Improving Reporting and Recognition of the Federal Government's Long-Term Fiscal Challenge

• The federal government faces large and growing structural deficits reflecting the gap between current spending driven primarily by rising health care costs and known demographic trends—and tax policy. Improved reporting on fiscal sustainability is needed to assist decision makers. The Federal Accounting Standards Advisory Board (FASAB) recently adopted a new accounting standard that will require the government’s consolidated financial statements to include long-term projections for the U.S. government.

Highlights of GAO-08-912t (PDF)

• Several countries have begun preparing fiscal sustainability reports to help raise public awareness and assess the implications of their public pension and health care programs and other challenges in the context of overall sustainability of government finances. These reports contain a variety of measures, including projections of future revenue and spending and summary measures of fiscal imbalance and fiscal gaps.

Highlights of GAO-08-206 (PDF)

• GAO uses the concept of  "fiscal exposures" to provide a framework for considering the wide range of federal responsibilities, programs, and activities that may either obligate the government, or simply create an expectation, for future spending. Fiscal exposures—such as employee pension programs, retiree health programs, insurance programs, veterans compensation, and environmental cleanup—vary widely as to source, the extent of the government’s legal obligation, the likelihood of occurrence, and magnitude. Regardless of whether there is a legal or implicit obligation, exposures may encumber future budgets and constrain fiscal policy.

Full Report of GAO-08-93SP (PDF, 31 pages), Highlights of GAO-03-213 (PDF)

• Current budget reporting, however, does not always fully capture some fiscal exposures, which limits Congress’s ability to control the government’s fiscal exposures at the time decisions are made. For some of these exposures, improved recognition in the budget could be accomplished through an expansion of accrual concepts, particularly where cash outlays do not provide complete information about the total amount of the government’s obligation when the commitments are made.

Highlights of GAO-08-206 (PDF)

^ Back to topWhat Needs to Be Done

• While the new accounting standard is a great start to periodic reporting on fiscal sustainability for the government as a whole, more is needed to ensure this information is used to inform budget decisions.  For example, an analysis of how current proposals affect the range of federal responsibilities, programs, and activities that may explicitly or implicitly commit the government to future spending could be included in annual budget documents.

Highlights of GAO-08-206 (PDF)

• Increased information on major tax and spending proposals that have long-term budgetary implications should be provided when the proposal is being debated.

Highlights of GAO-07-1144T (PDF)

• Increased reporting of accrual-based cost information alongside cash-based budget numbers could also be helpful for both existing and proposed programs where accrual-based cost information includes significant future cash resource requirements that are not yet reflected in the cash-based budget. To ensure the information affects incentives and budgetary decisions, accrual-based budgeting could be used for these programs.

Highlights of GAO-08-206 (PDF), Full Report of GAO/AIMD-97-16 (PDF, 224 pages)

^ Back to topKey Reports

Long-Term Fiscal Challenge

Fiscal Exposures

Budget Issues

Budget Issues

A Call For Stewardship

More Reports