On Friday of last week, I had the unexpected opportunity to hear a barn-burner of a wake-up call delivered by David M. Walker, the current Comptroller General of the United States and de-facto head of the Goverment Accountability Office (GAO). His message was dire as to the fiscal health of this country and it was not lost on me.

Make the jump.

I don't know how many people know what I do for a living... Put simply, I work in the technology field. I started out working for a now-merged IT services firm (now a part of a monolithic Northrop Grumman) working on a variety of contracts for the Justice Department. From there, I moved away from services and into software sales. Most every-day people think of software in the context of Windows XP or Microsoft Office... But there is a whole realm of software out there that runs high-end enterprise systems. That was my field - enterprise interoperability, data mining, business management, data integration and migration, security - you name it. All very expensive and on a very large scale.

My customer has always been the Federal government. They have always had interesting (if somewhat antiquated) systems performing complex operations like Social Security administration and administration of the tax system. The average Federal government agency is on par with the largest corporation in America in terms of number of employees and size and scope of IT systems.

Part of my job requires that I attend various conferences and seminars, some local to the DC area and some that require travel to fun (and un-fun) places. It was at one of these conferences that I heard Mr. Walker.

For those who don't know, the Comptroller General of the United States is nominated by the President and confirmed by the Senate to a 15-year term. Similar to other long-term appointments, the office is intended to remain apolitical and provide a consistency in accountability. Mr. Walker began his term in 1998.

The first speaker was an associate commissioner at the Office of Management and Budget (OMB), which falls under the executive branch. The OMB speaker talked effusively about advancements made during the Bush administration in measuring results in line with the President's Management Agenda. And they have made advances in improving the five areas they measure, which are:

• Human Capital
  
• Competitive Sourcing
  
• Financial Performance
  
• E-Government
  
• Budget/Performance Integration

The scorecard, not surprisingly, uses a color coding methodology - red if you're substantially not meeting goals in an area, yellow if you're progressing toward meeting goals in an area, and green if you have achieved all of your performance measurement goals. You can see the most recent scorecard here and if that link doesn't work, go here and select the most recent scorecard.

The OMB guy finishes his speech, which was very good as these types of speeches go, wherein he has reported on improvements in the scorecards etc. and so forth.

Then Mr. Walker steps to the podium.

If I could choose a word and phrase to sum up the tone of Mr. Walker's presentation I would choose the word "appalled" and the phrase "wake the fuck up". You see, Mr. Walker has been consumed recently with analysis of trends in the US Federal budget. Technically, Mr. Walker's role falls under legislative oversight.

He basically began by saying that measuring Federal performance wasn't going to mean squat if we continue on the current path we are travelling, fiscally speaking. He opened with this comparison:

Note the difference in interest spending from 1985 to 2005... When the budget was balanced under Bill Clinton, the debt service component of the budget had come back into more reasonable alignment. Think about it from your own perspective - it's always preferable to finance your own personal debt through lower rate interest instruments such as mortgages. It's preferable that, if you are going to make a major investment for which you will have to borrow money, that you do so from a home equity line of credit rather than a higher-interest instrument such as a credit card. It is also preferable that you keep your debt level manageable - that you don't spend vastly more than you make and thereby incur debt on which you will have to pay interest, which compounds continuously. Common sense, right? Note also the shift between mandatory and discretionary spending. You can loosely guage the growth in the size of the Federal government when mandatory spending increases as a proportion of total spending.

Now look at this slide:

You can see the trend line of defecits increase in the Reagan years, the reduction in the defecit to an actual on-budget surplus in the Clinton years, and the eventual re-emergence of defecits under Bush II. A note as well about on- and off-budget spending. Off budget items include Social Security and the Postal Service. The President can request, for political reasons, that an item be placed off-budget. Imagine, then, that the cost of the Iraq war is made an off-budget item and consider how that would skew the visual interpretation of the size of the actual budget defecit.

Another way to look at it is represented at NationalPriorities.org:

The red line represents on-budget items and the blue off-budget items, the bulk of which is Social Security. It's deceptive, though, because the Federal government is spending the off-budget Social Security surplus to shore up its on-budget defecit picture.

Now consider this:

These calculations assume two simple things - that the government will continue to increase its spending proportionate to growth in the Gross Domestic Product (GDP) and that Bush II's tax cuts will be extended. The projected figure is horrifying. Look at the proportion of the debt that goes to interest payments. Interest payments, it should be obvious, serve nothing but the institutions who service the debt. No programs are created - no new infrastructure is installed - no new loans are made from that money. It is simply LOST. Yet the revenue line remains fairly constant and is already failing to meet the totality of spending obligations made today.

Here's the graphic that shook me in my seat:

If you had a baby last year, that child now comes with a $156,000 mortgage attached to them. If you work a full-time job, under the leadership of George W. Bush, your obligation has more than doubled. And as time passes, you and your children will receive fewer and fewer services for the financial obligation you now shoulder. A huge percentage of your contribution will simply go to pay interest on the debt we are rapidly accumulating.

Here's the net/net, from Mr. Walker's presentation:

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.

Let that sink in a little bit - 2.5 times the taxes we pay today. 60% reduction in things like Pell Grants and Head Start and container inspections. Things like that.

It's alarming - and believe me, the tone of Mr. Walker's presentation was alarming as well.

This administration and our Republican-controlled Congress are spending money in a way that none of us would in our daily lives. As the mid-terms approach, I think the message that, if you have a job, your obligation to the Federal government is now $375,000 or if you have a child, its obligation to the Federal government is now $156,000. Those are real dollars that will have real meaning to average people.

If you want to see the slides from Mr. Walker's Friday presentation, you can go here and select his name, but you will need powerpoint to view it. Another recent and similar address can be found online in HTML format here - just select the first link ('Open') and use the directional arrows to scroll through.

Thanks for reading!

posted by RenaRF at 5:56 PM 0 comments