Management's Discussion & Analysis

The Government's Financial Position and Condition

This Financial Report presents 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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Table 1: The Federal Government's Financial Position and Condition
	2019	2018*	Increase/ (Decrease) $	Increase/ (Decrease) %
FINANCIAL MEASURES (Dollars in Billions)
Gross Cost	$(5,287.2)	$(4,808.5)	$478.7	10.0%
Less: Earned Revenue	$418.4	$392.8	$25.6	6.5%
Gain/(Loss) from Changes in Assumptions	$(198.9)	$(125.2)	$73.7	58.9%
Net Cost	$(5,067.7)	$(4,540.9)	$526.8	11.6%
Less: Tax and Other Revenues	$3,621.0	$3,384.3	$236.7	7.0%
Unmatched Transactions & Balances	$1.6	$(2.4)	$4.0	(166.7%)
Net Operating Cost	$(1,445.1)	$(1,159.0)	$286.1	24.7%
Budget Deficit	$(984.4)	$(779.0)	$205.4	26.4%
Assets:
Cash & Other Monetary Assets	$524.6	$507.5	$17.1	3.4%
Loans Receivable, Net	$1,425.8	$1,491.1	$6.7	0.5%
Inventories & Related Property, Net	$355.7	$337.5	$18.2	5.4%
Property, Plant & Equipment, Net	$1,106.9	$1,090.5	$16.4	1.5%
Other	$579.0	$482.1	$96.9	20.1%
Total Assets	$3,992.0	$3,836.7	$155.3	4.0%
Liabilities:
Federal Debt Held by the Public & Accrued Interest	$(16,861.0)	$(15,812.7)	$1,048.3	6.6%
Federal Employee & Veterans Benefits Payable	$(8,440.3)	$(7,982.3)	$458.0	5.7%
Other	$(1,643.5)	$(1,562.4)	$81.1	5.2%
Total Liabilities	$(26,944.8)	$(25,357.4)	$1,587.4	6.3%
Net Position (Assets minus Liabilities)	$(22,952.8)	$(21,520.7)	$1,432.1	6.7%
SUSTAINABILITY MEASURES (Dollars in Trillions)
Social Insurance Net Expenditures:
Social Security (OASDI)	$(16.8)	$(16.2)	$0.6	3.7%
Medicare (Parts A, B, & D)	$(42.2)	$(37.7)	$4.5	11.9%
Other	$(0.1)	$(0.1)	-	- %
Total Social Insurance Net Expenditures	$(59.1)	$(54.0)	$5.1	9.4%
Total Federal Non-Interest Net Expenditures	$(49.0)	$(46.2)	$2.8	6.1%
75-Year Fiscal Gap (Percent of Gross Domestic Product)¹	(3.8%)	(4.1%)	(0.3%)	(7.3%)

*Restated (See Financial Statement Note 1.U)

¹ 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 3.8 percent of GDP on average is needed (4.1 percent of GDP on average in 2018). See Financial Statement Note 23.

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

During fiscal year 2019, the budget deficit increased by $205.4 billion (26.4 percent) to $984.4 billion and net operating cost increased by $286.1 billion (24.7 percent) to $1.4 trillion.
The government’s gross costs of $5.3 trillion, less $418.4 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 $198.9 billion in net losses from changes in assumptions (e.g., interest rates, inflation, disability claims rates) yields the government’s net cost of $5.1 trillion, an increase of $526.8 billion or 11.6 percent over fiscal year 2018.
Deducting $3.6 trillion in tax and other revenues, with some adjustment for unmatched transactions and balances, results in a “bottom line” net operating cost of $1.4 trillion for fiscal year 2019, an increase of $286.1 billion or 24.7 percent over fiscal year 2018.
Comparing total 2019 government assets of $4.0 trillion to total liabilities of $26.9 trillion (comprised mostly of $16.9 trillion in federal debt held by the public and accrued interest payable³, and $8.4 trillion of federal employee and veterans benefits payable) yields a negative net position of $23.0 trillion.
The budget deficit is primarily financed through borrowing from the public. As of September 30, 2019, debt held by the public, excluding accrued interest, was $16.8 trillion. This amount, plus intragovernmental debt ($6.0 trillion) equals gross federal debt, which, with some adjustments, is subject to the statutory debt limit. As of September 30, 2019, the government’s total debt subject to the debt limit was $22.7 trillion. The statutory debt limit was most recently suspended through July 31, 2021.

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 PV⁴ 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 $49.0 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 $59.1 trillion, a $5.1 trillion increase over 2018 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. 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 $779.0 billion in fiscal year 2018 to $984.4 billion in fiscal year 2019. The deficit-to-GDP ratio in 2019 was 4.6 percent, an increase from 3.8 percent in fiscal year 2018 and above the 3.2 percent average over the past 40 years.⁶
The budget deficit is primarily financed through borrowing from the public. As of September 30, 2019, the $16.8 trillion in debt held by the public, excluding accrued interest, equates to approximately 79 percent of GDP.
The 2019 SOSI projection of $59.1 trillion net PV excess of expenditures over receipts over 75 years represents about 4.1 percent of the PV of GDP over 75 years. The excess of total projected non-interest spending over receipts of $49.0 trillion from the SLTFP represents 3.2 percent of GDP over 75 years. As discussed in this Financial Report, changes in 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 3.8 percent of GDP on average is needed (4.1 percent of GDP on average in the 2018 projections). The fiscal gap represents 20.3 percent of 75-year present value receipts and 17.4 percent of 75-year present value non-interest spending.

Fiscal Year 2019 Financial Statement Audit Results

For fiscal year 2019, GAO issued a disclaimer of audit opinion on the accrual-based, governmentwide financial statements, as it has for the past 22 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 232 of this Financial Report, discusses GAO’s findings.

Twenty-two of the 24 entities required to issue audited financial statements under the CFO Act received unmodified audit opinions, as did 13 of 16 additional significant consolidation entities (see Table 10 and Appendix A).⁷

The Governmentwide Reporting Entity

This Financial Report includes the financial status and activities of the executive, legislative, and judicial branches of the federal government. SFFAS No. 47, Reporting Entity, provides criteria for identifying organizations that are consolidation entities, disclosure entities, and related parties. Such criteria are summarized in Note 1A and in Appendix A, which lists the entities included in this Financial Report by these categories. The assets, liabilities, results of operations, and related activity for consolidation entities are consolidated in the financial statements.

Fannie Mae and Freddie Mac meet the criteria for disclosure entities and, consequently, are not consolidated into the government’s financial statements. However, the values of the investments in such entities, changes in value, and related activity with these entities are included in the consolidated financial statements. The FR System is a disclosure entity and is not consolidated into the government’s financial statements. See Note 1A—Significant Accounting Policies, Reporting Entity and Note 25—Disclosure Entities and Related Parties for additional information. In addition, per SFFAS No. 31, Accounting for Fiduciary Activities, fiduciary funds are not consolidated in the government financial statements.⁸

Most significant consolidation entities prepare financial reports that include financial and performance related information, as well as Annual Performance Reports. More information may be obtained from entities’ websites indicated in Appendix A and at www.performance.gov.

The following pages contain a more detailed discussion of the government’s financial results for fiscal year 2019, 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, 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 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 GAAP for federal entities.⁹ These principles are tailored to the government’s unique characteristics and circumstances. For example, entities 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 of the U.S. Government	Financial Report of the U.S. Government
Prepared primarily on a "cash basis";	Prepared on an "accrual and modified cash basis"
Initiative-based and prospective: focus on current and future initiatives planned and how resources will be used to fund them.	Agency-based and retrospective – prior and present resources used to implement initiatives.
Receipts ("cash in"), taxes and other collections recorded when received.	Revenue: Tax revenue (more than 90 percent of total revenue) recognized on modified cash basis (see Financial Statement Note 1.B). Remainder recognized when earned, but not necessarily received.
Outlays ("cash out"), largely recorded when payment is made.	Costs: recognized when owed, but not necessarily paid.

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 1, 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.

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The government’s primarily cash-based¹⁰ budget deficit increased by $205.4 billion (about 26.4 percent) from approximately $779.0 billion in fiscal year 2018 to about $984.4 billion in fiscal year 2019 due to lower growth in receipts compared to the increase in outlays in fiscal year 2019. The $133.5 billion (4.0 percent) increase in receipts can be attributed primarily to higher social insurance and retirement receipts, net individual income tax receipts, customs duties, net corporation income tax receipts, and excise taxes, partially offset by lower deposits of earnings by the Federal Reserve, and other miscellaneous receipts. Outlays increased $338.9 billion (8.3 percent). Contributing to the dollar increase over fiscal year 2018 were higher outlays for Medicare, Defense, Medicaid, Social Security, and interest on the Treasury debt held by the public (public debt).¹¹

The Treasury Department’s September 2019 MTS is the source of receipts, spending, and deficit information for this Report. The MTS presents primarily cash-based spending, or outlays, for the fiscal year in a number of ways, including by month, by entity, and by budget function classification. The federal budget is divided into approximately 20 categories, or budget functions, as a means of organizing federal spending by primary purpose (e.g., National Defense, Transportation, and Health). Multiple entities may contribute to one or more budget functions, and a single budget function may be associated with only one entity. For example, DOD, DHS, DOE, and multiple other entities administer programs that are critical to the broader functional classification of National Defense. DOD, OPM, and many other entities also administer Income Security programs (e.g., retirement benefits, housing, financial assistance). By comparison, the Medicare program is a budget function category unto itself and is administered exclusively at the federal level by HHS. Federal spending information by budget function and other categorizations may be found in the September 2019 MTS.¹²

The government’s largely accrual-based net operating cost increased by $286.1 billion (24.7 percent) to $1.4 trillion during fiscal year 2019. As explained below, net operating costs are affected by both changes in revenues and costs.

Table 2 provides a summary of the items reported in the Reconciliation of Net Operating Cost and Budget Deficit, which articulates the relationship between the government’s accrual-based net operating cost and the primarily cash-based budget deficit. From Table 2, the $460.7 billion net difference between the government’s budget deficit and net operating cost for fiscal year 2019, is mostly attributable to: (1) a $458.0 billion net increase in liabilities for federal employee and veteran benefits payable; (2) a $24.3 billion increase in insurance and guarantee program liabilities; (3) an $18.1 billion increase in environmental and disposal liabilities; (4) an $89.1 billion increase in taxes receivable; and (5) a $45.3 billion timing difference between when credit reform costs are recorded in the budget versus net operating cost.

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Table 2: Net Operating Cost vs. Budget Deficit

Dollars in Billions	2019	2018*
Net Operating Cost	$(1,445.1)	$(1,159.0)
Change in:
Federal Employee and Veterans Benefits Payable	$458.0	$282.2
Insurance and Guarantee Program Liabilities	$24.3	$(32.3)
Environmental and Disposal Liabilities	$18.1	$112.8
Taxes Receivable	$(89.1)	$(7.8)
Timing Differences - Credit Reform Costs	$45.3	$5.0
Other, Net	$4.1	$20.1
Subtotal - Net Difference:	$460.7	$380.0
Budget Deficit	$(984.4)	$(779.0)

*Restated (See Financial Statement Note 1.U)

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.¹³

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

Dollars in Billions	2019	2018*	Increase/ (Decrease) $	Increase/ (Decrease) %
Gross Cost	$(5,287.2)	$(4,808.5)	$478.7	10.0%
Less: Earned Revenue	$418.4	$392.8	$25.6	6.5%
Gain\(Loss) from Changes in Assumptions	$(198.9)	$(125.2)	$73.7	58.9%
Net Cost	$(5,067.7)	$(4,540.9)	$526.8	11.6%
Less: Tax and Other Revenue	$3,621.0	$3,384.3	$236.7	7.0%
Unmatched Transactions and Balances	$1.6	$(2.4)	$4.0	(166.7%)
Net Operating Cost	$(1,445.1)	$(1,159.0)	$286.1	24.7%

*Restated (See Financial Statement Notes 1.U)

Table 3 shows that the government’s “bottom line” net operating cost increased $286.1 billion (24.7 percent) during 2019 from $1.2 trillion to $1.4 trillion. This increase is due mostly to a $526.8 billion (11.6 percent) increase in entity net costs, which more than offset a $236.7 billion (7.0 percent) increase in tax and other revenues over the past fiscal year as discussed in the following.

Gross Cost and Net Cost

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The Statement of Net Cost starts with the government’s total gross costs of $5.3 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 $5.1 trillion (See Chart 2), a $526.8 billion (11.6 percent) increase over fiscal year 2018.

Typically, the annual change in the government’s net cost is impacted by a variety of offsetting increases and decreases across entities. For example, offsetting changes in net cost during fiscal year 2019 included:

Entities 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, these net losses from changes in assumptions amounted to $198.9 billion in fiscal year 2019, a loss increase (and a corresponding net cost increase) of $73.7 billion compared to fiscal year 2018. The primary entities that administer programs impacted by these assumptions – typically federal employee pension and benefit programs – are the OPM, VA, and DOD. These entities recorded losses from changes in assumptions in the amounts of $0.3 billion, $58.0 billion, and $139.0 billion, respectively.
- These actuarial estimates and the resulting gains or losses from changes in assumptions can sometimes cause significant swings in total entity costs from year to year. For example, for fiscal year 2019, changes in net cost at OPM ($9.4 billion decrease), VA ($70.7 billion increase), and DOD ($210.0 billion increase), were impacted by the corresponding changes in gains or losses from assumption changes at these entities.
A $210.0 billion increase at DOD primarily due to a $122.2 billion loss increase from changes in assumptions as referenced above as well as increases in net costs across DOD’s major programs, including military operations, readiness, support; procurement; military personnel; and R&D;
$79.8 billion and $62.6 billion increases at HHS and SSA, respectively, were primarily due to cost increases of the benefit programs that these entities administer (HHS – Medicare and Medicaid programs, SSA – OASDI programs);
A $70.7 billion net increase at VA due largely to actuarial losses from experience.
An $87.3 billion decrease at DOE largely due to refined environmental liability estimates, including comparatively lower estimate increases as well as estimates related to dilution and disposal strategies for surplus plutonium;
A $74.2 billion increase at Education stemming mostly from reestimates of subsidy expenses associated with its direct loan programs, including changes in estimation methods and comparative cost increases for Education’s Income-Driven Repayment (IDR) plans ¹⁴ as well as enhancements in estimation methodology with respect to deferment and forbearance actions; and
A $46.3 billion increase in interest on debt held by the public due largely to an increase in the debt. Interest costs increased by 13.0 percent from 2018 to 2019 and by 60.9 percent over the past five years.
Chart 2 shows the composition of the government’s net cost. In fiscal year 2019, nearly three fourths of total net cost came from HHS, SSA, DOD, and VA. Interest on Treasury securities (i.e., debt) held by the public contributed an additional 8 percent, and the other entities included in the government’s fiscal year 2019 Statement of Net Cost accounted for a combined 20 percent of the government’s total net cost for fiscal year 2019. Chart 3 shows the five-year trend in these costs. These entities have consistently incurred the largest entity shares of the government’s total net cost in recent years. As indicated above, HHS and SSA net costs for fiscal year 2019 ($1.2 trillion and $1.1 trillion, respectively) are attributable to major social insurance programs administered by these entities. DOD net costs of $908.4 billion relate primarily to operations, readiness, and support; personnel; research; procurement; and retirement and health benefits. VA costs of $417.6 billion support health, education and other benefits programs for our nation’s veterans. From Chart 3, over the past five years, HHS, SSA, DOD, VA, and Interest costs have increased 18.7 percent, 16.5 percent, 61.7 percent, 138.2 percent, and 60.9 percent, respectively.

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 4 shows that total tax and other revenue increased by $236.7 billion or 7.0 percent to $3.6 trillion for fiscal year 2019. This increase is attributable mainly to an overall growth in individual income tax collections and withholdings, partially offset by reduced deposit of earnings from the FR System.¹⁵ Tax revenues and receivables also increased as a result of a provision of the TCJA, which provided a one-time tax on previously unrepatriated foreign earnings at lower rates that taxpayers may elect to pay over several years. In particular, these provisions contributed $83.5 billion of a total $113.6 billion increase in corporate income tax revenue for fiscal year 2019. Earned revenues from Table 3 are not considered “taxes and other revenue” and, thus, are not shown in Chart 4. Individual income tax and tax withholdings and corporate income taxes accounted for about 80.3 percent and 8.9 percent of total revenue, respectively in fiscal year 2019; other revenues from Chart 4 include Federal Reserve earnings, excise taxes, unemployment taxes, and customs duties.

As previously shown in Table 3, the increase in tax and other revenue only partially offset the increase in net cost, resulting in a $286.1 billion increase in the government’s bottom line net operating cost to $1.4 trillion for fiscal year 2019.

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Tax Expenditures

Tax and other revenues reported reflect the effects of tax expenditures, which are special exclusions, exemptions, deductions, tax credits, preferential tax rates, and tax deferrals that allow individuals and businesses to reduce taxes they may otherwise owe. Tax expenditures may be viewed as alternatives to other policy instruments, such as spending or regulatory programs. For example, the government supports college attendance through both spending programs and tax expenditures. The government uses Pell Grants to help low- and moderate-income students afford college and allows certain funds used to meet college expenses to grow tax free in special college savings accounts. Tax expenditures may include deductions and exclusions which reduce the amount of income subject to tax (e.g., deductions for personal residence mortgage interest). Tax credits, which reduce tax liability dollar for dollar for the amount of credit (e.g., child tax credit), are also considered tax expenditures. Tax expenditures may also allow taxpayers to defer tax liability.

Receipts in the calculation of surplus or deficit, and tax revenues in the calculation of net position, reflect the effect of tax expenditures. As discussed in more detail in the Other Information section of this Financial Report, tax expenditures will generally lower federal government receipts although tax expenditure estimates do not necessarily equal the increase in federal revenues (or the change in the budget balance) that would result from repealing these special provisions.

Tax expenditures are reported annually in the Analytical Perspectives of the Budget. In addition, current and past tax expenditure estimates and descriptions can be found at the following location from the U.S. Treasury’s Office of Tax Policy: https://home.treasury.gov/policy-issues/tax-policy/tax-expenditures.

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 of the government, 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 MD&A section, the financial statements, and RSI sections of this Financial Report.

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Table 4: Assets and Liabilities

Dollars in Billions	2019	2018*	Increase/ (Decrease) $	Increase/ (Decrease) %
Assets
Cash & Other Monetary Assets	$524.6	$507.5	$17.1	3.4%
Loans Receivable, Net	$1,425.8	$1,419.1	$6.7	0.5%
Inventories & Related Property, Net	$355.7	$337.5	$18.2	5.4%
Property, Plant & Equipment, Net	$1,106.9	$1,090.5	$16.4	1.5%
Other	579.0	482.1	96.9	20.1%
Total Assets	$3,992.0	$3,836.7	$155.3	4.0%
Less: Liabilities, comprised of:
Federal Debt Held by the Public & Accrued Interest	$(16,861.0)	$(15,812.7)	$1,048.3	6.6%
Federal Employee & Veteran Benefits	$(8,440.3)	$(7,982.3)	$458.0	5.7%
Other	$(1,643.5)	$(1,562.4)	$81.1	5.2%
Total Liabilities	$(26,944.8)	$(25,357.4)	$1,587.4	6.3%
Net Position (Assets Minus Liabilities)	$(22,952.8)	$(21,520.7)	$1,432.1	6.7%

*Restated (See Financial Statement Note 1.U)

Assets

As of September 30, 2019, the government’s $4.0 trillion in assets are comprised mostly of net loans receivable ($1.4 trillion) and net PP&E ($1.1 trillion).¹⁶

The federal government’s direct loans and loan guarantee programs are used to promote the nation’s welfare by making financing available to segments of the population not served adequately by non-federal institutions, or otherwise providing for certain activities or investments. For those unable to afford credit at the market rate, federal credit programs provide subsidies in the form of direct loans offered at an interest rate lower than the market rate. For those to whom non-federal financial institutions are reluctant to grant credit because of the high risk involved, federal credit programs guarantee the payment of these non-federal loans and absorb the cost of defaults. For example, Education supports individuals engaged in education programs through a variety of student loan, grant and other assistance programs. USDA administers loan programs to support the nation’s farming and agriculture community. Also, HUD loan programs support affordable homeownership, as well as the construction and rehabilitation of housing projects for the elderly and persons with disabilities. From Financial Statement Note 4, Education’s Federal Direct Student Loan Program accounted for $1.1 trillion (78.8 percent) of total net loans receivable. Education’s direct student loan program receivables balances have grown by more than 190 percent since fiscal year 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.¹⁷

Federal government PP&E includes many of the physical resources that are vital to the federal government’s ongoing operations, including buildings, structures, facilities, equipment, internal use software, and general purpose land. DOD comprises approximately 69.4 percent of the government’s reported PP&E of $1.1 trillion as of September 30, 2019.

Liabilities

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As indicated in Table 4 and Chart 5, of the government’s $26.9 trillion in total liabilities, the largest liability is federal debt securities held by the public and accrued interest, the balance of which increased by $1.0 trillion (6.6 percent) to $16.9 trillion as of September 30, 2019.

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 $458.0 billion (5.7 percent) during fiscal year 2019, to about $8.4 trillion. This total amount is comprised of $2.6 trillion in benefits payable for the current and retired civilian workforce, and $5.8 trillion for the military and veterans. OPM administers the largest civilian pension plan, covering about 3.1 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 $16.9 trillion as of September 30, 2019. 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, FRBs, 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 fiscal year 2019, new borrowings were $11.8 trillion, and repayments of maturing debt held by the public were $10.7 trillion, both increases from fiscal year 2018.

In addition to debt held by the public, the government has about $6.0 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 ($303.3 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 must 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 fiscal year 2019, debt subject to the statutory limit was $22.7 trillion ¹⁸ (see sidebar).

Sidebar: 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 (P.L. 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 August 2, 2019 through July 31, 2021. It is important to note that increasing or suspending the debt limit does not increase spending or authorize new spending; rather, it permits the U.S. to continue to honor pre-existing commitments to its citizens, businesses, and investors domestically and around the world.

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The federal debt held by the public measured as a percent of GDP (debt-to-GDP ratio) (Chart 6) compares the country’s debt to the size of its economy, making this measure sensitive to changes in both. Over time, the debt-to-GDP ratio has varied widely:

For most of the nation’s history, through the first half of the 20th century, the debt-to-GDP ratio has tended to increase during wartime and decline during peacetime.
Chart 6 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 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 fiscal year 2014.
The debt was 79 percent of GDP at the end of fiscal year 2019 (compared to 78 percent at the end of fiscal year 2018 and as reported in the fiscal year 2018 Financial Report).¹⁹ From Chart 6, since 1940, the average debt-to-GDP ratio is 47.8 percent.

The Economy in Fiscal Year 2019

A review of U.S. economic performance places the discussion of the government’s financial results in a broader context. As summarized in Table 5, the U.S. economy grew at a more moderate pace during fiscal year 2019, and payroll job creation slowed modestly. Even so, the economy generated jobs at a pace more than sufficient to account for new entrants to the labor force, which pushed the unemployment rate to a 49-year low by Fall 2019, even as the labor force participation rate (LFPR) increased to a 6-year high. The fiscal year was also noteworthy for a deceleration in the pace of headline inflation – despite consistently strong wage gains, tight labor markets, and rising labor force participation - although core inflation (which excludes food and energy) accelerated modestly. Growth in real disposable (after-tax) personal income (DPI) slowed somewhat in fiscal year 2019, but non-farm labor productivity growth accelerated and business and consumer sentiment remained at elevated levels.

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Table 5: National Economic Indicators*

	FY 2019	FY 2018
Real GDP Growth	2.1%	3.1%
Personal Consumption Expenditures	2.6%	3.4%
Average monthly payroll job change (thousands)	188	219
Unemployment rate (percent, end of period)	3.5%	3.7%
Consumer Price Index (CPI)	1.7%	2.3%
CPI, excluding food and energy	2.4%	2.2%
Real Disposable Personal Income	3.3%	4.0%
Real Average Hourly Earnings	2.2%	0.8%
Some FY2018 data may differ from the FY2018 Financial Report* due to updates and revisions.

During fiscal year 2019, the U.S. economic recovery became the longest in U.S. history. Real (i.e., inflation-adjusted) GDP grew by 2.1 percent over the four quarters of fiscal year 2019, following growth of 3.1 percent during the previous fiscal year. Personal consumption expenditures continued to lead growth, while government spending and business fixed investment also made solid contributions. Over the four quarters of fiscal year 2019, growth of consumer spending moderated to 2.6 percent from 3.4 percent in the previous fiscal year, and the pace of government spending grew 2.2 percent, matching its growth rate in fiscal year 2018. However, the pace of business fixed investment slowed to 1.4 percent, after rising by 6.8 percent in fiscal year 2018. Business investment was constrained in fiscal year 2019 by a number of international headwinds – such as slowing global growth, policy uncertainty, and low oil prices – as well as temporary domestic disruptions, including reduced equipment investment in connection with the grounding of the Boeing 737 MAX airplane. Although residential investment declined 1.1 percent during fiscal year 2019, matching the decline during fiscal year 2018, the housing sector found a firmer footing during the latter part of the latest fiscal year, aided by improved affordability, strong labor markets, and elevated consumer and homebuilder sentiment. Net exports posed a smaller drag on growth in fiscal year 2019 than in fiscal year 2018, while inventory investment posed a small drag on growth in fiscal year 2019 after making a small positive contribution the previous fiscal year.

Labor market strength continued in fiscal year 2019, exhibited by solid employment growth, low unemployment, and plentiful job opportunities. After the economy created 2.6 million jobs during fiscal year 2018, an additional 2.3 million jobs were added during fiscal year 2019. The unemployment rate ended the fiscal year at 3.5 percent in September 2019, its lowest level since December 1969 and down 0.2 percentage point from September 2018. By the end of fiscal year 2019, the number of unemployed persons in the economy had decreased by 292,000 to 5.75 million – the smallest number in nearly 19 years. Moreover, by the end of fiscal year 2019 job openings had exceeded the number of unemployed for 19 consecutive months. Starting in March 2018 and for the first time since the job openings survey was first conducted in 2000, the number of job openings exceeded the number of potential workers seeking employment, despite rising labor force participation.

During fiscal year 2019, headline inflation slowed, pulled down by lower energy prices, but core inflation accelerated modestly. The CPI rose 1.7 percent over the twelve months of fiscal year 2019, decelerating from the 2.3 percent pace during the previous fiscal year. Core inflation was 2.4 percent over the fiscal year ending September 2019, ticking up from the 2.2 percent pace during fiscal year 2018.

Relatively low inflation and moderate nominal DPI growth helped to maintain purchasing power in real terms in fiscal year 2019. Real DPI grew 3.3 percent over the twelve months of fiscal year 2019, after growing by 4.0 percent during the previous fiscal year. Nominal average hourly earnings grew at a consistently stronger pace during fiscal year 2019, which helped boost wages in real terms. Real average hourly earnings increased 2.2 percent during fiscal year 2019, after rising 0.8 percent during the previous fiscal year. Growth of non-farm labor productivity also accelerated during fiscal year 2019, rising by 1.5 percent after growing 1.2 percent during fiscal year 2018.

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, FRB, 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 transfers from the General Fund, which are presented, and by accounting convention, eliminated in the SOSI. For the fiscal year 2019 and 2018 SOSI, the amounts eliminated totaled $36.8 trillion and $32.9 trillion, respectively. (Back to Content)

⁶ Final Monthly Treasury Statement (as of September 30, 2019 and 2018), Joint Statement of Treasury Secretary Steven T. Mnuchin and Acting OMB Director Russel Vought on Budget Results for Fiscal Year 2019 (Back to Content)

⁷ The 22 entities include the Department of Health and Human Services, which received disclaimers of opinions on its 2019, 2018, 2017, 2016, and 2015 SOSI and its 2019 and 2018 SCSIA. The 13 entities include the FDIC, the NCUA, and the FCSIC, which operate on a calendar year basis (December 31 year-end). Statistic reflects 2018 audit results for these organizations if 2019 results are not available. (Back to Content)

⁸ See Note 21—Fiduciary Activities (Back to Content)

⁹ Under GAAP, most U.S. government revenues are recognized on a ‘modified cash’ basis, (see Financial Statement Note 1.B). 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, RRP; and 25 years for the Black Lung program. The Statement of Long-Term Fiscal Projections presents the 75-year 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 10/25/19 press release -- Joint Statement of Treasury Secretary Steven T. Mnuchin and OMB Director Mick Mulvaney on Budget Results for Fiscal Year 2019. (Back to Content)

¹² Final Monthly Treasury Statement for Fiscal Year 2019 through September 30, 2019 and Other Periods. (Back to Content)

¹³ 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 entities. These amounts are described in greater detail in the Other Information section of this Financial Report. (Back to Content)

¹⁴ Traditionally, federal student loans have had flat, 10-year repayment schedules, making it difficult for borrowers to pay at the start of their careers when their salaries are lower. The recent expansion of IDR plans provides flexible repayment schedules based on the borrower’s monthly income. Education’s Agency Financial Report, p. 23-24. (Back to Content)

¹⁵ Fiscal year 2019 Department of the Treasury AFR, p. 36 (Back to Content)

¹⁶ For financial reporting purposes, other than multi-use heritage assets, stewardship assets of the government are not recorded as part of PPE. 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)

¹⁷ With the enactment of the SAFRA Act, which was included as part of the HCERA (P. L. 111-152), no new loans were originated under the FFEL Program (guaranteed loan program) since July 1, 2010. See Department of Education fiscal year 2019 AFR p. 52. (Back to Content)

¹⁸ During fiscal years 2019 and 2018, Treasury faced two delays in raising the statutory debt limit that required it to depart from its normal debt management procedures and to invoke legal authorities to avoid exceeding the statutory debt limit. During these periods, extraordinary actions taken by Treasury have resulted in federal debt securities not being issued to certain federal government accounts with the securities being restored including lost interest to the affected federal government accounts subsequent to the end of the delay period. The first delay occurred beginning on December 9, 2017 and ending on February 9, 2018, with the enactment of the BBA of 2018 (P. L. 115-123) which suspended the statutory debt limit through March 1, 2019. The second delay in raising the statutory debt limit occurred beginning on March 2, 2019 and ending on August 2, 2019, with the enactment of the BBA of 2019 (P. L. 116-37) which suspended the statutory debt limit through July 31, 2021. (Back to Content)

¹⁹ 10/15/2019 press release: Joint Statement of Treasury Secretary Steven T. Mnuchin and Acting OMB Director Russel Vought on Budget Results for Fiscal Year 2019 (Back to Content)

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Last modified 01/31/23