Fiscal year cycles and technology project timing

Reference article · 2 min read

Public agencies operate on annual budgets adopted by their governing bodies. Understanding the cycle explains why projects start when they do, why some months are busy and others quiet, and why an agency may need to spend funds by a specific date.

The cycle

Most state and local agencies in the United States run a fiscal year that starts on July 1, though October 1 and January 1 starts also exist. Budget development begins months earlier, with department requests, executive review, public hearings, and adoption before the year begins.

What it means for technology

Funding must be in the adopted budget. A project not budgeted waits for the next cycle or requires a mid-year budget amendment, which is possible but not routine.

Encumbrance. When a contract is signed, the funds are encumbered, reserved for that contract. Multi-year contracts typically include a clause allowing termination if future years' funds are not appropriated.

Year-end. Funds not spent or encumbered by year-end may lapse. This creates a rush of purchases in the final quarter and a reason for agencies to request work be completed or invoiced by a date.

Carryover. Some agencies allow unspent capital or project funds to carry over; rules vary.

Grant periods

Grant-funded projects have their own periods that may not align with the fiscal year, adding a second set of deadlines.

Capital versus operating

Large systems may be funded from capital budgets with different approval processes and multi-year horizons. Subscriptions and support are operating expenses. How a project is classified affects how it is approved and paid.

What to expect from vendors

Ask about the funding source and fiscal year. Structure milestones and invoices to fit. Expect budget-related delays in the months before adoption and pressure to complete in the months before year-end. Understand that a delay of a month can become a delay of a year.