A Guide to the State of Michigan Budget Process
Report #320, February 1997
Introduction: What is a Budget?
In its most fundamental form, a budget is a financial plan that lays out proposed expenditures for a specific time period and the estimated revenues needed to support these expenditures. In Michigan, the state budget en-compasses all revenues and expenditures, both operating and capital, of the General Fund, special revenue funds, and federal funds for the fiscal year, which runs from October 1 to September 30. A state budget, how-ever, is much more than a comprehensive financial plan. Budgets and the process by which a governmental unit collects and appropriates its resources serve several interrelated functions.
First, all governmental budgets have as their primary function the allocation of scarce resources among a seemingly unlimited number of competing interests. In doing so, budgets determine political winners and losers. Therefore, the state budget process provides a framework for debate among elected officials, state departments, interest groups, and citizens about the priority that should be attached to government functions.
Second, the budget is the key to expenditure control. Regardless of the allocation of resources, a state must, over time, keep total expenditures within available revenues. The budget process is the vehicle by which this is accomplished and which provides a framework for deciding the size of state government.
Third, a budget is a mechanism for establishing accountability. In private firms, the budget is a plan or guide. In government, budgetary appropriations are law and the extent to which they are adhered to provides an indication of the degree to which public agencies are making appropriate use of public funds.
Fourth, since all levels of government share, in varying degree, the costs of most major domestic programs, including welfare, education, transportation, and public safety, the budget provides a legal mechanism for transferring funds from one level of government to another. Though often accompanied by numerous legal, fiscal, and programmatic guidelines, this intergovernmental funding process helps shore up the finances of state and local governmental units.
Fifth, the budget process provides the executive and legislative branches of government an opportunity to evaluate the performance of specific departments and programs. In making the case for continued or additional funding for a specific program, a department may be asked to defend the effectiveness and efficiency of the program. The state budget process, therefore, offers a tool to compel state departments and the programs and services they administer to be efficient, effective, and accountable to the public.