Written by

Alan P. Balutis
Director and Distinguished Fellow<
Cisco Business Solutions Group

As Brian Friel noted in a recent column in Government Executive magazine “The dawn of the second decade of the 21st century comes in the midst of a transformative time for government”. Friel points to four sweeping trends: technological innovations, globalization, mounting federal debt, and long-standing management obstacles.

One seems especially strong however: the large, and growing, long-term financial imbalance driven by an aging population, which will dramatically increase health care and retirement costs. “The government is on an unstable path “, says the recently released Federal Government’s Financial Heath. This report, prepared by the U.S. Department of the Treasury and Office of Management and Budget (with the assistance of the Government Accountability Office), puts the challenge in stark terms:

    “This year, 2008, is the year in which the first of the approximately 80 million baby boomers—those born between 1946-1964—become eligible to draw Social Security benefits. Scheduled Social Security and Medicare benefits together with other federal programs projected long-term costs are much greater that the resources (revenue and borrowings) available to pay for them. Unless action is taken to bring program cost in line with available resources, the coming surge of entitlement spending will end in a fiscal train wreck that will have an adverse effect of the U.S. economy and on virtually every American.”

    In 2010, the Medicare Part A trust fund, which finances inpatient hospital services for elderly Americans, will not have enough money to pay full benefits. In 2041, the Social Security trust funds will not have the assets to pay full benefits. In 2080, the total cost of government will be more than three times the revenue.

As the baby boom generation retires and health care costs rapidly rise, Social Security, Medicare, and Medicaid programs—as well as interest on the national debt—will account for a growing portion of government cost, creating immense budget pressure on initiatives to fund the other challenges. Interest on the debt in FY09 will total $260 billion – about what will be spent by the U.S. Departments of Education, Energy, Health and Human Services, Homeland Security, Housing and Urban Development, Interior, and Justice combined. The amount the government spent on interest was more than $800 per person last year. It would roughly double by 2020, even if interest rates remain at their current low levels.

The challenge is not unique to the U.S. federal government. The same holds true for state and local governments. States face growing long-term pressures from the health-care needs of an aging population and the maintenance needs of an aging infrastructure. The recession’s jobless toll is draining unemployment compensation funds so fast that, according to federal projections, 40 state programs will go broke within two years and need $90 billion in loans to keep issuing benefit checks. Months after many economists declared the recession over, cities are only now beginning to feel the full brunt of it. According to Conor Dougherty of the Wall Street Journal: “The sting this time around is expected to be more acute and long-lasting than in previous recessions.” This specter of lean budgets for years to come has a number of cities rethinking the services to provide and how to pay for them.

Overseas, the picture is equally bleak. Even as Great Britain recovers from recession, it faces one of the largest budget deficits in the world at more than 12.5% of gross domestic product. An initial round of public-sector penny pinching has already begun, with cuts in big-ticket items like welfare and health expected over the next three or four years. The world’s richest nations, according to the Organization for Economic Development, are more indebted than at any time in at least the past 50 years.

So what does all this mean for government? A recent article by Anthony Faiola in the Washington Post highlighted Ireland as “the ghost of America’s future”. A future of slashed salaries for government workers. Painful reductions in benefits for such groups as widows, single, mothers, the blind, and disabled children. Cuts in entitlement programs. Increases in taxes and fees. Leaving government like Jake Sully in the movie, Avatar – a paraplegic, crippled, no longer able to do the things he did before. Can technology provide the answer? I will deal with that in my next blog posting.