February 15, 1979

How U.S. Stands On Balance Sheet

If the federal government kept books the same way it requires of private businesses, how would the United States stand on the balance sheet?

Ohio Congressman Ralph Regula, a member of both the House Appropriations and the Budget committees, thinks our "operating expenses" are too high but that our "net worth" is surprisingly good.

"There are many reasons to be concerned about the high rate of government spending," says Regula, "but America's assets are impressive."

"We are still the strongest nation in the world," he declares.

To support his contention, the Republican moderate likes to refer to a "prototype" Consolidated Financial Statement of the United States Government.  The corporation-type balance sheet was an experiment of the Treasury Department published in 1977 to test normal "accrual accounting," concepts for governmental bookkeeping.

The little-known trial was something less than a rousing success, for it has not been repeated.  Yet it revealed some significant weaknesses and strengths of federal finances.

Treasury Secretary W.  Michael Blumenthal, in a foreword, warned that the prototype was not prepared in accordance with any set of generally accepted accounting principles, "as there are none for the U.S. Government."

Though the U.S. Government is very demanding about the accuracy and detail of private financial statements, the nation operates at a level above methodology.

For example, among any national government's principal assets are its powers to tax and to create money.  Who can put a dollar value on this privilege?

On the liability side, much debate centers on the future cost of Social Security pensions.  Some experts contend Social Security benefits are current transfers of income, and no liability for future payments should be taken into account.  Others argue that the full "actuarial deficit" - the difference between projected receipts and payments over the next 75 years -should be recognized.  The prototype statement, in effect, splits the difference.

Regula asserts that not enough of the public debt is offset by assets.  The outer continental shelf, with its potentially vast oil wealth, is not evaluated on the government's books.  The 704 million acres of public domain lands and the military defense systems are valued at cost.  On an open-market basis these items are incalculable.

At any given moment the public debt includes cash spent for new buildings, dams and other public structures that will serve for many years.  These "capital" projects are paid out of current income as contractors' bills are presented.  Private owners write off a fraction of the total each year over the life of the structure.  In the rarified atmosphere of government finance, however, mortgages and depreciation schedules are dispensed with.

"Every American 'owns' three acres of land, a part interest in the Hope diamond on display at the Smithsonian Museum, and 42,000 worth of the nation's personal property," states Congressman Regula with a smile and a wink.  "This must be weighed against $6,000 worth of debt and obligation."

With all these qualifications noted, America's balance sheet is revealing.  Here are the figures, in billions, for the test year ending September 30, 1976:

Professional accountants will notice immediately that assets and liabilities up to this point don't "balance" as they must to be accurate.

Enter, now, the "fiscal deficit."

The difference between current assets and liabilities amounts to $1,226.7 billion.  This was the "debt" owed or obligated by you and me at that time.  Since then, of course, it has soared still more.

By deducting; fiscal deficit from liabilities, the government books balance in an accounting sense.  To the layman, however, the books are out of whack in that we spent more than we took in, and somebody, someday, will have to square accounts.

As a watchdog of the Treasury - a title bestowed sparingly by the American Business Association - Congressman Regula has earned a reputation for getting the most bang out of a buck.  He worries a lot about the federal deficit, counting it the principal cause of inflation.

Nevertheless, he is "bullish on America" because of our undervalued assets.

"We need to watch expenses and to whittle down our debt, but we shouldn't push the panic button," says Regula.  "We still have the time and resources to stabilize our economy if we have the will."

Great!

Now all we have to do is hire a dozen certified public accountants to sit in Blumenthal's outer office and post a real balance sheet.

Author: Lindsey Williams