Section 5- Part 4

Question 1

Solvency and Sustainability

Answer 1

Guidelines for assessment
Federal Government Stability
State and Local Government Sustainability

Question 2

Solvency and Sustainability (2)

Answer 2

A free press is critical to government accountability. While individual citizens may lack the time and inclination to investigate government activities, the press fulfills that role. The Government Finance Officers Association (GFOA) notes that each government must define sustainability for itself, but recommends that a starting definition is the government’s ability to “manage its finances so it can meet its spending commitments, both now and in the future.” GFOA notes that sustainability encompasses social and environmental concerns as well as projected economic capacity of a government.

Question 3

Guidelines for Assessment

Answer 3

Assessing the future solvency and sustainability of government programs is as much art as science. Most analyses involve ratios, but judgment is exercised in deciding what accounts to include in calculating ratios, how many years to include in gauging trends, and how many years to project into the future. Further, ratios have little meaning without context.

A single indicator, such as a ratio, is a limited snapshot and does not tell the whole story of a government’s economic condition and sustainability. Effective analysis requires an accumulation of ratios and other information over time.

Question 4

Federal Sustainability

Answer 4

Federal Sustainability
“The Financial Report of the U.S. Government” includes a good example of sustainability assessment. While multiple factors influence government sustainability, the FY 2020 report emphasizes the sustainability implications of the nation’s debt-to-GDP ratio.9 It identifies healthcare costs and an aging population as primary factors behind a rising debt-to-GDP ratio, and concludes that current policy is not sustainable.

Sustainability reports help government officials develop action plans. For instance, if changes in policy are not so abrupt as to slow economic growth, then the sooner policy changes are adopted, the smaller the changes to revenue and/or spending will be required to return the government to a sustainable fiscal path

Question 5

State and Local Sustainability

Answer 5

As with the federal government, sustainability for state and local governments is influenced by multiple factors. In recent years, there has been increasing attention to the long-term sustainability of defined-benefit pension plans. This is demonstrated by a visit to the GASB website, which lists eight current or recently completed technical projects related to pensions and other post-employment benefits (OPEB), such as health insurance and life insurance for retirees. One of the most recent GASB pronouncements, Statement 68, is designed to improve accounting and reporting for defined-benefit pension plans.