Many States End Year in Surplus as Washington Debates New Borrowing Limit

As the federal government turns a debt ceiling debate into an international credit crisis, perhaps Washington could learn a thing or two from the states.

Roughly two dozen of the 46 states that just ended their fiscal year are on track to record surpluses, a budget analyst with the National Association of State Budget Officers said. The rest of the states are expected to at least balance their books.

Despite the weak economic picture, the state capitals managed to mop up the red ink through a combination of revenue increases and spending cuts -- because they have to.

Unlike the federal government, nearly every state has a statutory or constitutional requirement to enact a balanced budget. U.S. House Republicans this week are pushing a proposal on Capitol Hill to hold Washington to the same standard -- the plan would require Congress to approve a balanced-budget amendment to the U.S. Constitution as a condition for raising the nation's $14.3 trillion debt ceiling.

The proposal may be doomed. Democrats are vowing to defeat it in the Senate and the White House says President Obama would veto it should it happen to clear both chambers. That's not to mention the challenges in getting the measure ratified by the states, which would be required.

But some governors say it's really not too much to ask that lawmakers in Congress follow the same basic budgeting principles they do.

"If we are leading as governors in our states and we're getting this done, they should be getting that done, too," South Carolina Gov. Nikki Haley told Fox News. "We started with a deficit. We ended up with a surplus. That is the way you have to function."

South Carolina was just one state that was able to turn around its fiscal woes. In Indiana, Gov. Mitch Daniels announced last week that the government would be handing out bonuses worth up to $1,000 apiece to state employees after the state ended the year with an extra $1.2 billion. He praised state agencies for showing "discipline" over the years by cutting their budgets, reducing the size of the workforce and putting off pay raises for three years.

Brian Sigritz, director of state fiscal studies at the National Association of State Budget Officers, said some states were aided this past year by higher-than-expected tax revenue.

He said 13 states received revenue higher than anticipated, while 31 were right on target. He said 23 states also made mid-year budget cuts to help balance the books.

In turn, he said, "a number of states will be seeing at least slight surpluses."

Sigritz estimated, based on prior preliminary projections, that about two-dozen states would see a surplus, though final numbers have not yet been reported.

States were also aided over the last two years by federal stimulus dollars. A National Association of State Budget Officers report noted that the wind-down of those funds will leave states in "tight fiscal conditions" going forward.

But National Conference of State Legislatures reports that every state but Vermont is required to balance their budgets.

There is, however, some wiggle room. A handful of states are allowed to carry over their budget deficit despite balanced-budget requirements. Plus those requirements generally pertain to operating budgets -- meaning states can borrow to finance items like infrastructure projects.

"The problem certainly still exists," said Michael Bird, federal affairs counsel with the National Conference of State Legislatures. He suggested that the kind of measure being proposed on Capitol Hill might be more far-reaching than what most states have in place.

Democratic officials, though, have described the House GOP effort as irresponsible, effectively exploiting the U.S. Constitution to get their budget proposal enacted.

Referring to the proposal's "cut, cap and balance" nickname, White House Press Secretary Jay Carney described it as "duck, dodge and dismantle."

"Duck responsibility, dodge obligations, and dismantle ... our social safety nets," he said.

Carney said the provisions outlined in the GOP plan would be so strict as to require deep cuts to entitlement programs. He said Washington would be far better off striking a "compromise" instead of "satisfying some narrow slice of the political spectrum."

It's still unclear what such a compromise might look like. Carney predicted the House GOP proposal would tank, but conservatives also are coming out against a separate fallback proposal being crafted in the Senate.

Carney said Monday that congressional leaders are still working on the path forward, in hopes of raising the debt ceiling before the Aug. 2 deadline the administration has set.

"That is a fluid process, and to predict what might get votes and from where is hard to do when we don't even know exactly what the measure will be," Carney said.