Bleak deficit picture in Treasury report concerns lawmakers

A little-noticed Treasury Department report sent to congressional leaders in December paints a bleaker picture of the nation's finances than is widely accepted and is beginning to attract attention as lawmakers prepare for election-year budget battles.

According to the 158-page report, the fiscal 2005 federal deficit on an accrual basis was $760 billion, using generally accepted accounting principles that private businesses must use to present their finances.

That is an increase of $144 billion, or 23 percent, over the previous year's deficit of $616 billion. The cost to operate the federal government, including accrued benefits, was $2.95 trillion, versus $2.19 trillion in total revenues, resulting in the $760 billion net operating cost.

These figures are in stark contrast to the $319 billion deficit reported by Treasury for fiscal 2005, which uses the government's accepted barometer of cash outlays versus revenues. That number represents a $93 billion decrease from the previous year's deficit of $412 billion, which Republicans trumpeted as a vindication of their fiscal policies.

The sharp difference between the reported deficit and actual net operating cost is largely a result of counting accrued benefits owed to veterans and federal employees, just as companies must report their pension obligations.

"Businesses are required by law to use accrual accounting. If you want Congress to be run like a business, you need accrual accounting," said Rep. Jim Cooper, D-Tenn., a member of the Blue Dog Coalition of moderate-to-conservative Democrats.

Cooper said he was irked that the Treasury report was not widely disseminated. "We got more notification on the NSA domestic surveillance thing," he said.

A Treasury Department spokeswoman said the report was posted on the agency's Web site upon its Dec. 15 release. It circulated widely in financial circles, but did not attract much attention in Washington at the time.

But lawmakers are beginning to take notice. The Blue Dogs plan to outline the report this morning, and House Government Reform Government Management Subcommittee Chairman Todd Platts, R-Pa., held a sparsely attended hearing on it Wednesday.

In written testimony, GAO Comptroller General David Walker said the $760 billion net cost to operate the government and $8 trillion debt through the end of fiscal 2005 left out the costs of unfunded Social Security, Medicare, veterans' and other liabilities.

"Given these and other factors, a fundamental re-examination of major spending programs, tax policies and government priorities will be important and necessary to put us on a prudent and sustainable fiscal path," Walker said. "This will likely require a national discussion about what Americans want from their government and how much they are willing to pay for those things."

The Treasury report's figures on how much the government owes are particularly striking. In fiscal 2005, government liabilities increased by $808 billion, or 8.9 percent, to $9.9 trillion -- and that is just what shows up on the balance sheet.

Off the books, the total value of all federal responsibilities -- including future payments on social insurance programs like Social Security, Medicare and federal employee benefits -- totals $49.4 trillion over 75 years.

Bill Hoagland, budget adviser for Senate Majority Leader Bill Frist, R-Tenn., considers Treasury's annual financial report a must-read. "It provides one of the best estimates on the unfunded liabilities anywhere in the government. I wish others would read the report more regularly when it comes out," he said.