Overview of the Operating Budget Process

The annual budget is a declaration of the Commonwealth’s priorities and a statement on how to allocate the limited collective resources that exist. In a recession, governments have fewer resources but the demand on public services is greater, which can make the budget development process challenging.

The operating budget supports the day-to-day functioning of state government. It pays for programs and services provided on behalf of and to the state’s residents, employee salaries, utilities, supplies, insurance, and equipment repairs. The budget is a financial plan, reflecting the state’s projected available resources and how it intends to use this funding to operate programs and services and meet its long-term liabilities.

Developing the annual operating budget is a lengthy process that involves all three branches of government, hundreds of agencies and thousands of stakeholders and residents. First, the Governor presents his budget recommendation to the Legislature. Then, the House of Representatives and the Senate will each separately review the Governor’s budget and develop their own recommendations. Lastly, the House and Senate work together to reconcile their budgets and send the final bill to the Governor.

The Constitution and Budget Related Laws

The fiscal year is a commonly used term to describe annual budgeting period.  State fiscal year 2012 extends from July 1, 2011 to June 30, 2012. In a typical year, state agencies have the authority to spend funding provided for a fiscal year over a 14-month period, after accounting for a two month “accounts payable” period through August during which final payments for costs incurred before June 30 are reconciled and made.

The budget process begins, at the latest, in the fiscal year preceding the fiscal year for which the budget will take effect. For example, planning for the fiscal year 2012 budget began no later than July 2010, a full year before it begins. State agencies develop their budget plans for the next fiscal year with the consideration on “out-years” as well, projecting the costs of current state programs and services over the next two years.

The annual budget process varies from state to state. Here in Massachusetts, the State Constitution and Massachusetts General Laws outline and govern the budgeting process. The Massachusetts Constitution requires the Governor to present a budget to the Legislature within 3 weeks of the beginning of the new session in January. State finance law (Chapter 29 of the Massachusetts General Laws) requires the Legislature and the Governor to approve a balanced budget for each fiscal year. In other words, the Commonwealth cannot spend more than it receives in revenue. Further, during the fiscal year, the Governor may approve no supplementary appropriation bills that would result in an unbalanced budget.

Funds for the Commonwealth’s programs and services must be appropriated by the Legislature each fiscal year. The final budget is a law known as the General Appropriations Act (GAA). The GAA specifies how agencies and departments may spend their appropriations and allocates exact dollar amounts authorized for a specific period and purpose. The budget also lists major revenue assumptions and reflects the must up-to-date assumptions for the total amount of resources that can be budgeted from tax collections, reimbursements to the state from the federal government, and other revenues (fees, penalties) that are collected by state agencies. Agencies are not allowed to spend more than what has been appropriated to them in the GAA and supplemental budgets.

Developing Next Year’s Operating Budget: FY12 General Appropriations Act

  Fiscal Year 2012 Planning
Department Planning & Secretariat Review July-September 2010) Department and agency staff review their policies and programs, develop future plans, and submit budget requests to their respective Cabinet secretary for review.
The Cabinet Secretaries evaluate the requests and develop a Secretariat-wide budget. Secretariats were assigned a spending cap by the Executive Office for Administration and Finance (ANF) based on projections at the time of available fiscal year 2012 revenues.
Formal Budget Request
(October-December 2010)
Secretariats and agencies submit spending plans to ANF. Independents, Constitutional officers and the Judiciary also submit spending plans. 
The consensus revenue number is announced. The Executive and Legislative Branches jointly agree and commit to a single tax revenue projection for the next fiscal year. Both the Governor’s budget and the Legislature’s budget will be based off this number.
ANF, under the direction of the Governor’s Office, prepares the Governor’s budget recommendations. For this year’s budget, each Secretariat held hearings across the state to solicit input on programs and services under their jurisdiction from the general public. This input was considered by agencies and ANF in the development of their spending plans. 
Governor's Budget
(January 26, 2011)
The formal budget begins as a bill that the Governor submits to the Legislature. According to the Constitution of the Commonwealth of Massachusetts, the Governor must propose a budget for the next fiscal year within 3 weeks after the Legislature convenes, which this year translates into the 4th Wednesday of January.
In odd years, the Governor’s budget is called House 1 (H.1) and in even years it is called House 2 (H.2).
Accordingly, the fiscal year 2012 budget will be filed on January 26, 2011.  More detailed information regarding the specific budget development process for fiscal year 2011 can be found in the “FY11 Current Year Update” section.
House Budget
(February-April 2011)
The House Ways and Means Committee reviews the Governor's budget and then develops its own budget recommendation. Individual members of the House of Representatives submit budget amendments which are then debated on the House floor. Once debated, amended and voted on by the full House, it becomes the final House budget bill and moves to the Senate.
Senate Budget
(February-May 2011)
The Senate Ways & Means Committee reviews both the Governor's and House budgets and develops its own recommendation. Individual senators submit budget amendments which are then debated on the Senate floor.  Once debated, amended and voted on, it becomes the final Senate's budget bill.
Conference Committee Budget
(June 2011)
House and Senate leadership assign members to a "conference committee" to negotiate the differences between the House and Senate bills. The conference committee report can only be approved or rejected, no additional amendments can be made.
(June 2011)
Once approved by both chambers of the Legislature, the Governor has ten days to review it. The Governor may approve or veto the entire budget, or may veto or reduce particular line items or sections, but may not add anything. If the Governor does not act within ten days, the conference committee bill becomes law.
(June 2011)
The House and Senate may vote to override the Governor's vetoes. Overrides require a two-thirds roll-call vote in each chamber.
Final Budget
(June - July 2011)
Once the Governor signs the bill with his recommended vetoes, it becomes the budget for the fiscal year. The final budget is also known as the General Appropriations Act (GAA) or "Chapter (# to be determined) of the Acts of 2011."
The new fiscal year 2012 begins on July 1, 2011.

Developing Supplemental Budgets

While the GAA is the primary budget law, supplemental budgets are also passed throughout the fiscal year. A supplemental budget authorizes additional spending above GAA levels. A supplemental budget is similar to the GAA but is generally smaller in size.  It addresses unforeseen growth/decline in state revenues and or additional expenses/savings.  The supplemental budget process is the same as the GAA budget process; supplemental budgets are bills filed with the Clerk of the House of Representatives, debated and passed by both the House and Senate, negotiated in a Conference Committee, and signed by the Governor in order to become law. 

The timeline for supplemental budget legislation is usually shorter since supplemental budgets often provide funding for unforeseen situations that need timely resolution.  For example, supplemental budget funding may be necessary from year to year to ensure that the Commonwealth can pay for unanticipated additional costs for snow and ice removal. In this case, at the time the GAA became law specific assumptions for the winter’s costs for snow and ice removal were in place. As the winter progresses and the state’s Department of Transportation begins to manage snow and ice removal, total projected costs may change and additional funding may be necessary.