Unsustainable Fiscal Path

This page presents the Government Accountability Offices’ (“GAO”) information and warnings included in the 2018 Audited Financial Statements of the United States Government and related communications (with page references). This page will be updated for the recently issued 2019 Audited Financial Statements.

U.S Government’s Audited Financial Statements – Disclaimer of Opinion

The United States Government, the Issuer of U.S. Treasury securities, has never received an Unmodified (clean) Independent Auditor’s Opinion from the General Accountability Office on its financial statements since the requirement to be annually audited commenced in the mid 1990’s.

The Chief Financial Officers’ Act of 1990 requires an annual audit of the fiscal year-end Financial Statements of the U.S. Government in accordance with U.S generally accepted government auditing standards. For over 20 years, the U.S. Government has not been able to received an Unmodified (clean) opinion.  For example, in FY 2018 and 2017 the Independent Auditor, the U.S. Government Accountability Office, issued a “Disclaimer of Opinion” on the accrual-based consolidated financial statements in the FY 18 Financial Report of the United States Government.  (page 226 – pdf page 245)

This was due to the U.S. Government, the issuer of U.S. Treasury securities, having ongoing, material weaknesses in internal control, other significant deficiencies, significant uncertainties relating to projections, and scope limitations on tests of compliance with selected provisions of applicable laws, regulations, contracts, and grant agreements. Thus the Auditor could not conclude the financial statements are presented fairly, in all material respects, in accordance with the applicable financial reporting framework.

U.S Government’s Audited Financial Statements repeatedly state– “Unsustainable Fiscal Path”

Throughout the report and related material there are repeated warnings that the U.S Government’s current fiscal path, where debt grows faster than GDP, is “unsustainable.” Yet Congress and the Executive Branch are not addressing this. Rather, inspire of these warnings, they aggressively cut taxes and increased spending, thereby increasing annual deficits and the need for greater debt financing, leading to increased risks, with no actionable plan to put the country on a sustainable fiscal path.

Relevant sections from the 2018 Financial Report of the United States Government follow (links and underlining have been added to assist the reader):

Letter from the Comptroller General of the United States to The President, The President of the Senate, and The Speaker of the House of Representatives – dated March 28, 2019  (pdf page 1)

  • “Our report on the U.S. government’s consolidated financial statements for fiscal years 2018 and 2017 underscores that much work remains to improve federal financial management and that the federal government continues to face an unsustainable long-term fiscal path.” (pdf page 1 )
  • “Resolving the problems outlined in our audit report is of utmost importance given the federal government’s reported fiscal path. The 2018 Statement of Long-Term Fiscal Projections and related information in Note 23 and in the unaudited Required Supplementary Information section of the Fiscal Year 2018 Financial Report of the United States Government (2018 Financial Report) show that absent policy changes, the federal government continues to face an unsustainable long-term fiscal path.” (page 6 – pdf page 6)
  • “GAO and the Congressional Budget Office (CBO) also prepare long-term federal fiscal simulations, using different sets of assumptions, which continue to show federal debt held by the public rising as a share of gross domestic product (GDP) in the long term. This situation—in which debt grows faster than GDP—means the current federal fiscal path is unsustainable.”  (page 6 – pdf page 6)
  • “Reliable and complete financial information for federal entities will be needed for making policy changes that effectively address the unsustainable long-term fiscal path.” (page 6 – pdf page 6)
  • “One cannot overstate the importance of preserving the confidence that investors have that debt backed by the full faith and credit of the United States will be honored. Failure to increase (or suspend) the debt limit in a timely manner could have serious negative consequences for the Treasury market and increase borrowing costs.” (page 6 – pdf page 6)

Results in Brief – 2018 Financial Report of the U.S. Government  (page i – pdf page 18)

  • “The projections in this Financial Report show that current policy is not sustainable.” (page ii – pdf page 19)
  • “If changes in policy are not so abrupt as to slow economic growth, then the sooner policy changes are adopted, the smaller the changes to revenue and/or spending will be required to return the government to a sustainable fiscal path.” (page ii – pdf page 19)

Executive Summary to the 2018 Financial Report of U.S. Government – “An Unsustainable Fiscal Path (page 5 – pdf page 24)

  • “An important purpose of this Financial Report is to help citizens understand current fiscal policy and the importance and magnitude of policy reforms necessary to make it sustainable. A sustainable fiscal policy is one where the ratio of debt held by the public to GDP (the debt-to-GDP ratio) is stable or declining over the long term. GDP measures the size of the nation’s economy in terms of the total value of all final goods and services that are produced in a year. Considering financial results relative to GDP is a useful indicator of the economy’s capacity to sustain the government’s many programs.” (page 5 – pdf page 24)
  • “The current fiscal path is unsustainable.” (page 5 – pdf page 24)
  • “The debt-to-GDP ratio rises continuously mainly because higher levels of debt lead to higher net interest expenditures, which lead to higher deficits and debt. The continuous rise of the debt-to-GDP ratio indicates that current fiscal policy is unsustainable.” (page 6 – pdf page 25)

Management Discussion and Analysis -An Unsustainable Fiscal Path (page 22 – pdf 41)

  • “An important purpose of the Financial Report is to help citizens understand current fiscal policy and the importance and magnitude of policy reforms necessary to make it sustainable.” (page 22 – pdf page 41)
  • “A sustainable fiscal policy is one where the debt-to-GDP ratio is stable or declining over the long term. The projections in this Financial Report indicate that current policy is not sustainable.” (page 22 -pdf page 41)
  • “The debt-to-GDP ratio rises continually in great part because higher levels of debt lead to higher net interest expenditures, and higher net interest expenditures lead to higher debt. The continuous rise of the debt-to-GDP ratio indicates that current policy is unsustainable.” (page 24 – pdf page 43)
  • “As previously discussed, and as noted in the (Social Security) Trustees’ Reports, it is apparent that these programs are on a fiscally unsustainable path.” (page 28 – pdf page 47)

STATEMENT OF THE COMPTROLLER GENERAL OF THE UNITED STATES (page 36 – pdf page  55)

  • “Our report on the U.S. government’s consolidated financial statements for fiscal years 2018 and 2017 underscores that much work remains to improve federal financial management and that the federal government continues to face an unsustainable long-term fiscal path.” (page 36 – pdf page 55)
  • “Resolving the problems outlined in our audit report is of utmost importance given the federal government’s reported fiscal path. The 2018 Statement of Long-Term Fiscal Projections and related information in Note 23 and in the unaudited Required Supplementary Information section of the Fiscal Year 2018 Financial Report of the United States Government (2018 Financial Report) show that absent policy changes, the federal government continues to face an unsustainable long-term fiscal path. GAO and the Congressional Budget Office (CBO) also prepare long-term federal fiscal simulations, using different sets of assumptions, which continue to show federal debt held by the public rising as a share of gross domestic product (GDP) in the long term. This situation—in which debt grows faster than GDP—means the current federal fiscal path is unsustainable.” (page 40 – pdf page 59)
  • “Reliable and complete financial information for federal entities will be needed for making policy changes that effectively address the unsustainable long-term fiscal path.” (page 40 – pdf page 59)

FINANCIAL STATEMENTS

  • “The sustainability financial statements are intended to help citizens understand current policy and the importance and magnitude of policy reforms necessary to make it sustainable. (page 51 – pdf page 70)
  • “As discussed further in Note 23, a sustainable policy is one where the debt-to-GDP ratio is stable or declining over the long term. GDP measures the size of the nation’s economy in terms of the total value of all final goods and services that are produced in a year. Considering financial results relative to GDP is a useful indicator of the economy’s capacity to sustain the government’s many programs.” (page 52 – pdf page 71)

NOTES TO THE FINANCIAL STATEMENTS

  • “As discussed further in the unaudited RSI, the projections in this report indicate that current policy is not sustainable.” (page 153 – pdf page 172)

REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)

  • “The continuous rise of the debt-to- GDP ratio indicates that current policy is unsustainable.” (page 165 – pdf page 184)
  • “This report shows that current policy is not sustainable.” (page 172 – pdf page 191)
  • “The past 11 years saw debt held by the public nearly double as a share of GDP, bringing it to a level not seen since shortly after World War II. The projections in this Financial Report indicate that if policy remains unchanged, the debt-to- GDP ratio will steadily increase and soon far exceed historical levels, which implies current policy is not sustainable and must ultimately change.” (page 174 – pdf page 193)
  • “Subject to the important caveat that policy changes are not so abrupt that they slow economic growth, the sooner policies are put in place to avert these trends, the smaller are the adjustments necessary to return the nation to a sustainable fiscal path, and the lower the burden of the debt will be to future generations.” (page 174 – pdf page 193)

U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT

  • “The 2018 Statement of Long-Term Fiscal Projections and related information in Note 23 and in the unaudited RSI section of the 2018 Financial Report show that absent policy changes, the federal government continues to face an unsustainable long-term fiscal path.” (page 233 – pdf page 252)
  • “This situation—in which debt grows faster than GDP—means the current federal fiscal path is unsustainable.” (page 233 pdf page 252)
  • “Each of these long- term projections use somewhat different assumptions, but their overall conclusions are the same: absent policy changes, the federal government’s fiscal path is unsustainable.” (page 253 – pdf page 272)