The U.S. General Accounting Office (GAO) is a non-partisan, independent watchdog over Congressional spending. (here) The GAO recently released a 2018 update report on the fiscal health of state and local governments. (here)

The report is alarming, but not unexpected. Over the next 50 years, state and local governments will have an increasing negative operating balance which will reach 3 to 3.5 percent of the federal gross domestic product (GDP) by 2067. This is in comparison to 1.3 percent of GDP in 2017.

This may seem like a small increase until you realize the GDP last year was $19.5 trillion. So a tripling of this negative operating balance is a significant amount of money.

The GAO found that the negative balance increase over the next 50 years is mainly due to states and local governments spending more on Medicaid and health benefits for public employees and retirees. The real tragedy is that this shortfall will occur in spite of increasing personal taxes and increasing federal taxpayer grants to states and local governments.

Medicaid began in 1965 as a safety-net for low income families with children, the disabled, and some long-term care. The entitlement has exploded in enrollment and costs and is unsustainable in its present form. (here) The GAO report confirms that Medicaid funding will only get worse and will continue to crowd out other government responsibilities such as education and transportation.

The federal government, as well as local and state governments, need political leaders that understand the looming negative operating balance of the entitlements and have the political courage to rein in this out-of-control spending. Politicians can’t tax their way out of this financial imbalance. Only a decrease in spending will set a sustainable financial course.