A state budget is an encapsulation of a policymaker’s priorities and a tool for addressing fiscal issues. In the short run, states often employ a number of strategies to close budget gaps, including deferring payments to vendors, pushing expenses into the next year or raiding reserves such as education funds or prior years’ fund balances. In the long run, states can draw down rainy day funds or use the savings from a surplus to reduce future deficits.
The process of crafting a state budget typically begins in the fall or summer before actual budget legislation is introduced. During this time, the governor will ask all agencies to calculate how much money they believe they will need for the coming fiscal year.
These estimates will become the basis for all the subsequent discussions and negotiations. Because every state has a requirement that it operate on a balanced budget, the process is intense. Throughout the months leading up to the legislative session, lawmakers will debate the budget and try to come to an agreement.
Often, these discussions and negotiations are highly contentious and political. The stress of a missed budget deadline, whether brought on by intramural bickering or a large fiscal challenge, often encourages legislators to compromise and accept policies that they would otherwise have considered dealbreakers. For example, a missing budget could prompt a governor to renege on a no-new-taxes pledge or push through policies that would otherwise have failed to garner enough votes.
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