Understanding the Budget Process

Abstract

Budgeting is an ongoing exercise, consisting of a number of distinct phases. Each phase consists of a sequence of activities and each activity, in turn, takes place in a specific time period. 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 the budget. However, there are a handful of state and local governments that deviate from this practice. When a budget is prepared for execution over a two-year period, as opposed to twelve months, it is called a biennial budget. 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. Given the cyclical nature of the 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 process and also from a political process. Interestingly, the current process evolved over a period of time; as such, the chapter begins with a brief history of budget development, especially at the federal level. Although it focuses on the federal budget, its development has a significant effect on how budgeting is done at the subnational level.