Whenever you hear about how some Governor “balanced the budget eight times as Governor,” you should not be impressed. Why? Because, with a few exceptions, they all have to balance their state budgets. It’s required by their state constitutions.
Right now we still have three Governor’s in the Presidential race – Chris Christie from New Jersey, John Kasich from Ohio, and Jeb Bush from Florida – and so far I’ve only heard Christie touting his record of “balancing the budget.” Again, that doesn’t separate him from any other Governor in the nation, with the exception of Vermont, Wyoming, North Dakota, and arguably Alaska.
- The operating budget is for the normal activities of the state, especially salaries, fringe benefit costs, and other direct expenses.
- Capital budgets are for long-term projects, like building new highways, mass transit, or college campuses; these are funded through long-term bonds.
Most states have in their Constitutions that the operating budget must be balanced every year. That also means that they cannot go and issue bonds for their operating expenses.
Could the federal government also balance their budget every year? That’s a much more difficult question. For one thing, the Federal government has both monetary policy and fiscal policy. States have only fiscal policy, and far less of it. The federal government sometimes needs to use its fiscal policy to really stimulate the economy (in a way that states cannot do) and to avoid a recession or even depression. But I wouldn’t argue with those who advocate for the federal government doing a much better job of trying to balance its budget each year.
 States have, on occasion, gone out to borrow for the purpose of shoring up an immediate deficit, but that runs the risk of having their bond rating downgraded. States work very hard to avoid having to choose this option.