The United States faces serious current and long-term fiscal challenges at every level of government: The federal government, which spends nearly $4.5 trillion per year, has a total of. $22 trillion dollars in debt. This is 78 percent of GDP—or double the average over the past 50 years. The national debt is growing by about $1 trillion a year—despite a robust economy with unemployment in the 3 percent range. Even with interest rates at historically low levels, interest payments on the debt will begin to exceed Defense spending by 2023. Entitlements are a long-term issue, with trust funds for Medicare and Social Security possibly being depleted in 2026 and 2035 respectively. Existing spending commitments have created significant unfunded liabilities.
States and localities account for more than one-third of all government spending. Their finances have only recently recovered from the Great Recession, and they continue to face near-term difficulties due to such factors as rising healthcare costs. Some states have cut taxes without corresponding spending cuts, while others have increased spending without corresponding revenue increases. State and local balance sheets have a time bomb of unfunded pension liabilities that could easily crowd out public investments in such areas as education and infrastructure over the next decade.
This pressure of long-term structural fiscal trends at all levels of government makes it more difficult to invest in the future. For example, many Americans are concerned about the nation’s infrastructure backlog (estimated at about $2 trillion), which reduces our quality of life and hinders our ability to thrive in a global economy. Similarly, many Americans support additional investments in education (such as universal pre-K and free community college) and healthcare (such as insurance expansion). With a larger portion of government budgets going to interest payments on previously accumulated debts and legacy entitlement programs, it will be more difficult to find the resources needed to meet future needs.
Although the nation’s fiscal problems are significant, there is no shortage of proposals to begin addressing them. Long-term fiscal sustainability will require many difficult decisions by elected officials who will be forced to make challenging tradeoffs. Tackling these issues earlier rather than later will make it possible to strengthen the economy and meet other goals while achieving fiscal stability.
One strategy to begin restoring fiscal health could be to make budget process changes. The federal government, in particular, has failed to establish workable and effective approaches to put the budget on a path to structural balance and long-term fiscal sustainability. But now, expiration of the 2010 Budget Control Act spending caps and the failure or lapse of other controls offers an opportunity to put in place a stronger system of fiscal targets and enforcement procedures to begin stabilizing the federal debt. Similarly, processes could be established to incorporate long-term impact assessments into annual budget deliberations; and the budget’s transparency and comprehensiveness could be improved to discourage gimmickry. Although process changes cannot solve the problem of deficits and debt by themselves, they can help facilitate needed fiscal discipline.
Public agencies and administrators have an important supporting role to play in advancing the nation’s long-term fiscal health. For example, they can identify more effective ways of managing the public’s business to help prioritize spending and tax policies by advising elected officials on fiscal options and impacts; educating, informing, and engaging the public about these issues; and using evidence-based approaches, including rigorous evaluations of existing programs to determine which ones are worthwhile investments. Through their management of agencies, they also can identify new options for revenue generation through public-private partnerships, enforcement of existing laws and regulations, or user fees.
As part of the Grand Challenge of “Advance the Nation’s Long-Term Fiscal Health,” the Academy will work with stakeholders to determine how to:
This is an illustrative list of topics. As the Grand Challenges campaign kicks off and progresses, other issues can and will be addressed based on stakeholder feedback about critical needs and opportunities.