• There is still a lot to be worked out before the completion of the Fiscal Year 2022 state budget, including key differences in how the two chambers of the legislature structure their respective versions of the budget.
• The House of Representatives is proposing quarterly budgets for a number of state departments; effectively, under the House proposal, departments would receive three-months of spending authority and they would have to seek additional legislative approval to spend money beyond the first quarter of FY2022.
• While quarterly budgeting is proposed to enhance legislative oversight of the executive branch, the logistics ignore the value of year-long planning, ignore the inconsistency of revenues and expenditures from month to month, and threaten to place department leadership in a constant budget cycle to the detriment of actually providing services.

Michigan state and local governments have a notable history of adopting novel and innovative public budgeting systems and processes. Some, like multi-year budgeting, have become very commonplace across both state and local government since. Others, such as zero-based budgeting introduced in the 1970s, have proven to be fads that have largely come and gone, despite our call for its return to county-level budgeting. 

As the Michigan Legislature works towards crafting the Fiscal Year (FY)2022 state budget, Republican leadership in the Michigan House of Representatives is looking to put its own stamp on the way public dollars are allocated and to add to the history of alternative budget approaches. 

House budget committees have proposed three-month spending plans for many state agencies, effectively authorizing only one-fourth of a full-year budget for nine different state departments. 

As explained by the House budget committee chairman, the new budgeting approach provides state spending authority sufficient for the first three months of the state’s fiscal year (October through December) only, requiring agencies to get additional legislative approval before they can spend money in January to deliver critical state services and fund programs. 

To illustrate how the new process will work, consider the House’s plan for the Michigan Department of Agriculture and Rural Development budget. The department is authorized to spend nearly $121 million in the current year, but, at this time, the House is appropriating $29 million for ALL twelve months of FY2022. This represents 25 percent of the department’s annualized budget, effectively a budget for the months of October through December 2021. (The House proposal simply reduces every single appropriation line item by 75 percent to produce a “quarterly” budget.) To spend money in the next fiscal quarter starting January 1, the department needs additional spending authority from the legislature. Legislative sign-off will need to occur well before the first of the calendar year.

There is still much work to do to finalize the FY2022 state budget and the House’s new budgeting system is far from a done deal. From what we can discern from reviewing the proposal, and based on our deep organizational history on this topic, we cannot see how quarterly budgeting for state agencies will advance the general purposes of this critical governmental function and better serve the tax-paying public.

More budgeting does not mean better budgeting

If the financial resources of a governmental unit were limitless, budgets would be unnecessary. Budgets recognize the fact that public dollars are scarce. Opinions differ on whether they should be even more scarce, but some method must be used to allocate the funds available to a governmental unit across public programs and functions. Truly effective budgeting ensures that scarce public resources are used to meet the highest priorities of the public that the government serves. 

Budgeting for a 12-month fiscal year provides both citizens and government administrators responsible for service provision with certainty and predictability. Within that 12-month budget timeframe, program plans can be formulated, implemented, and modified/adjusted to better serve taxpayers before administrators have to present their case for continued funding to legislative appropriators during the next budget cycle. Compressing the standard budget cycle to shorter, three-month periods does not provide government officials with enough time to plan, let alone adjust those plans midstream, to meet citizens’ demands. 

Quarterly budgeting for many state programs also ignores the fact that program expenditures, for particular state services, are not evenly spread across the fiscal year. While personnel costs are typically fairly uniform from month to month, programs may be seasonal or in other ways very time specific. This doesn’t mean that the funding is only needed at that time, for planning and preparation work occurs at other times. Simply quartering a department’s annualized spending plan, as the House proposal does, will not align with the state’s regular month-to-month schedule of expenditures and cash flow. 

Further, quarterly budgeting means that program administrators effectively will be engaged in a “year-round” budget cycle, drawing their attention away from actual service provision. House leadership appears to have recognized this by specifically excluding certain budget areas like education, public safety, and human services programs from this process; but fiscal planning is important to all public programs, not just those with visible stakeholders. 

Proponents of the House proposal contend that quarterly budgeting will enhance legislative oversight of the executive branch generally, as well as the specific programs for which legislators appropriate money. But increasing the frequency of budgeting does not necessarily bring better oversight. In fact, it can detract from it if it simply leads to a parade of budget hearings and appropriation decision-making to facilitate the process of passing budgets rather than on evaluating and analyzing underlying needs and budget trade-offs. 

Further, other oversight tools are already at the legislature’s disposal, including committee hearings, financial and performance audits conducted by the legislative auditor general, and the advice and consent process.  Supporters of the quarterly budgeting process have not explained why this new budget process, rather than these other tools, is the most effective method to improve legislative oversight.

What’s next?

Many key steps and decisions remain before finalization of the FY2022 state budget, including the next revenue estimating conference on May 21. The House’s new budgeting methodology is certain to draw further attention and commentary along the way. For starters, Michigan Senate budget committees did not adopt quarterly spending plans for any state agencies; the basic difference in approaches will have to be reconciled before a final budget can be sent to the governor for approval.

Based on our history examining public finances, including making recommendations for effective state and local budgeting systems, it is hard to see how three-month budgeting will more effectively address the primary purposes of public budgeting generally and better serve citizens. While novel in its approach, the House’s proposal to change the state budget process appears to be more gimmick than substance and doesn’t deserve a page in the budget history books.