A balanced budget is when revenues (money coming in) equal expenditures (money going out), with no deficit or surplus. Most Canadian provinces require municipalities to pass balanced operating budgets—they cannot spend more than they collect in a given year. This differs from federal and provincial governments, which can run deficits by borrowing. The requirement forces municipalities to make difficult choices about service levels and tax rates, ensuring they live within their means. Some argue this constraint is too restrictive, preventing municipalities from deficit spending during recessions when demand for services increases and revenues decline.