Summary: In response to a congressional request, GAO analyzed state government balanced budget requirements and practices in order to document their practices and assess the relevance of the states' experiences to the federal government.
GAO pointed out several significant issues involved in considering proposals to require a balanced budget, including: (1) the federal government assumes several major responsibilities not assumed by state governments; (2) if the federal government used state balanced budget processes, significant changes in the balance of power between the executive and legislative branches would result; (3) state governments have a cooperative relationship between their executive and legislative branches that does not exist in the federal government; (4) a balanced budget requirement would make a complex federal budget process even more complex; and (5) states have used a variety of methods to balance their budgets. As a result of a survey of all 50 states, GAO found that: (1) 49 states have balanced budget requirements, but not all are required to balance their budgets during the entire budget cycle; (2) not all state funds are subject to balanced budget requirements; (3) the greatest emphasis is on balancing state operating budgets; (4) state governors can use techniques to keep the budgets in balance that are not available to the President, such as impoundment, using budget reserves, and shifting payments from one fiscal year to another; (5) despite balanced budget requirements, state governments sometimes incur deficits; and (6) effective compliance with a balanced budget requirement will require financial management systems not currently available throughout the federal government.
