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February 27, 2006
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 The H.R. Doctor Is In

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 doesn’t 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 - that’s 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 Doctor’s 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. That’s 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 world’s 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 doesn’t 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 doesn’t 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 it’s not necessary to even worry about today. I’m 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 don’t 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 author’s 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 generation’s 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 don’t 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


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