Ominous outlook: America's fiscal future--with unprecedented liabilities and unfunded commitments--is grim indeed.

• Author: Moore, Nicole Casal

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The outlook for America's fiscal future is grim, says U.S. Comptroller General David Walker. And there are three big reasons: Medicare, Medicaid and Social Security. The federal government has made grand promises without solid plans for how it can keep solvent as baby boomers reach retirement age, and that means big trouble for states.

"Is this only a federal problem? The answer is 'no,' Walker said at NCSL' s Spring Forum in April. "Bad news flows downhill, to state and local governments, and eventually, to American families."

States might be the first to feel the sting. Marti Harkness, criminal justice director with the Florida Office of Program Policy Analysis and Government Accountability, sees a direct connection between the federal deficit and state finances.

"When the federal government can't balance its books, the states have to pick up the tab," Harkness said. "Everywhere, we're seeing more and more reductions in federal funds to states."

Congress shifted close to $75 billion in costs to states between FY 2004 and FY 2006. Under the president's FY 2007 budget proposal, that figure would grow past $100 billion, according to NCSL's latest Mandate Monitor. As of mid-April, the 109th Congress had enacted at least 19 laws that either impose new requirements on states without any new funding, or that cut the federal share of state-federal partnerships. More such bills are pending at a time when states' own future finances are uncertain. Expenses are outpacing revenues in many states, and for FY 2008, 19 expect structural deficits to materialize.

A close look at the federal financial picture helps explain why Congress might be increasingly compelled to export its deficit to the states. In 2000, Walker said, the nation's total liabilities and unfunded commitments were $20.4 trillion. That number includes money for Medicare and Social Security benefits, environmental cleanups, military and civilian pensions--the government's promises for future spending. During the past five years, that figure more than doubled to $46 trillion. That amounts, Walker said, to $156,000 for every person in the country.

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The comptroller blames Medicare for most of the increase, $8.7 trillion of which he attributes to the new Part D prescription drug benefit. The program, which will provide drug coverage for some 42 million Americans, has a 75-year price tag that Walker describes as more than the nation's accumulated debt...