About Alan:

Alan received a Masters in Accounting from the University of Houston, became a CPA and a Fellow in HFMA. He had a lengthy career in Healthcare Finance serving in positions such as: VP of Finance of the Healthcare Div. of HAI, VP of Finance for Cardinal Glennon Children's Hospital and CFO of Adena Health System. He specialized in budgeting, strategic financial plan development, operational analysis and management reporting systems.

This would seem to be good training for his role of "watch dog" of the Federal Budget.

Wednesday, September 10, 2014

No Eyes on the Real Crisis?

Have you noticed how no one in Washington or the media has paid any attention to the real crisis lately.  That's the fiscal crisis that our Nation faces.  All the attention is on ISIS, Immigration and Ferguson.  All those are important, but they are meaningless unless we very quickly fix our budget crisis and the crisis in Social Security.
 
Budget Crisis:
We've seen the WH OMB MS, the CBO update and the Social Security Trustee Trust Fund Report all came and went with little attention.  Was there anything worth noting in them?
 
WH OMB Mid Session Review:
When comparing the MSR to the original 2015 Budget we see an increase in the 10 year deficit projections of $594 billion.  That's a pretty sizable increase in just 6 months.  A close look at the summary categories shows Outlays down by $167 billion and Receipts down $761 billion.  So the economy is slowing causing tax receipts to drop sharply, accounting for all but $3 billion of the total.  The drop in Outlays is accounted for by a $180 billion reduction in the projection for Net Interest Outlays and a decrease Defense Outlays offsetting a $39 billion in Appropriated - Non Defense.  What accounts for the drop in Net Interest Outlays?  They're now using 4.8% for the maximum 10 Year Treasuries instead of $5.1 in the 2015 Budget.  Have we really seen the 10 year environment change that much or did they change the assumption for purely political reasons so they wouldn't show such a huge increase in the projected 10 deficit.  I think you know which I would vote for.  Both the Public and Gross debt are projected at over $500 billion more in the 2015 MSR.
 
CBO Review:
The Baseline analysis update shows an even more gloomy picture with a 10 year projected deficit of $7.2 trillion, $1.7 higher than the WH OMB MSR.  The big differences are $1.1 less in Outlays, but also a huge $2.8 billion less in Receipts.  Since the CBO is based on current law, the difference in large part reflects proposed tax receipt increases of $1.9 trillion!

But what is scariest about their update is they put out an Alternative Scenario. Since they call it that, no one pays attention to it.  But they should since I call it the realistic since its based on the assumption that Congress will continue its practices.  The biggest one involves the "doctor fix".  Since law requires a reduction in payments to physicians if the total physician reimbursement under Medicare goes up more than inflation.  There is just one problem.  Each year Congress passes the doctor fix FOR THE COMING YEAR!  That means they don't have to make the required cuts in that year, but the projections assume they will in the following year and each year after.  But they never have allowed the cut to take place and now the required cut is ~30%.  So the last 9 years have the cut in it though they have never allowed it to go into affect?  The CBO Alternative Scenario shows a projection `10 deficit of over $9 trillion and that is using lower than can really be expected interest rate assumption values!  If they used realistic one's and Congress' actual practices the projected deficits would be closer to $12 trillion or an average of more than $1 trillion per year.
 
As is their practice, the CBO does not show Gross (or Total Debt) but rather only Public Debt!
 
So while Democrats talk about the low deficit (~$500 billion) and the media loses interest in covering the topic, the projections are taking a serious turn for the worse!
 
Of course the real problem with fixing our Nation's deficits is clearly shown on Schedules 11.1, 11.2 and 11.3 of the Historical Tables.  They show that "Payments for Individuals" reached 69% of our Nation's Outlays in 2013 up from the previous high of only 66%.  Not that long ago (2005) it was 60% and back in 1970 it was only 33%.  Pretty easier to see that we are bankrupting ourselves by letting Congress buy votes with benefits!
 
Social Security:
The WH OMB MSR updated the projected shortfall of SS Payroll Taxes shortage compared to the SS Outlays.  Just to remind you in the 2010 Budget the shortfall was $200 billion.  By the 2015 Budget it had grown to $2 trillion.  And the 2015 MSR is now projecting it at $2.1 trillion.  It's been a steady growth in the shortfall and one the Department of Treasury told me I should expect to see continue until Congress tackles and passes reforms.  The problem will come to a head in 2015 as the Disability Trust Fund is projected to run out of funds in 2016, just two short years from now!  some fix will be needed or benefits will be cut.  But Sen. Reid is on record that he won't act on legislation to reform SS until at least 2031, just 2 years before the combined funds are due to run out of funds.
 
Wake up America!

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