budgeting process washington

8/8/2019 Budgeting Process Washington

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OFFICE OF FINANCIAL MANAGEMENT

S T A T E O F W A S H I N G T O N

WASHINGTON STATE BUDGET PROCESS

BUDGET DIVISION

JULY 2009


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A DESCRIPTION OF

Washington States Budget Process

The Biennial Budget Cycle

Washington enacts budgets for a two-yearcycle, beginning on July 1 of each odd-numbered year. The budget approved forthe 2009-11 Biennium remains in effectfrom July 1, 2009 through June 30, 2011.By law, the Governor must propose abiennial budget in December, the monthbefore the Legislature convenes in regularsession. The biennial budget enacted by the

Legislature can be modified in anylegislative session through changes to theoriginal appropriations. Since the inceptionof annual legislative sessions in 1979, it hasbecome common for the Legislature to enactannual revisions to the states biennialbudget. These revisions are referred to assupplemental budgets.

Roles and Responsibilities in the Budget Process

Stateagencies are responsible fordeveloping budget estimates and submittingbudget proposals to the Governor. Once thebudget is enacted by the Legislature,agencies implement approved policies andprograms within the budgetary limitsimposed by legislation. UnderWashingtons budget and accountingstatutes, individual agency directors areaccountable for carrying out the legal intentof appropriations.

The Governor recommends a budget to theLegislature consistent with executive policypriorities. Appropriation bills, like otherlegislation, are subject to gubernatorial vetoauthority and may be rejected in part or intheir entirety within a defined number ofdays after legislative passage. After abudget is enacted, the Governors generaladministrative duties include monitoringagency expenditures and helping to achievelegislative policy directives.

OFM IssuesBudget

Instructions

May 2010

OFM Reviewand

GovernorsDecisions

Fall 2010

GovernorProposesBudget to

Legislature

December 2010

Legislature

Convenes (2

nd

Monday ofJanuary)

January 2011

Legislature

Passes Budget

April/May 2011

Governor Signs

Budget

May/June 2011

Biennial

Budget TakesEffect

July 1, 2011

AgencyStrategicPlanning

Ongoing

Performance

MeasureTracking

Ongoing

AgenciesSubmit Budget

Requests

August 2010


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The Office of Financial Management(OFM) coordinates the submittal of agencybudget requests and prepares the Governorsbudget recommendation to the Legislature.Budget staff from OFM work closely with

state agencies to explain and justify plannedexpenditures. Analysts evaluate all budgetrequests for consistency with executivepolicy priorities and to ensure that proposedexpenditures match fiscal constraints. OFMis also responsible for maintaining thestates central accounting system anddeveloping certain population anddemographic forecasts.

Through appropriations bills, the

Washington State Legislature mandatesthe amount of money each state agency canspend and, in varying degrees of detail,directs agencies where and how to spend it.Washingtons bicameral legislature consistsof 49 senators in the Senate and 98representatives in the House. Specific fiscalcommittees have primary responsibility forpreparation of the legislative budget. Theseinclude the Ways and Means, Capital,Finance, and Transportation committees inthe House; the Ways and Means andTransportation committees in the Senate;and the Legislative TransportationCommittee.

The House and Senate employ staff analyststo help review and evaluate the state budgetand to prepare appropriation bills. As withother legislation, if the two houses cannot

agree on a budget or revenue proposal toimplement the budget, a conferencecommittee of legislative representatives maybe convened to reconcile the differences.

The Economic and Revenue ForecastCouncil is composed of representativesfrom both the legislative and executivebranches. Each fiscal quarter, the Counciladopts an official forecast of General Fund-State (GF-S) revenues for the current and (atsome point) the ensuing biennia. Theseforecasts, together with any reserves leftover from previous biennia, determine thefinancial resources available to supportestimated expenditures.

The Caseload Forecast Council wascreated by the 1997 Legislature and beganoperations in the 1997-99 Biennium. TheCouncil consists of two members appointedby the Governor and four appointed by thelegislative political caucuses. The Councilprepares official caseload forecasts for stateentitlement programs, including publicschools, long-term care, medical assistance,foster care, adoption support, adult andjuvenile offender institutions, and others.

The State Expenditure Limit Committee,consisting of legislators and representativesof the Governor and Attorney General, wasestablished in 2000 to determine the stateGeneral Fund expenditure limit created byInitiative 601.

Budget Development ApproachIn general, Washington States budgetprocess cannot be characterized by anysingle budget decision model. Elements ofprogram, target, and the traditional line itembudgeting associated with objects ofexpenditure (e.g., salaries, equipment) are

all used with performance budgeting inbudget decision-making.

For the 2003-05 Biennium budget proposal,Washington adopted a statewide results-based approach called Priorities of


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Government that complements thetraditional focus on incremental changes.This process starts by identifying the keyresults that citizens expect from governmentand the most effective strategies for

achieving those results. Agency activitieswere reviewed in this statewide context and

prioritized in terms of their contribution toachieving these statewide results.

More information on the Priorities ofGovernment is available on our Web site at

http://www.ofm.wa.gov/budget/pog/default.htm.

Budget and Accounting Structure

State government is organized into 124agencies, boards, and commissionsrepresenting a wide range of services.While many state agencies report directly tothe Governor, others are managed by

statewide elected officials or independentboards appointed by the Governor. Mostagencies receive their expenditure authorityfrom legislative appropriations that impose alegal limit on operating and capitalexpenditures. Appropriations are authorizedfor a single account, although individualagencies frequently receive appropriationsfrom more than one account.

A few agencies are "nonappropriated,"

meaning that they operate from an accountthat is legally exempt from appropriation.Expenditures by these agencies are usuallymonitored through a biennial allotment plan.There is no dollar limit as long asexpenditures remain within available

revenues and are consistent with thestatutory purpose of the agency.

The states budget and accounting systemincludes more than 400 discrete accounts,

which operate much like individual bankaccounts with specific sources of revenue.The largest single account is the stateGeneral Fund. State collections of retailsales, business, property, and other taxes aredeposited into this account. Expendituresfrom the state General Fund can be made forany authorized state activity subject tolegislative appropriation limits.

Other accounts are less flexible. Certain

revenues (for example, the motor vehiclefuel tax or hunting license fees) aredeposited into accounts that can only bespent for the purpose established in statelaw. In budget terms, these are referred toas "dedicated accounts."

Sources of State Revenues

Washington receives most of its revenue

from taxes, licenses, permits and fees, andfederal grants. Each individual revenue

source is designated by law for deposit into

specific accounts used to support stateoperating or capital expenditures.
http://www.ofm.wa.gov/budget/pog/default.htmhttp://www.ofm.wa.gov/budget/pog/default.htmhttp://www.ofm.wa.gov/budget/pog/default.htmhttp://www.ofm.wa.gov/budget/pog/default.htmhttp://www.ofm.wa.gov/budget/pog/default.htm


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Sources of State Revenues All Governmental Funds2009-11 Biennium Estimates

Category Dollars in Millions

Taxes $ 32,206Federal Grants 19,497Licenses, Permits, Fees 1,910Charges and Miscellaneous 18,237

Revenues

TOTAL $ 71,850

Source: 2009-11 Office of FinancialManagement Budget Database.

OFFICE OF FINANCIAL MANAGEMENT JULY 2009

The chart below displays the major revenuesources for General Fund-State expenditures

in the current biennium. The Department ofRevenue collects most of these revenues.

Sources of General Fund-State Revenues2009-11 Biennium Estimate

Category Dollars in Millions

Retail Sales and Use Tax $ 15,396Business & Occupation Tax 5,785Property Tax 3,695Real Estate Excise Tax 999Other** 3,959

TOTAL $ 29,834

Source: June 2009, Revenue Forecast Council, GF-SCash Basis.

* Other includes revenue from liquor sales, tobaccotaxes, lottery proceeds, insurance premiums, etc.

Note: This chart reflects forecasted revenues only.Additional resources, such as prior biennium balances ortransfers from other funds, may be included in thebudget balance sheet.


Retail Salesand Use Tax

51.6%

Other*13.3%

Real EstateExcise Tax

3.3%

Taxes44.8%

Federal Grants27.1%

Licenses, Permits,Fees 2.7%

Charges andMiscellaneous

Revenues25.4%

PropertyTax 12.4%

Business andOccupation Tax19.4%


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Size and Distribution of the State Budget

The states current operating budget for the2009-11 Biennium (from all fund sources) is$61.7 billion. A separate capital budget

finances major building, renovation, andland acquisition projects. The 2009-11(non-transportation) capital budget for newprojects is $3.3 billion. An additional $2.4billion is available in reappropriated funds toallow the completion of capital constructionprojects authorized in previous biennia.Roads, bridges, and other transportationcapital projects are budgeted at $4.4 billion.(Total Operating/Capital Budget = $71.8billion).

Operating expenditures are supported bygeneral state tax revenues, federal funds,dedicated tax and fee revenues, and othermiscellaneous sources, such as earnedinterest and lottery receipts. The capitalbudget is primarily funded through generalobligation bonds ($1.8 billion in 2009-11)and cash revenues from dedicated accounts.The debt service on non-transportationgeneral obligation bonds is paid by General

Fund-State resources in the operatingbudget.

State operating expenditures can be groupedinto seven broad categories of services:

Human Services, such as mental healthand other institutions, public assistance,health care, and correctional facilities.

Public Schools, which represents statesupport for Kindergarten-Grade 12 (K-12) education.

Higher Education in publicuniversities, community colleges, andtechnical schools.

Natural Resources expenditures forenvironmental protection and recreation.

Transportation, which includeshighway maintenance, state ferryoperations, and the Washington StatePatrol.

General Government, including theadministrative, judicial, and legislativeagencies.

Other (miscellaneous) expenses, such asthe payment of debt service and pensioncontributions for local law enforcement,firefighters, and judges.

The following chart shows the distributionof operating expenditures from all funds forthe 2009-11 Biennium.

Distribution of 2009-11 State Operating Expenditures All FundsCategory Dollars in Millions

Human Services $ 24,875K-12 Schools 15,649Higher Education 9,492General Government 4,309Transportation 2,325

Natural Resources 1,466Other* 3,545

TOTAL $ 61,661

Source: 2009-11 Operating Budget database.

* Other includes debt service, pension contributions toLaw Enforcement Officers and Fire Fighters (LEOFF)and Judges, other education agencies, and specialappropriations.


HumanServices

40.3%

K-12 Schools25.4%

Higher Ed. 15.4%

GeneralGov.7.0%Other

5.7%

Transpo.3.8%Natural

Res.2.4%


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The General Fund-State Operating Budget

Approximately $30.9 billion of the stateoperating budget for 2009-11 is supportedby General Fund-State (GF-S) tax and feerevenues and reserves. Because theGovernor and Legislature have the greatestdiscretion over how these state revenues arespent, programs supported by GF-S receivesubstantial attention during budgetdeliberations.

The following chart shows the distributionof estimated General Fund-Stateexpenditures for the 2009-11 operatingbudget. The majority of the state GeneralFund is spent on education, which includesthe state share of funding for public schools(K-12), four-year colleges and universities,and two-year community and technicalcolleges.

Distribution of 2009-11 State Operating Expenditures State General FundCategory Dollars in Millions

K-12 Schools $ 13,168Human Services 11,250Higher Education 2,937General Government 864Natural Resources 380Other** 2,319

TOTAL $ 30,918

Source: 2009-11Operating Budget database.

* Other includes debt service, pension contributions toLaw Enforcement Officers and Fire Fighters (LEOFF)and Judges, other education agencies, transportation,and special appropriations.


General Fund-State Expenditure Trends 1989-91 to 2009-11

Biennium Dollars in Millions Change in Millions1989-91 12,822.3 2,481.91991-93 15,179.9 2,357.61993-95 16,315.1 1,135.21995-97 17,732.4 1,417.31997-99 19,157.8 1,425.41999-01 21,046.4 1,888.6

2001-03 22,548.8 1,502.42003-05 23,671.7 1,122.92005-07 27,766.1 4,094.42007-09* 29,233.1 1,467.02009-11* 30,918.1 1,079.9

* The 2007-09 and 2009-11 biennial figures are based on appropriations as of May 2009. Previous biennia represent actualexpenditures. Dollars have not been adjusted for inflation.

HumanServices

36.4%

K-12 Schools42.6%

Higher Ed.9.5%

NaturalResources1.2%

Other 7.5%General Govt.

2.8%


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State Staffing Levels

The current state budget assumesapproximately 109,562 FTEs (Fiscal Year2011) on an annual basis, with the largest

number of people employed in highereducation institutions, correctional facilities,state social service and health agencies, andtransportation agencies. For budgetpurposes, the number of state employees ismeasured in Full Time Equivalent (FTE)

staff years; i.e., one person working 40hours a week for a full year is counted asone FTE staff year. Two people working

half time also count as one FTE. Althoughthe state provides funding for compensationfor local school teachers, this support is inthe form of grants. Therefore, K-12 teachersare not considered state employees instatewide FTE statistics.

Budget Drivers

In addition to new policies adopted by the

Governor, Legislature, or federalgovernment, the state budget can also besignificantly influenced by demographic andeconomic factors. Differences in these"budget drivers" affect the cost of servicesor the number of persons requiring services.An example of the demographic connection

appears in K-12 education, where

expenditures for the states constitutionallymandated responsibilities for basiceducation are closely tied to the number ofschool-age children in the state. Higher-than-average inflationary costs such asthose for medical expenses also affectexpenditures in the state budget.

Spending Limits in the State Budget

Major Provisions of Initiative 601 (initially enacted in 1993, statute modified in2005):

Fiscal Growth Factors and GeneralFund-State Expenditure Limit

Establishes a "fiscal growth factor"based on a ten-year average growth inpersonal income.

Mandates an annual expenditure limit onthe aggregate of the General Fund-Stateand six related accounts (Public Safetyand Education Account, Equal JusticeAccount, Water Quality Account,Violence Reduction and DrugEnforcement Account, StudentAchievement Account, and HealthServices Account) to be calculated bythe State Expenditure Limit Committee

each November, based on the fiscalgrowth factors applied to previous yearslimit. As of July 1, 2009, all of theseaccounts were merged into the GeneralFund.

Requires the Governors budget to beconsistent with the expenditure limit,and restricts annual expenditures from

General Fund-State and related accountsto the limit.

Allows temporary expenditures abovethe limit after declaration of anemergency and a 2/3 vote of theLegislature for a law signed by theGovernor.


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The Emergency Reserve Account,created by Initiative 601, was repealedas of July 1, 2008, and replaced by theBudget Stabilization Account. Any fundbalance remaining in the Emergency

Reserve Fund was transferred to theBudget Stabilization Account.

Taxes and Fees

Requires a majority vote of theLegislature to raise state revenues or

make a revenue-neutral tax shift (2005legislation).

Additionally requires voter approval ifthe state revenue measure results inexpenditures above the expenditure

limit. Limits state fee increases to the fiscal

growth factor unless legislative approvalis received.

The Debt Limit

The Washington State Constitution imposes

a limit on the states ability to borrow fundsto finance government programs in thecapital budget. This debt limit is 9 percentof general state revenues. The 2009Legislature (SSB 5537) amended the morerestrictive statutory limit of 7 percent ofgeneral state revenues to align it with theconstitutional limit. The state cannot sellgeneral obligation bonds if the debt servicefrom that sale will cause total debt service toexceed 9 percent of the average of general

state revenues for the preceding three fiscalyears.

The size of bonded capital programs

affordable under the debt limit can changedepending on:

The amount of new projects in thecapital budget,

Changes in revenue forecasts thatincrease or decrease state revenues,

Changes in the structure of borrowing(e.g., length of term on bonds), and/or

Changes in the interest rates at whichbonds are sold.

The Budget Stabilization Account

ESSJR 8206, Rainy Day Fund, passed bythe voters in November 2007, establishedthe Budget Stabilization Account (BSA),also known as the Rainy Day Fund.

1 percent of general state revenues mustbe transferred annually to the BSA.

3/5 vote required to appropriate fromBSA.

Exceptions (constitutional majorityvote): Employment growth < 1 percent State of emergency due to

catastrophic event.

Effective July 1, 2008 (FY 2009).


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GLOSSARY OF BUDGET-RELATED TERMS

AccountAn independent budget and accounting entity with a self-balancing set of accounts representing allrelated resources, obligations, and reserves. Most accounts are set up in state law to isolate specific activities.

AllotmentAn agencys plan of estimated expenditures and revenues for each month of the biennium.

AppropriationThe legislative authorization to make expenditures and incur obligations from a particular account.Appropriations typically limit expenditures to a specific amount and purpose within a fiscal year or biennialtimeframe.

BienniumA two-year fiscal period. The Washington State biennium runs from July 1 of an odd-numbered year toJune 30 of the next odd-numbered year.

Bow WaveAny additional cost (or savings) that occurs in the future because a budget item in the current bienniumis not fully implemented. Example: A program started in the last six months of this biennium might cost $100,000.If that program operates for a full 24 months next biennium, costing $400,000, then the current biennium budgetdecision is said to have a bow wave of $300,000.

Budget DriversEconomic or demographic factors that have a significant effect on the state budget. Examples:inflation rate changes, state population in certain age groups.

Budget NotesA legislative fiscal staff publication that summarizes the budget passed by the state Legislature.This publication is usually distributed a few months after the end of the legislative session. Budget notes provideguidance but do not have the same legal implications as appropriation bill language.

Capital Budget and Ten-Year Capital PlanThe long-term financing and expenditure plan for acquisition,construction, or improvement of fixed assets such as land and buildings.

Debt L imitWashington States legal restriction (RCW 39.42.060) on the amount that can be paid for debt serviceon bonds, notes, or other borrowed money. The statute mandates that payments of principal and interest in anyfiscal year cannot exceed 7 percent of the arithmetic mean of general state revenues for the three preceding fiscalyears. The State Constitution (Article 8, Section 1(b)) contains a similar, but higher, debt limit of 9 percent of

revenues.

Dedicated AccountsAccounts set up by law to receive revenue from a specific source and to be spent for aspecific purpose.

EntitlementA service or grant that, under state or federal law, must be provided to all eligible applicants.

Fiscal NoteA statement of the estimated fiscal impact of proposed legislation. This cost estimate is usuallydeveloped by the state agencies affected by the bill, and then approved and communicated to the Legislature by theOffice of Financial Management.

Fiscal YearA one-year fiscal period. The state fiscal year extends from July 1 through the next June 30. Thefederal fiscal year runs October 1 through September 30.

Full-Time Equivalent (FTE)As a unit of measure of state employees: refers to the equivalent of one personworking full time for one year (approximately 2,088 hours of paid staff time). Two persons working half time alsocount as one FTE. As a unit of measureof students in K-12 or higher education facilities: refers to the equivalentof one student attending class full time for one school year (based on fixed hours of attendance, depending ongrade).

General Obligation BondsBonds whose repayment is guaranteed by the "full faith and credit" of the state.General Fund-StateThe general fundrepresents all financial resources and transactions not required by law to beaccounted for in other accounts. General Fund-State (GF-S) refers to the basic account that receives revenue from


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Washingtons sales, property, business and occupation, and other general taxes, and is spent for operations such aspublic schools, social services, and corrections.

GMAPGovernment Management, Accountability, and Performance is a management initiative focused onimproving the results of state government. Agency directors report in regular meetings with the Governor on themost important management and policy challenges. GMAP reports focus on performance in measurable terms.

Incremental BudgetingAny budget development approach that focuses on incremental changes to a previousspending level or other defined expenditure base.

Initiative 601A law on state budget restrictions passed in the November 1993 general election. Its primaryrequirements are: an expenditure limitbased on inflation and population growth (applicable to state General Fundexpenditures only); an emergency reserve accountfor any GF-S revenues above the expenditure limit; a percentagelimit on how much state fees can be raised without legislative approval; and a two-thirds legislative voterequirement on certain state tax increases.

Maintenance LevelA projected expenditure level representing the estimated cost of providing currentlyauthorized services in the ensuing biennium. It is calculated using current appropriations, the bow wave oflegislative intentions assumed in existing appropriations (costs or savings), and adjustments for trends in entitlementcaseload/enrollment and other mandatory expenses. This number establishes a theoretical base from which changes

are made to create a new budget.

Nonappropriated FundsMoneys that can be expended without legislative appropriation. Only funds in accountsspecifically established in state law as being exempt from appropriation fall into this category.

Operating BudgetA biennial plan for the revenues and expenditures necessary to support the administrative andservice functions of state government.

Performance MeasureA quantitative indicator of how programs or services are directly contributing to theachievement of an agencys objectives. These indicators may include measures of inputs, outputs, outcomes,productivity, and/or quality.

Priorit ies of Government (POG)Washington's adaptation of the "Price of Government" budget approach first

developed by Peter Hutchinson and David Osborne. This form of budgeting focuses on statewide results andstrategies as the criteria for purchasing decisions.

ProvisoLanguage in budget bills that places a condition on the use of appropriations. Example: "Up to $500,000of the General Fund-State appropriation is provided solely for five additional inspectors in the food safety program."

ReappropriationCapital budget appropriation that reauthorizes the unexpended portion of previouslyappropriated funds. Capital projects often overlap fiscal periods and it is necessary to reauthorize some expenditureauthority to ensure project completion.

Reserve or Fund BalanceIn budget terminology, the difference between budgeted resources and expenditures.

ReversionUnused appropriation authority. If an agency does not spend all its appropriation in the timeframe

specified by the budget, the authorization to spend that dollar amount expires.

Supplemental BudgetAny legislative change to the original budget appropriations.

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