Balanced Budget Roadmap


When taking a trip we always pick where we want to go and how we plan to get back. If we do no planning then we trust our ability to navigate whatever we face ahead. If we make the same trip frequently or we are inherently familiar with the area then there is little planning required. However, few of us trust complicated trips to chance or some innate ability we possess.

Governments are another story. Deficits are neither unexpected nor unplanned. In my estimation public servants that spend money they don’t have, act criminally. It’s no better than you writing bad checks. Of course we write checks that are for some future time but as long as we know that the money will be put in before the check is cashed then it all works out fine.  Today is June 28, 2011 and we are faced with most of the industrialized countries having crushing budget deficits and they are for all purposes bankrupt. The U.S. faces over $14 Trillion dollars in debt and $56 Trillion in unfunded obligations and this is just at the Federal level. Personal credit card debt is over a $1 Trillion and student loans are over $1 Trillion. State and local debt and unfunded obligations is running in the Trillions of dollars also. The point is, we are at the time where the debt is beyond our ability to service the interest. This is proof positive that our past politicians have not planned properly and failed in their fiduciary responsibility.

I was never a religious person, but one bible story always struck me as the best financial advice that we should all live by, the story of Joseph (Genesis). He recognized that there were always periods of feast and famine. He advised the pharaoh to stockpile grain for those periods of famine. When the inevitable drought and famine occurred Joseph was a hero. This is symbolic of a simple attitude. Plan before you take the trip, be realistic about the good years and the bad years and build a reserve to cover those bad times that are sure to come.

If we don’t adopt the right attitude then we doomed to failure. We have to recognize what is the real problem, before we can fix it. Credit card and student loan debt were mentioned above because it illustrates that the problem is not confined to the politicians. It’s a national disease, even global. The attitude of spending beyond our means is out of control and the worst part is when it drags everybody down with those that are poor/irresponsible planners. I don’t mind if someone does this and pays the consequence for their excesses but it pisses the hell out of me when I have to pay for their mistakes.

You might guess that I have a background in short and long term financial planning. More importantly I have also setup budgets for public institutions. Let me tell you a secret – the budget is not as important as the controls to ensure that the budget was realistically generated in the first place. This means that the projections of revenues and expenses have to be conservatively forecasted. If you use high obtainable goals for both then there is an excellent chance that you will have a balanced budget at the end of the fiscal year. The reverse is also absolutely true and all too common. There is a real tendency to try to hold down any increases in revenues to compensate for inflation and be overly optimistic about operating expenses and capital requirements. Let me explain this part. Operating expenses are those things that you routinely have as ongoing costs:
utilities, rents, mortgages, supplies, food, travel expenses, etc.

There is along list of operating expenses. Regardless of what the declared core inflation rate, these operating expenses are going up 5% plus per year. Therefore you can look at the cost for last year and increase it by 5% and you would be close to reality. Capital expenses refer to usually big ticket items. These would be new construction or projects and includes costly repairs of building structures, roads, bridges and basic utilities. The portion that is estimated for these expenses are usually in a section called reserves. The point is you have to set aside funds for years to build up adequate levels to pay for the projects. This is the best way to do these projects. Any organization that does not build reserves in anticipation of future needs winds up taking out loans to cover their lack of discipline in budgeting. An example of this on a personal level is saving for retirement. It takes years to build up enough reserves to have sufficient finds so you can retire. Otherwise don’t plan on retiring ever! So the problem is even worse than what appears. Think about it, we need to plan to: Cover operating expenses.

  1. Bad times which are expected.
  2. Replacement capital for an aging infrastructure.
  3. Investments for future growth


Government financial planning is a reflection of personal financial planning. If the majority of citizens do not think of budgeting for short term and long term needs then you can expect that they will elect politicians that reflect this same thinking. So if you think the government is the only problem here, get over it. You elected them and you did not ask the right questions when you had the opportunity to make an informed choice. Note that the debate that has driven the political parties, over the last 30 years, has been – the morality of right to life; use of drugs; exposure to sex, and the  morality of entitlement programs. The irony of elevating these areas as priorities is that they are not priorities and both parties share the same disease. So the political parties are more similar then they would profess. What are the right priorities for our politicians? Security from internal and external threats; a legal system that ensures the rights of the citizens that want to act in a socially harmonic manner; providing an infrastructure to promote financial stability and growth; and critical education that provides a minimum level functionality to the vast majority of the citizens.

I really feel like screaming about this issue. If we try to do too many things then we lose control of the governing process. The other obvious thing is when we do too many things, we can’t formulate a reasonable budget nor will we have any hope of controlling the spending to that budget. Governments are failing their  citizens at a fundamental level by choosing to take on more than they can chew. It is just not acceptable to ignore that fact that there has to be adequate resources to provide a service and there is corresponding budget that is  necessary to sustain those resources, otherwise don’t even try to do it, focus on the priorities. This begs the question – what should be the priorities? Let’s have an informed debate and a referendum on the priorities first. Hopefully we can agree that will make us safe and prosperous.

There is another important concept in budgeting – deciding who deserves the services that we are to provide. Not everyone deserves all services. Allocation and limiting programs are not demonic concepts. Governments and private industry can be compatible. Further they should not be adversarial. But for that to happen, the roles of governments need to be defined. That is the subject of another article in this Blog.  There always has to be, built into the process, personal responsibility. Unlimited promises lead to only two things – excesses and financial ruin. We cannot build highways to nowhere, bridges to nowhere. We cannot be a world cop especially when we cannot even control our own borders.

We are one of the worst violators of human rights because we have the highest level of incarceration per capita in the world. Many of the incarcerated are there due to drugs and are basically political prisoners because they disagree with the government’s position on morality and particularly when they demonstrate no deliberate malice against anyone.
The prism by which we make decisions depends on the reward system we personally see as our metric of success. Campaign finance reform is so important because our politicians have to raise enormous amounts of money to run for office they are immediately corrupted by the small group of donors that can provide them the funds they need to run and stay in office. The American way is democracy and the decisions are suppose to happen by vote and representation of the majority opinion. The unlimited contribution to campaigns that corporations can now give directly impacts what priorities are set for the country. The U.S. now has an oligarchy.

You must be frustrated by now that I have not talked about specifics. Specifics make no sense unless they are put into the context of a process. A viable process has a goal, objectives, defined participation, responsibility of participants and metrics connected to the goal & objectives. More specifics will be discussed in future blogs. The purpose of this one was to frame the debate. Let me know how you think it should be framed and your priorities. Please name your top five priorities for the federal government.
M Mirsky

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