I understand that 43 out of 50 U.S. states are constitutionally required to have balanced budgets. Are there identifiable trends in how and when these states implemented the requirement in their respective constitutions?

I ask with the federal debt limit in mind, which is clearly an extremely hot potato, but I'd ask that any answers stick to the how, what, and why of the 43 states that did it. For example:

  • How many states started out with balanced budget constitutions?

  • How many states amended their constitutions during a budget or credit crisis?

  • How many states amended their constitution for other reasons, and what were they?

  • It's much easier to have such when you're not a fully independent state and a supra-statal entity manages boom-bust cycles, defense etc. You also don't really control a state bank to print money in extremis, so that's a constraint. So parallels with the Union budget aren't quite simple. Commented Sep 29, 2021 at 20:11
  • @Fizz, are you suggesting my question is too hard because I've limited it to US states? If you go outside the US, the European Fiscal Compact seems like a counter-example. Commented Sep 29, 2021 at 20:19
  • [Most] countries in the Eurozone also don't (really) control a central bank, as Greece found out the hard way. Commented Sep 29, 2021 at 20:31
  • Still, I think it would be interesting to compare the US as a country to other countries (some which issue their own currency and maybe some eurozone members). I think Bill Maher said in his last show that Poland and Denmark are the only countries which do budgets in a similar way to the US. Not sure how much research was done to make that claim, but it could be a starting point. Both countries issue their own currency as well, but they are also EU members so they may have to take some deficit guidance from the EU.
    – JJJ
    Commented Sep 29, 2021 at 20:34
  • 1
    @JJJ: that seems to refer to having a hard debt ceiling, not balanced budget per se: "Out of the OECD group of wealthy democracies, only Denmark and Poland join the US in having a hard legal limit on debt." vox.com/policy-and-politics/22684328/… It is rather misleading as the Fiscal Compact also sets limits, albeit calculated in a complicated fashion. Commented Sep 29, 2021 at 21:25

1 Answer 1


No US states started with such a provision. These came about in a wave after the defaults in the 1830-1840s when most US states had borrowed internationally (e.g. from London or the Dutch) and the US federal government refused to bail them out:

The first wave of adoptions among 19 states during 1842–57 is closely linked to the financial panic of 1837 and subsequent economic depression. According to Wallis (2005) and Wallis and Weingast (2008), the emergence of balanced budget rules should be understood as the demand of voters for more transparent and realistic financing rules. All of the states that defaulted in the 1840s except Florida, Mississippi, and Arkansas inscribed some kind of deficit restriction in their constitution immediately afterward. [...] New states admitted to the union after the Civil War generally included debt limits in their constitutions (Ratchford 1941, 122, whose explanation is consistent with Wallis and Weingast’s).

Another wave of US state (but mostly local) defaults happened in the 1930s. Although the federal government didn't assume their debts... it did something different this time in that it substituted the falling state & local investments, so that by end of the Depression it had assumed the dominant share (and with that increased influence):

The 1930s saw another wave of defaults by local governments and the last default to be recorded by a state. [...] There was a complete reversal in the relative shares of total government spending of the three levels over the course of the Depression. Whereas in 1932 local governments spent 50 percent, states 20 percent and the federal government 30 percent of the total, by 1940 local governments spent 30 percent, states 24 percent, and the federal government 46 percent (Bordo, Markiewicz, and Jonung 2011, 9, citing Wallis 1984). The period thus marks the ascendance of the federal government relative to the states and, notwithstanding President Franklin D. Roosevelt’s instinctive fiscal conservatism the introduction of countercyclical demand management at the federal level. [...] The last state default occurred in 1933 when Arkansas suspended payments on its highway bonds.

In general Keynesian economists say that US state's budget policies magnify the problem that the federal government has to "fix" during a recession:

Because state and local budgets are about 40 percent of total government spending in the United States, fiscal policy is effectively shared by the levels within the federal system. [...] The size of this effect can offset a substantial portion of the countercyclical movement of the federal budget position. Krugman (2008), for example, refers to the states as the “fifty little Herbert Hoovers,” pursuing fiscal contraction when Keynesian measures were in order as the United States was sliding into the “Great Recession.” [...] in the aggregate state and local budgets do not help to stabilize the macroeconomy during recessions; that role is played by the federal government in the United States.

Fiscal transfers from the federal government directly into state budgets, to help them fulfill federal mandates and otherwise alleviate budget pressure, ameliorates the procyclical influence of the states during downturns. The American Recovery and Reinvestment Act (ARRA) of 2009, for example, provided large amounts of support to the states. According to the Bureau of Economic Analysis (BEA), the level of total grants-in-aid to state and local governments in 2009 was $482 billion, $70 billion of which came from the stimulus package. Federal support then rose to $532 billion in 2010, of which $100 billion was accounted for by ARRA. A large part of the support was directed through Medicaid to cover the shortfall of revenues at the state level. The rest was either spent in the education sector or earmarked for various investment projects (see table 2). In 2010, according to the Congressional Budget Office (CBO), 75 percent of the grants to states contained in the stimulus package were used to finance state deficits rather than fund new projects.

So while not assuming their old debt, the federal government took on new debt on behalf of the states' deficit during the Great Recession. Which kinda makes the states' balanced budget a bit of a shell game in such circumstances. The ECB notes however that US states' own rainy day funds (about 0.2% of GDP) were somewhat adequate during the smaller recession of 2001, but were quickly depleted in that event.

Also, the balancing requirement is fairly narrow for US states. For most it covers state employees salaries, but not their pensions for instance. The latter have been used more or less as a "piggy bank" in some states, totally some $1T and:

the 20 states with the lowest-funded pension plans saw the financial position of their systems decline steadily from 76 percent funded in 2007 to 56 percent in 2017.

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