Other Information Also Useful to Understand the Government’s Fiscal Condition
Beyond accrual and cash deficits, there are additional measures, statements, and information that are used or could be used to more fully understand the government’s fiscal condition, including
- projected cash flows of large spending and tax programs,
- summary present value measures of large spending and tax programs,
- governmentwide financial statements of fiscal sustainability,
- reports on the nation’s fiscal exposures, and
- a summary annual report.
Some of this information, including the Statement of Social Insurance (SOSI), is currently available. The SOSI provides the public with an understanding of how the country’s social insurance programs (e.g., Social Security and Medicare) will be funded in the coming decades and the potential effect of these programs on future borrowing needs and financial markets. As the 2011 SOSI shows, the present value of projected scheduled benefits exceeds earmarked revenues for social insurance programs by about $34 trillion over the next 75-year period. The summary present value measures contained within the SOSI are a way to show the long-term expected cost of current or proposed policies in a single number. Projected cash flows and summary present value measures are still needed for other major spending and tax programs, no matter if they are existing, new or being considered by Congress.
Measures or statements that illustrate the long-term financial sustainability of the government as a whole will also be useful. A new financial reporting standard requires fiscal sustainability reporting in the federal government’s financial statements beginning with fiscal year 2010. The Statement of Fiscal Sustainability, which will be an audited statement in the Financial Report beginning with fiscal year 2013, is intended to project the long-term present value of receipts, non-interest spending and the generated fiscal gap—or the change in noninterest spending or receipts that would be needed to maintain federal debt held by the public at or below a target share of gross domestic product. This information will help the public assess whether future budgetary resources will likely be sufficient to sustain public services and to meet obligations as they come due. We have previously reported that several countries use fiscal sustainability statements to achieve an aggregate, long-term framework of the government’s fiscal position and the sustainability of programs and policies, with attention to demographic and fiscal trends. This statement is intended to provide clear and transparent information about the long-term fiscal condition of the federal government and annual changes therein, and will expand upon the information currently provided in the Management’s Discussion and Analysis section of the Financial Report.
We have suggested that OMB report on the nation’s fiscal exposures—the wide range of responsibilities, programs, and activities that may explicitly or implicitly expose the federal government to future spending (See GAO-03-213). Such reporting would include the embedded liabilities, obligations, commitments, contingencies, and implicit promises in current policy or public expectations. Environmental cleanup and disposal costs and postretirement benefits, for example, are reported in the consolidated financial statements as liabilities. Others, such as financial commitments, certain contingencies, and future social insurance benefits, are not reported as liabilities but are reported elsewhere in the Financial Report. Pulling all these together into one presentation would improve transparency and may prompt more explicit deliberation of the government’s long-term fiscal commitments.
Some federal programs use both cash- and accrual-based measures. For example, agencies pay the cost of accrued pension benefits for some civilians (i.e., those hired since 1984) and military personnel (i.e., those in service after October 1, 1984) as they are earned. While the accrued cost is not reflected in the budget’s bottom line (i.e., the cash deficit), information on the full cost of current services is available to decision makers responsible for resource allocation. The full cost of all pensions (i.e., employees hired before 1984), retiree health, environmental liabilities, and insurance are still not recognized in the budget when the commitments are made.
Accrual measures can be used to a greater extent to inform decision making. Although long-term estimates, including those used in the accrual deficit, are inherently uncertain, cash measures alone do not provide information about the longer-term consequences of today’s decisions. We have previously suggested that Congress consider expanding the selective use of accrual-based measures in the budget to program areas where it would enhance spending control and provide more information on the full cost at the time decisions to commit the government are made (See GAO-08-206). We identified several alternative approaches for Congress and the Executive Branch to consider that would improve the recognition of long-term costs in the budget. For example, accrual budgeting could be adopted for programs that currently do not capture the long-term commitment entered into by the government such as
- employee pension programs,
- retiree health programs for federal employees,
- federal insurance programs, and
- environmental clean up.