Dire Financial Condition of the Federal and State Governments

Today, the Treasury Department released "The 2008 Financial Report of the United States Government," and the National Governors Association and the National Association of State Budget Officers issued their "Fiscal Survey of the States."  To say the least, the news is not good.

The Treasury report looks at the financial condition of the U.S. government on an accrual basis using generally accepted accounting (GAAP) principles, like a business does and unlike the President's cash budget of the United States does. Most Americans won't hear about this more realistic portrayal of the U.S. government's fiscal condition.

Treasury Secretary Paulson's cover letter states in part:  "The Government's net operating cost for the fiscal year that ended on September 30, 2008 was just over $1 trillion, more than triple the operating cost for the prior fiscal year...Government revenues stayed relatively flat, increasing by only 1 percent, while net costs increased by 25 percent from fiscal year 2007 to fiscal year 2008."  After citing the fiscal challenges of Social Security, Medicare, and Medicaid, the Secretary concluded matter of factly that "Changes are needed to bring these important programs into fiscal balance."

Meanwhile the fiscal condition of the states is dire.  Most states are constitutionally required to balance their budgets.  On average, in the current fiscal year, fiscal 2009, the states are expected to cut their spending in absolute terms for the first time since 1983.  In real inflation-adjusted terms, they're projecting a 4.1% cut.

Needless to say, most Americans are not in a position to increase their support of their governments, so we will continue to borrow from foreign governments as great cost to our children.