Differences Between Federal Budgeting and State or Local Budgeting

by Shane Hall; Updated September 26, 2017
Key differences separate the federal budget process from state and local budgets.

Every year, governments in city halls, state capitals and the U.S. Capitol gather to debate and adopt their annual budgets. For any level of government, the budget is one of the most important policy documents, as it provides insight into a government's priorities, be they education, health care, defense or public safety. Budgeting processes are similar across the federal, state and local levels of government, but key differences separate federal budgeting from state and local budget adoption.

Identification

The key distinction that separates the federal budget process from its state and local counterparts is the issue of a fiscal deficit, in which budgeted expenditures exceed estimated revenues. State and local governments are required by law to balance their budgets. The National Conference of State Legislatures reported that 49 of the 50 states have balanced budget requirements, with Vermont the sole exception. The federal government is allowed to run a deficit and to borrow money to meet its obligations. Efforts in Congress to adopt a balanced budget amendment to the U.S. Constitution have failed as of October 2011. A constitutionally mandated balanced budget would restrain the U.S. government's ability to borrow money in times of national emergencies, such as wars.

Economic Influence

The federal government has a major role in the nation's economy, which carries significant budgetary implications. The U.S. Constitution authorizes the federal government to coin money and issue currency, meaning the federal government could print more money in tight fiscal conditions, even though such an act could fuel inflation. Local and state governments do not have the authority to print money.

Defense Spending

Military spending represents one of the largest spending categories in the federal budget. The portion of the budget allocated to defense pays the salaries of military personnel, purchases military equipment and funds the operations of military installations around the world. State governments' role in defense is far smaller, limited mainly to funding the state National Guard.

Revenue Options

The range of revenue sources also help distinguish federal budgeting from state and local budget activities. Although the federal government collects the most tax revenue, Florida International University points out that state and local governments have a greater range of revenue options for funding their budgets. The federal government relies mainly on income, capital gains, excise and Social Security taxes for revenue. State and local governments collect sales taxes, fuel taxes, property taxes and fees from special licenses, such as driver's licenses. In addition, many state and local governments collect revenues from state lotteries, alcohol and tobacco taxes, and in some cases, casino gambling.

About the Author

Shane Hall is a writer and research analyst with more than 20 years of experience. His work has appeared in "Brookings Papers on Education Policy," "Population and Development" and various Texas newspapers. Hall has a Doctor of Philosophy in political economy and is a former college instructor of economics and political science.

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