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United States Government Accountability Office: 
GAO: 

GAO-08-371CG: 

A Call For Stewardship: 

By the Honorable David M. Walker: 

Comptroller General of the United States: 

The National Press Club: 

Washington, DC: 

December 17, 2007: 

Good afternoon ladies and gentleman. Thank you for coming today. I know 
some of you were in this same room back in 2003 when I gave a speech 
entitled "Truth and Transparency." In that speech, I urged the federal 
government to provide more complete and reliable information on where 
our nation stands financially and where it was headed fiscally. Those 
who were here will recall that during my speech, I expressed particular 
concern about the cost of the then pending proposal to add a Medicare 
prescription drug benefit. A little over four years have passed since I 
gave that speech, and I felt the time was right to provide an update on 
the state of America's finances. Where do we stand today? Are we on the 
right course? If not, what do we need to do to turn things around? I'll 
address these questions and also speak about two new documents being 
issued today: the Treasury Department's consolidated financial report 
for the U.S. government, including GAO's related audit report, and 
GAO's new report entitled "A Call For Stewardship: Enhancing the 
Federal Government's Ability to Address Key Fiscal and Other 21ST 
Century Challenges." 

I'll start with where we stand today. This morning, the Treasury 
Department released the 2007 Financial Report of the United States 
Government. Candidly, if the federal government were a private 
corporation and the same report came out this morning, our stock would 
be dropping and there would be talk about whether the company's 
management and directors needed a major shake-up. 

Why do I say this? Because if you look at today's report, you'll see 
that for the 11th straight year GAO was unable to express an opinion on 
the consolidated financial statements of the U.S. Government, primarily 
due to financial management problems within the Department of Defense. 
GAO also noted a number of very serious internal control weaknesses. 

At the same time, there is some good news in connection with this 
year's audit. Today's annual report includes the first GAO opinion on a 
statement within the federal government's consolidated financial 
statements. Specifically, GAO expressed an unqualified opinion on the 
Statement of Social Insurance. This statement includes the largest 
numbers in the federal government's financial statements. To put things 
in perspective, we're talking numbers in the tens of trillions of 
dollars in current dollar terms. One of the reasons we could issue an 
unqualified opinion is because the Department of Defense has nothing to 
do to with the Statement of Social Insurance! 

When it comes to America's financial situation, are we on the right 
course? The answer is "yes" and "no." It just depends on your time 
horizon. 

From a short-term perspective, it's true that our federal deficits have 
declined for three straight years and declining deficits are better 
than rising deficits. However, we are still running large deficits on 
an operating basis. What do I mean by an operating deficit? I mean the 
results of the federal government's operations excluding the Social 
Security surplus. After all, the federal government spends the entire 
Social Security surplus on various government operating expenses and 
replaces the cash with government bonds held in so-called government 
"trust funds." Given their structure, in my view, they really should be 
called "trust the government funds." For example, in fiscal 2007, the 
federal government's cash based operating deficit was about $344 
billion, much higher than the widely publicized unified deficit of $163 
billion. The accrual based net operating deficit was $276 billion. Of 
these amounts, about $120 billion related to Iraq and global war on 
terrorism expenditures. 

Candidly, our current deficit and debt levels are not unduly troubling 
as a percentage of our national economy. However, these deficit levels 
and related debt burdens are set to escalate dramatically in the near 
future due to the retirement of the "baby boomers" and rising health 
care costs. The fact is, absent meaningful reforms, America faces 
escalating deficit levels and debt burdens that could swamp our ship of 
state! 

This brings me to the longer-range picture. Believe it or not, the 
federal government's total liabilities and unfunded commitments for 
future benefits payments promised under the current Social Security and 
Medicare programs are now estimated at $53 trillion, in current dollar 
terms, up from about $20 trillion in 2000. This translates into a 
defacto mortgage of about $455,000 for every American household and 
there's no house to back this mortgage! In other words, our government 
has made a whole lot of promises that, in the long run, it cannot 
possibly keep without huge tax increases. 

The Medicare program alone represents about $34 trillion of our current 
$53 trillion fiscal gap. If there is one thing in particular that could 
bankrupt America, it's runaway health care costs. And don't forget, the 
first "baby boomers" will begin to draw their early retirement benefits 
under Social Security in a couple of weeks! And, just three years 
later, they will be eligible for Medicare. When "baby boomers" begin to 
retire in big numbers, it will bring a tsunami of spending that, unlike 
most tsunamis, will never recede. 

The prescription drug benefit alone represents about $8 trillion of 
Medicare's $34 trillion gap. Incredibly, this number was not disclosed 
or discussed until after the Congress had voted on the bill and the 
President had signed it into law. Generations of Americans will be 
paying the price --with compound interest --for this new entitlement 
benefit. In many ways, the 2003 Medicare prescription drug episode 
arguably represents government "truth" and "transparency" at its worst. 
Unfortunately, based on adding the prescription drug benefit and other 
spending and tax actions, the federal government seems to be ignoring 
the first rule of holes in connection with its fiscal affairs. Namely, 
when you're in a hole, stop digging! 

If trillions of dollars aren't big enough to get your attention, 
believe it or not, in fiscal 2007 over 62 percent of the federal budget 
was on "auto-pilot" and this percentage is on the rise! Shockingly, the 
major functions expressly envisioned by our Founding Fathers as a 
proper role for the federal government --things like national defense, 
homeland security, foreign policy, the treasury function, the federal 
judiciary, the Congress and the Executive Office of the President --are 
in the remaining 38 percent of the federal budget! And this portion of 
the budget is set to get squeezed. 

Unfortunately, many Americans are in denial about the seriousness of 
our situation. Relatively low interest rates and modest inflation rates 
are partly to blame for this false sense of security. The truth is, too 
many American families are following the poor financial practices 
employed by the federal government. They're spending more money than 
they make, taking on more debt and incurring compounding interest 
costs. Both America and many Americans have become addicted to debt 
both in good times and bad. 

One important obstacle to public enlightenment is that key government 
financial reports are very thick. I'm a CPA and the head of GAO, and I 
can tell you it's a struggle to get through some of this material. I'm 
sorry to say the consolidated financial report of the U.S. government, 
which the Treasury Department released earlier today, falls into this 
category. As a result, it will not be read by many. 

Given that fact, GAO has been working with the Treasury Department and 
the Office of Management and Budget (OMB) to produce the first ever 
Summary Annual Report for the federal government. This document will be 
much more concise and user friendly than the voluminous annual report 
Treasury issued today. Hopefully, it will be both useful and used. 

The first Summary Annual Report is scheduled to be issued in mid 
January 2008. Keep an eye out for this report. It will be version 1.0 
and enhancements can be expected in future years. 

I'm hopeful policymakers, the press, and the public will spend a few 
minutes to read the newly formatted document. I'm confident that if 
they do, they'll have a much better grasp of the growing fiscal 
challenge facing our nation. Special recognition and thanks goes to OMB 
and the Treasury Department, especially Under Secretary of the Treasury 
Bob Steele who spearheaded The Treasury Department's efforts on this 
project. Thank you Bob. 

The Summary Annual Report is a positive step to help us understand our 
fiscal challenge, but far more dramatic action is needed to help us 
solve the problem. GAO is working with members of Congress from both 
parties as well as OMB, CBO, and others to draft a proposed 
Transparency and Accountability Act. Among other things, the proposal 
GAO is working on will require greater transparency on the longer-term 
cost of major legislation before it is enacted into law. The President 
would have to include at least a 10-year projection, along with an 
overall statement of fiscal philosophy, in his or her annual budget 
submission. The draft bill would also require the U.S. government to 
periodically issue a comprehensive Fiscal Sustainability Report, 
similar to the ones now issued by New Zealand, the United Kingdom, and 
other countries. Notably, this years' annual report on the federal 
government's consolidated financial statements includes a long-term 
outlook by the Administration. Their analysis serves to reference that 
the U.S. Government is on an imprudent and unsustainable long range 
fiscal path. 

But we must do much more. After more than nine years in my position as 
Comptroller General of the United States and head of the GAO, I have 
become increasingly frustrated by the wide-spread myopia, tunnel 
vision, and self-centeredness in Washington. President Reagan had it 
right when he said that "Washington is an island surrounded by a sea of 
reality." This gap needs to be closed through an increased public 
education and civic engagement process. Only through such efforts can 
the three most powerful words in the Constitution, "We the People", 
come alive. 

Our current state of public debate is not helping in this regard. Just 
turn on the TV or the radio and you have your choice of shows often 
billed as public affairs programming. You've seen these programs, where 
political pundits from the left and the right express their personal 
views that sometimes are not supported by facts or hard evidence. Many 
of these shows are essentially "fact free zones." Their focus on 
ideological debates and partisan attacks are designed to entertain 
rather than inform the public. I realize that in America, everyone is 
entitled to his or her own opinion. However, people are not entitled to 
their own facts! 

To counter political spin and help educate the public about the real 
state of America's finances, I joined with the Concord Coalition, the 
Brookings Institution, the Heritage Foundation and others to embark on 
the "Fiscal Wake-up Tour" in September 2005. So far, we've gone to over 
30 cities in 25 states. We have also spoken to numerous business and 
civic groups, editorial boards and local media outlets in these cities. 
Many more stops are planned in 2008 with an emphasis on critical swing 
states for the Presidential election. 

Media reaction to "The Wake-Up Tour" has been overwhelmingly positive. 
A segment on the CBS news program "60 Minutes" was shown twice earlier 
this year and was nominated for an Emmy. I've conducted numerous other 
interviews, including on such diverse programs as NPR's "Diane Rehm 
Show" and Comedy Central's "The Colbert Report." There have been 
numerous op-eds, editorials, and articles in newspapers and periodicals 
across the country. I appreciate the important role the press has 
played and continues to play in getting the truth out, but more needs 
to be done. 

Importantly, a commercial documentary based on my four national 
deficits message, namely our budget, savings, balance of payments and 
leadership deficits, is nearing completion. The film features Bob Bixby 
of Concord, myself and others. The tentative title is "I.O.U.S.A.," and 
the documentary is set for general release next spring --in time for 
the 2008 general election campaign. I.O.U.S.A. was one of 16 out of 
over 900 films accepted for the 2008 Sundance Film Festival. Who knows, 
maybe the documentary will be nominated for an Oscar? I don't know 
about Bob Bixby, but personally, I'm not planning to quit my day job 
for a Hollywood career! 

What have we learned on the Tour? First, the American people have 
little trust or confidence in the federal government's ability to 
address serious issues in a timely and constructive manner. Second, 
most American's don't have a high opinion of the executive or the 
legislative branch, or of either major political party. Third, they are 
starved for two things, truth and leadership. It's time they got more 
of both. 

On a more positive note, the American people are smarter than many 
elected officials and other individuals give them credit for. We've 
seen that once citizens are given the facts, most of them get it. In 
addition, most are willing to make some sacrifices for the future of 
their country and their families. 

Knowledgeable Americans understand and acknowledge that they cannot run 
their households and businesses the way the federal government 
operates. They realize that tough choices will be required to put our 
nation on a more prudent and sustainable path. They also understand 
that, due to the power of compounding, it is prudent to make these 
choices sooner rather than later. As Albert Einstein is reported to 
have said, "The most powerful force on earth is not nuclear energy, it 
is the power of compounding!" 

Very importantly, most Americans, including me, care about their 
children and grandchildren. We don't want to leave our descendants an 
indirect burden that could exceed any direct bequest we may be able to 
give them. 

So where do we go from here? First, we need to re-impose tough budget 
controls, tougher than the ones that expired in 2002. 

It's also urgent that we engage in comprehensive Social Security 
reform, as well as round one of comprehensive health care and tax 
reform. This may require a capable, credible, and bi-partisan 
commission or task force like the SAFE Commission proposed by 
Congressmen Cooper and Wolf, or the task force proposed by Senators 
Conrad and Gregg. Such an entity could help set the table for action 
while providing needed political cover for elected officials to act. We 
can't afford to wait until a crisis is at hand. At that point, our 
options will be more limited and far worse. In my view, it's in 
everyone's best interests to establish such a commission or task force 
as soon as possible, because time is working against us. 

There is little question that it will take committed, courageous, 
capable, inspired, and sustained leadership to help us see the way 
forward, reach consensus on meaningful reforms, and discharge our 
fiduciary and stewardship responsibilities. This is why I believe that 
the next President of the United States must make fiscal responsibility 
and inter-generational equity one of his or her top three priorities. 
If that is the case and the next President is willing to work on a 
constructive and bi-partisan basis to achieve needed reforms, we can 
turn things around. If not, I think it's only a matter of time before 
we do face a major crisis. 

I've focused so far on our government's growing fiscal imbalance, but 
our nation's sustainability challenges go beyond that. For example, 
it's pretty clear that much of the federal government isn't well 
aligned with the realities of the 21ST century. Too few agencies are 
well positioned to meet new challenges or capitalize on emerging 
opportunities. 

The truth is, much of government today is on autopilot and reflects 
social conditions and spending priorities that date back to the 1950s 
and 1960s. The Cold War is over, our population is aging, the dollar is 
no longer the only major reserve currency, and globalization is 
affecting everything from international trade to public health. 

Unfortunately, once federal programs or agencies are created, the 
tendency is to fund them in perpetuity. Washington rarely seems to 
question the wisdom of its existing commitments. Instead, it simply 
adds new programs and initiatives on top of the old ones. Again, 
President Reagan had it right when he said, "The closest thing to 
eternal life on this earth is a federal program." This continual 
layering is a key reason our government has grown so large, so 
expensive, so inefficient, and in some cases, so ineffective. 

As Clay Johnson and I know first hand, the federal government wastes 
huge sums of money each year, largely through not being "results 
oriented," and through failing to properly target its actions For 
example, every year, the U.S. government spends nearly $3 trillion, 
foregoes tax revenues of over $800 billion as a result of various tax 
preferences, and issues thousands of pages of regulations. 
Unfortunately, our government does all this without in many cases 
knowing which federal activities are making a real and meaningful 
outcome-based difference and which are not! On this basis alone, I'd 
venture that "waste" across the federal government could involve 
hundreds of billions of dollars each year. 

From education to infrastructure, policymakers face competing demands 
in a range of vital areas. The question is how best to target finite 
resources and get the greatest value for money spent, whether it's 
through direct spending, government guarantees or tax preferences. In 
my view, it's critically important that the United States adopt a set 
of key national indicators to inform strategic planning, enhance 
government performance and accountability reporting, and facilitate a 
much needed and long overdue re-examination, re-prioritization, and re- 
engineering of the base of the federal government. 

Gross domestic product, unemployment figures, violent crime statistics, 
infant mortality rates, math and science proficiency, and air quality 
indexes are all examples of commonly used indicators. A key national 
indicator system pulls together these various measures to tell a more 
complete story on how a country is doing and how we compare to others. 

It matters how a nation keeps score. Indicator systems use fact-based 
information. And with more comprehensive and fact-based information, 
policymakers are more likely to ask good questions. They are also more 
likely to propose sound solutions and make wise decisions on spending, 
legislation, and oversight matters. Given these outcomes, public 
confidence in government should increase. After all, it can't get much 
lower! 

One possible way to develop a set of key national indicators is through 
a public/private partnership. This approach is being pursued by the non-
for-profit group State of the USA and other organizations. Their 
efforts deserve more attention and support. 

The realty is in addition to our overall fiscal challenge, the U.S. 
faces several other key sustainability challenges. They include things 
like our health care system, education, energy, environmental 
protection, immigration, Iraq and critical infrastructure policies - 
just to name a few. 

How can Congress and the President begin to sort out all these 
challenges and take steps now before the challenges of today become the 
crises of tomorrow? At GAO, we are trying to make sure the nation's 
leaders have the tools to meet this challenge. As I mentioned earlier 
today, GAO is issuing a new report that lays out a possible path for 
change. The report is entitled, "A Call for Stewardship: Enhancing the 
Federal Government's Ability to Address Key Fiscal and Other 21st 
Century Challenges." 

This report provides 13 potential tools for Congress and the 
Administration to use to begin to confront our long-term fiscal and 
other challenges. This report is our latest addition to a portfolio of 
GAO products designed to address major 21ST century challenges facing 
the nation. 

As our latest report shows, the United States is not alone in facing a 
range of major challenges. In fact, representatives from GAO and about 
150 other countries' Supreme Audit Institutions (SAIs) gathered in 
Mexico City last month to address two issues of interest around the 
globe. 

The first issue relates to the need to take steps to ensure sustainable 
debt levels for nations in the future. The second issue relates to the 
need to develop a set of key national indicators to help improve 
government performance, ensure accountability, and enhance citizen 
engagement. Do these topics sound familiar? In the interest of full and 
fair disclosure, GAO did have some input on their selection! 

Given these themes and the subject of my talk today, I ask that you 
consider the following potential future. Imagine a day in the future 
when government leaders are focused on their fiduciary responsibility 
to generate positive results for the people based on a set of key and 
results-based indicators. A day when government leaders provide timely 
and reliable performance information to their citizens in order to 
assess a nation's position, progress, and standing relative to other 
nations. 

Imagine a day when government leaders understand and exercise their 
stewardship responsibility with regard to fiscal, environmental, and 
other key issues of national and global concern. A day when government 
leaders don't just focus on today but also take steps to create a 
better tomorrow. 

When that day comes, we will have made a real difference--not just for 
our nations, and our fellow citizens, but for all mankind. 

As the head of one of the leading supreme audit institutions in the 
world, the GAO, I can assure you that GAO will do its part to help 
address these and other key stewardship issues. All that I ask is that 
elected officials, political appointees, career civil servants, the 
press, and other caring citizens do their part as well. If all of us do 
our part, and if we start making tough choices sooner rather than 
later, we can keep America great, ensure that our future is better than 
the past, and ensure that our great nation is the first republic to 
stand the test of time. To me, that is a cause worth fighting for. 

In closing, as my favorite modern day President, Theodore Roosevelt 
said, "fighting for the right (cause) is the noblest sport the world 
affords." Please join the fight to keep America great. Your children, 
your grandchildren, and generations yet unborn, will be glad that you 
did. 

Thank you for your time and attention. 

[End of presentation]