What is the Budget Process?

Mike Howells
Mike Howells
Woman holding a book
Woman holding a book

In order to reach a consensus on annual spending limits and revenue sources, local, state, and national democratic governments must typically undergo a yearly series of hearings and negotiations to settle on a compromise budget. This is referred to collectively as a budget process. This can take days, weeks, or months, depending on a number of factors — most importantly, the fiscal status of a government.

Generally, a budget process begins with a government's chief executive, be it a city's mayor, a state's governor, or a country's president submitting a draft budget. In local and state governments that run on a July 1 to June 30 fiscal year, this first budget proposal is normally offered in February or March. In one form or another, this budget is then introduced as a bill or resolution in the government's legislative branch.

Appropriations hearings and initial negotiations then take place over the following months, with revenue figures for April and May — the months for which personal and business taxes are submitted — having particular influence in guiding the process. Following these hearings, public debate and private negotiations ensue between legislative leaders and the executive branch. Many states have constitutional requirements to pass a budget before the start of the fiscal year for which it applies, so there is often pressure for a budget to be passed by June 30. Once agreement is reached, the original budget bill is either amended to fit the final agreement, or a new version is introduced and quickly passed.

At the federal level of the United States, which stands as the model for many countries, the fiscal year begins in October and ends in September. The budget process begins with a budget request being submitted by the president in February. This request includes funding requirements for each of the executive departments, as well as independent agencies, such as the Environmental Protection Agency (EPA). It also includes revenue proposals, such as new taxes and other ways to make money.

Following this proposal, committees in both the U.S. House of Representatives and the Senate draft budget resolutions, which serve as either confirmations or counter-proposals to the president's request. Any discrepancies between the House and Senate versions are ironed out, in what is known as a conference committee, which consists of members from each chamber who negotiate compromise language.

Importantly, at the federal level, the budget resolution is not law. Rather, it is a concurrent resolution that merely guides Congress. Individual appropriations bills for each of the spending areas must be passed, and be signed by the president for any spending to be legally authorized. There are roughly a dozen appropriations bills that account for the entirety of the federal government.

No two budget processes are alike. Governments deep in debt, or with no strong legislative majority in place, may find themselves in a protracted budget process, while wealthy governments, or those with strong majorities, may reach spending and revenue agreements quickly. Current events may lend themselves to more or less popular support for various spending initiatives, new taxes, or cuts. In addition, governments with a strong party majority will be able to build a consensus quickly. In bicameral governments, having both chambers being led by the same party means a budget can be pushed through along party line votes, despite any opposition.

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