The presidential campaign dominated the news cycle for much of the past year, overshadowing many important fiscal updates that didn’t receive the attention they deserve.
Here are four stories you may have missed, the worst four government budget developments of 2016.
1. The national debt climbed to record levels and continues to rise
The Treasury Department burned through almost all of its financial breathing room this year. The official national debt steadily ticked up to $19.9 trillion and will run into the $20.1 trillion debt ceiling in coming weeks. However, that $19.9 trillion figure is not fully accurate. If government accountants operated under private-sector standards, the true figure would rise to $87 trillion. The discrepancy lies in how the government counts its assets and liabilities.
Unlike companies in the private sector, the government does not count its future entitlement obligations (both Social Security and Medicare) in its national debt figures. These are promised benefits that are largely unfunded.
2. The federal government failed another audit (keeping the tradition alive for the 19th year in a row)
The government requires individuals and private companies to be able to pass a clean audit. However, the federal government holds itself to a different standard and has never passed a clean audit. The central point of failure is the Department of Defense, which is not “audit ready” despite a $10 billion investment in new financial systems.
The government has to prepare and present audited financial statements, as required by the Chief Financial Officers Act of 1990 and follow-up legislation from 1994 and 2002. But every audit they have produced since then has been accompanied by disclaimers of opinion, which is accounting jargon for “we don’t have confidence in the data we examined.”
3. Department of Education’s optimistic rates of return for student loans create a $74 billion gap
The Department of Education revealed this year that its Income-Driven Repayment loans projections were 21 percent higher than actual repayments. Taxpayers will have to make up the $74 billion gap, which some project will eventually increase to a total of $108 billion.
Students can borrow money from the government with an Income-Driven Repayment loan and pay it back at a level that corresponds to their future income levels (and after their 10- or 25-year term expires, all outstanding debt is forgiven). If the student makes a good salary, that works out fine for the government. If the student goes on to make less than the government projected, then it produces a gap like we are seeing this year. This enormous gap is driven by the Education Department’s faulty, perhaps overly-optimistic, projected rates of return.
4. Massive jump in reported city and state pension statistics
Chicago’s most recent pension debt report revealed a mountain of hidden debt, as their reported obligations skyrocketed from $8.6 billion to $33.8 billion.
The same trend played out on the state level, exemplified by New Jersey’s pension debt growing from $16 billion to $82.4 billion.
These jumps were the result of an updated accounting rule, and it affected state and local governments across the country. The change makes for more transparent accounting for pension debt, but the sheer size of the increase leaves the knees a little shaky.
If the federal government made a similar accounting update, there would be a similar increase on a national scale.
As a certified public accountant for more than 20 years, and one who has spent the past 14 years analyzing government finances, the items on this list are deeply troubling. Soon, we’ll enter a new year with a new president who has promised to run the country like a business with private-sector efficiency. If this holds true, many of the items on this list stand to benefit from a fresh approach.
Sheila Weinberg is the founder and CEO of Truth in Accounting. Thinking of submitting an op-ed to the Washington Examiner? Be sure to read our guidelines on submissions.
