If the budget is rejected a second time, the board must adopt a contingent budget. The tax levy under a contingent budget can be no greater than the tax levy of the prior year (that is, no tax levy increase).

While a school board has some latitude in determining what constitutes ordinary contingent expenses, some expenditures are expressly prohibited. For example, equipment purchases that are not related to health and safety, and new capital projects – even if these expenditures did not increase the tax levy beyond the prescribed level. It is commonly believed that extracurricular activities, including interscholastic athletics, may not be included in a contingent budget, but this is not the case. However, because activities like after-school clubs and sports are not mandated under the law, and fall outside of the regular instructional program, school districts often find it necessary to reduce or eliminate such programs in order to meet the requirements of a contingent budget. This is why parents sometimes raise private funds for sports or other activities in districts operating under contingency.

It is not necessarily the case that a property owner's taxes will remain exactly the same if the district operates under a contingent budget. Though the overall tax levy would be unchanged, individual tax bills may rise or fall because of changes in assessed valuation or in the distribution of real property taxes among the four classes of property, as well as other factors which are outside the control of the school district.

A contingent budget is also sometimes called an "austerity" budget, which is a more descriptive term but is not technically correct.