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Managing Fiscal Risks: Disasters, Demographics and Debt - Kelly Kinneen, United States

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This presentation was made by Kelly Kinneen, United States, at the 40th OECD Senior Budget Officials meeting held in Tallinn, Estonia, on 5-6 June 2019

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Managing Fiscal Risks: Disasters, Demographics and Debt - Kelly Kinneen, United States

  1. 1. Fiscal Risks in Context of the U.S. Budget Kelly Kinneen Assistant Director for Budget White House Office of Management and Budget
  2. 2. Overview • 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. 1
  3. 3. • 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 the exception. • Applies to operating budgets, not capital budgets. 2
  4. 4. • States receive Federal funding to address shortfalls as a result of emergencies or other fiscal shocks. • State disaster costs often borne by Federal government. 3
  5. 5. • 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. 4
  6. 6. • 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. 5
  7. 7. • 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 Processes Center
  8. 8. • Helps avoid annual supplemental appropriations by budgeting for contingencies. • Formalized in the 2011 Budget Control Act. • Outside the discretionary caps. • Argument over what portion is “true” OCO. 7Source: Congressional Research Service
  9. 9. “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 8
  10. 10. Several contingent liabilities are disclosed in accordance with accounting standards: • Insurance programs (PBGC, FDIC) • Legal settlements • Environmental clean-up and hazardous material disposal 9 Agencies release financial reports in November U.S. Financial Report follows early the next calendar year Government Accountability Office (GAO) audits both
  11. 11. • 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. 10 • One standard not yet implemented: disclosure of risks associated with Public-Private Partnerships and how government assets are being used.