It was enlightening, not so much for the specifics of her discussion, but because it once again highlighted the complexities and foolishness of the way government budgets are developed and applied.
Overall, although Wallar included information about the budget shortfalls, her comments also revealed the difference between government or municipal accounting and private accounting.
We constantly read and hear discussions in the media about deficit budgets at every level of government — local, state and federal — but we never hear anything about the reason they never accurately reflect the financial condition of the various government agencies. The explanation is actually quite simple.
For the record, I am a retired CPA.
As the deadline approached to approve an increase in the federal debt limit, we were deluged with wall-to-wall media coverage, talk-show discussions and debates, and presidential speeches, all intended to sway public opinion to favor one approach or another to solving the problem.
However, I submit they are all a waste of time. They may attract eyes and ears to the radio or television, which is good for the media outlets but doesn’t really provide any long-term solution.
Certain terms or words that are commonly used by politicians and bureaucrats are now so ubiquitous that they have become buzzwords. They are intended to convey a particular meaning in political discourse and legislation but are invariably misunderstood by the public. That, of course, is the idea — to keep people unaware of what the politicians and bureaucrats are actually doing.
Since these words usually don’t mean what they appear to say or what we may think they say, I thought I would offer my own explanations of those that are most often heard in today’s political discussions in the hope that they will clarify some of the political discussions that were raging at the time.
» Balanced budget: Most people seem to think this means that budgeted income matches projected outgo — ergo, the budget balances. Unfortunately, that’s not how it works in the Beltway. Even when government budgets are prepared to appear to balance, many of them really can’t — probably ever.
One major reason is that a number of extremely large obligations are usually not included on the government’s books or on the financial reports of most other jurisdictions — that is, states, cities and counties. These are generally referred to as “unfunded” liabilities (debt), which simply means that the money to pay them has not been accounted for on the entity’s balance sheet. A good example of this is the pension obligations for government employees. When these commitments are included, most government financial statements will not balance.
» Budget cut: There’s always a lot of political posturing about various cuts in the budget that one side or the other, usually Republicans, want to impose. However, this is pure sleight of hand, because they are not real cuts at all, and the public in general has little or no understanding of how things actually work. This gets a little complicated, but the budget process does not work the way most people may think.
The federal government uses a method of budgeting that doesn’t determine how much should be spent, which is called “zero-based budgeting.” Instead, the budget for each new fiscal year starts with the expenditures that were adopted for the previous year and are automatically increased by a certain percentage to arrive at the amount needed for the next year. For example, say a $1 billion budget for some department in the current year is to be increased by 7 percent for the next year, which would raise it to $1.7 billion.
Here’s the tricky part: If the proposed increase is reduced to, say 5 percent, it is considered a cut. In other words, if the budget for the prior year is increased only by $50 million instead of $70 million, that’s called a cut, even though no one may be advocating an actual reduction in the total amount of expenditures from the prior year. All hell breaks loose in the political posturing that ensues, because someone is advocating a cut.
So, a cut is not actually a cut at all, but politicians are able to call it one so people will think anyone who favors something less than the proposed automatic increase in a particular budget, say for school lunches or Social Security, is a heartless, unfeeling, evil scrooge. Neat trick, huh?
Out-year: Here’s another way budget numbers are finessed by clever politicians, especially at the federal level. “Out-year” refers to subsequent years after the budget for a particular year is adopted. The budget for several years is projected to balance in the future, after the politicians responsible for developing it are no longer in office, such as the president or members of Congress who are involved in the process and vote on the legislation. In other words, the budget doesn’t balance now, but it will later, when they’re no longer around — so they can’t be held accountable if it doesn’t balance at that time. This is simple sleight of hand. It doesn’t balance now but it will later. Trust us, they say. It will all work out in the end.
Debt limit: This one is really absurd. The term usually refers to the amount of money the federal government is authorized to spend. The fact that there is a limit to the amount of money politicians can spend is a good thing, right? Yes, but any limit is only good so long as it is not changed; otherwise, it’s not really a limit, is it?
When our fearless leaders run up against the debt limit, what can they do? Either cut something or raise the limit, of course. What invariably happens? They raise it. Whenever the debt ceiling is breached, Congress, in its infinite wisdom, simply passes a bill to increase it. Nothing could be easier, and nothing could be phonier that the “debt limit.”
Abe Lincoln’s famous admonition, “You can fool some of the people all of the time, and all of the people some of the time, but you cannot fool all of the people all of the time,” never had greater meaning than it does today. Unfortunately, there are not yet enough people who see through the political sleight of hand that our legislators use to mislead the public today to be able to put a stop to these practices.
In general, the obvious intent of our politicians is to label their actions and legislation in ways that the public does not understand, to divert opposition and confuse people so they don’t actually realize the actual consequences of legislative actions. Makes one wonder if they don’t go to work every day thinking, “Let’s see how we can fool them (the public) today.”
There ought to be a law that requires truth in legislation and politics. I know that’s a silly idea, but it is fun just to think about it.
— Harris R. Sherline is a retired CPA and former chairman and CEO of Santa Ynez Valley Hospital who as lived in Santa Barbara County for more than 30 years. He stays active writing opinion columns and his blog, Opinionfest.com.