Why are states required to have balanced budgets?

With over $20 trillion in amassed debt, the United States federal government is no stranger to running budget deficits. It’s essentially common and expected practice now. For college students my age, the knowledge that there used to be a balanced budget in the US comes as a surprise that almost doesn’t seem real.

But for most state and local governments across the country, balanced budgets aren’t just the norm, but the rule. According to the National Conference of State Legislatures, 43 states require their governor to propose a balanced budget, 39 require the legislature to pass one, and 37 require the budget to continue to be balanced at the end of the fiscal year. In California, the constitution requires the governor to propose a balanced budget and prohibits the passage of a budget in which General Fund expenditures from exceeding General Fund revenues. In cases like California’s, it’s hard for states to even attempt to carry a deficit because their constitutions prevent them from selling bonds to pay for it.

California’s constitution was ratified in 1879. That’s 138 years (ideally) of balanced budgets. So why can’t the federal government do the same?

Spending only as much money as you get is definitely sound fiscal policy to ensure the solvency of the state government, but it does limit what legislatures can do in times of crisis. States and local governments are reliant on taxes on sales, income, and property — revenues that fall in economic recession when people lose their jobs, lose their property, and/or don’t buy as much. At the same time, reliance on safety net welfare programs increases, putting the state in a budget crunch.

Just as in the federal government, a great deal of state spending essentially runs on autopilot and is difficult to control. States take in — and then spend — a lot of money from federal grants or reimbursements, and the way that money is spent is typically determined by the federal government. Other revenues are specifically earmarked by law, such as money from lottery sales or gas taxes. And in other cases, like Proposition 98 in California, the state is required to spend a certain amount of money on specific departments. (Proposition 98 requires California to spend increasing amounts on education based on economic and enrollment growth).

A lack of flexibility can lead to desperate actions when the economy falters. Governments freeze hiring, stop maintaining buildings, cut back services, furlough employees, or renegotiate pension agreements. In 2009, Arizona was so desperate to balance its budget that it sold public buildings as a way to get money fast — including the Capitol, the state fairgrounds, and some prisons. These cuts can have further impacts on what we typically perceive as economic recovery, since state and local government spending makes up about 12 percent of GDP.

Whether this is good or bad depends in many ways on ideology. If state and local governments were allowed to follow the Keynesian model and spend their way out of an economic downturn, that would allow for even more powerful economic recovery efforts. But followers of Friedrich Hayek’s thinking would say that cutting state budgets in times of crisis keeps us rooted in the reality of the services our government gives us — and what they’re worth.

What Would the End of DACA Mean for the Economy?

The health of the United States’ economy is largely determined by the actions of the President and those appointed by him. Ever since Donald Trump’s presidency began, the country has held its breath watching the decisions he has made on behalf the U.S. people, hoping for the best.

Most recently, one of President Trump’s decisions is putting the country at risk of a huge economic decline. A few weeks ago, Trump chose to end the Deferred Action for Child Arrivals (DACA) program, which was put in place by Barack Obama to protect the children of immigrants who came illegally, from being deported. This decision would affect about 800,000 “dreamers” in the U.S.

While the DACA program’s future is still not officially decided, if no supplemental program is put into effect, the loss of all those jobs plus the government expenses could be detrimental to the economy. A study conducted by the CATO Institute concluded that the cost the federal government alone would suffer from deportation efforts over the next 10 years would total at least $60 billion. The overall economic impact would be over $200 billion.

In addition to the governmental costs that the end of DACA would bring, the U.S. GDP would also take a hit. The Center for American Progress conducted a study finding that without the DACA workers, the GDP would decline by $433 billion over the next 10 years.

This decline would be felt in certain parts of the country more than others. California, for example, employs about 188,000 DACA workers. If the program was terminated, the GDP in California alone would suffer a loss of $11.3 billion a year. Texas would lose $6.1 billion per year, and North Carolina would lose $1.9 billion a year.

FWD, a pro-immigration reform group, conducted a study finding that 91% of DACA recipients are employed. Many employers of Fortune 500 companies have been stepping forward defending the DACA program and advocating for Congress to put a stop to Trump’s movement. As Microsoft President, Brad Smith stated via a blog post, “These employees, along with other DREAMers, should continue to have the opportunity to make meaningful contributions to our country’s strength and prosperity.” He admitted that Microsoft knows of at least 27 employees who are DACA beneficiaries, including engineers, finance professionals and sales associates.

The White House has enacted a six-month delay to the end of the program to give Congress time to act and hopefully come up with another solution. Until then, dreamers will continue to protest, advocate and fight to keep their rights and avoid the eventual economic decline that would come from the end of DACA.