Resolving the fiscal cliff is just the beginning
- December 5, 2012
Even if the United States does not go over the “fiscal cliff” on Dec. 31, our national government, and we all with it, will continue to stand on the edge of something steep and slippery, wrapped in uncertainty, for many months and likely many years to come. The current efforts of the Congress, at best, will produce a very modest down payment in resolving future federal deficit spending and will not establish a plan for any repayment of outstanding federal debt. The size of our out-of-balance federal revenues and spending has just become too large to be addressed in one “lame duck” legislative session.
The total federal outstanding publicly held debt as of Sept. 30, 2012, stood at $11.3 trillion. As large as that number is, it represents only a limited portion of the total liabilities and obligations that have been established under federal law by the Congress over the past 45 years. At the end of the 2011 fiscal year (the last year for which audited financial statements are available), federal liabilities and obligations totaled $56 trillion, or 369 percent of U.S. GDP. From another viewpoint, this was equal to 93 percent of the $60 trillion in total American household and nonprofit net worth.
How did our nation get into this fiscal mess? In my view, the members of the U.S. Congress are most to blame for this gross fiscal irresponsibility. It is they who pass the appropriations and budget bills that the executive branch of government, under the leadership of the president, must then execute. It is the Congress that structured the tax code, created social insurance programs, set budgets for the U.S. Department of Defense and other federal departments, and established the many (sometimes duplicative) programs that nourish university research, finance small businesses, support FEMA and fund a host of other federal programs that daily touch the lives of many if not most Americans.
In the absence of constitutional constraints requiring balanced budgets, actions of the Congress, at the close of fiscal year 2012, resulted in the accumulation of over $16 trillion in debt owed to foreign governments, U.S. citizens, the U.S. Federal Reserve, the Social Security and Medicare trust funds, and others. Unlike borrowings by citizens for home loans, businesses for capital investment, local governments for school construction, and states for constructing roads, there is no scheduled plan under which principal associated with the borrowings of the federal government are to ever be repaid; our nation’s debt just keeps rolling forward, always subject to the risk of interest rate changes. Sadly, this borrowing has resulted in transferring the costs associated with serving current and past generations to our children and grandchildren.
How can the Virginia business community lend a hand in resolving the fiscal sustainability problems of the federal government? One way is to petition Gov. Bob McDonnell to join with his fellow governors in seeking shared leadership with the Congress in structuring a path to restoring federal fiscal balance and strength. On Sept.1, 2011, McDonnell issued Executive Order No. 39, creating the Multi-Disciplinary Taskforce on Economic Competitiveness and Versatility that was charged, in part, with “(i)dentify(ing) the regions, localities, and economic sectors most readily affected by federal contraction or budget reform proposals, and ….identifying appropriate strategies for adaptation to changes in federal spending and policies.”
The order went on to request “from the private sector, economic development allies, institutions of higher education, legislators, elected officials, and other interested parties ideas for promoting Virginia’s economic versatility…”. This opened the door for the business community to help the governor identify and recommend to the Congress balanced measures for restructuring and rebalancing the federal government in a manner fair to all citizens of the commonwealth.
Virginia’s state government received $14 billion in direct federal funding in 2010, which exceeded 31 percent of all state revenues. Add to that the following $1.1 billion in funding made directly to local governments, $58.3 billion in federal purchases from Virginia businesses, and $62.6 in federal wages and retirement benefits to civilian and military employees and Social Security and Medicare benefits to non-federal retirees, and the total federal flows to Virginia in 2010 amounted to $136 billion, or 35.7 percent of Virginia’s real GDP. Surely, a great deal is at stake in just how decisions introducing necessary austerity to the federal government will be made. Virginia’s governor, its business community, and all stakeholders in the commonwealth have an important opportunity to provide guidance to the Congress on how those decisions should be made.
Edward J. Mazur is senior advisor for Public Sector Services with the national public accounting firm of CliftonLarsonAllen LLP. He was state comptroller for Virginia between 1980 and 1991, led the Office of Federal Financial Management with the Office of Management and Budget under both Presidents George H. W. Bush and Bill Clinton, and served two, five-year terms on the Governmental Accounting Standards Board starting in 1997. He is chair of the Audit and Financial Management Advisory Committee of the U.S. Small Business Administration and is a member of the Financial Management Standards Board of the Association of Government Accountants.