State governments are subject to many self-imposed fiscal constraints, including ones that require the state budget to balance each year. Since state economies in the US generally have GDPs similar to those of entire countries elsewhere, and state governments have a high degree of sovereignty to access resources from these economies, budgetary rules are a serious matter. Over the long run, following the rules has resulted in what we see now: Despite the economic travails of recent years, states still enjoy tremendous access to credit markets and own significant portfolios of valuable public infrastructure.

But in the short run, the rules can also tempt state officials to use credit capacity or public assets for transactions that are primarily motivated by the need to balance the budget during a tough year. These one-time fixes – scoop-and-toss refundings, capitalized interest, infrastructure sale/leasebacks and the like – seem to go against the spirit of the prudential rules that made them possible in the first place. Still, the deals follow the letter of the law and are mostly individually innocuous enough in terms of scale and cost. The short-term motivations and budgetary circumstances surrounding one-timers don’t exactly encourage careful optimization, but at least inefficient last-minute spending cuts can be avoided. So although one-time fixes are universally frowned upon, they’ve often enough been accepted as an occasionally necessary evil in the budget process.

This mindset of pragmatic acceptance now risks becoming dangerous, however, because things have changed since the financial crisis of 2008. The use of one-timers needs to be revisited in light of the current economic outlook. The recent fiscal reality of many state governments – revenue volatility, uncertain federal funding, insidiously accruing long-term liabilities for pensions and health care and deferred infrastructure investment — is increasingly looking like it has become the “new normal” for the foreseeable future. The pressure on state officials to rely on budget-balancing borrowing and asset sales more frequently and in larger scale — and with less embarrassment – than before will only intensify. It’s not realistic to believe that many can resist the pressure, regardless of their good intentions, when passing every year’s budget becomes a crisis. Since future economic growth is far from assured, the liabilities built up by the repeated use of one-timers in the past will only add to the pressure to use them again in the future, laying the foundations for a costly and dangerous vicious circle. Over time, the state’s credit capacity and portfolio of public assets could be significantly eroded – exactly the result that the prudential budget rules were put in place to avoid.

The essence of the problem is that budget-balancing transactions are most tempting – and most legitimately useful – during uncertain times, but that’s also when the practice may be most destructive. Since there’s every indication that the economic future for all states, even those in robust fiscal health, will be plagued by uncertainty, heightened awareness and increased scrutiny of any practice that solves a budget problem today by incurring liabilities for tomorrow is more than justified. Regardless of a state’s past tolerance or relatively benign track record in using them, one-timers are inherently problematic and should be recognized as especially dangerous in the current environment.