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Congressional Republicans have used the debt ceiling as leverage lately, most recently winning a requirement that each chamber pass a budget framework or go without pay. The same sort of brinkmanship almost never happens at the state level, however. (AP)

If lawmakers don’t raise the debt ceiling sometime soon, road projects, school construction and public transit improvements all could screech to a halt.

It’s become a regular drama in Congress. These lawmakers, though, aren’t in Washington, D.C. They’re in Albany, New York. Last month, the New York Comptroller forecast that the state will come dangerously close to breaching its debt limit when the upcoming fiscal year ends on March 31, 2014. Such an event, the Comptroller’s report warned, would delay “essential” capital projects.

What’s notable about New York’s debt limit situation, however, isn’t the extent to which it resembles recent events in Congress. It’s the extent to which it is different.

In Washington, Congressional Republicans succeeded in extracting substantial concessions from Democrats in the summer of 2011 in exchange for agreeing to raise the debt ceiling. They extracted another small concession earlier this year, with Senate Democrats agreeing to pass a budget framework as part of the deal.

New York, in contrast, has no history of political brinkmanship around its debt ceiling. In recent years, it hardly has a history of debates about the debt ceiling at all.

In this way, New York isn’t unique. Like the federal government, most states operate under some sort of debt cap. Unlike the federal government, though, the state limits rarely attract much attention. They are almost never used as tools for political leverage.

To close observers of the debt limits, there are good reasons for the lack of drama at the state level. Still, at a time when “debt” increasingly is seen as a dirty word, it’s possible that debt limit controversy could be in states’ future too.

Debt Differences

While most states limit their debt in one way or another, it’s quite likely that no two of the limits are exactly alike. Some states cap state debt service payments, some limit the debt itself and others do both. Some of the limits are mere guidelines that can be changed easily. Others are hard constitutional rules.

Still, many state debt ceilings have something in common: They are ratios, not constant numbers. The limit that New York is approaching, for example, says that debt cannot exceed 4 percent of the state’s personal income. Other states place limits on debt as a percentage of state revenue or limit the percentage of the budget that is allowed to be dedicated to debt service payments.

This is very different from the federal debt limit, which is just a number—currently just under $16.4 trillion. The federal limit has been raised dozens of times over the years, including 11 times just since 2002. Part of the reason for the frequency of federal increases is merely inflation and population growth: a trillion dollars doesn’t go as far as it used to.

Many of states’ ratios, in contrast, have stood the test of time because they’re designed to account for natural growth. In Washington State, for example, the limit set in the state Constitution in 1972 remained in place for 40 years, until voters agreed to change it last year.

Likewise, in New York, lawmakers may not have to vote on raising the debt ceiling in the foreseeable future. The Comptroller’s forecast is that debt will hit 3.95 percent of personal income on March 31, 2014—dangerously close to the 4 percent cap. Yet rather than surging over the debt ceiling in the following years, the Comptroller’s projections actually show the debt-to-personal-income ratio decreasing. The state’s debt is forecast to increase, but personal income is expected to increase faster.

It isn’t just the way state debt limits are structured that has made votes on raising state debt ceilings rare, however. It is also states’ skill at avoiding the structures entirely, says Richard Briffault, a Columbia University Law Professor who has studied the limits. Many of the caps only apply to general obligation bonds, for example. If states link their bonds to specific revenue sources, that borrowing doesn’t count. New York would be far above its limit if all types of debt were counted. “For the most part they don’t really constrain the total debt level,” Briffault says. “They just require the debt to take on new forms.”

Crises Averted?

While state debt ceiling increases are rare, they are not unprecedented. Even when states do raise their debt limits, though, they tend to do so without much fuss.

Florida, for example, has spent more than 7 percent of its budget on debt service for four straight years, a level that’s only permissible under law if the legislature is responding to a “critical state emergency.” But the breaching of the cap hasn’t gained much attention even in a state with a Republican-controlled legislature.

When Maryland upped its advisory limit from 3.2 percent of personal income to 4 percent in 2008, State Comptroller Peter Franchot dissented but otherwise the move passed without much notice. When, with Governor Bob McDonnell’s support, Virginia modified its debt ceiling in 2010 to borrow more money for transportation projects, grumbling from the legislature was limited. The constitutional amendment that altered Washington’s debt limit was placed on the ballot with broad bipartisan support in the legislature.

Part of the reason for the lack of state debt ceiling crises, says Don Boyd, senior fellow at the Rockefeller Institute of Government, is that states use debt in a far different way than the federal government. The federal government commonly borrows to pay for day-to-day operating expenses. As a result, every service the government provides would be at risk if the debt ceiling were reached. The federal government might even fail to pay its creditors, thereby defaulting on its debts. These dire possibilities give congressional Republicans leverage in federal debt ceiling fights.

In contrast, while states borrow frequently, they rarely need to borrow right away. The lion’s share of state borrowing is for long-term capital expenses. Boyd thinks that to have a true debt ceiling drama at the state level, you’d need a state in severe fiscal stress that had borrowed for operating purposes and needed to rollover that debt—to borrow again to pay off its old borrowing—or be unable to pay its creditors.

Still, even if a state failing to raise its debt ceiling doesn’t conjure up menacing possibilities like default, bad things still could happen. As the New York Comptroller warned, road projects and school construction could stall. But it’s the very fact that most lawmakers would consider such an outcome bad—and tempting it bad politics—that has helped prevent state debt ceiling brinkmanship.

Washington State Treasurer Jim McIntire sees little chance of lawmakers going to great lengths to block borrowing. If anything, he says, the reason the limits exist is because the risk is in the opposite direction. In state capitals, both Democrats and many Republicans accept debt as a tool to make popular investments. “I definitely think they serve an overall purpose,” McIntire says of the limits. “As a former state legislator, I can tell you that legislators will spend as much as they can on capital projects.”