JUST WHERE IS THAT $650 BILLION?

Social Security trust fund in West Virginia
By Deb Riechmann
The Associated Press

PARKERSBURG, W. Va. -

Want to see the $650 billion Social Security trust fund? It's not at Fort Knox. It's here in the hills of West Virginia.

And it's at the heart of the debate over the coming Social Security crisis. Right now, more money flows into the Social Security trust fund than is needed. But when baby boomers start retiring, the trust fund will need to tap the money it's been lending the U.S. Treasury all these years. And after a while, even the trust fund won't be a big enough nest egg.

The trust fund portfolio contains billions of dollars in Treasury securities, which are considered gold plated investments because they're backed by the full faith and credit of the U.S. government. Some Americans, however, think they are worthless IOUs. They wonder how the government can repay the trust fund the billions it has borrowed over they years.

Ask to see the trust fund at the office of Public Debt Accounting, in a one-story brick building near the Ohio River, and Treasury Department workers will stroll down the street to another office and point to a locked file cabinet next to Jo anna Penn's desk. There's no real cash in the cabinet. Inside are four brown file folders filled with the $650 billion in Treasury bonds.

Ok, they're not real. They're pseudo Treasury securities. Investors no longer get honest-to-goodness Treasury bonds that they can hold in their hands. For decades now, Treasury securities have been handled through a computerized system of book entries.

But about three years ago, Congress decided the American people needed reassurance -- paper proof -- that the Social Security trust fund really exists. so every month, Penn makes up these non-negotiable Treasury bonds on her computer, prints them on a laser printer around the corner from her cubicle, and dutifully files them in the file cabinet -- just in case anybody wants to take a peek.

Penn and her colleagues acknowledge that these 162 paper instruments aren't authentic. (Privately, they say they think the congressional mandate to make them up is a little silly.) But they insist they represent real assets sitting in the trust fund -- the whole $650 billion.

"This was a good-faith effort to prove to the public that the money really is there," said Susan Chapman, manager of the government securities management branch in Parkersburg.

Year after year, the Social Security surplus has acted like a private savings and loan for the government. the money goes into the trust fund. The trust fund immediately buys Treasury securities. The government then uses that money to run the government, vowing all the while to pay back the trust fund with interest.

With the coming wave of baby-boom retirees, all that will change. Income from payroll taxes flowing into the Social Security system will be sufficient to pay benefits for 14 years. But starting 2012, Social Security is going to be knocking on the government's door, asking to draw upon the interest -- and later the principal -- tied up in the Treasury securities sitting in the trust fund. William F. Gillen, a retired Navy man from Wilmington, Del., isn't convinced the government can pay it back.

"Do you realize how much that is? To date, they've stolen $600 billion," Gillen said. "They've been hoodwinking the American people for so long. They're not hoodwinking me! I know what they're doing."

To pay back the trust fund, the government would have to raise taxes, cut government spending, or borrow more money from investors interested in buying Treasury bonds, government officials said.

And even if the government finds a way to pay back the fund, a larger problem looms. In 2029, all the interest and principal will be used up. The Social Security system will have to depend solely on the payroll and income taxes rolling in from workers. At this juncture, there will be enough money to cover only about 75 percent of the monthly Social Security benefits. Unless changes are made, there won't be any money to pay the other 25 percent.

President Clinton says he'll ask Congress next year to make changes to prepare Social Security for baby boomers' retirements. An array of reform proposals will be debated at four town hall meetings starting today in Kansas City, Mo.