Concepts - Fiscal Sustainability Reporting
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Concepts - Fiscal Sustainability Reporting

Project Objective:

The FASAB is considering what information would be most likely to enable readers of federal financial reports to determine whether future budgetary resources will likely be sufficient to sustain public services and to meet obligations as they come due.  Ultimately, this may enhance the public's understanding of long-term fiscal issues.

The Board is working with the assistance of a Fiscal Sustainability Reporting Task Force whose members have technical knowledge relevant to the issues and/or communications expertise relevant to the challenge of how to effectively communicate complex information on long-term fiscal issues. The task force members include representatives from several "think tanks" such as the American Enterprise Institute, the Cato Institute, the Brookings Institution, and the Urban Institute; the Chief Actuaries for Social Security and Medicare; technical experts from the Office of Management and Budget (OMB), the Congressional Budget Office (CBO), the Treasury Department, and the Government Accountability Office (GAO); members of Congress; and academics in the areas of public policy and communications.

Staff Contact: Eileen Parlow, (202) 512-7356,  parlowe@fasab.gov

History of Board Deliberations (reverse chronology)

February 13-14, 2008 Board Meeting

At the February 2008 Board, the members discussed the following:

  1. Proposed format(s) for a primary summary display, including:
    1. Time horizon for projections
    2. Disaggregation of inflows and outflows, especially “other”
    3. Options A, B, C, D and E
  2. Proposed requirements for additional specific graphics and narrative for:
    1. Major drivers, such as trends in cost of health care and demographic trends
    2. Trends in deficit spending/debt
    3. Additional information necessary to help readers understand the nature and relevance of the primary summary display
  3. Initial placement and audit status of the proposed summary display and the additional graphics and narrative within the CFR.
  4. Proposed reporting requirements for significant changes in economic, demographic, or policy assumptions.
  5. Proposed guidance on the selection of discount rates and/or valuation dates.

The members did not reach a consensus on a specific time horizon for the primary summary display.  The members agreed to a compromise, that the ED will require that either the primary summary display or a secondary display will reflect a projection period that is consistent with the SoSI, so that amounts displayed for Social Security and Medicare are consistent with the SoSI.  

The members also agreed that the bottom-line summary figure(s) should be provided for both a finite and an infinite projection period, with only one projection period for the primary summary display; the other would be in a secondary display or narrative.

A majority of members- Messrs. Farrell, Jackson, Murphy, Schumacher, Steinberg and Allen - agreed that disaggregation beyond Social Security, Medicare and Medicaid be left to the discretion of the preparer.

The members indicated that (a) through (g) below should be included as requirements for the primary summary display, with the format of the elements left to the discretion of the preparer.  The ED will provide an illustrative pro forma in the Appendix.

  1. Total Projected Receipts/Inflows/Resources
  2. Total Projected Costs/Outflows/Responsibilities
  3. “Bottom Line”
  4. Amounts Displayed as both (present value) dollars and percent of Gross Domestic Product (GDP)
  5. Fiscal Imbalance as a percent of projected inflows and total projected outflows
  6. Year-to-Year (e.g., Side-by-Side) Comparison with Prior Year
  7. “Net Change” Column

A majority of the Board decided that the ED should propose that the reporting should be RSI for three years, and then be required as basic information.

During March, staff will prepare a revised exposure draft and meet with the task force. At the April meeting, the Board may consider a pre-ballot draft with the objective of issuing an exposure draft before June 2008.

Issue Paper for February 2008

1 Currently, the time horizon requirement for the SoSI is that it is “sufficient to illustrate long-term sustainability (e.g., traditionally the “Social Security,” or OASDI program has used a projection period of 10 years for relatively short-term and 75 years for long-term projections, and the UI program has used a projection period of 10 years for its projections).” (SFFAS 17, paragraph 27)   Accordingly, the SoSI could be prepared with either a finite or an infinite horizon projection period.  

December 4-5, 2007 Board Meeting

The following members of the Fiscal Sustainability Task Force participated in the December 2007 Board meeting:

Robert Anderson, Senior Economist, Office of Management and Budget (OMB)
Benjamin R. Page, Principal Analyst, Macroeconomic Analysis Division, Congressional Budget Office (CBO)
James Duggan, Senior Economic Advisor for Social Security, Office of Economic Policy, U.S. Department of the Treasury (“Treasury”)
Thomas McCool, Director of the Center for Economics in Applied Research and Methods, Government Accountability Office (GAO)

At the December Board meeting, the Board addressed assumptions, per capita measures and various options for a primary summary display.

Assumptions

The Board confirmed the consensus reached at the September Board meeting that policy assumptions for the primary summary display should be consistent with current levels of federal benefits, services and taxation.  Staff will draft additional language in the draft exposure draft (ED) to clarify this requirement.

Per Capita Measures

The members discussed the objections to per capita measures that were explained by the technical members of the Fiscal Sustainability Task Force:

  • A majority of the technical members strongly objected to the use of per capita summary numbers using current-year population for the denominator.  Such values would imply that the current-year population is solely responsible for funding program shortfalls into the distant future.  Those members believe that any changes needed to address the shortfalls projected through, for example, the next 75 years, must be spread across the population throughout that 75-year period, and cannot be handled solely by today's workers.  
  • “Per capita” measures for infinite-horizon projection periods present special problems.  It is uncertain how a reasonable “per capita” denominator for the “infinite horizon” ratio would be selected and explained, especially if the denominator includes an estimate of all individuals that enter the population during the projection period.
  • Present value per capita amounts can be easily misinterpreted, because the reader will compare the amounts with current salary levels and not understand the role of potential future productivity increases.
  • Per capita amounts represent amounts distributed equally among individuals with widely different abilities to pay.

The Board discussed the above objections and concurred that per capita measures should be deleted from the proposed reporting.

Initial discussion of summary displays

The Board discussed the options for summary displays.  Options A, B and C are described in pages 6-12 of the December briefing memorandum (available on the Active Projects page of the FASAB website, www.fasab.gov ) and an Option D that was presented at the meeting by Mr. Dacey of GAO (to be available as an attachment to the December 2007 meeting minutes when they are posted to the FASAB website in early February).

The members discussed the advantages of each of the four displays and noted that it would assist their evaluation if actual projections could be added to the various line items.  Staff plans to ask the Congressional Budget Office for assistance in providing actual projections based upon the Board’s requirements for assumptions.

Issue Paper for December 2007


1 Policy assumptions address the level of services provided by the federal government as well as the framework for assessing taxes and fees.

September 19-20, 2007 Board Meeting

At the September 2007 meeting, the Board discussed objectives for fiscal sustainability reporting and issues relating policy assumptions for revenue and spending projections.  Fiscal Sustainability Task Force Technical Experts with experience making such projections were invited to the meeting to assist in answering members’ questions:

Jagadeesh Gokhale, Senior Fellow, Cato Institute
Thomas McCool, Director, Center for Economics, Government Accountability Office
Patrick Locke, Chief, Budget Analysis Branch, Office of Management and Budget
Robert B. Anderson, Senior Economist, Office of Management and Budget

The objectives for fiscal sustainability reporting focus on FASAB’s existing Objective 3,

Stewardship. Objective 3 says that:

Federal financial reporting should assist report users in assessing the impact on the country of the government's operations and investments for the period and how, as a result, the government's and the nation's financial condition has changed and may change in the future.

In particular, sub-objective 3B states that:

Federal financial reporting should provide information that helps the reader to determine whether future budgetary resources will likely be sufficient to sustain public services and to meet obligations as they come due.

The Board indicated general agreement with the objectives.

The Board also discussed potential guidance for policy and economic assumptions.

Policy assumptions address the level of services provided by the federal government as well as the framework for assessing taxes and fees.  Economic assumptions address the economic factors that are not under the direct control of the Federal government (for example, population demographics, inflation and growth in Gross Domestic Product (GDP)).   The Board indicated that staff should develop broad guidelines for assumptions rather than detailed rules.

For the December 2007 meeting, the briefing materials will contain numerous alternatives for fiscal sustainability reporting in addition to revised objectives and guidance on assumptions.  The briefing materials will be presented in the format of a draft exposure draft (ED).

Issue Paper for September 2007

July 25-26, 2007

The Board discussed the distinction between budget policy, including targets and budget rules, and financial reporting, and agreed that FASAB’s role is to set the standards for what information needs to be reported so that readers of the Financial Report of the U.S. Government (FR) can assess long-term fiscal sustainability, as described in the Board’s objectives for financial reporting- specifically, “whether future budgetary resources will likely be sufficient to sustain public services and to meet obligations as they come due.”1. This is distinct from a definition of fiscal sustainability, which might involve or imply setting budget policy or rules. The Board did not rule out the possibility that a definition might emerge during the course of the project, but agreed with staff that at this point in the project, objectives for fiscal sustainability reporting would be the optimal foundation for the development of reporting requirements.

It was noted that, based upon research and discussions with a representative from the International Public Sector Accounting Standards Board (IPSASB), the FASAB is on the leading edge among developed nations in exploring the potential for including reporting on fiscal sustainability in the national government’s general purpose financial reports. The IPSASB is planning a project on this issue and expects that this project will be on its agenda for the first time in November, 2007.

For the September Board meeting, staff will draft recommended objectives for fiscal sustainability reporting, which will be based upon existing objectives for “Stewardship” in Statement of Federal Financial Accounting Concepts 1.

The Board discussed a recommendation from the Communications members of the Fiscal Sustainability Reporting Task Force that emphasized the importance of obtaining feedback from representatives of different audience segments in order to evaluate whether the proposed reporting is understandable and useful. It was agreed that FASAB staff will contact several academics in the field of communications who have expressed an interest in this project, to explore whether perhaps their students might be available to comment on proposed reporting as it is being developed. Staff will also explore any other potential avenues that might arise for obtaining feedback from members of the public, including discussions with IPSASB representatives.

Handouts - July 2007 Board Meeting

1Statement of Federal Financial Accounting Concepts (SFFAC) 1, paragraph 139.

Discussion of interim results of the task force efforts with the objective of identifying any additional research areas and any member concerns

Fiscal Sustainability Reporting (PDF 1.7MB)

Attachment- Fiscal Sustainability Reporting (PDF 1.7 MB)

Separate Binder- International survey: Fiscal Sustainability Reporting (PDF 361KB)

May 23-24, 2007

Although time constraints did not permit discussion of Fiscal Sustainability Reporting at the May 2007 Board meeting, staff provided a brief written summary of the April 2007 meeting of the “technical expert” members of the Fiscal Sustainability Task Force.  The “financial statement users/communications experts” members, as well as several of the “technical experts” members, will meet in June 2007 to discuss how to communicate information to the public in an understandable and meaningful way. At the July 2007 Board meeting, staff will present a brief summary of the June 2007 Task Force meeting, as well as a survey of several other countries’ reporting on long-term fiscal sustainability.

Handout- May 2007 Board Meeting (PDF)

March 21-22, 2007

Update on correspondence and meetings with the "technical experts" members of the Fiscal Sustainability Reporting Task Force. The memo to the Board is posted below.

Issue Paper for the March 2007 Board Meeting (PDF)

January 17-18, 2007 At the January 2007 Board meeting, the Board reviewed a draft briefing package for the fiscal sustainability reporting task force members.

Issue Paper for January 2007 (PDF)

July 26-27, 2006

At the July meeting, FASAB staff presented a proposed list of task force members for Sustainability Reporting and a draft outline of a briefing package for task force members. The Board approved the outline briefing package and discussed additions to the proposed list of task force members.

Staff plans to draft the full briefing package and begin to contact potential task force members.

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