« Utah emergency bar order, and the high costs of our bar federalism | Main | University of Miami sued in South Carolina »

Friday, April 10, 2020

State Balanced Budget Requirements and COVID-19

One aspect of constitutional law that will be tested during the pandemic is the common requirement in state constitutions that their budgets be balanced. Achieving that without a federal bailout may be extremely difficult.

State balanced budget requirements vary significantly. Most say the requirement can be waived by a supermajority of the Legislature. Getting that kind of majority in some states, though, will be challenging without tough political negotiations. But even if these requirements are waived, the states have limited borrowing capacity. They do control their currency as the federal government does. During the Great Recession, I wrote a short essay about the implications a debt default by a state. We may soon be revisiting that question. 

Posted by Gerard Magliocca on April 10, 2020 at 01:03 PM | Permalink

Comments

Important issue of course. But, the respectable author of the post, simply ignores, trillions of dollars already injected to the economy ( stimulus packages ). So, how come, to the markets ( generally speaking) and not to a state that is " too big to fail " one may wonder ?

And anyway, why would the nation be angry ? California for example, is very rich state. Yet, one should observe or asses the relative burden caused by the pandemic. California for example, claims that it has high proportion of homeless. So, it is causing higher rate of infection according to it. There is great difference, between, default caused by poor economic management or failure bearing recklessness , and otherwise due to such virus, considered as sort of "Force majeure " which is uncontrollable cause of harm simply.

Finally, there is always the option of printing money. Typically it is not a good idea ( for ordinary states world wide) yet, for the US, may be very efficient. Why ? Well, like in the subprime crisis, the US, can overcome such crisis, thanks to huge global capacity, to produce, being creative, and exporting to the whole world. The chance for sever inflation are not so high, and the US dollar, is a global currency considered as "safe heaven" for investors in fact. So, it bears some good or efficient solution ( among others).

Here one may read in " Investopedia " on stimulus packages ( in US and other states):

"Government Stimulus Efforts to Fight the COVID-19 Crisis"
https://www.investopedia.com/government-stimulus-efforts-to-fight-the-covid-19-crisis-4799723

Thanks

Posted by: El roam | Apr 10, 2020 2:49:39 PM

Post a comment