This is the accessible text file for CG presentation number GAO-13-609CG entitled 'Perspectives on Selected U.S. Fiscal and High Risk Issues' which was released on July 9, 2012. This text file was formatted by the U.S. Government Accountability Office (GAO) to be accessible to users with visual impairments, as part of a longer term project to improve GAO products' accessibility. Every attempt has been made to maintain the structural and data integrity of the original printed product. Accessibility features, such as text descriptions of tables, consecutively numbered footnotes placed at the end of the file, and the text of agency comment letters, are provided but may not exactly duplicate the presentation or format of the printed version. The portable document format (PDF) file is an exact electronic replica of the printed version. We welcome your feedback. Please E-mail your comments regarding the contents or accessibility features of this document to Webmaster@gao.gov. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. Because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately. Perspectives on Selected U.S. Fiscal and High Risk Issues: American Institute of Certified Public Accountants: May 20, 2013: Washington, D.C. Gene L. Dodaro: Comptroller General of the United States: Outline: I. Context – Budget Environment: * Near-term: recent steps; competing demands; * Long-term fiscal challenge; * Debt limit. II. Selected High Risk Areas: * Reforming the Nation’s Financial Regulatory System; * Modernizing the Federal Role in Housing; * PBGC Insurance Programs; * USPS Financial Viability. III. Other Areas of Interest: * US Government Financial Statements; * Improper Payments; * Internal Controls; * Fragmentation, Overlap & Duplication. Context: Overall Budget Environment: * Currently face competing demands: - Need to sustain economic growth; - Need for significant actions to change the long-term fiscal path. * Budget Control Act and the American Taxpayer Relief Act help reduce the deficit in the near term: - Focus of BCA is discretionary spending. * Long-term path is still unsustainable: - Imbalance between spending & revenues; - Spending side driven by demographics and health care cost growth. Figure: CBO’s May 2013 Baseline: [Refer to PDF for image: vertical bar graph] Actual: Year: 2001; Percentage of GDP: 2.4%. Year: 2002; Percentage of GDP: 1.3%. Year: 2003; Percentage of GDP: -1.5%. Year: 2004; Percentage of GDP: -3.4%. Year: 2005; Percentage of GDP: -2.6%. Year: 2006; Percentage of GDP: -1.9%. Year: 2007; Percentage of GDP: -1.2%. Year: 2008; Percentage of GDP: -3.2%. Year: 2009; Percentage of GDP: -10.1%. Year: 2010; Percentage of GDP: -9.0%. Year: 2011; Percentage of GDP: -8.7%. Year: 2012; Percentage of GDP: -7.0%. Projected: Year: 2013; Percentage of GDP: -4%. Year: 2014; Percentage of GDP: -3.4%. Year: 2015; Percentage of GDP: -2.1%. Year: 2016; Percentage of GDP: -2.3%. Year: 2017; Percentage of GDP: -2.4%. Year: 2018; Percentage of GDP: -2.6%. Year: 2019; Percentage of GDP: -3%. Year: 2020; Percentage of GDP: -3.2%. Year: 2021; Percentage of GDP: -3.3%. Year: 2022; Percentage of GDP: -3.6%. Year: 2023; Percentage of GDP: -3.5%. Source: GAO analysis of data from the Congressional Budget Office. [End of figure] The Budget Control Act: Focus on Discretionary Spending: Figure: Discretionary Spending as a Share of GDP, 1991-2021: [Refer to PDF for image: vertical bar graph] 20-year historical average = 7.5%. Historical: Year: 1991; Percentage of GDP: 9.0%. Year: 1992; Percentage of GDP: 8.6%. Year: 1993; Percentage of GDP: 8.2%. Year: 1994; Percentage of GDP: 7.8%. Year: 1995; Percentage of GDP: 7.4%. Year: 1996; Percentage of GDP: 6.9%. Year: 1997; Percentage of GDP: 6.7%. Year: 1998; Percentage of GDP: 6.4%. Year: 1999; Percentage of GDP: 6.2%. Year: 2000; Percentage of GDP: 6.3%. Year: 2001; Percentage of GDP: 6.3%. Year: 2002; Percentage of GDP: 7.0%. Year: 2003; Percentage of GDP: 7.5%. Year: 2004; Percentage of GDP: 7.7%. Year: 2005; Percentage of GDP: 7.8%. Year: 2006; Percentage of GDP: 7.7%. Year: 2007; Percentage of GDP: 7.5%. Year: 2008; Percentage of GDP: 7.9%. Year: 2009; Percentage of GDP: 8.9%. Year: 2010; Percentage of GDP: 9.4%. Year: 2011; Percentage of GDP: 9.0%. Year: 2012; Percentage of GDP: 8.3%. CBO baseline: Year: 2013; Percentage of GDP: 7.6%. Year: 2014; Percentage of GDP: 7.0%. Year: 2015; Percentage of GDP: 6.7%. Year: 2016; Percentage of GDP: 6.4%. Year: 2017; Percentage of GDP: 6.2%. Year: 2018; Percentage of GDP: 6.0%. Year: 2019; Percentage of GDP: 5.9%. Year: 2020; Percentage of GDP: 5.8%. Year: 2021; Percentage of GDP: 5.6%. Source: GAO analysis of data from the Congressional Budget Office. OMB data. [End of figure] Figure: Federal Debt Held by the Public as a Share of GDP (1797-2012): [Refer to PDF for image: line graph] Percentage of GDP by years: 1797: 16.5%; 1810: 6.2%; 1820: 8.3%; 1830: 3.2%; 1840: 0.3%; 1850: 2.3%; 1860: 1.9%; 1870: 27.9%; 1880: 18.4%; 1890: 7.8%; 1900: 6.6%; 1910: 3.7%; 1920: 27.3%; 1930: 16.5%; 1940: 42.7%; 1950: 73.7%; 1960: 44.8%; 1970: 28%; 1980: 26%; 1990: 42%; 2000: 35%; 2001: 32%; 2002: 34%; 2003: 36%; 2004: 37%; 2005: 37%; 2006: 37%; 2007: 36%; 2008: 40%; 2009: 53%; 2010: 62.9%; 2011: 67.8%; 2012: 72.6%. [End of figure] Figure: Debt Held by the Public as a Share of GDP Under CBO’s May 2013 Baseline: [Refer to PDF for image: vertical bar graph] Percentage of GDP by years: 2012: 72.6%; 2013: 75.1%; 2014: 76.2%; 2015: 74.6%; 2016: 72.7%; 2017: 71.3%; 2018: 70.8%; 2019: 71%; 2020: 71.5%; 2021: 72%; 2022: 72.9%; 2023: 73.6%. [End of figure] Figure: Debt Held by the Public Under Two Fiscal Policy Simulations: [Refer to PDF for image: multiple line graph] Percent of GDP: Historical high: 109% in 1946. Fiscal year: 2000; Baseline extended: 34.7%; Alternative: 34.7%. Fiscal year: 2001; Baseline extended: 32.5%; Alternative: 32.5%. Fiscal year: 2002; Baseline extended: 33.6%; Alternative: 33.6%. Fiscal year: 2003; Baseline extended: 35.6%; Alternative: 35.6%. Fiscal year: 2004; Baseline extended: 36.8%; Alternative: 36.8%. Fiscal year: 2005; Baseline extended: 36.9%; Alternative: 36.9%. Fiscal year: 2006; Baseline extended: 36.6%; Alternative: 36.6%. Fiscal year: 2007; Baseline extended: 36.3%; Alternative: 36.3%. Fiscal year: 2008; Baseline extended: 40.5%; Alternative: 40.5%. Fiscal year: 2009; Baseline extended: 54.1%; Alternative: 54.1%. Fiscal year: 2010; Baseline extended: 62.9%; Alternative: 62.9%. Fiscal year: 2011; Baseline extended: 67.8%; Alternative: 67.8%. Fiscal year: 2012; Baseline extended: 72.5%; Alternative: 72.5%. Fiscal year: 2013; Baseline extended: 76.3%; Alternative: 76.5%. Fiscal year: 2014; Baseline extended: 77.7%; Alternative: 79%. Fiscal year: 2015; Baseline extended: 76.3%; Alternative: 78.9%. Fiscal year: 2016; Baseline extended: 74.6%; Alternative: 78.2%. Fiscal year: 2017; Baseline extended: 73.4%; Alternative: 78%. Fiscal year: 2018; Baseline extended: 73.1%; Alternative: 78.9%. Fiscal year: 2019; Baseline extended: 73.5%; Alternative: 80.5%. Fiscal year: 2020; Baseline extended: 74.2%; Alternative: 82.3%. Fiscal year: 2021; Baseline extended: 75%; Alternative: 84.3%. Fiscal year: 2022; Baseline extended: 76%; Alternative: 86.5%. Fiscal year: 2023; Baseline extended: 77%; Alternative: 88.7%. Fiscal year: 2024; Baseline extended: 78.2%; Alternative: 91.7%. Fiscal year: 2025; Baseline extended: 80%; Alternative: 95.5%. Fiscal year: 2026; Baseline extended: 82.1%; Alternative: 100%. Fiscal year: 2027; Baseline extended: 84.7%; Alternative: 105.3%. Fiscal year: 2028; Baseline extended: 87.8%; Alternative: 111.4%. Fiscal year: 2029; Baseline extended: 91.1%; Alternative: 118.1%. Fiscal year: 2030; Baseline extended: 94.7%; Alternative: 125.3%. Fiscal year: 2031; Baseline extended: 98.4%; Alternative: 132.9%. Fiscal year: 2032; Baseline extended: 102.3%; Alternative: 140.9%. Fiscal year: 2033; Baseline extended: 106.3%; Alternative: 149.2%. Fiscal year: 2034; Baseline extended: 110.4%; Alternative: 157.7%. Fiscal year: 2035; Baseline extended: 114.7%; Alternative: 166.4%. Fiscal year: 2036; Baseline extended: 119.2%; Alternative: 175.5%. Fiscal year: 2037; Baseline extended: 123.9%; Alternative: 184.8%. Fiscal year: 2038; Baseline extended: 128.6%; Alternative: 194.3%. Fiscal year: 2039; Baseline extended: 133.4%. Fiscal year: 2040; Baseline extended: 138.4%. Fiscal year: 2041; Baseline extended: 143.3%. Fiscal year: 2042; Baseline extended: 148.4%. Fiscal year: 2043; Baseline extended: 153.5%. Fiscal year: 2044; Baseline extended: 158.9%. Fiscal year: 2045; Baseline extended: 164.3%. Fiscal year: 2046; Baseline extended: 169.9%. Fiscal year: 2047; Baseline extended: 175.7%. Fiscal year: 2048; Baseline extended: 181.5%. Fiscal year: 2049; Baseline extended: 187.5%. Fiscal year: 2050; Baseline extended: 193.5%. Fiscal year: 2051; Baseline extended: 199.6%. Source: GAO. Note: Data are from GAO's Spring 2013 simulations based on the Trustees' assumptions for Social Security and the Trustees' and the CMS Actuary's assumptions for Medicare. [End of figure] Figure: Daily Average Number of People Turning 65 Each Year: [Refer to PDF for image: vertical bar graph] Fiscal year: 2000; Daily average number of people turning 65: 5,500. Fiscal year: 2001; Daily average number of people turning 65: 5,500. Fiscal year: 2003; Daily average number of people turning 65: 5,500. Fiscal year: 2003; Daily average number of people turning 65: 5,800. Fiscal year: 2004; Daily average number of people turning 65: 5,800. Fiscal year: 2005; Daily average number of people turning 65: 6,000. Fiscal year: 2006; Daily average number of people turning 65: 6,200. Fiscal year: 2007; Daily average number of people turning 65: 6,700. Fiscal year: 2008; Daily average number of people turning 65: 7,200. Fiscal year: 2009; Daily average number of people turning 65: 7,200. Fiscal year: 2010; Daily average number of people turning 65: 7,200. [Baby boomers turning 65] Fiscal year: 2011; Daily average number of people turning 65: 7,600. Fiscal year: 2012; Daily average number of people turning 65: 9,100. Fiscal year: 2013; Daily average number of people turning 65: 9,200. Fiscal year: 2014; Daily average number of people turning 65: 9,100. Fiscal year: 2015; Daily average number of people turning 65: 9,400. Fiscal year: 2016; Daily average number of people turning 65: 9,400. Fiscal year: 2017; Daily average number of people turning 65: 9,700. Fiscal year: 2018; Daily average number of people turning 65: 10,000. Fiscal year: 2019; Daily average number of people turning 65: 10,200. Fiscal year: 2020; Daily average number of people turning 65: 10,700. Fiscal year: 2021; Daily average number of people turning 65: 10,700. Fiscal year: 2022; Daily average number of people turning 65: 11,000. Fiscal year: 2023; Daily average number of people turning 65: 11,200. Fiscal year: 2024; Daily average number of people turning 65: 11,200. Fiscal year: 2025; Daily average number of people turning 65: 11,600. Fiscal year: 2026; Daily average number of people turning 65: 11,400. Fiscal year: 2027; Daily average number of people turning 65: 11,400. Fiscal year: 2028; Daily average number of people turning 65: 11,300. Fiscal year: 2029; Daily average number of people turning 65: 11,400. Source: GAO analysis of U.S. Census Bureau data. Note: Based on years ending July 1. [End of figure] Figure: Potential Fiscal Outcomes Revenues and Composition of Spending in the Alternative Simulation: [Refer to PDF for image: stecked vertical bar and line graph] Percentage of GDP: Fiscal year: 2010; Net interest: 1.4%; Social Security: 4.9%; Medicare, Medicaid, CHIP, and exchange subsidies: 5.1%; All other spending: 12.8%; Revenue: 15.1%. Fiscal year: 2020; Net interest: 3.2%; Social Security: 5.2%; Medicare, Medicaid, CHIP, and exchange subsidies: 6.1%; All other spending: 8.7%; Revenue: 18.4%. Fiscal year: 2030; Net interest: 5.9%; Social Security: 6.2%; Medicare, Medicaid, CHIP, and exchange subsidies: 7.8%; All other spending: 9.5%; Revenue: 17.9%. Fiscal year: 2040; Net interest: 10.2%; Social Security: 6.3%; Medicare, Medicaid, CHIP, and exchange subsidies: 9.3%; All other spending: 10.0%; Revenue: 17.9%. Source: GAO. Notes: Data are from GAO's Spring 2013 simulations based on the Trustees' assumptions for Social Security and the CMS Actuary's assumptions for Medicare. [End of figure] Figure: State and Local Operating Balance, as a Percentage of Gross Domestic Product: [Refer to PDF for image: line graph] Year: 2005: 0.0058%; Year: 2006: 0.149%; Year: 2007: -0.0769%; Year: 2008: -0.7225%; Year: 2009: -0.8649%; Year: 2010: -0.5442%; Year: 2011: -0.5769%; Year: 2013: -1.219%; Year: 2014: -1.6135%; Year: 2015: -1.6478%; Year: 2015: -1.5207%; Year: 2016: -1.3879%; Year: 2017: -1.2471%; Year: 2018: -1.2178%; Year: 2019: -1.2369%; Year: 2020: -1.2797%; Year: 2021: -1.3181%; Year: 2022: -1.384%; Year: 2023: -1.4307%; Year: 2024: -1.4299%; Year: 2025: -1.5233%; Year: 2026: -1.5577%; Year: 2027: -1.668%; Year: 2028: -1.7348%; Year: 2029: -1.804%; Year: 2030: -1.8798%; Year: 2031: -1.9456%; Year: 2032: -2.0125%; Year: 2033: -2.0708%; Year: 2034: -2.1273%; Year: 2035: -2.2025%; Year: 2036: -2.3122%; Year: 2037: -2.373%; Year: 2038: -2.4331%; Year: 2039: -2.4937%; Year: 2040: -2.5361%; Year: 2041: -2.5631%; Year: 2042: -2.6495%; Year: 2043: -2.696%; Year: 2044: -2.8408%; Year: 2045: -2.8706%; Year: 2046: -2.9781%; Year: 2047: -3.0312%; Year: 2048: -3.0687%; Year: 2049: -3.1677%; Year: 2050: -3.1875%; Year: 2051: -3.2691%; Year: 2052: -3.3677%; Year: 2053: -3.3877%; Year: 2054: -3.4533%; Year: 2055: -3.5369%; Year: 2056: -3.6377%; Year: 2057: -3.6588%; Year: 2058: -3.7479%; Year: 2059: -3.8641%; Year: 2060: -3.9042%. Source: GAO simulations, updated April 2012. Notes: Historical data are from BEA’s National Income and Product Accounts. Data in 2012 are GAO estimates aligned with published data where available. GAO’s simulations are from 2013 to 2060, using many CBO projections and assumptions, particularly for the next 10 years. [End of figure] Debt Limit: What it is and What it isn’t: * Debt limit does not limit the ability to enact spending and tax laws; not a limit on running deficits or incurring obligations. * Debt limit is an after-the-fact measure: it imposes a limit on ability to pay obligations already incurred. * GAO analysis shows delays in raising debt limit have led to higher borrowing costs; delays in 2011 - $1.3 billion increase just that year. * Treasury uses extraordinary actions to manage near the debt limit: where provided for under law, principal and interest is restored; GAO tests this as part of its routine annual audit of federal debt. * GAO has suggested linking decisions about the debt limit with spending and revenue decisions that create debt—at the time those decisions are made. GAO’s High Risk List: * Historical Perspective; * Selected Areas: - Reforming the U.S. Financial Regulatory System; - Modernizing the Federal Role in Housing Finance; - Restructuring the U.S. Postal Service o Achieve Sustainable Financial Viability; - Pension Benefit Guaranty Corporation Insurance Programs. Reforming the U.S. Financial Regulatory System: GAO’s Role: * GAO has actively monitored the reforms being implemented to improve the safety and soundness of the U.S. financial system, including reporting on: - the costs and benefits of reforms being implemented by financial regulators, - issues surrounding individual reforms, such the challenges facing the newly formed Financial Stability Oversight Council, and; - the status of the entire range of reforms mandated by the Dodd- Frank Act, including the status of the more than 230 rules required by the act and the challenges regulators face in implementing the reforms. Modernizing the Federal Role in Housing Finance: * Fannie Mae, Freddie Mac, and the Federal Housing Administration (FHA) face interconnected and unresolved challenges concerning their future roles. * FHA’s primary insurance fund is not meeting its 2% capital ratio requirement and may require funding from Treasury. [Figure: refer to PDF for image: vertical bar graph] Minimum capital ratio: 2%. Fiscal year: 2001; Capital ratio: 4.03%. Fiscal year: 2002; Capital ratio: 4.85%. Fiscal year: 2003; Capital ratio: 5.59%. Fiscal year: 2004; Capital ratio: 5.9%. Fiscal year: 2005; Capital ratio: 6.5%. Fiscal year: 2006; Capital ratio: 7.38%. Fiscal year: 2007; Capital ratio: 6.97%. Fiscal year: 2008; Capital ratio: 3.22%. Fiscal year: 2009; Capital ratio: 0.53%. Fiscal year: 2010; Capital ratio: 0.5%. Fiscal year: 2011; Capital ratio: 0.24%. Fiscal year: 2012; Capital ratio: -1.44%. Source: GAO analysis of FHA data. [End of figure] * FHA has enhanced its actuarial models in response to recommendations by GAO and others. * A minimum capital ratio is not necessarily the most appropriate benchmark for actuarial soundness for all circumstances. * GAO previously recommended that Congress or FHA specify the economic conditions that FHA’s insurance fund would be expected to withstand without drawing on Treasury. * Implementing this recommendation would help to address FHA’s long- term financial viability and clarify FHA’s future role. Restructuring the U.S. Postal Service (USPS) to Achieve Sustainable Financial Viability: USPS’s financial situation is deteriorating: * Insufficient revenues to cover expenses and financial obligations; - Financial liabilities totaling $96 billion at the end of fiscal year 2012; - Failure to make $11 billion in mandated payments to prefund retiree health benefits; - Has reached its $15 billion borrowing limit; - Declining mail volume—particularly first-class mail; * Faces a critical shortage of liquidity. Congress needs to approve a comprehensive package of actions to improve the USPS’s financial viability. GAO has analyzed consequences and made recommendations on key USPS benefit liabilities: * Allocation between USPS and rest of federal government of responsibility for pension benefits; * Wisdom of refunding pension surplus; * Reasonability of prefunding retiree health benefits: - Support switching to actuarial approach; - Support prefunding, with 100% funding target; * Support appropriate assumption changes for both pension and retiree health care benefits. Pension Benefit Guaranty Corporation Insurance Programs: GAO designated PBGC’s programs high risk because: * Governance and funding structure pose long-term challenges. * Net accumulated financial deficit = $34 billion (end of FY 2012). * Financial risk for potential terminations = $295 billion (estimate). Recent GAO reports have addressed risk-based premium options, and the threat of insolvency of the multiemployer trust fund. July 2012 legislation[A] included provisions to increase premium rates, and improve PBGC governance. PBGC steps to address areas of weakness indentified by GAO include: * adopting a new investment policy statement, * implementing new practices to strengthen contract management, and, * modeling more risk-based premium options. [A] The Moving Ahead for Progress in the 21st Century Act (Pub. L. No. 112-141), referred to as “MAP-21.” Financial future continues to be uncertain due to: * ongoing threat of losses from the termination of underfunded plans; * steady decline in the sources of revenue to finance future claims. To improve the stability of PBGC’s insurance programs, further congressional action that might be considered includes: * Expand and diversify PBGC’s Board of Directors; * Redesign PBGC’s premium structure (one option is risk-based premiums); and; * Develop a strategy for PBGC’s long-term financial solvency. Other Areas: * US Government Financial Statements; * Improper Payments; * Internal Controls; * Overlap/Duplication/Fragmentation. Improving Financial Management CFS FY 2012: Progress, Key Issues, and Moving Forward: * Vast majority of the 24 Chief Financial Officers Act agencies received unqualified opinions on their financial statements. * Accrual-Based Financial Statements: 3 major impediments, with efforts under way to address issues: - DOD: unauditable financial statements caused by serious financial management problems; - Intragovernmental activity and balances; - Ineffective preparation process. * Social Insurance Related Statements: significant uncertainties primarily related to achievement of projected reductions in Medicare cost growth reflected in the statements. * Continued progress requires a strong and sustained commitment by federal entities and leadership by Treasury and OMB. Improper Payments Estimates, Actions, Future Initiatives: * OMB reported a governmentwide FY 2012 estimate of $107.7 billion, down $8 billion from previous year, but estimate is incomplete: - Attributable to 75 programs across 18 agencies * January 2013 law supplements 2002 and 2010 laws addressing governmentwide improper payments. * OMB established a crosscutting goal to reduce the governmentwide improper payment rate. * Enhanced agency and program initiatives are needed to better capture magnitude of problem, identify root causes, and implement effective preventive and detective controls. * GAO is reviewing preventive strategies, conducting forensic audits, and targeting audit selection based on program risk assessment. Internal Controls: Updating GAO’s Green Book: * GAO is required to issue standards for internal control in the government. * Standards provide the overall framework for: - Establishing and maintaining internal control; - Identifying and addressing major challenges and areas at greatest risk of fraud, waste, abuse, and mismanagement. * Green Book was last issued in November 1999: - More global, complex, and technological landscape creates new risks and challenges. * Existing Green Book uses Committee of Sponsoring Organizations (COSO) internal control concepts, which has been updated. * Advisory group appointed to help with update. Mandate for GAO Duplication Reviews: * Enacted in 2010: - Identify fragmentation, overlap, and duplication; - Identify opportunities for cost saving and revenue enhancement. * Reports issued in 2011, 2012, and 2013: identified 162 areas and about 380 suggested actions for executive branch agencies and Congress: - Collectively, these reports show that the government could save tens of billions of dollars by addressing the issues we identified. * Public Data base on web site: GAO’s Action Tracker. GAO on the Web: Web site: [hyperlink, http://www.gao.gov/] Congressional Relations: Katherine Siggerud, Managing Director, siggerudk@gao.gov; (202) 512-4400, U.S. Government Accountability Office; 441 G Street, NW, Room 7125, Washington, DC 20548. Public Affairs: Chuck Young, Managing Director, youngc1@gao.gov; (202) 512-4800, U.S. Government Accountability Office; 441 G Street, NW, Room 7149, Washington, DC 20548. Copyright: This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately. [End of CG Presentation]