December 21, 2005

The New Fiscal Responsibility: Spend Now, Who Cares About Later

Carroll Andrew Morse

Katherine Gregg had an aritcle on Sunday's Projo concerning an accounting rules change affecting state and municipal government. PLEASE STAY WITH ME FOR AT LEAST ANOTHER PARAGRAPH OR TWO, DESPITE THAT INCREDIBLY DULL FIRST SENTENCE. The rules change should not really be controversial; it simply requires public entities to disclose how much they owe their retirees in health-care benefits...

As a result of a new public-sector accounting rule, Rhode Island -- along with every other state, city, and town, water, sewer and school district in the nation -- will soon have to disclose to its taxpayers and bondholders the total value of its retiree health-care promises....

While no other specific action is required, the [American Federation of State, County and Municipal Employees] told its members, the new Government Accounting Standards Board rule "will require employers to calculate and publish the cost of these benefits, which will show up as a liability on the employer's financial statements."

"If assets have not been set aside to offset the liability, an 'unfunded liability' will be displayed.

The money has to come from somewhere, so knowing how much you will need seems like a good idea, right?

Not everyone agrees. Here's the Rhode Island Policy Reporter on the subject (h/t

The important difference between a private business and a government is that a private business can go bankrupt and disappear. In that case, it's important that there be financial backing to the commitments it has made to its customers and employees. This is why it's inappropriate for a private business to pay for pension costs out of current revenues, and why a corporation's "unfunded liability" -- the difference between what they owe and the cash they have on hand -- is such a big deal.

The same is not true of a government. Social Security, for example, has happily paid benefits out of current revenues for decades, and there's no reason it can't continue into the foreseeable future. But this accounting rule change will make this kind of perfectly responsible fiscal management appear to be mismanagement, and will cause thousands of governments across the country to raise taxes or cut services in order to pack away huge sums of money so they can appear more "fiscally responsible" than they really need to be.

In a rather Orwellian twist, RI Policy Reporter defines "fiscally responsible" as making big commitments today without having any real idea if you will be able to pay for them tommorrow.

The progressive position appears to be that government doesn't need to be honest with citizens -- in fact, government shouldn't be honest with its citizens, because they might demand (traditionally defined) fiscal responsibility. Government can't "go out of business" for spending more than it can afford, so saddling future taxpayers with huge liabilities doesn't matter.

Am I my missing any part of the progressive argument?

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There are probably multiple elements.

First, manufacturing a rationalization. The liberals know full well that hiding the true cost of government is critical to maintaining the growth of government, which in turn is only mechanism through which they can IMPOSE their redistributionist / collectivist agenda. Hence the "it's different for government" rationalization.

Secondly, outright lies and fabrications to move their agenda forward - their usual modus operendi, new accounting rules notwithstanding.

For example ...

>>Social Security, for example, has happily paid benefits out of current revenues for decades, and there's no reason it can't continue into the foreseeable future.

That writer conveniently neglected to mention the massive increases in FICA taxes over the years to maintain the "current revenues" for Social Security.

I've read that "generational accounting" shows that overall the federal government has (in Social Security / Medicare / pensions) an unfunded liability of 40 TRILLION dollars!

Though demand for those funds will occur over years, one need only divide that number by the total population to see that there is NO WAY those obligations can be met.

The liberal answer will be to "tax the rich" (their definition of same being far different from what the average person perceives as "rich").

But, as the "Ten Years After" song of some 30 years ago said: "Tax the rich. Feed the poor. 'Till there are no rich no more."

Posted by: Tom W at December 21, 2005 3:27 PM