(An introduction to Appropriations and Reading the Annual Budget Act)
Appropriations in General
The State Constitution (Article XVI, Section 7) provides that money may be drawn from the Treasury only through an appropriation made by law.
The Governor’s Budget Summary (Appendix pages) includes a Glossary of Budget Terms which defines an appropriation as “an authorization from a specific fund to a specific agency to make expenditures/incur obligations for a specified purpose and period of time”.
Methods of Appropriation
As appropriations are made by law, they can be made by:
- The Budget Act
- The State Constitution
- Bills with specific appropriations
- Codified law providing for on-going continuous appropriations
- Ballot measures such as bond authorizations
- The Budget Act is the predominant method by which appropriations are made accounting for about 65% of total expenditure authorizations. The Budget Act is the enacted version of the Budget Bill which is constitutionally required (Article IV, Section 12) to be annually introduced by January 10 along with the Governor’s Budget submission to the Legislature.
Appropriations are often identified as to the “character” of expenditure, namely—state operations, local assistance, capital outlay or unclassified. The breakdown of dollars by character (and also by method of appropriation) is displayed at the end of Schedule 9 in the appendix pages of the Governor’s Budget Summary.
Availability of Appropriations
The availability period for expenditure and encumbrance of appropriations may be specified in the authorizing law. If not specified, Government Code 16304 provides for a three year availability. Government Code 16304.1 provides for a two year period for liquidation of encumbrances following the last day an appropriation is available for encumbrance. This same section provides that federal fund appropriations have a four-year availability period for liquidation of encumbrances. At the end of the availability period for liquidation of encumbrances, the unliquidated balance remaining in an appropriation reverts to the unappropriated balance of the fund from which it was made.
Appropriation Types and Amounts
In addition to a standard appropriation, appropriations can be reappropriations (extension of availability of a previous appropriation), carryovers (availability beyond the first fiscal year of availability), have some commonality such as those for the Proposition 98 guarantee, authorization for transfers between funds, contingent amounts such as for emergencies and other deficiencies, and for setting aside reserves from fund balances.
Although most appropriations are for a specific amount, they may be open-ended, an amount not to exceed a specific amount, a range, or some combination such as a specific amount which could be augmented subject to certain conditions being met.
The Budget Act
As previously mentioned, the Budget Act is the predominant method by which appropriations are made. It must be introduced by January 10 and there is a constitutional requirement for the Legislature to pass the Budget Bill to the Governor by June 15. The Budget Bill becomes the Budget Act upon the Governor’s signature.
Legislature Counsel’s Digest – As with other bills, the Budget Act includes a digest which annually reads:
“An act making appropriations for the support of the government of the State of California and for several public purposes in accordance with the provisions of Section 12 of Article IV of the Constitution of the State of California, and declaring the urgency thereof, to take effect immediately”.
It is rare when a Governor does not exercise any veto action on the Budget Bill passed by the Legislature. For any bill with veto action, Article IV, Section 10 states that “The Governor shall append to the bill a statement of the items reduced or eliminated with the reasons for the action.” Accordingly, Budget Acts will typically include the Governor’s veto actions in the front portion.
This section specifies the coding structure to be used for appropriation items. The coding scheme consists of 11 digits. The first four digits are to designate the organization or program and the last four digits represent the fund. The middle three numbers are called the reference numbers. The reference numbers are used for sequencing items when there are two or more appropriations from the same organization and fund. Attachment 1 provides a listing of the blocks of numbers reserved for specific purposes.
This section also provides authority to the Department of Finance to make revisions when they are of a technical nature and consistent with legislative intent.
This section includes the appropriations in the act. Although appropriations may be included in other sections, the general policy is to include appropriations in Section 2.00 The initial provisions in this section provide that (1) appropriations are available for one year unless otherwise specified, (2) appropriations are from the General Fund unless otherwise specified, (3) appropriations are available for three years for Capital Outlay except as specified and (4) appropriations provided in the act essentially supersede statutory continuous appropriations.
Schedules and Provisions in Appropriations
Many of the appropriations are scheduled, i.e., have sub-levels of detail below the total appropriation amount. Departments and the State Controller are generally expected to maintain records and control expenditures at these scheduled levels.
Provisions are very frequently added to items of appropriations. These may be restrictive (called control language), add flexibility regarding adjustments to the authorized amounts or provide explanatory information.
Reappropriation and Reversion Items
Reappropriation items are authorizations to continue the availability of an appropriation beyond the currently authorized period of availability. The extension is usually one additional fiscal year. Generally, the purpose of the appropriation remains unchanged. Reversions are included when there is no longer a need to continue the appropriation availability and there is a desire to revert the unencumbered balance to a fund earlier than the date the appropriation would otherwise revert. The reversion date is typically June 30 of the current fiscal year.
There are appropriations which are not the standard, straight forward expenditure authorizations. Examples are transfers, loans, advance authorizations, forgiveness of loans, reservations of fund balances, etc. Staff may want to consult with BOS in drafting unique language for appropriations. The Legislative Counsel’s Office typically has designated legal staff available to assist in drafting language of an unusual or complex nature. The names and phone numbers of this designated staff is typically included in the annual Finance Memo dealing with the Budget Bill development.
The sections following Section 2.00 to the last section are generally referred to as the general control sections. The term “general” is used as the provisions usually apply to a number of agencies or on a statewide basis. The origin of the term “control” was likely due to the fact that many of these sections were for the purpose of legislative restrictions on the spending authorized by appropriations included in Section 2.00. However, these sections do more than restrict expenditures. In-fact, they may provide for more flexibility by authorizing adjustments to appropriations. Other uses of control sections have been to (1) provide explanatory information, (2) provide for transfers between funds (3) allow adjustments for retirement contributions, and (4) allow authority for actions to accomplish specified expenditures, savings, personnel adjustments, etc.
The following sections are of a statewide nature and the most commonly known/utilized.
- Sec 3.00 – Provides definitions and purposes of appropriations
- Sec 3.50, 3.60, and 4.20 – Staff Benefits
- Sec 5.25 – Attorneys fees
- Sec 8.50 – Appropriates additional Federal Funds
- Sec 26.00 – Authorizes Intraschedule transfers
- Sec 27.00 – Authorizes approval/Reporting of Deficiencies
- Sec 28.00 – Authorizes adjustments for Non-State funds
- Sec 28.50 – Authorizes adjustments for State reimbursements
- Sec 30.00 – Extension of Sunsetting Continuous Appropriations
- Sec 31.00 – Administrative Procedures for Salaries & Wages
- Sec 32.00 – Prohibits Excess Expenditures
- Sec 33.00 and 34.00 – Veto Severability Clauses
- Sec 35.00 and 36.00 – Urgency Clauses
- Sec 99.00 – Alphabetical organization Index
- Sec 99.50 – Control Section Index
The Final Budget Summary
The Department of Finance annually publishes the Final Budget Summary which is an annotated version of the Budget Act. This publication includes summary tables, technical corrections and the effect of the Governor’s vetoes to the individual items and sections. Because of this additional information, this publication is a much more usable working document than the Budget Act itself.
Reference Numbers Reserved For:
- BUDGET ACT
- Support – 001-100
- Local Assistance – 101-294
- State Mandates (LA) – 295-300
- Capital Outlay – 301-400
- Unassigned (language) – 401-484
- Reappropriations: Proposition 98 Reserve Account – 485-489
- Reappropriations – 490-494
- Reversions – 495-500
- NON-BUDGET ACT
- State Operations – 501-600
- Local Assistance – 601-789
- State Mandates (LA) – 795-800
- Capital Outlay – 801-900
- Unassigned – 901-999