|Dollars in Billions||2010||2009|
|Gross Cost||$ (4,472.3)||$ (3,735.6)|
|Less: Earned Revenue||$ 309.2||$ 300.9|
|(Loss)/Gain from Changes in Assumptions1||$ (132.9)||n/a|
|Net Cost of Operations||$ (4,296.0)||$ (3,434.7)|
|Less: Taxes and Other Revenue:||$ 2,216.5||$ 2,198.4|
|Unmatched Transactions & Balances||$ (0.8)||$ (17.4)|
|Net Operating Cost2||$ (2,080.3)||$ (1,253.7)|
|Cash & Other Monetary Assets||$ 428.6||$ 393.2|
|Loans Receivable and Investments, Net4||$ 942.5||$ 843.3|
|Property, Plant & Equipment, Net||$ 828.9||$ 784.1|
|Other||$ 683.8||$ 647.3|
|Total Assets||$ 2,883.8||$ 2,667.9|
|Federal Debt Held by the Public||$ (9,060.0)||$ (7,582.7)|
|Federal Employee & Veterans Benefits||$ (5,720.3)||$ (5,283.7)|
|Other||$ (1,576.3)||$ (1,257.4)|
|Total Liabilities||$ (16,356.6)||$ (14,123.8)|
|Net Position (Assets minus Liabilities)||$ (13,472.8)||$ (11,455.9)|
|Social Insurance Net Expenditures5:|
|Social Security (OASDI)||$ (7,947)||$ (7,677)|
|Medicare (Parts A, B, & D)||$ (22,813)||$ (38,107)|
|Other||$ (97)||$ (94)|
|Total Social Insurance Net Expenditures||$ (30,857)||$ (45,878)|
|Social Insurance Net Expenditures as a % of Gross Domestic Product (GDP)6|
|Social Security (OASDI)||-0.9%||-1.0%|
|Medicare (Parts A, B, & D)||-2.7%||-4.8%|
|Total Net Expenditures as % of GDP||-3.7%||-5.8%|
1 Separate reporting of these amounts was initially required in FY 2010.
2 Source: Statements of Operations and Change in Net Position.
3 Source: Balance Sheet
4 Includes Loans Receivable and Mortgage-Backed Securities, Troubled Asset Relief Program (TARP) Investments, and Investments in Government-Sponsored Enterprises (GSEs).
5 Source: Statements of Social Insurance (SOSI). Amounts equal estimated present value of projected revenues and expenditures for scheduled benefits over the next 75 years of certain 'Social Insurance' programs (Social Security, Medicare Parts A, B, & D, Railroad Retirement - Black Lung is projected through 2040). Amounts reflect 'Open Group' totals (all current and projected program participants during the 75-year projection period).
6 Social Insurance values as reported in the Statement of Social Insurance. GDP values from the 2010 Social Security and Medicare Trustees Reports represent the present value of GDP over the 75-year projection period.
Note: totals may not equal sum of components due to rounding.
A complete assessment of the Government’s financial or fiscal condition requires analysis of historical results, projections of future revenues and expenditures, and an assessment of the Government's long-term fiscal sustainability. As discussed later in this Report and as summarized in Table 1, the Government’s financial statements show its financial position at the end of the fiscal year, explain how and why the financial position changed during the year, and provide insight into how the Government’s financial condition may change in the future.
In particular, the Statement of Social Insurance (SOSI) compares the actuarial present value of the Government’s estimated expenditures for future scheduled benefits for Social Security, Medicare, and other social insurance programs over a 75-year period to a subset of the revenues that support these programs (e.g., the payroll taxes and revenue from taxation of benefits that support Social Security and Medicare Part A and premiums, but not the general revenues that support Medicare Parts B and D). Expected expenditures for other major programs (including defense, Medicaid, and education), future tax revenues, and the net cost of the Government's ongoing economic recovery efforts will also affect the Government’s future fiscal condition. The sustainability of social insurance and other major programs is discussed below in the section “The Long-Term Fiscal Outlook: 'Where We Are Headed’”.
The natural starting point for assessing the Government’s long-term financial condition is its current financial position, both in dollar terms and in relation to the economy as a whole. Gross Domestic Product (GDP) measures 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 serves as a useful indicator of the economy’s capacity to sustain the Government’s many programs. For example:
|CFO Act Agencies||FY 2010 Audit Opinion|
|Department of Agriculture (USDA)||Unqualified|
|Department of Commerce (DOC)||Unqualified|
|Department of Defense (DOD)||Disclaimer|
|Department of Education (Education)||Unqualified|
|Department of Energy (DOE)||Unqualified|
|Department of Health and Human Services (HHS)||Unqualified*|
|Department of Homeland Security (DHS)**||Disclaimer|
|Department of Housing and Urban Development (HUD)||Unqualified|
|Department of the Interior (DOI)||Unqualified|
|Department of Labor (DOL)||Disclaimer|
|Department of Justice (DOJ)||Unqualified|
|Department of State (State)||Unqualified|
|Department of Transportation (DOT)||Unqualified|
|Department of the Treasury (Treasury)||Unqualified|
|Department of Veterans Affairs (VA)||Unqualified|
|Agency for International Development (USAID)||Unqualified|
|Environmental Protection Agency (EPA)||Unqualified|
|General Services Administration (GSA)||Unqualified|
|National Aeronautics and Space Administration (NASA)||Qualified|
|National Science Foundation (NSF)||Unqualified|
|Nuclear Regulatory Commission (NRC)||Unqualified|
|Office of Personnel Management (OPM)||Unqualified|
|Small Business Administration (SBA)||Unqualified|
|Social Security Administration (SSA)||Unqualified|
|* HHS received a disclaimer of opinion on its 2010 Statement of Social Insurance.|
|** DHS' Balance Sheet and Statement of Custodial Activity were the only statements subject to audit.|
For FY 2010, the Government Accountability Office (GAO) issued a disclaimer of audit opinion on the accrual-based Governmentwide financial statements for the fourteenth consecutive year. In addition, GAO issued a disclaimer of opinion on its audit of the 2010 and 2006 Statement of Social Insurance (SOSI). GAO had issued unqualified opinions on the 2009, 2008, and 2007 SOSI. GAO disclaimed an opinion on the 2010 SOSI because of significant uncertainties (discussed in note 26), primarily related to the achievement of projected reductions in Medicare cost growth reflected in the 2010 SOSI.
Twenty of the 24 agencies required to issue audited financial statements under the Chief Financial Officers (CFO) Act received unqualified audit opinions (Table 2), as did eight of 11 additional significant reporting agencies, as listed in Appendix A.
The Governmentwide Reporting Entity
These financial statements cover the three branches of the Government (legislative, executive, and judicial). Legislative and judicial branch reporting focuses primarily on budgetary activity. Executive branch entities, as well as the Government Printing Office and U.S. Capitol Police (legislative branch agencies) are required, by law, to prepare audited financial statements. Some other legislative branch entities voluntarily produce audited financial reports.
A number of entities and organizations are excluded 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 Government-Sponsored Enterprises, including the Federal Home Loan Banks, the Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (Freddie Mac). The Government increased its investment in the recovery effort in FY 2009 under the Emergency Economic Stabilization Act (EESA), which gave the Secretary of the Treasury temporary authority to purchase and guarantee assets from a wide range of financial institutions. Following U.S. Generally Accepted Accounting Principles (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. Even though some of the equity investments are significant, the entities in which the Federal Government holds equity investments meet the criteria under paragraph 50 of the Statement of Federal Financial Accounting Concepts (SFFAC) No. 2, which directs that such investments should not be consolidated into the financial reports of the Federal Government, either in part or as a whole. However, the investments in these entities and any related liabilities are recorded in the financial statements. A list of the significant agencies and entities contributing to this report is included in Appendix A. 4
The following pages contain a more detailed discussion of the Government’s financial results for FY 2010, the budget, the economy, the debt, the Government’s ongoing economic recovery efforts, and a long-term perspective about fiscal sustainability, including the Government’s ability to meet its social insurance benefits obligations. The information in this Report, when combined with the President’s Budget, collectively provides a valuable tool for managing current operations and planning future initiatives.
Limitations of the Financial Statements
The principal financial statements have been prepared to report the financial position and results of operations of the Federal Government and the financial condition of its social insurance programs, pursuant to the requirements of 31 U.S.C. § 331(e)(1). These statements are in addition to the financial reports used to monitor and control budgetary resources that are prepared from the same books and records.
Each year, the Administration issues two reports that detail financial results for the Federal Government: the President’s Budget, which provides a plan for future initiatives and the resources needed to support them, as well as prior year fiscal and performance results; and this Financial Report, which provides the President, Congress, and the American people a broad, comprehensive overview of the cost on an accrual basis of the Government’s operations, the sources used to finance them, its balance sheet, and the overall financial outlook.
Treasury generally prepares the financial statements in this Report on an “accrual basis” of accounting as prescribed by GAAP for Federal entities 5. 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.
|President´s Budget||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.|
Note – See Statements of Changes in Cash Balance from Unified Budget and Other Activities and Reconciliations of Net Operating Cost and Unified Budget Deficits.
Budget Deficit vs. Net Operating Cost
As the economy continues along a path of gradual recovery, the Government´s primarily cash-based6 budget deficit decreased slightly, from $1.4 trillion to $1.3 trillion, following significant deficit increases during FY 2008 and especially FY 2009 due to the impacts of the financial crisis and recession and the policy actions taken in response. This increase was attributable in part to Government programs that act as "automatic stabilizers," which help to support the economy during a downturn by increasing spending and reducing tax collections. This support is "automatic" because increased spending on programs like unemployment benefits, Social Security, and Medicaid, and a reduction in tax receipts happen even without any legislative changes in policies. These automatic stabilizers, in addition to recent economic recovery efforts, caused the deficit to surge in recent years. However, the deficit decreased in the past year due to slight increases in cash tax receipts and a decline in outlays.
|Dollars in Billions||2010||2009||$ Change|
|Net Operating Cost||$ (2,080.3)||$ 1,253.7)||$ (826.6)|
|Liabilities for Veteran's Compensation||$ 223.8||$ (149.2)||$ 373.0|
|Liabilities for Military and Civilian Employee Benefits||$ 279.3||$ 114.0||$ 165.3|
|Liabilities for Government Sponsored Enterprises||$ 268.0||$ 78.1||$ 189.9|
|Downward Reestimate for TARP||$ 86.4||$ (110.0)||$ 196.4|
|Other, Net||$ (71.3)||$ (96.3)||$ 25.0|
|Budget Deficit||$ (1,294.1)||$ (1,417.1)||$ 123.0|
|Source: Statements of Reconciliations of Net Operating Cost and Unified Budget Deficit|
The Government´s largely accrual-based net operating cost (which increased from an already record high of about $1.3 trillion in FY 2009 to nearly $2.1 trillion in FY 2010) typically exceeds the deficit due largely to the inclusion of cost accruals such as those for estimated future postemployment benefit liabilities. Table 3 shows the primary differences between the budget deficit and net operating cost in FY 2010. The majority of the differences stem from changes in liabilities associated with the Government´s postemployment programs for its military and civilian employees ($279.3 billion), as well as its veterans ($223.8 billion). The longer-term actuarial costs of these programs are included in the Government´s net operating cost, calculated on an accrual basis as described above, but not in the largely cash-based budget deficit. Agencies and their actuaries estimate their liability for these benefits over the long-term, but funds have yet to actually be spent. As will be discussed further in the following section, a new accounting standard effective for FY 2010 requires agencies to more clearly indicate the impact that changes in assumptions have on their overall net costs. Similarly, Table 3 shows that another significant difference is the $268 billion increase in estimated long-term liabilities associated with the continued support of Government-Sponsored Enterprises, such as Fannie Mae and Freddie Mac under agreements with them.
The Government´s financial position and condition have traditionally been expressed through the Budget, focusing on surpluses, deficits, and debt. However, this primarily cash-based discussion of the Government´s net outlays (deficit) or net receipts (surplus) tells only part of the story. The Government´s accrual-based net position is the difference between its assets and liabilities. The Government´s "bottom line" net operating cost is the difference between its revenues and costs.
Revenues and Costs: "What Came In & What Went Out"
The Government´s Statement of Operations and Change in Net Position, much like a corporation´s income statement, shows the Government´s "bottom line" and its impact on net position (i.e., assets net of liabilities). The Government nets its costs against both: (1) earned revenues from Government programs (e.g., Medicare premiums, National Park entry fees, and postal service fees) to derive net cost; and (2) taxes and other revenue to arrive at the Government´s "bottom line" net operating cost.
|Dollars in Billions||2010||2009||Increase/
|Gross Cost||$ (4,472.3)||$ (3,735.6)|
|(Loss)/Gain from Changes in Assumptions||$ (132.9)||n/a|
|Adjusted Gross Cost*||$ (4,605.2)||$ (3,735.6)||$ 869.6||23.3%|
|Less: Earned Revenue||$ 309.2||$ 300.9||$ 8.3||2.8%|
|Net Cost of Operations (Net Cost)||$ (4,296.0)||$ (3,434.7)||$ 861.3||25.1%|
|Less: Taxes and Other Revenue||$ 2,216.5||$ 2,198.4||$ 18.1||0.8%|
|Unmatched Transactions and Balances||$ (0.8)||$ (17.4)||$ 16.6||95.4%|
|Net Operating Cost||$ (2,080.3)||$ (1,253.7)||$ 826.6||65.9%|
|* Starting in FY 2010, agencies were required to separately display costs attributable to gains/losses from assumption changes associated with postemployment programs. Adjusted Gross Cost is shown separately above to establish a consistent basis of comparison with FY 2009.|
Chart A and Table 4 show that the Government has incurred a total net operating cost (i.e., costs have exceeded its revenues) over the past several years, causing net position to decline. In summary, Table 4 shows that during FY 2010, the Government´s "bottom line" net operating cost of $2,080.3 billion increased by two-thirds or $827 billion over 2009´s net operating cost of $1,253.7 billion. This significant increase was attributable almost entirely to a nearly 25 percent increase in net cost as taxes and other revenues were nearly identical to last year.
The Reconciliation of Net Operating Cost and Unified Budget Deficit Statement shows how the Government´s net operating cost from the primarily accrual-based financial statements relates to the more widely-known and primarily cash-based budget deficit. As summarized in Table 3 on the previous page, most of this difference is attributable to cost related to changes in the estimated present value of the Federal Government's net postemployment liabilities. The impact of these accrual costs is more evident starting in FY 2010 with the issuance of a new federal accounting standard7 , requiring agencies to explicitly report on gains and losses attributable to changes in actuarial assumptions. These actuarial amounts are presented in Table 4 and discussed further in this section.
Revenue: "What Came In"
The Statement of Net Cost reports "earned" revenue generated by Federal programs, including Medicare premiums paid by program participants and postal service fees. The Statement of Operations and Changes in Net Position shows the Government´s taxes and other revenues (i.e., revenues other than "earned"). As shown in Chart B, at just over $2.2 trillion, total Government revenues in FY 2010 were nearly identical to FY 2009, increasing by about $18.1 billion, as the economy continues to recover. Corporate tax revenue rebounded from a more than 50 percent decline in FY 2009 to increase by nearly 40 percent during FY 2010. However, in dollar terms, the $49.3 billion corporate tax increase and a slight increase in other tax revenue was partially offset by a slight decrease (2.4 percent or $42.1 billion) in personal income tax revenue to keep total revenues relatively stable. Together, personal and corporate income taxes accounted for more than 86 percent of total revenues in FY 2010.
Cost: "What Went Out"
The Statement of Net Cost also shows how much it costs to operate the Federal Government, recognizing expenses when they happen, regardless of when payment is made (accrual basis). It shows the derivation of the Government´s net cost or the difference between: (1) the costs of goods produced and services rendered by the Government and (2) the earned revenues generated by those goods and services during the fiscal year. This amount, in turn, is offset against the Government´s taxes and other revenue in the Statement of Operations and Changes in Net Position to calculate the "bottom line" or net operating cost.
Chart C shows the cost trends in the entities that contributed the most to the Government´s total net cost (gross cost less earned revenue) of $4,296.0 billion in FY 2010 (a 25 percent or $861.3 billion increase over FY 2009). The Department of Health and Human Services (HHS), the Department of Defense (DoD), and the Social Security Administration (SSA) have consistently incurred the largest agency shares of the Government´s total net cost of operations in recent years, combining to comprise almost 60 percent of the Government´s FY 2010 total net cost. The bulk of HHS and SSA costs (which totaled $857.6 billion and $753.9 billion, respectively in FY 2010) are attributable to major social insurance programs administered by these agencies, e.g., Medicare and Social Security. The Statement of Social Insurance (SOSI) and the related information in this report discuss the projected future revenues, expenditures, and future sustainability of these programs in greater detail. DoD costs relate primarily to operational activities and the longer-term costs of military retirement and health benefits. These long-term "actuarial" costs also represented a significant portion of costs at the Department of Veterans Affairs (VA), relating to VA´s veterans´ benefits programs. Chart C also shows the Department of the Treasury as a significant contributor to the Government´s net cost in FY 2010, due in large part to costs associated with the ongoing economic recovery efforts discussed later.
As indicated above, the actuarial and other estimated costs associated with the Government´s postemployment benefits programs for its military and civilian employees represent a significant portion of total costs for a few select agencies, including VA, DoD, and the Office of Personnel Management (OPM). In the aggregate, just the change in actuarial and other estimated costs associated with the change in estimated postemployment benefit liabilities (see Table 3), accounted for more than $538 billion or 62 percent of the total change in the Government´s net cost of $861.3 billion for FY 2010 (Table 4). As shown in Chart D, actuarial costs typically have their greatest impact at the VA, DoD, and OPM corresponding to those agencies´ administration of the Government´s pension and other postemployment benefits programs. These agencies employ a complex series of assumptions, including but not limited to interest rates, inflation, beneficiary eligibility life expectancy, and cost of living to make annual actuarial projections of their long-term benefits liabilities and the related costs. Annual changes in these assumptions can cause those projections, and consequently total costs, to fluctuate, sometimes significantly, from year to year. For example, as illustrated in Chart C, at VA alone, assumption and experience changes resulted in a $373 billion increase in VA´s and the Governmentwide Net Cost, following more than $480 billion decrease the previous year. The $373 billion increase for VA reflects an increase in actuarial costs at VA from ($149.2) billion in FY 2009 to $223.8 billion in FY 2010 as indicated in Table 3.
As indicated earlier, a new accounting standard not only requires discrete presentation of actuarial gains and losses, but also prompts the use of a more standardized approach to discount rates and valuation dates in an attempt to mitigate the volatility in the effect of these assumptions in recent years. Chart D shows that actuarial gains and losses from changes in assumptions accounted for a net $132.9 billion of the Government´s total net cost and illustrates the varying impact that these assumptions can have. The extent to which normalization occurs will become evident after successive years of use of the new standard.
As noted earlier, taxes and other revenues of $2,216.5 billion are deducted from the Government´s total net cost of $4,296.0 billion (including actuarial costs) to derive a "bottom line" net operating cost (including a slight adjustment for unmatched transactions and balances as described in the Required Supplementary Information section of this Report). As previously shown in Table 4, the relatively unchanged taxes and other revenues, combined with the nearly 25 percent increase in net costs, resulted in a "bottom line" net operating cost of about $2.1 trillion ($2,080.3 billion) for FY 2010, an increase of 66 percent or $827 billion over the FY 2009 net operating cost of about $1.3 trillion.
Assets and Liabilities: "What We Own and What We Owe"
|Net Position Dollars in Billions||2010||2009|
|Cash & Other Monetary Assets||$ 428.6||$ 393.2||$ 35.4||9.0%|
|Loans Receivable and Investments, Net*||$ 942.5||$ 843.3||$ 99.2||11.8%|
|Inventories||$ 286.2||$ 284.6||$ 1.6||0.6%|
|Property, Plant & Equipment, Net||$ 828.9||$ 784.1||$ 44.8||5.7%|
|Other||$ 397.6||$ 362.7||$ 34.9||9.6%|
|Total Assets||$ 2,883.8||$ 2,667.9||$ 215.9||8.1%|
|Less:Liabilities, comprised of:|
|Federal Debt Held by the Public||$ (9,060.0)||$ (7,582.7)||$ 1,477.3||19.5%|
|Federal Employee & Veterans Benefits||$ (5,720.3)||$ (5,283.7)||$ 436.6||8.3%|
|Other||$ (1,576.3)||$ (1,257.4)||$ 318.9||25.4%|
|Total Liabilities||$ (16,356.6)||$ (14,123.8)||$ 2,232.8||15.8%|
(Assets Minus Liabilities)
|$ (13,472.8)||$ (11,455.9)||$ (2,016.9)||-17.6%|
|*Includes Net Loans Receivable and Mortgage-Backed Securities, Troubled Asset Relief Program (TARP) Investments, and Investments in Government-Sponsored Enterprises (GSEs).|
As indicated earlier, 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 5). It is important to note that the balance sheet does not include the financial value of the Government´s sovereign powers to tax, regulate commerce, and set monetary policy. It also excludes its control over nonoperational resources, including 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 earmarked for specific funds and programs. Moreover, the Government´s exposures are broader than the liabilities presented on the balance sheet, if such items as the Government´s future social insurance exposures (namely, Medicare and Social Security), as well as other commitments and contingencies, are taken into account. These exposures are discussed later in this MD&A section as well as in the supplemental disclosures of this Report.
Assets - "What We Own"
As of September 30, 2010, the Government held about $2.9 trillion in assets, comprised mostly of net property, plant, and equipment ($828.9 billion in FY 2010) and a combined total of $942.5 billion in net loans receivable and investments, including nearly $145 billion associated with the Troubled Asset Relief Program (TARP) efforts and $109 billion in Government-Sponsored Enterprises (GSEs) investments in (GSEs and TARP not shown separately in Table 5). During FY 2010, the Government´s total assets increased by $215.9 billion, due in large part to the nearly $100 billion increase in Net Loans Receivable and Investments as economic recovery efforts continued. On September 17, 2008, the Department of the Treasury and the Federal Reserve announced the Supplementary Financing Program (SFP) - a temporary program to help the Federal Reserve in funding its authorized expenditures under its liquidity and lending initiatives aimed at addressing the ongoing crisis in financial markets. As of September 30, 2010, $200 billion or nearly half of the Government´s $428.5 billion cash balance was associated with this program, compared to $165 billion as of September 30, 2009. In addition to assets recorded on the balance sheet, the Government discloses that it also owns certain other stewardship assets such as land (e.g., national parks and forests) and heritage assets (e.g., national memorials and historic structures).
Liabilities – "What We Owe"
The other major component of the Government´s liabilities is Federal employee postemployment and veteran benefits payable, which increased $436.6 billion during FY 2010, from $5,283.7 billion to $5,720.3 billion. As indicated earlier, this increase was due to increases in future benefit liability estimates made by VA ($223.8 billion increase), DoD ($164.2 billion), and OPM and other agencies administering Federal civilian pension plans ($115.1 billion). OPM administers the largest civilian pension plan, covering nearly 2.8 million current employees8 and 2.5 million annuitants9. The military pension plan covers over 3.1 million current military personnel (including active service, reserve, and National Guard) and approximately 2.2 million retirees and annuitants10.
The unified 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 Statements of Changes in Cash Balance from Unified Budget and Other Activities reports how the annual unified 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 debt held by the public, including accrued interest, totaled approximately $9.1 trillion at the end of FY 2010 – an increase of nearly $1.5 trillion. As indicated, typically, budget surpluses have resulted in borrowing reductions, and budget deficits have yielded borrowing increases. However, the Government´s debt operations are much more complex than this would imply. Each year, trillions of dollars of debt matures and new debt takes its place. In FY 2010, new borrowings were $8.5 trillion and repayments of maturing debts held by the public were $7.1 trillion. Both represented slight decreases over new borrowings and debt repayments for FY 2009, respectively.
Historically, the Government has incurred debt when it borrows from the public to finance budget deficits. The economic recovery efforts of the past two years have precipitated a need to borrow additional funds from the public. However, as will be discussed later, part of this increase has financed investments on which the Government has already made significant recovery.
Debt was held by the public in the form of Treasury securities, such as bills, notes, and bonds, and accrued interest payable. The "public" consists of individuals, corporations, state and local governments, Federal Reserve Banks, foreign governments, and other entities outside the Government. Debt held by the public is a balance sheet liability.
In addition to debt held by the public, the Government has outstanding nearly $4.6 trillion in intragovernmental debt, 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 ($2.6 trillion) and Medicare ($350.5 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) 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 14 of the Report). When those securities are redeemed, e.g., to pay future 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). Prior to 1917, the Congress approved each debt issuance. In 1917, to facilitate planning in World War I, Congress established a dollar ceiling for Federal borrowing. The statutory limit has been increased roughly 100 times since it was established, and always in time to prevent the United States from defaulting on its debt or other statutory obligations. At the end of FY 2010, the amount of debt subject to the limit was $13.5 trillion, $783 billion under the current limit. The debt limit has been raised multiple times in recent years. In December 2009, the limit was raised to $12.4 trillion, and in February 2010, it was increased again to $14.3 trillion, where it remains as of September 30, 2010. If overall budget deficits continue, the Government will have to borrow more from the public in order to finance program needs and pay interest on debt held by the public. Instances where debt held by the public increases faster than the economy for extended periods can pose additional challenges.
The Federal debt held by the public measured as a percent of GDP compares the country´s debt to the size of its economy. Over time, the ratio of Federal debt-to-GDP has varied widely. For most of the Nation´s history, the debt to GDP ratio has tended to increase during wartime and decline during peacetime. That pattern continued to hold following World War II until the 1970s. As shown in Chart F, wartime spending and borrowing had pushed the debt to GDP ratio to an all-time high of 109% in 1946, but the ratio came down rapidly in the post-war years. It fell to 80 percent by 1950 and 46% in 1960. The postwar low point was reached in 1974 at 24 percent. Since then, Federal debt held by the public as a percent of GDP has increased. It grew rapidly from the mid 1970s until the early 1990s. In the 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, generated a significant reduction in the debt-to-GDP ratio over the course of the 1990s. From a peak of 49 percent of GDP in 1993-1994, the debt-to-GDP ratio fell to 33 percent in 2001. During the last decade, much of this progress was undone as PAYGO rules were allowed to lapse, significant tax cuts were implemented, and entitlements were expanded. By September 2008, the debt-to-GDP ratio was 40% of GDP. The extraordinary demands of the recent economic and fiscal crisis and ensuing recovery have pushed up debt held by the public to nearly 53 percent in 2009 and 62 percent in 2010.
The preceding section has focused on the financial results for the Federal Government for FY 2010. The following sections discuss the Government´s economic recovery efforts and as well as perspective on the issue of fiscal sustainability.
2 Final Monthly Treasury Statement (as of September 30, 2010).(Back to Content)
3The Black Lung program is projected through 2040.(Back to Content)
4Since 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.(Back to Content)
5Under 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 through 2040 for the Black Lung program.(Back to Content)
6 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 Government (excluding administrative costs), or the credit subsidy cost. Credit programs record cash payments to and from the public in nonbudgetary financing accounts.(Back to Content)
7Statement of Federal Financial Accounting Standard 33, ´Pensions, Other Retirement Benefits, and Other Postemployment Benefits: Reporting the Gains and Losses from the Changes in Assumptions and Selecting Discount Rates and Valuation Dates.(Back to Content)
8As of 9/30/2009 OPM Office of Actuaries,(Back to Content)
9OPM FY 2010 Annual Financial Report, p. 9.(Back to Content)
10DoD FY 2010 Agency Financial Report, p.8; DoD Military Retirement Fund (MRF) financial statements, p 10.(Back to Content)
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