In , the Council of State Governments CSG examined a number of states that had recently adopted annual budgets for the first time. No clear findings emerged, and the study concluded that:. In reality, a State can develop a good system of executive and legislative fiscal and program planning and controls under either an annual or biennial budget. The system would work differently with the alternative time spans, but could be effective under either approach.
The arguments used to justify and refute both annual and biennial budgets remain essentially unchanged [since ]—and unproven. The success of a budget cycle seems to depend on the commitment of state officials to good implementation rather than on the method itself. Proponents of biennial budgeting cite the major advantages to be cost and time savings. They argue that biennial budgeting is more conducive to long-term planning and allows more time for program review and evaluation than annual budgeting. Biennial budgeting may reduce executive branch costs in terms of staff time and salaries of preparing budgets, since the process is more consolidated than annual budgeting.
State experience appears to bear this out, according to the studies cited above. In terms of the time a legislature spends on budgeting, nonetheless, the evidence is inconclusive. As reported earlier, biennial budget states tend to return to their budgets in the second year of a biennial session, and not necessarily because of difficult budget conditions. The Washington State Office of Financial Management has observed that "Since the inception of annual legislative sessions in , it has become common for the Legislature to enact annual revisions to the state's biennial budget.
Five said that the legislature spent proportionately less time on the budget and five that it spent about the same amount of time.
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North Carolina staff reported that the legislature spent proportionately more time on the budget in its short session, due to the brevity of the session—three months—and the restrictions on carry-over and new bills. Respondents noted, however, that the proportion of time spent on the budget in the non-budget sessions varied greatly from year to year. A budget deficit, a substantial revenue surplus or policy issues with significant fiscal implications can cause a legislature to devote a large amount of time to budget issues. In the preceding two bienniums, however, fiscal issues surrounding education finance, tobacco settlement revenues and electric utility deregulation had occupied the entire non-budget sessions.
A Connecticut legislative committee that reviewed the biennial budget process in reported it had not met expectations.
As a result, second-year adjustments and revisions are often extensive. There is also no evidence legislators or state agencies give greater attention to program outcomes and performance measures in the second year of the cycle. Staff in nine states, however, reported that was not the case. Although intuitively it seems likely that biennial budgeting encourages legislative performance evaluation, the evidence is very weak. Planning a biennial budget requires a month revenue forecast, compared with 18 months for an annual budget.
As Speaker Wills of Arkansas commented, the difference is significant. The volatility of state revenue sources was the prime cause of miscalculations. Some biennial states have a more accurate forecasting record than some annual states. Overall, though, the statistics suggest the greater difficulty of forecasting revenues accurately in biennial budget states.
Biennial budgeting requires a longer commitment of policy direction and funding than does annual budgeting. It also means that agency personnel may have to spend less time in budget planning and presentations than under a system of annual budgeting. Does this mean more predictability and certainty of planning for them and for legislative committees? The answer is generally yes, but the difference may in fact be small. State governments tend to budget incrementally, beginning with the current level of expenditures and dividing up any additional resources in proportion to previous program budgets.
Unless there is significant economic change, state budgets rarely impose dramatic changes in agency budgets. Regardless of the budget cycle, continuity is built in to state budgets. Even so, economic cycles can disrupt budgets. Seventy percent of state tax revenue comes from sales and income taxes, which are very sensitive to the health of the economy.
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The recessions of and and the slow recovery from the last recession seriously distorted state budgets regardless of the length of their budget cycles. Budget cycles cannot insulate states from external factors such as the condition of the economy. But in recent years, supplemental appropriations have been necessary in many states, not just those with biennial budgets, because of fluctuating revenues and cost overruns in state programs. During the past 20 years, many state budgets have been hit by revenue shortfalls and expenditure overruns. The former tended to occur in the three largest state tax sources—general sales taxes, personal income taxes, and corporate income taxes—in which a small error in the estimate can create a significant effect in dollars.
Expenditure overruns have frequently occurred in Medicaid and other social service programs, as well as other programs. Annual legislative sessions allow for timely responses to such issues and ensure that requests for supplemental appropriations will be reviewed in the context of the entire state budget, which is true regardless of the budget cycle.
Legislatures with biennial sessions might have to be called into special session to revise the budget. Of the six legislatures that have or until recently had biennial sessions—Arkansas, Montana, Nevada, North Dakota, Oregon and Texas—only Texas had more special sessions than the national average from through There is no evidence that biennial budgets are particularly conducive to calls for special sessions. The extent to which budgets are actually revised during the second year of a biennium varies from state to state and from time to time, largely depending on economic and fiscal conditions.
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The possibility that biennial budgeting results in smaller state budgets than annual budgeting was raised and rejected in NCSL's first study of annual and biennial budgeting. Kearns was careful to note that she found only a correlation and not a cause and effect relationship between the two.
Also, her measure of state spending omitted state subsidies to local governments, for no stated reason. Since those subsidies constitute, on average, more than 30 percent of state spending, their inclusion could have changed the results. For those reasons, her findings do not settle the question whether one budget cycle or another affects the overall level of state spending. There is little evidence that either annual or biennial state budgets hold clear advantages over the other. The evidence is inconclusive on the question whether biennial budgeting is more conducive to long-term planning than annual budgeting, although some evidence indicates that biennial budgeting is more favorable to program review and evaluation.
Biennial budgeting is likely to reduce budgeting costs somewhat for executive agencies, but it also is likely to reduce legislators' familiarity with budgets. States with biennial budgets and biennial legislative sessions do not appear to give greater authority over budget revision to governors than other states. Forecasting is likely to prove more accurate in annual budget states than in biennial budget states, possibly reducing the need for supplemental appropriations and special legislative sessions.
Qualifications and Tenure
This study has found no convincing evidence that the length of the budget cycle, in itself, determines how efficiently a state enacts a budget and whether it requires extensive change during the course of its administration. Lexington, Ky. Wiggins and Keith E. Hamm, "Annual Versus Biennial Budgeting? GAO, General Assembly, December 9, These errors of estimate were calculated separately for the 20 states that had biennial budgets and the 30 that had annual budgets from to Teacher pensions, health insurance, tuition reimbursement and other employee benefits add up to a sizable portion of school spending.
Of course, states with more generous retirement benefits tend to spend more. As one would expect, the top overall spenders tend to be states with a higher cost of living.
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The Bureau of Economic Analysis calculates regional price parities, which measure prices of goods and services across states. But not all states spending more on schools have higher overall living costs. Rhode Island and Wyoming have regional price parities below the national average, but still rank among the top 10 highest-spending states.
Some states just have a lot more young residents. Consider Utah, where more than 1 in 5 residents is a public school student. Areas with more rural districts tend to incur greater school transportation costs. Class size is another important factor in school district spending. By comparison, Maine, Tennessee, Vermont and Wyoming reported averages of fewer than 18 students per class.
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Comparable dissimilarities are found among high schools. While spending on school and executive administration accounts for a small slice of total spending about 7 percent nationally , considerable variation exists across states.