2010 Financial Report of the U.S. Government
The Treasury Department released Tuesday its annual Financial Report of the U.S Government. The report highlights the nation's budget deficit, net operating costs, debt projections, and all government liabilities on an accrual accounting basis. To sum it up, the report shows us how big of a hole we're truly in.
While the President's Budget describes how government plans to spend public funds and tax over the coming years -- comparing receipts with outlays on a cash basis -- the Financial Report describes the net cost of government operations using accrual accounting methods, which show costs as they arise and not just when they come due. Furthermore, this report shows how large our future liabilities are and how much we will owe when it all comes due.
The Financial Report also includes details of what future government liabilities will look like. This mainly stems from Social Security and Medicare. Using accrual accounting methods, the reports shows the present value of projected revenues and expenditures of benefits from social insurance programs over the next 75 years. Comparing this to government assets -- including cash and monetary assets, accounts receivable, loans receivable, taxes receivable, property, etc. -- our financial future looks quite bleak on its present course.
Presenting complementary snapshots of the current fiscal standing of the federal government are the deficit and net operating costs. Net operating costs show not only what the federal government does owe (the deficit), but also what it will owe, accounting for changes in how much we will owe to benefit and retirement funds as well as any "anticipated future investments" in agencies such as the GSEs (mainly Fannie Mae and Freddie Mac). As can be seen, the net operating cost of the government in 2010 skyrocketed, whereas the deficit actually fell.
Using accrual accounting methods, the report shows the present value of projected revenues and expenditures of benefits from social insurance programs over the next 75 years. Comparing our assets held to our current and future liabilities (debt held by the public and other liabilities) paints a grim picture.
|U.S. Government Assets and Liabilities (billions)|
|FY 2010||FY 2009||FY 2000|
|Debt Held by the Public||$9,060.0||$7,582.7||
|Net Liabilities of Social Security||$7,947||$7,685||$3,945|
|Net Liabilities of Medicare^||$22,910||$38,129||$9,093|
|Total Social Insurance Liabilities||$30,857||$45,814||$13,038|
|Total Net Liabilities||$44,329.8||$57,269.9||$18,884.1|
*Includes liabilities of federal employee benefits, veterans benefits, and other liabilities.
^Includes liabilities for all Medicare programs, in addition to Railroad Retirement benefits.
Our financial outlook has drastically deteriorated since 2000. But we see that things have improved since last year, to which the report almost entirely attributes to lower projected Medicare spending and higher revenues as a result of the health care reform legislation. However, the report notes (as we and many others have also called attention to) that there is great uncertainty whether all of the cost-containment provisions in the legislation will fully materialize. The report notes that under the health reform package, excess cost growth (or the rate at which health care costs grow faster than the overall economy) is "essentially zero because of the productivity adjustments to [Medicare] payment rates." At some point, the divergence between public payments to doctors and private reimbursements would likely become unsustainable.
This report is certainly no Christmas gift. Just like last year's report, Social Security's and Medicare's unfunded liabilities still remain staggering and public debt continues to rise. How many more wake up calls do we need? Our federal finances are in tatters. With $44 trillion in unfunded liabilities ahead of us, lawmakers must see this report as another urgent call to reform our federal finances. If we fail to get our finances in order, then our creditors will force changes on us--and that's never a fun thing to go through.
Once again, CRFB calls upon policymakers to address our fiscal challenges and tackle them head on. There is only so much time that our creditors will give us to keep kicking the can down the road on fiscal reform. Luckily, we've got a group of lawmakers starting to take these warnings seriously.