Legislative Role in the State Budget Process
Legislative Role
- Kentucky's Constitution vests the exclusive power and duty to tax and spend the public's money in the General Assembly.
- The only bills that a General Assembly must pass are the appropriations or biennial budget acts.
- Enacting the budget is the most powerful and effective means for legislators to set public policies and priorities.
- The budget is the state's financial plan for spending money for specific or general purposes from particular sources of public funds.
An appropriation authorizes a state agency to spend a maximum sum of public funds for a purpose during a specific fiscal year.
Annual appropriations are made in the biennial budget bills.
The state fiscal year begins July 1 and extends to the following June 30.
The budget covers two fiscal years.
Constitutional Authority
| Provisions of the Constitution relating to the budget process |
Section 46 | Requires that all bills for appropriating money or creating debt receive the votes of the majority of members elected to the House and Senate. |
| Section 47 | States that all bills to raise revenue must originate in the House and that the Senate may amend tax bills. |
| Section 49 and 50 | Restrict the creation of debt, without requiring a vote of the electorate. |
| Section 88 | Empowers the Governor to veto parts or items in appropriations bills; vetoed items may be overridden by majority votes of elected members in each chamber. |
| Section 171 | Permits the levy and collection of taxes for public purposes only and by general laws. Requires the General Assembly to enact a balanced budget. |
| Section 230 | Requires legislative appropriation of money withdrawn from the Treasury. Dedicates revenue from motor fuel and motor vehicle taxes and fees to highways and bridges, vehicle regulation, and administration purposes. |
Statutory Authority
- KRS (Kentucky Revised Statutes) Chapter 48 governs Kentucky's budget process by:
- Prescribing functions and duties for each branch of government during the development, enactment, and implementation of the state's budget.
- KRS 7.310 to 7.380 directs the Legislative Research Commission (LRC) to:
- Study and examine the expenditures of state agencies; and
- Provide information which will enable members of the Legislature to determine the fiscal needs of state agencies and the effectiveness of their programs.
| Provisions of Selected Statutes |
KRS 48.040 | Directs LRC to prescribe uniform budget preparation instructions, forms and records which must be used by all state agencies in formulating their budget requests. |
| KRS 48.050 | Provides that biennial budget requests, upon submission to the branch head, be transmitted by state agencies to the LRC. |
| KRS 48.060 | The governor-elect and designated persons are entitled to participate in the budget- making process for the Executive Branch. |
| KRS 48.115 | The Consensus Revenue Forecast is prepared by the Consensus Revenue Group who are jointly appointed by the State Budget Director and the LRC. Either the State Budget Director or the LRC may request a revision to the official estimate. The LRC provides staff to the Group. |
| KRS 48.140 | Authorizes the passage of a General Fund or Road Fund Surplus Expenditure Plan that is triggered when tax receipts exceed the level anticipated in the enacted budget. |
| KRS 48.130 and 48.600 | Provide for enacting and executing General Fund and Road Fund Budget Reduction Plans, which are triggered if final revenue estimates on which the budget is enacted fail to materialize. |
| KRS 48.300 | Directs the General Assembly to prepare a budget memorandum which enumerates and explains changes made by the legislature to branch budget recommendations in sufficient detail to convey legislative intent. |
| KRS 48.400 to 48.630 | Directs that the Interim Joint Committee on Appropriations and Revenue receive information on interim budget revisions, to review and approve interpretations of items in branch budget bills based upon the statutory budget memorandum, and to act upon interim appropriations increases which may be recommended by the state budget director for agencies in the Executive Branch. |
| KRS 48.705 | Creates a Budget Reserve Trust Fund Account in the General Fund to receive direct appropriations or shares of surplus revenue receipts or certain unexpended balances of appropriations.
Fifty percent of the excess unappropriated General Fund revenue receipts in a fiscal year, as well as fifty percent of the unobligated balances of appropriations at the close of the fiscal year, are dedicated to the fund account.
Moneys in the reserve fund may be appropriated by the General Assembly as part of any Budget Reduction Plan or if actual General Fund receipts are not sufficient to meet total appropriated spending. |
| KRS 7A.010 to 7A.170 | Addresses the long-term capital planning and programming process for state government.
State agencies prepare six-year capital improvement plans, based upon agency policy issues and projected program needs, for capital projects and capital financial assistance programs costing $400,000 or more, equipment items costing $100,000 or more, computer or telecommunications systems costing $400,000 or more, new or expanded leases of real property, state use payments for local court facilities, and a six-year highway development plan. |
| KRS 7B.060 | Directs the Kentucky Long-Term Policy Research Center Board to prepare a biennial report on long-term societal, economic, and demographic trends in Kentucky and their related implications for public policy-making.
The Biennial Trends Report is issued in December prior to the beginning of the budget preparation process of even-numbered years, and is submitted to the Governor, the General Assembly, state agencies, and the public.
LRC budget forms and instructions require agencies to explain how their budget priorities address these trends and long-term policy implications. |
| KRS 56.870 | Requires the General Assembly to approve the issuance of revenue bonds to finance capital projects which rely on state appropriations to retire the debt. Bond projects must be specifically identified in the budget bill or an act, along with the associated debt service funding. |
| KRS 45.245 to 45.247 and KRS 176.419 to 176.440 | Establishes a long-term highway development and construction program for the Commonwealth.
Based upon information submitted by the Transportation Cabinet, a two-year highway construction program for itemized projects commencing during the ensuing fiscal biennium and an additional four-year construction plan must be submitted to the General Assembly.
The Governor recommends and the Highway Department submits the biennial highway construction program and proposed funding within ten working days after submission of the Executive Branch Budget Recommendation.
The General Assembly adopts and may amend the biennial highway construction program and plan. |
Features of the Biennial Budget
Budget Bills & Appropriations
- Kentucky employs omnibus branch budget bills or general appropriation bills in its process.
- A separate branch budget bill is enacted for each branch -- legislative, executive and judicial -- and includes operating and capital appropriations and related fiscal provisions for all agencies and budget units in the respective branch.
- The Commonwealth's budget is the complete financial plan for the expenditure of public funds in each fiscal year of a biennium, as contained in the branch budget bills.
- Branch budget bills, unlike other acts, become law when approved by the Governor or, if vetoed, when finally acted upon by the General Assembly.
- An appropriation means the authority to spend a maximum sum of public funds for a particular purpose.
- A budget bill is law which is effective for the duration of a biennium.
- Budget bills are printed in the Acts of the General Assembly for each session.
- Budget acts are published in KRS Chapter 47.
- Provisions of a budget bill may modify or suspend, for the duration of a biennium, any statute which is germane to the broad subject of state government finance.
- The Constitution requires the legislature to enact a budget that balances spending within available resources by each budget fund or account. While the Constitution permits the state to incur a casual or unplanned deficit, tradition and state law prohibit a deficit in operations.
- The budget bill is organized into two appropriations sections -- the Operating Budget and the Capital Budget -- and additional parts which concern fiscal administration and policy.
The standard unit for appropriation in the budget bill is a department or agency;
Sometimes a division, program, or consolidated organizational units within a department or cabinet may constitute an appropriation unit in the Operating Budget.
Appropriations may not be transferred from one appropriation unit to another unit unless authorized by the budget bill, by charges for services, by statute, or by provisions of a temporary reorganization order.
Expenditures must be based upon an appropriation enacted by the General Assembly.
Capital project or debt service appropriations may not be used for another purpose.
Operating Budget
The Budget Fund classification in the Operating Budget consists of the General Fund, the Road Fund, federal funds accounts and restricted funds accounts.
- The General Fund - consists of state tax revenue collected under general tax laws and other designated receipts available for the activities, operations and services of state government.
- The Road Fund - consists of money from excise or license taxation relating to gasoline or other motor fuel products, and moneys derived from fees, excise or license taxes relating to registration, operation or use of vehicles on public highways. The Constitution dedicates these revenues for highways and bridges, vehicle regulation and related state administrative purposes.
- Federal Funds - moneys received by state agencies in the form of grants, contracts or other assistance from the federal government for specified purposes.
- Restricted Funds - moneys collected by state agencies which are restricted by statute or budget bill for expenditure toward general or specific use by an agency. Restricted sources include regulatory or occupational licenses and fees, tuition, service charges, sales of goods or products, donations or grants from non-state sources and expendable receipts and earnings of trust type programs.
These fund sources, and proceeds from highway bond issues when authorized by the General Assembly, comprise the total operating budget of the Commonwealth.
Capital Budget
The Capital Budget lists line-item capital projects and associated appropriations by budget fund source. Road construction projects are excluded.
- Capital Budget projects are defined as acquisition or construction of a building, structure, property or utility estimated to cost $400,000 or more, acquisition of a major item of equipment or systems estimated to cost $100,000 or more, leased space costing more than $200,000, information technology systems costing $400,000 or more, and state use allowance payments of $200,000 or more for local court facilities.
- State budget law requires any project meeting these definitions to be authorized by line-item in a budget bill or other enabling act before public funds may be spent.
- Any bond project which is supported by state-appropriated debt service must be authorized by the General Assembly before bonds may be issued. The annual debt service and related fund source must be specified in the Operating Budget.
- In addition to the standard funds for the Operating Budget, other capital funds include moneys earned by assets, allocated receipts, and other project resources provided by off-budget entities and local jurisdictions.
Budget Information Reporting
- Budget information about services/activities and funding is organized and reported in budget documents at the budget unit level and summarized by major budget function or cabinet.
- Appropriation information in a branch budget act is organized at the agency, its consolidated budget units or significant program level, and summarized by major budget functions for state government.
- Operating expenditures are classified by principal categories:
- personnel costs - salaries, wages and per diem payments, fringe benefits, personal services contracts and other similar expenses;
- operating expenses;
- grants and other financial assistance to persons, other jurisdictions and organizations;
- debt service for retirement of bond principal, interest and related costs; and
- capital outlay for equipment items and capital projects which do not exceed the Capital Budget threshold.
- The budget law requires that debt service appropriations not be used for any other purpose; excess General Fund and Road Fund supported debt service appropriations due to project cancellation and bond issue requirements lapse to the surplus account of the respective Fund.
Preparing & Submitting the Budget
Budget Instructions
- In July, the Legislative Research Commission issues standard and uniform instructions and forms which must be used by state agencies in each branch of government. Agencies transmit their requests concurrently to the LRC and designated branch offices by November 15 prior to the Regular Session.
Agency Budget Requests
In compliance with LRC budget preparation guidelines, agency budget requests are organized and summarized according to two levels of budget information - Current Services and Additional Funding budget levels.
Current Services requests- support, within defined calculation guidelines,
- projected funding for existing operations and
- services and mandated activities on a recurring expenditure base.
- Current Services represent what is called "continuation" funding.
Additional Funding requests
- deal with agency proposals to fund
- new or expanded services and
- recurring operations which cannot be accommodated within the Current Services calculation guidelines, including requests to substitute General Fund moneys for anticipated reductions in federal or restricted resources.
- Agencies are not limited in what or how much may be requested.
- Historical fiscal data on two of the most recent fiscal years, the current year revised budget and the request for the next two fiscal years are displayed in budget records and documents.
- Current services budgets are deemed to be the agencies' highest priority.
- Department and Cabinet heads are required to prioritize Additional Funding requests.
- If a funding request depends upon new legislation, a draft legislative proposal is requested.
- Capital Projects are itemized, with related financing sources, descriptive information and justification.
- Capital budget requests must be consistent with the recommendations of the Capital Planning Advisory Board.
Budget Planning Report
- Office of the State Budget Director (in conjunction with joint executive-legislative consensus revenue forecasting group) provides a budget planning report by August 15. Includes:
- baseline five year economic projections;
- preliminary revenue planning estimates for budget unit requests.
- Office of the State Budget Director provides preliminary detailed 2000-2002 revenue estimates for the General and Road Funds, (based on revenue forecast from joint executive-legislative consensus forecast group) by October 15.
Revenue Forecasts
- Preliminary General Fund and Road Fund revenue estimates for the current fiscal year and each year of the next biennium are developed by the consensus revenue forecasting group and provided by the Office of the State Budget Director in mid-October.
- Final official revenue estimates based upon current tax structure and estimates for any proposed tax legislation are due by the fifteenth (15th) legislative day.
- State agencies are responsible for forecasting estimates of restricted funds receipts and federal revenues
Branch Recommendations
- Branch budget recommendations are due the fifteenth (15th) legislative day for regular sessions following the election of a governor.
- During mid-term, branch budget recommendations must be submitted by the tenth legislative day.
- For a newly-elected governor, a budget plan and legislative program must be formulated and presented about seven weeks after Inauguration Day and twelve weeks after Election Day.
- The Governor submits additional financial and budgetary information under several provisions of KRS Chapter 48.