Executive Summary to the Fiscal Year 2019 Financial Report of U.S. Government
Where We Are Now
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 are greater than outlays, then there is a budget surplus; and when total outlays exceed total receipts, then 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 fiscal years 2015 - 2019. During fiscal year 2019:
- A $338.9 billion increase in outlays was offset in part by a $133.5 billion increase in receipts to increase the budget deficit by $205.4 billion to $984.4 billion.
- Net operating cost increased $286.1 billion or 24.7 percent from $1.2 trillion to $1.4 trillion, due mostly to a $526.8 billion or 11.6 percent increase in net cost which more than offset a $236.7 billion or 7.0 percent increase in tax and other revenues.
- The $460.7 billion difference between the budget deficit and net operating cost is primarily due to accrued costs (incurred but not necessarily paid) related to increases in estimated federal employee and veteran benefits liabilities that are included in net operating cost, but not the budget deficit.
Costs and Revenues
The government’s “bottom line” net operating cost increased $286.1 billion (24.7 percent) during fiscal year 2019 to $1.4 trillion. It is calculated as follows:
- Starting with total gross costs of $5.3 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 veterans benefits payments to derive its net cost before taxes and other revenues of $5.1 trillion (see Chart 2), an increase of $526.8 billion (11.6 percent) from fiscal year 2018. This net increase is the combined effect of many offsetting increases and decreases across the government. For example:
- Entities administering federal employee and veterans 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 $198.9 billion in fiscal year 2019, a loss (and net cost) increase of $73.7 billion compared to fiscal year 2018.
- DOD net costs increased $210.0 billion due primarily to a $122.2 billion loss increase from changes in assumptions referenced above, as well as increases in net costs across DOD’s major programs, including military operations, readiness, support, procurement, personnel, and R&D. HHS and SSA net costs increased $79.8 billion and $62.6 billion, respectively. These increases resulted largely from increases in benefit expenses from the social insurance programs administered by these entities (e.g., Medicare and Social Security).
- VA net costs increased $70.7 billion due largely to actuarial losses from experience.
- DOE net cost decreased by $87.3 billion, predominantly due to comparatively lower increases in environmental liability estimates.
- Interest costs related to federal debt securities held by the public increased by $46.3 billion due largely to an increase in the debt. Interest costs increased by 13.0 percent during fiscal year 2019 and by 60.9 percent over the past five fiscal years.
- The government deducts tax and other revenues from net cost (with some adjustments) to derive its fiscal year 2019 “bottom line” net operating cost of $1.4 trillion.
- From Chart 3, total government tax and other revenues grew by $236.7 billion (7.0 percent) to about $3.6 trillion for fiscal year 2019.
- Together, individual income tax and tax withholdings, and corporate taxes accounted for about 89.2 percent of total tax and other revenues in fiscal year 2019. 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, 2019:
- Total assets ($4.0 trillion) consist mostly of $1.4 trillion in net loans receivable (primarily student loans) and $1.1 trillion in net PPE.
- Other significant government resources not reported on the Balance Sheet include stewardship assets, natural resources, and the government’s power to tax and set monetary policy.
- Total liabilities ($26.9 trillion) consist mostly of: (1) $16.9 trillion in federal debt securities held by the public and accrued interest and (2) $8.4 trillion in federal employee and veteran benefits payable.
- The “public” consists of individuals, corporations, state and local governments, FRB, foreign governments, and other entities outside the federal government.
- The government also reports about $6.0 trillion of intragovernmental 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 securities held by the public plus intragovernmental debt equals gross federal debt, which, with some adjustments, is subject to a statutory debt ceiling ("debt limit").
- At the end of fiscal year 2019, debt subject to the statutory limit was $22.7 trillion. 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.
- Effective March 2, 2019, the statutory debt limit was set at $22.0 trillion. On August 2, 2019, the BBA of 2019 (P. L. 116-37) was enacted suspending the statutory debt limit through July 31, 2021.
Key Economic Trends
An examination of key macroeconomic indicators is essential to the discussion of the government’s financial performance. During fiscal year 2019, the U.S. economy grew at a more moderate pace and payroll job creation slowed modestly, while the unemployment rate declined to a 49-year low. These and other economic and financial developments are discussed in greater detail in the Financial Report.
