No, there is no reason to repeal the state’s balanced budget requirement. And there are good reasons to retain it.

A good succinct Washington Research Council blog post by Emily Makings effectively refutes a suggestion that the coming budget crisis justifies repealing Washington’s balanced budget requirement. Makings writes,

In Crosscut, University of Washington economist Jacob Vigdor arguesthat the state should repeal or suspend its balanced budget requirement during the economic downturn, because “This is both a terrible time to raise taxes and a terrible time to cut spending on vital services.”

Makings points out several solid reasons such repeal is both unnecessary and potentially harmful.

The statute already provides leeway for legislators in downturns. First, the requirements to balance in the current and second biennium do not apply to appropriations bills enacted between July 1st and February 15ththat make net reductions to appropriations. (So, for example, if the Legislature comes back for a special session this Fall in order to make spending cuts, the budget bill would not have to balance.)

Second, the requirement to balance in the second biennium also doesn’t apply when funds are appropriated from the budget stabilization account (BSA, or the rainy day fund).

Vigdor’s brief commentary alluded to the merits of the balanced budget requirement in normal times and observed that most states have a similar requirement. But, he concludes,

Almost every state in the U.S. requires balanced state budgets. In ordinary times, it’s a good idea. Don’t let the state rack up big deficits, which turn into debt that future generations will have to repay. These are not ordinary times. This is both a terrible time to raise taxes and a terrible time to cut spending on vital services.

Let’s go back to the first 123 years of state history, when we allowed government the option to borrow in times of crisis with a promise to repay.

We would have liked an example or two. Helpfully, Makings provides the necessary context.

Moreover, even with the balanced budget requirement, the state still has the ability to borrow—but there are associated costs that usually make it an unattractive option. The state constitution explicitly allows the state to borrow “to meet temporary deficiencies of the treasury,” although such loans must be retired within 12 months (Article VIII, Section 1(k)). In the early 1980s, the state had to borrow due to “low fund cash balances and reduced revenue receipts.” The bond rating firms reduced the state’s rating, which made borrowing more expensive for the state. This discipline from the credit markets makes the state reluctant to deficit spend.

Tellingly, during the Great Recession, the state lost more than $10 billion in revenues over three biennia, but it still did not borrow to cover operating expenses (despite the fact that the balanced budget requirement was not yet in place).

As she points out, we don’t know how this downturn will play out. We do know, however, that it’s important to consider the long-term effects of how the legislative response. She concludes,

…the ratings agencies have cited the balanced budget requirement as a reason our bond rating is so high. (For example, S&P Global wrotelast month that our strong rating reflects our “Strong financial policies and practices, including statutory provisions requiring that the state’s biennial budget and projected subsequent two fiscal years’ spending plans be balanced.”)

If the Legislature weighs the costs and benefits and decides to borrow money rather than cut spending, it would likely be able to do so under the current statute. Repealing this important fiscal sustainability measurewould be unnecessary and short-sighted.

Right.