to ensure funding needs are met. Budgets are also monitored to make sure state resources are sufficient to fulfill spending obligations. Thirty-two states issue interim expenditure monitoring reports on a monthly basis.

States also use their ability to shift funds around as an execution tool. For example, the state budget office may transfer appropriations between departments, between programs within a department, and between spending categories within a program.

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