State Budgets

Is State Debt Constitutional?

A recent Rasmussen Report found that sixty-eight percent of voters view Congress’ job performance as poor. Failure in the eyes of the public doesn’t belong only to federal representatives. Many state legislatures face equally dismal public approval ratings. In California, the Legislature’s approval rating is just twenty-two percent. At the end of 2011, Hawaii Governor Neil Abercrombie earned the dubious distinction of the worst job approval rating among governors at just thirty percent. Oppositely, a majority of Garden State voters approve of the job performance of New Jersey Governor Chris Christie. In a recent poll, Christie’s job approval rating is fifty-three percent, and has not dipped below fifty percent since August 2011.

California, Hawaii and New Jersey have diverse approval ratings, yet the three states have one commonality: debt. In a recent State Budget Solutions study, California, Hawaii and New Jersey are among states in the worst fiscal situation. The study examines how total state debt is affected by state size, including population, among other factors. However, the study does not include analysis regarding the Constitutional limitations that each state developed to limit their respective debts.

The approval ratings in these three states may drop further if each constituency knew that Constitutional violations are being overlooked. Why would a state go to the trouble of amending its Constitution to limit spending powers if the legislature cannot assure citizens that spending will, in actuality, be limited?

Looking deeper into New Jersey, it is ironic that although the majority of people approve of their New Jersey leadership, the state of the state is less than admirable. In fact, New Jersey takes second place (behind California) for the largest outstanding debt, with $57,933,956. Only five states have a worse economic outlook than New Jersey, based on data examined over the past 10 years used to forecast future performance.

In comparison to the lengthy, detailed provisions of its California counterpart, the New Jersey Constitutional provision regarding debt is shorter, but its purpose is clear. Article VIII, Section II, Subsection (2), states in part:

No general appropriation law or any other law appropriating money for any State purpose shall be enacted if the appropriation contained therein, together with all prior appropriations made for the same fiscal period, shall exceed the total amount of revenue on hand and anticipated which will be available to meet such appropriations during such fiscal period, as certified by the Governor. [Emphasis added].

In the face of a constitutional violation, how do legislatures continue to practice arguably illegal spending? Determining the fiscal state of the states is a difficult task. States use a variety of accounting and budgeting methods, and many of these methods are riddled with gimmicks that result in unreliable findings and rankings. The most detrimental effect of these questionable accounting practices is that is that they make it very difficult to calculate the fiscal health of many states.

For example, here, the Constitutional provision includes the phrase ” shall exceed the total amount of revenue on hand and anticipated […].” Many states inflate anticipated revenue projections in order to substantiate excess expenditures, as may be the case in New Jersey. Suggestive is the separation of the two clauses, revenue on hand and anticipated, indicating that there may be significant leeway to increase the size of “legitimate, anticipated” revenue. In addition to inflating revenue assumptions, it is also possible to inflate savings projections for a fiscal year. New Jersey is “saving” money by failing to make the actuarially recommended payments to their pension plan since 1998. In 2011-12 alone, lawmakers underfunded pensions by $3.1 billion.

Even if New Jersey is finding creative accounting maneuvers to balance their budget, it violates the purpose and the spirit of the Constitution, and repercussions should be assigned accordingly. If lawmakers refuse to incorporate reality-based budgeting methods based solely on their fiscal health, might the violation of Constitutional provisions provide the impetus for change? With the dismal outlook of New Jersey’s economic future, it might be in the best interests of the government to change accounting techniques before the approval rating of state leaders follows in the footsteps of the fiscal health.

It is time for New Jersey to follow the provisions in the state Constitution, the highest law of the state, and both address their massive deficit and create more responsible budgets in the future.

In Depth: State Budgets

Smart budgeting is vital to a state’s financial health. The ALEC State Budget Reform Toolkit offers more than 20 policy ideas for addressing today’s shortfalls in a forthright manner, without resorting to budget gimmicks or damaging tax increases. One way to stabilize budgets over time is to embrace…

+ State Budgets In Depth