Legislatures and governors are scrambling to hammer out new state budgets by Monday, when their fiscal years end. The vast majority of states are legally bound to implement balanced budgets. What are the consequences if a state government fails to do so?
Though every state save Vermont has some sort of balanced-budget requirement on the books, the laws are typically mum on enforcement. According to a 1996 survey by the National Conference of State Legislatures, only 22 of these 49 states “report the existence of an enforcement provision.” But of those 22, most just argue that the existence of a constitutional amendment is enough to guarantee compliance, since an unbalanced budget could open up a state to lawsuits from disgruntled fiscal conservatives. However, such litigation is exceedingly rare, and state courts have been reluctant to wade into the budgetary morass; as enforcement provisions go, this one is relatively lax.
A few states have toothier enforcement provisions, and these generally focus not on the passage of a balanced budget, but on the maintenance of fiscal equilibrium throughout the year. In North Carolina, for example, the director of the budget is charged with reviewing the state’s fiscal health quarterly; if spending is outstripping revenue, he or she “may reduce all of said appropriations pro rata when necessary to prevent an overdraft or deficit.”
Alabama boasts the most stringent balanced-budget requirement. At the end of the fiscal year, if appropriations have exceeded revenues, the treasury is forbidden from disbursing any more funds. An official who dares dole out an extra cent can be punished with a $5,000 fine, two years in the clink, and impeachment. (No one has ever been so disciplined.)
Despite the dearth of explicit enforcement provisions, states generally do a good job of passing balanced budgets. That’s in part because no one wants to risk riling voters, and in part because state politicos are masters of creative accounting. Most balanced-budget laws apply only to operating budgets, which cover things like salaries. Long-term construction projects and other capital expenditures are often treated separately and are allowed to run up debts.
Also, governors and legislators are pretty crafty about dreaming up new revenue sources at the last minute. Maine uses “furlough days,” a political euphemism for forcing state employees to take unpaid holidays. And there’s always the old standby of ordering highway patrolmen to write more tickets for minor traffic offenses.
Even if a state approves a balanced budget, there’s not always a guarantee that the books will be balanced throughout the year. About half of states are allowed to run a deficit during the course of the year and then make up the difference through borrowing. And most statutes make some sort of exception for extraordinary circumstances: Maine’s constitution, for example, stipulates that debts can exceed $2 million if there’s an insurrection that needs squelching.
Explainer thanks the National Conference of State Legislatures.