Patrick B. McGuigan
News reports indicate that U.S. government debt is larger -- and a more serious challenge to lawmakers -- than many had assumed.
A front page story in USA Today on Tuesday (June 7) placed U.S. debt at an astonishing $62 trillion, or $534,000 per household. Knowledgeable analysts contend that Oklahoma and other states cannot start soon enough to attack the gap between revenues and actual government liabilities.
Jonathan Small of the Oklahoma Council of Public Affairs said in an interview today that a review of widely available data yields the conclusion that Oklahoma’s unfunded debts – even after historic pension reforms – are approximately $20 billion.
As for this morning’s conversation starter, Dennis Cauchon wrote in the nation’s largest daily that the federal government’s “financial condition deteriorated rapidly last year, far beyond the $1.5 trillion in new debt taken on to finance the budget deficit.”
Cauchon’s conclusions put total debt much closer to the estimates of Sheila Weinberg of the Institute for Truth in Accounting.
While the U.S. government debt is officially pegged at $14 trillion and rising. Cauchon concludes the accurate number is $62 trillion. The rolling “ticker” on IFTA’s website puts the actual debt at $74 trillion, and rising.
At the state level, Weinberg has issued a series of reports pressing her theme that actual state debt is higher than what is reported in annual reports and budget proceedings.
For Oklahoma state government, Weinberg’s IFTA put the cost of state debt at $14,600 per family, based on FY 2009 data. Oklahoma improved its comparative position with passage of significant pension reforms this year.
In other state-specific analyses, Weinberg has placed Connecticut, New Jersey, Hawaii and Illinois among the most fiscally troubled governments in America.
A Government Accountability Office study reviewing three decades of non-federal spending patterns noted, “Understanding patterns in state and local government expenditures and revenues is crucial for identifying and analyzing potential future fiscal pressures for the sector. The March 2010 update to GAO's state and local fiscal model updates simulations that state and local governments' long-term fiscal position will steadily decline through 2060 absent policy changes.
“The primary driver of the fiscal pressure confronting the state and local sector is the continued growth in health-related costs. Over the last 30 years, health care spending has increased as a share of state and local spending, growing from 12 percent of overall state and local expenditures in 1978 to 20 percent in 2008. While the temporary infusion of funds from the American Recovery and Reinvestment Act of 2009 helped cushion near-term revenue shortfalls, states will continue to be fiscally stressed.”
The document continued, “The rates of growth in expenditures and revenues varied among the states during the past 30 years, both overall and within specific categories. Current expenditures grew faster than own-source revenues in almost all states between 1977 and 2007.
“Average annual growth rates of state and local government expenditures and revenues varied substantially by category and among states. For example, public welfare (which includes Medicaid) was one of the fastest growing expenditure categories. In the aggregate, inflation-adjusted spending on public welfare grew at an average annual rate of 5.3 percent per year and growth rates in individual states ranged from 2.3 percent to 10.9 percent.
“The growth of intergovernmental revenue from the federal government (grants) also varied among the states. State and local current expenditures grew faster than federal grant revenues in more than half of the states.
“Despite these trends, the sector in the aggregate usually remained in surplus during this 30-year period. The sector avoided operating deficits, in part because of federal grant growth, and in part because, from 1995 to 2007, the sector increasingly financed capital purchases by issuing debt, rather than with revenues, which left more revenues available to pay for current expenditures.
“However, if the overall trend of state and local government expenditure growth in excess of revenue growth persists, this growth will put increasing pressure on state and local governments going forward. All levels of government face long-term fiscal challenges which could affect future federal funding of intergovernmental programs, as well as the potential capacity of state and local governments to help fund and implement these programs.
“The interconnectedness which defines intergovernmental programs requires that officials at all levels of government remain aware of and ready to respond to fiscal pressures. These pressures have implications for a wide range of federal, state, and local programs, policies, and activities, and include costs associated with health care, physical infrastructure, state and local employee pensions and retiree health benefits, and education, among other areas. Actions to address the nation's long-term fiscal outlook will be needed at all government levels in coming years and the challenges cannot be adequately met by shifting burdens from one level of government to another.”
GAO made a point of not making recommendations in that report.
The brand new Bureau of Economic Analysis Real State GDP released today found Oklahoma grew by only 1% in 2010, although that rate will be more robust in 2011.
OCPA’s analyst Small reflected on the USA Today story with these words: “The federal outlays are staggering and severely threatening our freedom at over $60 trillion. But states such as Oklahoma, should not think that federal spending and debt are the only concern. Oklahoma, even with recent pension reforms, still has a combined total pension liability over $11 billion, and other liabilities and debt of $9.9 billion according to the U.S. Census bureau. This brings total debt for the state of Oklahoma to approximately $20 billion. To put this in context, total annual state appropriations for FY-2012 are $6.5 billion. So our debts are over 3 times the size of the appropriated budget.
“It is very important that we as citizens and that state lawmakers understand that out of control state spending and debt growth must be addressed in the 2012 session. For instance, state spending on the largest welfare program in Oklahoma, Medicaid, has grown 169 percent, increasing from $435.9 million to $1.1 billion, from 2000 to 2010 according to the Oklahoma Healthcare Authority.”
Small pointed out that actual state spending on an annual basis is $16.6 billion according to the state’s comprehensive annual financial report, total state spending is $16.6 billion. That total includes appropriations, dedicated revenue, tobacco tax, lottery funds, and other funds.
Of that amount $4.648 billion is spent on education – common education K-12, Higher Ed, and CareerTech. But then $4.737 billion is spent on Health Services – Oklahoma healthcare authority, Medicaid, department of mental health and substance abuse, health department, and so forth.”
For the first time in terms of total state spending, Small notes, “Health and Human Services spending eclipsed education spending as the largest share of state spending in Fiscal Year 2010, comprising 28.1 percent compared to 28% for education. Clearly it is not just the federal government facing a crisis; state government is headed in the same direction.”
Cauchon, in his news story, puts the “total of financial promises not paid for” at $61.6 trillion. He noted, “This gap between spending commitments and revenue last year equals more than one-third of the nation's gross domestic product.”
The total reaches $534,000 per American household, Cauchon reported. That figure is “more than five times what Americans have borrowed for everything else — mortgages, car loans and other debt. It reflects the challenge as the number of retirees soars over the next 20 years and seniors try to collect on those spending promises.”
The USA Today writer quoted Weinberg, a frequent source for CapitolBeatOK, saying, "The (federal) debt only tells us what the government owes to the public. It doesn't take into account what's owed to seniors, veterans and retired employees. Without accurate accounting, we can't make good decisions."
To be sure, not everyone agrees with Cauchon’s dire analysis. In Oklahoma, David Blatt and the policy staff at the Oklahoma Policy Institute consistently provide analysis contrary to the concerns of Small and OCPA.
In Cauchon’s story, Michael Lind of the liberal New America’s Foundation, asserted there is no near-term crisis. He told Cauchon, "The false claim that Social Security and Medicare are about to bankrupt the United States has been repeated for decades by conservatives and libertarians who pretend that their ideological opposition to these successful and cost-effective programs is based on worries about the deficit."
Cauchon bases his analysis on not only official data from annual reports for Medicare, Social Security and other agencies, but also the federal government’s financial reports.
In one of his more sobering conclusions, Cauchon wrote, “The government has promised pension and health benefits worth more than $700,000 per retired civil servant. The pension fund's key asset: federal IOUs.”