State Balanced Budget Provisions

State Balanced Budget Provisions

Balancing the budget is widely considered to be the foundation of state fiscal practices. Keeping a budget balanced in times of fiscal stress, however, can be an overwhelming challenge for policymakers. This report reviews the meaning of a state balanced budget and identifies the statutory and constitutional provisions that various authorities—state legislative fiscal officers, executive budget officers and academics—identify as the requirements that apply. Besides being a major concern in state policy and politics, state balanced budgets are also a subject for academic analysis. Some of the findings of academic study are discussed here, since they demonstrate how difficult it is to find consensus on what a state’s balanced budget requirements are.

For state policymakers, the requirement of a balanced budget largely refers to the operating budget. In most states that is the general fund budget, which is the subject of annual or biennial appropriations. The general fund is where most state tax collections are deposited and from where most appropriations are made. A few states also have an education fund that receives tax revenues, is appropriated and is subject to balance requirements, like the general fund. Less attention (if any) is given to the question of whether a state’s entire budget is in balance.

Grants and reimbursements from the federal government make up most of a state’s non-general fund. The question of balancing these revenues with expenditures does not arise since states can spend only as much as they receive. State non-general fund expenditures from state sources tend to be from revenues legally designated (or “earmarked”) for specific purposes and controlled by their availability. Bond finance for capital projects, the purpose of which is borrowing against future revenues, is generally not considered by policymakers to fall within any constraints of a balanced budget requirement.

So, what does it mean if a state must balance only the operating budget? 

What is meant by a balanced budget is not as clear as it may seem intuitively. Even the number of states whose laws require a balanced budget can be disputed, depending on the way the requirements are defined. The National Conference of State Legislatures (NCSL) has traditionally reported that 49 states must balance their budgets, with Vermont being the exception. Other authorities add Wyoming and North Dakota as exceptions, and some authorities in Alaska contend that it does not have an explicit requirement for a balanced budget. Two points can be made with certainty, however:  Most states have formal balanced budget requirements with some degree of stringency, and state political cultures reinforce the requirements. 

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