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Intergovernmental Dependency and Transparency Joe Kull PwC January, 2012 We have been doing so much for so long with so little, that soon we’ll be able to do everything with nothing forever. Budget Formulation, Budget Execution, and Financial Management—Per the Constitution (1787) “No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law;” —Budget Formulation and Execution “and a regular Statement and Account of the Receipts and Expenditures of all public Money shall be published from time to time.” —Financial Management (Article I, Section 9) Analysis of Federal Liabilities, Intragovernmental Debt, and Social Insurance Obligations Source of Data: 2010 Financial Report of U.S. Government $ Billions 2010 2009 Federal Liabilities: Publicly-held Debt Federal Employee & VA Benefits Other $9,060* 5,720 1,576 Intragovernmental Debt—Owed to Social Security, Medicare/Other Trust Funds Federal Social Insurance Obligations Social Security Medicare—Parts A, B & D Other Total Liabilities, Intragovernmental Debt & SI Obligations Current-dollar GDP 3rd qtr 2010, 4th qtr 2009 (Source: BEA) Liabilities and Obligations as % GDP * 62% of 2010 GDP **53% of 2009 GDP $7,583** 5,284 1,257 4,577 4,391 7,947 22,813 97 7,677 38,107 94 $51,790 $64,393 $14,750 $14,119 351% 456% Percentage Composition of Federal Government Outlays 100% Payments to Individuals 80% $1,494 B 60% All Other 40% $501 B Net Interest $247 B 20% National Defense $528 B Current $ 1940 $9.5B 1971 $210.2B 2007 $2,770B 04 2007 Fiscal Year 00 96 92 88 84 80 76 72 68 64 60 56 52 48 44 40 0% President proposes; Congress disposes. Both sign on. State Fiscal Situation • Largest revenue collapse on record - ARRA replaced about $140B • Recovery slow and lag times growing - Shortfalls continue - Using reserves, taxes hikes, federal funds - Pressure from education, healthcare, OPEB • States tend to lag national recovery • Housing is key The Cliff: Temporary Federal Aid to States (FY ’11 totals include both ARRA & Education Jobs Funds) In Billion s Fiscal Year Source: Recovery Act data come from GAO Report to Congress, September 2010 Significant Lag Housing leverage • Link between housing, values, consumption and taxes • Turnover ‘05: 1.3M new @ $290K = $370B 7.0M exisiting @ $269K = $1.9T ‘08: .3M new @ $244 = $70B existing = $890B • Jobs: 2M on site lost since ‘06; 2:1 off/on site Translates to ~ $2T and 6M jobs • Unemployment/economic uncertainty, diminished wealth, fallen values depress consumption, taxes - Property taxes 4% below prior year Spending Pressure Medicaid and Health Care K-12 and Higher Education Demographic Changes Corrections Transportation Infrastructure Pensions Key Dependency Measurements VA 2008 MA 2008 NV 2008 NC 2008 WV 2008 NY 2008 FL 2008 AL 2008 Direct Federal Revenues to State (billions) (VA & NY 2009) $10.8 $10.5 $2.4 $15 $2.7 $48.9 $24.5 $8.7 Percentage of Total State Revenues—All Sources 26.9% 23% 33% 31.8% 29% 30.6% 28% 31.4% Direct Federal Grants to Local governments (millions) $1,075 $758 $475 $1,799 $232 $5,571 $4,033 $900 Federal Purchases from State Businesses (billions) $53.9 $13.3 $2.7 $5.8 $1.3 $13.7 $16.6 $10.4 Federal Payments to Individuals-wages, pensions, S.S., Medicare (billions) $53.9 $36.2 $11.3 $47.6 $12.8 $102.4 $110.7 $33.3 Total Direct and Indirect Federal Flows (billions) $119.7 $60.8 $16.9 $70.3 $17.1 $165 $155.8 $53.3 VA 2008 MA 2008 NV 2008 NC 2008 WV 200 8 NY 2008 FL 2008 AL 2008 $324.5 $312.5 $103.2 $329.4 $46.3 $964.8 $603.5 $137.1 Total Federal Flows Gross State Product 36.9% 19.5% 16.4% 21.3% 36.9% 17.1% 25.8% 38.9% Federal Leased/Owned Buildings (millions sq/ft) As of March 2010 50.4 6.9 2.4 4.3 4.0 23.3 14.0 3.9% Federal Debt Securities Held by State (billions) $6.3 N/A $6.9 N/A $6.6 N/A $40.1 - Estimated 2009 Population (millions) 7.8 6.6 2.6 9.4 1.8 19.5 18.5 4.7 Key Measurements Real GDP by State Inflation Adjusted to 2000 (billions) Key Measurements VA 2008 MA 2008 NV 2008 NC 2008 WV 2008 NY 2009 FL 2008 AL 2008 Military Facilities (9/30/08) 148 63 57 124 47 216 235 96 Military Facilities--Present Replacement Value (9/30/08, billions) $37.6 $5.0 $10.6 $20.4 $1.1 $11.7 $23.4 $10.0 Military Facilities--Military and Civilian Personnel (9/30/08, thousands) 181.8 16.6 15.2 147.2 8.5 60.0 91.2 66.9 What are the Risks Associated with Intergovernmental Financial Dependency Disruptions to current direct and indirect intergovernmental revenue flows Impact on investment income, asset values Build-up of unfunded pensions, post employment benefits Deferred infrastructure Volatility shifting role of federal gov’t estimated that 1/3 of $1T in cuts would hit states What can we do? • Evaluate sustainability and dependency risks in your environment - States refusing federal funds, cutting services - Watch the world, and the world economy • Awareness that something has to give - Don’t raise taxes, don’t cut benefits - Infrastructure does not last forever - Catastrophes, conflicts happen - Spend your way out of debt - - Compromise by everybody winning • Show up • Provide simple, clear information-No MEGO stuff - “You can always count on Americans to do the right thingafter they’ve tried everything else.” PM Winston Churchill Appendix Report of the U.S. Government http://www.fms.treas.gov/fr/index.html The Federal Government's Long-Term Fiscal Outlook www.gao.gov Intergovernmental Financial Dependency and Related Risks— Proposed Reporting By State and Local Governments Available at no cost at—www.cbh.com/intergovernmentalreport