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Financial Report of the United States Government

Management's Discussion & Analysis

The Government's Financial Position and Condition

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

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Table 1:
The Federal Government's Financial Position and Condition
  2018 2017* Increase/
FINANCIAL MEASURES (Dollars in Billions)
Gross Cost $(4,808.5) $(4,606.2) $202.3 4.4%
  Less: Earned Revenue $392.8 $431.9 $(39.1) (9.1% )
  Gain/(Loss) from Changes in Assumptions $(125.2) $(356.5) $(231.3) (64.9% )
Net Cost $(4,540.9) $(4,530.8) $10.1 0.2%
  Less: Tax and Other Revenues $3,384.3 $3,374.6 $9.7 0.3%
  Unmatched Transactions & Balances $(2.4) $2.6 $(5.0) (192.3%)
Net Operating Cost $(1,159.0) $(1,153.6) $5.4 0.5%
Budget Deficit $(779.0) $(665.7) $113.3 17.0%
  Cash & Other Monetary Assets $507.5 $271.2 $236.3 87.1%
  Loans Receivable, Net $1419.1 $1,350.2 $68.9 5.1%
  Inventories & Related Property, Net $337.5 $326.7 $10.8 3.3%
  Property, Plant & Equipment, Net $1,090.5 $1,087.0 $3.5 0.3%
  Other $482.1 $499.8 $(17.7) (3.5% )
Total Assets $3,836.7 $3,534.9 $301.8 8.5%
  Federal Debt Held by the Public & Accrued Interest $(15,812.7) $(14,724.1) $1,088.6 7.4%
  Federal Employee & Veterans Benefits Payable $(7,982.3) $(7,700.1) $282.2 3.7%
  Other $(1,562.5) $(1,472.6) $89.9 6.1%
Total Liabilities $(25,357.5) $(23,896.8) $1,460.7 6.1%
Net Position (Assets minus Liabilities) $(21,520.8) $(20,361.9) $1,158.9 5.7%
Social Insurance Net Expenditures:        
  Social Security (OASDI) $(16.1) $(15.4) $0.7 4.5%
  Medicare (Parts A, B, & D) $(37.6) $(33.5) $4.1 12.2%
  Other $(0.1) $(0.1) - 0.0%
Total Social Insurance Net Expenditures  $(53.8) $(49.0) $4.8 9.8%
Total Federal Non-Interest Net Expenditures  $(46.2) $(16.2) $30.0 185.2%
75-Year Fiscal Gap (Percent of Gross Domestic Product)1 (4.1%) (2.0%) 2.1% 105.0%

*Restated (See Financial Statement Note 1.U)

1 1To 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 4.1 percent of GDP on average is needed (2.0 percent of GDP on average in 2017). See Financial Statement Note 23.

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

  • During fiscal year 2018, the budget deficit increased by 17.0 percent and gross cost increased by 4.4 percent, while net cost, tax and other revenues, and net operating cost each increased by less than one percent. 
  • The government’s gross costs of $4.8 trillion, less $392.8 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 $125.2 billion in net losses from changes in assumptions (e.g., interest rates, inflation, disability claims rates) yields the government’s net cost of $4.5 trillion, a slight increase of $10.1 billion or 0.2 percent over fiscal year 2017.
  • Deducting $3.4 trillion in tax and other revenues, with some adjustment for unmatched transactions and balances, results in a “bottom line” net operating cost of $1.2 trillion for fiscal year 2018, an increase of $5.4 billion or 0.5 percent over fiscal year 2017.
  • Comparing total 2018 government assets of $3.8 trillion to total liabilities of $25.4 trillion (comprised mostly of $15.8 trillion in federal debt held by the public and accrued interest payable3, and $8.0 trillion of federal employee and veterans benefits payable) yields a negative net position of $21.5 trillion.
  • The budget deficit is primarily financed through borrowing from the public. As of September 30, 2018, debt held by the public, excluding accrued interest, was $15.8 trillion. This amount, plus intragovernmental debt ($5.8 trillion) equals gross federal debt, which, with some adjustments, is subject to the statutory debt limit. As of September 30, 2018, the government’s total debt subject to the debt limit was $21.5 trillion. The statutory debt limit was most recently suspended through March 1, 2019.

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

  • The SLTFP shows that the present value (PV)4 of total non-interest spending, including Social Security, Medicare, Medicaid, defense, and education, etc.), over the next 75 years, under current policy, is projected to exceed the PV of total receipts by $46.2 trillion (total federal non-interest net expenditures from Table 1).
  • The SOSI shows that the PV of the government’s expenditures for Social Security and Medicare Parts A, B and D, and other social insurance programs over 75 years is projected to exceed social insurance revenues5 by about $53.8 trillion, a $4.8 trillion increase over 2017 social insurance projections.
  • The two sustainability measures in Table 1 differ primarily because total non-interest net expenditures from the SLTFP include the effects of general revenues and non-social insurance spending, neither of which is included in the SOSI.

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

  • The budget deficit (i.e., including the consolidated receipts and outlays from federal funds and the Social Security Trust Fund) increased from $665.7 billion in fiscal year 2017 to $779.0 billion in fiscal year 2018. The deficit-to-GDP ratio in 2018 was 3.9 percent, an increase from 3.5 percent in fiscal year 2017 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, 2018, the $15.8 trillion in debt held by the public, excluding accrued interest, equates to approximately 78 percent of GDP.
  • The 2018 SOSI projection of $53.8 trillion net PV excess of expenditures over receipts over 75 years represents about 4.0 percent of the PV of GDP over 75 years. The excess of total projected non-interest spending over receipts of $46.2 trillion from the SLTFP represents 3.3 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 4.1 percent of GDP on average is needed (2.0 percent of GDP on average in the 2017 projections). The fiscal gap represents 21.9 percent of 75-year present value receipts and 18.6 percent of 75-year present value non-interest spending.

Fiscal Year 2018 Financial Statement Audit Results

For fiscal year 2018, GAO issued a disclaimer of audit opinion on the accrual-based, governmentwide financial statements, as it has for the past 21 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 226 of this Financial Report, discusses GAO’s findings.
22 of the 24 entities required to issue audited financial statements under the Chief Financial Officers (CFO) Act received unmodified audit opinions, as did 13 of 16 additional significant reporting 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. Statement of Federal Financial Accounting Standards (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.

The Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (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 Federal Reserve System (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 reporting 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

The following pages contain a more detailed discussion of the government’s financial results for fiscal year 2018, the budget, the economy, the debt, and a long-term perspective about fiscal sustainability, including the government’s ability to meet its social insurance benefits obligations. The information in this Financial Report, when combined with the Budget of the U.S. Government (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 A, net operating cost typically exceeds the budget deficit due largely to the inclusion of cost accruals associated with increases in estimated liabilities for the government’s postemployment benefit programs for its military and civilian employees and veterans as well as environmental liabilities.

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The government’s primarily cash-based10 budget deficit increased by $113.3 billion (about 17.0 percent) from approximately $665.7 billion in fiscal year 2017 to about $779.0 billion in fiscal year 2018 due to lower growth in receipts compared to the increase in outlays in fiscal year 2018. The $13.8 billion (0.4 percent) increase in receipts can be attributed primarily to higher net individual income tax receipts, excise taxes, social insurance and retirement receipts, and customs duties. Outlays increased $127.1 billion (3.2 percent). Contributing to the increase over fiscal year 2017 were higher outlays for Defense, Medicaid, Social Security, disaster relief and flood insurance, Refundable Premium Tax Credits and cost sharing reductions, interest on the Treasury debt held by the public (public debt), and lower government-sponsored enterprises' (GSE) receipts (i.e., dividends from Fannie Mae and Freddie Mac), which are an offset to outlays.11

The Treasury Department’s September 2018 Monthly Treasury Statement (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, 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, the Department of Defense (DOD), Department of Homeland Security (DHS), the Department of Energy (DOE), and multiple other entities administer programs that are critical to the broader functional classification of National Defense. DOD, the Office of Personnel Management (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 the Department of Health and Human Services (HHS). Federal spending information by budget function and other categorizations may be found in the September 2018 MTS.12

The government’s largely accrual-based net operating cost remained largely unchanged at $1.2 trillion increasing by $5.4 billion (0.5 percent) during fiscal year 2018. 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 $380.0 billion net difference between the government’s budget deficit and net operating cost for fiscal year 2018, is mostly attributable to: (1) a $282.2 billion net increase in liabilities for federal employee and veteran benefits payable, (2) a $112.8 billion increase in environmental and disposal liabilities; and (3) several offsetting items, including, but not limited to a $32.3 billion decrease in insurance and guarantee program liabilities and a $15.9 billion increase in Accounts Payable. These affect net operating cost, but not the budget deficit.

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Table 2: Net Operating Cost vs. Budget Deficit

Dollars in Billions 2018 2017*
Net Operating Cost $(1,159.0) $(1,153.6)
Change in:    
  Federal Employee and Veterans Benefits Payable $282.2 $490.7
  Environmental and Disposal Liabilities $112.8 $17.9
  Insurance and Guarantee Program Liabilities $(32.3) $15.5
  Accounts payable $15.9 $8.4
Other, Net $1.4 $(44.6)
Subtotal - Net Difference: $380.0 $487.9
Budget Deficit $(779.0) $(665.7)

*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 2018 2017* Increase/
Gross Cost $(4,808.5) $(4,606.2) $202.3 4.4%
  Less: Earned Revenue $392.8 $431.9 $(39.1) (9.1% )
  Gain\(Loss) from Changes in Assumptions $(125.2) $(356.5) $(231.3) (64.9% )
Net Cost $(4,540.9) $(4,530.8) $10.1 0.2%
  Less: Tax and Other Revenue $3,384.3 $3,374.6 $9.7 0.3%
  Unmatched Transactions and Balances $(2.4 ) $2.6 $(5.0) (192.3%)
Net Operating Cost $(1,159.0) $(1,153.6) $5.4 0.5%

*Restated (See Financial Statement Notes 1.U)

Table 3 shows that the government’s “bottom line” net operating cost remained largely unchanged during 2018 at $1.2 trillion increasing only $5.4 billion (0.5 percent), during the fiscal year. This slight increase is due mostly to a $10.1 billion (0.2 percent) increase in entity net costs, which slightly more than offset a $9.7 billion (0.3 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 $4.8 trillion, subtracts revenues earned for goods and services provided (e.g., Medicare premiums, national park entry fees, and postal service fees), and adjusts the balance for gains or losses from changes in actuarial assumptions used to estimate certain liabilities, including federal employee and veterans benefits to derive its net cost of $4.5 trillion (See Chart C), a $10.1 billion (0.2 percent) increase over fiscal year 2017.

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 2018 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 $125.2 billion in fiscal year 2018, a loss decrease (and a corresponding net cost decrease) of $231.3 billion compared to fiscal year 2017. The primary entities that administer programs impacted by these assumptions – typically federal employee pension and benefit programs – are the OPM, Department of Veterans Affairs (VA), and DOD. These entities recorded losses from changes in assumptions in the amounts of $26.2 billion, $79.2 billion, and $16.8 billion, respectively – all decreased amounts compared to 2017.
    • 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 2018, changes in net cost at VA ($132.8 billion decrease), OPM ($66.2 billion decrease), and DOD ($33.0 billion increase), were impacted by the corresponding changes in gains or losses from assumption changes at these entities
  • At DOD, the $33.0 billion net cost increase includes the net effect of a $39.2 billion decrease in earned revenues across the department, as well as increases in the net costs of procurement,  military personnel and research and development (R&D). These increases were partially offset by a decrease in losses from changes in assumptions referenced above (net cost decrease), and a decrease in costs of military operations, readiness, and support;
  • $56.4 billion and $39.5 billion net cost increases at HHS and the Social Security Administration (SSA), respectively, were primarily due to cost increases of the benefits programs that these entities administer (HHS – Medicare and Medicaid programs, SSA – Old-Age, Survivors, and Disability Insurance (OASDI) programs);
  • A $99.6 billion net cost increase at  DOE largely due to refined environmental liability estimates, including those for Waste Treatment and Immobilization Plant construction, operating costs, tank farm retrieval, and closure costs at DOE’s Hanford site;
  • A $20.2 billion net cost decrease at the Pension Benefit Guaranty Corporation (PBGC) stems mostly from higher interest rate factors used to measure liabilities for the single- and multi-employer programs; and
  • A $61.0 billion cost increase in interest on debt held by the public due largely to an increase in the debt and average interest rates, as well as inflation adjustments on certain Treasury securities. Interest costs have increased by 20.6 percent in 2018 from 2017 and by 37.4 percent over the past five years.

Chart B shows the composition of the government’s net cost. In fiscal year 2018, 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 2018 Statement of Net Cost accounted for a combined 21 percent of the government’s total net cost for fiscal year 2018. Chart C 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 2018 ($1.1 trillion and $1.0 trillion, respectively) are attributable to major social insurance programs administered by these entities. DOD net costs of $698.4 billion relate primarily to operations, readiness, and support; personnel; research; procurement; and retirement and health benefits. VA costs of $346.9 billion support health, education and other benefits programs for our nation’s veterans. The $132.8 billion decrease in VA net cost during fiscal year 2018 is primarily due to the decrease in losses from changes in actuarial assumptions as referenced earlier. From Chart C, over the past five years, HHS, SSA, and Interest costs have increased 20.1 percent, 14.6 percent, and 37.4 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 D shows that total tax and other revenue increased slightly by $9.7 billion or 0.3 percent to $3.4 trillion for fiscal year 2018. This increase is attributable mainly to an overall growth in individual income tax collections, partially offset by reduced estate and corporate income tax collections and deposit of earnings from the FR System.14 Earned revenues from Table 3 are not considered “taxes and other revenue” and, thus, are not shown in Chart D. Individual income tax and tax withholdings and corporate income taxes accounted for about 82.5 percent and 6.2 percent of total revenue, respectively in fiscal year 2018; other revenues from Chart D include Federal Reserve earnings, excise taxes, unemployment taxes, and customs duties.

As previously shown in Table 3, the increases in net cost and tax and revenues almost entirely offset each other, resulting in the government’s bottom line net operating cost remaining largely unchanged at $1.2 trillion for fiscal year 2018.

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:

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 2018 2017* Increase/
  Cash & Other Monetary Assets  $          507.5  $          271.2  $       236.3 87.1%
  Loans Receivable, Net  $       1,419.1  $       1,350.2  $         68.9 5.1%
  Inventories & Related Property, Net  $          337.5  $          326.7  $         10.8 3.3%
  Property, Plant & Equipment,  Net  $       1,090.5  $       1,087.0  $           3.5 0.3%
  Other  $          482.1  $          499.8  $       (17.7) (3.5%)
Total Assets  $     3,836.7  $     3,534.9  $     301.8 8.5%
Less: Liabilities, comprised of:         
  Federal Debt Held by the Public & Accrued Interest  $    (15,812.7)  $    (14,724.1)  $    1,088.6 7.4%
  Federal Employee & Veteran Benefits  $      (7,982.3)  $      (7,700.1)  $       282.2 3.7%
  Other  $      (1,562.5)  $      (1,472.6)  $         89.9 6.1%
Total Liabilities  $ (25,357.5)  $ (23,896.8)  $  1,460.7 6.1%
Net Position (Assets Minus Liabilities)  $ (21,520.8)  $ (20,361.9)  $  1,158.9 5.7%

*Restated (See Financial Statement Note 1.U)


As of September 30, 2018, the government’s $3.8 trillion in assets are comprised mostly of net loans receivable ($1.4 trillion) and net property, plant, and equipment (PP&E) ($1.1 trillion).15 From Financial Statement Note 4, The Department of Education’s (Education’s) Federal Direct Student Loan Program accounted for $1.1 trillion (78.6 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.16


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As indicated in Table 4 and Chart E, of the government’s $25.4 trillion in total liabilities, the largest liability is federal debt securities held by the public and accrued interest, the balance of which increased by $1.1 trillion (7.4 percent) to $15.8 trillion as of September 30, 2018.

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 $282.2 billion (3.7 percent) during fiscal year 2018, to about $8.0 trillion. This total amount is comprised of $2.5 trillion in benefits payable for the current and retired civilian workforce, and $5.4 trillion for the military and veterans. OPM administers the largest civilian pension plan, covering nearly 2.7 million current employees and 2.6 million annuitants and survivors. The military pension plan covers about 2.1 million current military personnel (including active service, reserve, and National Guard) and approximately 2.3 million retirees and survivors.

Federal Debt

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

The government’s publicly-held debt, or federal debt held by the public, and accrued interest (Balance Sheet liability) totaled $15.8 trillion as of September 30, 2018. It is comprised of Treasury securities, such as bills, notes, and bonds, net of unamortized discounts and premiums; and accrued interest payable. The “public” consists of individuals, corporations, state and local governments, Federal Reserve Banks (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 2018, new borrowings were $10.1 trillion, and repayments of maturing debt held by the public were $9.0 trillion, both increases from fiscal year 2017.

In addition to debt held by the public, the government has about $5.8 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 ($301.0 billion) trust funds. Intragovernmental debt is primarily held in government trust funds in the form of special nonmarketable securities by various parts of the government. Laws establishing government trust funds generally require excess trust fund receipts (including interest earnings) over disbursements to be invested in these special securities. Because these amounts are both liabilities of the Treasury and assets of the government trust funds, they are eliminated as part of the consolidation process for the governmentwide financial statements (see Note 11). When those securities are redeemed, e.g., to pay Social Security benefits, the government will need to obtain the resources necessary to reimburse the trust funds. The sum of debt held by the public and intragovernmental debt equals gross federal debt, which (with some adjustments), is subject to a statutory ceiling (i.e., the debt limit). At the end of fiscal year 2018, debt subject to the statutory limit (DSL) was $21.5 trillion17 (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 (Public Law [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 February 9, 2018 through March 1, 2019. It is important to note that increasing or suspending the debt limit does not increase spending or authorize new spending; rather, it permits the United States to continue to honor pre-existing commitments to its citizens, businesses, and investors domestically and around the world.

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The federal debt held by the public measured as a percent of GDP (debt-to-GDP ratio) (Chart F) compares the country’s debt to the size of its economy, making this measure sensitive to 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 F shows that wartime spending and borrowing pushed the debt-to-GDP ratio to an all-time high of 106 percent in 1946, soon after the end of World War II, but it decreased rapidly in the post-war years,
  • The ratio grew rapidly from the mid-1970s until the early 1990s. Strong economic growth and fundamental fiscal decisions, including measures to reduce the federal deficit and implementation of binding "Pay As You Go" (PAYGO) rules (which require that new tax or spending laws not add to the deficit), generated a significant decline in the debt-to-GDP ratio, from a peak of 48 percent in 1993-1995, to 31 percent in 2001.
  • During the first decade of the 21st century, PAYGO rules were allowed to lapse, significant tax cuts were implemented, entitlements were expanded, and spending related to defense and homeland security increased. By September 2008, the debt-to-GDP ratio was 39 percent of GDP.
  • PAYGO rules were reinstated in 2010, but the extraordinary demands of the last economic and fiscal crisis and the consequent actions taken by the federal government, combined with slower economic growth in the wake of the crisis, pushed the debt-to-GDP ratio up to 74 percent by the end of fiscal year 2014.
  • The debt was 78.0 percent of GDP at the end of fiscal year 2018 (compared to 76 percent at the end of fiscal year 2017).18 From Chart F, since 1940, the average debt-to-GDP ratio is 47.4 percent.

The Economy in Fiscal Year 2019

The U.S. economy’s performance provides a useful backdrop against which to evaluate the government’s financial results. U.S. economic growth accelerated during fiscal year 2018 due to the Tax Cuts and Jobs Act and deregulation. Net jobs increased from an average of 168,000 jobs per month in fiscal year 2017 to 219,000 jobs per month in fiscal year 2018, and by the end of the fiscal year, the unemployment rate had declined to a 49-year low of 3.7 percent. Headline inflation (as measured by the Consumer Price Index, or CPI) was relatively stable, while core inflation, which excludes food and energy, accelerated. In fiscal year 2018, growth in after-tax personal income as well as productivity held steady at the solid paces seen in the previous fiscal year.

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Table 5: National Economic Indicators*

FY 2018 FY 2017
Real GDP Growth 3.0% 2.3%
Business Fixed Investment Growth 6.8% 5.0%
Residential Investment Growth 0.5% 3.0%
Average monthly payroll job change (thousands) 219 168
Unemployment rate (percent, end of period) 3.7% 4.2%
Consumer Price Index (CPI) 2.3% 2.2%
CPI, excluding food and energy 2.2% 1.7%
Personal Consumption Expenditure (PCE) Price Index 2.0% 1.8%
Personal Consumption Expenditure (PCE) Price Index 1.9% 1.5%
*Some FY2017 data may differ from the FY2017 Financial Report due to updates and revisions.

Buoyed by the first major tax reform in three decades, as well as other pro-growth policies, real (i.e., inflation-adjusted) GDP growth accelerated to 3.0 percent in fiscal year 2018, after growing in the previous fiscal year by 2.3 percent. A marked acceleration in consumption, as well as faster growth in business fixed investment and a significant contribution from net exports, drove growth. Growth of consumer spending strengthened to 2.9 percent in fiscal year 2018, up from 2.4 percent during the previous fiscal year, while business fixed investment accelerated for the second consecutive year, growing by 6.8 percent in the latest fiscal year after increasing at a 5.0 percent pace during fiscal year 2017.

During fiscal year 2018, for the first time in the history of the Job Openings and Labor Turnover Survey (JOLTS), the number of available job openings exceeded the number of unemployed persons. After the economy created 2.0 million payroll jobs during fiscal year 2017, an additional 2.6 million jobs were added during fiscal year 2018, and the average monthly pace of job creation also stepped up from 168,000 during fiscal year 2017 to 219,000 per month in the latest fiscal year. By the end of fiscal year 2018, the number of unemployed persons in the economy had declined by 805,000 to 6.0 million as of September 2018. The unemployment rate declined 0.5 percentage points, from 4.2 percent in September 2017 to 3.7 percent in September 2018, its lowest level since December 1969. During fiscal year 2018, other notable labor market developments included the decline in the unemployment rate for adult women to 3.3 percent, for African Americans to 6.0 percent, and for Hispanics to 4.5 percent, rates that are historically low. Declining unemployment rates are associated with faster economic growth rates and rising incomes.

During fiscal year 2018, headline inflation edged up, while core inflation accelerated more noticeably. The CPI rose 2.3 percent during fiscal year 2018, slightly faster than the 2.2 percent during fiscal year 2017, while core inflation accelerated to 2.2 percent, higher than the 1.7 percent reading during fiscal year 2017. The increase in the Federal Reserve’s preferred measure of inflation, the Personal Consumption Expenditure (PCE) price index, was also relatively stable at the headline level, ticking up to 2.0 percent in fiscal year 2018 from 1.8 percent in fiscal year 2017. Over the course of the fiscal year, however, inflation by this measure decelerated later in the year. The PCE price index rose by 1.85 percent headline and 1.7 percent core in the last six months of fiscal year 2018 at a compound annual rate, and, in the final three months, rose by 1.5 headline and 1.4 percent core at a compound annual rate.

Growth of nominal disposable personal income (DPI) held steady during fiscal year 2018, which helped to stabilize purchasing power in real terms. Real DPI grew 2.8 percent in fiscal year 2018, matching the 2.8 percent rate during fiscal year 2017. Towards the end of fiscal year 2018, growth of nominal average hourly earnings also accelerated, helping to boost wages in real terms. Real average hourly earnings increased 0.5 percent during fiscal year 2018, after rising only 0.2 percent the previous fiscal year.

The housing market showed signs of slowing during fiscal year 2018, partly reflecting the marked rise in mortgage rates over the fiscal year. Residential investment grew by 0.5 percent, after a 3.0 percent advance during the previous fiscal year. Home price growth began to slow towards the end of the fiscal year. Existing home sales declined throughout fiscal year 2018, while new home sales tailed off at the very end of the fiscal year. However, the monthly average level of new residential construction spending was a bit higher during 2018 compared to 2017. Other indicators that drive housing demand are strong, such as labor force participation and household formation.

Growth of labor productivity held relatively steady during fiscal year 2018. Productivity growth rose 1.3 percent during fiscal year 2018, after increasing by 1.4 percent during fiscal year 2017. Growth in these two fiscal years contrasted sharply with the 0.1 percent decline in productivity growth during fiscal year 2016.


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

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

5 Social Security is funded by the payroll taxes and revenue from taxation of benefits. Medicare Part A is funded by the payroll taxes, revenue from taxation of benefits, and premiums that support those programs. Medicare Parts B and D are primarily financed by general revenues and premiums. By accounting convention, these general revenues are eliminated in consolidation at the governmentwide level and, as such, are not included in the SOSI. For the fiscal year 2018 and 2017 SOSI, the amounts eliminated totaled $32.9 trillion and $30.0 trillion, respectively. (Back to Content)

6 Final Monthly Treasury Statement (as of September 30, 2018 and 2017), Joint Statement of Treasury Secretary Steven T. Mnuchin and OMB Director Mick Mulvaney on Budget Results for Fiscal Year 2018 (Back to Content)

7 The 22 entities include the Department of Health and Human Services, which received disclaimers of opinions on its 2018, 2017, 2016, 2015, and 2014, SOSI and its 2018 and 2017 SCSIA. The 13 entities include the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), and the Farm Credit System Insurance Corporation (FCSIC), which operate on a calendar year basis (December 31 year-end). Statistic reflects 2017 audit results for these organizations if 2018 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, Railroad Retirement programs; and 25 years for the Black Lung program. The Statement of Long-Term Fiscal Projections presents the present value of the projected future receipts and non-interest spending for the federal government. (Back to Content)

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

11 10/15/18 press release -- Joint Statement of Treasury Secretary Steven T. Mnuchin and OMB Director Mick Mulvaney on Budget Results for Fiscal Year 2018. (Back to Content)

12 Final Monthly Treasury Statement for Fiscal Year 2018 through September 30, 2018 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 Fiscal year 2018 Department of the Treasury Agency Financial Report, p. 37 (Back to Content)

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

16 With the enactment of the SAFRA Act, which was included as part of the Health Care and Education Reconciliation Act of 2010 (HCERA) (P. L. 111-152), no new loans were originated under the Federal Family Education Loan (FFEL) Program (guaranteed loan program) since July 1, 2010. See Department of Education fiscal year 2018 Agency Financial Report p. 50. (Back to Content)

17 Effective March 2, 2019, the statutory debt limit was set at $22.0 trillion, and on March 4, 2019, the Secretary of the Treasury notified the Congress that the statutory debt limit would be reached on or after that day. When delays in raising the debt limit occur, Treasury must often deviate from its normal debt management operations and take a number of extraordinary measures to meet the government’s obligations as they come due without exceeding the debt limit. Treasury began taking these extraordinary actions on March 4, 2019. (Back to Content)

18 10/15/2018 press release: Joint Statement of OMB Director, Mick Mulvaney and Treasury Secretary, Steven T. Mnuchin. (Back to Content)

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Last modified 06/13/19