Budget myth

In a Washington post story about Obama's strategy for the next two years, there is the statement:

Unlike the federal government, states must balance their budgets.

This does not mean what most people think it means. It does not mean that states must raise more in taxes than they spend. It merely means that legislators have to say where the money they intend to spend is coming from. It may come from taxes; it may come from reserves; it may come from issuing bonds.

But state don't actually know how much they will raise in taxes, often the project revenue is optimistic. When revenue falls short of projections (as happens during a recession), the state will spend from reserves if they have any. One of the issues with the current downturn is that states are reaching the bottom of the barrel of reserves. This is why Illinois is simply not paying vendors on time. When the money comes it, they write a check.

The only difference between the Federal government and state government is that state legislatures have to explicitly vote for a bond issue, where as Congress implicitly authorizes bond issues when they pass appropriations bill or continuing resolution. The debt limit legislation is completely redundant. If Congress want to limit the deficit, they should simply cut spending.