Extra-budgetary expenditures (State budget)
Conceptual classification and distinction
Extra-budgetary expenditures are a central instrument of budgetary management in public finance. In the context of state budgets, extra-budgetary expenditures refer to those expenses that are not, or not in the relevant amount, budgeted in the budget plan, but whose payment becomes legally and actually mandatory. They differ from exceptional (out-of-budget) expenditures, for which no corresponding budget item exists. In contrast to budget amendments adopted through a supplementary budget law, extra-budgetary expenditures are approved in the course of ongoing budgetary management.
Legal basis
Federal legal regulations
The central federal legal provisions for extra-budgetary expenditures are set out in particular in Section 37 (1) of the Federal Budget Code (BHO):
“Extra- and out-of-budget expenditures are only permissible if they are unavoidable. They may be made only with the approval of the Federal Ministry of Finance. […] In cases of insignificant importance, general approval may be granted.”
Corresponding regulations are also contained in the budgetary provisions of the German federal states, for example Section 34 (1) of the State Budget Code of North Rhine-Westphalia (LHO NRW).
Purpose of the prohibition on exceeding the budget
Budget law follows the principle of budgetary binding (cameralistics), which binds the administration to the financial framework provided by the budgetary law. The authority to exceed planned resources is only exceptionally allowed. The aim is to ensure parliamentary control over budget management.
Requirements for extra-budgetary expenditures
Unavoidability
An extra-budgetary expenditure is permissible only if it is “unavoidable.” This means there must be a legal or compelling actual obligation that cannot be postponed and cannot be covered by a supplementary budget. The administration is required to apply a strict standard.
Unforeseeability
Extra-budgetary expenditures are typically necessary when the need could not have been foreseen during budget preparation and the approved sum does not cover the actual additional need. The organizations and diligence obligations of the managing entities must be considered; that is, extra-budgetary expenditures must not be triggered by inadequate planning.
Approval requirement
The approval of extra-budgetary expenditures is subject to the consent of the budgetary legislator or the relevant Ministry of Finance, which verifies compliance with the requirements. Individual approval powers may also be delegated within the implementation of the budget.
Funding sources
To cover extra-budgetary expenditures, it must be ensured that sufficient budgetary resources are available. This is usually achieved through so-called “cover notes” or from savings in other budget items. A budgetary balance is mandatory.
Procedural flow and documentation obligations
Extra-budgetary expenditures are initiated by a formal approval request from the relevant administrative department. The budget department then checks whether the requirements for approval are met and documents the decision in the budget records. The parliament must be regularly informed of the approved extra-budgetary expenditures, often in the form of budget overviews or financial decrees.
Distinction from out-of-budget expenditures
The difference between extra-budgetary and out-of-budget expenditures lies in the fact that for extra-budgetary expenditures, a budget item does exist but the estimated sum is exceeded. For out-of-budget expenditures, however, there is no such item, so an even further-reaching budgetary exception exists and a particularly strict review is required.
Sanctions for violations
Compliance with budgetary regulations is essential for the orderly management of public finances. Violations of the approval requirement for extra-budgetary expenditures can result in disciplinary as well as budgetary consequences. Depending on federal or state law, fiscal sanctions, disciplinary measures, or budgetary orders may follow.
Typical practical cases
Extra-budgetary expenditures typically arise as a result of natural disasters, sudden emergency situations, unforeseen cost increases in major projects, or mandatory legal claims by third parties, provided these could not be reasonably planned for in advance.
Interaction with other budgetary instruments
Supplementary budget vs. extra-budgetary expenditure
Whereas a supplementary budget allows for comprehensive adjustments to the entire budget—usually in the case of major deviations—an extra-budgetary expenditure provides an instrument for short-term and targeted responses to individual events without the need for a formal legislative process.
Cover notes and revenue surpluses
So-called cover notes are increasingly being used to increase flexibility in budget management. They allow for the use of appropriations from other budget items to cover extra-budgetary expenditure needs, as long as such coverage is permitted by law and no formal budgetary violation occurs.
Control and transparency
The approval and execution of extra-budgetary expenditures are subject to review by the respective courts of audit (e.g., Federal Court of Audit, state courts of audit), which monitor compliance with the budgetary requirements. This does not affect the political oversight function of parliament, which is regularly informed in the context of budgetary control.
References and additional regulations
- Federal Budget Code (BHO)
- State Budget Codes (LHO) of the federal states
- relevant decrees of the Federal Ministry of Finance or the respective state ministries of finance
- Commentaries on budgetary law, such as in the “Handbuch der Haushaltswirtschaft” or “Kommentar zur Bundeshaushaltsordnung”
Extra-budgetary expenditures are a necessarily limited, but nonetheless essential instrument of efficient and at the same time flexible budget management, providing a balance between planning obligations and the need for action. They exist in the area of tension between budgetary discipline, parliamentary control, and the state’s ability to act.
Frequently asked questions
In which cases are extra-budgetary expenditures permissible under German budgetary law?
Under German budgetary law, extra-budgetary expenditures are generally only permitted if they are unavoidable and either a legal obligation exists or the budget plan does not anticipate them or not in sufficient amount (Section 37 Federal Budget Code – BHO, or corresponding provisions in state budget codes). The unavoidability must be strictly interpreted: execution must not be dispensable nor postponeable. Moreover, possible means of coverage within the budget must be examined before approving extra-budgetary expenditures. Only after it has been established that no alternative funding is possible can extra-budgetary expenditures become lawful. Prior approval by the Ministry of Finance (or the competent ministry) and informing parliament is generally required to safeguard parliamentary budget rights.
What legal procedures and approvals are required for extra-budgetary expenditures?
The procedure for approving extra-budgetary expenditures is strictly regulated. First, the administrative necessity and legal permissibility must be established and justified by the respective authority. After reviewing unavoidability and alternatives, an application is submitted to the competent Ministry of Finance. The Ministry reviews the budgetary requirements and decides on the necessary approval. In addition, in justified cases, Section 37 (4) BHO requires notification to the Bundestag. In certain cases, the consent of the budget committee may also be required, especially for larger sums or politically significant projects.
How are extra-budgetary expenditures recorded and monitored under budgetary law?
Extra-budgetary expenditures must be documented separately both in budget administration and accounting. They are recorded in the accounts as separate transactions with appropriate notes (e.g., “extra-budgetary approved”). Every approval granted must be documented and recorded in the budgetary files. The budgetary accounts must detail the type, amount, and reason for extra-budgetary expenditures. The courts of audit of the federal and state governments review the legality and appropriateness of these expenditures afterwards within their audit rights and may raise objections.
What is the significance of the parliamentary budget right with regard to extra-budgetary expenditures?
The parliamentary budget right is a central control instrument over the use of public funds and may not be bypassed by extra-budgetary expenditures. Therefore, budget law stipulates that the budget legislator—generally the Bundestag or the state parliaments—must either be directly involved in the approval process or at least be informed promptly. Extra-budgetary expenditures must not become the norm, as they represent an exception to the budget management decided by parliament. Ongoing or systematic overruns of the budget plan without parliamentary knowledge or approval would violate budgetary rights and could be considered unlawful.
What are the consequences of unlawful extra-budgetary expenditures?
If extra-budgetary expenditures are made without the required budgetary approval or contrary to statutory provisions, this constitutes a breach of budgetary regulations. This can result in both disciplinary and criminal consequences for the responsible officials, particularly in connection with the Budgetary Principles Act, the relevant budgetary codes, and the criminal offense of budgetary embezzlement (§ 266 German Criminal Code) or office-related budgetary embezzlement (§ 348 German Criminal Code). In addition, such violations may be criticized by the courts of audit and negatively affect future budget approvals and trust in budget management.
Are there special regulations for urgent cases?
Budgetary law contains special regulations for urgent cases, according to which—if an immediate decision is unavoidable—advance approval may also be obtained by telephone or electronic communication. However, formal budgetary approval and proper documentation must be provided as soon as possible afterward. This option must not be misused to routinely bypass budgetary procedures; it is solely for genuine emergencies where otherwise the state would suffer harm.
How do extra-budgetary expenditures differ from out-of-budget expenditures?
While extra-budgetary expenditures are those that exceed an existing budget appropriation, out-of-budget expenditures refer to cases where no appropriation is provided for in the budget plan at all. Both types of expenditure fundamentally require increased justification and special approval and documentation obligations. However, out-of-budget expenditures generally also require an amendment to the budget by a supplementary budget or specific parliamentary approval. The legal scrutiny in terms of unavoidability and specific purpose is particularly stringent in both cases.
