Setting the State Budget

Wednesday, January 28, 2015

Each year, Michigan legislators create and send to the governor a budget for the state of Michigan. Under our state’s Constitution, the budget must be balanced. This annual process starts early in the year and must be completed before the new fiscal year begins on Oct. 1. In recent years, the budget has been completed months ahead of that deadline.

In recent years, it has become custom to divide the state’s budget into two bills. One, called the Omnibus, outlines expenditures for most state departments. The second, known as the Education Omnibus, or “School ‘Bus,” details the budget for the School Aid Fund, which covers preK-12 schools, community colleges and higher education.

Our state is already in the process of making the fiscal year 2015-16 budget. Here’s how the process works:

Consensus Revenue Estimating Conference

During the Consensus Revenue Estimating Conference, the nonpartisan House Fiscal Agency and Senate Fiscal Agency, Michigan Department of Treasury, officials from the governor’s administration and leading economists from around the state come together to discuss Michigan’s anticipated revenue over the coming two years. After sharing their predictions, the group announces their agreed-upon forecasts. These figures create the basis for the governor’s budget recommendation.

The Consensus Revenue Estimating Conference took place on Jan. 16, and forecast a $454 million general fund deficit in the current fiscal year if current spending isn’t adjusted. Revenues for the next fiscal year were revised down $532.1 million from previous forecasts.

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State of the State Address

Even before the formal budget-making process begins, the governor delivers the annual State of the State address. In the speech, the governor lays out his or her vision for Michigan. While the vision is usually given in broad terms with few specifics, the State of the State speech often forecasts the funding priorities in the governor’s upcoming proposed budget.

This year, the State of the State address was delivered on Jan. 20.

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Governor’s Proposed Budget

The Michigan Constitution requires the governor to propose a proposed budget for state activities on an annual basis. By law, the executive budget must be submitted to the Legislature within 30 days after the Legislature convenes in regular session on the second Wednesday in January. However, when a newly elected governor is inaugurated into office, 60 days are allowed to prepare the proposal.

During the budget presentation, the governor and the state budget director present the budget and accompanying explanations, recommendations, and legislation to the Legislature. This generally takes place in early February during a joint session of the House and Senate Appropriations Committees.

Legislative Action

Appropriation bills are introduced in both chambers of the Legislature. The Appropriations Committees assign the budgets to specific subcommittees. These subcommittees then conduct a series of hearings. State department directors and their staff present an overview of the governor’s proposed budget, followed by briefings from House Fiscal Agency and Senate Fiscal Agency staff. The subcommittee then composes recommendations that are reported to the full Appropriations Committee.

Prior to floor consideration, the Democratic and Republican members will discuss the bill during a caucus meeting. In addition to developing a party position, the caucus provides individual legislators with an opportunity to become better informed regarding policy issues incorporated in the budget. 

Second Revenue Estimating Conference

A second Revenue Estimating Conference takes place in May of each year. Its purpose is to provide an updated consensus forecast of anticipated revenues for the budget. Upon completion of the revised consensus revenue estimate, legislative leadership meets with the governor and the state budget director in an attempt to establish final spending targets for each state department. 

Conference Committees:

Differences between the two chambers on each appropriations bill are resolved by a conference committee. The committee consists of six members, three members from the Senate and three members from the House.

The conference committee do not consider any matters other than matters of difference between the House and Senate budget bills. Conference committees are expected to ensure that the final level of appropriations in the conference reports are equal to the appropriation targets established by legislative leadership. This process helps ensure that the enacted appropriations bills do not exceed the consensus estimate of available revenues.

Once a conference committee report is approved by both chambers, the bill is enrolled and printed and presented to the governor. If the conference committee does not reach a compromise and reports that the committee cannot reach an agreement, or if the Legislature does not accept the conference report, a second conference committee may be appointed.

Governor Signs Bills or Vetoes

Unlike other bills presented to the governor, a governor has additional authority to veto any distinct item or items appropriating money in any appropriation bill. The parts approved become law. Vetoed items are void unless the Legislature overrules the veto by a two-thirds vote of the members elected to and serving in each house. 

Revisions and Adjustments

Throughout the year, Adjustments to the budget may be necessary through Executive Orders, supplemental appropriations bills, and transfers. These take into account additional revenue or revenue shortfalls that may occur, and can be used to address emerging issues in the state. For example, a supplemental appropriations bill last year was used to fund road repairs around the state.