These examples are often framed as failures of compliance. They are not. They are examples of something more fundamental: the limits of what balanced-budget rules measure. Every state but Vermont has some form of balanced-budget requirement. Yet the rules vary widely. Some require governors to propose balanced budgets. Others prohibit legislatures from passing unbalanced ones. Some require midyear corrections. A few prohibit deficits from carrying forward.
But these rules largely operate within a narrow window — a single fiscal year or budget cycle. They are designed to ensure that revenues equal expenditures at a point in time, which is currently a struggle in a number of states, but ignore whether commitments remain affordable over the longer term. That limitation has always mattered, but it is becoming harder to ignore. State budgets are built around multiyear obligations — pensions, infrastructure, Medicaid — that extend well beyond the budget window. When those costs are only partially reflected, budgets can appear balanced while structural imbalances accumulate. In a more volatile environment, where economic conditions and federal policies can shift quickly, those imbalances surface faster and with less room to adjust. The question is no longer simply whether a budget balances this year, but whether it remains sustainable over time.
Consider Wisconsin. Its recent financials showed a strong positive general fund balance — roughly $5.9 billion — yet a deficit of nearly $2 billion when longer-term obligations were taken into account. Illinois presents a more extreme version of the same dynamic: budgets that met formal balance requirements while pushing costs into the future. In both cases, the issue was not whether the budget balanced. It did. The issue is what was excluded from that definition of balance.
Washington state has attempted to address this directly. Uniquely, its operating budget must be balanced not just for the current biennium but across a four-year outlook. Lawmakers must demonstrate that projected expenditures do not exceed available resources across both the current and subsequent budget cycles. This shifts the test from short-term balance to forward-looking sustainability. Policies that appear affordable in Year 1 must remain affordable in Year 4.
It is a meaningful improvement. But it is not sufficient.
When Fiscal Outcomes Are Shaped
Recent research using audited financial statements finds little evidence that balanced-budget requirements, even in their stricter forms, consistently produce balanced outcomes. States frequently adopt budgets with gaps and rely on midyear adjustments, spending that comes in below budget (often because costs are delayed) and timing shifts to close them by year’s end. In practice, compliance with balanced-budget rules often reflects how governments manage the timing and presentation of expenditures rather than the underlying alignment of revenues and costs. This is not a failure of intent. It is a function of how fiscal rules operate.
Balanced-budget requirements mainly govern how budgets are written and approved. But fiscal outcomes are shaped after the budget is enacted — where governments retain significant discretion. Payments can be deferred, transfers from other funding sources can be used, assumptions can change and costs can be shifted across periods or outside the general fund.
The result is a system where budgets appear balanced at adoption, adjustments occur throughout the year and structural imbalances emerge just beyond the budget window. In this context, the question is not whether rules exist but whether they meaningfully constrain behavior.
The Missing Piece: Accountability
This points to a broader limitation. Fiscal rules, on their own, are weak substitutes for fiscal governance.
Without enforcement mechanisms, transparent reporting and clear definitions of fiscal sustainability, rules can shape how budgets are presented without constraining how they evolve. In some cases, they may even encourage short-term balancing strategies that weaken the long-term financial position — deferring costs, narrowing the focus to what is measured and obscuring what is owed.
That helps explain a persistent disconnect: States can comply with balanced-budget requirements while still reporting weak fund balances or accumulating long-term liabilities.
It also reframes the policy debate. The challenge is not simply to design better rules. It is to embed those rules within systems that create accountability over time.
A Broader Governance Structure
None of this means that budget rules are irrelevant. Design still matters.
Multiyear frameworks like Washington’s force policymakers to confront the future cost of current decisions. Practices such as Utah’s multiyear stress testing and consensus forecasting introduce discipline even without statutory mandates. Independent revenue forecasting bodies can limit politically motivated assumptions.
These tools work not because they are rules alone but because they are part of a broader governance structure — one that aligns forecasting, budgeting and financial reporting.
The states that manage fiscal stress most effectively tend to combine three elements:
- Horizon: multiyear budget frameworks that capture the full cost of policy decisions.
- Measurement: financial metrics that extend beyond cash balance to include structural balance and long-term obligations.
- Accountability: processes that require midyear transparency, constrain the use of one-time solutions and force corrective action when conditions change.
Without that third element — accountability — even well-designed rules can be gamed, deferred or quietly bypassed.
For decades, balanced-budget requirements have been treated as a proxy for fiscal discipline. States either have them or they don’t. They are often cited in credit analysis, political debates and reform proposals. But that binary framing misses the point.
The real distinction is not between states with particular rules and states without them. It is between states where fiscal systems force policymakers to confront trade-offs and those where they can postpone them. Balanced-budget rules were designed to prevent deficits. Increasingly, the more important challenge is preventing structural imbalance — the kind that emerges when today’s commitments outgrow tomorrow’s revenues.
Multiyear requirements are a step in that direction, but they are not a solution on their own. That’s because the ultimate question is not whether a budget balances on paper. It is whether the system behind that budget is strong enough to make the balance real.
Governing's opinion columns reflect the views of their authors and not necessarily those of Governing's editors or management.
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