Deficit Retention Disorder?

At the end of last month, the federal government played its own version of "pretend you're not home when bill collectors call." For nine days, from September 22 to 30, the government put a hold on Medicare payments to health-care providers. The payments resumed this month, with no interest or penalties added. Why? Because October is the start of the 2007 fiscal year.

Finance executives will recognize the blackout as a game of "shift the expenses." The payment holiday is a simple accounting gimmick to lower the federal deficit, or to at least appear to lower it. The hold shifted $5.2 billion in expenses into the 2007 fiscal year.

Who's behind the charade? Congress. It legislated the hold as part of the Deficit Reduction Act, signed into law in February by President Bush.

"Because the federal government is [operating] on a cash basis as opposed to accrual, it can do these types of things," says Charles Mulford, a professor of accounting at Georgia Institute of Technology. "It's deficit reduction through smoke and mirrors."

In mid-August, the Congressional Budget Office revised its estimate of the federal deficit for FY2006 to $260 billion, down from the $371 billion it had forecast in March. President Bush has vowed to cut the deficit in half by the end of his term.

That could be tough. Mulford explains that the government will likely have to conduct the blackout for at least nine days next year — and maybe longer — to make up for the shift.

Isn't that how WorldCom got into trouble?