2011   Financial Report of the United States Government

Management's Discussion & Analysis

The Government´s Financial Position and Condition

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.  This 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 provides insight into how the Government’s financial condition may change in the future. 

Table 1:
The Federal Government's Financial Position and Condition
Dollars in Billions 2011 2010 Increase / (Decrease)
$ %
FINANCIAL MEASURES
Gross Cost $(3,998.3) $(4,472.3) $ (474.0) (10.6%)
  Less: Earned Revenue $365.6 $309.2 $56.4 18.2%
    Gain/(Loss) from Changes in Assumptions $(28.1) $(132.9) $(104.8) (78.9%)
Net Cost1 $(3,660.8) $(4,296.0) $(635.2) (14.8%)
  Less: Taxes and Other Revenue: $2,363.8 $2,216.5 $147.3 6.6%
    Unmatched Transactions & Balances $(15.6) $(0.8) $14.8 1850.0%
Net Operating Cost2 $(1,312.6) $(2,080.3) $(767.7) (36.9%)
Assets3:        
  Cash & Other Monetary Assets $177.0 $428.6 $(251.6) (58.7%)
  Loans Receivable and Investments, Net4 $985.2 $942.5 $42.7 4.5%
  Property, Plant & Equipment, Net $852.8 $828.9 $23.9 2.9%
  Other $692.3 $683.8 $8.5 1.2%
Total Assets $2,707.3 $2,883.8 $(176.5) (6.1%)
Liabilities3:        
  Federal Debt Held by the Public & Accrued Interest $(10,174.1) $(9,060.0) $1,114.1 12.3%
  Federal Employee & Veterans Benefits Payable $(5,792.2) $(5,720.3) $71.9 1.3%
  Other $(1,526.4) $(1,576.3) $(49.9) (3.2%)
Total Liabilities $(17,492.7) $(16,356.6) $1,136.1 6.9%
Net Position (Assets minus Liabilities) $(14,785.4) $(13,472.8) $(1,312.6) (9.7%)
SUSTAINABILITY MEASURES
Social Insurance Net Expenditures5:        
  Social Security (OASDI) $(9,157) $(7,947) $1,210 15.2%
  Medicare (Parts A, B, & D) $(24,572) $(22,813) $1,759 7.7%
  Other $(101) $(97) $4 4.1%
Total Social Insurance Net Expenditures $(33,830) $(30,857) $2,974 9.6%
Total Federal Government Noninterest Net Expenditures6 $(6,400) $(16,300) $(9,900) (60.7%)
BUDGET DEFICIT
Unified Budget Deficit7 $(1,298.6) $(1,294.1) $4.5 0.3%

1 Source: Statement of Net Cost.
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 Represents the 75-year projection of the Federal Government's receipts less non-interest spending as reported in the Statement of Long-Term Fiscal Projections in the Supplemental Information section of the Financial Report.
7 Source: Final Monthly Treasury Statement (as of 9/30/2011 and 9/30/2010).
Note: totals may not equal sum of components due to rounding.

Table 1 on the previous page and the following summarize the Federal Government’s financial position:

This Report also contains information about potential impacts on the Government’s future financial condition.  Under Federal accounting rules, social insurance expenditures, as reported in the Statement of Social Insurance (SOSI) and the Statement of Long-Term Fiscal Projections (included in the Supplemental Information section of the Report) are not considered liabilities of the Federal Government.  They can, however, provide a valuable perspective on the sustainability of the Government’s fiscal path:

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) 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 is a useful indicator of the economy’s capacity to sustain the Government’s many programs.  For example:

Fiscal Year 2011 Financial Statement Audit Results

Table 2:
Chief Financial Officers (CFO) Act Agencies FY 2011 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)1 Unqualified
Department of Homeland Security (DHS)2 Qualified
Department of Housing and Urban Development (HUD) Unqualified
Department of the Interior (DOI) Unqualified
Department of Labor (DOL) Unqualified
Department of Justice (DOJ) Unqualified
Department of State (State)3 Qualified
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) Unqualified
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
Other Significant Reporting Entities Audit Opinion
Export-Import Bank of the United States Unqualified
Farm Credit System Insurance Corportation (FCSIC)4 Unqualified
Federal Communications Commission (FCC) Unqualified
Federal Deposit Insurance Corporation (FDIC)4 Unqualified
National Credit Union Administration (NCUA)4 Unqualified
Pension Benefit Guaranty Corporation (PBGC) Unqualified
Railroad Retirement Board (RRB) Unqualified
Securities and Exchange Commission (SEC) Unqualified
Smithsonian Institution5 Unqualified
Tennessee Valley Authority (TVA) Unqualified
U.S. Postal Service (USPS) Unqualified
1 Recieved disclaimer of opinion on Statement of Social Insurance and Statement of Changes in Social Insurance Amounts.
2 Balance Sheet and Custodial Statement Audit Only.  
3 Received unqualified opinion on Statement of Budgetary Resources and Consolidated Statement of Net Cost, and a qualfied opinion on the Consolidated Balance Sheet and Statement of Changes in Net Position.
4 Entities operate under calendar year (CY)-end. Opinions reflect CY 2010 audit results.
5 Opinion on the most recent annual report, covering FY 2010.

For FY 2011, the Government Accountability Office (GAO) issued a fifteenth consecutive disclaimer of audit opinion on the accrual-based government-wide financial statements.  In addition, GAO issued disclaimers of opinion on the 2011 and 2010 audits of the Statements of Social Insurance (SOSI), following unqualified SOSI opinions on the 2009, 2008, and 2007 SOSI, and a disclaimer of opinion on the 2011 Statement of Changes in Social Insurance Amounts (SCSIA).  The 2011 and 2010 SOSI and 2011 SCSIA disclaimers stem from significant uncertainties (discussed in note 26), primarily related to the achievement of projected reductions in Medicare cost growth reflected in the 2011 and 2010 SOSI.

Twenty-one of the 24 agencies required to issue audited financial statements under the Chief Financial Officers (CFO) Act received unqualified audit opinions, as did 11 of 11 additional significant reporting agencies, (see Table 2 and Appendix A for a list of these agencies)7

The Government-wide 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 certain 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 Emergency Economic Stabilization Act (EESA) of 2008 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 (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.  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 the financial results of such entities 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.  Appendix A includes a list of the agencies and entities contributing to this report.8

The following pages contain a more detailed discussion of the Government’s financial results for FY 2011, 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 to the Nation’s leaders 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 and changes in 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.

The President’s Budget and The Financial Report

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 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.

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.

*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-based10 budget deficit remained relatively flat at about $1.3 trillion, compared to FY 2010, following significant increases during FY 2008 and especially FY 2009 due to the impacts of the financial crisis, the recession, and the policy actions responding to both.  These increases were 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 increase in recent years.  However, the deficit decreased during FY 2010 and remained largely unchanged in 2011.

The Government’s largely accrual-based net operating cost (which decreased from a record high of nearly $2.1 trillion in FY 2010 to $1.3 trillion in FY 2011) typically exceeds the deficit due largely to the inclusion of cost accruals or changes in future estimated liabilities for the Government’s postemployment benefit programs for its military and civilian employees, as well as its veterans.  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 are not included in the largely cash-based budget deficit.  Agencies and their actuaries estimate the liability for these benefits over the long-term, but funds have yet to actually be spent.  Similarly, changes in estimated long-term liabilities associated with economic recovery programs supporting Fannie Mae and Freddie Mac also result in costs that are reflected in the Government’s financial statements, but not in the Budget.

Table 3 shows that, for FY 2011, the $14 billion net difference between the Government’s budget deficit and net operating cost is minimal, especially when compared to FY 2010 net difference of $786.2 billion.  As indicated in Table 3, this is largely due to agencies recording large increases in liabilities for employee and veterans benefits, and support for Government-Sponsored Enterprises (GSEs) – Fannie Mae and Freddie Mac in FY 2010 ($503.1 billion and $268 billion, respectively) and significantly smaller changes for these same amounts in FY 2011 ($71.9 billion increase and $43.7 billion decrease, respectively).  As discussed in greater detail later, the smaller estimates of the increase in future employee and veterans benefits relative to FY 2010 stems from changes in experience and economic and demographic assumptions, as well as the implementation of a new Federal accounting standard during FY 2010 that provided for greater consistency in these estimates.  GSE estimated liabilities decreased due to payments to the GSEs and lower loss projections.  As discussed later and as indicated in the “change” column of Table 3, the difference in the changes of these estimates resulted in significant actuarial and total cost reductions for the Federal Government during FY 2011.

Table 3: Budget Deficit vs. Net Operating Cost
Dollars in Billions 2011 2010 Increase / (Decrease)
Net Operating Cost $(1,312.6) $(2,080.3) $(767.7)
Change in:      
  Federal Employee and Veterans Benefits Payable $71.9 $503.1 $(431.2)
  Liabilities for Government Sponsored Enterprises $(43.7) $268.0 $(311.7)
Other, Net $(14.2) $15.1 $(29.3)
Subtotal - Net Difference: $14.0 $786.2 $(772.2)
Budget Deficit $(1,298.6) $(1,294.1) $4.5

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.  

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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.

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 2011, the Government’s “bottom line” net operating cost of $1,312.6 billion decreased by 37 percent or $768 billion, compared to 2010’s net operating cost of $2,080.3 billion.  As summarized in Table 4 and as will be discussed below, the net decrease in net operating cost in FY 2011 was caused by both a slight revenue increase and a significant net cost decrease.

Table 4:
Gross Cost, Revenues, and Net Cost
Dollars in Billions 2011 2010 Increase/(Decrease)
$ %
Gross Cost $(3,998.3) $(4,472.3) $(474.0) (10.6%)
  Less: Earned Revenue $365.6 $309.2 $56.4 18.2%
Subtotal $(3,632.7) $(4,163.1) $(530.4) (12.7%)
  Gain/(Loss) from Changes in Assumptions $(28.1) $(132.9) $(104.8) 78.9%
Net Cost $(3,660.8) $(4,296.0) $(635.2) (14.8%)
  Less: Taxes and Other Revenue $2,363.8 $2,216.5 $147.3 6.6%
  Unmatched Transactions and Balances $(15.6) $(0.8) $14.8 1850.0%
Net Operating Cost $(1,312.6) $(2,080.3) $(767.7) (36.9%)

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 liabilities for Federal Employee and Veterans’ Benefits.  The impact of these accrual costs on the Government’s total net costs is shown in Chart E.   

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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, a slight increase in personal income tax and other revenues, partially offset by a slight decrease in corporate tax revenues combined to increase total Government revenues by $147 billion (6.6 percent) to about $2.4 trillion for FY 2011.  Together, personal and corporate income taxes accounted for 86 percent of total revenues in FY 2011.  The remaining 14 percent consists of various other taxes and receipts, including excise taxes, unemployment taxes, and customs duties.

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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 net of: (1) 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 assumptions impacting longer-term estimated costs.  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 composition of the Government’s net cost (gross cost less earned revenue and gain/loss from changes in assumptions) of $3,660.8 billion in FY 2011, which decreased about 15 percent or $635.2 billion compared to FY 2010.  In FY 2011, about two-thirds of total net cost came from the Department of Defense (DOD), the Social Security Administration (SSA), and the Department of Health and Human Services (HHS), which have consistently incurred the largest agency shares of the Government’s total net cost in recent years, as shown in Charts C and D.  The bulk of HHS and SSA costs (which totaled $877.1 billion and $782.5 billion in FY 2011, respectively) 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, including the broader discussion of the Government’s long-term fiscal projections, discuss the projected future revenues, expenditures, and sustainability of these programs in greater detail.  DOD net costs of $718.7 billion relate primarily to operational activities and the longer-term costs of military retirement and health benefits.  Charts C and D show that the Department of Veterans Affairs (VA) as well as interest on debt held by the public were also significant contributors to the Government’s net cost during FY 2011. The combined other agencies included in the Government’s Statement of Net Cost accounted for 23 percent of the Government’s total net cost.

In recent years, the changes in the Government’s net cost have been significantly impacted by changes in the current costs of and especially the actuarial and other estimated costs associated with the Government’s postemployment benefits programs for its military and civilian employees reported primarily by the Office of Personnel Management (OPM), DOD, and VA:

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In the aggregate, the combined decrease of $431.2 billion from Table 3 in actuarial and other estimated costs associated with the change in estimated liabilities for the Government’s three largest postemployment benefits programs, including veterans’ benefits, accounted for more than two-thirds of the $635.2 billion total net decrease in the Government’s total net cost for FY 2011 (see Chart E).

By comparison and to illustrate the volatility of the changes in these costs, during FY 2010, increases in actuarial costs of more than $538 billion accounted for 65 percent of the total $826.6 billion increase in the Government’s 2010 net cost.

These agencies employ a complex series of assumptions, including but not limited to interest rates, beneficiary eligibility, life expectancy, medical cost levels, compensation levels, 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.  Table 4 shows that the losses associated with these changes in assumptions totaled only $28.1 billion in FY 2011, but reflected a decrease of $105 billion compared to losses incurred in FY 2010.  DOD, VA, and OPM each attributed significant decreases in their respective agency total net costs largely to changes in these assumptions.

In addition, a decline in net costs at the Department of the Treasury of $288 billion (77 percent) during FY 2011 was another significant contributor to the decline in the Government’s total net costs.  Last year, Treasury recorded a $268 billion increase in net cost related to the expense associated with recording a contingent liability for projected total costs payable to the Government Sponsored Enterprises (GSEs) under the Senior Preferred Stock Purchase Agreement (SPSPA) program.  Payments to and revised loss projections for the GSEs resulted in a $43.7 billion reduction of the estimated liability for FY 2011, which, when compared to the $268 billion liability increase (cost) in 2010, yields a combined decrease of $311.7 billion (see Table 3).

As noted earlier, taxes and other revenues of $2,363.8 billion are deducted from the Government’s total net cost of $3,660.8 billion (including actuarial costs) to derive a “bottom line” net operating cost14.  As previously shown in Table 4, a slight increase in taxes and other revenues, combined with the nearly 15 percent decrease in net costs, resulted in a “bottom line” net operating cost of about $1.3 trillion ($1,312.6 billion) for FY 2011, a decrease of 37 percent or $767.7 billion, compared to the FY 2010 net operating cost of about $2.1 trillion ($2,080.3 billion). 

Assets and Liabilities: "What We Own and What We Owe"


Table 5: Assets and Liabilities
Net Position Dollars in Billions 2011 2010
Increase/
(Decrease)
$
Increase/
(Decrease)
%
Assets        
  Cash & Other Monetary Assets $177.0 $428.6 $(251.6) (58.7%)
  Loans Receivable and   Investments, Net* $985.2 $942.5 $42.7 4.5%
  Inventories $296.1 $286.2 $9.9 3.5%
  Property, Plant & Equipment,   Net $852.8 $828.9 $23.9 2.9%
  Other $396.2 $397.6 $(1.4) (0.4%)
Total Assets $2,707.3 $2,883.8 $(176.5) (6.1%)
Less:Liabilities, comprised of:        
  Federal Debt Held by the Public & Accrued Interest $(10,174.1) $(9,060.0) $1,114.1 12.3%
  Federal Employee & Veterans   Benefits $(5,792.2) $(5,720.3) $71.9 1.3%
  Other $(1,526.4) $(1,576.3) $(49.9) (3.2%)
Total Liabilities $(17,492.7) $(16,356.6) $1,136.1 6.9%
Net Position
(Assets Minus Liabilities)
$(14,785.4) $(13,472.8) $(1,312.6) (9.7%)
*Includes Net Loans Receivable and Mortgage-Backed Securities, Troubled Asset Relief Program (TARP) Investments, and Investments in Government-Sponsored Enterprises (GSEs).

The Federal 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 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, when such items as the Government’s future social insurance exposures (namely, Medicare and Social Security), as well as other fiscal projections, commitments and contingencies, are taken into account.  These exposures are discussed later in this Management Discussion and Analysis (MD&A) section as well as in the supplemental disclosures of this Report.

Assets – “What We Own”

As of September 30, 2011, the Government held about $2.7 trillion in assets, comprised mostly of net property, plant, and equipment ($852.8 billion in FY 2011) and a combined total of $985.2 billion in net loans receivable and mortgage-backed securities, and investments, including amounts associated with the Troubled Asset Relief Program (TARP) and the GSEs as discussed later.  During FY 2011, the Government’s total assets decreased by $176.5 billion, due in large part to the elimination of cash deposits with the Federal Reserve held under the Supplementary Financing Program (SFP). Under the SFP, the Treasury issued special bills, which provided cash that the Federal Reserve used to manage its authorized lending and liquidity initiatives.  As of September 30, 2011, there were no outstanding cash management bills earmarked for SFP as compared to $200 billion as of September 30, 2010.  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”

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As indicated in Table 5 and Chart F, the Government’s largest liability is Federal debt held by the public and accrued interest, the balance of which increased to $10.2 trillion as of September 30, 2011.

The other major component of the Government’s liabilities is Federal employee postemployment and veterans benefits payable (i.e., the Government’s pension and other benefit plans for its military and civilian employees), which increased only $71.9 billion or just over 1 percent during FY 2011, from $5,720.3 billion to $5,792.2 billion.  OPM administers the largest civilian pension plan, covering nearly 2.8 million current employees15 and 2.5 million annuitants.16  The military pension plan covers more than three million current military personnel (including active service, reserve, and National Guard) and approximately 2.2 million retirees and annuitants.17 

Federal Debt

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, and accrued interest, as reported on the Government’s balance sheet, 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.  Debt held by the public and accrued interest is a balance sheet liability and totaled approximately $10.2 trillion at the end of FY 2011 – an increase of about $1.1 trillion.  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 than this would imply.  Each year, trillions of dollars of debt matures and new debt is issued to take its place.  In FY 2011, new borrowings were $8.0 trillion and repayments of maturing debt held by the public were $6.9 trillion.  Both represented slight decreases over new borrowings and debt repayments as compared to FY 2010.

In addition to debt held by the public, the Government has about $4.7 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 ($2.7 trillion) and Medicare ($316.3 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) 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 government-wide 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). At the end of FY 2011, debt subject to the statutory limit was $14.747 trillion, nearly $450 billion under the current limit of $15.194 trillion.

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.  Since 1960, Congress has passed 79 separate acts to raise the debt limit, extend the duration of a temporary increase, or revise the definition.  The debt limit has been raised multiple times in recent years – most recently by $400 billion in August 2011 to $14.694 trillion and by $500 billion in September 2011 to $15.194 trillion, pursuant to the Budget Control Act (BCA) of 2011.  The BCA provides for one additional increase to the debt limit, which will occur fifteen days after the President certifies that the outstanding debt subject to limit is within $100 billion of the debt limit, unless Congress enacts a joint resolution of disapproval.  The amount of the next increase will be $1.2 trillion, unless a balanced budget amendment to the Constitution has been submitted to the states for ratification, in which case the amount of the increase will be $1.5 trillion.   

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The Federal debt held by the public measured as a percent of GDP compares the country’s debt to the size of its economy, making this measure sensitive to changes in both.  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 G, wartime spending and borrowing had pushed the debt to GDP ratio to an all-time high of 109 percent in 1946, but it decreased rapidly in the post-war years, falling to 80 percent by 1950, 46 percent in 1960, and the postwar low point of 24 percent in 1974.  Since then, the ratio has increased, growing 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 decline in the debt-to-GDP ratio over the course of the 1990s, from a peak of 49 percent in 1993-1994, 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, entitlements were expanded, and spending related to defense and homeland security increased.  By September 2008, the debt-to-GDP ratio was 40 percent of GDP. The extraordinary demands of the recent economic and fiscal crisis and the consequent actions taken by the Federal Government, combined with slower economic growth in the wake of the crisis, have pushed the debt/GDP ratio up to almost 68 percent in 2011.

The preceding section has focused on the Federal Government’s financial results for FY 2011.  The following sections discuss the Government’s economic recovery efforts and provide a perspective on the issue of fiscal sustainability.

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 The Black Lung Program is projected through September 30, 2040.(Back to Content)

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

6 Final Monthly Treasury Statement (as of September 30, 2011 and 2010).(Back to Content)

7 The Department of Health and Human Services received a disclaimer of opinions on its 2011 SOSI and SCSIA.(Back to Content)

8 Since programs are not administered at the government-wide 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)

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 through September 30, 2040 for the Black Lung program.(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 (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)

11 OPM FY 2011 Agency Financial Report (AFR), p. 16.  Cost reduction reflects amounts reported in OPM’s annual AFR.  Agency costs reported in their AFRs are adjusted at the government-wide level in this Report for consolidation and allocation of inter-agency costs.(Back to Content)

12 DOD FY 2011 AFR, p. 29. Cost reduction reflects amounts reported in DOD’s annual AFR.  Agency costs reported in their AFRs are adjusted at the government-wide level in this Report for consolidation and allocation of inter-agency costs.(Back to Content)

13 VA FY 2011 Performance and Accountability Report (PAR) p. I-95.  Cost reduction reflects amounts reported in VA’s PAR.  Agency costs reported in their PARs are adjusted at the government-wide level for consolidation and allocation of inter-agency costs.(Back to Content)

14 As shown in Table 4, net operating cost includes a slight adjustment for unmatched transactions and balances.  These amounts are described in greater detail in the Required Supplementary Information section of this Report.(Back to Content)

15 As of 9/30/2010 OPM Office of Actuaries(Back to Content)

16 OPM FY 2011 Annual Financial Report, p. 12.(Back to Content)

17 DOD FY 2011 Agency Financial Report, p.12; DOD Military Retirement Fund (MRF) financial statements, p. 14.(Back to Content)


Last Updated:  February 16, 2012