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Overview This website brings together a small part of the information available on the national debt and California's budget situation, how these problems are related, and how government funding has become linked. Its purpose is to bring attention to potential problems created by rapidly growing government debt and is a starting point for those who want to know more about a crisis looming on the horizon that could affect all of us. In fact, it is amazing that a situation with such far reaching effects is not better understood and explained. But pieces of the government debt puzzle and its potential impacts are scattered throughout federal and state funding documents and reports. It is hoped that by putting a few of these pieces together, a clearer picture of government debt effects will emerge. Please keep in mind that this website is just a snapshot of government debts that are constantly changing with ongoing spending, repayment, and borrowing activities. So far, the current trend has been toward increasing debt. Whether or how long this can continue is not known. You can go to U.S. National Debt Clock: Real Time for an updated estimate of both federal and California government debts. Federal and state budgets are large and complex documents that are difficult to evaluate. But the basic parts of government's debt problems are relatively simple. There are only five, interrelated main parts: total revenue; total spending; whether the difference between revenue and spending create a deficit, surplus, or are balanced; accumulated debt; and interest being paid on debt. For both the federal and state governments, the emphasis here is on budget deficits and accumulated debt, with an objective of keeping things simple. Our national debt could lead to the greatest challenge to the United States in this century. Currently, nearly one-fourth of federal spending is borrowed (as shown in Table 1), and annual deficits are now rapidly accumulating (see Figure 1) to a national debt that exceeds the national gross domestic product (GDP = the annual sum of all goods and services). Interest paid on this debt has become the third largest spending item in the federal budget, following Social Security and Medicare (also shown in Table 1). These interest payments are growing. They now exceed spending for national defense and are squeezing out programs that we expect and need from the federal government. That our growing debt is not sustainable is a conclusion which even government analysts are openly expressing. And if this is apparent here, other nations, including our adversaries, must know it too. So, the national debt is also a national security concern. In addition to problems at the national level, cutbacks in federal spending would have enormous impacts on state and local programs. At this point, California has two major spending plans. One is the General Fund budget for funds collected by the state, primarily from state income taxes, sales and use taxes, and corporate taxes. The state General Fund budget is created by the Governor and the State Legislature and is what we hear about on the news. We don’t hear much about the other California financial plan. It is for the spending of intergovernmental funds, primarily from the federal government, which now exceed 190 billion dollars per year (see Table 4). This is where the money comes from to support many of California’s facility projects and for state run health and welfare benefits. And since funding for many local projects also comes from federal funds, problems at the federal level would run downhill to state and then to local governments and districts. There are different ideas about possible causes for future budget problems. One is that lenders might not continue to support growing deficits and debt because of repayment concerns, which could lead to borrowing shortfalls. Another is that, at some point, the economy will no longer support financing of the debt, which is already larger than our GDP and growing exponentially. These two ideas will probably interact, because growing debt takes money out of the economy until there is not enough left to cover needed borrowing. If, or when, borrowing shortfalls occur, this would lead to much larger spending cuts than those that have caused recent complaints. But no one really knows how much debt it will take to trigger either or both of these problems. And there are solutions, all of which involve reduced spending or increased revenue (taxes). But any solution would require spending discipline by both legislative and executive branches of government. For the federal government, what is suggested here (in Table 6) is to hold national spending growth below the growth of federal income, then deficits, debt, and resulting interest payments would gradually decline until revenue and spending were again in balance. This would prevent an immediate crisis, but would also take many years and require continued spending discipline along with lender confidence that growth of spending was under control. In fact, the national debt does not have to be completely eliminated, only reduced to a point where interest payments are not having detrimental effects on essential programs. |
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