Balanced Budget — North Carolina has one, why not Washington?

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Many members of the North Carolina House of Representatives filed HJR 126 last week asking Washington for a federal amendment to the US Constitution to require a balanced budget.  Forty-nine of our fifty states have some sort of balanced budget or debt limit legislation in place, and many feel it is time the federal government had the same thing.   President Obama has publically stated he would veto a bill to balance the budget claiming it is not a necessary measure to "restore fiscal responsibility."  If a balanced budget isn’t fiscal responsibility, what is?!

North Carolina’s Balanced Budget

In the North Carolina Constitution of 1971, the state is required to pass a "balanced budget" (Article III, Section 5).  More specifically, the state’s total expenditures cannot exceed the total income and surplus from previous years during a fiscal period.  Each biennium the Governor recommends his version of the budget; this too must be balanced.

North Carolina’s balanced budget legislation worked in the 1970s, but needs updating to deal with modern fiscal problems.  One of those problems is the shift of a majority of the state’s spending in recent years outside the General Fund.  Current laws only require the General Fund, or state revenues, to be balanced — this excludes federal funding.  Excessive debt accrued through Unemployment Insurance and Medicaid occurred due to this loophole and will need to be addressed in future budget negotiations.  North Carolina’s other looming problem is that budgets are based on forecasted state revenues, not actual receipts; if revenues are not at expected levels, there is not a balanced budget.  This proved extremely difficult during the Great Recession as revenues were not as projected and caused the state to spend more than a true balanced budget would have allowed. 

Times change and new problems occur, but North Carolina took a stand against government debt and enacted these rules when the federal government was experiencing ballooning debt levels.  North Carolina, along with many other states, decided if they could balance their budgets at a state level then the federal government should be required to do the same.  This is what motivated the states to campaign for a federal balanced budget requirement.

How the States Almost Balanced the Budget

In the US Constitution, Article V describes a way for the states to alter the Constitution.  If the legislatures of two-thirds (34 out of 50) of states petition Congress for a constitutional amendment, then Congress must call a convention to address the proposed amendments.  This was met in the early 20^th Century when states called for the direct election of US Senators.  A convention was not held, but the pressure from the states caused Congress to pass the 17^th amendment.  Article V does not specify a time limit on when the states must petition for an amendment to call a convention, thus the first balanced budget amendment filed in 1955 by Oklahoma still counts today towards the two-thirds.

North Carolina proposed its balanced budget requirement in 1979 when a nearly successful attempt to call a convention almost occurred.  During the late 1970s and 1980s America saw a growing federal deficit that caused states to react.  By 1983 the federal deficit was higher than any deficit America had ever seen, excluding the 1943-45 wartime period.  Between 1975 and 1980 thirty states sent requests calling for a convention; in 1982 two additional states sent requests making the total only two states short of the needed thirty-four.

Recent Actions

Enthusiasm subsided when Congress passed a law requiring the budget to be balanced by 1991.  Unfortunately, it was overturned in 1986 and a balanced budget provision has yet to be passed.  Many attempts to balance the budget have been attempted since 1992, all of which have failed to meet the two-thirds majority necessary in Congress, the most recent being the "Cut, Cap and Balance Act of 2011" which passed the US House but not the Senate.  Congress again is showing concern over the growing deficit reaching new records in the trillions.  Record debt is once again causing states to submit additional requests for a constitutional convention similar to North Carolina’s recently filed request.  To date, none of the remaining eighteen states have submitted a request, thus the two-thirds has not been met.

See below the most inclusive list of states and the year in which they filed a request for a federal balanced budget amendment.  If you want to read more about this and the possibility for an Article V Convention, read this Goldwater Institute article.

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