# state deficits and debts **URL:** \ **Category:** Factual Questions\ **Created:** [September 15, 2005, 1:11pm UTC](https://boards.straightdope.com/t/state-deficits-and-debts/321773 "2005-09-15T13:11:24Z")\ **Posts on this page:** 5\ **Page:** 1
**Author:** ![drhess](https://avatars.discourse-cdn.com/v4/letter/d/94ad74/32.png) [@drhess](https://boards.straightdope.com/u/drhess)\ **Post date:** [September 15, 2005, 1:11pm UTC](https://boards.straightdope.com/t/state-deficits-and-debts/321773/1 "2005-09-15T13:11:24Z")
Are states allowed to have a standing debt like the federal government? What about cities? I know cities can issue bonds on the market, but can cities and states debt finance investments during hard times? ---
**Author:** ![Northern\_Piper](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/northern_piper/32/5304_2.png) [@Northern\_Piper](https://boards.straightdope.com/u/Northern_Piper)\ **Post date:** [September 15, 2005, 2:05pm UTC](https://boards.straightdope.com/t/state-deficits-and-debts/321773/2 "2005-09-15T14:05:49Z")
I don’t think there can be a single answer to your question. There are fifty state constitutions, governing the state governments - potentially, each one of those constitutions could take slightly different approaches to this issue. Then, within each state, you’d have to look at the state laws governing municipalities, the city charters, the city by-laws, and so on. ---
**Author:** ![Little\_Nemo](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/little_nemo/32/3120_2.png) [@Little\_Nemo](https://boards.straightdope.com/u/Little_Nemo)\ **Post date:** [September 15, 2005, 2:19pm UTC](https://boards.straightdope.com/t/state-deficits-and-debts/321773/3 "2005-09-15T14:19:56Z")
The majority of state governments have laws which prohibit having a budget deficit. I believe there’s only one or two states which could legally run a deficit. ---
**Author:** ![ElvisL1ves](https://avatars.discourse-cdn.com/v4/letter/e/5daacb/32.png) [@ElvisL1ves](https://boards.straightdope.com/u/ElvisL1ves)\ **Post date:** [September 15, 2005, 2:37pm UTC](https://boards.straightdope.com/t/state-deficits-and-debts/321773/4 "2005-09-15T14:37:07Z")
But states often issue bonds for capital construction projects which will generate the revenue needed to pay them off, i.e. toll roads or airport terminals. Usually the enabling legislation establishes a quasi-independent authority for the purpose, so that the debt does not appear on the state’s budget. I’ve read elsewhere that every state but Vermont is required by its own laws to balance its budget. ---
**Author:** ![Freddy\_the\_Pig](https://avatars.discourse-cdn.com/v4/letter/f/a587f6/32.png) [@Freddy\_the\_Pig](https://boards.straightdope.com/u/Freddy_the_Pig)\ **Post date:** [September 15, 2005, 3:09pm UTC](https://boards.straightdope.com/t/state-deficits-and-debts/321773/5 "2005-09-15T15:09:03Z")
In general, yes, cities and states can incur debt–as any resident of California or anyone old enough to remember the New York City bankruptcy of the 1970’s can attest. However, state constitutions and laws place various restrictions on state and local borrowing capacity. To give you an idea of the complexity of these restrictions, let me quote the relevant section of the Illinois Constitution: > [@](#): > > SECTION 9. STATE DEBT > (a) No State debt shall be incurred except as provided > in this Section. For the purpose of this Section, “State > debt” means bonds or other evidences of indebtedness which > are secured by the full faith and credit of the State or are > required to be repaid, directly or indirectly, from tax > revenue and which are incurred by the State, any department, > authority, public corporation or quasi-public corporation of > the State, any State college or university, or any other > public agency created by the State, but not by units of local > government, or school districts. > (b) State debt for specific purposes may be incurred or > the payment of State or other debt guaranteed in such amounts > as may be provided either in a law passed by the vote of > three-fifths of the members elected to each house of the > General Assembly or in a law approved by a majority of the > electors voting on the question at the next general election > following passage. Any law providing for the incurring or > guaranteeing of debt shall set forth the specific purposes > and the manner of repayment. > © State debt in anticipation of revenues to be > collected in a fiscal year may be incurred by law in an > amount not exceeding 5% of the State’s appropriations for > that fiscal year. Such debt shall be retired from the > revenues realized in that fiscal year. > (d) State debt may be incurred by law in an amount not > exceeding 15% of the State’s appropriations for that fiscal > year to meet deficits caused by emergencies or failures of > revenue. Such law shall provide that the debt be repaid > within one year of the date it is incurred. > (e) State debt may be incurred by law to refund > outstanding State debt if the refunding debt matures within > the term of the outstanding State debt. > (f) The State, departments, authorities, public > corporations and quasi-public corporations of the State, the > State colleges and universities and other public agencies > created by the State, may issue bonds or other evidences of > indebtedness which are not secured by the full faith and > credit or tax revenue of the State nor required to be repaid, > directly or indirectly, from tax revenue, for such purposes > and in such amounts as may be authorized by law. Other parts of the constitution, equally lengthy and abstuse, deal with local government borrowing. As you can see, there is no easy answer to your question.