GAO predicts budget challenges ahead for state and local governments.

• Position: News & Numbers - Government Accountability Office

For more than a decade, the Government Accountability Office (GAO) has warned of an impending severe structural deficit for the federal government, driven above all by rising costs in Medicare and Medicaid but also by the sheer size of the Baby Boomer wave of retirement and its effect on entitlement programs in general.

Now, the GAO has released data for state and local government that are equally dire. In a report entitled "State and Local Governments: Persistent Fiscal Challenges Will Likely Emerge within the Next Decade," the GAO warns that state and local government will, without significant changes in government policy at all levels, drift into permanent deficit from 2017 onward. By 2050, revenues will fall a projected 3.69 percent of GDP short of what is needed to fund current state and local spending obligations--a sum that accounts for almost a third of state and local spending's share of the economy.

While a complete GAO analysis of the situation will not be available until midwinter according to staff at the agency, this preliminary analysis, which was released on July 18, provides a broad picture of the increasingly grim fiscal outlook--and pinpoints healthcare as the biggest single contributor to state and local government's long-term shortfalls. In a presentation to the National Press Club that accompanied the report's release, GAO Comptroller General David M. Walker noted that state and local government spending on healthcare will almost equal the combined...