Can state governments run a budget deficit?

• A. Yes
• B. No
• C. Only with emergency approval
• D. Not specified

Answer: (B)

State governments typically must balance their budgets. In most states, constitutional or statutory rules require that current-year expenditures be funded with current-year revenues, so the general fund cannot run a ongoing deficit. When revenues fall short, states address the gap by adjusting spending, using reserves, increasing revenues, or borrowing for defined purposes (often for capital projects) that is repaid over time, rather than permitting a continuing deficit in operating funds. That’s why the idea of a sustained budget deficit isn’t allowed as a standard practice. Occasional emergency borrowing may occur, but it doesn’t mean operating budgets run a regular deficit. Hence, the correct understanding is that state governments do not run a budget deficit in normal operations.