Generic fiscal overview of federal vs state/local finances with no specific actors

...And What You Won't We do not make policy recommendations. We try to help clarify some of the issues in a simple, analytically-based way. We aim to present data, trends, and facts about USA Inc.’s key revenue and expense drivers to provide context for how its financials have reached their present state. We did not base this analysis on proprietary data. Our observations come from publicly available information, and we use the tools of basic financial analysis to interpret it. Forecasts generally come from 3rd-party agencies like the Congressional Budget Office (CBO). For US policy makers, the timing of material changes will be especially difficult, given the current economic environment. No doubt, there will be compliments and criticism of things in the presentation (or missing from it). We hope that this report helps advance the discussion and we welcome others to opine with views (backed up by data). KP i USA Inc. | Introduction 11 We Focus on Federal, Not State & Local Government Data e Federal / State & Local Governments Share Different Responsibilities — Federal government is financially responsible for all or the majority of Defense, Social Security, Medicare and Interest Payments on federal debt and coordinates / shares funding for public investment in education / infrastructure. — State & local governments are financially responsible for all or the majority of Education, Transportation (Road Construction & Maintenance), Public Safety (Police / Fire Protection / Law Courts / Prisons) and Environment & Housing (Parks & Recreation / Community Development / Sewerage & Waste Management). — Federal / state & local governments share financial responsibility in Medicaid and Unemployment Insurance. e We Focus on the Federal Government — State and local governments face many similar long-term financial challenges and may ultimately require federal assistance. To be sure, the size of state & local government budget deficits ($70 billion’ in aggregate in F2009) and debt-to-GDP ratio (7%? on average in F2008) pales by comparison to the federal government's ($1.3 trillion budget deficit, 62% debt-to-GDP ratio in F2010). But these metrics may understate state & local governments’ financial challenges by 50% or more® because they exclude the long-term cost of public pension and other post employment benefit (OPEB) liabilities. Note: 1) Per National Conference of State Legislatures, State fiscal years ends in June. $70B aggregate excludes deficits from Puerto Rico ($3B deficits in F2009). 2) Debt-to-GDP ratio per Census Bureau State & Local Government Finance; 3) Calculation based on the claim that $1T of collective short fall in State & local government pension and OPEB funding KP would be $2.5T using corporate accounting rules, per Orin S. Kramer, “How to Cheat a Retirement Fund,” 9/10. (@E) www.kpcb.com USA Inc. | Introduction 12 HOUSE_OVERSIGHT_020847