In Crosscut, University of Washington economist Jacob Vigdor argues that the state should repeal or suspend its balanced budget requirement during the economic downturn, because “This is both a terrible time to raise taxes and a terrible time to cut spending on vital services.”

The federal government is in a similar bind, and it’s responding the way economists would recommend: with deficit spending. In a crisis, deliver help and worry about paying for it later, when life has returned to normal.

Our state government can’t do that. In 2012, the Legislature passed a law requiring the state’s budget to be balanced. If we follow that law now, it will mean forcing the state to deliver less help at a time when help is most required, or placing ourselves at the mercy of the Trump administration to deliver a federal bailout. It will compound a public health and economic disaster. . . .

Let’s go back to the first 123 years of state history, when we allowed government the option to borrow in times of crisis with a promise to repay.

Under the balanced budget statute, the Legislature must enact budgets that leave positive ending fund balances in the current biennium and the ensuing biennium. (Currently, the funds subject to the requirement are the general fund–state, the education legacy trust account, and the opportunity pathways account. A bill was enacted this year that will add the workforce education investment account to the requirement, effective July 1, 2020.) Spending does not have to be balanced against revenues, but against all available resources (which might include borrowings).

The statute already provides leeway for legislators in downturns. First, the requirements to balance in the current and second biennium do not apply to appropriations bills enacted between July 1^st and February 15^th that make net reductions to appropriations. (So, for example, if the Legislature comes back for a special session this Fall in order to make spending cuts, the budget bill would not have to balance.)

Second, the requirement to balance in the second biennium also doesn’t apply when funds are appropriated from the budget stabilization account (BSA, or the rainy day fund). When the Legislature appropriates funds from the BSA, it has typically added language to the effect that the appropriation doesn’t change the requirement to balance over four years (including in the bill the Legislature passed this year that appropriates BSA funds for COVID-19 response). Beginning July 1, 2020, this exception will be narrowed so that the requirement to balance in the second biennium doesn’t apply when funds are appropriated from the BSA only when employment growth is estimated to be less than 1 percent.

We don’t know yet what the effect of the downturn will be on state revenues. But it’s certainly plausible that both these exceptions to the balanced budget requirement will apply as legislators work to address any downward revisions.

Moreover, even with the balanced budget requirement, the state still has the ability to borrow—but there are associated costs that usually make it an unattractive option. The state constitution explicitly allows the state to borrow “to meet temporary deficiencies of the treasury,” although such loans must be retired within 12 months (Article VIII, Section 1(k)). In the early 1980s, the state had to borrow due to “low fund cash balances and reduced revenue receipts.” The bond rating firms reduced the state’s rating, which made borrowing more expensive for the state. This discipline from the credit markets makes the state reluctant to deficit spend. Tellingly, during the Great Recession, the state lost more than $10 billion in revenues over three biennia, but it still did not borrow to cover operating expenses (despite the fact that the balanced budget requirement was not yet in place).

The current downturn has happened so fast, it’s tempting to think that the recovery will be fast too. But we have no way of knowing that now. While it is difficult to cut state spending, especially at times when people need state services more, it could be more painful to shift costs down the road. Incidentally, this is something that the four-year balanced budget requirement helps to prevent: By forcing legislators to consider the long-term fiscal effects of legislation, more unsustainable spending is prevented. In turn, this lessens the needs for spending cuts or tax increases in downturns.

Indeed, the ratings agencies have cited the balanced budget requirement as a reason our bond rating is so high. (For example, S&P Global wrote last month that our strong rating reflects our “Strong financial policies and practices, including statutory provisions requiring that the state’s biennial budget and projected subsequent two fiscal years’ spending plans be balanced.”)

If the Legislature weighs the costs and benefits and decides to borrow money rather than cut spending, it would likely be able to do so under the current statute. Repealing this important fiscal sustainability measure would be unnecessary and short-sighted.