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Financial Report of the United States Government

Executive Summary to the FY 2022 Financial Report of U.S. Government

Where We Are Now

The Federal Government’s Response to the Pandemic

On March 11, 2020, a novel strain of the Coronavirus (COVID-19) was declared a pandemic by the WHO and precipitated a severe global health and economic crisis. A national emergency was declared in the U.S. on March 13, 2020. Since then, the federal government has taken broad action, including enacting multiple laws providing approximately $4.5 trillion across the government, to protect public health and economic stability from the effects of the unprecedented pandemic.

The corresponding financial effects of the government’s response to the COVID-19 pandemic were broad, impacting many agencies in a variety of ways and to varying degrees. The Financial Report includes discussion and analysis of the continued effect of the federal government’s response to the COVID-19 pandemic on the government’s financial statements for FY 2022. Additional information can be obtained from individual agency financial statements.

Comparing the Budget and the Financial Report

The Budget and the Financial Report present complementary perspectives on the government’s financial position and condition.

  • The Budget is the government’s primary financial planning and control tool. It accounts for past government receipts and spending and includes the President’s proposed receipts and spending plan. Receipts are cash received by the U.S. government and spending is measured as outlays, or payments made by the federal government to the public or entities outside the government. In simple terms, when total receipts exceed outlays, there is a budget surplus; conversely, if total outlays exceed total receipts, there is a budget deficit.
  • The Financial Report includes the government’s costs and revenues, assets and liabilities, and other important financial information. It compares the government’s revenues (amounts earned, but not necessarily collected), with costs (amounts incurred, but not necessarily paid) to derive. net operating cost.

Chart 1 compares the government’s budget deficit (receipts vs. outlays) and net operating cost (revenues vs. costs) for FYs 2018 - 2022. During FY 2022:

  • A $550.0 billion decrease in outlays combined with an $850.1 billion increase in receipts resulting in a $1.4 trillion (50.4 percent) decrease in the budget deficit from $2.8 trillion to $1.4 trillion.
  • Net operating cost increased $1.1 trillion or 34.8 percent from $3.1 trillion to $4.2 trillion, due mostly to a $1.7 trillion or 23.8 percent increase in net cost which more than offset a $670.0 billion or 15.7 percent increase in tax and other revenues.

The $2.8 trillion difference between the budget deficit and net operating cost is primarily due to accrued costs (incurred but not necessarily paid) that are included in net operating cost, but not the budget deficit, primarily costs related to increases in estimated federal employee and veteran benefits liabilities, particularly at VA. Significant estimated benefits cost increases are also the primary reason why net operating cost increased during FY 2022. These amounts do not affect the current year budget deficit. Other sources of differences include but are not limited to decreases in taxes receivable, increases in advances and deferred revenue received by the federal government from others, decreases in advances and prepayments made by the federal government, as well as timing differences related to the recording of credit reform costs.

Costs and Revenues

The government’s “bottom line” net operating cost increased $1.1 trillion (34.8 percent) during FY 2022 to $4.2 trillion. It is calculated as follows:

  • Starting with total gross costs of $7.4 trillion, the government subtracts earned program revenues (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 future federal employee and veteran benefits payments to derive its net cost before taxes and other revenues of $9.1 trillion (see Chart 2), an increase of $1.7 trillion (23.8 percent) from FY 2021. This net increase is the combined effect of many offsetting increases and decreases across the government, including the ongoing effects of the federal government’s response to the pandemic. For example:
    • Entities administering federal employee and veteran benefits programs, including the OPM, VA, and DOD employ a complex series of assumptions to make actuarial projections of their long-term benefits liabilities. These assumptions include but are not limited to interest rates, beneficiary eligibility, life expectancy, and medical cost levels. 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 $2.2 trillion in FY 2022, a loss increase (and a corresponding net cost increase) of $1.7 trillion compared to FY 2021.
    • In particular, VA net costs increased $1.2 trillion due largely to changes in benefits program experience and assumptions as referenced above, including, but not limited to assumptions underlying VA’s Veterans’ compensation plan participation and benefit level distribution rates (increasing eligibility assumptions), decreasing mortality rates assumptions, and future long-term COLA.
    • DOD net costs increased $568.4 billion due primarily to a $444.2 billion loss increase from changes in assumptions referenced above. However, the majority of DOD’s net costs included military operations, readiness and support, procurement, personnel, and R&D, which also collectively increased.
    • A $303.9 billion decrease in net costs at the SBA is largely attributable to substantially lower pandemic-related loan and loan guarantee activity.
    • A $304.4 billion decrease in Treasury net costs largely due to a significant decrease (from $569.5 billion in FY 2021 to $13.1 billion in FY 2022) in EIP disbursements made to eligible recipients as part of pandemic relief efforts.
    • A $354.4 billion decrease at DOL, much of which is attributable to a $348.6 billion decrease in Income Maintenance programs costs, primarily due to decreases in unemployment benefits from the September 2021 expiration of COVID-19 unemployment programs and fewer unemployment claims.
    • A $152.1 billion net cost increase at HHS primarily due to a $111.1 billion increase across the Medicare and Medicaid benefits programs, including an increase in Medicaid grants to states to continue COVID-19 relief efforts.
    • Education net costs increased $330.9 billion due largely to a $337.3 billion upward cost modification for Education’s direct loan program associated with announced broad-based student debt relief.
    • SSA net costs increased $100.3 billion due largely to a 1.9 percent increase in the number of OASI beneficiaries, combined with a 5.9 percent COLA provided to beneficiaries in 2022.
    • Interest costs related to federal debt securities held by the public increased by $104.5 billion due largely to increases in inflation adjustments, interest rates, and outstanding debt held by the public.
  • The government deducts tax and other revenues from net cost (with some adjustments) to derive its FY 2022 “bottom line” net operating cost of $4.2 trillion.
    • From Chart 3, total government tax and other revenues increased by $670.0 billion (15.7 percent) to about $4.9 trillion for FY 2022 due primarily to growth in individual income tax collections and tax withholdings.
    • Together, individual income tax and tax withholdings, and corporate taxes accounted for about 89.2 percent of total tax and other revenues in FY 2022. Other revenues include Federal Reserve earnings, excise taxes, and customs duties.

Assets and Liabilities

Chart 4 summarizes the assets and liabilities that the government reports on its Balance Sheet. As of September 30, 2022:

  • More than three-fourths of the federal government’s total assets ($5.0 trillion) consist of: 1) $877.8 billion in cash and monetary assets; 2) $406.9 billion in inventory and related property; 3) $1.4 trillion in net loans receivable (primarily student loans); and 4) $1.2 trillion in net PP&E.
    • Cash and monetary assets ($877.8 billion) is comprised largely of the operating cash of the U.S. government. Operating cash held by Treasury increased $418.6 billion (211.0 percent) to $617.0 billion during FY 2022 due to Treasury cash position decisions. That is, during 2021, debt ceiling constraints forced Treasury to maintain a significantly lower operating cash balance. When the debt ceiling was increased in December 2021, Treasury was able to restore the operating cash balance to its one-week prudent policy level.

    • Inventory and Related Property ($406.9 billion) is comprised of: 1) inventory, which is tangible personal property that is either held for sale, in the process of production for sale, or to be consumed in the production of goods for sale or in the provision of services for a fee; 2) OM&S, or tangible personal property to be consumed in normal operations (e.g., spare and repair parts, ammunition, and tactical missiles); and 3) stockpiles, or strategic and critical materials held due to statutory requirements for use in national defense, conservation, or local/national emergencies.
    • Loans receivable, net ($1.4 trillion) is comprised of loans provided by multiple agencies, including SBA and Education, to promote the nation’s welfare by making financing available to segments of the population not served adequately by non-federal institutions or otherwise providing for certain activities or investments. The government’s direct loan portfolio decreased by $216.9 billion (13.1 percent) during FY 2022. Education’s Federal Direct Student Loans, net decreased $288.2 billion as Education announced broad-based debt relief. This decrease was partially offset by a $76.2 billion increase in SBA direct disaster COVID-19 EIDL-funded loans.
    • Federal government general PP&E includes many of the physical resources that are vital to the federal government’s ongoing operations, including buildings, structures, facilities, equipment, internal use software, and general-purpose land. DOD comprises approximately 68.0 percent of the government’s reported general PP&E of $1.2 trillion as of September 30, 2022.
    • Other significant government resources not reported on the Balance Sheet include the government’s power to tax and set monetary policy, natural resources, and stewardship assets. Stewardship assets, including heritage assets and stewardship land, benefit the nation as a whole (e.g., national monuments, national parks) and are intended to be held indefinitely.
  • Total liabilities ($39.0 trillion) consist mostly of: 1) $24.3 trillion in federal debt and interest payable; and 2) $12.8 trillion in federal employee and veteran benefits payable.
    • Federal debt held by the public is debt held outside of the government by individuals, corporations, state and local governments, FRB, foreign governments, and other non-federal entities.
    • The government borrows from the public (increases federal debt levels) to finance deficits. During FY 2022, federal debt held by the public increased $2.0 trillion (8.9 percent) to $24.3 trillion.
    • The government also reports about $6.7 trillion of intra-governmental debt outstanding, which arises when one part of the government borrows from another. For example, government funds (e.g., Social Security and Medicare Trust Funds) typically must invest excess annual receipts, including interest earnings, in Treasury-issued federal debt securities. Although not reflected in Chart 4, these securities are included in the calculation of federal debt subject to the debt limit.
    • Federal debt held by the public plus intra-governmental debt equals gross federal debt, which, with some adjustments, is subject to a statutory debt ceiling (“debt limit”). Congress and the President most recently increased the debt limit by $2.5 trillion in December 2021 with the enactment of P.L. 117-73. At the end of FY 2022, debt subject to the statutory limit was $30.9 trillion. On January 19, 2023, Treasury began taking extraordinary measures to meet the government’s obligations as they come due without exceeding the debt limit (see Note 30—Subsequent Events). Increasing or suspending the debt limit does not increase spending or authorize new spending; rather, it permits the government to continue to honor pre-existing commitments.
    • Federal Employee and Veteran Benefits Payable ($12.8 trillion) represents the amounts of benefits payable by agencies which administer the government’s pension and other benefit plans for its military and civilian employees.

See Note 29—COVID-19 Activity, as well as the referenced agencies’ FY 2022 financial statements for additional information about the financial effects of the federal government’s response to the pandemic. See Note 30—Subsequent Events for information about events that occurred after the end of the fiscal year that may affect the government’s financial results.

Key Economic Trends

An analysis of U.S. economic performance provides useful background when evaluating the government’s financial statements. During the last two fiscal years, the economy’s performance has been deeply affected by the COVID-19 global pandemic as well as the U.S. government’s extensive measures to provide fiscal support. Over the course of FY 2022, the economy grew below trend, following the brisk recovery of the previous fiscal year. These and other economic and financial developments are discussed in greater detail in the Financial Report.

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Last modified 04/06/23