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Managing Fiscal Risks: Disasters, Demographics and Debt - Kelly Kinneen, United States
Fiscal Risks in Context of the U.S. Budget
Assistant Director for Budget
White House Office of Management and Budget
• No central mechanism for evaluating and budgeting for fiscal risks.
• States and local governments have much stronger fiscal rules and formal
contingency planning than Federal government.
• At Federal level, the President’s Budget attempts to account for fiscal risks,
but in execution, contingency planning is:
o Largely driven by crisis; and
o Often obviated by access to capital markets.
• Contingency/“Rainy Day” Funds
• Today, 48 States, the District of Columbia, Puerto Rico and the U.S. Virgin
Islands have rainy day funds.
• In general, most States cap rainy day funds between 5 and 15 percent of
their general fund revenues.
• Balanced Budget Laws
• The National Conference of State Legislatures (NCSL) has traditionally
reported that 49 States must balance their budgets, with Vermont being
• Applies to operating budgets, not capital budgets. 2
• States receive Federal
funding to address
shortfalls as a result of
emergencies or other
• State disaster costs
often borne by
• Some Federal programs (Temporary Assistance for Needy Families, Children’s
Health Insurance Program) have contingency funds, but not many.
o Major exception: Pentagon’s Overseas Contingency Fund (OCO)
• There is no balanced budget requirement, though supporters frequently
propose to amend the Constitution to include one.
• A number of Federal statutes impose caps on spending (Budget Control Act of
2011) or require offsets for new spending (Pay-As-You-Go Act).
• However, these laws are routinely amended, or budgetary enforcement
provisions are waived, to allow for additional debt-financed spending.
• Disaster Relief: Discretionary spending caps can be adjusted each year
based on a statutory formula looking at prior costs.
• For 2020, the disaster relief cap adjustment is currently estimated to
be roughly $17 billion.
• However, Congress routinely enacts additional emergency
appropriations to respond to natural disasters.
• In 2018, Congress enacted nearly $105 billion in emergency spending to
provide relief for victims of hurricanes and wildfires. 6
Base vs. Supplemental Disaster Funding, FY 1989-2017
Source: Penn Wharton Risk
Management and Decision
• Helps avoid annual
by budgeting for
• Formalized in the 2011
Budget Control Act.
• Outside the discretionary
• Argument over what portion
is “true” OCO.
7Source: Congressional Research Service
“Economic Assumptions” chapter of Analytical Perspectives volume
of the President’s Budget discusses economic risks:
• Student loan debt
• Falling fertility rate
• Excessive leverage and risk in lending market
• Cryptocurrency bubble
• Federal deficit
Several contingent liabilities are disclosed in accordance with
• Insurance programs (PBGC, FDIC)
• Legal settlements
• Environmental clean-up and hazardous material disposal
financial reports in
Report follows early
the next calendar
Office (GAO) audits
• Comptroller General notes several additional financial risk factors
that could affect the Federal government’s financial condition:
o Housing finance market support
o Postal Service
o Natural disasters, pandemics, cyberattacks, military
engagements, economic crises, etc.
• One standard not yet implemented: disclosure of risks associated
with Public-Private Partnerships and how government assets are