Budgetary Process

Preparation of the Governor’s annual budget for the State of Tennessee is the responsibility of the Commissioner of Finance and Administration, who is the State Budget Director. Within the Department of Finance and Administration, the Division of Budget is responsible for budget development.

Preparation, deliberation, and execution of the budget is a continual process throughout the year. This process regularly involves the legislative and executive branches, with occasional counsel from the judicial branch. The following table indicates the participants in the budgetary process and an approximate time schedule.

Preparation and Executive Review of Strategic Plans

The Governmental Accountability Act of 2013 amended the Governmental Accountability Act of 2002, which requires strategic planning, performance measures, and performance audits. The Commissioner of Finance and Administration annually issues instructions for strategic plans and performance measures to the executive branch agencies, which are due to the commissioner by August 15 each year. The commissioner reviews the plans and measures, revises as deemed necessary, approves, and submits the strategic plans to the Governor and General Assembly by September 30 of each year. The judicial and legislative branches, the constitutional officers, and the Attorney General and Reporter submit plans separately to the Governor and General Assembly by September 30.

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Budget Planning and Estimation

Immediately after a new fiscal year begins each July, the staff of the Division of Budget begins making plans for the budget that will be considered by the General Assembly for the subsequent fiscal year. These plans include updating instructions used by departments and agencies in presenting operational and capital budget requests to the Division of Budget.

The instructions, which are distributed to agencies in August, include submitting three levels of requests: (a) a base request, which accommodates the continuation of current services, (b) a cost increase request, which includes funds to implement mandated requirements, compensate for revenue reductions, initiate new programs, or enhance the base level due to increased costs of providing current services, and (c) a base budget reduction request. As part of a cost increase request, agencies may request to use statutory reserves, which are funds held for future needs or special purposes as designated in statute and / or the Appropriations Bill.

The legal deadline for completing and transmitting budget requests is the first of October. During the preparation period, the Division of Budget staff meets as needed with agencies’ fiscal, capital, and program personnel to answer questions and provide assistance with developing agencies’ budget requests.

In addition to projecting expenditure levels, estimates of the major revenue sources, such as the sales, franchise, excise, and gasoline taxes, are prepared for both the current and next fiscal years. The revenue estimates are prepared by the Commissioner of Finance and Administration after receiving advice from the State Funding Board, as required by TCA section 9-4-5202. All revenue estimates, including estimates for licenses and fees, are part of the budget review by the Commissioner of Finance and Administration, the Governor, and the Commissioner of Finance and Administration’s and the Governor’s staffs.

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Preparation of the Budget

Chapter 33 of the Public Acts of 1937 grants the Governor the authority and duty to develop and submit to the General Assembly a recommended budget. The law directs the Commissioner of Finance and Administration to prepare the budget in accordance with the Governor’s directives.

After receiving agency operational and capital budget requests, analysts with the Division of Budget begin the process of balancing expenditures against estimated revenues. Capital budget requests are reviewed in conjunction with the Real Estate Asset Management office.

Following analysis of the operational and capital requests and available funding, as well as resolving any questions about the requests with agencies, detailed recommendations are made to the Commissioner of Finance and Administration. Meetings are convened with department commissioners and agency directors by the Commissioner of Finance and Administration.

After these meetings are completed, the Division of Budget staff makes revisions and presents the estimates to the Commissioner of Finance and Administration for his and the Governor’s consideration. The Governor and the commissioner review the recommendations resulting from these hearings and consider necessary alterations to fit within the scope of the administration's initiatives, activities mandated by state or federal statute, day-to-day operations, and estimated revenues. The Governor may choose to conduct meetings or budget hearings with department commissioners and may direct them to submit plans for further budget adjustments.

After gubernatorial decisions have been finalized, the staff of the Division of Budget prepares the Budget Document for printing. Meanwhile, work begins on the Governor’s Budget Message. The Budget Document must be presented to the General Assembly prior to February 1, or prior to March 1 when a newly elected Governor takes office, unless the General Assembly by joint resolution allows submission on a later date. At the time the Budget Document and Budget Message are presented, the appropriation process is initiated.

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Legislative Deliberation

The Appropriations Bill, prepared by the Division of Budget, is introduced and referred to the Finance, Ways and Means committees of both houses of the Legislature. The various standing committees of the houses may review those parts of the Appropriations Bill that fall within the committees’ purviews. The departments and agencies often are invited to testify before these committees on budget issues.

After these committees report the committees’ reviews, the Finance, Ways and Means committees begin hearings on the budget in its entirety. Again, the departments may testify, and the Commissioner of Finance and Administration is invited to discuss the budget recommendations. Considerations made by the committees include the fiscal impacts caused by other legislation introduced by the members of both houses, recommendations of other legislative committees, and Appropriations Bill amendments filed by members of the Legislature. The Finance, Ways and Means committees of each house report out the Appropriations Bill with any recommended amendments.

The Appropriations Bill is then sent to Calendar committees of each house to be scheduled for floor action. The Senate and House of Representatives must pass the same Appropriations Bill in the same form for it to be enacted into law. Approval of the General Appropriations Bill usually occurs during the last week of the legislative session. In signing the bill into law, the Governor may line-item veto or reduce specific appropriations. The Governor could veto the entire bill, but this rarely would be done. Any veto may be over-ridden by a majority of the elected members, each house acting separately. Tennessee has a tradition of enacting a single General Appropriations Act.

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Budget Execution

When passage of the Appropriations Bill is complete and is signed or enacted into law, the execution of the act begins. Two important concepts are involved: preparation of work programs and development of allotment controls.

Invariably, there are changes to the Budget Document presented by the Governor to the General Assembly. These changes are made by amending the Appropriations Act during the adoption process. Analysts of the Division of Budget and fiscal personnel in the departments and agencies have the responsibility of reconciling the approved Appropriations Act with the Budget Document. This may involve increases or decreases to the agency allotments. The Division of Budget establishes an annual allotment for each agency and division using the reconciled Appropriations Act. This annual allotment, called the official work program, is provided to the Division of Accounts as a means of spending control. The agencies and divisions spend against these allotments during the fiscal year.

The approved Appropriations Act also contains overappropriation amounts, or reversion, which is the return of any unused portion of appropriation or revenue overcollection. The Division of Budget estimates the proportion of the total reversion in the Appropriations Act to be allocated to each agency and informs each agency of its target reversion.

Budget execution is a process that continues throughout the fiscal year. In addition to the daily review of numerous operational and personnel transaction requests, the budget analysts must ensure that the legislative intent of the Appropriations Act is being followed by the various departments and agencies. Analysts review the status of the various allotments and reversion targets and advise the Commissioner of Finance and Administration of any problems. Analysts may also receive agency requests for supplemental appropriations for state dollars after the beginning of the fiscal year, which become part of the next year’s budget discussions and recommendations to be included in the next Budget Document and Appropriations Bill.

Additionally, analysts may receive agency requests for new federally or other funded programs, expansions of existing federally or other funded programs, or redirected funds after the beginning of the fiscal year. These requests, known as expansion requests, are reviewed within the Division of Budget, and then sent to the Finance, Ways and Means committees for approval. Agencies may not expand programs or implement new programs on the agencies’ own authority. This expansion procedure is not used to increase allotments funded from state tax revenue sources. No appropriations from state tax sources may be increased except pursuant to appropriations made by law.

At the end of the fiscal year, the Division of Budget has the responsibility of executing revisions to the annual allotments as a function of the accounts closing process. At closing, agencies may request to carry forward unexpended state appropriations for the specified purpose, provided the agencies have the authority in statute or the Appropriations Act to do so. Agencies may request to use reserve funds, which are funds held for future needs or special purposes, with statutory reserve authority. The Commissioner of Finance and Administration can approve agency requests for carry forwards and use of reserve funds.

TCA section 4-3-1016 gives the Commissioner of Finance and Administration authority to deny carry forwards for and to transfer funds to the general fund to meet funding requirements, subject to specific provisions in the Appropriations Bill. The funds, reserves, and programs authorized for transfer are listed in the above TCA citation. These transfers are known as reserve taking to close the fiscal year.

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Legislative Review

Further legislative review and control is maintained throughout the year through the Fiscal Review Committee and the Finance, Ways and Means committees.

In addition to the review of agency activities by these bodies, the Finance, Ways and Means committees review and approve expansion requests of new or existing federally or other funded programs. If the expansion request is approved, the Commissioner of Finance and Administration may allot the additional departmental revenue to implement the proposed or expanded program.

Additionally, a committee comprised of the Speakers of the House and the Senate, and the Comptroller of the Treasury must approve a transfer of appropriations between allotments for purposes other than those for which they were appropriated after approval of the Commissioner of Finance and Administration.

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Comptroller Audit and Review

Post-audit and performance review are functions that continue throughout the fiscal year. The Division of State Audit, within the Comptroller’s Office, has the duty of conducting, supervising, and monitoring the audits and performance reviews of all state departments and agencies, intermediate care facilities receiving Medicaid funds, and other entities receiving state grants.

The General Assembly may review the Comptroller’s audit reports and performance reviews, and agency personnel may respond to inquiries about activities and programs under the agency’s jurisdiction.

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