Monday, May 21 , 2018, 10:03 pm | Fair 59º


Harris Sherline: Talking Numbers

Government takes liberties with financial accountability. But there's a reckoning ahead.

Numberspeak makes most people’s eyes glaze over. But, as has often been said, the devil is in the details and, unfortunately, the only way to understand much of what goes on in government is through the numbers that are released for public consumption.

Harris Sherline
Harris Sherline
It’s always been surprising to me how people in government can get away with misrepresenting financial information while those who do the same thing in private life can be prosecuted for fraud. Take financial reporting: The federal government imposes so many reporting requirements on public companies through the Securities and Exchange Commission and various other agencies that it is often difficult, if not impossible, for them to comply, and even when they do, it is usually not easy to interpret. But the government does not have to meet the same standards in its own financial reporting.

Here’s an accounting primer (in 67 words): The principal difference between government and corporate accounting is that business financial statements must include the amounts it owes for goods and services it purchased during the period (month, quarter, year). It’s called accrual accounting. On the other hand, governmental financial reporting is generally prepared on the cash basis and do not show the largest portion of their liabilities on the financial statements it issues.

What does this mean? Looking at the big picture, it means the financial statements the federal government releases do not include the amounts it expects to pay in the future for the Social Security and health-care programs, such as Medicare and Medicaid, and various other obligations, like publicly held debt, military and civilian pensions, federal insurance, loan guarantees and leases.

Former U.S. Comptroller General David M. Walker, currently president of the Peter G. Peterson Foundation, has prepared A Citizens Guide to the Financial Condition of the United States Government, which notes that in 2007 the major fiscal exposures to the government amounted to $52.7 trillion.

“The dollar figures used when discussing the federal budget are almost too large to comprehend,” the report says. “To translate the estimated $52.7 trillion in major fiscal exposures — our federal fiscal hole — into more understandable numbers, the Government Accountability Office calculated the burden as equivalent to $175,000 per person living in the United States; $410,000 per full-time worker; $455,000 per household.”

The guide also notes, among other things, “... about 42 percent of the (federal) budget is devoted to Social Security, Medicare and Medicaid. Because these programs provide significant benefits to older people, that percentage will grow as the population ages.” Medicare and Medicaid will also experience rapid growth. As baby boomers become eligible for these benefits, the budgets for these programs will consume ever greater percentages of the federal budget.

These huge amounts do not show up in the financial reporting the public usually sees when politicians talk about fiscal policies, prepare and approve budgets, or generally discuss the federal government’s financial situation. It’s amazing but, for the most part, these “unfunded liabilities” are treated as if they don’t exist. The government seems to operate on the theory that out of sight is out of mind. But they do exist, and they are coming due much faster than most people realize. When that happens, we will not be able to fund them without these commitments consuming the entire discretionary budget. In other words, we won’t be able to buy or pay for anything else.

Since most people do not have the resources to pay their share of these federal obligations, where will the money come from? The primary sources are either increased taxes, borrowing or printing money. If the choice is to raise taxes, the amount would be great enough to cripple the economy and chances are it would be so politically risky that politicians would likely turn to one or both of the other alternatives: borrowing or printing the money, both of which would be highly inflationary and would undoubtedly result in hyperinflation.

We are in a trap of our own making and very few of our political leaders have been willing to deal with this challenge. If we don’t stop hiding the facts from the public and face up to reality, we will eventually cross the line into hyperinflation.

Executives of large corporations who are guilty of this sort of financial misrepresentation often go to jail. Perhaps some of the leading political charlatans should also go to jail for hiding the financial facts from the public. The question is: Where do we start and who should be at the head of the line?

Harris R. Sherline is a retired CPA and former chairman and CEO of Santa Ynez Valley Hospital who has lived in Santa Barbara County for more than 30 years. He stays active writing opinion columns and his own blog,

Support Noozhawk Today

You are an important ally in our mission to deliver clear, objective, high-quality professional news reporting for Santa Barbara, Goleta and the rest of Santa Barbara County. Join the Hawks Club today to help keep Noozhawk soaring.

We offer four membership levels: $5 a month, $10 a month, $25 a month or $1 a week. Payments can be made through PayPal below, or click here for information on recurring credit-card payments.

Thank you for your vital support.

Become a Supporter

Enter your email
Select your membership level

Payment Information

You are purchasing:

Payment Method

Pay by Credit Card:

Mastercard, Visa, American Express, Discover

Pay with Apple Pay or Google Pay:

Noozhawk partners with Stripe to provide secure invoicing and payments processing.

  • Ask
  • Vote
  • Investigate
  • Answer

Noozhawk Asks: What’s Your Question?

Welcome to Noozhawk Asks, a new feature in which you ask the questions, you help decide what Noozhawk investigates, and you work with us to find the answers.

Here’s how it works: You share your questions with us in the nearby box. In some cases, we may work with you to find the answers. In others, we may ask you to vote on your top choices to help us narrow the scope. And we’ll be regularly asking you for your feedback on a specific issue or topic.

We also expect to work together with the reader who asked the winning questions to find the answer together. Noozhawk’s objective is to come at questions from a place of curiosity and openness, and we believe a transparent collaboration is the key to achieve it.

The results of our investigation will be published here in this Noozhawk Asks section. Once or twice a month, we plan to do a review of what was asked and answered.

Thanks for asking!

Click Here to Get Started >

Reader Comments

Noozhawk is no longer accepting reader comments on our articles. Click here for the announcement. Readers are instead invited to submit letters to the editor by emailing them to [email protected]. Please provide your full name and community, as well as contact information for verification purposes only.

Daily Noozhawk

Subscribe to Noozhawk's A.M. Report, our free e-Bulletin sent out every day at 4:15 a.m. with Noozhawk's top stories, hand-picked by the editors.

Sign Up Now >