The Federal Budget Blob
The
Congressional Budget Office (CBO) recently released what is
described as "intermediate projections" of the shape of the
federal budget. Intermediate, in this case, means projecting
back an entire generation and forward an entire generation.
Unfortunately, the "shape" of that budget is very similar to
the 1950s horror classic, The Blob. It is growing,
consuming our precious life force and it doesnt seem to move
in any visionary direction.
The
main challenge lying ahead between 2006 and 2046 is clear from
even a rapid fly-over of those projections. It is the growing
impact of cost escalation in healthcare for an aging
population.
The
HR Doctor has written several articles recently around the
theme of the impacts on society and local governments in
particular of emerging demographic and policy trends. Subjects
have included the demographic "coming of age" of baby boomers,
the effects of defined benefit retirement program costs, and
the impact of the continued lack of a coherent and humane
national policy on what to do about health care to name just a
few.
According to the Congressional
Budget Office, in 1966 - 40 years ago - Medicare and
Medicaid programs consumed 2 percent of the federal budget.
Today that "consumption" stands at 22 percent. Forty years
from now - thats only one grandchild away for many
readers - that percentage will grow to 35 percent!
Granted, the entire budget will grow dramatically, but the
percentage share of the budget attributed to federal
healthcare commitments in the form of these two programs will
gobble up a very substantial portion indeed.
Every one in county government,
not to mention our colleagues in cities, school districts and
special districts, completely understands what is generally
not well understood: Local elected officials have very limited
discretion over the amounts of money available in the overall
budget of the agency.
In
the case of the federal government, there are mandates for
entitlement programs such as Medicare and Medicaid as well as
several others, including government employee pension plans.
Two in particular will be mentioned in this article. The first
of those is Social Security, which occupied 15 percent of the
federal budget during the HR Doctors 1966 junior year at
UCLA. It stands at 21 percent today and according to the CBO
projections, will be 20 percent a generation from now. As any
director of budgeting will be the first to tell you, more than
half of the budget is committed to Social Security and
Medicare/Medicaid alone.
But
wait. Thats not all. The other entitlement area of interest
is our escalating national debt. Each of us receives numerous,
and apparently, totally irresistible credit card offers each
week in the mail. Kamala, the HR Dog, will no doubt receive
several credit card solicitations of her very own. They will
perhaps offer zero-percent APR and frequent flyer miles for
all purchases made at PetSmart! In the case of most of us, we
take those solicitations and lovingly place them in the
nearest trash can - after shredding them, I hope, in the
name of identity theft protection. However, the number of
television commercials for credit counseling companies reminds
us that many people lose control of their willpower when they
get a credit card.
Spending gets out of control as
"must have" bargains are gobbled up. People come to their
senses temporarily, at least, the following month when the
bills arrive and the credit card debt begins piling up. This
lack of debt-resistance is the likely reason behind the
estimated $9,300 average credit card debt in the
USA.
In
the case of the federal government, it appears as though we
are also dealing with an entity unable to resist the urge to
spend. Making at least the minimum monthly payments on the
worlds largest credit card debit - the national
debt - reflects not only a financial burden for
generations to come, but a budget mandate today. It reflects a
long-erm psychological deficit in our federal-level ability to
control spending. Interest on the national debt was 7 percent
a generation ago. It is 11 percent today and is projected by
CBO to rise to 26 percent of the federal budget by the time my
beautiful HR daughters are considering retirement.
Unfortunately, it doesnt take a
graduate degree in math to appreciate that if this projection
is anywhere near correct, about 80 percent or more of the
entire federal budget in 2046 will be consumed by these three
mandated expenditure areas. That doesnt leave much for
anything else.
The
estimated 76 percent of the federal budget that was available
for other areas in 1966, will turn into 19 percent by
2046.
By
the way, 2046 may seem so very far off that its not necessary
to even worry about today. Im sad to tell you that it is very
necessary to worry about it. The view that this is decades
away, and "things will happen to take care of the problem" is
administrative malpractice. In reality, the CBO projection
represents a wake-up call. We must hear the alarm going off
even though we seem to have a national hearing deficiency when
it comes to warnings about things like a fuel crisis, climate
change and an uncontrolled national debt.
The
biggest discretionary area in the federal government is,
arguably, not discretionary at all. It is defense spending.
Today it stands at 18 percent says the CBO. By the way, for
the statistically curious, defense expenditure stood at 76
percent of the budget in 1966. The CBO projection for 2046
says defense will take up a mere 5 percent of the
budget!
Imagine presiding over a federal
cabinet meeting in 2046 where the entire defense establishment
voluntarily says, "Madame President, we dont need any more
than 5 percent of the budget. Thank you. We are
satisfied."
The
odds are very significant that the world of 2046 will be at
least as challenging in terms of national defense as the world
of today. The HR Doctor believes that an assumption of 5
percent of the budget for defense is closer to an exercise in
romance fiction writing than it is in statistical accuracy.
But even if it is 5 percent, that means that all other federal
programs from school lunches to operating the National Park
Service, NASA, the Centers for Disease Control, payments in
lieu of taxes to local government, highway expenditures, and
on and on, will be limited to about 14 percent of the federal
budget. That will be half of what it is today. Highly
unlikely.
The
HR Doctor is a gigantic fan of research in the sciences,
including medicine. Amazing breakthroughs have been made and
even more are yet to come with genetic research, robotics,
micro-surgery, nanotechnology and much more. However, here
comes the BOLO ("Be on the lookout.") We may be curing
individual patients as never before, but the cost will be
leading the federal government to a catastrophic illness from
which it may never be able to recover - the illness of
economic inability to function.
With the current models of
federal, state and local relationships in place, federal
financial paralysis inevitably will drag cities, counties,
school boards and special districts right along with
it.
From this authors own experience
as a county chief administrative officer as well as a
department head in cities and counties and a special district,
the need for a rebalancing of the role of the federal
government in relation to the rest of American public
administration is greater than ever and will be still greater
as the clock moves towards 2046.
Rather than just do a narrative
imitation of Chicken Little, some modest suggestions for that
rebalancing were made recently in a prior article entitled,
"The Disaster within a Disaster." Those suggestions were
derived from direct experience watching FEMA as it attempted
to work and play well with others following the recent
proliferation of hurricanes. That did not go very
well.
The
HR Doctor attributes a lot of that to a warped relationship
between local governments and their larger, and allegedly
richer, relatives in Washington D.C. Once again, the best time
to create a positive leadership vision and action toward an
effective and understandable national healthcare policy is
now, not prior to the 2046 general election.
This generations gift to the
next one should be a legacy of action in the name of greater
public service and fiscal responsibility. The current
generation certainly also owes a debt to prior generations not
to squander our precious wealth and resources - natural
and human. If we dont act more responsibly, the result of our
failure to lead for the long term will be an unimagined
indebtedness for our children.
On
that somber note, the HR Doctor will be leaving now. There is
a sale going on at Circuit City!
All
the best,
Phil Rosenberg The HR
Doctor http://www.hrdr.net/
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