It's the Legislature's role to determine the size and scope of state government, not only by enacting laws, but through the funding of government. The Legislature specifies how the state will raise money, or revenue, and it dictates how it will spend those revenues and for what purpose.
Unlike the federal government, Montana state government cannot operate at a deficit. The state constitution requires the Legislature to balance the budget (revenues=spending) every session. In fact, passing a balanced budget is the only constitutionally required duty of the Legislature.
Balancing revenue and spending is a major challenge for the Legislature every session.
The state does assume debt to acquire capital assets, such as a major information technology system. Two-thirds of the legislators in each chamber must approve any assumption of debt. The state also sometimes borrows money to provide for short-term cash flow in anticipation of tax revenues. (Back to top)
Revenue Sources
State government gets its revenues from a variety of sources. These include:
State taxes 42.2%
Federal funding 37.5%
Licenses and fees 5.7%
Investment earnings 0.6%
Rentals, leases, and royalties
Fines
Sales of documents, merchandise and property
The largest single tax source is the individual income tax.
Staff of the Legislative Fiscal Division help the Legislature to estimate revenues to ensure a balanced budget. Revenue estimating begins at least a year before each biennial session, and estimates are continually updated throughout the session and at various times between sessions. In the November preceding each session, the Revenue and Transportation Interim Committee (RTIC) finalizes current revenue estimates. The Legislature is required to use the final RTIC revenue estimates in the budgeting process until and unless the estimates are amended by the Legislature. (Back to top)
Governmental accounting differs from accounting at private businesses in that money is divided into various types of funds. The fund types are further divided into accounts based on the source and use of the money.
There are four fund types:
Governmental
Proprietary
Fiduciary
University
The Legislature directly appropriates only governmental funds and a very limited number of proprietary and fiduciary funds. Some university funds originate as governmental funds appropriated by the Legislature.
There are 5 main types of governmental funds:
General fund
Special revenue funds
Capital project funds
Debt service funds
Permanent funds
By providing an appropriation, the Legislature authorizes a unit of state government to spend money from a particular account.
The general fund can be broadly defined as revenues from general sources that may be used for any lawful purpose. Income and property taxes are the primary sources of money for the general fund.
You may notice that the general fund is the focus of a great deal of attention before, during, and after a legislative session. This is the fund that must be balanced and that is used to fund a wide variety of state government functions. (Back to top)
The appropriations process is how units of state government get the authority to spend money. By law, no money can leave the state treasury without an appropriation and, with a few minor exceptions, only the Legislature can make appropriations.
Appropriations can be provided in one of 3 ways:
Temporary appropriations. Most appropriations are temporary; that is, they are effective for only 2 years, until the Legislature meets again. The Legislature makes most temporary appropriations during session when it enacts a new version of House Bill 2, the General Appropriations Act. Other temporary appropriations are often called "cat and dog" bills.
Statutory appropriations. These appropriations are made with the passage and codification of a specific law. They do not expire. Because the Legislature does not review these appropriations every 2 years, it limits their use.
Budget amendments. Sometimes an appropriation is needed for a specific reason during the interim, when the Legislature is not in session. The governor and a handful of other authorities can approve the additional spending of federal funds (and, in an emergency, state special revenue funds) using the budget amendment. These funds are not considered part of ongoing operations.
The legislative stage of the temporary appropriations process begins with the introduction of House Bill 2, the bill in which the bulk of funding for state government operations is contained. When it's introduced, HB 2 is the budget proposed by the executive branch through the Governor's Office. The process used by the Legislature to adopt the budget involves the following steps:
All appropriations bills, including the Governor's proposed version of HB 2, are first assigned to the House Appropriations Committee.
Because it's so large and complex, HB 2 is divided into sections, and these are assigned to various joint subcommittees of the House Appropriations and Senate Finance and Claims Committees.
The subcommittees review HB 2, hold public hearings, and report to the House Appropriations Committee with their recommendations for changes to the Governor's proposed budget. The House Appropriations Committee then consolidates the recommendations into a comprehensive appropriations bill.
The House Appropriations Committee hears appeals from state agencies concerning subcommittee actions, compares subcommittee recommendations to projected revenues, and considers amendments to HB 2.
HB 2 is debated on the floor of the House. This happens shortly after the halfway mark of the session.
Once HB 2 passes the House, it is transmitted to the Senate, where it's assigned to the Senate Finance and Claims Committee. This committee reviews the bill and generates amendments that provide much of the basis for debate on the Senate floor.
HB 2 is debated on the floor of the Senate.
If the Senate passes a different version of HB 2, it goes back to the House for concurrence. If the House rejects the Senate amendments, the bill goes to a conference committee, which works to find agreement between the two chambers.
Each chamber then approves or rejects the bill.
Once HB 2 has passed the Legislature, it goes to the Governor, who can sign it, reject it, remove specific line items, or propose amendments. The Legislature must vote on any proposed amendments.
If the Legislature rejects the Governor's amendments, the Governor must sign or veto the bill.
Other appropriations bills, the cat and dog bills, are reviewed in the same way as other non-appropriation bills. (Back to top)
The Legislature cannot spend more from the general fund than it anticipates getting in revenues. The amount of money available to the Legislature for discretionary spending fluctuates from biennium to biennium.
About 90 percent of the general fund is spent on K-12 education, human services (primarily Medicaid), and the correctional system. The federal government pays a signficant portion of the overall costs of human services and environmental programs. The federal government and state special revenue funds are the exclusive sources of funding for highway construction and maintenance. (Back to top)
