whats the reasoning for 49/50 states having to have balanced budgets? its pro cyclical only seems to prolong recessions/booms. doesnt seem economically logical. have there been attempts to change this? i know its usings whats happened to excuse it, but couldnt the federal govt/fed back state debt?

http://www.ncsl.org/IssuesResearch/B...1/Default.aspx state budgets info.

thanks chucky, but the first introductory sentence is what i question.

it states
im still reading it so it may answer this, but wasnt this the federal policy until some year XXXX (im not sure on the date, but i know it changed) as it was proven/shown that a counter cyclical budget has a higher utility for the nation than a procyclical policy.

this seems to just start with an assumption and run with it from there instead of giving some theory/explanation behind it.

Basically in the 19th century a bunch of states went broke so there are constitutional ammendments/ laws forcing balanced budgets. Federal government has never been constitutional forced to balanced the budget. A few years they have passed a if you raise spending you must balance it withcuts/ tax hikes, but balanced budget ammendments on federal level havent actually balanced budgets.

One good reason for balancing the budget is that if your income is unsustainably high as California's was during both the housing and internet bubbles, then lawmakers set spending standards based on that level. Once the bubble pops state revenues will never get back to those levels (well not a recovery fast enough to matter) so spending should adjust down to an economically sound level. It just makes sense.

If you decide that you aren't going to balance the budget to become counter cyclical, then you also need to decide a spending increase limit and return overages to tax payers or save for a rainy day. Lawmakers don't tend to do this, so they are left with the option of trying to balance the budget.

on a similar note, i thought i had heard in my accounting class that the GAO doesnt use accural accounting but cash basis? is this true? we had a discussion about what would happen if they changed accounting formats