Vermont is commonly described as the only state without a balanced budget requirement. The full picture, as the National Conference of State Legislatures reported in 2010, is a lot more complicated.
In some states, the requirements are in statute, while in others they exist in the constitution. Some states require governors to introduce balanced budgets, some require the legislature to pass them, and some forbid deficits from being carried from year to year. Many states combine those rules. Some of the requirements are explicit provisions, while others are based on interpretations and court rulings. As a result, as NCSL noted, different researchers have come to different conclusions about which types of balanced budget requirements exist in which states and how many states have them at all.
South Dakota already has a constitutional requirement that seems to imply a balanced budget is required. Daugaard wants to go further, with formal requirements that the governor propose one each year and that the legislature enact one. "South Dakota's credit rating by Moody's and S&P went up in the past year, even while the federal government's was downgraded," Daugaard said in an interview with Stateline . "But one of the reasons we're not triple A is that we don't have an express statement [requiring a balanced budget]." So far, the proposal is winning strong support in the South Dakota legislature, according to an Associated Press survey of legislators.
Daugaard is right that rating agencies pay attention to state balanced budget rules. David Hitchcock, a senior director with S&P, says the firm gives the most weight to rules that require the state not only to balance their budgets at the time they're adopted, but to eliminate deficits that emerge throughout the year. Still, he notes that the rules are only one of many factors that go into state credit ratings, in part because lawmakers often find ways to get around them. "It's not necessarily something that will produce balance or eliminate deficits," Hitchcock says, "but it indicates more commitment to balance."
Stateline staff writer John Gramlich contributed to this report.