Why won't state govn. run deficits?

Why is the federal government (or at least some administrations) comfortable running a deficit budget where as it seems most state governments will not?

It seems to me that when a state does not have a balanced budget, they call emergency sessions of the congress and suspend services and take imediate action until the deficit is resolved. At the same time, the federal government will run a deficit budget for years at a time.

Why is there this descrepancy in policy?

P.S. Are guests not allowed to search the SDMB archives? I was not able to do this…

States don’t have as much credit as the federal government, because they don’t have as much power to tax–not so much in a constitutional sense, but in a practical sense. There are 49 other states, and if one state raises taxes too much above average, commerce will simply pass it by.

As soon as a state begins sliding too deeply into debt, credit markets punish it by lowering its bond rating, which raises the state’s cost of borrowing and threatens to drive it further into debt. States can and have defaulted on debts in the past, and credit markets know this. The federal government, by contrast, has never defaulted and has not yet reached a point where credit markets react to an increasing national debt, and federal debt is still considered “risk free”.

Also, most states have balanced-budget amendments to their state constitutions, requiring that the state budget be balanced (and often forcing the curtailment of programs to meet that requirement.)

And no, guests cannot search.

What brianjedi said.

And if you want to follow an interesting governor’s race, Indiana features one between the Democrat incumbant Joe Kernan who inherited the position when Gov. O’Bannon died last fall, versus Mitch Daniels, who was G.W. Bush’s director of the Office of Management and Budget, which was the entity that orchestrated the really big federal deficit of the past several years.

And since Indiana’s constitution does not allow deficit spending, it will be interesting to see how Daniels performs should he win the election.

In some instances, the “no debt” policy isn’t contained in the Constitution, but rather is a generally accepted policy driven by a strong governor or legislature. In Virginia’s history, for example, there was a long-standing “pay as you go” policy that was instituted by Gov. (later Senator) Harry Byrd. Gov. Byrd and his successor’s wouldn’t approve expenditures over and above what the Commonwealth had cash on hand to pay for. Even after he was out of the governor’s office (in VA, governors cannot run for consecutive terms), Sen. Byrd’s Democratic Pary machine kept this practice in place for decades. The practice resulted in the Commonwealth having a very high bond rating and a very efficient State government.

One of the big differences between state and federal spending needs is the (historical) perception that states should rarely find themselves in the position where they needed to go in the hole for an Important Reason for a short time but the feds might need such an out. E.g., the classic example is going to war.

Note that things have changed a bit. A massive natural disaster (Hurricane Andrew or worse) can create a lot of financial hurt on a state now which wasn’t a major concern 100 years ago. Secondly, a lot of stuff got added to the list of What The Feds Can Go Into Debt For. A Great Depression, the Cold War, the Space Race, undeclared wars in general, so by now all you need as an excuse is “I want to get re-elected.”

Also, California has just recently elected to take the “Worry about it next generation” route and voted to allow major deficit spending into the foreseeable future. Not at all surprising.

And lastly, states do go into debt. They issue bonds and all sorts of such financial devices all the time. While some bonds are intended to be paid back by the thing being funded, many aren’t. So that’s deficit spending, plain and simple, but just with a different label attached. (Attaching new labels to things is the name of the game.)

The main difference between state government and the federal government is that the feds can print all the money they want. Deficits do exist, states sell bonds and do some creative accounting all the time.

The ability to print money has absolutely nothing to do whatsoever with deficit spending.