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UNITED STATES GOVERNMENT ACCOUNTABILITY OFFICE: 

21st Century Challenges: 

The Honorable David M. Walker: 
Comptroller General of the United States: 
Senior Executive Association: 
Georgetown University: 
September 21, 2005: 

GAO's Strategic Plan: 

[See PDF for image] - graphic text: 

Serving the Congress and the Nation: 

GAO's Strategic Plan Framework: 

Mission: 

GAO exists to support the Congress in meeting its constitutional 
responsibilities and to help improve the performance and ensure the 
accountability of the federal government for the benefit of the 
American people. 

Themes: 

* Long-term Fiscal Imbalance; 

* National Security; 

* Global interdependence; 

* Changing Economy; 

* Demographics; 

* Science and Technology; 

* Quality of Life; 

* Governance; 

Goals and Objectives: 

Provide Timely, Quality Service to the Congress and the Federal 
Government to Address Current and Emerging Challenges to the Well-Being 
and Financial Security of the American People related to: 

* Health care needs and financing; 

* Education and protection of children; 

* Work opportunities and worker protection; 

* Retirement income security; 

* Effective system of justice; 

* Viable communities; 

* Natural resources use and environmental protection; 

* Physical infrastructure; 

Respond to Changing Security Threats and the Challenges of Global 
Interdependence involving: 

* Emerging threats; 

* Military capabilities and readiness; 

* Advancement of U.S. interests; 

* Global market forces; 

Help Transform the Federal Government's Role and How It Does Business 
to Meet 21st Century Challenges by assessing: 

* Roles in achieving federal objectives; 

* Government transformation; 

* Key management challenges and program risks; 

* Fiscal position and financing of the government; 

Maximize the Value of GAO by Being a Model Federal Agency and a World-
Class Professional Services Organization in the areas of: 

* Client and customer service; 

* Strategic leadership; 

* Institutional knowledge and experience; 

* Process improvement; 

* Employer of choice; 

Core Values: 

* Accountability; 

* Integrity; 

* Reliability; 

Source: GAO. 

GAO Strategic Plan 2004-2009. 

[End of strategic plan framework] 

GAO’s High-Risk List: 2005: 

Addressing Challenges in Broad-based Transformations: 

High-Risk Areas: Protecting the Federal Government's Information 
Systems and the Nation's Critical Infrastructures; 
Year Designated High Risk: 1997. 

High-Risk Areas: Strategic Human Capital Management[A]; 
Year Designated High Risk: 2001. 

High-Risk Areas: U.S. Postal Service Transformation Efforts and Long- 
Term Outlook[A]; 
Year Designated High Risk: 2001. 

High-Risk Areas: Managing Federal Real Property[A]; 
Year Designated High Risk: 2003. 

High-Risk Areas: Implementing and Transforming the Department of 
Homeland Security; 
Year Designated High Risk: 2003. 

High-Risk Areas: Establishing Appropriate and Effective Information- 
Sharing Mechanisms to Improve Homeland Security; 
Year Designated High Risk: 2005. 

High-Risk Areas: DOD Approach to Business Transformation[A]; 
Year Designated High Risk: 2005. 

High-Risk Areas: DOD Approach to Business Transformation[A]: DOD Supply 
Chain Management (formerly Inventory Management); 
Year Designated High Risk: 1990. 

High-Risk Areas: DOD Approach to Business Transformation[A]: DOD Weapon 
Systems Acquisition; 
Year Designated High Risk: 1990. 

High-Risk Areas: DOD Approach to Business Transformation[A]: DOD 
Business Systems Modernization; 
Year Designated High Risk: 1995. 

High-Risk Areas: DOD Approach to Business Transformation[A]: DOD 
Financial Management; 
Year Designated High Risk: 1995. 

High-Risk Areas: DOD Approach to Business Transformation[A]: DOD 
Support Infrastructure Management; 
Year Designated High Risk: 1997. 

High-Risk Areas: DOD Approach to Business Transformation[A]: DOD 
Personnel Security Clearance Program; 
Year Designated High Risk: 2005. 

Managing Federal Contracting More Effectively: 

High-Risk Areas: DOE Contract Management; 
Year Designated High Risk: 1990. 

High-Risk Areas: NASA Contract Management; 
Year Designated High Risk: 1990. 

High-Risk Areas: DOD Contract Management; 
Year Designated High Risk: 1992. 

Management of Interagency Contracting; 
Year Designated High Risk: 2005. 

Assessing the Efficiency and Effectiveness of Tax Law Administration: 

High-Risk Areas: Enforcement of Tax Laws[A, B]; 
Year Designated High Risk: 1990. 

High-Risk Areas: IRS Business Systems Modernization[C]; 
Year Designated High Risk: 1995. 

Modernizing and Safeguarding Insurance and Benefit Programs: 

High-Risk Areas: Medicare Program[A]; 
Year Designated High Risk: 1990. 

High-Risk Areas: HUD Single-Family Mortgage Insurance and Rental 
Housing Assistance Programs; 
Year Designated High Risk: 1994. 

High-Risk Areas: Medicaid Program[A]; 
Year Designated High Risk: 2003. 

High-Risk Areas: Modernizing Federal Disability Programs[A]; 
Year Designated High Risk: 2003. 

High-Risk Areas: Pension Benefit Guaranty Corporation Single-Employer 
Insurance Program[A]; 
Year Designated High Risk: 2003. 

Other: 

High-Risk Areas: FAA Air Traffic Control Modernization; 
Year Designated High Risk: 1995. 

[A] Legislation is likely to be necessary, as a supplement to actions 
by the executive branch, in order to effectively address this high-risk 
area. 

[B] Two high-risk areas-Collection of Unpaid Taxes and Earned Income 
Credit Noncompliance-have been consolidated to make this area. 

[C] The IRS Financial Management high-risk area has been incorporated 
into this high-risk area. 

[End of table] 

Composition of Federal Spending: 

[See PDF for image] - graphic text 

3 pie charts with 5 items each. 

1964: 
Defense: 46.0%; 
Social Security: 14.0%; 
Medicare & Medicaid: 0%; 
Net interest: 7.0%; 
All other spending: 33.0%. 

1984: 
Defense: 27.0%; 
Social Security: 21.0%; 
Medicare & Medicaid: 9.0%; 
Net interest: 13.0%; 
All other spending: 30.0%. 

2004: 
Defense: 20.0%; 
Social Security: 22.0%; 
Medicare & Medicaid: 19.0%; 
Net interest: 7.0%; 
All other spending: 32.0%. 

Source: Office of Management and Budget. 

[End of figure] 

Federal Spending for Mandatory and Discretionary Programs: 

[See PDF for image] - graphic text 

3 pie charts with 3 items each. 

1964: 
Discretionary: 67%; 
Mandatory: 26%; 
Net Interest: 7%. 

1984: 
Discretionary: 45%; 
Mandatory: 42%; 
Net Interest: 13%. 

2004: 
Discretionary: 39%; 
Mandatory: 54%; 
Net Interest: 7%. 

Source: Office of Management and Budget. 

[End of figure] 

Fiscal Year 2004 Deficit Numbers: 

On-Budget Deficit; 
-$567 Billion; 
-4.9% of GDP. 

Off-Budget Surplus; 
$155 Billion; 
1.3% of GDP. 

Unified Deficit; 
-$412 Billion; 
-3.6% of GDP. 

* Includes the $151 billion Social Security surplus and a $4 billion 
surplus for the Postal Service. 

March 2005. 

[End of table] 

Surplus or Deficit as a Share of GDP: Fiscal Years 1962-2004: 

[See PDF for image] - graphic text: 

Line/Stacked Bar combo chart with 1 line (Unified) and 43 bars. 

Fiscal year: 1962; 
On-budget: -1%; 
Off-budget: -0.2%; 
Unified: -1.3%. 

Fiscal year: 1963; 
On-budget: -0.7%; 
Off-budget: -0.1%; 
Unified: -0.8%. 

Fiscal year: 1964; 
On-budget: -1%; 
Off-budget: 0.1%; 
Unified: -0.9%. 

Fiscal year: 1965; 
On-budget: -0.2%; 
Off-budget: No data; 
Unified: -0.2%. 

Fiscal year: 1966; 
On-budget: -0.4%; 
Off-budget: -0.1%; 
Unified: -0.5%. 

Fiscal year: 1967; 
On-budget: -1.6%; 
Off-budget: 0.5%; 
Unified: -1.1%. 

Fiscal year: 1968; 
On-budget: -3.2%; 
Off-budget: 0.3%; 
Unified: -2.9%. 

Fiscal year: 1969; 
On-budget: -0.1%; 
Off-budget: 0.4%; 
Unified: 0.3%. 

Fiscal year: 1970; 
On-budget: -0.9%; 
Off-budget: 0.6%; 
Unified: -0.3%. 

Fiscal year: 1971; 
On-budget: -2.4%; 
Off-budget: 0.3%; 
Unified: -2.1%. 

Fiscal year: 1972; 
On-budget: -2.2%; 
Off-budget: 0.3%; 
Unified: -2%. 

Fiscal year: 1973; 
On-budget: -1.2%; 
Off-budget: No data; 
Unified: -1.1%. 

Fiscal year: 1974; 
On-budget: -0.6%; 
Off-budget: 0.1%; 
Unified: -0.4%. 

Fiscal year: 1975; 
On-budget: -3.5%; 
Off-budget: 0.1%; 
Unified: -3.4%. 

Fiscal year: 1976; 
On-budget: -4.1%; 
Off-budget: -0.2%; 
Unified: -4.2%. 

Fiscal year: 1977; 
On-budget: -2.5%; 
Off-budget: -0.2%; 
Unified: -2.7%. 

Fiscal year: 1978; 
On-budget: -2.5%; 
Off-budget: -0.2%; 
Unified: -2.7%. 

Fiscal year: 1979; 
On-budget: -1.5%; 
Off-budget: -0.1%; 
Unified: -1.6%. 

Fiscal year: 1980; 
On-budget: -2.7%; 
Off-budget: No data; 
Unified: -2.7%. 

Fiscal year: 1981; 
On-budget: -2.4%; 
Off-budget: -0.2%; 
Unified: -2.6%. 

Fiscal year: 1982; 
On-budget: -3.7%; 
Off-budget: -0.2%; 
Unified: -4%. 

Fiscal year: 1983; 
On-budget: -6%; 
Off-budget: No data; 
Unified: -6%. 

Fiscal year: 1984; 
On-budget: -4.8%; 
Off-budget: No data; 
Unified: -4.8%. 

Fiscal year: 1985; 
On-budget: -5.3%; 
Off-budget: 0.2%; 
Unified: -5.1%. 

Fiscal year: 1986; 
On-budget: -5.4%; 
Off-budget: 0.4%; 
Unified: -5%. 

Fiscal year: 1987; 
On-budget: -3.6%; 
Off-budget: 0.4%; 
Unified: -3.2%. 

Fiscal year: 1988; 
On-budget: -3.9%; 
Off-budget: 0.8%; 
Unified: -3.1%. 

Fiscal year: 1989; 
On-budget: -3.8%; 
Off-budget: 1%; 
Unified: -2.8%. 

Fiscal year: 1990; 
On-budget: -4.8%; 
Off-budget: 1%; 
Unified: -3.9%. 

Fiscal year: 1991; 
On-budget: -5.4%; 
Off-budget: 0.9%; 
Unified: -4.5%. 

Fiscal year: 1992; 
On-budget: -5.5%; 
Off-budget: 0.8%; 
Unified: -4.7%. 

Fiscal year: 1993; 
On-budget: -4.6%; 
Off-budget: 0.7%; 
Unified: -3.9%. 

Fiscal year: 1994; 
On-budget: -3.7%; 
Off-budget: 0.8%; 
Unified: -2.9%. 

Fiscal year: 1995; 
On-budget: -3.1%; 
Off-budget: 0.9%; 
Unified: -2.2%. 

Fiscal year: 1996; 
On-budget: -2.3%; 
Off-budget: 0.9%; 
Unified: -1.4%. 

Fiscal year: 1997; 
On-budget: -1.3%; 
Off-budget: 1%; 
Unified: -0.3%. 

Fiscal year: 1998; 
On-budget: -0.3%; 
Off-budget: 1.1%; 
Unified: 0.8%. 

Fiscal year: 1999; 
On-budget: No data; 
Off-budget: 1.4%; 
Unified: 1.4%. 

Fiscal year: 2000; 
On-budget: 0.9%; 
Off-budget: 1.5%; 
Unified: 2.4%. 

Fiscal year: 2001; 
On-budget: -0.3%; 
Off-budget: 1.6%; 
Unified: 1.3%. 

Fiscal year: 2002; 
On-budget: -3.1%; 
Off-budget: 1.5%; 
Unified: -1.5%. 

Fiscal year: 2003; 
On-budget: -4.9%; 
Off-budget: 1.5%; 
Unified: -3.5%. 

Fiscal year: 2004; 
On-budget: -4.9%; 
Off-budget: 1.3%; 
Unified: -3.6%. 

Source: Office of Management and Budget and Congressional Budget Office. 

[End of figure] 

Estimated Fiscal Exposures (in $ trillions): 

Explicit liabilities (Publicly held debt, military & civilian pensions 
& retiree health, other); 
2000: $6.9; 
2002: $7.8; 
2004: $9.1. 

Commitments & Contingencies: e.g., PBGC, undelivered orders; 
2000: $0.5; 
2002: $0.8; 
2004: $0.9. 

Implicit exposures; 
2000: $13.0; 
2002: $17.8; 
2004: $33.3. 

Implicit exposures: Future Social Security benefits; 
2000: $3.8; 
2002: $4.6; 
2004: $5.2. 

Implicit exposures: Future Medicare Part A benefits; 
2000: $2.7; 
2002: $5.1; 
2004: $8.5. 

Implicit exposures: Medicare Part B benefits; 
2000: $6.5; 
2002: $8.1; 
2004: $11.4. 

Implicit exposures: Medicare Part D benefits; 
2004: $8.1. 

Total; 
2000: $20.4; 
2002: $26.4; 
2004: $43.3. 

Sources: Consolidated Financial Statements. 

Note: Estimates for Social Security and Medicare are PV as of January 1 
of each year as reported in the Consolidated Financial Statements and 
all other data are as of September 30. The 2005 Trustees Reports issued 
in March of this year show that the Social Security and Medicare 
exposures have increased as follows: Social Security increased to $5.7 
trillion, Medicare Part A increased to $8.8 trillion, Medicare Part B 
increased to $12.4 trillion and Part D increased to $8.7 trillion. 
Totals may not add due to rounding. 

[End of table] 

Another Way to Think About These Numbers: 

* Debt held by the public: $4.3 trillion; 
* Trust fund debt[NOTE]: $3.1 trillion; 
* Gross debt--$7.4 trillion;
* Gross debt per person--about $25,000; 
* The $46 trillion in fiscal exposures is: 

- a burden of more than $150,000 per person or more than $370,000 per 
full-time worker, 
- nearly 19 times the current annual federal spending and 4 times the 
current annual GDP, 
- almost equal to the estimated $48.5 trillion in total net worth, 
including home equity, for all Americans. 

Note: The calculations are based on 75-year projections for Social 
Security and Medicare. 

Growing Fiscal Burden: 

Another way to think about these fiscal exposures is: 

Fiscal exposures [from previous page]; 
2000: $20.40; 
2002: $26.40; 
2004: $43.30. 

Per person; 
2000: $72,000; 
2002: $92,000; 
2004: $147,000. 

Per full-time worker; 
2000: $165,000; 
2002: $214,000; 
2004: $350,000. 

[End of table] 

Terrorism Risk Insurance expansion to aircraft and aircraft engine 
manufacturers enacted in 2003: 
* Estimate for FY 2004: $3 million income; 
* Estimate for 10 years (2004-2013): $47 million cost. 

Health Care Benefit extension to older uniformed services retirees 
enacted in 2000: 
* Estimate for FY 2001: $223 million cost: 
* Estimate for 10 years (2001-2010): $40.4 billion cost; 
* Financial statement liability: $293 billion. 

Medicare Drug Benefit enacted 2003: 
* Estimate for CY 2006: $64.4 billion; 
* Estimate for 2006-14: $851 billion; 
* Estimate from program inception through 2079: $8.7 trillion in 
present value terms. 

Sources: Medicare estimates for net federal spending are drawn from the 
2005 Medicare Trustees’ intermediate estimates. All others are CBO cost 
estimates in year of enactment and 2001 Consolidated Financial 
Statement. 

Composition of Spending as a Share of GDP Under Baseline Extended: 

[See PDF for image] - graphic text: 

Line/Stacked Bar combo chart with 4 groups, 1 line (Revenue) and 4 bars 
per group. 

2004; 
Net interest: 1.4%; 
Social Security: 4.4%; 
Medicare & Medicaid: 3.8%; 
All other spending: 10.4%; 
Revenue: 16.3%. 

2015; 
Net interest: 1.8%; 
Social Security: 4.7%; 
Medicare & Medicaid: 5.3%; 
All other spending: 8.1%; 
Revenue: 19.5%. 

2030; 
Net interest: 2.8%; 
Social Security: 6.4%; 
Medicare & Medicaid: 8%; 
All other spending: 8.1%; 
Revenue: 19.5%. 

2040; 
Net interest: 5.7%; 
Social Security: 6.9%; 
Medicare & Medicaid: 9.7%; 
All other spending: 8.1%; 
Revenue: 19.5%. 

Notes: In addition to the expiration of tax cuts, revenue as a share of 
GDP increases through 2015 due to (1) real bracket creep, (2) more 
taxpayers becoming subject to the AMT, and (3) increased revenue from 
tax-deferred retirement accounts. After 2015, revenue as a share of GDP 
is held constant. 

Source: GAO’s March 2005 analysis. 

[End of figure] 

Composition of Spending as a Share of GDP Assuming Discretionary 
Spending Grows with GDP after 2005 and All Expiring Tax Provisions are 
Extended: 

[See PDF for image] - graphic text: 

Line/Stacked Bar combo chart with 4 groups, 1 line (Revenue) and 4 bars 
per group. 

2004; 
Net interest: 1.4%; 
Social Security: 4.3%; 
Medicare & Medicaid: 3.8%; 
All other spending: 10.4%; 
Revenue: 16.3%. 

2015; 
Net interest: 2.8%; 
Social Security: 4.7%; 
Medicare & Medicaid: 5.2%; 
All other spending: 9.7%; 
Revenue: 17.4. 

2030; 
Net interest: 7.7%; 
Social Security: 6.7%; 
Medicare & Medicaid: 8%; 
All 
other spending: 9.7%; 
Revenue: 17.4%. 

2040; 
Net interest: 15.7%; 
Social Security: 7.9%; 
Medicare & Medicaid: 9.7%; 
All other spending: 9.7%; 
Revenue: 17.4%. 

Notes: Although expiring tax provisions are extended, revenue as a 
share of GDP increases through 2015 due to (1) real bracket creep, (2) 
more taxpayers becoming subject to the AMT, and (3) increased revenue 
from tax-deferred retirement accounts. After 2015, revenue as a share 
of GDP is held constant. 

Source: GAO’s March 2005 analysis. 

[End of figure] 

Current Fiscal Policy Is Unsustainable: 

The “Status Quo” is Not an Option: 

* We face large and growing structural deficits largely due to known 
demographic trends and rising health care costs. 

* GAO’s simulations show that balancing the budget in 2040 could 
require actions as large as: 

- Cutting total federal spending by about 60 percent or
- Raising taxes to about 2.5 times today's level. 

Faster Economic Growth Can Help, but It Cannot Solve the Problem: 

* Closing the current long-term fiscal gap based on responsible 
assumptions would require real average annual economic growth in the 
double digit range every year for the next 75 years. 

* During the 1990s, the economy grew at an average 3.2 percent per 
year. 

* As a result, we cannot simply grow our way out of this problem. Tough 
choices will be required. 

The Sooner We Get Started, the Better: 

* Less change would be needed, and there would be more time to make 
adjustments. 

* The miracle of compounding would work with us rather than against us. 

* Our demographic changes will serve to make reform more difficult over 
time. 

The Way Forward: 

Implement new accounting and reporting approaches and new budget 
control mechanisms for considering the impact of spending and tax 
policies and decisions over the long term. 

Develop new metrics for measuring the impact of policies and decisions 
over the long term (e.g., key national indicators to measure our 
Nation’s position and progress over time and in relation to other 
countries). 

Reexamine the base—question existing programs, policies and activities. 

[End of slide presentation]