By using an accounting method known as cash-basis accounting, legislators project future spending without having to consider billions of dollars of long-term financial commitments, leaving many budgets balanced in name only.
The Federal government also should have accrual accounting. In fact, back when I was drawing up my preferred list of priorities for the 2016 campaign, this was on the list. But I do not think that Donald Trump is planning on making it an issue.
They also need to distinguish between investments and expenses but can never agree on them.
An investment is something that costs money that the politician in question likes, and an expense is something that costs money that the politician in question does not like.
There are plenty of independent organization who provide us with the accrual accounting equivalent estimates of unfunded liabilities and so forth.
The question is to what standards of fiscal propriety will governments hold themselves.
For instance, Congress requires the Post Office to do what many economists would recommend: make sufficient contributions to their benefits funds to fully provide for expected future outlays.
But Congress also tells the Post Office how to run the business, which makes it lose huge amounts of money every year. So the Post Office decided to just stop making the contributions. Nobody does anything about it, and despite it not being allowed in current law, everybody knows that eventually it is going to get a massive bail out. But that’s after the next election.
And the disability trust fund is technically solvent, since it’s not allowed by law to pay out more than it receives if the fund runs dry. But everybody knows the DI fund goes empty in about 12 months or so, and is going to get an enormous – and perpetual! – bailout (one way or another) instead of suddenly and permanently reducing payments by 30% or more. But that’s after (barely) the next election.
Say what? I have worked with dozens of state and local government agencies, analyzing their spending on information technology. All of them have a more sophisticated grasp of their spending commitments than implied here. If they did not, they would run afoul of their various state auditing agencies.
Getting one’s head around government accounting rules is no small task… but it is essential to offering enlightened commentary.
They are not really talking about not knowing. They are talking about knowing well enough to hide it from people. One obvious example is the CBO score gaming done by Hans Gruber for Obamacare. Their choice of inappropriate conventions is intentional.
I would assume the auditing agencies audit against law (and state laws may be better).
It might also require that half the government didn’t think deficits don’t matter and the other half didn’t think deficits are grrrrrrrreat!
I think what it is is if losses and inefficiencies are big enough you can’t tell the difference because you have no comparison cases.
If only we had listened to John McClane