The Minnesota state budget operates on a two-year cycle, or biennium, covering two fiscal years. A fiscal year (FY) begins on July 1 and ends on June 30 of the following year and is designated by the year in which it ends; thus FY 2014 begins on July 1, 2013 and ends on June 30, 2014. The biennium begins on July 1 of odd-numbered years.
State government programs are funded by several sources including state taxes, fees, and money from the U.S. Government. The revenue is deposited in one of the funds that make up the state budget. The majority of the money is deposited in the general fund; major state programs are funded primarily from this source. Additionally, money from some sources is mandated to be used for specific purposes; this money is invested in specific dedicated funds such as the Permanent School Fund or the Environmental Trust Fund.
The process of creating a new state budget begins in even-numbered years. The commissioner of Minnesota Management & Budget prepares and distributes budget instructions and forms to all state agencies. Each agency's proposed budget must show actual expenditures and receipts for the two most recent fiscal years, estimated expenditures and receipts for the current fiscal year, and estimates for each fiscal year of the next biennium. This information is used as the basis for the governor's proposed biennial budget.
Minnesota Statutes 16A.11 requires the governor to submit a three-part budget to the Minnesota Legislature. Part one is a budget message, part two a detailed operating budget, and part three a capital expenditures budget. Parts one and two are presented to the legislature in January or February of odd-numbered years and part three is presented to the legislature in January of even-numbered years.
Budget proposals are introduced in the legislature and make their way through the legislative process in a number of individual appropriations bills. Once they are approved and passed by the legislature, each law is sent to the governor who can accept the law by signing it, veto the entire law, or veto portions of the law. The final budget passed by the legislature does not appear in a single law but is made up of a number of separate appropriations laws. The state budget can also be modified by the governor through the power of unallotment.
To help with the planning of the new budget and to monitor changing financial conditions that may affect the current budget, Minnesota Statutes 16A.103 requires Minnesota Management & Budget to prepare forecasts and updates of state revenues and expenditures. The forecasts are issued in November and February of each year, while the quarterly economic updates are prepared in January, April, July, and October of each year. These updates compare actual year-to-date revenue collections with the forecasts and report on significant economic developments since the last formal forecast.
State revenue forecasts are based on national trends in employment, inflation, income, production, etc. That data is provided by the state's economic consultant. It is reviewed and, if necessary, modified by Minnesota Management & Budget and the Minnesota Council of Economic Advisors. It is then plugged into econometric models that create projections of economic activity in Minnesota; these projections are then used in models that predict tax revenue collections.
State expenditures on entitlement programs such as K-12 education, health care, and welfare are forecast by staff from various agencies and are based on enrollment and cost trends. Non-entitlement programs are adjusted for inflation. These revenue and spending forecasts are then combined to estimate how much money is available for the current and future budget.