Steve Ballmer’s New Public Sector 10‑K Report Illustrates Weaknesses in Government Financial Disclosure

Marc Joffe

Each April, USAFacts, a not‐​for‐​profit information provider founded by former Microsoft CEO Steve Ballmer, issues a report on the condition of US federal, state, and local governments. Ballmer’s release takes the form of a 10‑K Report, like those publicly listed corporations produce annually. This year’s public sector 10‑K, which relies on data from 2020 and excludes sizable government liabilities, raises questions about the federal data USAFacts relies upon.

The USAFacts balance sheet shows that the public sector had $24.9 trillion in assets and $44.6 trillion in liabilities as of September 30, 2020. While these numbers suggest a serious solvency problem among US governments, they understate current government indebtedness.

A comparison of federal financial statements from 2020 and 2022, shows that publicly held federal debt increased $3.2 trillion and federal retiree and veteran benefits payable rose $3.4 trillion. Finally, federal cash and other monetary assets fell more than $1 trillion over the two‐​year period. Totaling these changes and assuming that there are no major offsets elsewhere, the public sector’s net position has deteriorated by $7 to $8 trillion since the “as of date” of the USAFacts 10‑K.

An even bigger issue is the exclusion of federal entitlement obligations from the reported liabilities. USAFacts follows the federal government’s practice of not including Social Security and Medicare liabilities on the balance sheet. In a separate Statement of Social Insurance, the 2022 federal financial report estimates these entitlement liabilities total $75.9 trillion. This estimate is based on a “closed group” actuarial method, which considers only the present value of benefits to those currently receiving benefits or paying into entitlement systems, excluding costs associated with future workers.

The government’s treatment of entitlements as “off balance sheet” items is consistent with Federal Financial Accounting Standards. In defense of this treatment, the Federal Accounting Standards Advisory Board (FASAB) wrote:

The Board acknowledges that it is faced with two polarized views without much hope of one side convincing the other side of the correctness of its position. On the one side are those who believe that social insurance programs — especially Social Security and Medicare — constitute a liability of the Federal Government that should be recognized on the consolidated balance sheet and that the closed group is the best measure of it. They agree that other measures such as a long‐​range projection of a program’s cash inflow from all sources and outflow for all purposes are also useful, and note that all measures of sustainability and financial condition must be taken in context to be meaningful. At the opposite pole are those who firmly believe that the closed group measure is meaningless or even potentially misleading and should not be disclosed at all in the financial report.

So, the FASAB chose the Solomonic “split‐​the‐​baby” approach of excluding Social Security and Medicare from the federal balance sheet, while providing information about their liabilities on a separate schedule.

Probably the best argument against including entitlement liabilities on the balance sheet is that Congress can cancel them at any time. But this is true of other federal liabilities such as civilian and veteran pension and retiree health benefits, which are shown on the balance sheet.

Why USAFacts Uses Stale Data

Irrespective of the treatment of entitlement obligations, it may seem strange that USAFacts uses data from 2020 federal financial statements even though 2022 statements were published in February. Ballmer’s group chooses to use the older federal disclosure because they consolidate it with state and local financial information available on a two‐​year lag, and understandably want consistency.

This data comes from the Census Bureau’s Annual Survey of State and Local Finances. This survey asks state and local governments to provide up to three hundred data points each year. Although there are 90,000 state and local governments, the Census Bureau bases its reported totals on a sample of these entities during most years (it does a full canvas in years ending “2” and “7”). The sample includes about 25,000 entities.

Collecting 7.5 million data points (25,000 entities times three hundred data points for each) sounds like a lot, but in this age of “big data”, it should no longer be a heavy lift. This volume of data can fit comfortably into a single Excel worksheet.

Barriers faced by the Census Bureau analysts include late responses and non‐​responses from sampled governments. Limited staff must locate and review other financial disclosures to estimate values for those governments that do not respond or that provide seemingly inaccurate responses. Because state and local government annual financial disclosures are in PDF format, gathering the missing data can take time.

Some relief may come from the Financial Data Transparency Act which, if implemented properly, will replace PDF financial disclosures with ones that are in a “machine‐​readable” format and can thus be automatically parsed.

If the federal government increased spending on state and local government data collection, it may be able to accelerate annual data collection through greater automation. Better yet, automated solutions could be contributed to the Bureau by private players such as USAFacts that have an interest in high‐​quality, timely state and local government financial data. Such a public‐​private partnership would provide Americans with a speedier 10‑K report for their public sector without the need for more tax dollars or unsustainable federal liabilities.

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