Importance Of Balanced Budget And Preparations For Economic Downturns To State and Local Governments

In the video press release titled “Reforming California’s Broken Budget System”, Governor Arnold Schwarzenegger addresses various matters regarding California’s budget. He concedes that the state of California lacks is six weeks late in having a budget. He comes off as blaming the state’s legislators for not giving the requisite approvals in time. He projects them as lousy and insensitive to the state’s budgetary needs. Even then, he appears to shy of taking responsibility for the delayed budget. Notably, he has a duty to encourage the legislators to give the approvals in time through the ones who are friendly to his administration. When one views the “Reforming California’s Broken Budget System” video, he gets the feeling that Schwarzenegger (2010) and the legislators should work out a compromise promptly to ensure that the state discharges its mandate without budgetary hitches, especially in the light of the ongoing economic downturn. Schwarzenegger (2010) and the legislators ought to be in accord that the state needs a legally mandatory balanced budget.

In a balanced budget, the projected expenditures equal the projected incomes, or revenues. In many cases, budgets in which the expenditures are more than the revenues are deemed balanced according to Khan and Hildreth (2004). Many state, as well as local, governments are keen on not being required by law to have balanced budgets. The governments contend that balanced budgets provide room for economic downturns that are unjustifiably painful. As well, the governments and other balanced budget critics contend that balanced budgets have the capacity for constraining economic growth, particularly when economic downturns are underway (Sullivan & Sheffrin, 2003).Notably, during economic downturns, tax revenues, or incomes, are down according to Khan and Hildreth (2004). Besides, during the downturns more individuals rely on the governments for particular societal welfare benefits. Even then, the advantages that the governments that operate on balanced budgets are more significant than these concerns by far according to Sullivan and Sheffrin (2003).

Balanced budgets lessen interest rates, encouraging more and more investments and savings (United States, 2003). The lessened rates make it easy for individuals, as well as, businesses, to invest according to Sullivan and Sheffrin (2003). The increased investments and savings widen the tax revenue bases available to governments according to Khan and Hildreth (2004). Besides, the increased investments and savings provide individuals along with businesses with security. Balanced budgets contract trade deficits (Sullivan & Sheffrin, 2003). They accelerate economic growths over rather long periods. Balanced budget legal provisos compel governments to spend the available revenues responsibly, helping cut the related public debts (United States, 2003).

State, as well as local, governments should plan for possible economic downturns owing to varied reasons. First, the downturns heighten the possibility that the governments’ subjects will lack basic provisions, including water, food, and medical supplies according to Khan and Hildreth (2004). When economies collapse, medicine becomes scarce often as the related distribution channels and credit systems collapse. Second, economic collapses hurt the supply of essential production factors, including electricity and business credit facilities. The workers serving power generation firms or plants are likely to go on strike when economies collapse. Third, economic downturns create insecurity. They bring about an increase in looting, riots, and crime. Fourth, the downturns hurt the value of currency continually. Currencies lose their value according to Sullivan and Sheffrin (2003). Economies become rather susceptible to run off inflation and currency devaluation.


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