THE BUDGET PROCESS
A
budget is an itemized summary of probable income for a plan for expenditures in
a given period. The State’s biennial
budget, then, encompasses more than what is normally thought of as the
Governor’s “budget document” which is the basis of the Legislature’s “budget
bill”. The budget is comprised of all
bills which affect revenues and spending but the biennial budget bill is the foundation
upon which all other budget decisions are made.
The
state fiscal year runs from July 1st through June 30th and is usually
identified by the years it covers, e.g., Fiscal Year 2008-09 runs from July 1, 2008
through June 30, 2009. A two-year budget
(the biennial budget) for state government is adopted during the first regular
session of the Legislature and covers two fiscal years beginning on July 1st in
the first year of the legislative biennium and ending on June 30th during the
first year of the following legislative biennium. That means the 124th Legislature
will consider adoption of the 2010-2011 biennial budget during the first
regular session.
The
biennial state budget bill is developed in two steps: (1) formulation of the budget request in the
executive branch; and (2) legislative approval.
Many groups are involved in the formulation and approval of the state
budgets, including the Governor, departments and agencies of the State, the
Legislature, public interest groups and the public.
I. Formulation
of the Biennial Budget Request
On
or before September 1st of even-numbered years, the judicial branch, the
legislative branch and each executive branch department or agency prepares a
budget request for the next two fiscal years.
The requests identify individual programs within each department and their
respective proposed spending levels for each of the next two fiscal years. The executive branch and judicial branch budget
requests are submitted via the Department of Administrative and Financial
Services to the Governor for review and possible revision. The requests are then compiled into the state
budget document by the Department of Administrative and Financial Services.
The
state budget document is a four year financial plan for State Government for
each fiscal year of two ensuing biennia.
5 MRSA §
1664 outlines the form and contents of the budget document. At a minimum it must contain: a budget message by the Governor; a budget
summary and supporting details and documentation; a financial plan for the
following biennium; estimated and anticipated revenue losses (past, current and
next two fiscal years) caused by tax expenditures provided in Maine statutes;
prioritized public improvement estimates; statements of bonded indebtedness of
the State Government; other statements relative to the financial plan deemed
desirable by the Governor or required by the Legislature; and the long-range
plan for State Government which includes the Governor’s vision for the upcoming
biennium and the two succeeding biennia and how the proposed budget moves the
State Government toward this vision.
Programs
with Highway Fund allocations and other non-General Fund programs of the
Department of Transportation are addressed in a separate budget request and
referred to the Joint Standing Committee on Transportation for consideration. The process described in this overview would
apply to the Highway Fund budget unless otherwise noted.
A. Restrictions and Constraints
In developing the budget document the Governor is bound by various constitutional and statutory restrictions. In passing a budget, the Legislature is bound by the constitutional restrictions but may amend the statutes. The Governor may propose statutory changes as part of the budeget bill.
The
most important restriction on the Legislature in enacting a budget is the Maine
Constitution’s guarantee that the State’s budget will be balanced in each
fiscal year of the biennium which results from it’s prohibition on deficit
financing. There are two sections in the
State Constitution which address the issue.
Article IX Section 14 prohibits the State from incurring long-term debt of
more than $2,000,000, except for certain specified emergencies, without a vote
of the people. In addition, Article V, Part
Third, Section 5 prohibits the use of proceeds from the sale of bonds for current
expenditures.
The
Governor must facilitate this Legislative requirement by submitting a proposed
budget which not only sets forth all proposed expenditures for the
administration, departments and agencies of the government but also the
anticipated revenues of the State Government and any other additional means of
financing the budget (5 M.R.S.A. § 1663). The required format of the budget document includes
a summary which shows “the balanced relationship between the total proposed
expenditures and the total anticipated revenues together with the other means
of financing the budget for each fiscal year”(5 M.R.S.A. § 1664). It is the responsibility of the Governor to
propose a balanced budget for each fiscal year and the responsibility of the
Legislature to ensure that the enacted budget bill in conjunction with all
other spending bills produces a balanced budget. The joint responsibility of
the Executive and Legislative branches to ensure that actual spending does not
exceed actual available resources is covered under Budget Monitoring and Adjustments.
There are many ways that Legislative funding
can be required for a program or activity.
The State Constitution imposes several funding requirements which bind
the Legislature and there are statutes requiring expenditure which derive from
a citizen’s initiative or referendum which may not have the absolute authority
of the Constitution but weigh heavily in budget proposals, deliberations and
implementation. (There are also federal
mandates, court orders and consent decrees which, though very real and often
significant, are not covered in this handbook).
Some of these funding requirements include:
§
Debt Payments - The
State Constitution requires the Legislature to appropriate sufficient funds to
pay the interest and installments of principal on all bonded debt created on
behalf of the State as these payments become due. If the funds are not appropriated, the State
Treasurer is required to use the first General Fund revenues to make those payments.
§
State Employee
Retirement - The State Constitution
requires the normal cost of retirement and ancillary benefits to be funded
annually on an actuarially sound basis. Unfunded liabilities may only be
created by experience losses and must be retired in 10 years or less and funds
must be appropriated to retire unfunded liabilities in existence as of June 30,
1996 in 31 years or less (Article IX, Sections 18-A and 18-B).
§
Education
Spending - A citizens’ initiative
passed in November 2004 requires the state to pay 55% of public education costs
for K-12 and 100% of special education costs.
The initiative amended “the Essential Programs and Services Funding Act”
which set targets to achieve a system of school funding as a State and local
partnership. School funding is
calculated on a per-pupil basis according to an Essential Programs and Services
(EPS) formula that identifies the types and amounts of resources needed in all
schools and calculates their cost. The law has been amended several times, changing
the target dates for achieving the 55% goal. The fiscal 2008-2009 budget funds
54.01% of 97% of total EPS costs. The
current target date is fiscal year 2009-10 (established in the 2008-2009
supplemental budget bill (Public Law 2007, Ch 529, §C-3, codified at 20-A MRSA §15671(7)).
There
Is A Cap On State Spending
Total
General Fund appropriations are restricted by 5 MRSA c. 142 § 1534 which sets
a limit on total General Fund appropriations in the absence of specifically
defined, extraordinary circumstances.
The limit on the rate of growth depends on the State’s ranking of state
and local tax burden among all states as determined by the State Tax
Assessor. For fiscal years in which
The
limitation applies to all appropriations except the additional cost for
essential programs and services for K-12 education (as defined in 20-A MRSA c.
606-B § 15671) until the State’s share of that cost reaches 55% of the total
state and local cost. For the first
fiscal year of the biennium, the limitation is equal to the prior year’s
appropriation multiplied by one plus the applicable growth limitation
factor. For the second fiscal year of
the biennium, the limitation is the first year’s limitation multiplied by one
plus the applicable factor.
There
Are Restrictions On Expenditures Within Certain Revenue Sources
General
Fund appropriations account for less than half of total State
expenditures. The bulk of the expenditures
are made up of funds for which spending flexibility is more limited. Federal funds and federal block grant funds
are restricted by the rules and conditions imposed by the federal government. Most Other Special Revenue funds, internal
service funds, and enterprise funds must be expended in accordance with the
statutes enacted by the Legislature (5 MRSA c. 149 § 1667-B). For the following revenue accounts, however,
expenditure restrictions are imposed by the State Constitution:
§
§
Highway Fund –
The State Constitution limits the expenditure of motor vehicle and motor
vehicle fuel revenues (except vehicle excise tax) to bridge and highway
construction, reconstruction, repairs, maintenance and related debt payments
and administrative costs and state enforcement of traffic laws. (Article IX,
Sections 19).
§ Inland Fish and Wildlife – The State Constitution requires that the General Fund appropriation in any fiscal year to the Department of Inland Fisheries and Wildlife not be less than the non-Federal revenues collected by that department for fees, fines, property rentals etc. (Article IX, Sections 22).
The
constitutional requirement for a balanced budget means that the proposed
expenditures cannot normally exceed estimated available funds. The available funds are made up primarily of
tax revenue and interest income as documented in the revenue forecast. Because of the importance of the revenue
forecast, the participants and process are specifically defined by statute
beginning with the broad input of the Consensus Economic Forecasting Commission
and ending with the Revenue Forecasting Committee, the entity ultimately
responsible for setting the binding revenue forecast and, hence, the expense
ceiling in the absence of revenue enhancing initiatives.
The Consensus Economic Forecasting
Commission was originally established by Executive Order on May 25, 1992. Its purpose is to provide the Governor, the
Legislature and the Revenue Forecasting Committee with analyses, findings and
recommendations for state economic assumptions to be used in developing state
revenue forecasts. Creation of the
commission was in response to a recommendation of the Special Commission on
Government Restructuring to establish an independent, consensus process for
state economic and revenue forecasting. The
117th Legislature enacted in statute (5 MRSA c. 151-B, §1710) the
Consensus Economic Forecasting Commission and the Revenue Forecasting Committee,
maintaining both the structure and intent of the original Executive Order.
The commission consists of five
members having professional credentials and demonstrated expertise in economic
forecasting. It is required to develop two-year and four-year economic
forecasts for the State. In performing
this duty, the commission is required by statute to meet twice each fiscal year
and report (by April 1st and November 1st annually of each odd-numbered year
and February 1st and November 1st of each even-numbered
year) its findings with regard to the economic assumptions or adjustments to
the existing economic assumptions for the State of Maine to the Governor, the
Legislative Council, the Revenue Forecasting Committee and the Joint Standing
Committee on Appropriations and Financial Affairs. The Revenue Forecasting Committee is required
to use the economic assumptions and forecast of the commission in developing
its four-year revenue projections.
The
Revenue Forecasting Committee is made up of the State Budget Officer, the State
Tax Assessor, the State Economist, an economist on the faculty of the
University of Maine System selected by the chancellor, the Director of the
Office of Fiscal and Program Review and another member of the Legislature’s
nonpartisan staff familiar with revenue estimating issues appointed by the
Legislative Council. They are required to use the economic assumptions and
forecasts of the Consensus Economic Forecasting Commission to develop four-year
revenue projections and to provide state revenue projections for the next two
fiscal biennia to the Governor, the Legislative Council and the Committee on
Appropriations and Financial Affairs. Their reports are due by March 1st
and December 1st of each even-numbered year and May 1st
and December 1st of each odd-numbered year.
The
Revenue Forecasting Committee makes its projections using econometric models which
are evaluated, purchased and, in some cases, customized by the Bureau of
Revenue Services. The State Budget Officer must use the revenue projections
recommended by the Revenue Forecasting Committee in setting revenue estimates
for inclusion in the budget (5 MRSA c. 149, §1665). The projections represent the revenue portion
of the balanced budget and not only guide (within the $2 million the
constitution allows state government to borrow without a referendum) the
expenses, revenue enhancements and transfers spelled out in the budget document
but also the total appropriations of all the bills passed by the legislature
(see the section entitled: Budget Monitoring).
In 2006
the Commission to Reform the Budget Process submitted recommendations to the
122nd Legislature. The
recommendations included a format for the Governor’s Budget document. Though the format was not among the
commission’s recommendations placed in statute, it was adhered to in the document
presented to the 123rd Legislature.
The
Budget Document consists of two volumes: The Overview and the Draft Budget
Bills (General Fund and Highway Fund).
The Overview contains the Governor’s budget message, economic and
revenue outlooks for the budget period and beyond, the budget summary, the
financial plan for the following biennium, the Governor’s vision for the
upcoming and following two biennia, debt analysis and prioritized public
improvement estimates. Anticipated
revenue losses resulting from statutory tax expenditures may be included in the
Overview or (as was the case in the previous document) in the Draft Budget Bill.
Draft Budget
Bills list each department and program.
In Part A, Personal Services expenditures for current, legislatively
authorized positions are adjusted to reflect salary schedule, retirement and
insurance rate changes. Funding for
other expense categories reflect the previous year’s on-going program cost
levels excluding one-time costs associated with new initiatives of the previous
biennium and capital expenditures. Proposals
for changes to these baseline budgets (including inflation adjustments, new
programs, statutorily required funding increases, etc.) are presented as
separate initiatives. Program totals reflecting the impact of the initiatives are
shown. Part B of the document contains
appropriations and allocations to provide funding for approved
reclassifications and range changes. Generally, Part B reclassifications and range
changes which affect General Fund, Highway Fund and Fund for a Healthy Maine
are self-funded; meaning that there is an offsetting appropriation or
allocation from the All Other category.
The remaining parts of the budget document include language for changes
in statute required to implement certain budget initiatives or propose other
changes deemed necessary by the Governor.
A
sitting Governor or a Governor who has just been reelected must submit the
budget request to the Legislature by the Friday following the first Monday in
January of the first regular session. A
Governor elected for a first term has until the Friday following the first
Monday in February.
Following
receipt of the budget request, the Legislature refers the matter to the Joint
Standing Committee on Appropriations and Financial Affairs. Historically, the Joint Rules established by
the House and Senate require the committee having jurisdiction over appropriations
and financial affairs (generally referred to as “The Appropriations Committee”)
to hold public hearings on each department or agency’s proposed budget. These hearings are held in conjunction with
the policy committee having jurisdiction over the subject matter unless the
policy committee has elected not to participate. The Appropriations Committee sets the
budgetary constraints and requests recommendations, within those constraints,
from the participating policy committees.
Each participating policy committee is required to appoint a
subcommittee of at least three and not more than five members to serve as a
liaison to the Appropriations Committee.
These subcommittees participate in the Appropriations Committee
deliberations on relevant portions of the budget. After receiving input from policy committees,
the Appropriations Committee votes on amendments and new drafts. The Appropriations Committee’s report on the budget
proposals is submitted to the Legislature for approval in the same manner as
other bills.
III. Budget
Monitoring and Adjustments
Adhering
to the constitutional requirement of a balanced budget is both an executive and
legislative responsibility. The
enactment of a balanced biennial budget is necessary but not sufficient to fulfill
the requirement. There are many events
and conditions that can “unbalance” the budget including but not limited to: enactment
of additional spending bills beyond the “budget bill”; increases or decreases
in revenues collected over revenues projected; changes in need; and changes in
federal funding levels.
To
avoid the potential of other bills creating an unbalanced General Fund or
Highway Fund budget,
During
the thirty-three or so months between the initial preparation of the biennial
budget and the end of the second fiscal year of the biennium, the Revenue
Forecasting Committee may change the revenue forecast several times. A reduction in the forecasted General Fund or
Highway Fund revenue may create an unbalanced budget. The Commissioner of Administrative and
Financial Services is required to provide written notification to the Governor
and Legislative leadership when State funds are not expected meet the
expenditures authorized by the Legislature (5 MRSA c. 142 §1533).
If
the Legislature has adjourned sine die prior to the close of the fiscal year in
which the deficit is projected, the commissioner may declare a budget
emergency. In this case, the State
Controller may transfer from the available balance in the Budget Stabilization
Fund to the General Fund Unappropriated Surplus up to the amount required to
match General Fund expenditures even if that would bring the fund’s balance
below the amount established by statute (5 MRSA c. 142 §1533). The Governor must immediately inform the
Appropriations and Financial Affairs Committee that such a transfer has been
made.
If
notification of the impending budget shortfall is provided with sufficient time
to take corrective actions prior to or during a legislative session, the
Governor will likely propose an emergency or supplemental budget to the
Legislature. If the Legislature is not
in session or there is doubt as to the ability or willingness of the
Legislature to act upon an emergency or supplemental budget bill, then the
Governor may temporarily curtail allotments (5 MRSA c. 149 §1668). Curtailments must be done equitably and as
consistently as practicable within the original intent of the Legislature when
the expenditures were authorized. If
such an action is taken, the Governor must immediately notify Legislative
leadership.
Appropriations
and allocations are made through biennial budget bills, supplemental budgets
and other spending bills and are translated into spending authority through the
allotment process. Departments and
agencies create annual financial plans or “work programs” based on the
Legislature’s appropriations and allocations (and unused balances of prior year
appropriations and allocations when specifically authorized). These work programs map the expenses of each
account by quarter and in detail using the accounting system structure. They are the basis of allotments by which the
State Controller authorizes expenditures.
Work programs are submitted by the requesting departments and
consolidated into a Financial Order. All
Financial Orders, including the initial work plan, must be approved by the
Governor and reviewed by the committee having jurisdiction over appropriations
and financial affairs. (3 MRSA c. 24 §522)
§
Increase
allotments above legislative authorization in order to spend new grant funds
§
Increase
allotments above legislative authorization using unencumbered balance forward
§
Increase one
quarter’s spending by reducing future quarter allotments.
§ Transfer funds
between accounts within an agency
In some cases, the requesting
department or agency must wait thirty days prior to implementing the Financial Order;
in other cases the order becomes effective upon approval by the Governor. Orders
that would normally require a thirty day waiting period can, in an emergency,
become effective sooner by a majority vote of the Committee on Appropriations
and Financial Affairs. (See Appendix IV for more information on waiting periods
by type of Financial Order and affected fund).
Review of Financial Orders is one of
the key mechanisms available to the Appropriations Committee to monitor the
spending plans of the Executive and Judicial branches to ensure that they are
in accordance with the budget and other spending bills. Such a
review may alert the legislature, via the Appropriations Committee, to any
significant deviations from the original work plans and the intent of the
Legislature.
Debt
Bonds
issued by the State that carry the full faith and credit of the State are
General Obligation (G.O.) Bonds. Such
G.O. bonds are typically issued by the Treasurer of State and pledge the full
taxing capability of the State to the payment of principal and interest. G.O. bonds must first be authorized by
two-thirds of both the Senate and the House of Representatives, followed by
ratification by the voters at a general or special election. An authorization allows bonds to be issued
anytime within five years of its effective date. Bonds are only issued when expenditures for
an authorized project are ready to be made, assuring that bond proceeds do not
reside unspent in accounts for long periods of time in violation of federal
arbitrage procedures. G.O. bonds may
only provide funding for capital improvements and other projects that promote
the general welfare of the citizens of the State such as highway construction,
environmental projects, economic development, research projects, etc. G.O. bonds are usually tax-exempt unless
there is a private use component of a project that requires the bonds to be issued
as taxable bonds. Debt service can be
paid by either the General Fund or the Highway Fund and is determined by the
implementing legislation that sent the bond issue to referendum. Article V, Part Third, Section 5 of the
Constitution of Maine requires the Legislature to appropriate sufficient funds
to pay the debt service on G.O. bonds and authorizes the Treasurer of State to
use General Fund revenues if appropriated funds are not sufficient. That same section of the Constitution
prohibits the use of proceeds from the sale of bonds to fund current
expenditures. The total amount of G.O.
principal outstanding at June 30, 2008 was $475,835,000, of which $378,575,000
was an obligation of the General Fund and $97,260,000 was an obligation of the
Highway Fund.
Although
there are no limitations on the amount of G.O. debt that may be issued if
ratified by the voters, the Constitution of Maine does allow for certain
limited borrowings that are not required to be ratified by the voters. These include the following under Article IX,
Section 14: $90,000,000 to insure certain commercial loans; $6,000,000 to
insure revenue bonds of the Maine School Building Authority (statutory
authority repealed by P.L. 1993, c. 494); $1,000,000 to insure mortgage loans
for student housing; and $4,000,000 to insure Maine Veterans’ Mortgage Loans. Article VIII, Part First, Section 2 of the
Constitution of Maine also allows $4,000,000 for loans to
Each
of
State
law (5 MRSA §150) authorizes the Treasurer of State to enter into certain
temporary loan agreements in anticipation of revenues. The Treasurer of State, with the approval of
the Governor, may negotiate temporary loans in anticipation of taxes levied for
that fiscal year. Each loan must be retired
no later than the close of the fiscal year in which the loan was originally
made. PL 2001, c. 705 amended previous
statutory limits on these loans to set the annual limit at the constitutional
level, which is the lesser of 10% of total General Fund appropriations and
total Highway Fund allocations or 1% of the total valuation of the State of
State
law (5 MRSA §150) also authorizes the Treasurer of State to enter into certain
temporary loan agreements in anticipation of receipt of proceeds from the
issuance of bonds already authorized but not yet issued. The Treasurer, with the approval of the
Governor, may negotiate such temporary loans that must be repaid from the
proceeds of bonds within one year from the date of the loan. These loans are typically always paid off
within the same fiscal year and are known as Bond Anticipation Notes (BAN’s).
The
Maine Governmental Facilities Authority is authorized to issue up to $263,485,000
in securities to fund construction-related projects for state agency or court
facilities. Of that amount, $85,000,000
is authorized for correctional facilities; $53,000,000 is authorized for State
House,
How Positions Are Created, Budgeted And Managed
Issues
related to state employees, including their number, compensation, and funding
are often in the forefront of budget deliberations. Personal Services (wages, benefits and
payroll taxes) amount to over 14% of the General Fund budget and the number of
authorized positions is the biggest driver of that category. The state’s budget process results in the
specific authorized headcount.
Headcount
as it appears in the budget bill and in many other spending bills falls under
one of two headings. Legislative
positions are established without an end-date on a full year basis. These may be full time or part-time and are
assigned a legislative position count of 1.00 or .500 respectively. Full-Time-Equivalent (FTE) positions are also
established without an end date but on a partial-year basis (less than 52
weeks). The FTE positions are assigned a
count by dividing the number of hours the employee is expected to work during
the year by 2,080 (the number of hours budgeted for full-time employees for a
full year). The Executive Branch may, by financial order, establish
limited-period positions (which include workers compensation positions and all
positions paid for through non-state funds), project positions or other
temporary positions for a period not to exceed two years. The Legislature must specifically appropriate
or allocate funds for continuance of these positions (MRSA 5 § 1583-A).
Positions authorized solely by financial order are not included in Legislative
or Full-Time Equivalent counts but the associated expenses are included in the
Personal Services category.
Personal Services
Expenditures
The
amount budgeted for total salaries and wages for all authorized and funded
positions is reduced by a predetermined amount to account for attrition. In some instances, there may be additional
salary savings generated from vacant, but funded, positions or for other
reasons such as filling vacant positions with employees at a lower salary grade
than the prior incumbent. Such savings
may be used within the same account to pay for nonrecurring Personal Services
costs such as:
§
Acting capacity
appointments
§
Emergency
overtime for which it is impractical to budget
§
Retroactive
compensation for reclassifications or reallocations (must be approved by the
State Budget Officer)
§
Retroactive or
one-time settlements related to arbitrator or court decisions (must be approved
by the State Budget Officer)
Savings
within General Fund accounts may also be transferred to other General Fund
accounts to cover shortfalls resulting from lower than anticipated vacancy
rates but only if the savings results from higher than budgeted vacancy
rates. These transfers are subject to
review by the joint standing committee of the Legislature having jurisdiction
over appropriations and financial affairs.
Additional
savings in Personal Services due to higher than expected vacancy rates not used
to cover shortfalls as described above may be used to cover costs associated
with collective bargaining agreements with state employees. In fiscal year 2005-06 these transfers were
done directly between accounts (Public Law 2005, chapter 519, Part X. section
2). In fiscal year 2006-07, fiscal year
2007-08 and fiscal year 2008-09, all unexpended Personal Services in General
Fund accounts (regardless of cause) that would normally lapse to the General
Fund were and will be transferred to the Compensation Salary Plan (Public Law
2007 chapter 24, Part KK). Under this
system, the Salary Plan (as it is often called) has become “the funder of last
resort” for cost increases resulting from collective bargaining when those
costs cannot be self-funded within the impacted account.
Permanent
positions for which funds are appropriated or allocated must be classified
positions (subject to the civil service system) unless specifically designated otherwise
by the Legislature. Each classified position has a set of specific
characteristics. Jobs that have similar
work and responsibilities are grouped and assigned to a common job
classification and salary grade. Some
position classifications have only a few employees because of the uniqueness of
the duties, while others have hundreds of employees because the general duties
are very similar from one agency to another.
It is the responsibility of the Director of the Bureau of Human Resources
within the Department of Administrative and Financial Services to ensure that
classified and unclassified positions are assigned to the proper pay grade and
of the State Budget Officer to ensure that the positions are within authorized
headcount and funds.
A
position reclassification occurs when an employee is performing duties outside
of his or her assigned position classification.
A reclassification may be initiated by an employee or management via a
Functional Job Analysis (FJA) form. The Bureau of Human Resources determines
whether a reclassification is warranted and, if so, identifies the appropriate
classification. Collective bargaining
agreements obligate the State to honor approved reclassifications. If the reclassification was initiated by the
employee, the effective date is the date on which he or she signed the FJA and
funding must be identified for a retroactive adjustment. If the reclassification was initiated by
management, it is effective upon funding.
In either case the reclassification will not be released by the Bureau
of the Budget until funding is achieved.
Funding
for the on-going costs of the reclassification may be achieved either through
the legislative process or through identified permanent savings within the
Personal Services line category in the same account (or accounts) in which the
classified position is budgeted. Sources of permanent savings include eliminating
a position, exchanging a position for one of a lower classification, or
reducing the hours or weeks of a position.
If a reclassification results in retroactive costs, funding for that
portion must be found; generally through salary savings in the same account engendered
from vacancies in excess of the assumed attrition rate.
Funding
for an approved reclassification requires legislative approval if the
offsetting savings can only be identified from another account or if an
appropriation or allocation is required because no savings can be
identified. The mechanism for requesting
self-funded appropriations or allocations for the General Fund and Highway Fund
and for all other funds for which additional revenue can be identified is,
typically, Part B of the budget bills submitted by the Governor. If the reclassification requires a General
Fund appropriation or Highway Fund allocation because the department cannot
self-fund or revenue for reclassifications affecting other funds cannot be
found, the request for reclassification would be included as a Part A
initiative in the budget bill.
Reorganizations differ from reclassifications in that the department or agency proposes a change in the duties of a position, often in conjunction with a reorganization of one of its units. The duties of the new classification are not assigned to the position until the department or agency receives approval and an effective date from the Bureau of the Budget. The proposed reorganization is not retroactive and is not implemented until funding is identified. If permanent funding may be found from the sources described in the above section, a request may be made in the form of an initiative in Part A of the budget bill.
Financial Order Transactions
(From
the Bureau of the Budget)
Sample Budget Proposal
This
sample is taken from the Governor’s “Recommended 2008-2009 Biennial Budget”. The format of the document as it relates to
the various parts conforms to that which was recommended by the Commission to
Reform the State Budget Process. The
recommendations of the Commission relating to the form and content of the state
budget document are contained in 5 MRSA §1664.
The recommendations on how the “baseline” revenues and expenses,
proposed changes to the baseline and approved position classifications should
be itemized were not included in statute.
“Part A” of the biennial budget document begins with a Department Summary
listing all sources of funding, by line category, for each department included
in the bill (biennial budget documents include all programs and departments,
other budget bills include only those for which changes have been proposed). Following the Department Summary is a Program Summary sorted alphabetically
by program title. Within each program
there is a short narrative entitled: What
the Budget Purchases describing its activities. The Program Summary section lists the
appropriations for the prior fiscal year, current fiscal year and the two
budgeted fiscal years. (Note: Prior year
revenue and expense columns are removed when the Budget Document is translated
into a bill.). The budgeted amounts
reflect what is known as the baseline budget.
In this part of the budget, Positions listed in budgeted years do not
deviate from those currently authorized by the legislature, the amounts for Personal Services are adjusted to
reflect projected increases for benefits and special payments and the amounts budgeted
under All Other equal the amount
appropriated or allocated for the current fiscal year less any amount not
considered on-going. Proposed reductions
or additions to the baseline budget or proposals to create new programs or
modify existing programs are listed as Initiatives. The
Revised Program Summary reflects the net effect of all Part A initiatives
on the baseline budget for all funding sources and all line categories.
“Part A” Sample
“Part B” of the biennial budget document contains proposed
appropriations and allocations listed by department and fund for
reclassifications and range changes approved by the Director of Human
Resources.
“Part B” Sample
Selected Budget Terms And Definitions
Adjustments to Balances/Transfers Transactions
reflecting the transfer of balances or reserves based on revenue or resources
earned in a prior fiscal year. These
transactions include the transfer to or from reserve funds, the lapsing of
carrying balances and the transfer of balances between funds. Most of these transactions are specific
one-time authorizations. Fiscal notes
segregate and report these changes to available resources separately from
revenue items, which are earned and adjusted or transferred in the current
fiscal year. In addition to the budgeted
Adjustments to Balance/Transfers, the Office of the State Controller records
other prior period adjustments that affect balance throughout the fiscal year
as unbudgeted events. These unbudgeted
adjustments increase or decrease available fund balances, but do not affect
revenue or expenditures.
All Other See Line Category
Allocation The amount of expenditures authorized by the
Legislature from resources legally restricted or otherwise designated for
specific operating purposes. All non-General
Fund resources are “allocated”. The
Legislature allocates to programs (e.g. Bureau of Insurance) and line
categories (i.e. Personal Services, All Other, Capital or unallocated). Negative allocations are called
deallocations.
Allotment The designation of a department or agency’s
estimated expenditures in each fiscal year budget (called the annual work
program) by quarter and line category. Four quarters are used each fiscal
year. The approved amounts are recorded
in the accounting general ledger by quarter and line category to form the basis
on which the State Controller authorizes expenditures, in accordance with
statute.
Appropriation The amount of expenditures authorized by the
Legislature from unrestricted or undesignated resources for specific operating
purposes. All General Fund resources are
“appropriated”. The Legislature
appropriates to programs (e.g. General Purpose Aid to Local Schools) and line
categories (i.e. Personal Services, All Other, Capital or unallocated). Negative appropriations are called
deappropriations.
Appropriations
Table, Special A process by which most bills affecting General Fund
revenue or requiring an appropriation from the General Fund are postponed prior
to enactment in the Senate pending review by the Appropriations Committee. In the closing days of the session, the
committee recommends passage, amendment or defeat of those bills. Bills on the Special Appropriations Table are
listed on the Senate Calendar.
Arbitrage The nearly
simultaneous purchase and sale of securities or foreign exchange in different
markets in order to profit from price discrepancies. In Maine’s debt service context, a violation
of IRS federal arbitrage rules is defined as any action that has an effect of
enabling the state to exploit the difference between tax-exempt and taxable
interest rates to obtain a material financial advantage and overburdening the
tax-exempt bond market (e.g. issuing tax-exempt bonds and investing the
proceeds as opposed to using them for the authorized purpose).
Attrition A factor applied
against budgeted state employee salary amounts which reduce budget requests for
Personal Services to account for projected personnel turnover.
Baseline Budget The starting point for a program’s appropriation or
allocation in the upcoming biennium.
Personal Services funding is based on the projected salary and fringe
benefit costs of authorized positions.
All Other funding is based on the current fiscal year adjusted for any
one-time initiatives. No Capital Expenditures
are included in the baseline budget.
Biennial Budget The two year financial plan
which shows the estimated expenditures of the various departments and agencies
of Maine State Government and the resources available (or proposed to be
available) to fund them.
Biennium The two fiscal years that represent the
period covered by the State’s biennial budget (e.g. the 2008-2009 Biennium
begins July 1, 2007). The convention
used to refer to a biennium is to use the hyphen between the calendar years in
which each of the fiscal years end.
Bond
Anticipation Note (BAN) Short-term notes (12 months or less) in which
funds are borrowed to meet capital project needs that are supported by General
Obligation Debt. This short-term
borrowing is used to avoid piecemeal debt issues and thus minimize debt
issuance costs and reduce the risk of violating federal arbitrage rules. The proceeds from the annual General
Obligation Bond issuance are used to pay off the principal due on the BAN.
Bond Issue A financing instrument
for major capital purchases, projects, repairs, renovations or other limited
projects by which the State incurs debt and retires the principal and interest
amounts over time.
Budget Bills Legislative documents, almost
always submitted by the Governor, that seek appropriations, allocations and/or
revenue adjustments to finance Maine State Government and other public purposes
and may seek statutory or other unallocated language to implement fiscal
policy. Included are:
“Emergency” – proposals in the First Regular Session
to resolve budget issues for the current fiscal year.
“Biennial Budget Bill” – proposals in the First
Regular Session to resolve budget issues for the upcoming biennium which
reflect both the baseline budget (see above), adjustments to existing
initiatives, expansion of the scope of an initiative or an initiative of an
organizational nature for the upcoming biennium.
“Supplemental” – proposals in the Second Regular
Session or a Special Session to resolve budget issues for the balance of the
current biennium.
Budgeted Ending Balance The
uncommitted balance of a fund at the close of a fiscal year. This term is commonly used in reference to
the General Fund and Highway Fund and is simply stated as follows:
Budgeted Net Transfers and Adjustments plus
Budgeted Undedicated Revenue less Budgeted Authorized Expenditures (i.e.
appropriations or allocations) plus the beginning balance.
Budget
Initiatives Proposal for reductions or adjustments to the
baseline budget or proposals to create new programs or modify existing program.
Initiatives are included in Part A of the budget document and must be
accompanied by a description of the intent of the initiative or the specific
action to be taken.
Budget
Order An administrative document prepared by
various departments and agencies to transfer allotment reserve (i.e. unspent
and unencumbered allotment from a previous fiscal quarter) from the reserve to
a current quarter. These transfers must
be authorized by the State Budget Officer.
Budget
Stabilization Fund A General Fund program to reserve funds to
offset General Fund revenue shortfalls.
The fund is capped at 12% of the General Fund revenue in the immediately
preceding fiscal year.
Capital
Expenditures See Line Category
Capital
Projects Fund A governmental fund established to receive
and disburse money from the sale of general obligation bonds. Separate funds exist to accommodate proceeds
from General Fund bonds, Highway Fund bonds and Self-liquidating bonds. Disbursements cannot be made from these funds
for current expenditures but must be for buildings, equipment, roads,
infrastructure, technology and other purposes considered capital projects.
Cascade (so-called) A Legislative
authorization transferring amounts, if available, from the Unappropriated
Surplus of the General Fund after all statutory transfers and financial
commitments determined necessary by the State Controller have been
satisfied. The amounts transferred are
generally added to the program’s appropriation in the following year. Typically, a priority is established for the
transfers.
Cash Pool Conduit
through which all checks, cash, wire transfers, electronic funds transfers and
bank credits of any kind collected by
any and all State of
Contingent
Account, State A General Fund Program established for use by
the Governor as he or she deems it necessary for specified purposes up to
specific expenditure caps as described in 5 MRSA §1507.
Deallocation A negative Allocation (see
“Allocation” definition, above).
Deappropriation A negative Appropriation (see
“Appropriation” definition, above).
Debt Service Principal and interest paid or
estimated to be paid on outstanding borrowed funds.
Debt
Service Earnings Investment earnings on issued debt but unpaid
for authorized projects. These investment
earnings are managed within federal arbitrage rules and are used to reduce the
amount that would otherwise be appropriated or allocated each fiscal year for
General Obligation Debt Services.
Dedicated Revenue Revenue accruing to a department or agency for use toward
designated or legally-restricted operational purposes.
Department
Indirect Cost Allocation Plan A
charge to other than general fund appropriation accounts using a percentage
assessment against actual expenditures representing the proportional value of
indirect benefits received within the department or agency. It is generally
prepared annually by a state agency and approved by the cost negotiating unit
to which the state reports for its federal programs. The plan identifies the rates that the agency
may assess for certain centrally provided services (e.g. payroll, human
resources, office space, accounting, etc.) for which the federal program is not
directly paying.
DICAP (pronounced
“die cap”) Refers to a Departmental Indirect Cost Allocation Plan.
Encumbered Balance Forward The balance of funds in an account which is reserved for
the future liquidation of encumbered purchase orders and contracts and which
carries forward from one fiscal year to the next in accordance with law. Encumbered balances at year-end carry forward
only one year unless stated otherwise in law.
Encumbrance A commitment against allotment for legally
binding purchase orders and contracts representing goods and services which
have not yet been received. Encumbrances
become expenditures and liabilities only when the goods and services are
actually received.
Federal
Medical Assistance Percentage (FMAP) The
percent of total Medicaid costs supported by the federal government.
Published annually in the Federal Register, it is computed from a formula that
takes into account the average per capita income for each State relative to the
national average. A “blended rate” is often used for budgeting purposes
to adjust for the fact that
Federal
Financial Participation (FFP) The amount of money received by a state from
the federal government for programs that are supported with both state and
federal funds. The amount of FFP available for the Medicaid program is
determined to a large extent by the applicable FMAP. FFP is also
available for the cost of administering the Medicaid program, generally calculated
as 50% of allowable costs.
Financial Order A legal document
used by a department or agency to establish allotment, revise allotment,
increase allotment, transfer funds between accounts within the same department
and/or agency and fund type, transfer funds between line categories in the same
account, or to accomplish any other related legal action upon the approval of
the Governor.
Fiscal Note A qualitative and / or quantitative statement issued
by the Office of Fiscal and Program Review describing the fiscal impact of a
bill or an amendment; or that part of a Legislative Document (LD) containing
the same information (as required by the joint rules of the Legislature).
Fiscal Year (Federal) The
legal accounting and budgetary cycle of the Federal Government covering the
period of October 1 through September 30.
The fiscal year is commonly referred to by including the calendar year
in which the fiscal year ends (e.g. FY 08).
Fiscal Year (State) The
legal accounting and budgetary cycle of Maine State Government covering the
period of July 1 through June 30 (5 MRSA, §1501). The fiscal year is commonly referred to by including
the two calendar years involved (e.g. FY 2007-08), or more commonly, by
including the calendar year in which the fiscal year ends (e.g. FY 08).
Fund A fiscal and accounting entity with a
self-balancing set of accounts showing cash and other financial resources,
together with all related liabilities and residual equities or balances, and
changes therein, which are segregated for the purpose of carrying on specific
activities or attaining certain objectives in accordance with special
regulations, restrictions, or limitations.
General Fund The
primary operating fund of Maine State Government. It received revenue from general state
revenue sources (Individual Income Tax, Sales and Use Tax, Corporate Income Tax
and Cigarette Tax).
General Obligation Bonds (aka GO Bonds or Debt) A General Fund
or Highway Fund bond issue in which the full faith and credit of the State is
pledged to repay.
GPA Refers to the
General Purpose Aid for Local Schools program within the Department of
Education and funds the State’s share of K-12 public education.
GARVEE Bonds Grant Anticipation Revenue Vehicle a transportation-financing
instrument. The principal amount
borrowed may not exceed 50% of transportation funds appropriated by the Federal
Government in the prior federal fiscal year.
The principal and interest amounts of these bonds are to be repaid
within 12 months with federal highway funds.
Highway
Table, Special A process by which most bills affecting Highway Fund
revenue or requiring an allocation from the Highway Fund are postponed prior to
enactment in the Senate pending review by the Transportation Committee. In the closing days of the session, the
committee recommends passage, amendment or defeat of those bills. Bills on the Special Highway Table are listed
on the Senate Calendar.
Indirect
Cost A cost, such as general administrative (human
resources and accounting), maintenance and utility expense, that is incurred
but cannot be directly allocated in full to a particular service, cost center
or business activity. A cost may be
incurred on behalf of a number of cost units or centers to which the cost may
be apportioned through an allocation process/indirect cost rate.
Internal Service Fund A self-sustaining, proprietary fund which derives its
resources in support of expenditures from service charges to other state
departments and agencies and other units of government.
Lapsed Funds Uncommitted funds remaining in an appropriation
account at the close of a fiscal year which are returned to the fund from which
they were originally appropriated or allocated by the Legislature.
Legislative Count See
“Position” definition, below.
Line Category The following are the
expenditure groups to which the Legislature appropriates and allocates funds:
“Personal Services” – includes state employee salaries
and benefits, and certain per diem expenditures.
“All Other” – includes non-personal services
expenditures such as general operating expenses, grants, travel, etc., but
excludes items meeting capital expenditures criteria (see below).
“Capital Expenditures” – includes expenditures for
real property, fixed assets with a unit cost of $5,000 or more and/or a certain
useful life, construction and certain repairs.
“Unallocated” – undesignated expenditures.
Mandate,
State An action by the State that requires a local
unit of government to expand or modify its activities so as to necessitate
expenditures of additional local revenues.
MAP Refers to the medical assistance payments
within the Medical Care - Payments to Providers program within the Department
of Health and Human Services and provides the largest portion of the funding
for the state-federal Medicaid program (called MaineCare in
Moral Obligation Bonds Bonds issued by an instrumentality of the
State (e.g. FAME, University of Maine System, Maine State Housing Authority
etc.) for which the State does not pledge its full faith and credit to repay. Statutory authority is required for the
instrumentality to issue these bonds.
NF (pronounced "NiF") Refers to the Nursing
Facilities program within the Department of Health and Human Services.
Personal
Services See Line Category
Position A job in a state department or agency that has been
authorized by the Legislature. Position
headcount may be established without an end-date on a full-year basis
(Legislative Count) or on a partial-year basis (Full Time Equivalent). If the end-date is known, positions are
established without headcount on a project, temporary or limited-period basis.
Position Reclassification An action taken by a department or agency
when it is determined that an individual assigned to a particular position is
working out of the classification of that position because of duties assigned. An employee can initiate the steps needed for
this action to occur. The effective date
of the reclassification is the earliest initiated date of the action.
Position Reorganization An action taken by a
department or agency when it decides to reorganize the duties of a position to
the extent that a change to the classification of the position may be
necessary. The reorganization becomes
effective when permanent salary savings are identified.
Program A grouping of activities and expected results
that are directed toward the accomplishment of a set of goals and objectives
consistent with statutorily defined missions and represents a department
bureau, division or operational entity to which the Legislature appropriates or
allocates resources defined by the Legislature.
Salary Plan Accounts in the General Fund and Highway Fund to which
funds are appropriated or allocated by the Legislature to meet the economic
costs of state collective bargaining agreements. Transfers to department or
agency General Fund or Highway Fund accounts normally are accomplished in the
fourth quarter of a fiscal year after a determination of the actual salary
needs of a department or agency and upon the recommendation of the State Budget
Officer and the approval of the Governor.
Sine Die Without a day specified for a
future meeting; indefinitely.
Statewide Cost Allocation Plan (STA-CAP)
A charge to Federal Expenditures Fund, Federal Block Grant Fund, Other
Special Revenue Funds or other fund accounts using a percentage assessment
against the aggregate of monthly actual expenditures for each class and object
from 3110 through 5999. It is prepared annually
by the Office of State Controller and approved by the cost-negotiating unit of
the U.S. Department of Health and Human Services. The plan identifies the rates that the State
may assess for certain centrally provided services paid for through General
Funds (e.g. payroll, human resources, office space, security, etc.). A rate
that reflects the specific services utilized is calculated for each department
and unit of state government regardless of the funding sources of the
departments’ and units’ programs. The
calculated rate is applied against all eligible expenditures (grants and
capital expenditures are excluded) of the non-General Fund accounts (e.g.
federal funds, State Other Special Revenue funds, etc.).
StaCAP (pronounced “stay cap”) Refers to
the State Cost Allocation plan.
Strategic Plan A long-range, policy-oriented document that maps an
explicit plan between the present and a vision of the future. A strategic plan is derived from an
assessment, goal-setting, and decision-making process that relies on careful
consideration of an agency’s capabilities and environment. A strategic plan identifies a state agency’s
mission, goals, measurable objectives, and strategies and leads to
priority-based resource allocation and other decisions (see 5 MRSA c.
151-C). Sunsets at the end of FY 07 (see
Performance Budgeting above).
Structural Surplus (Gap) Defined by
OFPR as the difference between the projected General Fund (or Highway Fund)
revenue estimated to be collected in the upcoming biennium based on current law
and economic projections and the projected General Fund appropriations (or
Highway Fund allocations) that are needed to maintain the current level of
legislatively-approved and / or funded program effort for that same period of
time.
Supplemental Budget Proposals to resolve budget
issues for the balance of the current biennium.
Trust Fund An account established to hold permanent
funds received by the State for specific long-term purposes. Trust funds are managed by the Treasurer of
State and may be invested through outside investment managers or through
Unallocated See Line Category
Unappropriated Surplus An
account maintained by the State Controller to include the balances of all revenue
and appropriation accounts not otherwise provided for by law, together with any
other necessary adjustments of balances previously closed, shall be closed to
this account at the end of each fiscal year. Any amounts authorized for
allocation by the Governor or representing permanent working capital advances
shall be removed from this account and set up in separate accounts so that the
balance of the Unappropriated Surplus Account shall be the amount of free and
unencumbered surplus according to generally accepted accounting principles.
(see 5 MRSA §1544).
Undedicated Revenue Revenue collected by a
department or agency but which accrues to a general ledger account for use
toward undesignated or unrestricted operational purposes.
Unencumbered Balance Forward The balance of funds in an account which is not restricted
or reserved with respect to their availability for future use and which carries
forward from one fiscal year to the next by line category in accordance with
law.
Work
Program The fiscal year financial plan or budget plan
of a department or agency showing all revenues or other resources along with
estimated expenditures by account, line category, quarter and class and/or
object
Year-End Statutory Transfers Transfers
from the Unappropriated Surplus of the General Fund authorized by statute. Specifically, these transfers include the
following in order of priority:
Up to $350,000 to the State
Contingent Account (5 MRSA §1507);
Up to $1,000,000 to the Loan
Insurance Reserve Fund (5 MRSA §1511) [max. of $35M];
35% to the Budget Stabilization Fund
[max. of 12% of actual GF revenue of the year being closed] (5 MRSA §1532);
20% to the Retirement Allowance Fund
(5 MRSA §17251);
20% to the Reserve for General Fund
Operating Capital (5 MRSA §1511) [max. of $50M];
15% to the Retiree Health Internal
Service Fund established in 5 MRSA §1519; and
10% to the Capital Construction &
Improvements Reserve Fund established in 5 MRSA
§1516-A.