Management's Discussion & Analysis

The Government´s Financial Position and Condition

This Financial Report discusses the Government’s financial position at the end of the fiscal year, explains how and why the financial position changed during the year, and discusses the Government’s financial condition and how it may change in the future.

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*Restated (See Financial Statement Note 1.V)

Table 1 on the previous page and the following summarize the federal government’s financial position:

• The Government’s gross costs of $4.6 trillion, less $431.9 billion in revenues earned for goods and services provided to the public (e.g., Medicare premiums, national park entry fees, and postal service fees), plus $356.5 billion in net losses from changes in assumptions (e.g., interest rates, inflation, disability claims rates) yields the Government’s net cost of $4.5 trillion, an increase of $128.8 billion or 2.9 percent over FY 2016.
• Deducting $3.4 trillion in tax and other revenues, with some adjustment for unmatched transactions and balances, results in a “bottom line” net operating cost of $1.2 trillion for FY 2017, (an increase of $105.0 billion or 10.0 percent) over FY 2016.
• Comparing total 2017 Government assets of $3.5 trillion to total liabilities of $23.9 trillion (comprised mostly of $14.7 trillion in federal debt held by the public and accrued interest payable³, and $7.7 trillion of federal employee and veterans benefits payable) yields a negative net position of $20.4 trillion.
• The budget deficit is primarily financed through borrowing from the public. As of September 30, 2017, debt held by the public, excluding accrued interest, was $14.7 trillion. This amount, plus intragovernmental debt ($5.6 trillion) equals gross federal debt, which, with some adjustments, is subject to the statutory debt limit. As of September 30, 2017, the Government’s total debt subject to the debt limit was $20.2 trillion. The statutory debt limit was most recently suspended through December 8, 2017. See Note 25, Subsequent Events, for developments since the end of the fiscal year.

This Financial Report also contains information about projected impacts on the Government’s future financial condition. Under federal accounting rules, social insurance amounts as reported in both the SLTFP and in the SOSI are not considered liabilities of the Government. From Table 1:

• The SLTFP shows that the present value (PV)⁴ of total non-interest spending, including Social Security, Medicare, Medicaid, defense, and education, etc.), over the next 75 years, under current policy, is projected to exceed the PV of total receipts by $16.2 trillion (total federal non-interest net expenditures from Table 1).
• The SOSI shows that the PV of the Government’s expenditures for Social Security and Medicare Parts A, B and D, and other social insurance programs over 75 years is projected to exceed social insurance revenues⁵ by about $49.0 trillion, a $2.3 trillion increase over 2016 social insurance projections.
• The two sustainability measures in Table 1 differ primarily because total non-interest net expenditures from the SLTFP include the effects of general revenues and non-social insurance spending, neither of which is included in the SOSI.

The Government’s current financial position and long-term financial condition can be evaluated both in dollar terms and in relation to the economy as a whole. Gross Domestic Product (GDP) is a measure of the size of the nation’s economy in terms of the total value of all final goods and services that are produced in a year. Considering financial results relative to GDP is a useful indicator of the economy’s capacity to sustain the Government’s many programs. For example:

• The budget deficit (i.e., including the consolidated receipts and outlays from federal funds and the Social Security Trust Fund) increased from $587.4 billion in FY 2016 to $665.7 billion in FY 2017. The deficit-to-GDP ratio in 2017 was 3.5 percent, compared to 3.2 percent in FY 2016 and the 3.1 percent average over the past 40 years.⁶
• The budget deficit is primarily financed through borrowing from the public. As of September 30, 2017, the $14.7 trillion in debt held by the public, excluding accrued interest, equates to approximately 76 percent of GDP.
• The 2017 SOSI projection of $49.0 trillion net PV excess of expenditures over receipts over 75 years represents about 4.0 percent of the PV of GDP over 75 years. The excess of total projected non-interest spending over receipts of $16.2 trillion from the SLTFP represents 1.2 percent of GDP over 75 years. As discussed in this Financial Report, these projections can, in turn, have a significant impact on projected debt as a percent of GDP.
• To prevent the debt-to-GDP ratio from rising over the next 75 years, a combination of non-interest spending reductions and receipts increases that amounts to 2.0 percent of GDP on average is needed (1.6 percent of GDP on average in the 2016 projections). The fiscal gap represents 10.0 percent of 75-year present value receipts and 9.4 percent of 75-year present value non-interest spending.

Fiscal Year 2017 Financial Statement Audit Results

For FY 2017, GAO issued a disclaimer of audit opinion on the accrual-based, governmentwide financial statements, as it has for the past twenty years, due to certain material weaknesses in internal control over financial reporting and other limitations on the scope of its work. In addition, GAO issued a disclaimer of opinion on the sustainability financial statements due to significant uncertainties primarily related to the achievement of projected reductions in Medicare cost growth and certain other limitations. GAO’s audit report on page 218 of this Financial Report, discusses GAO’s findings.

21 of the 24 agencies required to issue audited financial statements under the Chief Financial Officers (CFO) Act received unmodified audit opinions, as did 12 of 15 additional significant reporting agencies (see Table 10 and Appendix A).⁷

The Government-wide Reporting Entity

This Financial Report includes the financial status and activities of the executive, legislative, and judicial branches of the federal government, even though the legislative and judicial branches are not required by law to submit financial statement information to Treasury. Appendix A includes a list of the agencies and entities contributing to this Financial Report.⁸

A number of entities are not consolidated due to the nature of their operations, including the Federal Reserve System (considered to be an independent central bank under the general oversight of Congress), all fiduciary funds, and GovernmentSponsored Enterprises (GSEs), including the Federal Home Loan Banks, the Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (Freddie Mae). Following U.S. GAAP for federal entities, the Government has not consolidated into its financial statements the assets, liabilities, or results of operations of any financial organization or commercial entity in which Treasury holds either a direct, indirect, or beneficial majority equity investment. Under Statement of Federal Financial Accounting Concepts (SFFAC) No. 2, these entities meet the criteria of paragraph 50 and do not appear in the Federal Budget section “Federal Programs by Agency and Account.” As such, these entities are not consolidated into the financial reports of the Government. However, the values of the investments in and any related liabilities to such entities are presented on the balance sheet.

The following pages contain a more detailed discussion of the Government’s financial results for FY 2017, the budget, the economy, the debt, and a long-term perspective about fiscal sustainability, including the Government’s ability to meet its social insurance benefits obligations. The information in this Financial Report, when combined with the Budget of the U.S. Government, collectively presents information on the Government’s financial position and condition.

Accounting Differences Between The Budget and the Financial Report

Each year, the Administration issues two reports that detail the Government’s financial results: the Budget of the U.S. Government (Budget), and this Financial Report. The exhibit on the following page provides the key characteristics and differences between the two documents.

Treasury generally prepares the financial statements in this Financial Report on an accrual basis of accounting as prescribed by U.S. GAAP for federal entities.⁹ These principles are tailored to the Government’s unique characteristics and circumstances. For example, agencies prepare a uniquely structured “Statement of Net Cost,” which is intended to present net Government resources used in its operations. Also, unique to Government is the preparation of separate statements to reconcile differences and articulate the relationship between the budget and financial accounting results.

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Budget Deficit vs. Net Operating Cost

The budget deficit is measured as the excess of outlays, or payments made by the Government, over receipts, or cash received by the Government. Net operating cost, on an accrual basis, is the excess of costs (what the Government has incurred, but has not necessarily paid) over revenues (what the Government has collected and expects to collect, but has not necessarily received). As shown in Chart A, net operating cost typically exceeds the budget deficit due largely to the inclusion of cost accruals associated with increases in estimated liabilities for the Government’s postemployment benefit programs for its military and civilian employees and veterans as well as environmental liabilities.

The Government’s primarily cash-based¹⁰ budget deficit increased by $78.3 billion (about 13.3 percent) from approximately $587.4 billion in FY 2016 to about $665.7 billion in FY 2017 due to lower growth in receipts compared to the increase in outlays in FY 2017. The $48.2 billion (1.5 percent) increase in receipts can be attributed to higher social insurance and retirement receipts and net individual income taxes, partially offset by lower deposits of earnings by the Federal Reserve. Outlays increased $126.5 billion (3.3 percent). Contributing to the increase over FY 2016 were higher outlays for Social Security, Medicare and Medicaid, and interest on the debt held by the public. In addition, revisions in estimates of credit subsidy for outstanding Federal loans and loan guarantees, primarily in the Departments of Education and Housing and Urban Development, as well as lower spectrum auction receipts and higher spending by the Federal Emergency Management Agency for hurricane relief and recovery contributed to the increase.¹¹ The Government’s largely accrual-based net operating cost also increased, by $105.0 billion (10.0 percent) from $1.1 trillion to $1.2 trillion, over FY 2016. As explained below, net operating costs are affected by both changes in revenues and costs.

The Reconciliation of Net Operating Cost and Budget Deficit Statement is summarized in Table 2. Table 2 details the relationship between the Government’s accrual-based net operating cost relates to the cash-based budget deficit. From Table 2, the $491.0 billion net difference between the Government’s budget deficit and net operating cost for FY 2017, is mostly attributable to: (1) a $490.7 billion net increase in liabilities for Federal employee and veteran benefits payable (FEVBP); and (2) several offsetting items, including, but not limited to a net $55.0 billion increase in Property, Plant, and Equipment (PP&E) and a $17.9 billion increase in environmental and disposal liabilities. These and most of the other “Change in” amounts summarized in Table 2 affect net operating cost, but not the budget deficit. In particular, the $490.7 billion FEVBP change not only represents most (99.9 percent) of the difference between the budget deficit and net operating cost, but is also, as discussed in the following section, the most significant driver of the increase in the government’s net operating cost for 2017.

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Table 2: Net Operating Cost vs. Budget Deficit

*Restated (See Financial Statement Note 1.V)
¹Net effect of: capitalized fixed assets, depreciation expense, and asset disposals and revaluations

The Government’s Net Position:  Where We Are

The Government’s financial position and condition have traditionally been expressed through the Budget, focusing on surpluses, deficits, and debt. However, this primarily cash-based discussion of the Government’s net outlays (deficit) or net receipts (surplus) tells only part of the story. The Government’s accrual-based net position, (the difference between its assets and liabilities), and its “bottom line” net operating cost (the difference between its revenues and costs) are also key financial indicators.

Costs and Revenues

The Government’s Statement of Operations and Changes in Net Position, much like a corporation’s income statement, shows the Government’s “bottom line” and its impact on net position (i.e., assets net of liabilities). To derive the Government’s “bottom line” net operating cost, the Statement of Net Cost first shows how much it costs to operate the federal government, recognizing expenses when incurred, regardless of when payment is made (accrual basis). It shows the derivation of the Government’s net cost or the net of: (1) gross costs, or the costs of goods produced and services rendered by the Government, (2) the earned revenues generated by those goods and services during the fiscal year, and (3) gains or losses from changes in actuarial assumptions used to estimate certain liabilities. This amount, in turn, is offset against the Government’s taxes and other revenue reported in the Statement of Operations and Changes in Net Position to calculate the “bottom line” or net operating cost. ¹²

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Table 3: Gross Cost, Revenues, Net Cost, and Net Operating Cost

*Restated (See Financial Statement Notes 1.V)

Table 3 shows that the Government’s “bottom line” net operating cost increased by $105.0 billion (10.0 percent), from $1.1 trillion in FY 2016 to $1.2 trillion in FY 2017.¹³ This increase is largely attributable to a $128.8 billion (2.9 percent) increase in agency net costs, which was offset slightly by a $29.3 billion (0.9 percent) increase in tax and other revenues over the past fiscal year as summarized in the following.

Gross Cost and Net Cost

The Statement of Net Cost, starts with the Government’s total gross costs of $4.6 trillion, subtracts revenues earned for goods and services provided (e.g., Medicare premiums, national park entry fees, and postal service fees), and adjusts the balance for gains or losses from changes in actuarial assumptions used to estimate certain liabilities, including federal employee and veterans benefits to derive its net cost of $4.5 trillion (See Chart B), a $128.8 billion (2.9 percent) increase over FY 2016.

Typically, the annual change in the Government’s net cost is impacted by a variety of offsetting increases and decreases across agencies. For example, offsetting changes in net cost during FY 2017 included:

• Agencies administering federal employee and veterans benefits programs employ a complex series of assumptions, including but not limited to interest rates, beneficiary eligibility, life expectancy, and medical cost levels, to make actuarial projections of their long-term benefits liabilities. Changes in these assumptions can result in either losses (net cost increases) or gains (net cost decreases). Across the Government, net actuarial losses from these assumption changes amounted to $356.5 billion in FY 2017, an increase of $83.2 billion over FY 2016. The primary agencies that administer programs impacted by these assumptions – typically federal employee pension and benefit programs – are the Office of Personnel Management (OPM), the Department of Veterans Affairs (VA), and the Department of Defense (DOD). These agencies recorded losses from changes in actuarial assumptions in the amounts of $102.5 billion, $229.7 billion, and $24.1 billion, respectively.
  • These analyses and the resulting gains or losses can sometimes cause significant swings in total agency costs from year to year. For example, for FY 2017, changes in net cost at VA ($169.4 billion decrease), OPM ($178.5 billion increase), and DOD ($56.2 billion increase), were impacted by the corresponding changes in gains or losses from assumption changes at these agencies.
• Agencies that extend credit to the public in the form of loans, including student and housing loans, estimate and annually reestimate the long-term costs of these programs   employing multiple loan performance and economic assumptions. These estimates and reestimates can have varying effects on an agency’s net cost each year. For example, the $19.4 billion net cost decrease at the Department of Education and the $39.7 billion increase at the Department of Housing and Urban Development were both largely attributed to these “credit subsidy estimates and reestimates.”¹⁴;
• $11.8 billion and $17.0 billion net cost increases at the Department of Health and Human Services (HHS) and the Social Security Administration (SSA), respectively, primarily due to cost increases of the benefits programs that these agencies administer (HHS – Medicare and Medicaid programs, SSA – Old Age Survivors and Disability Insurance (OASDI) programs);
• A $23.3 billion cost increase in interest on debt held by the public due largely to an increase in the debt¹⁵;
• $23.0 billion net cost decrease at the Department of Energy predominantly due to changes in estimated environmental remediation costs compared to FY 2016; and
• A $10.9 billion net cost increase at the Department of Homeland  Security primarily to support response and recovery efforts related to the recent hurricanes.¹⁶

Chart B shows the composition of the Government’s net cost. In FY 2017, nearly three fourths of total net cost came from HHS, SSA, DOD, and VA. Chart C shows that these agencies have consistently incurred the largest agency shares of the Government’s total net cost in recent years. As indicated above, HHS and SSA net costs for FY 2017 ($1.1 trillion and $1.0 trillion, respectively) are attributable to major social insurance programs administered by these agencies. DOD net costs of $665.4 billion relate primarily to operations, readiness, and support; personnel; research; procurement; and retirement and health benefits. VA costs ($479.7 billion during FY 2017, nearly half of which was due to losses from changes in actuarial assumptions as referenced earlier) support health, education and other benefits programs for our Nation’s veterans. Chart B also shows that interest on debt held by the public contributed an additional 6 percent, and the other agencies included in the Government’s FY 2017 Statement of Net Cost accounted for a combined 22 percent of the Government’s total net cost for FY 2017.

Tax and Other Revenues

As noted earlier, tax and other revenues from the Statement of Operations and Changes in Net Position are deducted from total net cost to derive the Government’s “bottom line” net operating cost. Chart D shows that total tax and other revenue did not change significantly, increasing slightly by $29.3 billion or 0.9 percent to $3.4 trillion for FY 2017. This increase is attributable mainly to an overall growth in individual income tax collections, partially offset by reduced estate and corporation income tax collections and deposit of earnings from the Federal Reserve System.¹⁷ Earned revenues from Table 3 are not considered “taxes and other revenue” and, thus, are not shown in Chart D. Individual income tax and tax withholdings and corporation income taxes accounted for about 79.7 percent and 8.9 percent of total revenue, respectively in FY 2017; other revenues from Chart D include Federal Reserve earnings, excise taxes, unemployment taxes, and customs duties.

As previously shown in Table 3, the increase in net cost more than offset the slight increase in tax and other revenues, resulting in a slight increase in the government’s net operating cost from $ 1.1 trillion for FY 2016 to $1.2 trillion for FY 2017.

Assets and Liabilities

The Government’s net position at the end of the year is derived by netting the Government’s assets against its liabilities, as presented in the Balance Sheet (summarized in Table 4). The balance sheet does not include the financial value of the Government’s sovereign powers to tax, regulate commerce, or set monetary policy or value of nonoperational resources, such as national and natural resources, for which the Government is a steward. In addition, as is the case with the Statement of Operations and Changes in Net Position, the Balance Sheet includes a separate presentation of the portion of net position related to funds from dedicated collections. Moreover, the Government’s exposures are broader than the liabilities presented on the balance sheet. The Government’s future social insurance exposures (e.g., Medicare and Social Security) as well as other fiscal projections, commitments and contingencies, are reported in separate statements and disclosures. This information is discussed later in this Management Discussion and Analysis (MD&A) section, the financial statements, and RSI sections of this Financial Report.

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Table 4: Assets and Liabilities

*Restated (See Financial Statement Note 1.V)

Assets

As of September 30, 2017, the Government’s $3.5 trillion in assets are comprised mostly of net loans receivable ($1.3 trillion) and net property, plant, and equipment ($1.0 trillion).¹⁸ From Financial Statement Note 4, the Department of Education’s (Education’s) Federal Direct Student Loan Program accounted for $1.0 trillion (77.2 percent) of total net loans receivable. Education’s direct student loan program receivables balances have grown by more than 170 percent since FY 2011 largely due to increased direct loan disbursements, attributable to the continued effect of 2010 legislation requiring a transition for new loans from guaranteed student loans to full direct lending by Education.¹⁹

Liabilities

As indicated in Table 4 and Chart E, of the Government’s $23.9 trillion in total liabilities, the largest liability is federal debt securities held by the public and accrued interest, the balance of which increased by $503.0 billion (3.5 percent) to $14.7 trillion as of September 30, 2017.

The other major component of the Government’s liabilities is federal employee and veteran benefits payable (i.e., the Government’s pension and other benefit plans for its military and civilian employees), which increased $490.7 billion (6.8 percent) during FY 2017, to $7.7 trillion. This total amount is comprised of $2.5 trillion in benefits payable for the current and retired civilian workforce, and $5.2 trillion for the military and veterans. OPM administers the largest civilian pension plan, covering nearly 2.7 million current employees and 2.6 million annuitants and survivors. The military pension plan covers about 2.1 million current military personnel (including active service, reserve, and National Guard) and approximately 2.3 million retirees and survivors.

Federal Debt

The budget surplus or deficit is the difference between total federal spending and receipts (e.g., taxes) in a given year. The Government borrows from the public (increases federal debt levels) to finance deficits. During a budget surplus (i.e., when receipts exceed spending), the Government typically uses those excess funds to reduce the debt held by the public. The Statement of Changes in Cash Balance from Budget and Other Activities reports how the annual budget surplus or deficit relates to the federal government’s borrowing and changes in cash and other monetary assets. It also explains how a budget surplus or deficit normally affects changes in debt balances.

The Government’s publicly-held debt, or federal debt held by the public, and accrued interest (balance sheet liability) totaled $14.7 trillion as of September 30, 2017. It is comprised of Treasury securities, such as bills, notes, and bonds, net of unamortized discounts and premiums; and accrued interest payable. The “public” consists of individuals, corporations, state and local governments, Federal Reserve Banks, foreign governments, and other entities outside the federal government. As indicated above, budget surpluses have typically resulted in borrowing reductions, and budget deficits have conversely yielded borrowing increases. However, the Government’s debt operations are generally much more complex. Each year, trillions of dollars of debt mature and new debt is issued to take its place. In FY 2017, new borrowings were $8.7 trillion, and repayments of maturing debt held by the public were $8.2 trillion, both increases from FY 2016).

In addition to debt held by the public, the Government has about $5.6 trillion in intragovernmental debt outstanding, which arises when one part of the Government borrows from another. It represents debt issued by the Treasury and held by Government accounts, including the Social Security ($2.9 trillion) and Medicare ($268.4 billion) trust funds. Intragovernmental debt is primarily held in Government trust funds in the form of special nonmarketable securities by various parts of the Government. Laws establishing Government trust funds generally require excess trust fund receipts (including interest earnings) over disbursements to be invested in these special securities. Because these amounts are both liabilities of the Treasury and assets of the Government trust funds, they are eliminated as part of the consolidation process for the governmentwide financial statements (see Note 11). When those securities are redeemed, e.g., to pay Social Security benefits, the Government will need to obtain the resources necessary to reimburse the trust funds. The sum of debt held by the public and intragovernmental debt equals gross federal debt, which (with some adjustments), is subject to a statutory ceiling (i.e., the debt limit). At the end of FY 2017, debt subject to the statutory limit (DSL) was $20.2 trillion (see sidebar). See Note 25, Subsequent Events for developments since the end of the fiscal year.

Prior to 1917, Congress approved each debt issuance. In 1917, to facilitate planning in World War I, Congress and the President established a dollar ceiling for federal borrowing. With the Public Debt Act of 1941 (Public Law 77-7), Congress and the President set an overall limit of $65 billion on Treasury debt obligations that could be outstanding at any one time. Since then, Congress and the President have enacted a number of measures affecting the debt limit, including several in recent years. Congress and the President most recently suspended the debt limit from September 8, 2017 through December 8, 2017. It is important to note that increasing or suspending the debt limit does not increase spending or authorize new spending; rather, it permits the United States to continue to honor pre-existing commitments to its citizens, businesses, and investors domestically and around the world.

The federal debt held by the public measured as a percent of GDP (debt-to-GDP ratio) (Chart F) compares the country’s debt to the size of its economy, making this measure sensitive to s history, through the first half of the changes in both. Over time, the debt-to-GDP ratio has varied widely:

• For most of the nation’ 20th century, the debt-to-GDP ratio has tended to increase during wartime and decline during peacetime.
• Chart F shows that wartime spending and borrowing pushed the debt-to-GDP ratio to an all-time high of 106 percent in 1946, soon after the end of World War II, but it decreased rapidly in the post-war years,
• The ratio grew rapidly from the mid-1970s until the early 1990s. Strong economic growth and fundamental fiscal decisions, including measures to reduce the federal deficit and implementation of binding "Pay As You Go" (PAYGO) rules (which require that new tax or spending laws not add to the deficit), generated a significant decline in the debt-to-GDP ratio, from a peak of 48 percent in 1993-1995, to 31 percent in 2001.
• During the first decade of the 21st century, PAYGO rules were allowed to lapse, significant tax cuts were implemented, entitlements were expanded, and spending related to defense and homeland security increased. By September 2008, the debt-to-GDP ratio was 39 percent of GDP.
• PAYGO rules were reinstated in 2010, but the extraordinary demands of the last economic and fiscal crisis and the consequent actions taken by the federal government, combined with slower economic growth in the wake of the crisis, pushed the debt-to-GDP ratio up to 74 percent by the end of FY 2014.
• The debt was 76 percent of GDP at the end of FY 2017.²⁰

The Economy in Fiscal Year 2017

A review of the nation’s key macroeconomic indicators can help place the discussion of the Government’s financial results in a broader context. As summarized in Table 5, the economic expansion accelerated during FY 2017 and the economy continued to generate jobs, though at a slower pace. The unemployment rate trended lower, and by the end of the fiscal year, stood at its lowest level since February 2001.

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Table 5: National Economic Indicators*

Real (i.e., inflation-adjusted) GDP expanded 2.3 percent during FY 2017, accelerating from the 1.5 percent advance recorded over the four quarters of FY 2016. The acceleration reflected a rebound in business fixed investment, particularly in the energy sector, a significant contribution from net exports, and a small contribution from inventory investment. Growth of consumer spending remained strong, growing 2.6 percent in FY 2017 compared with a rise of 2.8 percent in FY 2016. Recovery in the housing sector continued through the fiscal year, but at a slower pace, with residential fixed investment increasing by 1.2 percent, compared with an advance of 2.6 percent during FY 2016. Nonresidential fixed investment jumped 4.6 percent during FY 2017, reversing from a 0.7 percent decline during the previous fiscal year.

Labor market conditions improved further during FY 2017. The economy added 1.9 million nonfarm payroll jobs during the course of the fiscal year, compared with the 2.6 million jobs added during FY 2016. On a monthly basis, nonfarm payroll employment rose at an average rate of 157,000 jobs per month, somewhat less than the average monthly increase of 219,000 in FY 2016. The number of unemployed persons declined significantly to 6.8 million in September 2017, down from 7.9 million a year earlier. The unemployment rate declined 0.7 percentage point, from 4.9 percent in September 2016 to 4.2 percent in September 2017. At the end of FY 2017, the unemployment rate was 5.8 percentage points lower than the peak of 10.0 percent, reached in October 2009.

Headline inflation accelerated during FY 2017, as energy prices trended higher, but core inflation (the Consumer Price Index (CPI) excluding food and energy) slowed. CPI rose 2.2 percent during FY 2017, up from 1.5 percent during FY2016, and a flat reading in FY 2015. Underlying core inflation decelerated to 1.7 percent, compared with a reading of 2.2 percent during FY 2016.

Growth of real disposable (i.e., after-tax) personal income was stable during FY 2017, as a small pickup in growth of nominal disposable personal income was partially offset by faster inflation. The level of corporate profits grew 5.4 percent during FY 2017, after a decline of 1.6 percent during the previous fiscal year.

Footnotes

³ On the Government’s balance sheet, debt held by the public and accrued interest payable consists of Treasury securities, net of unamortized discounts and premiums, and accrued interest payable. The “public” consists of individuals, corporations, state and local governments, Federal Reserve Banks, foreign governments, and other entities outside the federal government. (Back to Content)

⁴ Present values recognize that a dollar paid or collected in the future is worth less than a dollar today because a dollar today could be invested and earn interest. To calculate a present value, future amounts are thus reduced using an assumed interest rate, and those reduced amounts are summed. (Back to Content)

⁵ Social Security is funded by the payroll taxes and revenue from taxation of benefits. Medicare Part A is funded by the payroll taxes, revenue from taxation of benefits, and premiums that support those programs. Medicare Parts B and D are primarily financed by general revenues and premiums. By accounting convention, general revenues transferred to Medicare Parts B and D are eliminated in consolidation at the governmentwide level and, as such, are not included in the SOSI.(Back to Content)

⁶ Final Monthly Treasury Statement (as of September 30, 2017 and 2016), Joint Statement of Treasury Secretary Steven T. Mnuchin and OMB Director Mick Mulvaney on Budget Results for Fiscal Year 2017. (Back to Content)

⁷ The 21 agencies include: (1) the Department of Health and Human Services, which received disclaimers of opinions on its 2017, 2016, 2015, 2014, and 2013, SOSI and its 2017 and 2016 SCSIA; and (2) the Department of Labor, which received a disclaimer of opinion on its 2017 SCSIA and 2016 SOSI and SCSIA. This also includes the Department of the Agriculture which received an unmodified audit opinion on its Balance Sheet as of September 30, 2017, but its other financial statements were not audited. The Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), and the Farm Credit System Insurance Corporation (FCSIC) are among the 39 significant entities. These entities operate on a calendar year basis (December 31 year-end). Statistic reflects 2016 audit results for these organizations. In addition, neither the Defense Security Cooperation Agency (DSCA) nor the General Fund of the U.S. Government was subject to audit for FY 2017. (Back to Content)

⁸ Since programs are not administered at the governmentwide level, performance goals and measures for the federal government, as a whole, are not reported here. The outcomes and results of those programs are addressed at the individual agency level and can be found in each agency’s financial report. Go to www.performance.gov for more information about Government performance. (Back to Content)

⁹ Under U.S. GAAP, most U.S. Government revenues are recognized on a ‘modified cash’ basis, or when they become measurable. The Statement of Social Insurance presents the present value of the estimated future revenues and expenditures for scheduled benefits over the next 75 years for the Social Security, Medicare, Railroad Retirement programs; and 25 years for the Black Lung program. The Statement of Long-Term Fiscal Projections presents the present value of the projected future receipts and non-interest spending for the federal government. (Back to Content)

¹⁰ Interest outlays on Treasury debt held by the public are recorded in the budget when interest accrues, not when the interest payment is made. For federal credit programs, outlays are recorded when loans are disbursed, in an amount representing the present value cost to the Government, (commonly referred to as credit subsidy cost. Credit subsidy cost excludes administrative costs. (Back to Content)

¹¹ 10/20/17 press release -- Joint Statement of Treasury Secretary Steven T. Mnuchin and OMB Director Mick Mulvaney on Budget Results for Fiscal Year 2017. (Back to Content)

¹² As shown in Table 3, net operating cost includes an adjustment for unmatched transactions and balances, which represent unreconciled differences in intragovernmental activity and balances between Federal agencies. These amounts are described in greater detail in the Other Information section of this Financial Report. (Back to Content)

¹³ The Statement of Net Cost in this Financial Report reflects FY 2016 net cost restatements for the Pension Benefit Guaranty Corporation from $4.7 billion to $5.4 billion, (See Financial Statement Note 1.V). (Back to Content)

¹⁴ FY 2017 Department of Education Agency Financial Report, pp. 17-18; FY 2017 Department of Housing and Urban Development Agency Financial Report, pp. 20-23.(Back to Content)

¹⁵ FY 2017 Department of the Treasury Agency Financial Report, p. 28 (Back to Content)

¹⁶ FY 2017 U.S. Department of Homeland Security Agency Financial Report, p. 27 (Back to Content)

¹⁷ FY 2017 Department of the Treasury Agency Financial Report, p. 29 (Back to Content)

¹⁸ For financial reporting purposes, other than multi-use heritage assets, stewardship assets are not recorded as part of Property, Plant, and Equipment. Stewardship assets are comprised of stewardship land and heritage assets. Stewardship land consists of public domain land (e.g., national parks, wildlife refuges). Heritage assets include national monuments and historical sites that among other characteristics are of historical, natural, cultural, educational, or artistic significance. See Note 24 – Stewardship Land and Heritage Assets. (Back to Content)

¹⁹ With the enactment of the SAFRA Act, which was included as part of the Health Care and Education Reconciliation Act of 2010 (HCERA) (Pub. L. 111- 152), no new loans were originated under the Federal Family Education Loan (FFEL) Program (guaranteed loan program) since July 1, 2010. See U.S. Department of Education FY 2017 Agency Financial Report p. 52. (Back to Content)

²⁰ 2010/20/2017 press release: Joint Statement of OMB Director, Mick Mulvaney and Treasury Secretary, Steven T. Mnuchin. (Back to Content)