In many ways, adoption of the state budget parallels the enactment of other legislation described above. However,
because of several unique characteristics, the budget process is described in some detail here.
The state fiscal year runs from July 1st through June 30th and is usually identified by the years it covers, e.g., Fiscal Year 1998-99 runs from July 1, 1998 through June 30, 1999. A two-year budget for state government is adopted during each legislative biennium (usually during the first regular session). The biennial state budget 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 119th Legislature will consider adoption of the 2000-2001 biennial budget during the first regular session covering FY 1999-00 and FY 2000-01.
Development of the biennial state budget entails two basic steps: (1) formulation of the budget request in the executive branch; and (2) legislative approval. Many different 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.
1. Formulation of the Budget
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 biennial budget requests identify individual programs and divisions of each department and the estimated spending level for each for the next two fiscal years. The budget requests are submitted via the Department of Administrative and Financial Services to the Governor, who may revise them. The requests are then compiled into the state budget document by the Department of Administrative and Financial Services. This document is printed and distributed early in the first regular session to legislators and others.
The state budget document is the financial plan for state government for each year of the ensuing biennium and consists of two components. The first component contains the Governor’s budget message, a general budget summary (balancing expenditures and sources of funding for the upcoming biennium and comparing those figures to figures for the last and current fiscal years for each state program), and an estimate of losses in revenue anticipated during the next biennium due to tax and income exclusions, exemptions and deductions. The second component of the state budget document contains a detailed budget estimate of expenditures and revenues, a statement of state-bonded indebtedness showing redemption requirements, authorized and unissued debt and the condition of sinking funds.
Legislation comprising the budget request is divided into two major categories. The Part I Budget, or Current Services Budget, consists of requests for money to continue existing programs as authorized by law, collective bargaining agreements or other requirements. The Part II Budget consists of adjustments, reductions and requests for money for new and expanded programs.
2. Legislative Consideration
The Governor submits the budget request to the Legislature in the form of several bills. Taken together, these bills present a “unified budget” proposal for the expenditure of funds projected to be available for the operation of state government in the next fiscal biennium.
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 budget bills to the Joint Standing Committee on Appropriations and Financial Affairs. This committee holds public hearings on each department’s or agency’s proposed budget. Under the Joint Rules, each policy committee is required to review the portions of the budget relating to its area of subject jurisdiction and to provide the Appropriations Committee with its recommendations. Each policy committee is also 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 sub-committees participate in the Appropriations Committee deliberations on relevant portions of the budget. After input from policy committees, the Appropriations Committee votes on amendments and new drafts. The committee’s report on the bills is submitted to the Legislature for approval in the same manner as other bills.
In addition to General Fund budget bills, separate bills for certain dedicated funds are also submitted to the Legislature. Generally, these bills are referred to the Appropriations Committee for consideration as are other budget bills. However, Highway Fund budget bills are referred to the Joint Standing Committee on Transportation for consideration and certain other agency budget bills are referred to the appropriate policy committee for consideration.
Up to 33 months intervene between the initial preparation of the biennial budget and the end of the second fiscal year of the biennium. As a result, adjustments in the form of emergency and supplemental budget bills are often necessary to account for the effects of inflation, increases or decreases in revenues collected over revenues projected, changes in need, and changes in federal funding levels. Those adjustments are accomplished during the second regular session or during a special session and generally follow the same steps as in the formulation and approval of the initial budget.
Normally, the budget bills are enacted before other bills requiring appropriations or allocations or having a fiscal impact. At the end of the session, other bills with a financial impact are removed from the Appropriations Table or the Highway Fund Table upon the motion of either the Senate chair of the Appropriations Committee or the Transportation Committee. Bills recommended for passage in the budget deliberations are either enacted or amended. Any bills not approved for passage that remain on the table are then amended to remove the provisions with fiscal impact or are indefinitely postponed.
3. General Fund and Highway Fund Revenue and Expenditure Forecasts
The 117th Legislature enacted legislation that requires the State Budget Officer to annually prepare a "four-year" revenue and expenditure forecast for the General Fund and the Highway Fund. Due by September 30th of each odd-numbered year and by May 31st of each even-numbered year, the forecasts are to project revenues and expenditures for the following biennium. The forecast must assume the continuation of current laws and include reasonable and predictable estimates of growth in revenues and expenditures based on national and local trends and program operations. Required to be submitted to the Governor, the Legislative Council and the Joint Standing Committee on Appropriations and Financial Affairs, the forecasts are to be presented in a way that shows revenues forecasted by income source and expenditures forecasted by major program category.
The Consensus Economic Forecasting Commission and the Revenue Forecasting Committee, both established in 1995, provide analyses, findings and recommendations concerning projected revenues.
4. Performance Budgeting
The 117th Legislature enacted legislation to begin implementation of performance budgeting in state government as contrasted to the traditional line-item budgeting approach. The legislation implementing this new approach defines performance budgeting as "the method for developing and finalizing an agency's request for appropriations and allocations derived from its strategic plan and consistent with an agency's statutory responsibilities. Performance budgeting allocates resources based on the achievement of measurable objectives, which in turn are related to the agency's mission and goals."
The 118th Legislature revised deadlines and the application of performance budgeting. Under current law, each agency is responsible for developing a draft strategic plan for that agency by December 1, 1998 and a final plan by December 1, 1999. During preparation of the plan, agencies must consult with and receive comments from appropriate committees of the Legislature. The Governor is required to present a prototype performance budget by December 31, 1999 for legislative review.
The law calls for performance budgeting to be fully implemented in time for the preparation, presentation, adoption and implementation of the 2002-2003 biennial budget.
5. General Fund Budget
The following pie charts provide an overview of the breakdown of General Fund revenues and appropriations for the 1998-1999 biennium. Estimated revenues, of course, may change over time.
6. Budget Constraints
There are many influences and constraints that control or limit the budget process. In addition to public opinion and particular group needs, there are statutory restraints, constitutional restraints and constraints imposed by federal law.
a. Statutory constraints. There are many statutory constraints pertaining to the state budget (5 MRSA c. 145, §1581 et seq.; c. 149, §1661 et seq.), most of which govern the formulation of departmental budget requests.
One important statutory provision (5 MRSA §1664) requires the budget summary to set forth:
the aggregate figures of the budget in such a manner as to show the balanced outlines relation between the total proposed expenditures and the total anticipated revenues together with the other means of financing the budget for each fiscal year of the ensuing biennium.
Another important statutory provision (5 MRSA §1668) authorizes the Governor to temporarily and equitably curtail allotments in the current budget when it appears that authorized expenditures will exceed revenues and other sources of funds.
b. Constitutional constraints. Unlike the federal government, Maine may not incur large deficits. The State may not use debt of over $2,000,000 to finance current appropriations (Constitution of Maine, Article IX, Section 14), unless there is an exigency that threatens state security. Thus, under normal circumstances, the State is held to a nearly balanced budget.
In addition, Article V, Part Third, Section 5 of the Constitution of Maine 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 (see next heading) as these payments become due. In the event that the Legislature fails to provide the necessary funds, the State Treasurer is required to use General Fund revenues to retire bonded debt. The Constitution of Maine also prohibits the use of proceeds from the sale of bonds to fund current expenditures.
The Constitution of Maine was recently amended (Article IX, Section 21) to require the State to fund at least 90% of the annual cost of new mandates imposed on local governments. The requirement may be overridden by a two-thirds vote of the elected members in each chamber.
There are a variety of other provisions in the Constitution of Maine that constrain budgetary decisions. For instance, the Constitution of Maine requires adequate funding of the Maine State Retirement System and limits the use of funds of the Retirement System (Article IX, Section 18, 18-A and 18-B), restricts the expenditure of certain highway funds (Article IX, Section 19) and requires a certain level of appropriation to the Department of Inland Fisheries and Wildlife (Article IX, Section 22).
c. Bonded debt. The need for capital improvements (e.g., highways, schools) and for assistance to persons and corporations for projects that promote the general welfare (e.g., public housing, investment seed capital) are in most instances met by the issuance of bonds.
Bonded debt is usually classified as “direct” or “indirect” debt. Direct bonded debt is incurred when bonds are issued for capital improvements, including roads, schools and public buildings. Indirect bonded debt is incurred by the default of borrowers who obtained loans through the State for purposes that were intended to promote general welfare.
There are no statutory or constitutional ceilings on total bonded indebtedness that the State may incur at any single time. There are, however, constitutional limits on the issuance of bonds for specific purposes, such as for student loans (Article VIII, Part First, Section 2), and insuring payment of mortgage loans on certain industrial and manufacturing enterprises (Article IX, Section 14-A).
For the 1998-1999 fiscal biennium, the Legislature approved a budget that includes $143,284,086 for payment of general fund bond interest and principal retirement, and a highway budget that includes $57,506,788 for highway bond interest and principal retirement.
d. Temporary state loans. State law (5 MRSA §150) authorizes the Treasurer of State to enter into certain temporary loan agreements in anticipation of revenues. The Treasurer, with the approval of the Governor, may negotiate temporary loans in anticipation of the issuance of bonds authorized but not yet issued. Such temporary loans must be repaid from the proceeds of the bonds within one year from the date of the loan.
The Treasurer of State, with the approval of the Governor, also may negotiate temporary loans in anticipation of taxes levied for that fiscal year. The loans may be renewed with the approval of the Governor, provided that each loan or renewal is retired no later than the close of the fiscal year in which the loan was originally made. In the past, the law established $30 million as the annual limit on borrowing in anticipation of taxes. That ceiling has been temporarily increased in recent years. For Fiscal Year 1996-97, the limit was $180 million, although only $150 million was borrowed in FY 1996-97. No borrowing was authorized for fiscal years 1997-98 or 1998-99.
e. Bond ratings. In addition to the restrictions discussed above, the bond investment ratings established by private bond rating firms may impose unofficial but real limitations on the ability of the State to borrow money through the issuance of bonds.
f. Federal and state constraints on use of federal funds. Another constraint that limits executive budgetary authority is the statutory requirement (5 MRSA §1669-A) for legislative approval of the allocation of federal block grants. Consequently, the Executive cannot solely make decisions on the expenditure of federal block grant funds in the State.
The Legislature, in turn, is limited by federal law with respect to the disposition of federal block grant money. The State is currently authorized to accept 14 block grants, each of which may contain funding for several programs. The 14 block grants are for:
· Preventive Health and Health Services;
· Maternal and Child Health;
· Social Services;
· Educational and Cultural Services;
· Community Development;
· Community Services;
· Criminal Justice;
· Anti-drug Abuse;
· Temporary Assistance for Needy Families;
· Child Care and Development;
· Community Mental Health Services
· Substance Abuse Prevention and
· Children’s Health Insurance program; and
· Abstinence Education Block program.
The Legislature may revise the allocations of federal funds for the programs within each block grant, but the total allocation of each block grant cannot be revised. The Legislature is authorized to curtail spending for nonmandated programs and allocate the money to mandated programs, but the original federal allocations to mandated programs cannot be reduced.