Understanding the Budget Process

Budgeting is an ongoing exercise, consisting of a number of distinct but interrelated phases. Each phase consists of a sequence of activities and each activity, in turn, takes place within a specified time. The phases of the process from one fiscal year often overlap phases from other fiscal years. Most fiscal years are twelve months long, which is a reasonable length of time to execute a budget. However, there are a handful of state and local governments that deviate from this practice. Most of these governments use a biennial budget, prepared for execution over a two-year period, as opposed to twelve months. Considering the budget size of some governments, state as well as local, the length of the session for a biennial budget may appear rather short to have a lengthy discussion on budgetary issues than an annual budget, but one can argue that it saves government money in additional costs of meeting every year. While both annual and biennial budgets have their strengths and limitations, governments have a choice to move from a biennial to an annual budget, and from an annual to a biennial budget, although the process is complicated. Given the cyclical nature of budgetary activities, there is a mechanical undertone to the process, but budgeting is more than a mechanical exercise; it is also political in that it takes place in a political environment. This chapter looks at the budget process both from a cyclical as well as from a political perspective. Interestingly, despite the complexity and the level of details, the process is considerably similar for all three levels of governments—state, federal and local, which makes it easy to understand the process.