By Josh Mandel
What if the annual financial statement you were reading showed a company with missing assets, material weaknesses in internal controls, huge off-balance sheet obligations, and liabilities six and a half times greater than assets? You would probably think that company was headed the way of Enron and Solyndra.
Unfortunately, these deficiencies and more are found in the most recent financial statement of the United States federal government, as conveyed in an auditor's report from the Government Accountability Office (GAO). These financial statements reflect very serious problems that are growing worse.
The statement confirms that Congress seems to place no correlation between revenue and spending. Our national debt has increased by $11 trillion over the past 20 years, 40 percent of which has occurred during the current administration. The financial position of the federal government worsened by over $1.3 trillion in the past year alone, and projections for spending have accelerated the date on which we will surpass the highest debt-to-GDP ratio in American history. The complexity of the tax code has affected compliance, leading to a federal tax gap of $345 billion. Our balance sheet indicates assets of $2.7 trillion and liabilities of $17.5 trillion, a shortfall of 650 percent. The list goes on.
The GAO auditor's report cautions, "(T)he federal government continues to face an unsustainable fiscal path "faces increasing pressures, yet a shrinking window of opportunity, for making policy changes regarding these challenges." The GAO uses the word "unsustainable" nine times in the report. To that end the auditors warn that Social Security will be insolvent in 23 years and Medicare in 17. These are not only part of the motivation behind the credit downgrade last year, but are at the core of why Americans are rightly concerned about their economic future.
These problems can be solved, but the solutions demand immediate attention. Politicians are trained to seek so-called "Washington solutions" to these types of problems. But most of us out here in America believe that Washington is the problem, not the solution. It is time for Washington to look to the private sector, as well as state and local governments for examples of the fiscal responsibility it will take to get the nation's finances in order.
As the treasurer for the State of Ohio, I took over a bloated, scandal-ridden office and immediately began a top-bottom review of every employee, function, and process to refocus resources on our core mission. We reduced our office staff by 10 percent, cut general revenue fund operating expenses by $1.2 million, and improved the security of our investments, all while increasing our liquidity portfolio by $2.3 billion. As others suffered losses during the European sovereign debt crisis, we protected Ohio's investments and generated a yield on behalf of taxpayers. The $4 billion local government investment fund we manage received the highest possible credit rating from Standard & Poor's at the same time they downgraded 14 similar funds around the country, and lowered the U.S. government's rating for the first time in history.
Simple, common sense changes can begin to change the culture in Washington and turn the ship of state in a starkly better direction. The biggest obstacle to the changes that need to be made is the entrenched political class and their desire to protect the status quo.
No amount of clever political ads or pithy sound bites can change the fact that the federal government is going broke. If any small business in America found itself in the same financial shape as the federal government, they would likely have to close their doors. If it were a family, they would find it difficult to put food on the table or gas in the tank. If it were a local government, its finance director would be fired and its council members recalled. But when it's the federal government, career politicians in Washington seem more inclined to protect the status quo than fix the problem.
We are facing enormous financial challenges that have serious, long-lasting implications for every one of us. From this treasurer's perspective, we would do well to pay attention to the facts reflected in our government's financial statements and the ensuing auditor's report. If our current batch of elected officials do not have the desire or courage to address these problems, then "We the People" have the right and the obligation to exercise our vote to elect those who can. Americans can take the first step toward solving our problems by demanding accountability from our leaders, or sending new ones to Washington this November. From a treasurer's perspective, it is time we hold accountable the politicians who got us into this mess.