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Budget Process

Introduction

The Michigan Constitution requires the Governor to propose an Executive Budget for state activities on an annual basis. By law the Executive Budget must be submitted to the Legislature within thirty days after the Legislature convenes in regular session on the second Wednesday in January. However, when a newly elected Governor is inaugurated into office, sixty days are allowed to prepare the proposal. The Executive Budget is more than a statutory requirement. It represents a statement of priorities for the policy activities of state government. Therefore, a detailed budget preparation process is necessary to provide information that will help the Governor and the Legislature allocate state resources most effectively. The budget process can be broken down into four stages:

  • Development of the Governor's Executive Budget
  • Enactment by the Legislature
  • Budget Revisions 

 

Development of the Governor's Executive Budget

 

DEPARTMENT REQUESTS:

The development of each new fiscal year budget begins in August approximately thirteen to fourteen months prior to the beginning of the new fiscal year. The process starts with the State Budget Office issuing program policy guidelines to the departments. The guidelines and directions include assumptions regarding revenue changes, federal funds information, and economic adjustments. The guidelines also include instructions for the preparation of different levels of expenditures for each department. By October, departments submit their budget proposals to the State Budget Office. The State Budget Director makes preliminary budget recommendations to the Governor based on staff evaluations and funding proposals.

 

FIRST REVENUE ESTIMATING CONFERENCE:

These recommendations are fine-tuned during the next few months. The Revenue Estimating Conference held each January is a major part of the budget process. During the conference, national and state economic indicators are used to formulate an accurate prediction of revenue available for appropriation in the upcoming fiscal year. This conference first convened in 1992, pursuant to Act No. 72 of the Public Acts of 1991. The principal participants in the conference are the State Budget Director and the Directors of the Senate and House Fiscal Agencies or their respective designees. Other participants may include the Governor and senior officials from the Department of Treasury.

 

GOVERNOR'S BUDGET DECISIONS:

Before and after the Revenue Estimating Conference, the State Budget Office, the Executive Office and the state departments hold briefings and hearings in order to review requests and prepare recommendations. The Governor makes final budget decisions in December prior to the presentation to the Legislature.

 

EXECUTIVE BUDGET PRESENTATION:

As indicated above, Act No. 431 of Public Acts of 1984, the Management and Budget Act, requires the budget to be submitted within thirty days after the Legislature convenes in regular session on the second Wednesday in January. When a new governor is elected sixty days are allowed.

 

During the budget presentation, the State Budget Director on behalf of the Governor presents 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

By custom, all the appropriation bills are introduced in both houses of the Legislature and are divided between the houses for consideration. The bills usually receive more detailed hearings in the house of origin. Generally, all the appropriation bills are introduced by each appropriations committee chair or the ranking member of the Governor's party. Traditionally, only half of the bills are considered in each house initially. Currently, the practice is to alternate the house of origin each year. This practice allows both appropriations committees to work simultaneously on the appropriations bills.

 

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 subcommittees may also hold public hearings in locations across the state. Finally, the subcommittee composes recommendations that are reported to the full Appropriations Committee.

 

During full House and Senate Committee meetings, state department directors and their staff are expected to provide explanations when their agency's appropriations are considered. A legislative fiscal analyst assigned to that bill is also present. This analyst may prepare a report or series of reports on the bill. The chair of the related subcommittee asks the legislative analyst to summarize the bill. The committee members are then free to ask questions regarding the bill. The appropriations committee may amend the bill or adopt a substitute version. Following approval, the bill is reported to the floor.

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.

 

The legislative procedure for consideration of the appropriation bills is basically the same as for other bills except that appropriation measures receive priority on the legislative calendars. In many instances, members who are going to offer amendments will propose the changes to the appropriations committees before floor debate. Floor consideration varies considerably depending on the particular subject matter, issues, and other factors. There may be minimal debate or it may take a whole day or more for a given bill. Fiscal analysts prepare floor sheets summarizing the appropriation bill, the difference in funding from the prior year, the Governor's recommendation, or between house recommendations, new, expanded or eliminated programs, and total FTEs (full-time equated positions) authorized.

 

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 Executive 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. The process of target setting also involves discussion and attempts for agreement on other overall budget issues including boilerplate language, revenue bills, and other statutory changes to be included in the final budget. Reports of the agreements reached during target setting are then provided to the Legislature.

 

CONFERENCE COMMITTEES:

Differences between the two houses 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. Traditionally, when differences on any of the appropriation bills necessitate a conference committee, the conferees are usually members of the respective House and Senate appropriations subcommittees. Rule 7 of the Joint Rules of the Senate and the House of Representatives provides:

The conference committee shall not consider any matters other than matters of difference between the two Houses. When the agreement arrived at by the conferees is such that it affects other parts of the bill, the conferees may recommend amendments to conform with the agreement. The conferees may also recommend corrections to any errors in the bill or title.

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.

 

If the conference committee report is approved by both houses, the bill is enrolled and printed (final copy of a bill in the form as passed by both houses) 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.

 

While there is no specific legal time requirement for passage of the budget bills, this task is accomplished prior to the beginning of the new fiscal year. Appropriations bills are usually considered and passed in April by the first house, in early June by the second house, and usually final action is completed in July.

 

GOVERNOR SIGNS BILLS AND/OR VETOS:

The same procedures related to gubernatorial approval of other legislation also apply to appropriation bills. However, the 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 2/3 vote of the members elected to and serving in each house. An appropriation line item vetoed by the Governor and not subsequently overridden by the Legislature is not funded unless another appropriation for that line item is approved.

 

Budget Revisions

According to the Michigan Constitution, no appropriation is a mandate to spend. The Governor, by Executive Order and with the approval of the appropriations committees, can reduce expenditures whenever it appears that actual revenues for a fiscal period will fall below the revenue estimates on which the appropriations for that period are based. By statute, any recommendation for the reduction of expenditures must be approved or disapproved by both of the Appropriations Committees within ten days after the recommendation is made. A reduction cannot be made without approval from both committees; not later than thirty days after a proposed order is disapproved, the Governor may submit alternative recommendations for expenditure reductions to the committees for their approval or disapproval. The Governor may not reduce expenditures for the legislative or judicial branches or expenditures from funds constitutionally dedicated for specific purposes.

 

Each department prepares the allotment of appropriations and may request revisions, legislative or administrative transfers, or supplemental appropriations. The State Budget Office must approve revisions to allotments. Transfer of funds other than administrative transfers within a department must be submitted by State Budget Office to the House and Senate Appropriations Committees.

 

Expenditure increases for a new program or for the expansion of an existing program cannot be made until the availability of money has been determined and the program has been approved and appropriated by the Legislature. The Governor and the Legislature act on supplemental appropriation bills in a manner similar to original appropriations.

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