DEPARTMENT OF THE TREASURY

WASHINGTOND.C.

SECRETARY OF THE TREASURY

A Message from the Secretary

I am pleased to present the 2019 Financial Report of the United States Government. This Report provides a

comprehensive view of the federal government’s current financial position and future fiscal

projections.

In 2019, the United States economy continued the longest period of economic expansion in U.S.

history. By the end of the fiscal year, the unemployment rate was at the lowest level in a half century,

and in August 2019, the African-American unemployment was at an all-time low. American workers

continue to take home more in their paychecks, with increases in both average hourly earnings and

disposable personal income over the past year. With both the historic Phase One Trade Agreement

with China and the United States Mexico and Canada Agreement in place, as well as other ongoing

efforts to promote fair and reciprocal trade, the Trump Administration has opened markets for

American businesses abroad that will further strengthen our economy and create more opportunities

for hardworking families. We remain focused on promoting sustained economic growth that will

result in more prosperity for the American people, and will lead to higher revenues and a stronger

fiscal outlook for the federal government.

This Report highlights trends in government revenues and costs, as well as the government’s long-term

fiscal challenge of rising debt levels.

When making policy decisions, it is essential that we have transparency with respect to our federal

government’s finances. This Report reflects that commitment and is presented to facilitate open and

productive dialogue so that all Americans can work together towards a more secure and prosperous

future.

Steven T. Mnuchin
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Contents

A Message from the Secretary of the Treasury

Results in Brief................................................................................................... i

Executive Summary........................................................................................... 1

Management’s Discussion and Analysis.......................................................... 8

Statement of the Comptroller General of the United States.......................... 36

Financial Statements

 Introduction ....................................................................................................... 46

 Statement of Net Cost........................................................................................ 53

 Statement of Operations and Changes in Net Position ...................................... 55

 Reconciliations of Net Operating Cost and Budget Deficit............................... 57

 Statements of Changes in Cash Balance from Budget and Other

 Activities ........................................................................................................... 58

 Balance Sheets................................................................................................... 59

 Statements of Long-Term Fiscal Projections..................................................... 60

 Statements of Social Insurance.......................................................................... 61

 Statement of Changes in Social Insurance Amounts......................................... 64

Notes to the Financial Statements

 Note 1. Summary of Significant Accounting Policies....................................... 66

 Note 2. Cash and Other Monetary Assets.......................................................... 79

 Note 3. Accounts and Taxes Receivable, Net.................................................... 80

 Note 4. Loans Receivable and Loan Guarantee Liabilities, Net........................ 81

 Note 5. Inventories and Related Property, Net .................................................. 84

 Note 6. Property, Plant, and Equipment, Net..................................................... 86

 Note 7. Debt and Equity Securities.................................................................... 87

 Note 8. Investments in Government-Sponsored Enterprises............................. 90

 Note 9. Other Assets.......................................................................................... 93

 Note 10. Accounts Payable................................................................................ 94

 Note 11. Federal Debt Securities Held by the Public and Accrued Interest ...... 95

 Note 12. Federal Employee and Veteran Benefits Payable ............................... 99

 Note 13. Environmental and Disposal Liabilities.............................................. 109

 Note 14. Benefits Due and Payable ................................................................... 111

 Note 15. Insurance and Guarantee Program Liabilities..................................... 112

 Note 16. Other Liabilities.................................................................................. 114

 Note 17. Collections and Refunds of Federal Revenue ..................................... 116

 Note 18. Contingencies ..................................................................................... 119

 Note 19. Commitments...................................................................................... 126

 Note 20. Funds from Dedicated Collections...................................................... 129

 Note 21. Fiduciary Activities............................................................................. 135

 Note 22. Social Insurance.................................................................................. 137

 Note 23. Long-Term Fiscal Projections............................................................. 155

 Note 24. Stewardship Land and Heritage Assets............................................... 161
 Note 25. Disclosure Entities and Related Parties .............................................. 162

 Note 26. Public-Private Partnerships................................................................. 167

 Note 27. Subsequent Events ............................................................................. 168

Required Supplementary Information (Unaudited)

 The Sustainability of Fiscal Policy.................................................................... 170

 Social Insurance................................................................................................. 181

 Social Security and Medicare .......................................................................... 181

 Railroad Retirement, Black Lung, and Unemployment Insurance .................. 204

 Deferred Maintenance and Repairs ................................................................... 207

 Other Claims for Refunds.................................................................................. 207

 Tax Assessments ............................................................................................... 208

 Federal Oil and Gas Resources.......................................................................... 209

 Federal Natural Resources Other than Oil and Gas........................................... 211

Other Information (Unaudited)

 Tax Burden........................................................................................................ 212

 Tax Gap ............................................................................................................. 213

 Tax Expenditures............................................................................................... 214

 Unmatched Transactions and Balances............................................................. 216

Required Supplementary Stewardship Information (Unaudited)

 Stewardship Investments................................................................................... 218

 Non-Federal Physical Property........................................................................ 219

 Human Capital................................................................................................. 219

 Research and Development ............................................................................. 219

Appendices

 Appendix A: Reporting Entity........................................................................... 222

 Appendix B: Glossary of Acronyms.................................................................. 226

U.S. Government Accountability Office Independent Auditor’s Report...... 232

For a complete listing of frequently used acronyms found 

throughout the Financial Report, please refer to the 

Glossary of Acronyms located in Appendix B. 
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i RESULTS IN BRIEF – 2019 FINANCIAL REPORT OF THE U.S. GOVERNMENT 

RESULTS IN BRIEF

Highlights of the Fiscal Year 2019

Financial Report of the U.S. Government

Where We Are Now 

The government’s net cost before taxes 

and other revenues for fiscal year 2019 

was $5.1 trillion - an increase of $526.8 

billion (11.6 percent) from fiscal year 

2018. 

Net cost equals gross costs of $5.3 

trillion, less earned program revenues 

(e.g., Medicare premiums, national park 

entry fees), and then adjusted for gains 

or losses from assumption changes used 

to estimate future federal employee and 

veterans benefits payments.

The increase in net cost is attributable to 

the combined effect of many offsetting 

increases and decreases across the 

government, including, but not limited 

to: a $210.0 billion increase in program 

and military retirement costs at DOD, a 

$70.7 billion increase at VA due mostly 

to changes in actuarial losses from 

experience for veteran benefits costs, 

$79.8 billion and $62.6 billion increases 

at HHS and the SSA, respectively,

largely due to benefits payments, and an 

$87.3 billion net cost decrease at DOE

mainly from comparatively lower 

increases in environmental liability 

estimates.

Total government tax and other revenues 

grew by $236.7 billion (7.0 percent) to 

about $3.6 trillion for fiscal year 2019.

The government deducts the $3.6 trillion 

in tax and other revenues from its $5.1 

trillion net cost (with some adjustments) 

to derive its fiscal year 2019 “bottom line” net operating cost of $1.4 trillion, a $286.1 billion increase over fiscal year 

2018.

By comparison, the government’s budget deficit for fiscal year 2019 was $984.4 billion – an increase of $205.4 

billion over fiscal year 2018. The $460.7 billion 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. These include but are not limited to estimated future costs of federal employee and veteran benefits.
 RESULTS IN BRIEF – 2019 FINANCIAL REPORT OF THE U.S. GOVERNMENT ii

An Unsustainable Fiscal Path 

The long-term fiscal projections indicate that the government’s debt-to-GDP ratio will rise from 79 percent in 

2019 to 474 percent over the 75-year projection period, and will continue to rise thereafter, if current policy is 

kept in place. The projections in this Financial Report show that current policy is not sustainable. These 

projections assume that current policy will continue indefinitely, and are, therefore, neither forecasts nor 

predictions. While the projections are inherently uncertain, it is nevertheless nearly certain that current fiscal 

policies cannot be sustained indefinitely. 

The primary deficit is the difference between non-interest spending and receipts. The ratio of the primary deficit 

to GDP is useful for gauging long-term fiscal sustainability. This ratio spiked from FY 2009 through FY 2012 due 

to the financial crisis of 2008-09, the ensuing severe recession, and increased spending and temporary tax 

reductions enacted to stimulate the economy and support recovery. As the economic recovery took hold, the 

primary deficit-to-GDP ratio fell, averaging 2.1 percent from FYs 2013-2019. The ratio is projected to rise to 2.9 

percent in FY 2020 and then shrink slightly through FY 2024 as the economy grows. After FY 2024, increased 

spending for Social Security and health programs is projected to result in increasing primary deficits that will 

peak in FY 2040 at 3.9 percent. This effect is due to the continued retirement of the baby boom generation and 

increases in health care costs. After FY 2040, the ratio is projected to gradually decrease to 2.5 percent by FY 

2094 as the aging of the population slows. The primary deficit projections, along with those for interest rates and 

GDP, determine the debt-to-GDP ratio projections.

These projections assume the individual income and estate and gift tax provisions of the TCJA are permanently 

extended and discretionary spending grows at essentially the same rate as nominal GDP beyond 2022.

Congressional action is required to extend the provisions of the TCJA. GDP, interest, and other economic and 

demographic assumptions are the same as those that underlie the most recent Social Security and Medicare

Trustees’ Report projections, adjusted for historical revisions that occur annually. See Note 23 for more 

information.

If changes in policy are not so abrupt as to slow economic growth, then the sooner policy changes are adopted, the 

smaller the changes to revenue and/or spending will be required to return the government to a sustainable fiscal 

path.
1 EXECUTIVE SUMMARY TO THE 2019 FINANCIAL REPORT OF THE U.S. GOVERNMENT
 EXECUTIVE SUMMARY TO THE 2019 FINANCIAL REPORT OF THE U.S. GOVERNMENT 2

Executive Summary to the Fiscal Year 2019 

Financial Report of the United States Government

The Fiscal Year 2019 Financial Report presents the U.S. government’s current financial position and 

condition and discusses key financial topics and trends. The Financial Report is produced by Treasury in 

coordination with OMB, which is part of the Executive Office of the President. The table on the preceding page 

presents several key indicators of the government’s financial position and condition, which are discussed in this 

Executive Summary and, in greater detail, in the Financial Report. The Secretary of the Treasury, the Director of 

OMB, and the Comptroller General of the U.S. at the GAO believe that the information discussed in this 

Financial Report is important to all Americans.

This Financial Report addresses the government’s financial activity and results as of and for the fiscal years 

ended September 30, 2019 and 2018. Note 27— Subsequent Events discusses events that occurred after the end of 

the fiscal year that may affect the government’s financial position and condition.

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.
3 EXECUTIVE SUMMARY TO THE 2019 FINANCIAL REPORT OF THE U.S. GOVERNMENT

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:

o 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.

o 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).

o VA net costs increased $70.7 billion due largely to actuarial losses from experience.

o DOE net cost decreased by $87.3 billion, predominantly due to comparatively lower increases in 

environmental liability estimates.

o 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.

o 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.

o 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.
 EXECUTIVE SUMMARY TO THE 2019 FINANCIAL REPORT OF THE U.S. GOVERNMENT 4

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.

o 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.

o 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.

o 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”).

o 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.

o 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.
5 EXECUTIVE SUMMARY TO THE 2019 FINANCIAL REPORT OF THE U.S. GOVERNMENT

An Unsustainable Fiscal Path 

An important purpose of this Financial Report is to help citizens understand current fiscal policy and the 

importance and magnitude of policy reforms necessary to make it sustainable. A sustainable fiscal policy is 

defined as one where the ratio of debt held by the public to GDP (the debt-to-GDP ratio) is stable or declining 

over the long term. 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.

The current fiscal path is unsustainable. To determine if current fiscal policy is sustainable, the projections 

discussed in the Financial Report assume current policy will continue indefinitely.1 The projections are therefore 

neither forecasts nor predictions. Nevertheless, the projections demonstrate that policy changes need to be enacted 

for the actual financial outcomes to differ from those projected.

Receipts, Spending, and the Debt 

Chart 5 shows historical and current policy projections for receipts, non-interest spending by major category, 

net interest, and total spending expressed 

as a percent of GDP.

• The primary deficit is the difference 

between non-interest spending and 

receipts. The ratio of the primary 

deficit to GDP is useful for gauging 

long-term fiscal sustainability.

• The primary deficit-to-GDP ratio 

spiked during 2009 through 2012 due 

to the financial crisis of 2008-09 and 

the ensuing severe recession, as well 

as increased spending and temporary 

tax reductions enacted to stimulate the 

economy and support recovery. As an 

economic recovery took hold, the 

primary deficit-to-GDP ratio fell, 

averaging 2.1 percent from 2013 

through 2019. The ratio is projected 

to rise to 2.9 percent in 2020 and then shrink slightly through 2024 as the economy grows. After 2024, 

however, increased spending for Social Security and health programs2 due to the continued retirement of the 

baby boom generation and increases in health care costs is projected to result in increasing primary deficits 

that peak in 2040, when the primary deficit-to-GDP ratio reaches 3.9 percent. After 2040, the ratio gradually 

decreases as the aging of the population continues at a slower pace, and reaches 2.5 percent in 2094, the last 

year of the projection period.

• These projections assume the individual income and estate and gift tax provisions of the TCJA are 

permanently extended and discretionary spending grows at essentially the same rate as nominal GDP beyond 

2022. Congressional action is required to extend the provisions of the TCJA. GDP, interest, and other 

economic and demographic assumptions are the same as those that underlie the most recent Social Security 

and Medicare Trustees’ Report projections, adjusted for historical revisions that occur annually.

1 Current policy in the projections is based on current law but includes extension of certain policies that expire under current law but are routinely extended 

or otherwise expected to continue.

2 See the 2019 Trustees’ Report for Medicare (pp 4-5) and Social Security (pp 4-23) and the 2017 Medicaid Actuarial Report.
 EXECUTIVE SUMMARY TO THE 2019 FINANCIAL REPORT OF THE U.S. GOVERNMENT 6

• The persistent long-term gap between projected receipts and total spending shown in Chart 5 occurs despite 

the projected effects of the PPACA3 on long-term deficits.

o Enactment of the PPACA in 2010 and the MACRA in 2015 established cost controls for Medicare 

hospital and physician payments whose long-term effectiveness is still to be demonstrated fully.

o There is uncertainty about the extent to which these projections can be achieved and whether the 

PPACA’s provisions intended to reduce Medicare cost growth will be overridden by new legislation. 

Table 1 summarizes the status and projected trends of the government’s Social Security and Medicare Trust 

Funds.

The primary deficit projections in Chart 5, along with those for interest rates and GDP, determine the debtto-GDP ratio projections in Chart 6.

• The debt-to-GDP ratio was 79 percent 

at the end of fiscal year 2019, and 

under current policy is projected to 

exceed 100 percent by 2030 and

reach 474 percent in 2094.

• The debt-to-GDP ratio rises 

continuously mainly because higher 

levels of debt lead to higher net 

interest expenditures, which lead to 

higher deficits and debt. The 

continuous rise of the debt-to-GDP 

ratio indicates that current fiscal 

policy is unsustainable.

• These debt-to-GDP projections are 

lower than the 2018 Financial Report 

projections and higher than the 2017 

Financial Report projections.

3 The PPACA refers to P.L. 111-148, as amended by P.L. 111-152. The PPACA expands health insurance coverage, provides health insurance subsidies for 

low-income individuals and families, includes many measures designed to reduce health care cost growth, and significantly reduces Medicare payment rates 

relative to the rates that would have occurred in the absence of the PPACA. (See Note 22 and the Required Supplementary Information section of the 

Financial Report, and the 2019 Medicare Trustees’ Report for more information).
7 EXECUTIVE SUMMARY TO THE 2019 FINANCIAL REPORT OF THE U.S. GOVERNMENT

The Fiscal Gap and the Cost of Delaying Fiscal Policy Reform

• The 75-year fiscal gap is a measure of how much primary deficits must be reduced over the next 75 years in 

order to make fiscal policy sustainable. That estimated fiscal gap for 2019 is 3.8 percent of GDP (compared to 

4.1 percent for 2018). 

• This estimate implies that making fiscal policy sustainable over the next 75 years would require some 

combination of spending reductions and receipt increases that equals 3.8 percent of GDP on average over the 

next 75 years. The fiscal gap represents 20.3 percent of 75-year present value receipts and 17.4 percent of 75-

year present value non-interest spending.

• The timing of policy changes to make fiscal policy sustainable has important implications for the well-being 

of future generations as is shown in Table 2.

o Table 2 shows that, if action is delayed by 10 years, the estimated magnitude of primary surplus 

increases necessary to close the 75-year fiscal gap increases by 18 percent from 3.8 percent of GDP 

on average over 75 years to 4.5 percent on average over 65 years; if action is delayed by 20 years, the 

magnitude of reforms necessary increases by an additional 24 percent. 

o Future generations are harmed by a policy delay because the higher the primary surpluses are during 

their lifetimes, the greater is the difference between the taxes they pay and the programmatic 

spending from which they benefit.

Conclusion

• Projections in the Financial Report indicate that the government’s debt-to-GDP ratio is projected to rise over 

the 75-year projection period and beyond if current policy is kept in place. The projections in this Financial 

Report show that current policy is not sustainable.

• If changes in fiscal policy are not so abrupt as to slow economic growth and those policy changes are adopted

earlier, then the required changes to revenue and/or spending will be smaller to return the government to a 

sustainable fiscal path.

Find Out More

The 2019 Financial Report and other information about the nation’s finances are available at:

• U.S. Department of the Treasury, https://www.fiscal.treasury.gov/fsreports/rpt/finrep/fr/fr_index.htm;

• OMB’s Office of Federal Financial Management, https://www.whitehouse.gov/omb/management/office-federalfinancial-management/ ; and

• GAO, http://www.gao.gov/financial.html 

The GAO audit report on the U.S. government’s consolidated financial statements can be found beginning on page 

232 of the full Financial Report. GAO was unable to express an opinion (disclaimed) on these consolidated 

financial statements for the reasons discussed in the audit report.
MANAGEMENT’S DISCUSSION AND ANALYSIS 8

MANAGEMENT’S DISCUSSION AND 

ANALYSIS

Introduction 

The Fiscal Year 2019 Financial Report provides the President, Congress, and the American people with a 

comprehensive view of the federal government’s financial position and condition and discusses important financial issues 

and significant conditions that may affect future operations, including the need to achieve fiscal sustainability over the 

medium and long term.

Pursuant to 31 U.S.C. § 331(e)(1), Treasury, in cooperation with OMB, must submit an audited (by GAO) financial 

statement for the preceding fiscal year, covering all accounts and associated activities of the executive branch of the U.S. 

government1 to the President and Congress no later than six months after the September 30 fiscal year-end. 

The Financial Report is prepared from the financial information provided by 162 federal consolidation entities (see 

organizational chart on the next page and Appendix A). As it has for the past 22 years, GAO issued a disclaimer of opinion 

on the accrual-based, consolidated financial statements for the fiscal years ended September 30, 2019 and 2018. GAO also 

issued a disclaimer of opinion on the sustainability financial statements, which consist of the 2019 and 2018 SLTFP; the 

2019, 2018, 2017, 2016, and 2015 SOSI; and the 2019 and 2018 SCSIA. A disclaimer of opinion indicates that sufficient 

information was not available for the auditors to determine whether the reported financial statements were fairly presented in 

accordance with GAAP. In fiscal year 2019, 352 of the 40 most significant entities earned unmodified (“clean”) opinions on 

their financial statements.

The fiscal year 2019 Financial Report consists of: 

• MD&A, which provides management’s perspectives on and analysis of information presented in the Financial 

Report, such as financial and performance trends;

• Financial statements and the related notes to the financial statements;

• RSI, RSSI, and Other Information; and

• GAO’s audit report. 

This Financial Report addresses the government’s financial activity and results as of and for the fiscal years ended 

September 30, 2019 and 2018. Note 27, Subsequent Events discusses events that occurred after the end of the fiscal year that 

may affect the government’s financial position and condition.

In addition, the Results in Brief and Executive Summary to this Financial Report provides a quick reference to the key 

issues in the Financial Report and an overview of the government's financial position and condition.

Mission & Organization

The government’s fundamental mission is derived from the Constitution: “...to form a more perfect union, establish 

justice, insure domestic tranquility, provide for the common defense, promote the general welfare and secure the blessings of

liberty to ourselves and our posterity.” The government’s functions have evolved over time to include health care, income 

security, veterans benefits and services, housing and transportation, security, and education. Exhibit 1 provides an overview

of how the U.S. government is organized.

1 The Government Management Reform Act of 1994 has required such reporting, covering the executive branch of the government, beginning with financial 

statements prepared for fiscal year 1997. The consolidated financial statements include the legislative and judicial branches. 2 The 35 entities include the Department of Health and Human Services, which received disclaimers of opinion on its 2019, 2018, 2017, 2016, and 2015 

SOSI and on its 2019 and 2018 SCSIA.
 9 MANAGEMENT’S DISCUSSION AND ANALYSIS

Exhibit 1 

EXECUTIVE BRANCH

THE PRESIDENT

THE VICE PRESIDENT

EXECUTIVE OFFICE OF THE PRESIDENT

White House Office

Office of the Vice President

Council of Economic Advisers

Council on Environmental Quality

National Security Council

Office of Administration

Office of Management and Budget

Office of National Drug Control Policy

Office of Policy Development

Office of Science and Technology Policy

Office of the U.S. Trade Representative

LEGISLATIVE BRANCH

THE CONGRESS

SENATE HOUSE

Architect of the Capitol

U.S. Botanic Garden

Government Accountability Office

Government Publishing Office

Library of Congress

Congressional Budget Office

U.S. Capitol Police

JUDICIAL BRANCH

THE SUPREME COURT 

OF THE U.S.

U.S. Courts of Appeals

U.S. District Courts

Territorial Courts

U.S. Court of International Trade

U.S. Court of Federal Claims

Administrative Office of the U.S. Courts

Federal Judicial Center

U.S. Sentencing Commission

CHIEF FINANCIAL OFFICERS ACT AGENCIES (24)

DEPARTMENT OF AGRICULTURE DEPARTMENT OF THE TRANSPORTATION

DEPARTMENT OF COMMERCE DEPARTMENT OF THE TREASURY

DEPARTMENT OF DEFENSE DEPARTMENT OF VETERANS AFFAIRS

DEPARTMENT OF EDUCATION ENVIRONMENTAL PROTECTION AGENCY

DEPARTMENT OF ENERGY GENERAL SERVICES ADMINISTRATION

DEPARTMENT OF HEALTH AND HUMAN SERVICES NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

DEPARTMENT OF HOMELAND SECURITY NATIONAL SCIENCE FOUNDATION

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT OFFICE OF PERSONNEL MANAGEMENT

DEPARTMENT OF THE INTERIOR SMALL BUSINESS ADMINISTRATION

DEPARTMENT OF JUSTICE SOCIAL SECURITY ADMINISTRATION

DEPARTMENT OF LABOR U.S. AGENCY FOR INTERNATIONAL DEVELOPMENT

DEPARTMENT OF STATE U.S. NUCLEAR REGULATORY COMMISSION

SIGNIFICANT CONSOLIDATION ENTITIES (16)

EXPORT-IMPORT BANK OF THE U.S. OVERSEAS PRIVATE INVESTMENT CORPORATION

FARM CREDIT SYSTEM INSURANCE CORPORATION PENSION BENEFIT GUARANTY CORPORATION

FEDERAL COMMUNICATIONS COMMISSION RAILROAD RETIREMENT BOARD

FEDERAL DEPOSIT INSURANCE CORPORATION SECURITIES AND EXCHANGE COMMISSION

GENERAL FUND OF THE U.S. GOVERNMENT SECURITY ASSISTANCE ACCOUNTS 

MILLENNIUM CHALLENGE CORPORATION SMITHSONIAN INSTITUTION

NATIONAL CREDIT UNION ADMINISTRATION TENNESSEE VALLEY AUTHORITY

NATIONAL RAILROAD RETIREMENT INVESTMENT TRUST U.S. POSTAL SERVICE

OTHER CONSOLIDATION ENTITIES LISTED IN APPENDIX A OF THIS FINANCIAL REPORT (122)

THE UNITED STATES GOVERNMENT

THE CONSTITUTION
MANAGEMENT’S DISCUSSION AND ANALYSIS 10

The Government’s Financial Position and Condition 

This Financial Report presents 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. 
 11 MANAGEMENT’S DISCUSSION AND ANALYSIS

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

• During fiscal year 2019, the budget deficit increased by $205.4 billion (26.4 percent) to $984.4 billion and net 

operating cost increased by $286.1 billion (24.7 percent) to $1.4 trillion. 

• The government’s gross costs of $5.3 trillion, less $418.4 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 $198.9 billion in net 

losses from changes in assumptions (e.g., interest rates, inflation, disability claims rates) yields the government’s net 

cost of $5.1 trillion, an increase of $526.8 billion or 11.6 percent over fiscal year 2018.

• Deducting $3.6 trillion in tax and other revenues, with some adjustment for unmatched transactions and balances, 

results in a “bottom line” net operating cost of $1.4 trillion for fiscal year 2019, an increase of $286.1 billion or 24.7 

percent over fiscal year 2018.

• Comparing total 2019 government assets of $4.0 trillion to total liabilities of $26.9 trillion (comprised mostly of 

$16.9 trillion in federal debt held by the public and accrued interest payable3

, and $8.4 trillion of federal employee 

and veterans benefits payable) yields a negative net position of $23.0 trillion. 

• The budget deficit is primarily financed through borrowing from the public. As of September 30, 2019, debt held by 

the public, excluding accrued interest, was $16.8 trillion. This amount, plus intragovernmental debt ($6.0 trillion) 

equals gross federal debt, which, with some adjustments, is subject to the statutory debt limit. As of September 30, 

2019, the government’s total debt subject to the debt limit was $22.7 trillion. The statutory debt limit was most 

recently suspended through July 31, 2021.

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 PV4 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 $49.0 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 $59.1 

trillion, a $5.1 trillion increase over 2018 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. 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 $779.0 billion in fiscal year 2018 to $984.4 billion in fiscal year 2019. The deficit-toGDP ratio in 2019 was 4.6 percent, an increase from 3.8 percent in fiscal year 2018 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, 2019, the $16.8 

trillion in debt held by the public, excluding accrued interest, equates to approximately 79 percent of GDP.

• The 2019 SOSI projection of $59.1 trillion net PV excess of expenditures over receipts over 75 years represents 

about 4.1 percent of the PV of GDP over 75 years. The excess of total projected non-interest spending over receipts 

of $49.0 trillion from the SLTFP represents 3.2 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 3.8 percent of GDP on average is needed (4.1 percent of GDP on 

average in the 2018 projections). The fiscal gap represents 20.3 percent of 75-year present value receipts and 17.4 

percent of 75-year present value non-interest spending. 

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, FRB, foreign governments, and 

other entities outside the federal government. 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. 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 transfers from the General Fund, which are 

presented, and by accounting convention, eliminated in the SOSI. For the fiscal year 2019 and 2018 SOSI, the amounts eliminated totaled $36.8 trillion and 

$32.9 trillion, respectively. 6 Final Monthly Treasury Statement (as of September 30, 2019 and 2018), Joint Statement of Treasury Secretary Steven T. Mnuchin and Acting OMB 

Director Russel Vought on Budget Results for Fiscal Year 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS 12

Fiscal Year 2019 Financial Statement Audit Results 

For fiscal year 2019, GAO issued a disclaimer of audit opinion on the accrual-based, governmentwide financial 

statements, as it has for the past 22 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 232 of this Financial Report, discusses GAO’s findings.

Twenty-two of the 24 entities required to issue audited financial statements under the CFO Act received unmodified 

audit opinions, as did 13 of 16 additional significant consolidation 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. 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.

Fannie Mae and 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 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 consolidation 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 https://www.performance.gov/.

The following pages contain a more detailed discussion of the government’s financial results for fiscal year 2019, 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, 

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.

7 The 22 entities include the Department of Health and Human Services, which received disclaimers of opinions on its 2019, 2018, 2017, 2016, and 2015 

SOSI and its 2019 and 2018 SCSIA. The 13 entities include the FDIC, the NCUA, and the FCSIC, which operate on a calendar year basis (December 31 

year-end). Statistic reflects 2018 audit results for these organizations if 2019 results are not available. 8 See Note 21—Fiduciary Activities 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, RRP; and 25 years for the Black Lung program. The Statement of Long-Term Fiscal Projections presents the 75-year present value of the 

projected future receipts and non-interest spending for the federal government. 
 13 MANAGEMENT’S DISCUSSION AND ANALYSIS

Budget of the U.S. Government Financial Report of the U.S. Government

Prepared primarily on a “cash basis”

• Initiative-based and prospective: focus on 

current and future initiatives planned and 

how resources will be used to fund them.

• Receipts (“cash in”), taxes and other 

collections recorded when received.

• Outlays (“cash out”), largely recorded when 

payment is made. 

Prepared on an “accrual and modified cash basis”

• Entity-based and retrospective – prior and present 

resources used to implement initiatives.

• 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.

• Costs: recognized when incurred, 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 1, 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. 

The government’s primarily cash-based10 budget deficit increased by $205.4 billion (about 26.4 percent) from 

approximately $779.0 billion in fiscal year 2018 to about $984.4 billion in fiscal year 2019 due to lower growth in receipts 

compared to the increase in outlays in fiscal year 2019. The $133.5 billion (4.0 percent) increase in receipts can be attributed 

primarily to higher social insurance and retirement receipts, net individual income tax receipts, customs duties, net 

corporation income tax receipts, and excise taxes, partially offset by lower deposits of earnings by the Federal Reserve, and 

other miscellaneous receipts. Outlays increased $338.9 billion (8.3 percent). Contributing to the dollar increase over fiscal 

year 2018 were higher outlays for Medicare, Defense, Medicaid, Social Security, and interest on the Treasury debt held by 

the public (public debt).11

The Treasury Department’s September 2019 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, and 

Health). Multiple entities may contribute to one or more budget functions, and a single budget function may be associated 

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. 11 10/25/19 press release -- Joint Statement of Treasury Secretary Steven T. Mnuchin and OMB Director Mick Mulvaney on Budget Results for Fiscal Year 

2019.
MANAGEMENT’S DISCUSSION AND ANALYSIS 14

with only one entity. For example, DOD, DHS, DOE, and multiple other entities administer programs that are critical to the 

broader functional classification of National Defense. DOD, 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 HHS. Federal spending information by budget 

function and other categorizations may be found in the September 2019 MTS.12

The government’s largely accrual-based net operating cost increased by $286.1 billion (24.7 percent) to $1.4 trillion 

during fiscal year 2019. 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 $460.7 billion net difference between the government’s budget deficit and net operating 

cost for fiscal year 2019, is mostly attributable to: (1) a $458.0 billion net increase in liabilities for federal employee and 

veteran benefits payable; (2) a $24.3 billion increase in insurance and guarantee program liabilities; (3) an $18.1 billion 

increase in environmental and disposal liabilities; (4) an $89.1 billion increase in taxes receivable; and (5) a $45.3 billion 

timing difference between when credit reform costs are recorded in the budget versus net operating cost. 

12 Final Monthly Treasury Statement for Fiscal Year 2019 through September 30, 2019 and Other Periods.
 15 MANAGEMENT’S DISCUSSION AND ANALYSIS

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

Table 3 shows that the government’s “bottom line” net operating cost increased $286.1 billion (24.7 percent) during 

2019 from $1.2 trillion to $1.4 trillion. This increase is due mostly to a $526.8 billion (11.6 percent) increase in entity net 

costs, which more than offset a $236.7 billion (7.0 percent) increase in tax and other revenues over the past fiscal year as 

discussed in the following.

Gross Cost and Net Cost 

The Statement of Net Cost starts with the government’s total gross costs of $5.3 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 $5.1 trillion (See Chart 2), a $526.8 billion (11.6 percent) increase 

over fiscal year 2018.

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 2019 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 $198.9 billion in fiscal year 2019, a loss increase (and a corresponding net cost increase) 

of $73.7 billion compared to fiscal year 2018. The primary entities that administer programs impacted by these 

assumptions – typically federal employee pension and benefit programs – are the OPM, VA, and DOD. These 

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. 
MANAGEMENT’S DISCUSSION AND ANALYSIS 16

entities recorded losses from changes in assumptions in the amounts of $0.3 billion, $58.0 billion, and $139.0 

billion, respectively.

o 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 2019, changes 

in net cost at OPM ($9.4 billion decrease), VA ($70.7 billion increase), and DOD ($210.0 billion increase), 

were impacted by the corresponding changes in gains or losses from assumption changes at these entities. 

• A $210.0 billion increase at DOD

primarily due to a $122.2 billion loss 

increase from changes in assumptions as 

referenced above as well as increases in 

net costs across DOD’s major programs, 

including military operations, readiness, 

support; procurement; military personnel; 

and R&D; 

• $79.8 billion and $62.6 billion increases at 

HHS and SSA, respectively, were 

primarily due to cost increases of the 

benefit programs that these entities 

administer (HHS – Medicare and 

Medicaid programs, SSA – OASDI 

programs);

• A $70.7 billion net increase at VA due 

largely to actuarial losses from experience.

• An $87.3 billion decrease at DOE largely 

due to refined environmental liability 

estimates, including comparatively lower 

estimate increases as well as estimates 

related to dilution and disposal strategies 

for surplus plutonium; 

• A $74.2 billion increase at Education

stemming mostly from reestimates of 

subsidy expenses associated with its direct 

loan programs, including changes in 

estimation methods and comparative cost 

increases for Education’s Income-Driven 

Repayment (IDR) plans14 as well as 

enhancements in estimation methodology 

with respect to deferment and forbearance 

actions; and

• A $46.3 billion increase in interest on debt 

held by the public due largely to an 

increase in the debt. Interest costs 

increased by 13.0 percent from 2018 to 2019 and by 60.9 percent over the past five years.

Chart 2 shows the composition of the government’s net cost. In fiscal year 2019, 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 2019 Statement of Net Cost 

accounted for a combined 20 percent of the government’s total net cost for fiscal year 2019. Chart 3 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 2019 ($1.2 trillion and $1.1 trillion, 

respectively) are attributable to major social insurance programs administered by these entities. DOD net costs of $908.4 

billion relate primarily to operations, readiness, and support; personnel; research; procurement; and retirement and health 

benefits. VA costs of $417.6 billion support health, education and other benefits programs for our nation’s veterans. 

From Chart 3, over the past five years, HHS, SSA, DOD, VA, and Interest costs have increased 18.7 percent, 16.5 

percent, 61.7 percent, 138.2 percent, and 60.9 percent, respectively.

14 Traditionally, federal student loans have had flat, 10-year repayment schedules, making it difficult for borrowers to pay at the start of their careers when 

their salaries are lower. The recent expansion of IDR plans provides flexible repayment schedules based on the borrower’s monthly income. Education’s 

Agency Financial Report, p. 23-24.
 17 MANAGEMENT’S DISCUSSION AND ANALYSIS

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 4 shows that 

total tax and other revenue increased by $236.7 

billion or 7.0 percent to $3.6 trillion for fiscal year 

2019. This increase is attributable mainly to an 

overall growth in individual income tax collections 

and withholdings, partially offset by reduced 

deposit of earnings from the FR System.15 Tax 

revenues and receivables also increased as a result 

of a provision of the TCJA, which provided a onetime tax on previously unrepatriated foreign 

earnings at lower rates that taxpayers may elect to 

pay over several years. In particular, these 

provisions contributed $83.5 billion of a total 

$113.6 billion increase in corporate income tax 

revenue for fiscal year 2019. Earned revenues from 

Table 3 are not considered “taxes and other 

revenue” and, thus, are not shown in Chart 4. 

Individual income tax and tax withholdings and corporate income taxes accounted for about 80.3 percent and 8.9 percent of 

total revenue, respectively in fiscal year 2019; other revenues from Chart 4 include Federal Reserve earnings, excise taxes, 

unemployment taxes, and customs duties.

As previously shown in Table 3, the increase in tax and other revenue only partially offset the increase in net cost, 

resulting in a $286.1 billion increase in the government’s bottom line net operating cost to $1.4 trillion for fiscal year 2019.

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: 

https://home.treasury.gov/policy-issues/tax-policy/tax-expenditures.

15 Fiscal year 2019 Department of the Treasury AFR, p. 36
MANAGEMENT’S DISCUSSION AND ANALYSIS 18

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.

Assets 

As of September 30, 2019, the government’s $4.0 trillion in assets are comprised mostly of net loans receivable ($1.4 

trillion) and net PP&E ($1.1 trillion).16

The federal government’s direct loans and loan guarantee programs are used 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. For those unable to afford credit at the market rate, federal credit programs provide

subsidies in the form of direct loans offered at an interest rate lower than the market rate. For those to whom non-federal

financial institutions are reluctant to grant credit because of the high risk involved, federal credit programs guarantee the

payment of these non-federal loans and absorb the cost of defaults. For example, Education supports individuals engaged in 

education programs through a variety of student loan, grant and other assistance programs. USDA administers loan programs 

to support the nation’s farming and agriculture community. Also, HUD loan programs support affordable homeownership, as 

well as the construction and rehabilitation of housing projects for the elderly and persons with disabilities. From Financial 

Statement Note 4, Education’s Federal Direct Student Loan Program accounted for $1.1 trillion (78.8 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.17

Federal government 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 69.4 percent of the government’s reported PP&E of $1.1 trillion as of September 30, 2019. 

16 For financial reporting purposes, other than multi-use heritage assets, stewardship assets of the government are not recorded as part of PPE. 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. 17 With the enactment of the SAFRA Act, which was included as part of the HCERA (P. L. 111-152), no new loans were originated under the FFEL Program 

(guaranteed loan program) since July 1, 2010. See Department of Education fiscal year 2019 AFR p. 52.
 19 MANAGEMENT’S DISCUSSION AND ANALYSIS

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 (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 August 2, 2019 through July 31, 

2021. It is important to note that increasing or 

suspending the debt limit does not increase 

spending or authorize new spending; rather, it 

permits the U.S. to continue to honor preexisting commitments to its citizens, businesses, 

and investors domestically and around the world. 

Liabilities 

As indicated in Table 4 and Chart 5, of the 

government’s $26.9 trillion in total liabilities, the

largest liability is federal debt securities held by the 

public and accrued interest, the balance of which 

increased by $1.0 trillion (6.6 percent) to $16.9 

trillion as of September 30, 2019.

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 $458.0 billion 

(5.7 percent) during fiscal year 2019, to about $8.4 

trillion. This total amount is comprised of $2.6 

trillion in benefits payable for the current and 

retired civilian workforce, and $5.8 trillion for the 

military and veterans. OPM administers the largest 

civilian pension plan, covering about 3.1 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 $16.9 trillion as of September 30, 2019. 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, 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 2019, new borrowings were $11.8 trillion, and repayments

of maturing debt held by the public were $10.7 trillion, both 

increases from fiscal year 2018.

In addition to debt held by the public, the government has 

about $6.0 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 ($303.3 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) 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 must 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 
MANAGEMENT’S DISCUSSION AND ANALYSIS 20

2019, debt subject to the statutory limit was $22.7 trillion18 (see sidebar).

The federal debt held by the public measured as a percent of GDP (debt-to-GDP ratio) (Chart 6) 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 6 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 mid1970s until the early 1990s. Strong 

economic growth and fundamental 

fiscal decisions, including measures to

reduce the federal deficit and 

implementation of binding 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 79 percent of GDP at the end of fiscal year 2019 (compared to 78 percent at the end of fiscal year 

2018 and as reported in the fiscal year 2018 Financial Report).19 From Chart 6, since 1940, the average debt-toGDP ratio is 47.8 percent.

18During fiscal years 2019 and 2018, Treasury faced two delays in raising the statutory debt limit that required it to depart from its normal debt management 

procedures and to invoke legal authorities to avoid exceeding the statutory debt limit. During these periods, extraordinary actions taken by Treasury have 

resulted in federal debt securities not being issued to certain federal government accounts with the securities being restored including lost interest to the 

affected federal government accounts subsequent to the end of the delay period. The first delay occurred beginning on December 9, 2017 and ending on 

February 9, 2018, with the enactment of the BBA of 2018 (P. L. 115-123) which suspended the statutory debt limit through March 1, 2019. The second delay 

in raising the statutory debt limit occurred beginning on March 2, 2019 and ending on August 2, 2019, with the enactment of the BBA of 2019 (P. L. 116-37) 

which suspended the statutory debt limit through July 31, 2021. 1910/15/2019 press release: Joint Statement of Treasury Secretary Steven T. Mnuchin and Acting OMB Director Russel Vought on Budget Results for Fiscal 

Year 2019.
 21 MANAGEMENT’S DISCUSSION AND ANALYSIS

The Economy in Fiscal Year 2019 

A review of U.S. economic 

performance places the discussion of the 

government’s financial results in a 

broader context. As summarized in Table 

5, the U.S. economy grew at a more 

moderate pace during fiscal year 2019, 

and payroll job creation slowed 

modestly. Even so, the economy 

generated jobs at a pace more than 

sufficient to account for new entrants to 

the labor force, which pushed the 

unemployment rate to a 49-year low by 

Fall 2019, even as the labor force 

participation rate (LFPR) increased to a 6-year high. The fiscal year was also noteworthy for a deceleration in the pace of 

headline inflation – despite consistently strong wage gains, tight labor markets, and rising labor force participation - although 

core inflation (which excludes food and energy) accelerated modestly. Growth in real disposable (after-tax) personal income

(DPI) slowed somewhat in fiscal year 2019, but non-farm labor productivity growth accelerated and business and consumer 

sentiment remained at elevated levels.

During fiscal year 2019, the U.S. economic recovery became the longest in U.S. history. Real (i.e., inflation-adjusted) 

GDP grew by 2.1 percent over the four quarters of fiscal year 2019, following growth of 3.1 percent during the previous 

fiscal year. Personal consumption expenditures continued to lead growth, while government spending and business fixed 

investment also made solid contributions. Over the four quarters of fiscal year 2019, growth of consumer spending moderated 

to 2.6 percent from 3.4 percent in the previous fiscal year, and the pace of government spending grew 2.2 percent, matching 

its growth rate in fiscal year 2018. However, the pace of business fixed investment slowed to 1.4 percent, after rising by 6.8 

percent in fiscal year 2018. Business investment was constrained in fiscal year 2019 by a number of international headwinds 

– such as slowing global growth, policy uncertainty, and low oil prices – as well as temporary domestic disruptions, including 

reduced equipment investment in connection with the grounding of the Boeing 737 MAX airplane. Although residential 

investment declined 1.1 percent during fiscal year 2019, matching the decline during fiscal year 2018, the housing sector 

found a firmer footing during the latter part of the latest fiscal year, aided by improved affordability, strong labor markets, 

and elevated consumer and homebuilder sentiment. Net exports posed a smaller drag on growth in fiscal year 2019 than in 

fiscal year 2018, while inventory investment posed a small drag on growth in fiscal year 2019 after making a small positive 

contribution the previous fiscal year.

Labor market strength continued in fiscal year 2019, exhibited by solid employment growth, low unemployment, and 

plentiful job opportunities. After the economy created 2.6 million jobs during fiscal year 2018, an additional 2.3 million jobs 

were added during fiscal year 2019. The unemployment rate ended the fiscal year at 3.5 percent in September 2019, its lowest 

level since December 1969 and down 0.2 percentage point from September 2018. By the end of fiscal year 2019, the number 

of unemployed persons in the economy had decreased by 292,000 to 5.75 million – the smallest number in nearly 19 years. 

Moreover, by the end of fiscal year 2019 job openings had exceeded the number of unemployed for 19 consecutive months. 

Starting in March 2018 and for the first time since the job openings survey was first conducted in 2000, the number of job 

openings exceeded the number of potential workers seeking employment, despite rising labor force participation.

During fiscal year 2019, headline inflation slowed, pulled down by lower energy prices, but core inflation accelerated 

modestly. The CPI rose 1.7 percent over the twelve months of fiscal year 2019, decelerating from the 2.3 percent pace during 

the previous fiscal year. Core inflation was 2.4 percent over the fiscal year ending September 2019, ticking up from the 2.2 

percent pace during fiscal year 2018.

Relatively low inflation and moderate nominal DPI growth helped to maintain purchasing power in real terms in fiscal 

year 2019. Real DPI grew 3.3 percent over the twelve months of fiscal year 2019, after growing by 4.0 percent during the 

previous fiscal year. Nominal average hourly earnings grew at a consistently stronger pace during fiscal year 2019, which 

helped boost wages in real terms. Real average hourly earnings increased 2.2 percent during fiscal year 2019, after rising 0.8 

percent during the previous fiscal year. Growth of non-farm labor productivity also accelerated during fiscal year 2019, rising 

by 1.5 percent after growing 1.2 percent during fiscal year 2018.
MANAGEMENT’S DISCUSSION AND ANALYSIS 22

An Unsustainable Fiscal Path 

An important purpose of the Financial Report is to help citizens understand current fiscal policy and the importance and 

magnitude of policy reforms necessary to make it sustainable. This Financial Report includes the SLTFP and a related Note 

Disclosure (Note 23). The Statements display the present value of 75-year projections of the federal government’s receipts 

and non-interest spending20 for fiscal year 2019 and fiscal year 2018. 

Fiscal Sustainability 

A sustainable fiscal policy is one where the debt-to-GDP ratio is stable or declining over the long term. The projections 

in this Financial Report indicate that current policy is not sustainable. As discussed below, if current policy is left unchanged, 

the debt-to-GDP ratio is projected to rise from its current level of 79 percent in 2019 to 84 percent by 2022, to over 100 

percent by 2030, and to 474 percent in 2094 and to even higher levels, thereafter. Preventing the debt-to-GDP ratio from 

rising over the next 75 years is estimated to require some combination of spending reductions and revenue increases that 

amount to 3.8 percent of GDP over the period. While this estimate of the “75-year fiscal gap” is highly uncertain, it is 

nevertheless nearly certain that current fiscal policies cannot be sustained indefinitely.

Delaying action to reduce the fiscal gap increases the magnitude of spending and/or revenue changes necessary to 

stabilize the debt-to-GDP ratio. For example, the magnitude of spending cuts and/or revenue increases necessary to close the 

gap rises about 18 percent if reforms are delayed ten years, and a further 24 percent if reform is delayed 20 years.

The estimates of the cost of policy delay assume policy does not affect GDP or other economic variables. Delaying 

fiscal adjustments for too long raises the risk that growing federal debt would increase interest rates, which would, in turn, 

reduce investment and ultimately economic growth.

The projections discussed here assume current policy21 remains unchanged, and hence, are neither forecasts nor 

predictions. Nevertheless, the projections demonstrate that policy changes must be enacted to move towards fiscal 

sustainability.

The Primary Deficit, Interest, and Debt

The primary deficit – the difference between non-interest spending and receipts – is the determinant of the debt-to-GDP 

ratio over which the government has the greatest control (the other determinants include interest rates and growth in GDP). 

Chart 8 shows receipts, non-interest spending, and the difference – the primary deficit – expressed as a share of GDP. The 

primary deficit-to-GDP ratio spiked during 2009 through 2012 due to the 2008-09 financial crisis and the ensuing severe 

recession, as well as the increased spending and temporary tax reductions enacted to stimulate the economy and support 

recovery. These elevated primary deficits resulted in a sharp increase in the ratio of debt to GDP, which rose from 39 percent 

at the end of 2008 to 70 percent at the end of 2012. As an economic recovery took hold, the primary deficit ratio fell, 

averaging 2.1 percent of GDP over 2013 through 2019. This primary deficit ratio was still high enough that the debt-to-GDP 

ratio increased further, ending 2019 at 79 percent. The primary deficit ratio is projected to rise to 2.9 percent in 2020 and then 

shrink slightly through 2024 as the economy grows. After 2024, however, increased spending for Social Security and health 

programs due to the ongoing retirement of the baby boom generation and increases in the price of health care services is 

projected to result in increasing primary deficit ratios that reach 3.1 percent of GDP in 2028. The primary deficit ratio peaks 

at 3.9 percent in 2040, gradually decreases beyond that point as aging of the population continues at a slower pace, and 

reaches 2.5 percent of GDP in 2094.

Primary deficit trends are heavily influenced by tax receipts. Receipts as a share of GDP were markedly depressed in 

2009 through 2012 because of the recession and tax reductions enacted as part of the ARRA and the Tax Relief, 

Unemployment Insurance Reauthorization, and Job Creation Act of 2010. The share subsequently increased to 18 percent of 

GDP by 2015, then decreased to 16.2 percent in 2019, following enactment of the TCJA, below its 30-year average of 17.2 

percent.

20 For the purposes of the SLTFP and this analysis, spending is defined in terms of outlays. In the context of federal budgeting, spending can either refer to: 

(1) budget authority – the authority to commit the government to make a payment; (2) obligations – binding agreements that will result in either immediate 

or future payment; or (3) outlays, or actual payments made.

21 Current policy in the projections is based on current law, but includes certain adjustments, such as extension of certain policies that expire under current 

law but are routinely extended or otherwise expected to continue (e.g., reauthorization of the Supplemental Nutrition Assistance Program).
 23 MANAGEMENT’S DISCUSSION AND ANALYSIS

Receipts are projected to grow slightly 

more rapidly than GDP over the projection 

period as increases in real incomes cause 

more taxpayers and a larger share of 

income to fall into the higher individual 

income tax brackets.

Non-interest spending as a share of 

GDP is projected to rise gradually from

19.0 percent in 2019 to 21.0 percent in 

2029 and ends at 23.0 percent in 2094.

Beginning in 2020, these increases are 

principally due to faster growth in 

Medicare, Medicaid, and Social Security 

spending (see Chart 7). Over the next 25 

years, the spending shares of GDP of Social 

Security, Medicare, and Medicaid are 

projected to increase by about 0.9

percentage points, 1.8 percentage points, 

and 0.6 percentage points, respectively

partly due to the aging of the population. 

After 2035, the Social Security spending 

share of GDP remains relatively stable, 

while the combined Medicare and Medicaid spending share of GDP continues to increase, albeit at a slower rate, due to 

projected increases in health care costs. 

On a present value basis, deficit projections reported in the FY 2019 Financial Report increased in present-value terms

but decreased as a percent of the current 75-year present value of GDP. As discussed in Note 23, the largest factor affecting 

the projections was updates of economic and demographic assumptions. Larger GDP is attributable both to stronger growth 

assumptions in the projection window and lower projected interest rates that raise the present value of future-year GDP 

values. Other factors affecting the change in these projections included the effect of new Social Security and Medicare 

program-specific actuarial assumptions and the change in reporting period - the effect of shifting calculations from 2019 

through 2093 to 2020 through 2094 - as well as the effect of actual budget results for 2019 and updated budget estimates 

from the 2020 President’s Budget.

One of the most important assumptions underlying the projections is the future growth of health care costs. As 

discussed in Note 22, these future growth rates – both for health care costs in the economy generally and for federal health 

care programs such as Medicare, Medicaid, and PPACA exchange subsidies – are highly uncertain. In particular, enactment 

of the PPACA in 2010 and the MACRA in 2015 established cost controls for Medicare hospital and physician payments 

whose long-term effectiveness of which is not yet clear. The Medicare spending projections in the long-term fiscal 

projections are based on the projections in the 2019 Medicare Trustees’ Report, which assume the PPACA and MACRA cost 

control measures will be effective in producing a substantial slowdown in Medicare cost growth. As discussed in Note 22, the 

Medicare projections are subject to much uncertainty about the ultimate effects of these provisions to reduce health care cost 

growth. For the long-term fiscal projections, that uncertainty also affects the projections for Medicaid and exchange 

subsidies, because the cost per beneficiary in these programs is assumed to grow at the same reduced rate as Medicare cost 

growth per beneficiary.

As discussed in Note 23 for the Fiscal Year 2019 report, other key assumptions include, but are not limited to the 

following. For receipts, individual income taxes are assumed to be the same share as those used in the President’s Budget for 

fiscal year 2020, including the continuation of individual income and estate and gift tax provisions of the TCJA and the 

tendency of effective tax rates to increase as growth in income per capita outpaces inflation. Congressional action is required 

to make these changes. Corporate income tax receipts are assumed to be the same share of GDP as projected in the 

President’s Budget in the short term, which incorporates the expected effects of the TCJA, and then grow with GDP over the 

long term. For discretionary spending, the projections assume that discretionary spending (1) stays within statutory caps that 

apply through 2021 under the 2019 BBA (or is approximately 6.5 percent of GDP), and (2) falls to a 6.1 percent share of 

GDP in 2022 and grows to a 6.2 percent share in 2029, where it remains thereafter. Congressional action is required to fund 

this assumed discretionary spending. GDP, interest, and other economic and demographic assumptions are the same as those 

that underlie the most recent Social Security and Medicare Trustees’ Report projections, adjusted for historical revisions that

occur annually. See Note 23—Long-Term Fiscal Projections for more information about the assumptions used in this 

analysis.
MANAGEMENT’S DISCUSSION AND ANALYSIS 24

The primary deficit-to-GDP projections in Chart 7, projections for interest rates, and projections for GDP together

determine the debt-to-GDP ratio projections shown in Chart 8. That ratio was 79 percent at the end of fiscal year 2019 and

under current policy is projected to be 

84 percent by 2022, over 100 percent by

2030, and 474 percent by 2094. The 

change in debt held by the public from 

one year to the next generally represents 

the budget deficit, the difference 

between total spending and total 

receipts. The debt-to-GDP ratio rises 

continually in great part because higher 

levels of debt lead to higher net interest 

expenditures, and higher net interest 

expenditures lead to higher debt.22 The 

continuous rise of the debt-to-GDP ratio 

indicates that current policy is 

unsustainable.

These debt-to-GDP projections are 

lower than the corresponding 

projections in 2018 Financial Report 

and higher than the corresponding 

projections in the 2017 Financial 

Report. For example, the last year of the 

75-year projection period used in the 

fiscal year 2017 Financial Report is 2092. In the fiscal year 2019 Financial Report, the debt-to-GDP ratio for 2092 is 

projected to be 461 percent, which compares with 522 and 297 percent projected for that same year in the fiscal year 2018 

Financial Report and the fiscal year 2017 Financial Report, respectively.

23

The Fiscal Gap and the Cost of Delaying Policy Reform

The 75-year fiscal gap is one measure of the degree to which current policy is unsustainable. It is the amount by which 

primary surpluses over the next 75 years must, on average, rise above current-policy levels in order for the debt-to-GDP ratio 

in 2094 to remain at its level in 2019 (79 percent). The projections show that projected primary deficits average 3.2 percent of 

GDP over the next 75 years under current policy. If policies were adopted to eliminate the fiscal gap, the average primary 

surplus over the next 75 years would be 0.6 percent of GDP, 3.8 percentage points higher than the projected present value of 

receipts less non-interest spending shown in the basic financial statement. Hence, the 75-year fiscal gap is estimated to equal 

3.8 percent of GDP. This amount is, in turn, equivalent to 20.3 percent of 75-year present value receipts and 17.4 percent of

75-year present value non-interest spending. The fiscal gap was estimated at 4.1 percent in the 2018 Financial Report.

In these projections, closing the fiscal gap requires running substantially positive primary surpluses, rather than simply 

eliminating the primary deficit. The primary reason is that the projections assume future interest rates will exceed the growth 

rate of GDP. Achieving primary balance (that is, running a primary surplus of zero) implies that the debt grows each year by 

the amount of interest spending, which under these assumptions would result in debt growing faster than GDP.

Table 6 shows the 

cost of delaying policy

reform to close the fiscal 

gap by comparing policy 

reforms that begin in 

three different years. 

Immediate reform would 

require increasing 

primary surpluses by 3.8

percent of GDP on 

average between 2020

and 2094 (i.e., some combination of reducing spending and increasing revenue by a combined 3.8 percent of GDP on average

over the 75-year projection period). Table 6 shows that delaying policy reform forces larger and more abrupt policy reforms 

22 The change in debt each year is also affected by certain transactions not included in the budget deficit, such as changes in Treasury’s cash balances and the 

nonbudgetary activity of federal credit financing accounts. These transactions are assumed to hold constant at about 0.3 percent of GDP each year, with the 

same effect on debt as if the primary deficit was higher by that amount. 23 See the Note 23 of the Fiscal Year 2018 Financial Report of the U.S. Government for more information about changes in the long term fiscal projections 

between fiscal years 2017 and 2018.

 
 25 MANAGEMENT’S DISCUSSION AND ANALYSIS

over shorter periods. For example, if policy reform is delayed by 10 years, closing the fiscal gap requires increasing the 

primary surpluses by 4.5 percent of GDP on average between 2030 and 2094. Similarly, delaying reform by 20 years requires

primary surplus increases of 5.6 percent of GDP on average between 2040 and 2094. The differences between the required 

primary surplus increases that start in 2030 and 2040 (4.5 and 5.6 percent of GDP, respectively) and that which starts in 2020

(3.8 percent of GDP) is a measure of the additional burden that delay would impose on future generations. Future generations 

are harmed by policy reform delay, because the higher the primary surplus is during their lifetimes the greater the difference 

is between the taxes they pay and the programmatic spending from which they benefit.

Conclusion

The past 12 years saw the national debt nearly double as a share of GDP, bringing it to a level not seen since shortly 

after World War II. The debt-to-GDP ratio is projected to rise over the 75-year projection period and beyond if current policy

is unchanged, which implies that current policy is not sustainable and must ultimately change. If policy changes are not so 

abrupt as to slow economic growth, then the sooner policy changes are adopted to avert these trends, the smaller the changes 

to revenue and/or spending that would be required to achieve sustainability over the long term. While the estimated 

magnitude of the fiscal gap is subject to a substantial amount of uncertainty, it is nevertheless nearly certain that current fiscal 

policies cannot be sustained indefinitely.

These long-term fiscal projections and the topic of fiscal sustainability are discussed in further detail in Note 23 and the 

RSI section of this Financial Report.

Social Insurance 

The long-term fiscal projections reflect government receipts and spending as a whole. The SOSI focuses on the 

government’s “social insurance” programs: Social Security, Medicare, Railroad Retirement, and Black Lung.24 For these 

programs, the SOSI reports: (1) the actuarial present value of all future program revenue (mainly taxes and premiums) -

excluding interest - to be received from or on behalf of current and future participants; (2) the estimated future scheduled 

expenditures to be paid to or on behalf of current and future participants; and (3) the difference between (1) and (2). Amounts 

reported in the SOSI and in the RSI section in this Financial Report are based on each program’s official actuarial 

calculations.

Table 7 summarizes amounts reported in the SOSI, showing that net social insurance expenditures are projected to be 

$59.1 trillion over 75 years as of January 1, 2019 for the “Open Group,” an increase of $5.1 trillion over net expenditures of 

$54.0 trillion projected in the 2018 Financial Report.

25 The current-law 2019 amounts reported for Medicare reflect the 

physician payment levels expected under the MACRA payment rules and the PPACA-mandated reductions in other Medicare 

payment rates, but not the payment reductions and/or delays that would result from trust fund depletion.26 Similarly, currentlaw projections for Social Security do not reflect benefit payment reductions and/or delays that would result from fund 

depletion. By accounting convention, the transfers from the General Fund to Medicare Parts B and D are eliminated in the 

consolidation of the SOSI at the governmentwide level and as such, the General Fund transfers that are used to finance 

Medicare Parts B and D are not included in table 7. For the fiscal year 2019 and 2018 SOSI, the amounts eliminated totaled 

$36.8 trillion and $32.9 trillion, respectively. SOSI programs and amounts are included in the broader fiscal sustainability 

analysis in the previous section, although on a slightly different basis (as described in Note 23). 

The amounts reported in the SOSI provide perspective on the government’s long-term estimated exposures for social 

insurance programs. These amounts are not considered liabilities in an accounting context. Future benefit payments will be 

recognized as expenses and liabilities as they are incurred based on the continuation of the social insurance programs' 

provisions contained in current law. The social insurance trust funds account for all related program income and expenses. 

Medicare and Social Security taxes, premiums, and other income are credited to the funds; fund disbursements may only be 

made for benefit payments and program administrative costs. Any excess revenues are invested in special non-marketable 

U.S. government securities at a market rate of interest. The trust funds represent the accumulated value, including interest, of 

all prior program surpluses, and provide automatic funding authority to pay cover future benefits.

24 The Black Lung Benefits Act provides for monthly payments and medical benefits to coal miners totally disabled from pneumoconiosis (black lung 

disease) arising from their employment in or around the nation's coal mines. See https://www.dol.gov/owcp/regs/compliance/ca_main.htm 25'Closed' Group and 'Open' Group differ by the population included in each calculation. From the SOSI, the 'Closed' Group includes: (1) participants who 

have attained eligibility and (2) participants who have not attained eligibility. The 'Open' Group adds future participants to the 'Closed' Group. See ‘Social 

Insurance’ in the Required Supplementary Information section in this Financial Report for more information. 26 MACRA permanently replaces the SGR formula, which was used to determine payment updates under the Medicare physician fee schedule with specified 

payment updates through 2025. The changes specified in MACRA also establish differential payment updates starting in 2026 based on practitioners’ 

participation in eligible alternative payment models; payments are also subject to adjustments based on the quality of care provided, resource use, use of 

certified electronic health records, and clinical practice improvement.
MANAGEMENT’S DISCUSSION AND ANALYSIS 26

 

Table 8 identifies the principal reasons for the changes in projected social insurance amounts during 2019 and 2018.

The following briefly 

summarizes the significant changes for 

the current valuation (as of January 1, 

2019) as disclosed in Note 22, Social 

Insurance. Note 22 is compiled from 

disclosures included in the financial 

reports of those entities administering 

these programs, including SSA and 

HHS. See Note 22 for additional 

information.

• Change in valuation period (affects 

both Social Security and 

Medicare): This change replaces a 

small negative net cash flow for 

2018 with a much larger negative 

net cash flow for 2093. As a result, 

the present value of the estimated 

future net cash flows decreased 

(became more negative) by $1.9 

trillion. 

• Changes in demographic data, 

assumptions, and methods (affects 

both Social Security and Medicare): The ultimate demographic assumptions for the current valuation are the same as 

those for the prior period. However, the starting demographic values and the way these values transition to the ultimate 

assumptions were changed. These changes included, but were not limited to the number of LPR, lower birth rates than 

originally assumed, and higher death rates than projected in prior valuations for ages 65 and older. Overall, changes to 

these assumptions caused the present value of the estimated future net cash flows to increase (become less negative) by 

$0.8 trillion.
 27 MANAGEMENT’S DISCUSSION AND ANALYSIS

• Changes in economic data and assumptions (affects Social Security only): Several changes were made to the ultimate 

economic assumptions since the last valuation period. Lower assumed total-economy labor productivity growth and a 

lower assumed ultimate interest rate all contribute to lower projected cash flow while a change in projected ultimate 

inflation rates and an increase in the projected real wage differential partly offset the changes that have a negative effect.

Overall, changes to these assumptions caused the present value of the estimated future net cash flows to decrease (become 

more negative) by $1.0 trillion.

• Changes in methodology and programmatic data (affects Social Security only). Several methodological improvements 

and updates of program-specific data are included in the current valuation, including, but not limited to: (1) the ultimate 

disability incidence rate was lowered from 5.4 per thousand exposed in the prior valuation to 5.2 in the current valuation; 

(2) as in the prior valuation, the current valuation uses a 10-percent sample of newly-entitled worker beneficiaries in 2015 

to project average benefit levels of retired-worker and disabled-worker beneficiaries. For the current valuation, the 

model’s projection of earnings for workers becoming newly entitled in future years was improved to better reflect the 

“dispersion” in taxable earnings levels observed from 1970 to 2010; and (3) The current valuation includes an 

improvement in the method for calculating future benefit levels for those who are awarded benefits more than two years

after their date of initial benefit entitlement. This improvement mainly affects DI benefit levels. Overall, changes to these

assumptions caused the present value of the estimated future net cash flows to increase (become less negative) by $0.5 

trillion.

• Changes in economic and other healthcare assumptions (affects Medicare only): The economic assumptions used in the 

Medicare projections are the same as those used for the OASDI (described above) and are prepared by the Office of the 

Chief Actuary at SSA. In addition to the economic assumptions changes described above, the healthcare assumptions are 

specific to the Medicare projections. Changes to these assumptions in the current valuation include: lower assumed 

growth in economy-wide productivity, which results in higher payment updates for certain providers; faster projected 

spending growth for physician-administered drugs under Part B; higher projected drug manufacturer rebates and slower 

overall drug price increases assumed in the short-range period. The net impact of these changes caused the present value 

of the estimated future net cash flows to decrease (become more negative) by $3.0 trillion. 

• Change in Projection Base (affects Medicare only): Actual income and expenditures in 2018 were different than what was 

anticipated when the 2018 Medicare Trustees’ Report projections were prepared. Part A payroll tax income was lower 

and expenditures were higher than anticipated, based on actual experience. For both Part B and Part D, total income and 

expenditures were higher than estimated based on actual experience. The net impact of the Part A, B, and D projection 

base changes is a decrease in the estimated future net cash flow. Actual experience of the Medicare Trust Funds between 

January 1, 2018 and January 1, 2019 is incorporated in the current valuation and is more than projected in the prior 

valuation. The net impact of the Part A, B, and D projection base changes is a decrease (become more negative) in the 

estimated future net cash flow by $0.5 trillion.

Projected net expenditures for Medicare Parts A and B declined significantly between fiscal year 2009 and fiscal year 

2010 reflecting provisions of the PPACA. As reported in Note 22, uncertainty remains about whether the projected cost 

savings and productivity improvements will be sustained in a manner consistent with the projected cost growth over time.

Note 22 includes an alternative projection to illustrate the uncertainty of projected Medicare costs. As indicated earlier, GAO 

disclaimed opinions on the 2019, 2018, 2017, 2016 and 2015 SOSI because of these significant uncertainties.

Costs as a percent of GDP of both Medicare and Social Security, which are analyzed annually in the Medicare and 

Social Security Trustees’ Reports, are projected to increase substantially through the mid-2030s because: (1) the number of 

beneficiaries rises rapidly as the baby-boom generation retires and (2) the lower birth rates that have persisted since the baby 

boom cause slower growth in the labor force and GDP.27 According to the Medicare Trustees’ Report, spending on Medicare 

is projected to rise from its current level of 3.7 percent of GDP to 6.0 percent in 2043 and to 6.5 percent in 2093.28 As for 

Social Security, combined spending is projected to generally increase from its current level of 4.9 percent of GDP to about 

5.9 percent by 2039, declining to 5.8 percent by 2052 and then generally increase to 6.0 percent by 2093. The government 

collects and maintains funds supporting the Social Security and Medicare programs in Trust Funds. A scenario in which 

projected funds expended exceed projected funds received, as reported in the SOSI, will cause the balances in those Trust 

Funds to deplete over time. Table 9 summarizes additional current status and projected trend information, including years of 

projected depletion, for the Medicare and Social Security Trust Funds.

27A Summary of the 2019 Annual Social Security and Medicare Trust Fund Reports, p. 1-2. 28 Percent of GDP amounts are expressed in gross terms (including amounts financed by premiums and state transfers).
MANAGEMENT’S DISCUSSION AND ANALYSIS 28

As previously discussed and as noted in the Trustees’ Reports, these programs are on a fiscally unsustainable path. 

Additional information from the Trustees’ Reports may be found in the RSI section of this Financial Report.
 29 MANAGEMENT’S DISCUSSION AND ANALYSIS

Financial Management 

Enterprise Risk Management

The Administration is committed to promoting and facilitating a risk-aware culture across the federal government by 

developing a federal ERM framework and ERM strategies for adoption by federal agencies. ERM is a tool used by agencies 

to systematically identify, assess, mitigate, manage, and prepare for risks that could interfere with an agency’s ability to 

achieve its mission and goals. ERM promotes risk-informed decision making that allows resources to be prioritized and 

allocated based on risk. It encourages agencies to target their limited resources to activities likely to produce the greatest 

improvement in program performance. 

Using ERM techniques, federal agencies establish internal controls to address management challenges that cut across 

multiple agencies’ functions and reduce associated risk to an acceptable level. In this way, ERM integrates risk management 

and internal control processes. The 2016 update to OMB Circular A-123, Management’s Responsibility for Enterprise Risk 

Management and Internal Control, stresses the importance of applying ERM to all financial management activities, including 

charge cards and payment integrity. In 2019, the updated OMB Circular A-11, Part 6, integrated ERM into agency strategic 

planning and performance measurement processes. Also in 2019, the CFOC established an ERM Executive Steering 

Committee to identify and share ERM best practices, develop a federal ERM maturity model (a self-assessment tool used to 

assist in ERM implementation), promote ERM integration with mission and mission support functions, and facilitate 

constructive coordination with oversight entities

Results-Oriented Accountability for Grants

Approximately $700 billion is spent annually on grants and cooperative agreements. Grants managers, both internal and 

external to the government, report that approximately 40 percent of their time is spent using antiquated processes to monitor

compliance with grant requirements rather than using data analytics to monitor grant results. The PMA29 CAP Goal #8, 

Results-Oriented Accountability for Grants, provides a comprehensive roadmap for improving grants management and 

reducing grant recipient reporting burden. Increased efficiencies in the grant-making process will provide recipients more 

time to devote to delivering intended results of the grant, rather than managing compliance with the process, thereby helping 

agencies30 more effectively achieve their missions. 

The Grants CAP Goal will be achieved by: standardizing the grants management business process and data, building 

shared information technology (IT) infrastructure, establishing a standard risk management framework across grant 

programs, and ensuring that new grant programs are designed to reflect measurable goals. To support the standardization of 

the business process and data and the building of shared IT infrastructure, OMB issued M 18-24, “Strategies to Reduce Grant 

Recipient Reporting Burden” in 2018.

M-18-24 requires agencies to evaluate all systems and methods used to collect information from grant recipients to 

determine if the same data are being collected by the agency more than once. In addition, M-18-24 requires agencies to 

prepare for the adoption of grants management standards and complete a readiness assessment using the Grants Management 

Federal Integrated Business Framework.

Since the issuance of M-18-24, OMB released an initial set of draft grants management data elements that were 

developed by an inter-agency work group. From November 2018 to February 2019, the draft grants management data 

elements were made available for public comment and more than 1,100 comments were received and reviewed, resulting in 

the issuance by OMB of Version 1.0 of Grants Management Standards in the fall of 2019. In accordance with OMB memo 

M-19-16, “Centralized Mission Support Capabilities for the Federal Government,” once the initial set of standards are 

finalized, agencies will be required to ensure that ongoing and future grants management system investments follow the 

standards available at https://ussm.gsa.gov/. Future implementation of the standards will promote interoperability of systems 

using consistent data, reduce the number of grants management systems, and promote a risk-based, data-driven approach to 

managing federal grants.

In addition, under the Grants CAP Goal, OMB worked with agencies during 2019 to reduce the maximum number of 

audit areas (e.g., allowable costs, eligibility, and cash management) from twelve to seven in the Compliance Supplement. 

Although grantees will still be required to comply with all twelve requirements for the management of federal programs, the 

areas to be audited will be limited to those seven that pose the greatest risk or that produced the greatest number of audit 

findings in the past. The 2019 Single Audit Compliance Supplement specifies the areas of review that are required for 

individual grant programs.

29 For further information about the PMA and CAP Goals, see https://www.whitehouse.gov/omb/management/pma/ 30The term “agency” is used in the Financial Management section of the Management’s Discussion and Analysis rather than the term “entity,” which is used 

throughout the rest of the Financial Report. SFFAS No. 47, Reporting Entity, defines the term “entity” for federal financial reporting purposes and addresses 

both component and governmentwide financial reporting. The term entity is generally broader than “agency” because it refers to agencies, components of 

agencies, and the federal government as a whole. The term “agency” is used in this section because the laws, policies, and plans discussed in this section 

apply to “agencies” as defined in particular laws or policy guidance documents and because the laws, policies, and plans discussed in this section do not 

generally define the term “entity.”
MANAGEMENT’S DISCUSSION AND ANALYSIS 30

Getting Payments Right

Preventing improper payments in the federal government is a priority for the Administration and in March 2018, the 

PMA CAP Goal #9, Getting Payments Right, was established with an emphasis on reducing monetary loss and making 

payments correctly the first time. In addition to the historical focus on identifying and addressing improper payment issues 

after they occur, the CAP goal has a renewed focus on systemic enhancements intended to prevent improper payments from 

occurring. This CAP Goal has resulted in exceptional collaboration across the CFO community to reduce monetary loss and 

prevent improper payments through five strategies. The strategies are: (1) Clarifying and Streamlining Requirements, (2) 

Identify Monetary Loss Root Causes, (3) Strategic Data Use (using data to prevent improper payments), (4) Mitigation 

Strategies (using non-data methods to prevent improper payments), and (5) Strengthen State Partnerships. Details on current 

progress and future actions under the CAP goal can be found at: https://www.performance.gov/CAP/getting-payments-right/. 

Starting in fiscal year 2018, agencies with programs reporting more than $100 million in monetary loss began providing 

a quarterly scorecard on PaymentAccuracy.gov. These scorecards provide information on the actions taken and progress 

made on preventing improper payments that would result in monetary loss to the government. Additional details on the 

programs’ fiscal year 2019 improper payment data can be found at https://paymentaccuracy.gov/

In fiscal year 2020, OMB will continue to work with agencies, the CFOC, and other stakeholders, as part of the Getting 

Payments Right CAP Goal, to improve the identification of the root causes of improper payments that result in monetary loss 

and to promote data analytic methods that take a comprehensive view of an agency’s payment lifecycle.

Leveraging Data as a Strategic Asset

The DATA Act amended the Federal Funding Accountability and Transparency Act of 2006 by linking federal 

government contract, loan, and grant spending to federal programs and requiring that all federal spending be displayed on a 

website in searchable, downloadable, and machine-readable formats.

The USAspending.gov website, which Treasury launched in April 2018 in accordance with the DATA Act, allows users

to examine more than $4 trillion in federal spending and identify communities, businesses and non-profit entities that have 

received federal funding. The data are provided by more than 100 federal agencies and is compiled by Treasury on a 

quarterly basis. The site allows users to explore the data and download reports that are tailored to their specific interests. The 

site also includes the Data Lab, which provides use cases, data visualizations, and analyses of federal spending and trends. 

The data are searchable in a machine-readable format and open application programming interface.

In June 2018, OMB issued guidance to improve data quality, M-18-16, Management of Reporting Data Integrity Risk, 

Appendix A to OMB Circular A-123. The guidance required agencies to develop and implement a data quality plan for fiscal 

years 2019 and requires a plan for fiscal years 2020 and 2021. The guidance also requires agencies to consider in their 

assurance statements all internal controls (including controls over DATA Act reporting). In November 2019, GAO noted (in 

GAO-20-75) that agencies had made significant progress in improving DATA Act data quality.

In June 2019, OMB issued revised guidance related to the Federal Program Inventory in OMB Circular A-11 sections 

210.11 and 210.12. The guidance reflects an effort by OMB and agencies to simultaneously satisfy, where possible, the 

reporting requirements of the DATA Act and the Government Performance and Results Act Modernization Act, thereby 

minimizing agency reporting burden. 

Also in June 2019, OMB updated Circular A-11 section 22.6 to require agencies to include machine-readable summary 

tables in their congressional budget justifications and post their congressional budget justifications to a web address entitled 

[Agency Name].gov/cj. Congressional budget justifications where such web addresses are linked to the agency spending data 

found on USASpending.gov.

As the quality of this data in USASpending.gov improves, OMB will work with Treasury and agencies to find 

additional data sources that could be linked to the site for informational and analytic purposes.

Sharing Quality Financial Management Services

The federal financial management infrastructure (which includes grants) exists in a complex environment of legacy 

information technology, customized tools built to unique requirements, lack of harmonized standards, and business processes 

that do not fully leverage modern technology. The sharing of financial technology and services has been successful for 

smaller agencies but has not met expectations for larger agencies. Specifically, agencies that provide financial management 

services to other agencies have done so efficiently and effectively for agencies with more limited financial systems 

requirements. However, when the service providers have attempted to provide similar services to or share technology with 

agencies that have more complex requirements, the result has often been cost over-runs and the need for systems upgrades or 

customization. This is largely due to the greater number of and more complex systems requirements of the larger agencies. A 

cross-agency subgroup of the CFOC developed the core business framework for financial management that was used in the 

fall of 2017 to explore industry capabilities for smarter use of technology in federal financial management. This information

has been used to develop and implement recommendations to improve financial management across the government. Results 

of ongoing efforts to support PMA CAP Goal #5, Sharing Quality Services, can be found at 

https://www.performance.gov/CAP/sharing-quality-services/.
 31 MANAGEMENT’S DISCUSSION AND ANALYSIS

Financial Management Workforce

The Administration is committed to redefining the role of the federal government by prioritizing activities that advance 

the federal government financial workforce. The workforce for the 21st Century must enable senior leaders and front-line 

managers to align staff skills with evolving mission needs. This will require more nimble and agile management of the 

workforce, including reskilling and redeploying existing workers to keep pace with the current pace of change.

Under the CFOC, a cross-agency “Shape the Workforce” work group has been established. The group was formed to 

align CFOC efforts with the human capital strategy in the PMA, which is focused on developing a workforce for the 21st 

century. The group is working to establish a systematic process for identifying and addressing gaps between the financial 

management workforce of today and the workforce needs of tomorrow. Through this process, CFO leadership will be able to 

identify the personnel required to meet organizational goals, conduct analyses to determine and close competency and skills 

gaps, develop strategies to address human capital needs, and assess the effectiveness of CFO office structures. In addition, the 

cross-agency work group is exploring options for consolidating recruitment efforts and streamlining the hiring process, 

leveraging technology to improve the financial management workforce, and developing new tools for retention and staff 

development.

Also, under the CFOC, a cross-agency “Fiscal Management” work group has been established to explore opportunities 

to automate financial management processes and functions. As a part of this, the National Science Foundation is conducting a 

pilot focused on intragovernmental payments and collections, seeking to make the payment and collection processes more 

efficient. Automation of financial management work will consequently allow the financial management workforce to be more 

efficient and focus on higher-value work.
MANAGEMENT’S DISCUSSION AND ANALYSIS 32

Audit 

Since the passage of the CFO Act, the federal financial community has made significant progress in financial 

accounting and reporting. As shown in Table 10, for fiscal year 2019, 22 of the 24 CFO Act agencies obtained an unmodified 

opinion from the independent auditors on their financial statements.31 In addition, 41 auditor-identified material weaknesses 

were reported at the end of fiscal year 2019 compared to 40 for 2018. For 2019, 25 of these are associated with DOD, which 

completed its second full-scope financial statement audit. The other 16 material weaknesses are associated with non-DOD 

agencies, which represents an improvement from 20 reported in 2018. These results demonstrate that an increasing number of 

federal agencies have adopted and maintained disciplined financial reporting operations, implemented effective internal 

controls over financial reporting, and integrated transaction processing with accounting records. However, weaknesses in 

financial management practices continue to prevent the government as a whole from achieving an audit opinion.

Agency Financial Management Systems

Federal agencies improved, but continue to face challenges, in implementing financial management systems that meet 

federal requirements. The number of CFO Act agencies reporting lack of substantial compliance with one or more of the 

three Section 803(a) requirements of the FFMIA remained at 7 in fiscal year 2019, and the number of auditors reporting lack 

of substantial compliance with one or more of the three Section 803(a) FFMIA requirements fell to 8 in fiscal year 2019 from 

nine in fiscal year 2018. 

As suggested in the “Sharing Quality Financial Management Services” section above, because of the federal 

government’s size and diversity, its financial management infrastructure consists of both legacy and modernized systems and 

standardized and customized systems. As the government’s fiscal agent, Treasury has systems for collecting and disbursing 

the government’s cash and financing disbursements when necessary, recording and reporting on those collections and 

disbursements, and reporting on all government revenues, expenses, assets, and liabilities. 

31 The 22 entities include HHS, which received an unmodified (“clean”) opinion on all statements except the SOSI and the SCSIA.
 33 MANAGEMENT’S DISCUSSION AND ANALYSIS

The first four sections above32 summarize what OMB and agencies have been doing and plan to do to improve financial

management, including financial management systems. Additionally, Treasury has financial management improvements 

plans that have governmentwide implications. These plans include standardizing processes, system requirements, and system 

interfaces. These efforts will allow legacy technology to be decommissioned and reduce the need for manual processes. Also, 

agencies other than Treasury have plans to improve their financial management and financial reporting systems described in 

their financial reports, budget requests, and performance plans. Most significantly, DOD has plans to address its material 

weaknesses in financial reporting, and is bringing its financial systems into compliance with federal financial management 

systems requirements, including the FFMIA; these plans can be found in the AFR. In addition, DOD’s audit remediation 

efforts include issues related to real property, inventory, OM&S, government property in the possession of contractors, 

information technology, and reconciling the Department’s fund balance with Treasury.

Agency Internal Controls 

Federal managers are responsible for developing and maintaining effective internal controls. Internal controls help to 

ensure effective and efficient operations, reliable financial reporting, and compliance with applicable laws and regulations. 

Safeguarding assets is a goal of each of these three objectives.

OMB Circular No. A-123 implements the requirements of 31 U.S.C. 3512 (c) and (d) (commonly known as the Federal 

Managers’ Financial Integrity Act) by providing agencies a framework for assessing and managing risks strategically and 

tactically. The Circular reflects GAO’s Standards for Internal Control in the Federal Government and contains multiple 

appendices that address one or more of the objectives of effective internal control.

• Appendix A provides for agencies to use a risk-based approach to assess, document, test, and report on internal 

controls over reporting and data integrity; 

• Appendix B requires agencies to maintain internal controls that reduce the risk of fraud, waste, and error in 

government charge card programs; 

• Appendix C implements the requirements for effective estimation and remediation of improper payments; and 

• Appendix D defines requirements for determining compliance with the FFMIA that are intended to reduce the

cost, risk, and complexity of financial system modernizations.

As noted above, the total number of reported material weaknesses for the CFO Act agencies as of the issuance of this 

Financial Report was 41 for fiscal year 2019 and 40 for fiscal year 2018. Effective internal controls are a challenge at the 

agency level and at the governmentwide level, with GAO reporting that at the governmentwide level, material weaknesses 

resulted in ineffective internal control over financial reporting. While progress is being made at many agencies and across the 

government in identifying and resolving internal control deficiencies, additional work is needed.

Agency Legal Compliance

Federal agencies are required to comply with a wide range of laws and regulations, including appropriations, 

employment, and health and safety, among others. Responsibility for compliance rests with agency management and 

compliance is addressed as part of agency financial statement audits. Agency auditors test for compliance with selected laws 

and regulations related to financial reporting and certain individual agency audit reports contain instances of noncompliance. 

None of these instances were material to the governmentwide financial statements; however, GAO reported that its work on 

compliance with laws and regulations was limited by the material weaknesses and scope limitations discussed in its report.

Efficient Use of Real Property Assets 

The federal government owns a significant amount of real property assets worldwide, with a majority of its holdings 

located in the U.S. These real property holdings include assets that are classified by property type in the FRPP as: land, 

buildings, and structures. The FRPP defines land as acreage and a building as a constructed asset that is enclosed with walls 

and a roof that provides space for agencies to perform activities, store materials, or provide space for people to live or work. 

A structure is defined as any constructed asset that does not meet the building definition above (i.e., fence, tower, parking 

structure). Further information can be found in the FRPP Data Dictionary available at https://www.gsa.gov/policyregulations/policy/real-property-policy/asset-management/federal-real-property-council-frpc/frpc-guidance-library.

Land

The federal government owns roughly 640 million acres, which represents about 28 percent, of all U.S. land. Four major 

federal land management agencies administer 610.1 million acres, or 95 percent, of this land. They are the BLM, Fish and 

Wildlife Service, and National Park Service in DOI; and the Forest Service in USDA. These lands are managed for many 

purposes, primarily related to conservation, preservation, recreation, and the extraction of natural resources such as timber, 

minerals, oil, and gas. Much of the land managed by DOI and USDA is public domain land and is generally intended to be 

retained by the government for use by future generations. This and other land that qualifies as stewardship land is not valued 

32 These sections are “Results-Oriented Accountability for Grants,” “Getting Payments Right,” “Leveraging Data as a Strategic Asset,” and “Sharing Quality 

Financial Management Services.”
MANAGEMENT’S DISCUSSION AND ANALYSIS 34

on the governmentwide Balance Sheet but is discussed in Note 24 and in AFRs. In addition, DOD (excluding the Army 

Corps of Engineers) uses stewardship land for military bases, training ranges, and other military related functions.

Structures

The government owns structures that are affixed to the land and in many instances cannot easily be physically separated 

from the land; these include parking structures, power plants, power generating stations, dams, and space exploration 

structures. These structures are managed by agencies such as DOE, the Army Corps of Engineers, and NASA. The federal 

government charges fees for the use of some of these structures, which defray some of the costs of the assets. The receipt of 

such user fees (e.g., sales of electrical power) is recorded as revenue. Structures are generally reflected on the Balance Sheet 

at cost, net of depreciation, and any environmental or other liabilities associated with structures are reflected on the Balance 

Sheet in accordance with generally accepted accounting principles. 

Buildings

A large portion of the government’s real property inventory includes federally owned buildings, with the majority in the 

custodial care of DOD. In general, agencies hold and manage buildings for administrative use to achieve their mission. The 

government does not hold buildings or any real property assets for investment or land banking purposes. Buildings owned by 

the government (and the land associated with the buildings) are generally reflected on the Balance Sheet at cost, net of 

depreciation. As noted above with structures, any environmental or other liabilities associated with buildings (and the land 

underneath the buildings) are also reflected on the Balance Sheet in accordance with generally accepted accounting 

principles. Any buildings (or structures, including the land underneath the buildings or structures) that are not in service are 

included on the Balance Sheet at net realizable value. After the government identifies buildings or other real property for 

disposal, it carries out public or negotiated sales, demolitions, public benefit conveyances, and, on occasion, property 

exchanges.

The federal domestic building inventory is diverse and contains 252,000 buildings reflecting 2.6 billion square feet of 

space as of 2016 (which is the most recent year for which reliable data are available). Several current real property initiatives

being pursued are discussed below.

Transformation Efforts to Optimize the Use of Federal Real Property

On July 12, 2018, OMB issued Memorandum M-18-21 to require all federal entities to designate senior real property 

officers to coordinate all aspects of their real property programs and to serve on the FRPC. The FRPC seeks to provide 

comprehensive governmentwide strategic direction to help optimize the federal real property portfolio to achieve statutory 

missions while managing costs over the short, mid, and long-term. The FRPC will address current challenges such as the lack 

of a comprehensive strategic approach to asset management, funding challenges, poor data quality, and legislative 

requirements by creating a governance structure, to include an Executive Steering Committee and working groups. Led by 

direction from the Executive Steering Committee, the working groups will map their outputs to the FRPC strategic direction 

to revise the national strategy’s policy framework, standardize the business processes and data, and diagnose and address root 

causes.

On November 6, 2019, OMB issued Memorandum M-20-03, providing detailed guidance to agencies to implement the 

Capital Programming Guide in OMB Circular A-11. The goal of the guidance is to ensure that an agency’s real property 

portfolio helps it efficiently achieve its mission. The Memo provides standards for agencies to use to develop a consistent 

methodology for allocating resources to real property. This resource allocation will occur as a part of the annual budget 

formulation process, with agencies systematically identifying their real property needs and assessing their existing real 

property assets. This process of reviewing real property holdings, acquisitions, and dispositions and linking clearly articulated 

long-term real property requirements to options that consider the life-cycle of real property is intended to allow agencies and 

policymakers to have the information necessary to optimize the federal real property portfolio. This should lead to the 

elimination of excess capacity, cost-effective long-term investments in real property, and annually updated information about 

the condition of existing property.

The new strategic direction reflected in Memorandum 20-03 will build on the results of the RTF policy, which was 

issued in 2015 and requires the CFO Act agencies to reduce the size of their federal real property portfolios by improving the 

use of government-owned buildings and by reducing the amount of leased space and the number of excess and underutilized 

properties. In addition, under the RTF policy, the CFO Act agencies developed and annually update five-year Real Property 

Efficiency Plans to identify reductions to their portfolios over a five-year time-period. In fiscal years 2016 through 2018, the 

CFO Act agencies reduced their fiscal year 2015 RTF baselines (which is the amount of space the CFO Act agencies held or 

occupied in 2015) by 16.2 million square feet. Under the RTF policy, the CFO Act agencies will validate square footage and 

operations and maintenance costs in their AFRs to show that they are continuing to reduce their real property footprint over 

time.

Additionally, governmentwide real property management will be improved by implementation of the Federal Assets 

Sale and Transfer Act of 2016 (FASTA) and the FPMRA. To date, OMB has met, by the required deadlines, all of its 

responsibilities under FASTA (with a yearly data call to all federal agencies for recommendations to the to-be-established 

Real Property Reform Board) and under FPMRA (with the establishment of the FRPC and the issuance of a yearly report).
 35 MANAGEMENT’S DISCUSSION AND ANALYSIS

Together with the newly constituted FRPC, OMB will continue to work to optimize its use of federal real property

throughout 2020.

Conclusion 

The federal government has seen significant progress in financial management since the passage of the CFO Act nearly 

30 years ago, but significant challenges remain to realizing the intended financial management reforms of the Act. The issues 

that the federal government faces today require financial managers to improve both the efficiency and effectiveness of 

financial management activities, which includes moving toward integrated government operations with standardized business 

processes, systems, and data. The steps outlined above build on tools and capabilities that are in place today and refocus 

energies on critical and emerging priorities – cutting wasteful spending, improving the efficiency and effectiveness of 

operations and information technology, and laying a foundation for improved data quality and collaboration.

Additional Information

This Financial Report’s Appendix contains the names and websites of the significant government agencies included in 

the U.S. government’s consolidated financial statements. Details about the information in this Financial Report can be found 

in these agencies’ financial statements included in their PARs and AFRs. This Financial Report, as well as those from 

previous years, is also available at the Treasury, OMB, and GAO websites at: 

https://www.fiscal.treasury.gov/reports-statements/; https://www.whitehouse.gov/omb/management/office-federal-financialmanagement/; and http://www.gao.gov/financial.html, respectively. Other related government publications include, but are 

not limited to the: 

• Budget of the United States Government, 

• Treasury Bulletin, 

• Monthly Treasury Statement of Receipts and Outlays of the United States Government, 

• Monthly Statement of the Public Debt of the United States, 

• Economic Report of the President, and 

• Trustees’ Reports for the Social Security and Medicare Programs.
STATEMENT OF THE COMPTROLLER GENERAL OF THE UNITED STATES 36

February 27, 2020

The President

The President of the Senate

The Speaker of the House of Representatives

To operate as effectively and efficiently as possible, Congress, the administration, and federal 

managers must have ready access to reliable and complete financial and performance information—

both for individual federal entities and for the federal government as a whole. Our report on the U.S. 

government’s consolidated financial statements for fiscal years 2019 and 2018 discusses progress that 

has been made but also underscores that much work remains to improve federal financial management 

and that the federal government continues to face an unsustainable long-term fiscal path.

Our audit report on the U.S. government’s consolidated financial statements is enclosed. In summary, 

we found the following: 

• Certain material weaknesses1 in internal control over financial reporting and other limitations 

resulted in conditions that prevented us from expressing an opinion on the accrual-based 

consolidated financial statements as of and for the fiscal years ended September 30, 2019, and 

2018.2 About 29 percent of the federal government’s reported total assets as of September 30, 

2019, and approximately 19 percent of the federal government’s reported net cost for fiscal year 

2019 relate to significant federal entities that received a disclaimer of opinion3 or qualified opinion4

on their fiscal year 2019 financial statements or whose fiscal year 2019 financial information was 

unaudited.5

1A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there 

is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected 

and corrected, on a timely basis. A deficiency in internal control exists when the design or operation of a control does not allow 

management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, 

misstatements on a timely basis.

2The accrual-based consolidated financial statements as of and for the fiscal years ended September 30, 2019, and 

2018, consist of the (1) Statements of Net Cost, (2) Statements of Operations and Changes in Net Position, (3) Reconciliations 

of Net Operating Cost and Budget Deficit, (4) Statements of Changes in Cash Balance from Budget and Other Activities, and 

(5) Balance Sheets, including the related notes to these financial statements. Most revenues are recorded on a modified cash 

basis. 

3

A disclaimer of opinion arises when the auditor is unable to obtain sufficient appropriate audit evidence to provide a basis for

an audit opinion and accordingly does not express an opinion on the financial statements.

4A qualified opinion arises when the auditor is able to express an opinion on the financial statements except for specific areas 

where the auditor was unable to obtain sufficient and appropriate evidence.

5The Department of Defense and the Railroad Retirement Board both received disclaimers of opinion on their respective fiscal 

year 2019 financial statements. The Department of Housing and Urban Development received a qualified opinion on its fiscal 

year 2019 financial statements. For fiscal year 2019, the financial information for the General Fund of the U.S. Government 

was not audited to allow Treasury sufficient time to develop and begin to implement a remediation plan to address the issues 

we identified as part of our audit of the fiscal year 2018 Schedules of the General Fund. Also, for fiscal year 2019, the financial 

information for Security Assistance Accounts was unaudited.
 37 STATEMENT OF THE COMPTROLLER GENERAL OF THE UNITED STATES

• Significant uncertainties (discussed in Note 22 to the consolidated financial statements), primarily 

related to the achievement of projected reductions in Medicare cost growth, prevented us from 

expressing an opinion on the sustainability financial statements,6 which consist of the 2019 and 

2018 Statements of Long-Term Fiscal Projections;7 the 2019, 2018, 2017, 2016, and 2015 

Statements of Social Insurance;8 and the 2019 and 2018 Statements of Changes in Social 

Insurance Amounts. About $42.2 trillion, or 71 percent, of the reported total present value of future 

expenditures in excess of future revenue presented in the 2019 Statement of Social Insurance 

relates to Medicare programs reported in the Department of Health and Human Services’ 2019 

Statement of Social Insurance, which received a disclaimer of opinion. A material weakness in 

internal control also prevented us from expressing an opinion on the 2019 and 2018 Statements of 

Long-Term Fiscal Projections. 

• Material weaknesses resulted in ineffective internal control over financial reporting for fiscal year 

2019.

• Material weaknesses and other scope limitations, discussed above, limited tests of compliance with 

selected provisions of applicable laws, regulations, contracts, and grant agreements for fiscal year 

2019.

Overall, the federal government has made significant strides in improving financial management since 

key federal financial management reforms were enacted in the 1990s. Twenty-two of the 24 Chief 

Financial Officers Act of 1990 (CFO Act) agencies received unmodified (“clean”) opinions on their 

respective entities’ fiscal year 2019 financial statements, up from six CFO Act agencies that received 

clean audit opinions for fiscal year 1996.9 In addition, accounting and financial reporting standards have 

continued to evolve to provide greater transparency and accountability over the federal government’s 

operations, financial condition, and fiscal outlook. In a recent testimony, we highlighted the substantial 

progress made in federal financial management since the enactment of the CFO Act and identified 

several opportunities for how federal financial management can be enhanced.10 These opportunities 

include modernizing the role of Chief Financial Officers, preparing government-wide and agency-level 

financial management plans, and better linking performance and cost information for decision-making.

While the U.S. government's consolidated financial statements provide a high-level summary of the 

financial position, financial condition, and operating results for the federal government as a whole, the 

6The sustainability financial statements are based on projections of future receipts and spending, while the accrualbased consolidated financial statements are based on historical information, including the federal government’s 

assets, liabilities, revenue, and net cost.

7The 2019 and 2018 Statements of Long-Term Fiscal Projections present, for all the activities of the federal 

government, the present value of projected receipts and non-interest spending under current policy without change, 

the relationship of these amounts to projected gross domestic product (GDP), and changes in the present value of 

projected receipts and non-interest spending from the prior year. These statements also present the fiscal gap, which

is the combination of non-interest spending reductions and receipts increases necessary to hold debt held by the public as a 

share of GDP at the end of the projection period to its value at the beginning of the period. The valuation date for the 

Statements of Long-Term Fiscal Projections is September 30. 

8Statements of Social Insurance are presented for the current year and each of the 4 preceding years as required by 

U.S. generally accepted accounting principles. For the Statements of Social Insurance, the valuation date is 

January 1 for the Social Security and Medicare programs, October 1 for the Railroad Retirement program (January 1 

for 2015), and September 30 for the Black Lung program.

9The 22 agencies include the Department of Health and Human Services, which received an unmodified (“clean”) opinion on 

all statements except the Statements of Social Insurance and the Statements of Changes in Social Insurance Amounts.

10GAO, Federal Financial Management: Substantial Progress Made since the CFO Act of 1990 and Preliminary Observations 

on Opportunities for Enhancement, GAO-20-203T (Washington, D.C.: Oct. 30, 2019).
STATEMENT OF THE COMPTROLLER GENERAL OF THE UNITED STATES 38

annual preparation and audit of individual federal entity financial statements continue to be critical, 

among other things, to

• provide individual federal entity accountability to Congress and citizens, including 

(1) independent assurance, shortly after the end of the fiscal year, of the reliability of reported 

financial information and (2) association of program costs with related program performance and 

results;

• facilitate reliable, useful, and timely financial management information at the individual federal entity 

and program levels for effective management decision-making;

• assess the reliability and effectiveness of systems and related internal controls, including identifying 

control deficiencies that could lead to fraud, waste, and abuse; and

• deliver early warnings of emerging financial management issues.

Further, annual audits along with congressional and executive oversight provide significant incentives 

for individual federal entities to maintain reliable financial management information and effective 

systems and controls.

The preparation and audit of individual federal entities’ financial statements have also identified 

numerous deficiencies, leading to corrective actions to strengthen federal entities’ internal controls, 

processes, and systems. For instance, the Department of Housing and Urban Development took 

corrective actions to address deficiencies identified during its audits that enabled it to obtain a qualified 

audit opinion on its fiscal year 2019 financial statements after several years of receiving disclaimers of 

opinion on its financial statements.

However, since the federal government began preparing consolidated financial statements over 20 

years ago, three major impediments have continued to prevent us from rendering an opinion on the 

federal government’s accrual-based consolidated financial statements over this period: (1) serious 

financial management problems at the Department of Defense (DOD), (2) the federal government’s 

inability to adequately account for intragovernmental activity and balances between federal entities, and 

(3) weaknesses in the federal government’s process for preparing the consolidated financial 

statements. 

DOD’s financial management continues to face long-standing issues. After many years of working 

toward financial statement audit readiness, DOD underwent full financial statement audits in fiscal 

years 2018 and 2019. These audits resulted in disclaimers of opinion, material weaknesses in internal 

control over financial reporting (20 in fiscal year 2018 and 25 in fiscal year 2019), and thousands of 

audit findings. Some of the material weaknesses—such as an inability to account for its property and 

equipment and ineffective information technology controls—are examples of long-standing weaknesses 

that DOD has been unable to address. 

DOD leadership identified a number of benefits from these department-wide audits, including 

that the audit process saves money by improving inventory management, identifying 

vulnerabilities, and providing better data for decision-making. Specifically, DOD stated that 

some of the benefits of the audit process included the following:

• The Navy fleet logistic center in Jacksonville, Florida identified $81 million of active material not 

tracked in the inventory system that was available for immediate use. It also eliminated unneeded 

equipment, freeing up approximately 200,000 square feet, or the equivalent of 2.6 acres.
 39 STATEMENT OF THE COMPTROLLER GENERAL OF THE UNITED STATES

• DOD automated the quarterly review process of its obligations, eliminating inefficiencies and 

providing analysts the time and insights needed to identify $316 million that could be put to better 

use before these funds expired or were canceled.

• Navy personnel at multiple bases found $167 million of usable supplies that addressed unmet 

demands for things that were on back order.

DOD has acknowledged that achieving a clean audit opinion will take time. DOD reported that the 

number of auditor findings closed and material weaknesses downgraded from year to year is the 

objective measure of progress toward that goal. The department will also track progress by the number 

of components moving from disclaimers of opinion to clean opinions. The department reported closing 

550 or 23 percent of the 2,377 findings resulting from its fiscal year 2018 audit. In fiscal year 2019 

the auditors issued an additional 1,300 findings. 

Various efforts are also under way to address the other two major impediments to an audit of the 

consolidated financial statements. For example, during fiscal year 2019, the Department of the 

Treasury (Treasury) continued to actively work with significant federal entities11 to resolve differences in 

intragovernmental activity and balances between federal entities through its quarterly scorecard 

process.12 This process highlights differences needing the entities’ attention, identifies differences that 

need to be resolved through a formal dispute resolution process,13 and reinforces the entities’ 

responsibilities to resolve intragovernmental differences. Treasury also made significant progress by 

improving the accounting for and reporting of General Fund of the U.S. Government (General Fund) 

transactions and balances,14 and working to resolve significant differences between the General Fund 

and its federal entity trading partners. 

In recent years, Treasury’s corrective actions have included improving systems and implementing new 

processes for preparing the consolidated financial statements, enhancing guidance for collecting data 

from component entities, and implementing procedures to address certain internal control deficiencies 

detailed in our previously issued management report.15 Treasury also continued to develop its process 

for preparing the Reconciliation Statements16 by developing new transaction codes to support certain 

information reported in them. In addition to continued leadership by Treasury and the Office of 

Management and Budget (OMB), federal entities’ strong and sustained commitment is critical to fully 

address these issues. 

11The Office of Management and Budget and Treasury have identified 40 federal entities that are significant to the U.S. 

government’s fiscal year 2019 consolidated financial statements, including the 24 CFO Act agencies. See app. A of the Fiscal 

Year 2019 Financial Report of the United States Government for a list of the 40 entities.

12For each quarter, Treasury produces a scorecard for each significant entity, as well as any other component entity reporting 

significant intragovernmental balances or differences, that reports various aspects of the entity’s intragovernmental differences 

with its trading partners, including the composition of the differences by trading partner and category. Pursuant to Treasury 

guidance, entities are expected to resolve, with their respective trading partners, the differences identified in their scorecards.

13When an entity and its respective trading partner cannot resolve an intragovernmental difference, Treasury guidance directs 

the entity to request that Treasury resolve the dispute. Treasury will review the dispute and issue a decision on how to resolve 

the difference, which the entities must follow.

14The General Fund is a component of Treasury’s central accounting function. It is a stand-alone reporting entity that 

comprises the activities fundamental to funding the federal government (e.g., issued budget authority, cash activity, and debt 

financing activities). 

15GAO, Management Report: Improvements Needed in Controls over the Processes Used to Prepare the U.S. Consolidated 

Financial Statements, GAO-19-624 (Washington, D.C.: Sept. 4, 2019). 

16The Reconciliations of Net Operating Cost and Budget Deficit and Statements of Changes in Cash Balance from Budget and 

Other Activities (Reconciliation Statements) reconcile (1) the accrual-based net operating cost to the primarily cash-based 

budget deficit and (2) the budget deficit to changes in cash balances.
STATEMENT OF THE COMPTROLLER GENERAL OF THE UNITED STATES 40

The material weaknesses underlying these three major impediments have continued to 

(1) hamper the federal government’s ability to reliably report a significant portion of its assets, liabilities, 

costs, and other related information; (2) affect the federal government’s ability to reliably measure the 

full cost, as well as the financial and nonfinancial performance, of certain programs and activities; (3) 

impair the federal government’s ability to adequately safeguard significant assets and properly record 

various transactions; and (4) hinder the federal government from having reliable, useful, and timely 

financial information to operate effectively and efficiently. Over the years, we have made a number of 

recommendations to OMB, Treasury, and DOD to address these issues.17 These entities have taken or 

plan to take actions to address these recommendations.

In addition to the material weaknesses referred to above, we identified three other material 

weaknesses. These are the federal government’s inability to (1) determine the full extent to which 

improper payments occur and reasonably assure that appropriate actions are taken to reduce them, (2) 

identify and resolve information security control deficiencies and manage information security risks on 

an ongoing basis, and (3) effectively implement internal controls over estimating the cost of credit 

programs and determining the value of loans receivable and loan guarantee liabilities. Our audit report 

presents additional details concerning these material weaknesses and their effect on the accrual-based 

consolidated financial statements and managing federal government operations. Until the problems 

outlined in our audit report are adequately addressed, they will continue to have adverse implications 

for the federal government and the American people.

Resolving the problems outlined in our audit report is of utmost importance given the federal 

government’s reported fiscal path. The 2019 Statement of Long-Term Fiscal Projections and related 

information in Note 23 and in the unaudited Required Supplementary Information section of the Fiscal 

Year 2019 Financial Report of the United States Government (2019 Financial Report) show that absent 

policy changes, the federal government continues to face an unsustainable long-term fiscal path. GAO 

and the Congressional Budget Office (CBO) also prepare long-term federal fiscal simulations, which 

continue to show federal debt held by the public rising as a share of gross domestic product (GDP) in 

the long term.18 This situation—in which debt grows faster than GDP—means the current federal fiscal 

path is unsustainable. 

GAO, CBO, and the 2019 Financial Report, although using somewhat different assumptions, all project 

that debt held by the public as a share of GDP will surpass its historical high (106 percent in 1946) 

within the next 11 to 14 years. Health care spending is a key driver of spending in the long-term 

projections. Eventually, however, based on both the 2019 Financial Report projections and GAO’s 

simulation, spending on net interest (primarily interest on debt held by the public) will surpass Social 

Security spending and become the largest category of spending in 2035 and 2044, respectively.19

Reliable and complete financial information for federal entities will be needed for making policy changes 

17See GAO-19-624. In addition, see GAO, DOD Financial Management, accessed February 19, 2020, 

https://www.gao.gov/highrisk/dod_financial_management. Further, other auditors have made recommendations to DOD for 

improving its financial management.

18For more information on GAO’s simulations, see GAO, America’s Fiscal Future, accessed on February 19, 2020, 

https://www.gao.gov/americas_fiscal_future. For more information on CBO’s simulations, see Congressional Budget Office, 

The 2019 Long-Term Budget Outlook (Washington, D.C.: June 25, 2019). 

19CBO’s projections in its 2019 long-term budget outlook report also show net interest growing as a percentage of total 

spending. However, since CBO’s 2019 extended baseline projections only go out to 2049, the cost of net interest does not 

quite overtake other categories in the projection period. 
 41 STATEMENT OF THE COMPTROLLER GENERAL OF THE UNITED STATES

that effectively address the unsustainable long-term fiscal path. GAO plans to issue its annual report on 

the fiscal health of the federal government in the coming weeks.20

In taking action to change the federal government’s long-term fiscal path, Congress will need to 

consider policy changes across the entire range of federal activities that affect both revenue and 

spending. Congress will also need to consider alternative approaches for managing the level of debt. 

We have recommended that Congress consider alternative approaches to the current debt limit to avoid 

seriously disrupting the Treasury market and increasing borrowing costs and to allow the federal 

government to better manage its level of debt.21 Delays in raising the debt limit have occurred in each of 

the last 9 fiscal years, resulting in Treasury deviating from its normal cash and debt management 

operations and taking extraordinary actions to avoid exceeding the debt limit, such as suspending 

investments to some federal employees’ retirement funds.22 As currently structured, the debt limit—a 

legal limit on the total amount of federal debt that can be outstanding at one time23—does not restrict 

Congress’s ability to enact spending and revenue legislation that affects the level of federal debt, nor 

does it otherwise constrain fiscal policy. The debt limit only restricts Treasury’s authority to borrow to 

finance the decisions already enacted by Congress and the President.

One cannot overstate the importance of preserving the confidence that investors have that debt backed 

by the full faith and credit of the United States will be honored. Failure to increase (or suspend) the debt 

limit in a timely manner could have serious negative consequences for the Treasury market and 

increase borrowing costs. If the level of publicly held debt or its share of GDP is to be used as a fiscal 

management tool to change the long-term fiscal path, it needs to be considered as part of overall 

budget decisions at the time those decisions are being made. A long-term plan is needed to put the 

government on a sustainable fiscal path. Such a step would provide a focus on the fiscal impacts of 

budget decisions, and would ensure that U.S. Treasury securities continue to be one of the safest 

assets in the world.

Further, there are other risks, such as health pandemics, cyberattacks, military engagements, and 

economic crises, that could affect the federal government’s financial position and condition and its 

financial management in the future. These risks are not fully accounted for in the government’s longterm fiscal projections. Specific risk factors that could affect the federal government’s financial condition 

in the future include the following:

20GAO, The Nation’s Fiscal Health: Action Is Needed to Address the Federal Government’s Fiscal Future, GAO-19-314SP

(Washington, D.C.: Apr. 10, 2019). 

21See most recently GAO, Federal Debt Management: Treasury Should Strengthen Policies for Market Outreach and Analysis 

to Maintain Broad-Based Demand for Securities, GAO-20-131 (Washington, D.C.: Dec. 5, 2019), and The Nation’s Fiscal 

Health: Actions Needed to Achieve Long-Term Fiscal Sustainability, GAO-19-611T (Washington, D.C.: June 26, 2019).

22Extraordinary actions are actions that Treasury takes as it nears the debt limit to avoid exceeding the limit. These actions are 

not part of Treasury’s normal cash and debt management operations. For more information, see GAO, Debt Limit: Market 

Response to Recent Impasses Underscores Need to Consider Alternative Approaches, GAO-15-476 (Washington, D.C.: July 

9, 2015).

23The debt limit is codified at 31 U.S.C. § 3101(b), as amended, and applies to federal debt issued pursuant to the authority of 

31 U.S.C. chapter 31. A very small amount of total federal debt is not subject to the debt limit. This amount primarily comprises 

unamortized discounts on Treasury bills and Zero Coupon Treasury bonds; debt securities issued by agencies other than 

Treasury, such as the Tennessee Valley Authority; and debt securities issued by the Federal Financing Bank. The Bipartisan 

Budget Act of 2019 has suspended the debt limit through July 31, 2021. Pub. L. No. 116-37, § 301, 133 Stat. 1049, 1057 

(Aug. 2, 2019).
STATEMENT OF THE COMPTROLLER GENERAL OF THE UNITED STATES 42

• The Pension Benefit Guaranty Corporation’s (PBGC) financial future is uncertain because of shortterm and long-term challenges related to its pension guarantee liabilities and exposure. PBGC’s 

liabilities exceeded its assets by about $57 billion as of the end of fiscal year 2019. PBGC

estimated that its exposure to potential further losses for underfunded plans in both the single and 

multiemployer programs was nearly $166 billion.24

PBGC has projected that without legislative reforms, there is a high likelihood the multiemployer 

program will become insolvent during fiscal year 2025 and that insolvency is a near certainty by the 

end of fiscal year 2026. When the program becomes insolvent, PBGC financial assistance to

multiemployer plans will be limited to the premiums collected by the program and insufficient to pay 

the current level of guaranteed benefits.25

• Federal support of the housing finance market remains significant even though the market has 

largely recovered since the 2007 to 2009 financial crisis. In 2008, the federal government placed 

the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage 

Corporation (Freddie Mac) under conservatorship and entered into preferred stock purchase 

agreements with these government-sponsored enterprises (GSE) to help ensure their financial 

stability. These agreements could affect the federal government’s financial condition. At the end of 

fiscal year 2019, the federal government reported about $112 billion of investments in the GSEs, 

which is net of about $98 billion in valuation losses. The GSEs paid Treasury cash dividends of $15 

billion and $10 billion during fiscal years 2019 and 2018, respectively. The reported maximum 

remaining contractual commitment to the GSEs, if needed, is $254.1 billion. 

The ultimate role of the GSEs could affect the federal government’s financial position and the 

financial condition of federal entities, including the Federal Housing Administration (FHA), which in 

the past expanded its lending role in distressed housing and mortgage markets. The Government 

National Mortgage Association (Ginnie Mae) guarantees the performance of about $2 trillion in 

securities backed by federally insured mortgages—$1.2 trillion of which were insured by FHA and 

$0.8 trillion by other federal entities, such as the Department of Veterans Affairs. 

We have reported on the need for Congress to consider legislation making changes to the future 

federal role in housing finance that address the structure of the GSEs; establish clear, specific, and 

prioritized goals; and consider all relevant federal entities, such as FHA and Ginnie Mae.26

• Disaster costs are projected to increase as extreme weather events become more frequent and 

intense because of climate change as observed and projected by the U.S. Global Change 

Research Program and the National Academies of Sciences, Engineering, and Medicine. Federal 

insurance programs are also likely to be affected by the increasing costs of weather and climate 

disasters. For example, as currently structured, the National Flood Insurance Program’s premiums 

and dedicated resources are not, over the long-term, sufficient to cover expected costs without 

24For more information on Pension Benefit Guaranty Corporation insurance programs, see GAO, High-Risk Series: Substantial 

Efforts Needed to Achieve Greater Progress on High-Risk Areas, GAO-19-157SP (Washington, D.C.: Mar. 6, 2019), 267.

25In December 2019, the enactment of the Bipartisan American Miners Act of 2019 provided additional funding for future 

annual Treasury transfers to the 1974 United Mine Workers of America Pension Plan (included in PBGC’s multiemployer 

program). See Pub. L. No. 116-94, div. M, § 102, 133 Stat. 2534 (Dec. 20, 2019), classified at 30 U.S.C. § 1232. PBGC is 

currently assessing the effect of the legislation on its liabilities and contingency disclosures (including the estimated insolvency 

date for the multiemployer program).

26GAO, Housing Finance: Prolonged Conservatorships of Fannie Mae and Freddie Mac Prompt Need for Reform, 

GAO-19-239 (Washington, D.C.: Jan. 18, 2019).
 43 STATEMENT OF THE COMPTROLLER GENERAL OF THE UNITED STATES

borrowing from Treasury.27 As of September 30, 2019, the Federal Emergency Management 

Agency (FEMA), which administers the National Flood Insurance Program, owed about $21 billion 

to Treasury for money borrowed to pay claims and other expenses. We have reported that FEMA is 

unlikely to collect enough in premiums in the future to repay this debt.28

As we reported in October 2019, the federal government could reduce future costs by investing in 

climate resilience projects to help communities prepare for hazards such as sea level rise.29 Our 

Disaster Resilience Framework provides information that can help federal agencies and 

policymakers consider opportunities across the government to promote and facilitate disaster risk 

reduction.30

• The U.S. Postal Service (USPS) continues to be in poor financial condition. USPS cannot fund its 

current level of services and meet its financial obligations from its current level of revenues. The 

fiscal year 2019 net loss of $8.8 billion marked its 12th consecutive year of net losses—totaling 

$77.8 billion. In addition, USPS has missed $55.4 billion in required payments for postal retiree 

health and pension benefits through fiscal year 2019, including $47.2 billion in missed payments for 

retiree health benefits and $8.2 billion in missed payments for pension benefits. USPS has stated 

that it missed these payments to minimize the risk of running out of cash, citing its precarious 

financial condition and the need to cover current and anticipated costs and any contingencies. 

_________________________

Our audit report on the U.S. government’s consolidated financial statements would not be possible 

without the commitment and professionalism of inspectors general throughout the federal government 

who are responsible for annually auditing the financial statements of individual federal entities. We also 

appreciate the cooperation and assistance of Treasury and OMB officials as well as the federal entities’ 

chief financial officers. We look forward to continuing to work with these individuals, the administration, 

and Congress to achieve the goals and objectives of federal financial management reform.

27We have suggested an alternative way to record insurance commitments in the budget such that the federal government’s 

commitment would be more fully recognized. See GAO, Fiscal Exposures: Federal Insurance and Other Activities That 

Transfer Risk or Losses to the Government, GAO-19-353 (Washington, D.C.: Mar. 27, 2019).

28GAO, Flood Insurance: Comprehensive Reform Could Improve Solvency and Enhance Resilience, GAO-17-425

(Washington, D.C.: Apr. 27, 2017).

29GAO, Climate Resilience: A Strategic Investment Approach for High-Priority Projects Could Help Target Federal Resources, 

GAO-20-127 (Washington, D.C.: Oct. 23, 2019).

30GAO, Disaster Resilience Framework: Principles for Analyzing Federal Efforts to Facilitate and Promote Resilience to 

Natural Disasters, GAO-20-100SP (Washington, D.C.: October 2019).
STATEMENT OF THE COMPTROLLER GENERAL OF THE UNITED STATES 44

Our audit report begins on page 232. Our guide, Understanding the Financial Report of the United 

States Government, is intended to help those who seek to obtain a better understanding of the financial 

report and is available on GAO’s website at http://www.gao.gov.

31

Our audit report was prepared under the direction of Robert F. Dacey, Chief Accountant; and Dawn 

Simpson, Director, Financial Management and Assurance. If you have any questions, please contact 

me on (202) 512-5500 or them on (202) 512-3406.

Gene L. Dodaro

Comptroller General

of the United States

cc: The Majority Leader of the Senate

The Minority Leader of the Senate

The Majority Leader of the House of Representatives

The Minority Leader of the House of Representatives

31GAO, Understanding the Financial Report of the United States Government, GAO-18-239SP (Washington, D.C.:

February 2018).
 45 STATEMENT OF THE COMPTROLLER GENERAL OF THE UNITED STATES

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FINANCIAL STATEMENTS 46

Financial Statements

of the United States Government

for the Fiscal Years Ended September 30, 

2019, and 2018

The consolidated financial statements of the U.S. government were prepared using GAAP. The consolidated financial 

statements include the accrual-based financial statements and the sustainability financial statements, which are discussed in 

more detail below, and the related notes to the consolidated financial statements. Collectively, the accrual-based financial 

statements, the sustainability financial statements, and the notes represent basic information that is deemed essential for the 

consolidated financial statements to be presented in conformity with GAAP. 

ACCRUAL-BASED FINANCIAL STATEMENTS

The accrual-based financial statements present historical information on what the federal government owns (assets) and 

owes (liabilities) at the end of the year, what came in (revenues) and what went out (net costs) during the year, and how 

accrual-based net operating costs of the federal government reconcile to the budget deficit and changes in its cash balance 

during the year. The following sections discuss each of the accrual-based financial statements.

Statements of Net Cost 

These statements present the net cost of the government operations for fiscal years 2019 and 2018, including the 

operations related to funds from dedicated collections. Costs and earned revenues are categorized on the Statement of Net 

Cost by significant entity, providing greater accountability by showing the relationship of the entities’ net cost to the 

governmentwide net cost. Costs and earned revenues are presented in this Financial Report on an accrual basis, while the 

budget presents outlays and receipts, generally on a cash basis. The focus of the budget of the U.S. is by entity. Budgets are 

prepared, defended, and monitored by entity. In reporting by entity, we are assisting the external users in assessing the budget 

integrity, operating performance, stewardship, and systems and controls of the government.

The Statements of Net Cost contain the following four components:

• Gross cost—is the full cost of all the departments and entities excluding (gain)/loss from changes in assumptions. 

These costs are assigned on a cause-and-effect basis, or reasonably allocated to the corresponding entities.

• Earned revenue—is exchange revenue resulting from the government providing goods and services to the public at a 

price.

• (Gain)/loss from changes in assumptions—is the gain or loss from changes in long-term assumptions used to 

measure the liabilities reported for federal civilian and military employee pensions, OPEB, and ORB, including 

veterans’ compensation.

• Net cost—is computed by subtracting earned revenue from gross cost, adjusted by the (gain)/loss from changes in 

assumptions.

Individual entity net cost amounts will differ from the entity’s financial statements primarily because of reallocations 

completed at the governmentwide level which are listed below. 

• Employee benefit costs.

• Intragovernmental eliminations, as adjusted for buy/sell costs and related revenues.

• Imputed costs.

Because of its specific function, most of the employee benefit costs originally associated with the OPM have been 

reallocated to the user entities for governmentwide reporting purposes. The remaining costs for OPM on the Statements of 

Net Cost are the administrative operating costs, the expenses from prior costs from health and pension plan amendments, and 

the actuarial gains and losses, if applicable. 
 47 FINANCIAL STATEMENTS

GSA is the primary provider of goods and services to federal entities. GSA’s net cost is adjusted for its 

intragovernmental buy/sell costs and related revenues. The remaining costs for GSA on the Statements of Net Cost are 

administrative operating costs. With regard to intragovernmental buy/sell costs and related revenues, the amounts recognized 

by each entity are added to, and subtracted from, respectively, the individual entity non-federal net cost amounts. 

In addition, the intragovernmental imputed costs recognized for the receipt of goods and services, financed in whole or 

part by the providing entities, are added to the individual entity non-federal net cost amounts. The most significant types of 

imputed costs that are recorded relate to post-retirement and health benefits, FECA, and the Treasury Judgment Fund. The 

consolidated Statements of Net Cost is intended to show the full cost for each entity, therefore, the amount of these imputed 

costs is added back to the reporting entities’ gross cost line item and subtracted from the applicable administering entities’ 

gross cost line item. These imputed costs have a net effect of zero on the Statements of Net Cost in the Financial Report.

The interest on securities issued by the Treasury and held by the public is reported on Treasury’s financial statements, 

but, because of its importance and the dollar amounts involved, it is reported separately in these statements.

Statements of Operations and Changes in Net Position

These statements report the results of government operations, net operating costs, which include the results of

operations for funds from dedicated collections. They include non-exchange revenues, which are generated from transactions

that do not require a government entity to give value directly in exchange for the inflow of resources. The government does

not “earn” the non-exchange revenue. These are generated principally by the government’s sovereign power to tax, levy

duties, and assess fines and penalties. These statements also include the net cost reported in the Statements of Net Cost. They

further include certain adjustments and unreconciled transactions that affect the net position.

Revenue

Inflows of resources to the government that the government demands or that it receives by donations are identified as

non-exchange revenue. The inflows that it demands include individual income tax and tax withholdings, excise taxes,

corporate income taxes, unemployment taxes, custom duties, and estate and gift taxes. The non-exchange revenue is

recognized when collected and adjusted for the change in net measurable and legally collectable amounts receivable.

Individual income tax and tax withholdings include FICA/SECA taxes and other taxes.

Individual income tax and tax withholding and Corporate income tax include the TCJA of 2017, which imposed a onetime tax on previously unrepatriated foreign earnings at a reduced rate that taxpayers may elect to pay over an eight-year

installment schedule.

Excise taxes consist of taxes collected for various items, such as airline tickets, gasoline products, distilled spirits and

imported liquor, tobacco, firearms, and other items.

Other taxes and receipts include FRBs earnings, tax related fines, penalties and interest, and railroad retirement taxes.

Miscellaneous earned revenues consist of earned revenues received from the public with virtually no associated cost.

These revenues include rents and royalties on the Outer Continental Shelf Lands resulting from the leasing and development

of mineral resources on public lands.

Generally, funds from dedicated collections are financed by specifically identified revenues, provided to the

government by non-federal sources, often supplemented by other financing sources, which remain available over time. These

specifically identified revenues and other financing sources are required by statute to be used for designated activities,

benefits or purposes, and must be accounted for separately from the government’s general revenue. See Note 20—Funds

from Dedicated Collections for detailed information.

Intragovernmental interest represents interest earned from the investment of surplus dedicated collections, which

finance the deficit spending of all other fund’s non-dedicated operations. These investments are recorded as

intragovernmental debt holdings and are included in Note 11—Federal Debt Securities Held by the Public and Accrued

Interest, in the table titled Intragovernmental Debt Holdings: Federal Debt Securities Held as Investments by Government

Accounts. These interest earnings and the associated investments are eliminated in the consolidation process.
FINANCIAL STATEMENTS 48

Net Cost of Government Operations

The net cost of government operations—gross cost (including gains/losses from changes in assumptions) less earned

revenue—flows through from the Statements of Net Cost.

Intragovernmental Transfers

Intragovernmental transfers reflect budgetary and other financing sources for funds from dedicated collections,

excluding financing sources related to non-exchange revenues, intragovernmental interest, and miscellaneous revenues.

These intragovernmental transfers include appropriations, transfers, and other financing sources. These amounts are labeled

as “other changes in fund balance” in Note 20—Funds from Dedicated Collections. Some transfers reflect amounts required

by statute to be transferred from the General Fund to funds from dedicated collections.

Unmatched Transactions and Balances

Unmatched transactions and balances are adjustments needed to bring the change in net position into balance due

primarily to unreconciled intragovernmental differences. See Note 1.R—Unmatched Transactions and Balances for detailed

information.

The unmatched transactions and balances are included in net operating cost to make the sum of net operating costs and

adjustments to beginning net position for the year equal to the change in the net position balance.

Net Operating Cost

The net operating cost equals revenue less net cost of government operations (that flows from the Statement of Net

Cost) adjusted by unmatched transactions and balances. See Note 1.R—Unmatched Transactions and Balances for detailed

information.

Net Position, Beginning of Period

The net position, beginning of period, reflects the amount reported on the prior year’s Balance Sheet as of the end of

that fiscal year. The net position for funds from dedicated collections is shown separately.

Adjustments to beginning net position may include corrections of material errors or changes in accounting principles.

See Note 1.S—Adjustments to Beginning Net Position for detailed information.

Net Position, End of Period

The net position, end of period, reflects the amount as of the end of the fiscal year. The net position for funds from

dedicated collections is separately shown.

Reconciliations of Net Operating Cost and Budget Deficit

These statements reconcile the results of operations (net operating cost) on the Statements of Operations and Changes in

Net Position to the budget deficit (result of outlays exceeding receipts during a particular fiscal year). The premise of the

reconciliation is that the accrual and budgetary accounting basis share transaction data.

Receipts and outlays in the budget are measured primarily on a cash basis and differ from the accrual basis of

accounting used in the Financial Report. Refer to Note 1.B—Basis of Accounting and Revenue Recognition for details on
 49 FINANCIAL STATEMENTS

the accrual basis of accounting. These statements begin with the net results of operations (net operating cost) and report

activities where the basis of accounting for the components of net operating cost and the budget deficit differ.

Some presentations of the budget deficit make the distinction between on-budget and off-budget totals. On-budget totals

reflect the transactions of all government entities, except those excluded from the budget by law. Off-budget totals reflect the

transactions of government entities that are excluded from the on-budget totals by law. Under current law, the off-budget

totals include the Social Security trust funds and USPS. The budget deficit, as presented in the Financial Report, combines

the on-budget and off-budget totals to derive consolidated totals for federal activity.

Components of Net Operating Cost Not Part of the Budget Deficit

This information includes the operating components, such as the changes in benefits payable for veterans, military and

civilian employees, environmental and disposal liabilities, and depreciation expense, not included in the budget results.

Components of the Budget Deficit Not Part of Net Operating Cost

This information includes the budget components, such as the acquisition of capital assets (that are recorded as outlays

in the budget when cash is disbursed and reflected in net operating cost through depreciation expense over the useful life of

the asset) and increases in other assets that are not included in the operating results.

Statements of Changes in Cash Balance from Budget and Other 

Activities

The primary purpose of these statements is to report how the annual budget deficit relates to the change in the

government’s cash and other monetary assets, as well as debt held by the public. It explains why the budget deficit normally

would not result in an equivalent change in the government’s cash and other monetary assets.

These statements reconcile the budget deficit to the change in cash and other monetary assets during the fiscal year.

They also serve to explain how the budget deficits were financed. These statements show the adjustments for non-cash

outlays included in the budget, and items affecting the cash balance not included in the budget, to explain the change in cash

and other monetary assets.

The budget deficit is primarily financed through borrowings from the public. When receipts exceed outlays, the

difference is a surplus. The budget treats borrowing and debt repayment as a means of financing, not as receipts and

outlays. The budget records outlays for the interest on the public issues of Treasury debt securities as the interest accrues,

not when the cash is paid.

Non-cash flow amounts in the budget related to loan financing account activity also reflect intragovernmental

transactions such as interest expense paid or interest revenue received from Treasury, entity year-end credit reform

subsidy reestimates, and the receipt of subsidy expense from program accounts. Cash flow from non-budget activities

related to loan financing account activity includes all cash flows to and from the public, including direct loan

disbursements/default payments to lenders, fees collected, principal and interest repayments, collections on defaulted

guarantee loans, and sale proceeds of foreclosed property. The budget totals exclude the transactions of the financing

accounts because they are not a cost to the government. However, since loan financing accounts record all credit cash

flows to and from the public, they affect the means of financing a budget deficit.

Balance Sheets

The Balance Sheets show the government’s assets, liabilities, and net position. When combined with stewardship

information, this information presents a more comprehensive understanding of the government’s financial position. The net

position for funds from dedicated collections is shown separately.
FINANCIAL STATEMENTS 50

Assets

Assets included on the Balance Sheets are resources of the government that remain available to meet future needs. The

most significant assets that are reported on the Balance Sheets are loans receivable, net; PP&E, net; inventories and related

property, net; and cash and other monetary assets. There are, however, other significant resources available to the government

that extend beyond the assets presented in these Balance Sheets. Those resources include Stewardship Land and Heritage

Assets in addition to the government’s sovereign powers to tax and set monetary policy.

Liabilities and Net Position

Liabilities are obligations of the government resulting from prior actions that will require financial resources. The most

significant liabilities reported on the Balance Sheets are federal debt securities held by the public and accrued interest, and

federal employee and veteran benefits payable. Liabilities also include environmental and disposal liabilities, benefits due

and payable, as well as insurance and guarantee program liabilities.

As with reported assets, the government’s responsibilities, policy commitments, and contingencies are much broader

than these reported Balance Sheet liabilities. They include the social insurance programs reported in the SOSI and disclosed

in the unaudited RSI—Social Insurance section, fiscal long-term projections of non-interest spending reported in the SLTFP,

and a wide range of other programs under which the government provides benefits and services to the people of this nation,

as well as certain future loss contingencies.

The government has entered into contractual commitments requiring the future use of financial resources and has

unresolved contingencies where existing conditions, situations, or circumstances create uncertainty about future losses.

Contingencies and commitments that do not meet the criteria for recognition as liabilities on the Balance Sheets, but for

which there is at least a reasonable possibility that losses have been incurred, are disclosed in Note 18—Contingencies and

Note 19—Commitments.

The collection of certain taxes and other revenue is credited to the corresponding funds from dedicated collections that

will use these funds to meet a particular government purpose. If the collections from taxes and other sources exceed the

payments to the beneficiaries, the excess revenue is invested in Treasury securities or deposited in the General Fund;

therefore, the trust fund balances do not represent cash. An explanation of the trust funds for social insurance is included in

Note 20—Funds from Dedicated Collections. That note also contains information about trust fund receipts, disbursements,

and assets.

Due to its sovereign power to tax and borrow, and the country’s wide economic base, the government has unique access

to financial resources through generating tax revenues and issuing federal debt securities. This provides the government with

the ability to meet present obligations and those that are anticipated from future operations and are not reflected in net

position.

The net position is the residual difference between assets and liabilities and is the cumulative results of operations since

inception. For detailed components that comprise the net position, refer to the section “Statement of Operations and Changes

in Net Position.”

SUSTAINABILITY FINANCIAL STATEMENTS

The sustainability financial statements are comprised of the SLTFP, covering all federal government programs, and the

SOSI and the SCSIA, covering social insurance programs (Social Security, Medicare, Railroad Retirement, and Black Lung

programs). The sustainability financial statements are designed to illustrate the relationship between projected receipts and

expenditures if current policy is continued over a 75 year time horizon.1 In preparing the sustainability financial statements,

management selects assumptions and data that it believes provide a reasonable basis to illustrate whether current policy is

sustainable. Current policy is based on current law but includes several adjustments. In the Statement of Long-Term Fiscal

Projections, notable adjustments to current law are: (1) projected spending, receipts, and borrowing levels assume raising or

suspending the current statutory limit on federal debt, (2) continued discretionary appropriations are assumed throughout the

projections period, (3) scheduled Social Security and Medicare Part A benefit payments are assumed to occur beyond the

1 With the exception of the Black Lung program, which has a rolling 25-year projection period that begins on the September 30 valuation date each year.
 51 FINANCIAL STATEMENTS

projected point of trust fund depletion, (4) many mandatory programs with expiration dates prior to the end of the 75-year

projection period are assumed to be reauthorized, and (5) tax changes under the TCJA of 2017 are assumed to continue

beyond 2025. In the Statement of Social Insurance, the one adjustment to current law is that scheduled Social Security and

Medicare Part A benefit payments are assumed to occur beyond the projected point of trust fund depletions. Assumptions

underlying such sustainability information do not consider changes in policy or all potential future events that could affect

future income, future expenditures, and, hence, sustainability. The projections do not reflect any adverse economic

consequences resulting from continuously rising debt levels. A large number of factors affect the sustainability financial

statements and future events and circumstances cannot be estimated with certainty. Therefore, even if current policy is

continued, there will be differences between the estimates in the sustainability financial statements and actual results, and

those differences may be material. The unaudited RSI section of this report includes present value projections using different

assumptions to illustrate the sensitivity of the sustainability financial statements to changes in certain assumptions. The

sustainability financial statements are intended to help citizens understand current policy and the importance and magnitude

of policy reforms necessary to make it sustainable.

By accounting convention, General Fund transfers to Medicare Parts B and D reported in the SOSI are eliminated when

preparing the governmentwide consolidated financial statement. The SOSI shows the projected General Fund transfers as

eliminations that, under current law, would be used to finance the remainder of the expenditures in excess of revenues for

Medicare Parts B and D reported in the SOSI. The SLTFP include all revenues (including general revenues) of the federal

government.

Statements of Long-Term Fiscal Projections

The SLTFP are intended to assist readers of the government’s financial statements in assessing the financial condition

of the federal government and how the government’s financial condition has changed (improved or deteriorated) during the

year and may change in the future. They are also intended to assist readers in assessing whether future budgetary resources of

the government will likely be sufficient to sustain public services and to meet obligations as they come due, assuming that

current policy for federal government public services and taxation is continued without change.

The SLTFP display the present value of 75-year projections by major category of the federal government’s receipts and

non-interest spending. These projections show the extent to which future receipts of the government exceed or fall short of

the government’s non-interest spending. The projections are presented both in terms of present value dollars and in terms of

present value dollars as a percent of present value GDP. The projections are on the basis of policies currently in place and are

neither forecasts nor predictions. These projections are consistent with the projections for Social Security and Medicare

presented in the SOSI and are based on the same economic and demographic assumptions as underlie the SOSI. These

statements also display the fiscal gap, which is a summary measure of the change in receipts or non-interest spending

necessary to hold the ratio of debt held by the public to GDP at the end of the projection period to its value at the beginning

of the period. Note 23—Long-Term Fiscal Projections, further explains the methods used to prepare these projections and

provides additional information. Unaudited RSI further assesses the sustainability of current fiscal policy and provides results

based on alternative assumptions to those used in the basic statement.

As discussed further in Note 23, a sustainable policy is one where the debt-to-GDP ratio is stable or declining over the

long term. 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.

Statements of Social Insurance and Changes in Social Insurance 

Amounts

SOSI provides estimates of the status of the most significant social insurance programs: Social Security, Medicare,

Railroad Retirement, and Black Lung.2 They are administered by SSA, HHS, RRB, and DOL, respectively. The SSA and

HHS projections are based on the economic and demographic assumptions representing the Trustees’ reasonable estimates of

likely future economic and demographic conditions, as set forth in the applicable Social Security and Medicare Trustees’

2 In relation to the amounts presented in the SOSI and SCSIA, because the combined Railroad Retirement and Black Lung programs account for less than

one-quarter of 1 percent of the statement totals, they are not material from the governmentwide perspective.
FINANCIAL STATEMENTS 52

Reports as well as in the AFRs of HHS and SSA. RRB’s projections are based on assumptions from the 27th Valuation on the

Assets and Liabilities Under the Railroad Retirement Acts of December 31, 2016 with Technical Supplement, which was

published in September 2018 and from the 2019 Section 502 Report, as well as in RRB’s PAR. DOL’s (Black Lung)

projections are based on assumptions disclosed in its AFR. The SOSI projections, with one exception related to Medicare

Part A and OASDI, are based on current law; that is, they assume that scheduled social insurance benefit payments would

continue after related trust funds are projected to be depleted, contrary to current law. By law, once assets are depleted,

expenditures cannot be made except to the extent covered by ongoing tax receipts and other trust fund income.

Note 22—Social Insurance describes the social insurance programs, reports long-range estimates that can be used to

assess the financial condition of the programs, and explains some of the factors that impact the various programs. The SCSIA

show two reconciliations: (1) change from the period beginning on January 1, 2018 to the period beginning on January 1,

2019; and (2) change from the period beginning on January 1, 2017 to the period beginning on January 1, 2018.

The SOSI was updated with additional lines in fiscal year 2019 to disclose the General Fund transfer for the estimated

future revenue of Medicare Parts B and D. The SOSI also reports, by accounting convention, the elimination of such

transfers. The new presentation does not affect the net totals of the SOSI and reports the transfers from the General Fund with

the purpose of making the SOSI more consistent with the entities’ financial statements. Some previously reported amounts in

the SOSI and SCSIA were adjusted for rounding differences.
 53 FINANCIAL STATEMENTS

United States Government

Statement of Net Cost

for the Year Ended September 30, 2019 (Gain)/Loss

from

Gross Earned Changes in Net

(In billions of dollars) Cost Revenue Subtotal Assumptions Cost

Department of Health and Human Services ............. 1,341.4 119.1 1,222.3 - 1,222.3

Social Security Administration............................... 1,101.2 0.3 1,100.9 - 1,100.9

Department of Defense ....................................... 813.6 44.2 769.4 139.0 908.4

Department of Veterans Affairs ............................. 364.7 5.1 359.6 58.0 417.6

Interest on Treasury Securities Held by the Public .... 403.6 - 403.6 - 403.6

Department of the Treasury.................................. 181.0 25.3 155.7 - 155.7

Department of Agriculture .................................... 149.1 8.3 140.8 - 140.8

Department of Education ..................................... 153.9 31.9 122.0 - 122.0

Office of Personnel Management .......................... 118.5 24.1 94.4 0.3 94.7

Department of Transportation ............................... 82.2 1.1 81.1 - 81.1

Department of Homeland Security ......................... 77.0 14.0 63.0 0.9 63.9

Department of Energy ......................................... 59.3 5.7 53.6 - 53.6

Department of Labor........................................... 40.5 - 40.5 - 40.5

Security Assistance Accounts ............................... 38.6 - 38.6 - 38.6

Department of Justice ......................................... 40.8 3.5 37.3 - 37.3

Department of State ........................................... 33.9 4.6 29.3 0.7 30.0

Department of Housing and Urban Development ...... 29.6 1.8 27.8 - 27.8

National Aeronautics and Space Administration........ 21.0 0.2 20.8 - 20.8

Department of the Interior .................................... 21.1 2.6 18.5 - 18.5

U.S. Agency for International Development ............. 12.2 0.1 12.1 - 12.1

Railroad Retirement Board................................... 12.1 - 12.1 - 12.1

Federal Communication Commission ..................... 11.2 0.4 10.8 - 10.8

Department of Commerce.................................... 13.8 3.6 10.2 - 10.2

Environmental Protection Agency .......................... 8.8 0.3 8.5 - 8.5

Pension Benefit Guaranty Corporation.................... 35.7 27.8 7.9 - 7.9

National Science Foundation................................ 7.3 - 7.3 - 7.3

U.S. Postal Service ............................................ 77.5 70.2 7.3 - 7.3

Smithsonian Institution ........................................ 1.5 0.4 1.1 - 1.1

Millennium Challenge Corporation ......................... 0.5 - 0.5 - 0.5

National Credit Union Administration...................... 0.4 0.2 0.2 - 0.2

U.S. Nuclear Regulatory Commission..................... 0.8 0.7 0.1 - 0.1

Farm Credit System Insurance Corporation ............. 0.1 0.2 (0.1) - (0.1)

Small Business Administration.............................. 0.3 0.4 (0.1) - (0.1)

Overseas Private Investment Corporation ............... (0.2) 0.1 (0.3) - (0.3)

Securities and Exchange Commission.................... 1.8 2.1 (0.3) - (0.3)

National Railroad Retirement Investment Trust......... 0.1 0.7 (0.6) - (0.6)

Export-Import Bank of the U.S. ............................. (0.1) 0.5 (0.6) - (0.6)

General Services Administration ........................... 0.1 0.8 (0.7) - (0.7)

Tennessee Valley Authority.................................. 9.9 11.3 (1.4) - (1.4)

Federal Deposit Insurance Corporation................... 0.4 5.0 (4.6) - (4.6)

All other entities ................................................. 22.0 1.8 20.2 - 20.2

Total................................................................ 5,287.2 418.4 4,868.8 198.9 5,067.7

The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS 54

United States Government

Statement of Net Cost

for the Year Ended September 30, 2018 (Gain)/Loss

from

Gross Earned Changes in Net

(In billions of dollars) Cost Revenue Subtotal Assumptions Cost

Department of Health and Human Services ............. 1,252.6 110.5 1,142.1 0.4 1,142.5

Social Security Administration............................... 1,038.5 0.2 1,038.3 - 1,038.3

Department of Defense ....................................... 719.8 38.2 681.6 16.8 698.4

Department of Veterans Affairs ............................. 272.5 4.8 267.7 79.2 346.9

Interest on Treasury Securities Held by the Public .... 357.3 - 357.3 - 357.3

Department of the Treasury.................................. 150.5 21.9 128.6 - 128.6

Department of Agriculture .................................... 137.0 6.6 130.4 - 130.4

Department of Education ..................................... 79.2 31.4 47.8 - 47.8

Office of Personnel Management .......................... 101.3 23.4 77.9 26.2 104.1

Department of Transportation ............................... 79.0 1.1 77.9 - 77.9

Department of Homeland Security ......................... 78.3 14.8 63.5 1.1 64.6

Department of Energy ......................................... 147.0 6.1 140.9 - 140.9

Department of Labor........................................... 41.1 - 41.1 - 41.1

Security Assistance Accounts ............................... 37.9 - 37.9 - 37.9

Department of Justice ......................................... 35.4 1.9 33.5 - 33.5

Department of State ........................................... 32.3 4.8 27.5 1.5 29.0

Department of Housing and Urban Development ...... 43.3 1.8 41.5 - 41.5

National Aeronautics and Space Administration........ 20.3 0.2 20.1 - 20.1

Department of the Interior .................................... 20.4 2.9 17.5 - 17.5

U.S. Agency for International Development ............. 13.1 - 13.1 - 13.1

Railroad Retirement Board................................... 13.1 - 13.1 - 13.1

Federal Communication Commission ..................... 10.8 0.4 10.4 - 10.4

Department of Commerce.................................... 11.8 3.6 8.2 - 8.2

Environmental Protection Agency .......................... 8.3 0.4 7.9 - 7.9

Pension Benefit Guaranty Corporation.................... (7.8) 16.7 (24.5) - (24.5)

National Science Foundation................................ 7.3 - 7.3 - 7.3

U.S. Postal Service ............................................ 71.4 69.7 1.7 - 1.7

Smithsonian Institution ........................................ 1.5 0.5 1.0 - 1.0

Millennium Challenge Corporation ......................... 0.8 - 0.8 - 0.8

National Credit Union Administration...................... 0.9 0.6 0.3 - 0.3

U.S. Nuclear Regulatory Commission..................... 0.9 0.7 0.2 - 0.2

Farm Credit System Insurance Corporation ............. 0.2 0.2 - - -

Small Business Administration.............................. 0.7 0.3 0.4 - 0.4

Overseas Private Investment Corporation ............... - 0.1 (0.1) - (0.1)

Securities and Exchange Commission.................... 1.8 2.3 (0.5) - (0.5)

National Railroad Retirement Investment Trust......... 0.1 1.9 (1.8) - (1.8)

Export-Import Bank of the U.S. ............................. - 0.5 (0.5) - (0.5)

General Services Administration ........................... - 0.8 (0.8) - (0.8)

Tennessee Valley Authority.................................. 9.9 11.2 (1.3) - (1.3)

Federal Deposit Insurance Corporation................... 1.3 10.8 (9.5) - (9.5)

All other entities ................................................. 18.7 1.5 17.2 - 17.2

Total................................................................ 4,808.5 392.8 4,415.7 125.2 4,540.9

The accompanying notes are an integral part of these financial statements.
 55 FINANCIAL STATEMENTS

United States Government

Statement of Operations and Changes in Net Position

for the Year Ended September 30, 2019

Funds other than Funds from

those from Dedicated

Dedicated Collections

Collections (Note 20)

(Combined) (Combined) Eliminations Consolidated

(In billions of dollars) 2019

Revenue (Note 17):

Individual income tax and tax withholdings.... 1,687.6 1,218.6 - 2,906.2

Corporate income taxes............................ 322.5 - - 322.5

Excise taxes........................................... 42.1 60.7 - 102.8

Unemployment taxes ............................... - 39.4 - 39.4

Customs duties ....................................... 72.6 0.1 - 72.7

Estate and gift taxes ................................ 16.7 - - 16.7

Other taxes and receipts ........................... 102.4 42.9 - 145.3

Miscellaneous earned revenues ................. 12.0 3.4 - 15.4

Intragovernmental interest......................... - 95.5 (95.5) -

Total Revenue ........................................ 2,255.9 1,460.6 (95.5) 3,621.0

Net Cost of Government Operations:

Net cost................................................. 3,237.5 1,830.2 - 5,067.7

Intragovernmental interest......................... 95.5 - (95.5) -

Total net cost.......................................... 3,333.0 1,830.2 (95.5) 5,067.7

Intragovernmental transfers.......................... (406.0) 406.0 - -

Unmatched transactions and balances

(Note 1.R) ............................................. 1.6 - - 1.6

Net operating (cost)/revenue......................... (1,481.5) 36.4 - (1,445.1)

Net position, beginning of period................... (25,001.4) 3,480.7 - (21,520.7)

Adjustments to beginning net position

(Note 1.S) ........................................... 13.0 - - 13.0

Net operating (cost)/revenue...................... (1,481.5) 36.4 - (1,445.1)

Net position, end of period............................ (26,469.9) 3,517.1 - (22,952.8)

The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS 56

United States Government

Statement of Operations and Changes in Net Position

for the Year Ended September 30, 2018 (Restated) 

Funds other than Funds from

those from Dedicated

Dedicated Collections

Collections (Note 20)

(Combined) (Combined) Eliminations Consolidated

(In billions of dollars) 2018

Revenue (Note 17):

Individual income tax and tax withholdings....... 1,655.2 1,138.0 - 2,793.2

Corporate income taxes............................... 208.9 - - 208.9

Excise taxes.............................................. 33.7 63.1 - 96.8

Unemployment taxes .................................. - 43.2 - 43.2

Customs duties .......................................... 41.4 0.1 - 41.5

Estate and gift taxes ................................... 23.0 - - 23.0

Other taxes and receipts .............................. 123.8 40.3 - 164.1

Miscellaneous earned revenues .................... 9.3 4.3 - 13.6

Intragovernmental interest............................ - 98.5 (98.5) -

Total Revenue ........................................... 2,095.3 1,387.5 (98.5) 3,384.3

Net Cost of Government Operations:

Net cost.................................................... 2,822.2 1,718.7 - 4,540.9

Intragovernmental interest............................ 98.5 - (98.5) -

Total net cost............................................. 2,920.7 1,718.7 (98.5) 4,540.9

Intragovernmental transfers............................. (369.8) 369.8 - -

Unmatched transactions and balances

(Note 1.R) ................................................ (2.4) - - (2.4)

Net operating (cost)/revenue............................ (1,197.6) 38.6 - (1,159.0)

Net position, beginning of period...................... (23,781.3) 3,419.5 - (20,361.8)

Adjustments to beginning net position

(Note 1.S) .............................................. (22.5) 22.6 - 0.1

Net operating (cost)/revenue......................... (1,197.6) 38.6 - (1,159.0)

Net position, end of period............................... (25,001.4) 3,480.7 - (21,520.7)

The accompanying notes are an integral part of these financial statements.
 57 FINANCIAL STATEMENTS

United States Government

Reconciliations of Net Operating Cost and Budget Deficit

for the Years Ended September 30, 2019, and 2018

Restated

(In billions of dollars) 2019 2018

Net operating cost ...................................................................................................... (1,445.1) (1,159.0)

Components of net operating cost not part of the budget deficit

Excess of accrual-basis expenses over budget outlays

* Federal employee and veteran benefits payable

Pension and accrued benefits ............................................................................... 183.1 88.4

Veterans compensation and burial benefits .............................................................. 173.5 146.3

Post-retirement health and accrued benefits............................................................. 55.0 33.0

Other benefits .................................................................................................... 46.4 14.5

Subtotal - federal employee and veteran benefits payable ........................................ 458.0 282.2

* Insurance and guarantee program liabilities ............................................................... 24.3 (32.3)

* Environmental and disposal liabilities ........................................................................ 18.1 112.8

* Accounts payable ................................................................................................. 11.3 15.9

* Benefits due and payable ....................................................................................... 12.5 (7.7)

* Other liabilities ..................................................................................................... 31.4 5.8

Subtotal - excess of accrual-basis expenses over budget outlays ............................... 555.6 376.7

Amortized expenses not included in budget outlays

Property, plant, and equipment depreciation expense .................................................. 88.4 72.7

Other expenses that are not reported as budget outlays

Property, plant, and equipment disposals and revaluations ........................................... (38.8) (4.0)

Excess of accrual-basis revenue over budget receipts

Accounts receivable, net ........................................................................................ (4.0) 6.2

Taxes receivable, net ............................................................................................. (89.1) (7.8)

Other losses/(gains) and cost/(revenue) that are not budget receipts

* Investments in government-sponsored enterprises ...................................................... 1.1 (20.6)

Subtotal - components of net operating cost not part of budget deficit ......................... 513.2 423.2

Components of the budget deficit that are not part of net operating cost

Budget receipts not included in net operating cost

Credit reform and other loan activities ....................................................................... 45.3 5.0

Budget outlays not included in net operating cost

Acquisition of capital assets..................................................................................... (66.0) (72.2)

* Debt and equity securities ...................................................................................... (6.1) 4.0

* Inventories and related property .............................................................................. (18.2) (10.8)

* Other assets ........................................................................................................ 1.2 35.9

Subtotal - components of the budget deficit that are not part of net operating cost ......... (43.8) (38.1)

Adjustments to beginning net position 13.0 0.1

Other

All other reconciling items ....................................................................................... (21.7) (5.2)

Budget deficit............................................................................................................. (984.4) (779.0)

* The amounts represent the year over year net change in the Balance Sheet line items. 

The accompanying notes are an integral part of these financial statements. 
FINANCIAL STATEMENTS 58

United States Government

Statements of Changes in Cash Balance from Budget and Other Activities

for the Years Ended September 30, 2019, and 2018

(In billions of dollars) 2019 2018

Cash flow from budget activities

Total budget receipts .......................................................................................... 3,462.2 3,328.7

Total budget outlays .......................................................................................... (4,446.6) (4,107.7)

Budget deficit.................................................................................................... (984.4) (779.0)

Adjustments for non-cash outlays included in the budget

Non-cash flow amounts in the budget related to federal debt securities

Accrued interest ................................................................................................ 305.5 268.5

Net amortization ................................................................................................ 65.7 41.9

Other............................................................................................................... (33.3) 1.1

Subtotal - adjustments for non-cash flow amounts in the budget related to federal debt 

securities ......................................................................................................... 337.9 311.5

Non-cash flow amounts in the budget related to loan financing account activity

Interest revenue on uninvested funds..................................................................... 7.1 7.9

Interest expense on entity borrowings .................................................................... (43.2) (42.1)

Entities' downward reestimates/negative subsidy payments........................................ (22.8) (37.3)

Entities' subsidy expense/upward reestimates ......................................................... 47.7 35.8

Subtotal - adjustments for non-cash flow amounts in the budget related to loan financing 

account activity.................................................................................................. (11.2) (35.7)

Total of adjustments for non-cash outlays included in the budget ................................... 326.7 275.8

Cash flow from activities not included in the budget

Cash flow from non-budget activities related to federal debt securities

Interest paid ..................................................................................................... (305.7) (260.4)

Subtotal - cash flow from non-budget activities related to federal debt securities ............. (305.7) (260.4)

Cash flow from non-budget activities related to loan financing account activity

Loan disbursements/default payments ................................................................... (214.3) (194.9)

Fees ............................................................................................................... 24.5 25.0

Principal & interest repayments............................................................................. 125.9 117.7

Other collections on defaulted loans receivable and sale of foreclosed property.............. 4.5 5.7

Other loan financing account activities ................................................................... - 0.6

Subtotal - cash flow from non-budget activities related to loan financing account activity... (59.4) (45.9)

Cash flow from financing federal debt securities

Borrowings ....................................................................................................... 11,813.4 10,080.1

Repayments ..................................................................................................... (10,732.1) (8,993.5)

Discount/premium.............................................................................................. (60.4) (54.7)

Subtotal - cash flow from financing federal debt securities .......................................... 1,020.9 1,031.9

Total cash flow from activities not included in the budget .............................................. 655.8 725.6

Other

Total other .......................................................................................................... 19.0 13.9

Change in cash and other monetary assets balance ................................................... 17.1 236.3

Beginning cash and other monetary assets balance .................................................... 507.5 271.2

Ending cash and other monetary assets balance ........................................................ 524.6 507.5

The accompanying notes are an integral part of these financial statements.
 59 FINANCIAL STATEMENTS

United States Government

Balance Sheets

as of September 30, 2019, and 2018

Restated

(In billions of dollars) 2019 2018

Assets:

Cash and other monetary assets (Note 2).......................................................... 524.6 507.5

Accounts and taxes receivable, net (Note 3)....................................................... 238.0 144.9

Loans receivable, net (Note 4)......................................................................... 1,425.8 1,419.1

Inventories and related property, net (Note 5) ..................................................... 355.7 337.5

Property, plant and equipment, net (Note 6) ....................................................... 1,106.9 1,090.5

Debt and equity securities (Note 7)................................................................... 118.3 112.2

Investments in government-sponsored enterprises (Note 8)................................... 112.1 113.2

Other assets (Note 9) .................................................................................... 110.6 111.8

Total assets .............................................................................................. 3,992.0 3,836.7

Stewardship land and heritage assets (Note 24)

Liabilities:

Accounts payable (Note 10) ............................................................................ 98.0 86.7

Federal debt securities held by the public and accrued interest (Note 11) ................. 16,861.0 15,812.7

Federal employee and veteran benefits payable (Note 12) .................................... 8,440.3 7,982.3

Environmental and disposal liabilities (Note 13)................................................... 595.4 577.3

Benefits due and payable (Note 14).................................................................. 223.6 211.1

Insurance and guarantee program liabilities (Note 15) .......................................... 194.5 170.2

Loan guarantee liabilities (Note 4) .................................................................... 21.7 38.2

Other liabilities (Note 16) ................................................................................ 510.3 478.9

Total liabilities............................................................................................ 26,944.8 25,357.4

Contingencies (Note 18) and Commitments (Note 19)

Net Position:

Funds from Dedicated Collections (Note 20)....................................................... 3,517.1 3,480.7

Funds other than those from Dedicated Collections ............................................. (26,469.9) (25,001.4)

Total net position........................................................................................ (22,952.8) (21,520.7)

Total liabilities and net position...................................................................... 3,992.0 3,836.7

The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS 60

United States Government

Statements of Long-Term Fiscal Projections (Note 23)

Present Value of 75-Year Projections as of September 30, 2019 and 20181

In trillions of dollars Percent of GDP2

2019 2018 Change 2019 2018 Change

Receipts:

Social Security payroll taxes ................. 65.7 60.6 5.1 4.3 4.3 -

Medicare payroll taxes......................... 22.1 20.3 1.8 1.4 1.4 -

Individual income taxes ....................... 161.7 143.8 17.9 10.6 10.2 0.3

Corporation income taxes .................... 19.3 18.8 0.5 1.3 1.3 (0.1)

Other receipts.................................... 21.1 18.5 2.6 1.4 1.3 0.1

Total receipts.......................................... 289.9 262.0 27.9 18.9 18.6 0.3

Non-interest spending:

Social Security................................... 88.7 82.5 6.2 5.8 5.9 (0.1)

Medicare Part A3 ................................ 32.2 29.1 3.1 2.1 2.1 -

Medicare Parts B & D4......................... 40.7 35.7 5.0 2.7 2.5 0.1

Medicaid........................................... 37.3 34.1 3.2 2.4 2.4 -

Other mandatory ................................ 45.4 41.0 4.4 3.0 2.9 0.1

Defense discretionary.......................... 48.1 42.9 5.2 3.1 3.0 0.1

Non-defense discretionary ................... 46.6 42.9 3.6 3.0 3.1 -

Total non-interest spending ....................... 338.9 308.2 30.7 22.1 21.9 0.2

Receipts less non-interest spending ........ (49.0) (46.2) (2.9) (3.2) (3.3) 0.1

Fiscal gap5.................................................................................................. (3.8) (4.1) 0.2

1

75-year present value projections for 2019 are as of 9/30/2019 for fiscal years 2020-2094; projections for 2018 are as of 9/30/2018 for fiscal

years 2019-2093. 2

The 75-year present value of nominal GDP, which drives the calculations above is $1,531.8 trillion starting in fiscal year 2020, and was

$1,406.3 trillion starting in fiscal year 2019. 3

Represents portions of Medicare supported by payroll taxes. 4

Represents portions of Medicare supported by general revenues. Consistent with the President's Budget, outlays for Parts B & D are

presented net of premiums. 5

To prevent the debt-to-GDP ratio from rising over the next 75 years, a combination of non-interest spending reductions and receipt increases

that amounts to 3.8 percent of GDP on average is needed (4.1 percent of GDP on average in 2018). See Note 23—Long-Term Fiscal

Projections.

Totals may not equal the sum of components due to rounding. 

The accompanying notes are an integral part of these financial statements.
 61 FINANCIAL STATEMENTS

United States Government

Statements of Social Insurance (Note 22)

Present Value of Long-Range (75 Years, except Black Lung) Actuarial Projections

(In trillions of dollars) 2019 2018 2017 2016 2015

Federal Old-Age, Survivors and Disability Insurance (Social 

Security):11

Revenue (Contributions and Dedicated Taxes) from:

Participants who have attained eligibility age (age 62 and over) .. 1.5 1.5 1.4 1.3 1.2

Participants who have not attained eligibility age...................... 33.6 31.6 30.2 29.3 27.8

Future participants............................................................. 35.3 31.8 30.5 29.7 26.6

All current and future participants ......................................... 70.4 64.9 62.1 60.3 55.6

Expenditures for Scheduled Future Benefits for:

Participants who have attained eligibility age (age 62 and over) .. (16.9) (15.9) (14.7) (13.6) (12.8)

Participants who have not attained eligibility age...................... (55.8) (52.2) (50.2) (48.4) (45.3)

Future participants............................................................. (14.5) (13.0) (12.6) (12.4) (10.9)

All current and future participants ......................................... (87.2) (81.1) (77.5) (74.4) (69.0)

Present value of future expenditures in excess of future

revenue ............................................................................. (16.8)1 (16.2)2 (15.4)3 (14.1)4 (13.4)5

Federal Hospital Insurance (Medicare Part A):11

Revenue (Contributions and Dedicated Taxes) from:

Participants who have attained eligibility age (age 65 and over) .. 0.6 0.5 0.5 0.5 0.4

Participants who have not attained eligibility age...................... 12.0 11.3 10.6 10.2 9.1

Future participants............................................................. 11.8 11.0 10.6 10.0 8.4

All current and future participants ......................................... 24.4 22.8 21.7 20.7 17.9

Expenditures for Scheduled Future Benefits for:

Participants who have attained eligibility age (age 65 and over) .. (5.3) (5.0) (4.5) (4.3) (3.8)

Participants who have not attained eligibility age...................... (20.0) (18.6) (17.2) (16.8) (14.5)

Future participants............................................................. (4.5) (3.9) (3.5) (3.4) (2.8)

All current and future participants ......................................... (29.8) (27.5) (25.2) (24.5) (21.1)

Present value of future expenditures in excess of future 

revenue ............................................................................. (5.4)1 (4.7)2 (3.5)3 (3.8)4 (3.2)5

Federal Supplementary Medical Insurance (Medicare Part B):11

Revenue (Premiums) from:

Participants who have attained eligibility age (age 65 and over) .. 1.5 1.3 1.1 1.0 0.9

Participants who have not attained eligibility age...................... 7.5 6.6 5.9 5.3 4.6

Future participants............................................................. 1.9 1.5 1.4 1.2 1.0

General Fund Transfers...................................................... 28.8 25.1 22.4 20.0 17.5

All current and future participants ......................................... 39.7 34.5 30.8 27.5 24.0

Expenditures for Scheduled Future Benefits for:

Participants who have attained eligibility age (age 65 and over) .. (5.8) (5.2) (4.5) (4.0) (3.6)

Participants who have not attained eligibility age...................... (27.3) (23.9) (21.4) (19.2) (16.9)

Future participants............................................................. (6.6) (5.4) (4.9) (4.3) (3.5)

All current and future participants ......................................... (39.7) (34.5) (30.8) (27.5) (24.0)

Eliminations........................................................................ (28.8) (25.1) (22.4) (20.0) (17.5)

Present value of future expenditures in excess of future 

revenue (after eliminations)6................................................... (28.8)1 (25.1)2 (22.4)3 (20.0)4 (17.5)5

The accompanying notes are an integral part of these financial statements.

Previously reported amounts have been adjusted for rounding differences. 
FINANCIAL STATEMENTS 62

United States Government

Statements of Social Insurance (Note 22), continued

Present Value of Long-Range (75 Years, except Black Lung) Actuarial Projections

(In trillions of dollars) 2019 2018 2017 2016 2015

Federal Supplementary Medical Insurance (Medicare Part D):11

Revenue (Premiums and State Transfers) from:

Participants who have attained eligibility age (age 65 and over) .. 0.2 0.3 0.3 0.3 0.3

Participants who have not attained eligibility age...................... 2.1 2.1 2.1 2.2 1.8

Future participants............................................................. 0.9 0.8 0.8 1.0 0.8

General Fund Transfers...................................................... 8.0 7.9 7.6 8.7 7.3

All current and future participants ......................................... 11.2 11.1 10.8 12.2 10.2

Expenditures for Scheduled Future Benefits for:

Participants who have attained eligibility age (age 65 and over) .. (1.0) (1.0) (1.0) (1.0) (0.9)

Participants who have not attained eligibility age...................... (7.2) (7.2) (6.9) (7.6) (6.5)

Future participants............................................................. (3.0) (2.9) (2.9) (3.6) (2.8)

All current and future participants ......................................... (11.2) (11.1) (10.8) (12.2) (10.2)

Eliminations........................................................................ (8.0) (7.9) (7.6) (8.7) (7.3)

Present value of future expenditures in excess of future 

revenue (after eliminations)6................................................... (8.0)1 (7.9)2 (7.6)3 (8.7)4 (7.3)5

Other:

Present value of future expenditures in excess of future 

revenue 7......................................................................... (0.1)1 (0.1)2 (0.1)3 (0.1)4 (0.1)5

Total present value of future expenditures in excess of future 

revenue8, 9, 10 ...................................................................... (59.1) (54.0) (49.0) (46.7) (41.5)

The accompanying notes are an integral part of these financial statements.

Previously reported amounts have been adjusted for rounding differences. 
 63 FINANCIAL STATEMENTS

United States Government

Statements of Social Insurance (Note 22), continued

Present Value of Long-Range (75 Years, except Black Lung) Actuarial Projections

(In trillions of dollars) 2019 2018 2017 2016 2015

Social Insurance Summary11

Participants who have attained eligibility age:

Revenue (e.g., contributions and dedicated taxes) ................. 3.8 3.6 3.3 3.1 2.8

Expenditures for scheduled future benefits ........................... (29.1) (27.2) (24.8) (23.0) (21.2)

Present value of future expenditures in excess of 

future revenue.............................................................. (25.3) (23.6) (21.5) (19.9) (18.4)

Participants who have not attained eligibility age:

Revenue (e.g., contributions and dedicated taxes) ................. 55.2 51.6 48.8 47.0 43.3

Expenditures for scheduled future benefits ........................... (110.3) (101.9) (95.7) (92.0) (83.2)

Present value of future expenditures in excess of 

future revenue.............................................................. (55.1) (50.3) (46.9) (45.0) (39.9)

Closed-group - Total present value of future expenditures (80.4) (73.9) (68.4) (64.9) (58.3)

in excess of future revenue ...............................................

Future participants:

Revenue (e.g., contributions and dedicated taxes) ................. 49.9 45.1 43.3 41.9 36.8

Expenditures for scheduled future benefits ........................... (28.6) (25.2) (23.9) (23.7) (20.0)

Present value of future revenue in excess of future 

expenditure ................................................................. 21.3 19.9 19.4 18.2 16.8

Open-group - Total present value of future expenditures in (59.1) (54.0) (49.0) (46.7) (41.5)

excess of future revenue ..................................................... 1 The projection period for Social Security and Medicare is 1/1/2019-12/31/2093 and the valuation date is 1/1/2019. 2 The projection period for Social Security and Medicare is 1/1/2018-12/31/2092 and the valuation date is 1/1/2018. 3 The projection period for Social Security and Medicare is 1/1/2017-12/31/2091 and the valuation date is 1/1/2017. 4 The projection period for Social Security and Medicare is 1/1/2016-12/31/2090 and the valuation date is 1/1/2016. 5 The projection period for Social Security and Medicare is 1/1/2015-12/31/2089 and the valuation date is 1/1/2015. 6 These amounts represent the present value of the future transfers from the General Fund to the SMI Trust 

Fund. These future intragovernmental transfers are included as income in both HHS’ and the CMS’s

Financial Reports but, by accounting convention, are not income from the governmentwide perspective of this report. 7 Includes Railroad Retirement and Black Lung. 8 These amounts do not include the present value of the financial interchange between the railroad retirement and social security systems, 

which is included as income in the Railroad Retirement Financial Report, but is not included from the governmentwide perspective of this 

report. (See discussion of RRP in the unaudited RSI section of this report). 

9 Does not include interest expense accruing on the outstanding debt of the BLDTF. 10 For information on the projection periods and valuation dates for the Railroad Retirement and Black Lung programs, refer to the financial

statements of RRB and DOL, respectively.

11 Current participants for the Social Security and Medicare programs are assumed to be the “closed-group” of individuals who are at least

15 years of age at the start of the projection period, and are participating as either taxpayers, beneficiaries, or both. Amounts shown exclude 

General Fund Transfers for Medicare's Parts B and D.

The accompanying notes are an integral part of these financial statements.

Previously reported amounts have been adjusted for rounding differences. 
FINANCIAL STATEMENTS 64

United States Government

Statement of Changes in Social Insurance Amounts

for the Year Ended September 30, 2019 (Note 22)

Social Medicare Medicare

(In trillions of dollars) Security1 HI1 SMI1 Other2 Total

Net present value (NPV) of future revenue less 

future expenditures for current and future 

participants (the “open group”) over the next 75 

years, beginning of the year ................................. (16.2) (4.7) (33.0) (0.1) (54.0)

Reasons for changes in the NPV during the year:

Changes in valuation period.................................. (0.5) (0.2) (1.2) - (1.9)

Changes in demographic data, assumptions, and 

methods............................................................ 0.4 - 0.4 - 0.8

Changes in economic data, assumptions, and 

methods............................................................ (1.0) - - - (1.0)

Changes in law or policy ...................................... - - - - -

Changes in methodology and programmatic data ...... 0.5 - - - 0.5

Changes in economic and other health care 

assumptions ................................................... - (0.3) (2.7) - (3.0)

Change in projection base .................................... - (0.2) (0.3) - (0.5)

Net change in open group measure ........................ (0.6) (0.7) (3.8) - (5.1)

Open group measure, end of year ............................ (16.8) (5.4) (36.8) (0.1) (59.1)

1 Amounts represent changes between valuation dates 1/1/2018 and 1/1/2019.

2 Includes Railroad Retirement changes between valuation dates 10/1/2017 and 10/1/2018 and Black Lung changes between 9/30/2018 and 

9/30/2019.

The accompanying notes are an integral part of these financial statements. 
 65 FINANCIAL STATEMENTS

United States Government

Statement of Changes in Social Insurance Amounts

for the Year Ended September 30, 2018 (Note 22)

Social Medicare Medicare

(In trillions of dollars) Security1 HI1 SMI1 Other2 Total

Net present value (NPV) of future revenue less 

future expenditures for current and future 

participants (the “open group”) over the next 75 

years, beginning of the year ................................. (15.4) (3.5) (30.0) (0.1) (49.0)

Reasons for changes in the NPV during the year:

Changes in valuation period.................................. (0.6) (0.2) (1.2) - (2.0)

Changes in demographic data, assumptions, and

methods............................................................ 0.1 0.4 0.2 - 0.7

Changes in economic data, assumptions, and ..........

methods............................................................ (0.5) - - - (0.5)

Changes in law or policy ...................................... - (0.5) (0.5) - (1.0)

Changes in methodology and programmatic data ...... 0.2 - - - 0.2

Changes in economic and other health care 

assumptions ..................................................... - - (1.5) - (1.5)

Change in projection base .................................... - (0.9) - - (0.9)

Net change in open group measure ........................ (0.8) (1.2) (3.0) - (5.0)

Open group measure, end of year ............................ (16.2) (4.7) (33.0) (0.1) (54.0)

1 Amounts represent changes between valuation dates 1/1/2017 and 1/1/2018.

2 Includes Railroad Retirement changes between valuation dates 10/1/2016 and 10/1/2017 and Black Lung changes between 9/30/2017 and 

9/30/2018.

The accompanying notes are an integral part of these financial statements.

Previously reported amounts have been adjusted for rounding differences.
NOTES TO THE FINANCIAL STATEMENTS 66

United States Government

Notes to the Financial Statements

for the Fiscal Years Ended September 30,

2019, and 2018

Note 1. Summary of Significant Accounting Policies

A. Reporting Entity

The government includes the executive branch, the legislative branch, and the judicial branch. This Financial Report

includes the financial status and activities related to the operations of the government. SFFAS No. 47, Reporting Entity

provides criteria for identifying organizations that are included in the Financial Report as “consolidation entities” and

“disclosure entities.” Consolidation entities are consolidated into the government’s financial statements. For disclosure

entities, information is disclosed in the notes to the financial statements concerning (a) the nature of the federal government’s

relationship with the disclosure entities, (b) the nature and magnitude of relevant activity with the disclosure entities during

the period and balances at the end of the period, and (c) a description of financial and non-financial risks, potential benefits

and, if possible, the amount of the federal government’s exposure to gains and losses from the past or future operations of the

disclosure entity or entities.

Disclosure entities have a greater degree of autonomy than consolidation entities. Disclosure entities may maintain a

separate legal identity, have a governance structure that vests most decision-making authorities in a governing body to

insulate the organization from political influence, and/or have relative financial independence. These entities may include,

but are not limited to, quasi-governmental and/or financially independent entities and organizations owned and/or controlled

by the federal government as a result of (a) regulatory actions (such as organizations in receivership or conservatorship) or

(b) other federal government intervention actions if the relationship with such entities is not expected to be permanent.

SFFAS No. 47 also provides guidance for identifying related parties and in determining what information to provide

about related party relationships of such significance that it would be misleading to exclude such information (see Appendix

A—Reporting Entity, for a more detailed discussion).

Based on the criteria in GAAP for federal entities, the assets, liabilities, and results of operations of Fannie Mae and

Freddie Mac are not consolidated into the government's consolidated financial statements. However, the values of the

investments in such entities, changes in value, and related activity with these entities are included in the government's

consolidated financial statements. Although federal investments in Fannie Mae and Freddie Mac are significant, these entities

do not meet the GAAP criteria for consolidation entities.

Under SFFAS No. 47 criteria, Fannie Mae and Freddie Mac were owned or controlled by the federal government as a

result of (a) regulatory actions (such as organizations in receivership or conservatorship) or (b) other federal government

intervention actions. Under the regulatory or other intervention actions, the relationship with the federal government is not

expected to be permanent. These entities are classified as disclosure entities based on their characteristics as a whole (see

Note 25—Disclosure Entities and Related Parties for additional information on these disclosure entities).

Also, under GAAP criteria, the FR System is not consolidated into the government's consolidated financial statements

(see Note 25—Disclosure Entities and Related Parties for further information concerning the FR System).

For further information regarding Reporting Entity, see Appendix A—Reporting Entity.
 67 NOTES TO THE FINANCIAL STATEMENTS

B. Basis of Accounting and Revenue Recognition

Consolidated Financial Statements

The consolidated financial statements of the government were prepared using GAAP, primarily based on FASAB’s 

SFFAS. Intragovernmental transactions are eliminated in consolidation, except as described in the Other Information–

Unmatched Transactions and Balances. See Note 1.R—Unmatched Transactions and Balances for detailed information. The 

consolidated financial statements include accrual-based financial statements and sustainability financial statements, which are 

discussed in more detail below, and the related notes to the consolidated financial statements. Collectively, the accrual-based 

financial statements, the sustainability financial statements, and the notes represent basic information that is deemed essential 

for the financial statements and notes to be presented in conformity with GAAP.

Accounting standards allow certain presentations and disclosures to be modified, if needed, to prevent the disclosure of 

classified information. Accordingly, modifications may have been made to certain presentations and disclosures.

Accrual-Based Financial Statements

The accrual-based financial statements were prepared under the following principles:

• Expenses are generally recognized when incurred.

• Non-exchange revenue, including taxes, duties, fines, and penalties, are recognized when collected and adjusted for 

the change in net measurable and legally collectible amounts receivable (modified cash basis). Related refunds and 

other offsets, including those that are measurable and legally payable, are netted against non-exchange revenue.

• Exchange (earned) revenue is recognized when the government provides goods and services to the public for a price. 

Exchange revenue includes user charges such as admission to federal parks and premiums for certain federal 

insurance.

The basis of accounting used for budgetary purposes, which is primarily on a cash basis (budget deficit) and follows 

budgetary concepts and policies, differs from the basis of accounting used for the financial statements which follow GAAP. 

See the Reconciliations of Net Operating Cost and Budget Deficit in the Financial Statements section.

Sustainability Financial Statements

The sustainability financial statements were prepared based on the projected present value of the estimated future 

revenue and estimated future expenditures, primarily on a cash basis, for a 75 year period.1 They include the SLTFP, 

covering all federal government programs, and the SOSI and the SCSIA, covering social insurance programs (Social 

Security, Medicare, Railroad Retirement, and Black Lung programs). These estimates are based on economic as well as 

demographic assumptions presented in Notes 22—Social Insurance and 23—Long-Term Fiscal Projections. The 

sustainability financial statements are not forecasts or predictions. The sustainability financial statements are designed to 

illustrate the relationship between receipts and expenditures, if current policy is continued. For this purpose, the projections 

assume, among other things, that scheduled social insurance benefit payments would continue after related trust funds are 

projected to be depleted, contrary to current law, and that debt could continue to rise indefinitely without severe economic 

consequences.

By accounting convention, General Fund transfers to Medicare Parts B and D reported in the SOSI are eliminated when 

preparing the governmentwide consolidated financial statement. The SOSI shows the projected General Fund transfer(s) as 

eliminations that, under current law, would be used to finance the remainder of the expenditures in excess of revenues for 

Medicare Parts B and D that is reported in the SOSI. The SLTFP include all revenues (including general revenues) of the 

federal government.

New Standards Issued in Prior and Current Years and Implemented in Current Year

Beginning in fiscal year 2019, the government implemented the requirements of new standards for: P3s, Insurance 

Programs, BAR, Amending Inter-Entity Cost Provisions, and Omnibus Amendments. The new standards implemented are:

• SFFAS No. 49, Public-Private Partnerships: Disclosure Requirements. P3s are defined as “risk sharing” 

arrangements or transactions lasting more than five years between public and private sector entities. SFFAS No. 49 

requires for P3s that meet its criteria to disclose a general description of P3 arrangements or transactions, the 

consolidated amounts the government received and paid during the reporting period(s) and consolidated amounts 

the government estimated to be received and paid in aggregate over the expected life of the P3s, and a reference to 

1 With the exception of the Black Lung program, which has a rolling 25-year projection period that begins on the September 30 valuation date each year.
NOTES TO THE FINANCIAL STATEMENTS 68

applicable component entity reports for additional information in the Financial Report. SFFAS No. 49 became 

effective in fiscal year 2019.

• SFFAS No. 51, Insurance Programs. SFFAS No. 51 establishes accounting and financial reporting standards for 

insurance programs. It identifies three categories: 1) exchange transaction insurance programs other than life 

insurance, 2) non-exchange transaction insurance programs and 3) life insurance programs. For each category, 

SFFAS No. 51 provides specific accounting and reporting requirements. SFFAS No. 51 requires certain disclosures 

including, a broad description of insurance programs and related liabilities, in the Financial Report. SFFAS No. 51 

became effective in fiscal year 2019.

• SFFAS No. 53, Budget and Accrual Reconciliation; Amending SFFAS No. 7, and 24 and Rescinding SFFAS No. 22. 

SFFAS No. 53 amends component entity requirements for a reconciliation between budgetary and financial 

accounting information established by SFFAS No. 7, Accounting for Revenue and Other Financing Sources and 

Concepts for Reconciling Budgetary and Financial Accounting. To increase informational value and usefulness, and 

to support the governmentwide financial statement reconciling net operating cost to the budget deficit, this 

Statement provides for the BAR to replace the Statement of Financing. The BAR explains the relationship between 

the entity’s net outlays on a budgetary basis and the net cost of operations during the reporting period. The BAR 

starts with net cost of operations and is adjusted by components of net cost that are not part of net outlays, 

components of net outlays that are not part of net cost, and other temporary timing differences, which reflect some 

special adjustments. SFFAS No. 53 became effective in fiscal year 2019.

• SFFAS No. 55, Amending Inter-Entity Cost Provisions. SFFAS No. 55 revises SFFAS No. 4, Managerial Cost 

Accounting Standards and Concepts (including Interpretation 6, Accounting for Imputed Intra-departmental Costs: 

An Interpretation of SFFAS No. 4). SFFAS No. 4 required component reporting entities to recognize the full costs of 

services received from other federal reporting entities even if there was no requirement to reimburse the providing 

entity for the full cost of such services. This Statement revises SFFAS No. 4 to provide for the continued recognition 

of significant inter-entity costs by business-type activities and rescinds the following: a) SFFAS No. 30, Inter-Entity 

Cost Implementation: Amending SFFAS No. 4, Managerial Cost Accounting Standards and Concepts and b) 

Interpretation 6, Accounting for Imputed Intra-departmental Costs: An Interpretation of SFFAS No. 4. Recognition 

of imputed inter-entity costs by activities that are not business-type activities is not required with the exception of 

imputed inter-entity costs for personnel benefits and the Treasury Judgment Fund settlements or as otherwise 

directed by the OMB. Notwithstanding the absence of a requirement, non-business-type activities may elect to 

recognize imputed cost and corresponding imputed financing for other types of inter-entity costs. Component 

reporting entities should disclose that only certain inter-entity costs are recognized for goods and services that are 

received from other federal entities at no cost or at a cost less than the full costs. SFFAS No. 55 does not have a 

significant impact on the U.S. government’s consolidated financial statements. SFFAS No. 55 became effective in 

fiscal year 2019. 

• SFFAS No. 57, Omnibus Amendments 2019. SFFAS No. 57 revises paragraph 26 of SFFAS No. 6, Accounting for 

Property, Plant and Equipment to remove the reference of “material amounts” from the last bulleted item. 

Materiality applies to all of the bulleted items in SFFAS No. 6, paragraph 26. This portion of SFFAS No. 57 was 

effective upon issuance in fiscal year 2019, but it does not have a significant impact on the U.S. government’s 

consolidated financial statements.

In fiscal year 2016, the government began implementing the requirements of new standards related to the reporting for 

Inventories and Related Property and PP&E. The standards being implemented are:

• FASAB issued SFFAS No. 48, Opening Balances for Inventory, Operating Materials and Supplies, and Stockpile 

Materials. SFFAS No. 48 permits a reporting entity to apply an alternative valuation method in establishing opening 

balances and applies when a reporting entity is presenting financial statements or one or more line items addressed 

by this statement. This standard can be applied for the first time or after a period during which existing systems 

could not provide the information necessary for producing GAAP-based financial statements without use of the 

alternative valuation methods. This is intended to provide an alternative method to adoption of GAAP when 

historical records and systems do not provide a basis for valuation of opening balances in accordance with SFFAS 

No. 3, Accounting for Inventory and Related Property. This application is available to each reporting entity only 

once per line item addressed in this statement. Reporting entities that meet either condition and elect to apply this 

statement should follow the guidance in SFFAS No. 21, Reporting Corrections of Errors and Changes in 

Accounting Principles. SFFAS No. 48 was effective beginning in fiscal year 2017. Early implementation was 

permitted. DOD did partially implement in 2016 and select component entities have continued to implement in 

2017, 2018, and 2019. DOD has not declared full implementation yet.
 69 NOTES TO THE FINANCIAL STATEMENTS

• FASAB issued SFFAS No. 50, Establishing Opening Balances for General Property, Plant and Equipment. SFFAS 

No. 50 permits a reporting entity to apply an alternative valuation method in establishing opening balances and 

applies when a reporting entity is presenting financial statements or one or more line items addressed by this 

statement. This standard can be applied for the first time or after a period during which existing systems could not 

provide the information necessary for producing GAAP-based financial statements without use of the alternative 

valuation methods. This is intended to provide an alternative method to adoption of GAAP when historical records 

and systems do not provide a basis for valuation of opening balance in accordance with SFFAS No. 6, Accounting 

for Property, Plant, and Equipment. This application is available to each reporting entity only once per line item 

addressed in this statement. Reporting entities meeting the conditions and electing to apply this statement should 

follow the guidance in SFFAS No. 21, Reporting Corrections of Errors and Changes in Accounting Principles.

SFFAS No. 50 was effective beginning in fiscal year 2017. Early implementation was permitted. DOD did partially 

implement in 2016 and select component entities have continued to implement in 2017, 2018, and 2019. DOD has 

not declared full implementation yet.

New Standards Issued and Not Yet Implemented

FASAB issued the following new standards that are applicable to the Financial Report, but are not yet implemented at 

the governmentwide level for fiscal year 2019:

• In April 2018, FASAB issued SFFAS No. 54, Leases: An Amendment of SFFAS No. 5, Accounting for Liabilities of 

the Federal Government, and SFFAS No. 6, Accounting for Property, Plant, and Equipment. SFFAS No. 54 revises 

the financial reporting standards for federal lease accounting. It provides a comprehensive set of lease accounting 

standards to recognize federal lease activities in the reporting entity’s financial statements and includes appropriate 

disclosures. This Statement requires that federal lessees (for other than intragovernmental leases) recognize a lease 

liability and a leased asset at the commencement of the lease term, unless it meets any of the scope exclusions or the 

definition/criteria of short-term leases, or contracts or agreements that transfer ownership, or intragovernmental 

leases. A federal lessor would recognize a lease receivable and deferred revenue, unless it meets any of the scope 

exclusions or the definition/criteria or short-term leases, contracts or agreements that transfer ownership, or 

intragovernmental leases. SFFAS No. 54 is effective in fiscal year 2021 and early implementation is not permitted. 

• In September 2019, FASAB issued SFFAS No. 57, Omnibus Amendments 2019. SFFAS No. 57 eliminates the RSSI 

category by rescinding SFFAS No. 8, Supplementary Stewardship Reporting in its entirety. The elimination of the 

RSSI category is effective in fiscal year 2020. Early adoption is not permitted. 

C. Accounts and Taxes Receivable

Accounts receivable represent claims to cash or other assets from entities outside the government that arise from the

sale of goods or services, duties, fines, certain license fees, recoveries, or other provisions of the law. Accounts receivable are

reported net of an allowance for uncollectible amounts. An allowance is established when it is more likely than not the

receivables will not be totally collected. The allowance method varies among the entities in the government and is usually

based on past collection experience and is reestimated periodically as needed. Methods include statistical sampling of

receivables, specific identification and intensive analysis of each case, aging methodologies, and percentage of total

receivables based on historical collection.

Taxes receivable consist primarily of uncollected tax assessments, penalties, and interest when taxpayers have agreed or

a court has determined the assessments are owed. Taxes receivable do not include unpaid assessments when taxpayers or a

court have not agreed that the amounts are owed (compliance assessments) or the government does not expect further

collections due to factors such as the taxpayer’s death, bankruptcy, or insolvency (write-offs). Taxes receivable are reported

net of an allowance for the estimated portion deemed to be uncollectible. The allowance for uncollectible amounts represents

the difference between gross taxes receivable and the amounts estimated to be collectible.

D. Loans Receivable and Loan Guarantee Liabilities

Direct loans obligated and loan guarantees committed after fiscal year 1991 are reported based on the present value of

the net cash flows estimated over the life of the loan or guarantee. The difference between the outstanding principal of the

direct loans and the present value of their net cash inflows is recognized as a subsidy cost allowance. The present value of

estimated net cash flows of the loan guarantees is recognized as a liability for loan guarantees.
NOTES TO THE FINANCIAL STATEMENTS 70

The subsidy expense for direct or guaranteed loans disbursed during a fiscal year is the present value of estimated net

cash flows for those loans or guarantees. For the fiscal year during which new direct or guaranteed loans are disbursed, the

components of the subsidy expense of those new direct loans and loan guarantees are recognized separately among interest

subsidy costs, default costs, fees and other collections, and other subsidy costs. Credit programs reestimate the subsidy cost

allowance for outstanding direct loans and the liability for outstanding loan guarantees, by taking into account all factors that

may have affected the estimated cash flows. Any adjustment resulting from the reestimates is recognized as a subsidy

expense (or a reduction in subsidy expense).

Direct loans obligated and loan guarantees committed before fiscal year 1992 are valued under two different

methodologies within the government: the allowance-for-loss method and the present-value method. Under the allowancefor-loss method, the outstanding principal of direct loans is reduced by an allowance for uncollectible amounts; the liability

for loan guarantees is the amount the entity estimates would more likely than not require future cash outflow to pay default

claims. Under the present-value method, the outstanding principal of direct loans is reduced by an allowance equal to the

difference between the outstanding principal and the present value of the expected net cash flows. The liability for loan

guarantees is the present value of expected net cash outflows due to the loan guarantees.

E. Inventories and Related Property

Inventory is tangible personal property that is (1) held for sale, principally to federal entities, (2) in the process of

production for sale, or (3) to be consumed in the production of goods for sale or in the provision of services for a fee. OM&S

is tangible personal property to be consumed in normal operations and stockpile materials are strategic and critical materials

being held due to statutory requirements for use in national defense, conservation, or national emergencies.

SFFAS No. 3, Accounting for Inventory and Related Property, requires that inventories, OM&S, and stockpile materials

to be valued using either historical cost or a method that reasonably approximates historical cost. Historical cost methods

include first-in-first-out, weighted average, and moving average. Any other valuation method may be used if the results

reasonably approximate one of the historical cost methods. FASAB issued additional guidance SFFAS No. 48, Opening

Balances for Inventory, Operating Materials and Supplies, and Stockpile Materials, which permits a reporting entity to apply

an alternative valuation method in establishing opening balances for inventory, OM&S, and stockpile materials and is

intended to provide an alternative valuation method when historical records and systems do not provide a basis for valuation

of opening balances in accordance with SFFAS No. 3.

As the largest contributor of inventories and related property, DOD values substantially all of its inventory available and

purchased for resale using the moving average cost method as of September 30, 2019. OM&S are valued using various

methods including moving average cost, standard price, historical cost, replacement price, and direct method. DOD uses both

the consumption method (expensed when issued to an end user for consumption in normal operations) and the purchase

method (expensed when purchased) of accounting for OM&S. Stockpile Materials are accounted for using actual cost or the

lower of cost or market method. DOD continues to implement SFFAS No. 48, permitting alternative methods in establishing

opening balances.

F. Property, Plant, and Equipment

PP&E consists of tangible assets that have an estimated useful life of two or more years, are not intended for sale in the

ordinary course of business and are intended to be used or available for use by the entity. These tangible assets may include

land, land rights, assets acquired through capital leases, buildings and structures, furniture and fixtures, equipment, and

vehicles.

SFFAS No. 6, Accounting for Property, Plant, and Equipment requires general PP&E to be recorded at cost. Cost shall

include all costs incurred to bring the PP&E to a form and location suitable for its intended use. PP&E used in government

operations are carried at acquisition cost, with the exception of some DOD equipment. FASAB issued additional guidance,

SFFAS No. 50, Establishing Opening Balances for General Property, Plant, and Equipment, which states that a reporting

entity may choose one of three alternative methods for establishing an opening balance for PP&E. The alternative methods

include: using deemed cost to establish opening balances of general PP&E, selecting between deemed cost and prospective

capitalization of internal use software, and allowing an exclusion of land and land rights from opening balances with

disclosure of acreage information and expensing of future acquisitions.

By excluding land and land rights from the opening balance of general PP&E future land and land right acquisitions

should be expensed. An entity electing to exclude land and land rights from its general PP&E opening balances must
 71 NOTES TO THE FINANCIAL STATEMENTS

disclose, with a reference on the balance sheet to the related disclosure, the number of acres held at the beginning of each

reporting period, the number of acres added during the period, the number of acres disposed of during the period, and the

number of acres held at the end of each reporting period. DOD generally records PP&E at the estimated historical cost.

However, when applicable DOD will continue to adopt SFFAS No. 50.

Costs to acquire PP&E, extend the useful life of existing PP&E, or enlarge or improve its capacity, that exceed federal

entities’ capitalization thresholds should be capitalized and depreciated or amortized. Depreciation and amortization expense

should be recognized on all capitalized PP&E, except land and land rights of unlimited duration. In the case of constructed

PP&E, the PP&E shall be recorded as construction work in process until it is placed in service, at which time the balance is

transferred to PP&E.

For financial reporting purposes, heritage assets (excluding multi-use heritage assets) and stewardship land are not

recorded as part of PP&E. Since heritage assets are intended to be preserved as national treasures, it is anticipated that they

will be maintained in reasonable repair and that there will be no diminution in their usefulness over time. Many assets are

clearly heritage assets. For example, the National Park Service manages the Washington Monument, the Lincoln Memorial

and the Mall. Heritage assets that are predominantly used in general government operations are considered multi-use heritage

assets and are included in PP&E. Stewardship land is also consistent with the treatment of heritage assets in that much of the

government’s land is held for the general welfare of the nation and is intended to be preserved and protected. Stewardship

land is land owned by the government but not acquired for or in connection with general PP&E. Because most federal land is

not directly related to general PP&E, it is deemed to be stewardship land and accordingly, it is not reported on the Balance

Sheet. Examples of stewardship land include national parks and forests. For more details on stewardship assets, see Note

24—Stewardship Land and Heritage Assets.

G. Debt and Equity Securities

Most debt and equity securities are held by component entities that apply FASB standards and are not converted to

FASAB standards in consolidation. Certain other securities held by component entities that apply FASB standards are

classified as held-to-maturity, available-for-sale, and trading. Held-to-maturity debt and equity securities are reported at cost,

net of unamortized premiums and discounts. Available-for-sale debt and equity securities are reported at fair value. Trading

debt and equity securities are reported at fair value. The investment categories are classified by security type; Non-U.S.

government, mortgage/asset backed, commercial, corporate and other bonds, unit trust and common stocks. Entities that

apply FASB standards are reported by fair value measurement hierarchy levels 1, 2, 3, and “other” category. 

H. Investments in Government-Sponsored Enterprises

The senior preferred stock and associated warrants for the purchase of common stock in the GSEs (Fannie Mae and

Freddie Mac) are presented at their fair value. SPSPAs, which Treasury entered into with each GSE when they were placed

under conservatorship, can result in payments to the GSEs when, at the end of any quarter, the FHFA, acting as the

conservator, determines that the liabilities of either GSE exceed its respective assets. Such payments result in an increase to

the investment in the GSEs’ senior preferred stock, with a corresponding decrease to cash held by Treasury. In addition, the

investments in the GSEs will increase, based on the quarterly earnings of the GSEs, up to the adjusted capital reserve

amounts set for each GSE.

The valuation to estimate the investment’s fair value incorporates forecasts, projections, and cash flow analyses.

Changes in valuation, including impairments, are deemed usual and recurring and thus are recorded as exchange transactions

on the Statement of Net Cost and investments in GSEs on the Balance Sheet. The government also records dividends related

to these investments as exchange transactions and accrues when declared.

The potential liabilities to the GSEs, if any, are assessed annually and recorded at the gross estimated amount. For more

detailed information on investments in GSEs, refer to Note 8—Investments in Government-Sponsored Enterprises.

I. Federal Debt

U.S. Treasury securities are debt instruments issued to raise money needed to operate the federal government and pay

off maturing obligations. Treasury issues these debt instruments to the public in the form of marketable bills, notes, bonds,

TIPS and FRNs, and in the form of non-marketable securities including Government Account Series securities, U.S. Savings
NOTES TO THE FINANCIAL STATEMENTS 72

Securities, and State and Local Government Series securities. The amount of the debt, or principal, is also called the

security’s face value or par value. To accurately reflect the federal debt, Treasury records principal transactions with the

public at par value at the time of the transaction. Certain Treasury securities are issued at a discount or premium. These

discounts and premiums are amortized over the term of the security using an interest method for all long-term securities and

the straight line method for short-term securities. In addition, the principal for TIPS is adjusted daily over the life of the

security based on the CPI-U; and FRNs pay interest quarterly based on the interest rate at the time of payment. Accrued

interest on Treasury securities held by the public is recorded as an expense when incurred, instead of when paid.

J. Federal Employee and Veteran Benefits Payable

Generally, federal employee and veteran benefits payable are recorded during the time employee services are rendered.

The related liabilities for defined benefit pension plans, veterans’ compensation, burial, education and training benefits, postretirement health benefits, and post-retirement life insurance benefits, are recorded at estimated present value of future

benefits, less any estimated present value of future normal cost contributions. Normal cost is the portion of the actuarial

present value of projected benefits allocated as an expense for employee services rendered in the current year. Actuarial gains

and losses (as well as prior service cost, if any) are recognized immediately in the year they occur without amortization.

VA also provides certain veterans and/or their dependents with pension benefits, based on annual eligibility reviews, if

the veteran died or was disabled for nonservice-related causes. The pension program for veterans is not accounted for as a

“federal employee pension plan” under SFFAS No. 5, Accounting for Liabilities of the Federal Government, due to

differences between its eligibility conditions and those of federal employee pensions. Therefore, a future liability for pension

benefits is not recorded. These benefits are recognized as expenses when benefits are paid rather than when employee

services are rendered.

The actuarial liability for FECA benefits is recorded at estimated present value of future benefits for injuries and deaths

that have already been incurred.

Gains and losses from changes in long-term assumptions used to estimate federal employee pensions, ORB, and OPEB

liabilities are reflected separately on the Statement of Net Cost and the components of the expense related to federal

employee pension, ORB, and OPEB liabilities are disclosed in Note 12—Federal Employee and Veteran Benefits Payable as

prescribed by SFFAS No. 33, Pensions, Other Retirement Benefits, and Other Postemployment Benefits: Reporting the Gains

and Losses from Changes in Assumptions and Selecting Discount Rates and Valuation Dates. In addition, SFFAS No. 33 also

provides a standard for selecting the discount rate assumption for present value estimates of federal employee pension, ORB,

and OPEB liabilities.

K. Environmental and Disposal Liabilities

Environmental and disposal liabilities are recorded at the estimated current cost of the cleanup plan, including the level

of restoration to be performed, the current legal or regulatory requirements, and the current technology. Cleanup costs are the

costs of removing, containing or disposing of hazardous waste. Hazardous waste is a solid, liquid, or gaseous waste that,

because of its quantity or concentration, presents a potential hazard to human health or the environment. Cleanup costs

include, but are not limited to, decontamination, decommissioning, site restoration, site monitoring, closure, and post-closure

costs. Where technology does not exist to clean up radioactive or hazardous waste, only the estimable portion of the liability

(typically monitoring and safe containment) is recorded.

L. Insurance and Guarantee Program Liabilities

Insurance programs are authorized by law to financially compensate a designated population of beneficiaries by

accepting all or part of the risk for losses incurred as a result of an adverse event. Certain consolidation entities with

significant insurance and guarantee programs (i.e., PBGC and FDIC) apply FASB standards, and are not converted to

FASAB standards in the consolidated financial statements of the U.S. government. The two most significant FASB-based

insurance and guarantee programs are provided by PBGC and FDIC.

PBGC recognizes a single-employer program liability for probable plan terminations, which represents PBGC's best

estimate of the losses, net of plan assets, and the present value of expected recoveries (from sponsors and members of their
 73 NOTES TO THE FINANCIAL STATEMENTS

controlled group) for plans that are likely to terminate in the future. PBGC recognizes a multi-employer program liability for

future financial assistance to insolvent plans and to plans deemed probable to becoming insolvent.

FDIC records a liability for FDIC-insured institutions that are likely to fail when the liability is probable and reasonably

estimable, absent some favorable event such as obtaining additional capital or merging. The FDIC liability is derived by

applying expected failure rates and loss rates to the institutions based on supervisory ratings, balance sheet characteristics,

and projected capital levels.

PBGC's exposure to losses from plan terminations and FDIC's exposure to losses from insured institutions that are

classified as reasonably possible are disclosed in Note 18—Contingencies.

All other insurance and guarantee programs are accounted for in the consolidated financial statements in accordance

with FASAB standards. For fiscal year 2019, insurance programs are accounted for pursuant to SFFAS No. 51, Insurance

Programs.

Programs that administer direct loans and loan guarantees, qualify as social insurance, authorized to engage in disaster

relief activities, provide grants, provide benefits or assistance based on an individual’s or a household income and/or assets,

assume the risk of loss arising from federal government operations, that pay claims through an administrative or judicial role

for individuals or organizations who claim they have been harmed by a federal entity, that indemnify contractors, agreement

partners, and other third parties for loss or damage incurred while or caused by work performed for a federal entity, or

workers’ or occupational illness compensation programs that compensate current or former employees (or survivors) and

certain third parties for injuries and occupational diseases obtained while working for a federal entity are excluded from

insurance programs.

SFFAS No. 51 establishes three categories: 1) exchange transaction insurance programs other than life insurance, 2)

non-exchange transaction insurance programs and 3) life insurance programs. For each category, SFFAS No. 51 provides

specific accounting and reporting requirements. The implementation of SFFAS No. 51 did not have a significant effect on the

beginning net position.

For exchange transaction insurance programs other than life insurance, revenues are recognized when earned over the

insurance arrangement period and liabilities are recognized for unearned premiums, unpaid insurance claims, and for losses

on remaining coverage. Losses on remaining coverage represent estimated amounts to be paid to settle claims for the period

after year-end through the end of insurance coverage in excess of the summation of unearned premiums and premiums due

after the end of the reporting period.

For non-exchange transaction insurance programs, revenue is recognized the same as other non-exchange transaction

revenue, no unearned premium liability is recorded and a liability is only recognized for unpaid insurance claims.

For life insurance programs, revenue is recognized when due and liabilities are recognized for unpaid insurance claims

and future policy benefits. The liability for future policy benefits represents the expected present value of future claims to be

paid to, or on behalf of, existing policyholders, less the expected present value of future net premiums to be collected from

those policyholders. Life insurance programs are disclosed in Note 12—Federal Employee and Veteran Benefits Payable.

In fiscal year 2018, for insurance and guarantee programs accounted for pursuant to FASAB standards, a liability is

recognized for unpaid claims resulting from insured events that have occurred as of the reporting date, including

contingencies meeting the recognition criteria. Life insurance programs recognize a liability for future policy benefits (a

liability to current policyholders that relates to insured events, such as death or disability) in addition to the liability for

unpaid claims incurred.

M. Deferred Maintenance and Repairs

DM&R are maintenance and repairs that were not performed when they should have been or scheduled maintenance

and repairs that were delayed or postponed. Maintenance is the act of keeping fixed assets in acceptable condition, including

preventative maintenance, normal repairs, and other activities needed to preserve the assets, so they continue to provide

acceptable service and achieve their expected life. Maintenance and repairs exclude activities aimed at expanding the

capacity of assets or otherwise upgrading them to serve needs different from those originally intended. DM&R are not

expensed in the Statements of Net Cost or accrued as liabilities on the Balance Sheet. However, DM&R information is

disclosed in the unaudited RSI section of this report. Please see unaudited RSI—Deferred Maintenance and Repairs for

additional information including measurement methods.
NOTES TO THE FINANCIAL STATEMENTS 74

N. Contingencies

Liabilities for contingencies are recognized on the Balance Sheet when both:

• A past transaction or event has occurred, and

• A future outflow or other sacrifice of resources is probable and measurable.

The estimated contingent liability may be a specific amount or a range of amounts. If some amount within the range is a 

better estimate than any other amount within the range, then that amount is recognized. If no amount within the range is a 

better estimate than any other amount, then the minimum amount in the range is recognized and the range and a description 

of the nature of the contingency is disclosed.

Contingent liabilities that do not meet the above criteria for recognition, but for which there is at least a reasonable 

possibility that a loss may be incurred, are disclosed in Note 18—Contingencies. 

O. Commitments

In the normal course of business, the government has a number of unfulfilled commitments that may require the use of

its financial resources. Note 19—Commitments describes the components of the government’s actual commitments that are

disclosed due to their nature and/or their amount. They include long-term leases, undelivered orders, and other commitments.

P. Social Insurance

A liability for social insurance programs (Social Security, Medicare, Railroad Retirement, Black Lung, and

Unemployment) is recognized for any unpaid amounts currently due and payable to beneficiaries or service providers as of

the reporting date. No liability is recognized for future benefit payments not yet due. For further information, see Note 22—

Social Insurance and the unaudited RSI—Social Insurance section.

Q. Funds from Dedicated Collections 

Generally, funds from dedicated collections are financed by specifically identified revenues, provided to the 

government by non-federal sources, often supplemented by other financing sources that remain available over time. These 

specifically identified revenues and other financing sources are required by statute to be used for designated activities, 

benefits, or purposes, and must be accounted for separately from the government’s general revenues. The three required 

criteria for a fund from dedicated collections are:

• A statute committing the government to use specifically identified revenues and/or other financing sources that are 

originally provided to the government by a non-federal source only for designated activities, benefits, or purposes;

• Explicit authority for the fund to retain revenues and/or other financing sources not used in the current period for 

future use to finance the designated activities, benefits, or purposes; and

• A requirement to account for and report on the receipt, use, and retention of the revenues and/or other financing 

sources that distinguishes the fund from the government’s general revenues.

For more details on funds from dedicated collections, see Note 20—Funds from Dedicated Collections.

R. Unmatched Transactions and Balances

The reconciliation of the change in net position requires that the difference between ending and beginning net position 

equals the difference between revenue and cost, plus or minus prior-period adjustments.

The unmatched transactions and balances are needed to bring the change in net position into balance. The primary 

factors affecting this out of balance situation are:

• Unmatched intragovernmental transactions and balances between federal entities; and

• Errors and restatements in federal entities reporting.
 75 NOTES TO THE FINANCIAL STATEMENTS

As intragovernmental transactions and balances reduce to immaterial amounts, the corresponding individual lines in the 

Unmatched Transactions and Balances table are adjusted to remove the differences for the fiscal year. Please refer to the table 

of Unmatched Transactions and Balances in Other Information (Unaudited) for examples of the individual lines. Materiality 

for these adjustments is considered in the absolute value, when at or below $0.1 billion.

Refer to the Other Information (unaudited)—Unmatched Transactions and Balances for detailed information.

S. Adjustments to Beginning Net Position

Adjustments to beginning net position in fiscal year 2019 had a consolidated change of $13.0 billion. This $13.0 billion

increase was recognized under Funds other than those from Dedicated Collections ($5.7 billion and $7.3 billion).

Adjustments to beginning net position in fiscal year 2018 had a consolidated change of $0.1 billion. This $0.1 billion

net increase includes a decrease of $22.5 billion under Funds other than those from Dedicated Collections ($2.5 billion, $11.0

billion and $9.0 billion) and an increase of $22.6 billion under Funds from Dedicated Collections ($2.6 billion, $11.0 billion

and $9.0 billion).

DOD reported adjustments to beginning net position impacting the financial statements. DOD reported an increase of

$5.7 billion and a decrease of $2.5 billion in fiscal year 2019 and 2018, respectively, to beginning net position due to

continuing implementation of SFFAS No. 48, Opening Balances for Inventory, Operating Materials and Supplies, and

Stockpile Materials and SFFAS No. 50, Establishing Opening Balances for General Property, Plant, and Equipment.

DOD followed SFFAS No. 21, Reporting Corrections of Errors and Changes in Accounting Principles, and corrected

an error in its financial statements for assets and net position. During fiscal year 2019, DOD reported adjustments to

beginning net position of $7.3 billion.

SFFAS No. 47, Reporting Entity, was implemented in fiscal year 2018. The standard requires that consolidation entities

be consolidated in their entirety. Prior to fiscal year 2018, only the federal portion of Smithsonian Institution was

consolidated. For fiscal year 2018, all activities (federal and non-federal portions) of Smithsonian Institution were

consolidated, resulting in a $2.6 billion adjustment to the fiscal year 2018 beginning net position.

In fiscal year 2018 the adjustments to beginning net position for Smithsonian Institution of $2.6 billion related to

dedicated collection funds. Note 20—Funds from Dedicated Collections had an adjustment to beginning net position for

fiscal year 2018 of $11.0 billion related to DOD. Additional amounts totaling $9.0 billion were restated to improve the

consistency of entities combined presentation and intradepartmental eliminations. Both adjustments were only between Funds

from dedicated collections and Funds other than those from dedicated collections with no effect on the consolidated total.

Refer to Note 20—Funds from Dedicated Collections for additional information.

T. Reclassifications

Certain fiscal year 2018 amounts were reclassified to conform to the fiscal year 2019 presentation. The reclassified data

is addressed in Note 5—Inventories and Related Property, Net. Refer to the individual note for more information.

U. Restatements

In fiscal year 2019, the presentation methodology for Statement of Operations and Changes in Net Position and Note

20—Funds from Dedicated Collections was changed to provide consistency among all entities. For comparative purposes,

fiscal year 2018 was also restated. This restatement was primarily related to an increase in the total amount of federal assets

and federal liabilities reported for Funds from Dedicated Collections. Refer to Note 1.S—Adjustments to Beginning Net

Position and Note 20—Funds from Dedicated Collections for more information.

In fiscal year 2019, DOD brought offline adjustments from published component AFRs into its reporting system for

2018. This correction resulted in the restatement of Balance Sheet lines Other liabilities ($0.1 billion decrease), Funds from

Dedicated Collections net position ($11.0 billion increase), and Funds other than those from Dedicated Collections ($11.0

billion decrease). The Net position, beginning of period on the Statement of Operations and Changes in Net Position was

restated by $0.1 billion. The Other Liabilities ($0.1 billion decrease) is also reflected in Note 16—Other Liabilities and the

Reconciliation of Net Operating Cost and Budget Deficit. Refer to the individual notes for more information.

Also, in fiscal year 2019 errors were noted in the presentation of Note 19—Commitments for operating leases and other

commitments that required correction of balances reported in fiscal year 2018. The corrections resulted in the restatement of
NOTES TO THE FINANCIAL STATEMENTS 76

prior year amounts for DOT’s other commitments ($6.4 billion increase) and VA’s operating leases ($3.9 billion increase).

Refer to Note 19—Commitments for more information.

In addition, in fiscal year 2019 Smithsonian Institution had a 2018 restatement between the Balance Sheet lines Note

9—Other Assets and Note 7—Debt and Equity Securities of $1.9 billion. The $1.9 billion is also reflected on the Debt and

equity securities and Other assets lines on the Reconciliations of Net Operating Cost and Budget Deficit. Also, Note 4—

Loans Receivable and Loan Guarantee Liabilities, Net 2018 subsidy expense/(income), principal amounts of loans under

guarantee, and principal amounts guaranteed by the U.S. have been restated to provide consistency among credit reform

entities. In addition, Note 18—Contingencies restated the 2018 estimated range of loss for reasonably possible contingencies

for DOE. Refer to the notes for more information.

V. Fiduciary Activities

Fiduciary activities are the collection or receipt, as well as the management, protection, accounting, investment and

disposition by the government of cash or other assets in which non-federal individuals or entities have an ownership interest

that the government must uphold. Fiduciary cash and other fiduciary assets are not assets of the government and are not

recognized on the Balance Sheet. See Note 21—Fiduciary Activities, for further information.

W. Use of Estimates

The government has made certain estimates and assumptions relating to the reporting of assets, liabilities, revenues,

expenses, and the disclosure of contingent liabilities to prepare these financial statements. There are a large number of factors

that affect these assumptions and estimates, which are inherently subject to substantial uncertainty arising from the likelihood

of future changes in general economic, regulatory, and market conditions. As such, actual results will differ from these

estimates and such differences may be material.

Significant transactions subject to estimates are included in the balance of loans and credit program receivables, federal

employee and veteran benefits payable, credit reform subsidy costs, investments in GSEs, and other non-federal securities

and related impairment, tax receivables, loan guarantees, depreciation, imputed costs, other actuarial liabilities, cost and

earned revenue allocations, as well as contingencies and any related recognized liabilities.

The government recognizes the sensitivity of credit reform modeling to slight changes in some model assumptions and

uses regular review of model factors, statistical modeling, and annual reestimates to reflect the most accurate cost of the

credit programs to the U.S. government. Federal Credit Reform Act of 1990 loan receivables and loan guarantees are

disclosed in Note 4—Loans Receivable and Loan Guarantee Liabilities, Net.

The forecasted future cash flows used to determine credit reform amounts are sensitive to slight changes in model

assumptions, such as general economic conditions, specific stock price volatility of the entities in which the government has

an equity interest, estimates of expected default, and prepayment rates. Therefore, forecasts of future financial results have

inherent uncertainty.

The annual valuation performed as of September 30 on the senior preferred stock and warrants comprising the

Investments in GSEs line item on the Balance Sheets incorporates various forecasts, projections, and cash flow analyses to

develop an estimate of the asset’s fair value. The value of the senior preferred stock is estimated by first estimating the fair

value of the total equity of each GSE (which, in addition to the senior preferred stock, is comprised of other equity

instruments including common stock, common stock warrants, and junior preferred stock). The fair value of the total equity

is based on a discounted cash flow valuation methodology, whereby the primary input is the present value of the projected

quarterly cash flows to equity holders. The fair value of the GSEs’ other equity instruments are then deducted from its total

equity, with the remainder representing the fair value of the senior preferred stock. The primary input into the warrants

valuation is the market value of the shares of common stock of the GSEs which, along with the junior preferred stock, are

traded on the OTC Bulletin Board. Treasury evaluates the need for adjusting the OTC market-based valuation of the warrants

for the effects, if any, of significant events occurring after the close of the market but before the end of the measurement date.

Treasury records any changes in valuation, including impairment, on the Statement of Net Cost and the Balance Sheet. Since

the valuation is an annual process, Treasury deems changes in valuation of the senior preferred stock and warrants as usual

and recurring.

Treasury performs annual calculations, as of September 30, to assess the need for recording an estimated liability in

accordance with SFFAS No. 5, Accounting for Liabilities of The Federal Government, related to the government’s funding

commitment to the GSEs under the SPSPAs. Liability recognition is predicated on the probable future occurrence of an
 77 NOTES TO THE FINANCIAL STATEMENTS

excess of liabilities and minimum capital reserve amounts, as defined, over the assets of either GSE at the end of any

reporting quarter. The occurrence of future GSE deficits, which ultimately determines the liability to the GSEs, is most

sensitive to future changes in the housing price index and, to a lesser extent, future changes in guarantee fees received by the

GSEs on single family mortgages and interest rates. For more detailed information on investments in GSEs and the amended

SPSPAs, see Note 8—Investments in Government-Sponsored Enterprises.

The government offers its employees’ pension and other post-employment retirement benefits, as well as life and health

insurance. OPM administers the largest civilian plan and DOD and VA administer the military plans. The benefits payable

are generally recorded during the time employee services are rendered. The related liabilities for defined benefit pension

plans, veterans’ compensation and burial benefits, post-retirement health benefits, life insurance benefits, education benefits,

and FECA benefits are recorded at estimated present value of future benefits, less any estimated present value of future

normal cost contributions. See Note 12—Federal Employee and Veteran Benefits Payable for additional information.

X. Credit Risk

Credit risk is the potential, no matter how remote, for financial loss from a failure of a borrower or counterparty to

perform in accordance with underlying contractual obligations. The government takes on credit risk when it makes direct

loans or guarantees to non-federal entities, provides credits to foreign entities, or becomes exposed to institutions that engage

in financial transactions with foreign countries.

The government also takes on credit risk related to committed, but undisbursed direct loans, funding commitments to

GSEs, and other activities. Many of these programs were developed to provide credit where borrowers are not able to get

access to credit with reasonable terms and conditions. These programs expose the government to potential costs and losses.

The extent of the risk assumed is described in more detail in the notes to the financial statements, and where applicable, is

factored into credit reform models and reflected in fair value measurements.

Y. Treaties and Other International Agreements

For financial reporting purposes, treaties and other international agreements may be understood as falling into three 

broad categories:

• No present or contingent obligation to provide goods, services, or financial support,

• Present obligation to provide goods, services, or financial support, or

• Contingent obligation to provide goods, services, or financial support.

The proper financial reporting of treaties and other international agreements depends on the probable future outflow or 

other sacrifice of resources as a result of entering into the agreement.

In many cases, treaties and other international agreements establish frameworks that govern cooperative activities with 

other countries but leave to the discretion of the parties whether to engage in any such activities. In other cases, the 

agreements may contemplate specific cooperative activities, but create no present or contingent obligations to engage in 

them. Cooperative activities relevant to these treaties and other international agreements fall under the first category, which 

does not result in the U.S. government incurring any financial liability. Since these treaties and other international agreements 

have no financial impact, they are not reported or disclosed in this Financial Report. 

Some treaties and other international agreements fall under the second category, and involve a present obligation, and 

therefore result in liability recognition. Such present obligation may relate to the U.S. government providing financial and inkind support, including assessed contributions, voluntary contributions, grants, and other assistance to international 

organizations in which it participates as a member. Examples of such agreements include those that establish international 

organizations under which the U.S. government undertakes obligations to pay assessed dues to the organization; grant 

agreements under which the U.S. government provides foreign assistance funds to other countries; and claims settlement 

agreements under which the U.S. government agrees to pay specific sums of money to settle claims. For further information 

related to treaties and other international agreements that fall under the second category, refer to Note 19—Commitments.

The last category encompasses those treaties or other international agreements which result in contingencies that may 

require recognition or disclosure in the financial statements. Such contingencies may stem from commitments in a treaty or 

other international agreement to provide goods, services, or financial support when a future event occurs, or from litigation, 

claims, or assessments forged by other parties to the agreement.
NOTES TO THE FINANCIAL STATEMENTS 78

Z. Public-Private Partnerships

Federal P3s are risk-sharing arrangements or transactions with expected lives greater than five years between public and

private sector entities. Such arrangements or transactions provide a service or an asset for government and/or general public

use where in addition to the sharing of resources, each party shares in the risks and rewards of said arrangements or

transactions. The P3s that are deemed material to the consolidated financial statements and have met the criteria of SFFAS

No. 49, Public Private Partnerships, are disclosed. For more details on P3s, see Note 26—Public Private Partnerships.
 79 NOTES TO THE FINANCIAL STATEMENTS

Note 2. Cash and Other Monetary Assets

Cash and Other Monetary Assets as of September 30, 2019, and 2018

(In billions of dollars) 2019 2018

Unrestricted cash:

Cash held by Treasury for governmentwide operations ................................. 376.1 378.5

Other......................................................................................................... 4.5 4.9

Restricted..................................................................................................... 44.7 31.6

Total cash ............................................................................................... 425.3 415.0

International monetary assets ........................................................................ 73.3 66.7

Gold and silver ............................................................................................. 11.1 11.1

Foreign currency........................................................................................... 14.9 14.7

Total cash and other monetary assets....................................................... 524.6 507.5

Unrestricted cash includes cash held by Treasury for governmentwide operations (Operating Cash) and all other

unrestricted cash held by the federal entities. Operating Cash represents balances from tax collections, federal debt receipts,

and other various receipts net of cash outflows for federal debt repayments and other payments. Treasury checks outstanding

are netted against Operating Cash until they are cleared by the FR System. Other unrestricted cash not included in Treasury’s

Operating Cash balance includes balances representing cash, cash equivalents, and other funds held by entities, such as

undeposited collections, deposits in transit, demand deposits, amounts held in trust, and imprest funds. Operating Cash held

by the Treasury decreased by $2.4 billion (a decrease of approximately 1 percent) in fiscal year 2019 due to Treasury’s

investment and borrowing decisions to manage the balance and timing of the government’s cash position.

Restrictions on cash are due to the imposition on cash deposits by law, regulation, or agreement. Restricted cash is

primarily composed of cash held by the SAA, which executes Foreign Military Sales. The SAA included $37.1 billion and

$26.3 billion as of September 30, 2019, and 2018, respectively.

International monetary assets include the U.S. reserve position in the IMF and U.S. holdings of SDRs. The U.S. reserve

position in the IMF had a U.S. dollar equivalent of $23.0 billion and $15.4 billion as of September 30, 2019, and 2018,

respectively. Only a portion of the U.S. financial subscription to the IMF is made in the form of reserve assets; the remainder

is provided in the form of a letter of credit. The balance available under the letter of credit totaled $89.7 billion and $100.0

billion as of September 30, 2019, and 2018 respectively. The total amount of SDR holdings of the U.S. was the equivalent of

$50.1 billion and $51.0 billion as of September 30, 2019, and 2018, respectively. For more information regarding the U.S.

participation in the IMF and SDRs, see Treasury’s AFR and Note 25—Disclosure Entities and Related Parties.

Gold is valued at the statutory price of $42.2222 per fine troy ounce. The number of fine troy ounces of gold was

261,498,927 as of September 30, 2019, and 2018. The market value of gold on the London Fixing was $1,485 and $1,187 per

fine troy ounce as of September 30, 2019, and 2018, respectively. In addition, silver is valued at the statutory price of

$1.2929 per fine troy ounce. The number of fine troy ounces of silver was 16,000,000 as of September 30, 2019, and 2018.

The market value of silver on the London Fixing was $17.26 and $14.31 per fine troy ounce as of September 30, 2019, and

2018, respectively. Gold totaling $11.0 billion as of September 30, 2019, and 2018, was pledged as collateral for gold

certificates issued and authorized to the FRBs by the Secretary of the Treasury. Gold certificates were valued at $11.0 billion

as of September 30, 2019, and 2018. Treasury may redeem the gold certificates at any time. Please refer to the financial

statements of Treasury for detailed information regarding gold reserves and Treasury’s liability for gold. Foreign currency is

translated into U.S. dollars at the exchange rate at fiscal year-end. The foreign currency is maintained by Treasury’s

Exchange Stabilization Fund and various U.S. federal entities as well as foreign banks.
NOTES TO THE FINANCIAL STATEMENTS 80

Note 3. Accounts and Taxes Receivable, Net

Accounts and Taxes Receivable as of September 30, 2019, and 2018

(In billions of dollars) 2019 2018

Accounts receivable:

Gross accounts receivable.......................................................................... 117.7 112.4

Allowance for uncollectible amounts ............................................................ (31.8) (30.5)

Accounts receivable, net............................................................................. 85.9 81.9

Taxes receivable:

Gross taxes receivable ............................................................................... 381.5 226.7

Allowance for uncollectible amounts ............................................................ (229.4) (163.7)

Taxes receivable, net ................................................................................. 152.1 63.0

Total accounts and taxes receivable, net ................................................... 238.0 144.9

Gross accounts receivable includes related interest receivable of $3.3 billion and $3.6 billion as of September 30, 2019, 

and 2018, respectively.

Treasury comprises approximately 61.3 percent of the government’s reported accounts and taxes receivable, net, as of 

September 30, 2019. Treasury experienced a year-to-year increase of $85.9 billion due to taxes receivable. This is a 

consequence of the TCJA of 2017, which imposed a one-time tax on previously unrepatriated foreign earnings at a reduced 

rate that taxpayers may elect to pay over an eight-year installment schedule. The following list of entities comprise 98.2 

percent of the government’s accounts and taxes receivable, net, of $238.0 billion as of September 30, 2019. Please refer to the 

following entities financial statements for details on gross accounts and taxes receivable and the related allowance for 

uncollectible amounts:

• Treasury • DOD • DOL 

• HHS • PBGC • USPS 

• SSA • USDA • FDIC 

• DHS • DOE • FCC 

• DOI • TVA 

• VA • OPM 

 Accounts and Taxes receivable, net include amounts related to criminal restitution owed to the government. In fiscal 

year 2019, accounts and taxes receivable, net included $7.7 billion of gross receivable related to criminal restitution orders 

monitored by responsible entities, of which $1.4 billion is determined to be collectible. Of this gross receivable amount, 

Treasury and HHS collectively account for $5.3 billion of which $0.5 billion is determined to be collectible as of September 

30, 2019. In fiscal year 2018, this balance included $7.9 billion of gross receivables related to criminal restitution orders, of 

which $0.7 billion is determined to be collectible. Of this gross receivable amount, Treasury and HHS collectively account 

for $5.7 billion of which $0.5 billion is determined to be collectible as of September 30, 2018.
 81 NOTES TO THE FINANCIAL STATEMENTS

Note 4. Loans Receivable and Loan Guarantee Liabilities, Net

Loans Receivable as of September 30, 2019 

(In billions of dollars)

Loans 

Receivable, 

gross

Interest 

Receivable

Foreclosed 

Property

Allowance 

for Subsidy

Net Loans 

Receivable

Subsidy 

Expense 

(Income) 

for the 

Fiscal Year

Federal Direct Student Loans -

Education ................................. 1,164.9 83.3 - (124.4) 1,123.8 61.5

Federal Family Education Loans 

- Education ............................... 90.2 22.3 - (35.7) 76.8 5.8

Electric Loans - USDA............... 49.2 0.1 - (2.3) 47.0 (0.3)

Rural Housing Services - USDA . 23.6 1.1 0.1 (2.8) 22.0 0.3

Export-Import Bank Loans ......... 16.4 0.1 - (1.6) 14.9 -

Federal Housing Administration 

Loans - HUD............................. 37.4 14.1 1.3 (16.7) 36.1 (0.1)

All other programs ..................... 116.3 2.0 1.1 (14.2) 105.2 (0.2)

Total loans receivable ............. 1,498.0 123.0 2.5 (197.7) 1,425.8 67.0

Loans Receivable as of September 30, 2018 (Restated)

(In billions of dollars)

Loans 

Receivable, 

gross

Interest 

Receivable

Foreclosed 

Property

Allowance 

for Subsidy

Net Loans 

Receivable

Subsidy 

Expense 

(Income) 

for the 

Fiscal Year

Federal Direct Student Loans -

Education ................................. 1,083.7 72.0 - (40.7) 1,115.0 4.4

Federal Family Education Loans 

- Education ............................... 95.1 21.1 - (23.3) 92.9 2.4

Electric Loans - USDA............... 49.3 0.3 - (2.2) 47.4 (0.1)

Rural Housing Services - USDA . 24.4 0.2 0.1 (2.1) 22.6 0.1

Export-Import Bank Loans ......... 18.2 0.2 - (0.8) 17.6 0.4

Federal Housing Administration 

Loans - HUD............................. 30.6 9.3 1.3 (15.1) 26.1 (0.2)

All other programs ..................... 108.9 1.7 1.1 (14.2) 97.5 1.2

Total loans receivable ............. 1,410.2 104.8 2.5 (98.4) 1,419.1 8.2
NOTES TO THE FINANCIAL STATEMENTS 82

Loan Guarantee Liabilities as of September 30, 2019, and 2018

Principal Amount 

of Loans Under 

Guarantee

Principal Amount 

Guaranteed 

by the U.S.

Loan Guarantee 

Liabilities

Subsidy Expense 

(Income) for the 

Fiscal Year

Restated Restated Restated

(In billions of dollars) 2019 2018 2019 2018 2019 2018 2019 2018

Federal Housing Administration 

Loans - HUD.............................. 1,524.6 1,470.8 1,366.2 1,326.8 2.5 19.1 (24.7) (8.9)

Veterans Housing Benefit 

Programs - VA ........................... 712.3 663.7 179.7 167.9 7.5 8.7 (2.1) (2.8)

Rural Housing Services - USDA .. 124.1 123.0 111.6 110.6 (0.2) (0.2) (0.1) (0.2)

Small Business Loans - SBA....... 129.7 128.8 105.8 105.6 2.0 2.7 (1.0) (1.1)

Federal Family Education Loans 

- Education ................................ 141.6 157.1 141.6 153.8 5.2 2.6 6.9 (1.2)

Foreign Aid Loan Programs -

USAID....................................... 15.6 18.5 15.3 18.2 2.8 3.7 (1.0) -

All other guaranteed loan 

programs ................................... 77.1 83.9 72.6 79.6 1.9 1.6 (0.2) (0.4)

Total loan guarantee liabilities... 2,725.0 2,645.8 1,992.8 1,962.5 21.7 38.2 (22.2) (14.6)

The government has two types of loan programs: direct loans and loan guarantees. One major type of loan is direct

loans such as the Education Federal Direct Student Loans. The second type is loan guarantee programs, such as the HUD’s

FHA Loans program.

Direct loans and loan guarantee programs are used 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. For those unable to afford credit at the market rate, federal credit programs provide subsidies in the form of

direct loans offered at an interest rate lower than the market rate. For those to whom non-federal financial institutions are

reluctant to grant credit because of the high risk involved, federal credit programs guarantee the payment of these non-federal

loans and absorb the cost of defaults.

The amount of the long-term cost of post-1991 direct loans and loan guarantees outstanding equals the subsidy cost

allowance for direct loans and the liability for loan guarantees (including defaulted guaranteed loans) as of September 30.

The amount of the long-term cost of pre-1992 direct loans and loan guarantees equals the allowance for subsidy amounts (or

present value allowance) for direct loans and the liability for loan guarantees. The long-term cost is based on all direct loans

and guaranteed loans disbursed in this fiscal year and previous years that are outstanding as of September 30. It includes the

subsidy cost of these loans and guarantees estimated as of the time of loan disbursement and subsequent adjustments such as

modifications, reestimates, amortizations, and write-offs.

The 2018 subsidy expense/(income), principal amount of loans under guarantee, and principal amount guaranteed by the

U.S. have been restated to provide consistency among credit reform entities. The restated 2018 loans guarantee liabilities

subsidy expense/(income) increased by $0.3 billion while the 2018 loans receivable subsidy expense/(income) decreased by

$0.1 billion. The liabilities for principal amount of loans under guarantee increased by $2.6 billion and the principal amount

of loans guaranteed by the U.S. increased by $2.2 billion.

Net loans receivable includes related interest and foreclosed property. Foreclosed property is property that is transferred

from borrowers to a federal credit program, through foreclosure or other means, in partial or full settlement of post-1991

direct loans or as a compensation for losses that the government sustained under post-1991 loan guarantees. Please refer to

the financial statements of the USDA, VA, and HUD for significant detailed information regarding foreclosed property.
 83 NOTES TO THE FINANCIAL STATEMENTS

The total subsidy expense/(income) is the cost of direct loans and loan guarantees recognized during the fiscal year. It

consists of the subsidy expense/(income) incurred for direct and guaranteed loans disbursed during the fiscal year, for

modifications made during the fiscal year of loans and guarantees outstanding, and for upward or downward reestimates as of

the end of the fiscal year of the cost of loans and guarantees outstanding. This expense/(income) is included in the Statements

of Net Cost.

Loan Programs

The majority of the loan programs are provided by Education, HUD, USDA, SBA, USAID, VA, and EXIM Bank. For

significant detailed information regarding the direct and guaranteed loan programs listed in the tables above, please refer to

the financial statements of the entities.

Education has two major loan programs, authorized by Title IV of the Higher Education Act of 1965. The first program

is the William D. Ford Federal Direct Loan Program (referred to as the Direct Loan Program), which was established in fiscal

year 1994. The Direct Loan Program offered four types of educational loans: Stafford, Unsubsidized Stafford, PLUS for

parents and/or graduate or professional students, and consolidation loans. With this program, the government makes loans

directly to students and parents through participating institutions of higher education. Direct loans are originated and serviced

through contracts with private vendors. Education disbursed approximately $130.7 billion in Direct Loans to eligible

borrowers in fiscal year 2019 and approximately $134.1 billion in fiscal year 2018. The second program is the FFEL

Program. This program was established in fiscal year 1965 and is a guaranteed loan program. Like the Direct Loan Program,

it offered four types of loans: Stafford, Unsubsidized Stafford, PLUS for parents and/or graduate or professional students, and

consolidation loans. The SAFRA, which was enacted as part of the Health Care Education and Reconciliation Act of 2010

(P.L. 111-152), eliminated the authority to guarantee new FFEL after June 30, 2010. During fiscal year 2019, Education net

loans receivable decreased by $7.3 billion, largely the result of net upward loan subsidy reestimates of $58.7 billion that

exceeded an increase in gross loan receivables. The reestimate includes changes in estimation methods and comparative cost

increases for Education’s Income-Driven Repayment plans as well as enhancements in estimation methodology with respect

to deferment and forbearance actions.

HUD’s Office of Housing plays a vital role for the nation’s homebuyers, homeowners, renters, and communities

through its nationally administered programs. It includes FHA, the largest mortgage insurer in the world. FHA provides over

$1.3 trillion in mortgage insurance on mortgages for single family homes, multifamily properties, and healthcare facilities.

USDA’s Rural Development offers both direct and guaranteed loans with unique missions to bring prosperity and

opportunity to rural areas. The Rural Housing programs provide affordable, safe, and sanitary housing and essential

community facilities to rural communities. Rural Utility programs help improve the quality of life in rural areas through a

variety of loan programs for electric energy, telecommunications, and water and environmental projects.

USAID currently operates the following loan and/or loan guarantee programs: Direct Loan Program, Urban and

Environmental Program, Micro and Small Enterprise Development Program, Israel Loan Guarantee Program, Development

Credit Authority Program, Loan Guarantees to Middle East Northern Africa Program, and the Ukraine Loan Guarantee

Program. These programs provide loans to developing countries to help with housing and economic transition.

The SBA provides guarantees that help small businesses obtain bank loans and licensed companies to make investments

in qualifying small businesses. The SBA also makes loans to microloan intermediaries and provides a direct loan program

that assists homeowners, renters and businesses recover from disasters.

VA operates the following direct loan and loan guarantee programs: Vendee Loans, Acquired Loans, Native American

Direct Loans, Housing Guaranteed Loans, Insurance Loans, and Loan Sale Guarantees. The Home Loans program provides

loan guarantees and direct loans to veterans, service members, qualifying dependents, and limited non-veterans to purchase

homes and retain homeownership with favorable market terms. During fiscal year 2019, the face value of outstanding

principal on loans guaranteed by the VA increased by $48.6 billion. This increase was primarily due to $155.4 billion in new

loans guaranteed by the VA, partially offset by $106.7 billion in guaranteed loan terminations.

The EXIM Bank aids in financing and promoting U.S. exports. Loans and guarantees extended under the medium-term

loan program typically have repayment terms of one to seven years, while loans and guarantees extended under the long-term

program usually have repayment terms in excess of seven years. Generally, both the medium-term and the long-term loan and

guarantee programs cover up to 85 percent of the U.S. contract value of shipped goods.
NOTES TO THE FINANCIAL STATEMENTS 84

Note 5. Inventories and Related Property, Net

Inventories and Related Property, Net as of September 30, 2019, and 2018

Reclassified

(In billions of dollars) 2019 2018

Inventory purchased for resale ............................................................................... 68.9 68.0

Inventory and operating material and supplies held for repair .................................... 73.3 71.1

Inventory—excess, obsolete, and unserviceable ..................................................... 0.8 0.8

Operating materials and supplies held for use ......................................................... 130.8 124.7

Operating materials and supplies held in reserve for future use ................................ 27.0 18.2

Operating materials and supplies-excess, obsolete, and unserviceable ..................... 3.1 2.9

Stockpile materials held in reserve for future use...................................................... 50.6 51.9

Stockpile materials held for sale ............................................................................. 7.7 4.6

Other related property ............................................................................................ 3.3 4.2

Allowance for loss ................................................................................................. (9.8) (8.9)

Total inventories and related property, net.............................................................. 355.7 337.5

Inventory 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. 

Inventory shall be categorized as one of the following:

• Held for sale or use – includes items for sale or transfer to either entities outside the federal government, or other 

federal entities.

• Held for repair – items that require servicing to make them suitable for sale or use.

• Excess – stock that exceeds the demand expected in the normal course of operations because the amount on hand is 

more than can be sold in the foreseeable future and that does not meet management’s criteria to be held in reserve 

for future sale or use.

• Obsolete – Items that are no longer needed due to changes in technology, laws, customs, or operations.

• Unserviceable – damaged items that are more economical to dispose of than to repair.

OM&S consists of tangible personal property to be consumed in normal operations and shall be categorized as one of 

the following:

• Held for sale or use – includes items for sale or transfer to either entities outside the federal government, or other 

federal entities.

• Held in reserve for future sale or use – items maintained because they are not readily available in the market or 

because there is more than a remote chance that they will eventually be needed.

• Held for repair – items that require servicing to make them suitable for sale or use.

• Excess – stock that exceeds the demand expected in the normal course of operations because the amount on hand is 

more than can be sold in the foreseeable future and that does not meet management’s criteria to be held in reserve 

for future sale or use.

• Obsolete – Items that are no longer needed due to changes in technology, laws, customs, or operations.

• Unserviceable – damaged items that are more economical to dispose of than to repair.

Stockpile materials are strategic and critical materials held due to statutory requirements for use in national defense, 

conservation or national emergencies. They are not held with the intent of selling in the ordinary course of business. When 

stockpile materials are authorized to be sold, those materials shall be disclosed as stockpile materials held for sale.

Other related property consists of the following: 
 85 NOTES TO THE FINANCIAL STATEMENTS

• Forfeited property consists of monetary instruments, intangible property, real property, and tangible personal 

property acquired through forfeiture proceedings; property acquired by the government to satisfy a tax liability; and 

unclaimed and abandoned merchandise. Please refer to the financial statements of DOJ and Treasury for detailed 

information regarding forfeited property.

• Goods acquired under price support and stabilization programs are referred to as commodities. Commodities are 

items of commerce or trade having an exchange value. Please refer to the financial statements of USDA for 

detailed information regarding commodities.

• Seized property includes monetary instruments, real property and tangible personal property of others in the actual 

or constructive possession of the custodial entity. For more information on seized property, refer to the financial 

statements of DOJ and Treasury.

• Foreclosed property consists of any asset received in satisfaction of a loan receivable or as a result of payment of a 

claim under a guaranteed or insured loan (excluding commodities acquired under price support programs). For 

more information on foreclosed property, see Note 4—Loans Receivable and Guarantee Liabilities. Also refer to 

the financial statements of USDA, VA, and HUD for detailed information regarding foreclosed property.

DOD comprises approximately 82 percent of the government’s inventories and related property, net, as of September 

30, 2019. DOD continues to implement SFFAS No. 48, Opening Balances for Inventory, Operating Materials and Supplies, 

and Stockpile Materials, which permits alternative methods in establishing opening balances for inventories and related 

property. The 2018 amounts have been reclassified for DOD to move $4.4 billion from other related property to operating 

materials and supplies held in reserve for future use. This reclassification was identified at the governmentwide level and 

provides a more transparent view of the significant line items for Inventories and Related Property.

The following entities comprise over 98 percent of the government’s reported inventories and related property, net of 

$355.7 billion as of September 30, 2019. Refer to each entities’ financial statements for details.

• DOD

• DOE

• HHS
NOTES TO THE FINANCIAL STATEMENTS 86

Note 6. Property, Plant, and Equipment, Net

Property, Plant, and Equipment as of September 30, 2019, and 2018

Cost

Accumulated 

Depreciation/ 

Amortization Net Cost

Accumulated 

Depreciation/ 

Amortization Net

(In billions of dollars) 2019 2018

Buildings, structures, and facilities.................. 775.8 469.7 306.1 728.4 431.1 297.3

Furniture, fixtures, and equipment .................. 1,387.5 809.5 578.0 1,363.9 782.7 581.2

Construction in progress................................ 171.6 N/A 171.6 159.5 N/A 159.5

Internal Use Software.................................... 51.5 32.1 19.4 49.4 30.8 18.6

Land............................................................. 21.7 N/A 21.7 21.5 N/A 21.5

Other property, plant, and 

equipment................................................... 31.7 21.6 10.1 38.0 25.6 12.4

Total property, plant, and equipment ......... 2,439.8 1,332.9 1,106.9 2,360.7 1,270.2 1,090.5

Note: "N/A" indicates not applicable.

DOD comprises approximately 69.4 percent of the government’s reported PP&E, as of September 30, 2019. DOD 

continues to implement SFFAS No. 50, Establishing Opening Balances for General Property, Plant, and Equipment which 

permits alternative methods in establishing opening balances for general PP&E and has elected to exclude land and land 

rights. The total acreage excluded was 20,926,485 as of September 30, 2019 and September 30, 2018. 

The following entities comprise over 90 percent of the government’s reported PP&E net of $1,106.9 billion as of 

September 30, 2019. Please refer to the entities’ financial statements for details.

• DOD

• DOE

• GSA

• DOC

• DOI

• USPS

• DHS

• VA

• TVA

• State

Certain PP&E are multi-use heritage assets, see Note 24—Stewardship Land and Heritage Assets for additional 

information on multi-use heritage assets.
 87 NOTES TO THE FINANCIAL STATEMENTS

Note 7. Debt and Equity Securities

 

Debt and Equity Securities as of September 30, 2019 and 2018

Restated

2019 2018

Book Book 

(In billions of dollars) Cost Adjustment Value Cost Adjustment Value

Held-To Maturity

Debt securities:

Mortgage/asset backed ...................... 0.1 - 0.1 0.2 - 0.2

Equity Securities:

All other equity securities..................... 3.6 - 3.6 3.5 - 3.5

Total Held-To-Maturity (Net Investment) 3.7 - 3.7 3.7 - 3.7

Available-for-Sale:

Debt Securities: 2.4 0.1 2.5 3.5 0.2 3.7

Total Available-for-Sale (Fair Value) 2.4 0.1 2.5 3.5 0.2 3.7

Trading Securities:

Debt Securities:

Non-U.S. government.......................... 13.0 0.4 13.4 12.9 (0.2) 12.7

Commercial ....................................... 0.3 - 0.3 0.2 - 0.2

Mortgage/asset backed ....................... 5.1 0.2 5.3 3.8 (0.1) 3.7

Corporate and other bonds.................. 16.5 1.5 18.0 15.9 (0.2) 15.7

All other debt securities ....................... 6.2 4.8 11.0 2.5 (1.0) 1.5

Equity Securities:

Unit Trust ........................................... 13.6 7.8 21.4 16.3 9.5 25.8

Common Stocks ................................. 2.3 0.1 2.4 2.0 0.3 2.3

All other equity securities..................... 15.3 0.2 15.5 16.2 0.9 17.1

Total Trading Securities (Fair Value) 72.3 15.0 87.3 69.8 9.2 79.0

Total Total

2019 2018

Total debt and equity securities categorized as 

held-to-maturity, available-for-sale or trading ............................ 93.5 86.4

Total NRRIT debt and equity securities (Fair Value) .................. 24.8 25.8

Total debt and equity securities................................................ 118.3 112.2

Note: PBGC, NRRIT and TVA primarily invest in trading securities. Treasury invests in held-to-maturity, available-for-sale and 

and trading securities.

Certain significant consolidated entities apply financial accounting and reporting standards issued by FASB and such 

entities, as permitted by SFFAS No. 47, Reporting Entity are consolidated into the U.S. government’s consolidated financial 

statements without conversion to financial and reporting standards issued by the FASAB. PBGC, NRRIT, TVA, and 

Smithsonian Institution debt and equity securities are recorded at fair value and have been categorized based upon a fair value 

hierarchy, in accordance with FASB ASC Section 820, Fair Value Measurement.
NOTES TO THE FINANCIAL STATEMENTS 88

Fair Value Measurement

 Fair value is a market-based measurement. For some assets, observable market transactions or market information might 

be available. For other assets, observable market transactions and market information might not be available. However, the 

objective of a fair value measurement in both cases is the same to estimate the price at which an orderly transaction to sell the 

asset between market participants at the measurement date under current market conditions.

 When a price for an identical asset is not observable, a reporting entity measures fair value using another valuation 

technique that maximizes the use of relevant observable inputs and minimizes the use of unobservable inputs. Because fair 

value is a market-based measurement, it is measured using the assumptions that market participants would use when pricing 

the asset, including assumptions about risk. As a result, a reporting entity’s intention to hold an asset is not relevant when 

measuring fair value. 

 The measurement of fair value of an asset is categorized with different levels of fair value hierarchy as follows:

• Level 1—Unadjusted quoted prices in active markets for identical assets that the reporting entity can access at the 

measurement date.

• Level 2—Inputs other than quoted prices included with Level 1 that are observable for the asset, either directly or 

indirectly.

• Level 3—Unobservable inputs for the asset.

• Other —The category contains certain investments that are measured at fair value using NAV per share useful 

method and have not been categorized in the fair value hierarchy. Investments in “other” represent certain 

commingled funds, partnerships, real estate and real estate investment trusts.

Debt and Equity Securities as of September 30, 2019

(In billions of dollars) Level 1 Level 2 Level 3 Other Total

Fair Value:

Pension Benefit Guaranty Corporation ................ 3.7 39.7 - 27.0 70.4

National Railroad Retirement Investment Trust.. 13.6 4.7 - 6.5 24.8

Tennessee Valley Authority ................................... 2.8 3.1 - 4.7 10.6

Smithsonian Institution ........................................... 0.4 - 1.5 1.9

Total Fair Value Measurements ......................... 20.5 47.5 - 39.7 107.7

All other*:

Total all other......................................................... - 10.6 10.6

Total debt and equity securities .................... 20.5 47.5 - 50.3 118.3

*Levels not applicable due to entities in this category being FASAB reporters.

PBGC‘s “other” investments measured at NAV consists of real estate, private equity and pooled funds. PBGC’s

investments are primarily categorized in the hierarchy of Level 2. PBGC’s Level 2 investments consist of securities lending

collateral, fixed maturity, commercial paper, asset backed, pooled funds, corporate bonds and domestic equity securities. 

NRRIT on behalf of the RRB, manages and invests railroad retirement assets that are to be used to pay retirement

benefits to the nation’s railroad workers under the RRP. As an investment company, NRRIT is subject to different accounting

standards that do not require the classifications presented in the Debt and equity securities table. NRRIT’s investments

consists of certain U.S. Equity, Non-U.S. Equity and Global Fixed Income securities. Please refer to NRRIT’s financial

statements for more detailed information concerning these investments.

TVA’s investments consist of amounts held in the Nuclear Decommissioning Trust, Asset Retirement Trust,

Supplemental Executive Retirement Plan, and Deferred Compensation Plan. These investments are primarily U.S. and

international equities, real estate investment trusts, fixed income investments, high-yield fixed income investments,

commodities, currencies, derivative instruments, and other investments. TVA’s qualified benefit pension plan is funded with

qualified plan assets. These investments include global public equities, private equities, fixed income securities, public real

assets, and private real assets.
 89 NOTES TO THE FINANCIAL STATEMENTS

 Please refer to PBGC, NRRIT, TVA and Smithsonian Institution’s financial statements for more detailed information on

Fair Value Measurement.

In fiscal year 2019, a misstatement related to Smithsonian Institution resulted in an increase of $1.9 billion to the

Trading securities-All other equity securities line and a decrease to Note 9—Other assets for fiscal year 2018.
NOTES TO THE FINANCIAL STATEMENTS 90

Note 8. Investments in Government-Sponsored Enterprises

Congress established Fannie Mae and Freddie Mac as GSEs to support mortgage lending. A key function of the GSEs is

to purchase mortgages, package those mortgages into securities, which are subsequently sold to investors, and guarantee the

timely payment of principal and interest on these securities.

Leading up to the financial crisis, increasingly difficult conditions in the housing market challenged the soundness and

profitability of the GSEs, thereby threatening to undermine the entire housing market. In response Congress passed the

Housing and Economic Recovery Act of 2008 (P.L.110-289) in July 2008. This act created FHFA, with enhanced regulatory

authority over the GSEs, and provided the Secretary of the Treasury with certain authorities intended to ensure the financial

stability of the GSEs, if necessary. In September 2008, FHFA placed the GSEs under conservatorship and Treasury invested

in the GSEs by entering into a SPSPA with each GSE. These actions were taken to preserve the GSEs’ assets, ensure a sound

and solvent financial condition, and mitigate systemic risks that contributed to market instability.

The purpose of such actions is to maintain the solvency of the GSEs so they can continue to fulfill their vital roles in the

home mortgage market while the Administration and Congress determine what structural changes should be made to the

housing finance system. Draws under the SPSPAs result in an increased investment in the GSEs as further discussed below.

Under SFFAS No. 47, Reporting Entity criteria Fannie Mae and Freddie Mac were owned or controlled by the federal

government only as a result of (a) regulatory actions (such as organizations in receivership or conservatorship) or (b) other

federal government intervention actions. Under the regulatory or other intervention actions, the relationship with the federal

government was and is not expected to be permanent. These entities are classified as disclosure entities based on their

characteristics as a whole. Accordingly, these entities are not consolidated into the U.S. government’s consolidated financial

statements; however, the value of the investments in these entities, changes in value, and related activity with these entities

are included in the U.S. government’s consolidated financial statements.

Senior Preferred Stock Purchase Agreements

Under the SPSPAs, Treasury initially received from each GSE: 1) 1,000,000 shares of non-voting variable liquidation

preference senior preferred stock with a liquidation preference value of $1,000 per share and 2) a non-transferable warrant for

the purchase, at a nominal cost, of 79.9 percent of common stock on a fully-diluted basis. The warrants expire on September

7, 2028. Under the amended SPSPAs, the quarterly dividend payment changed from a 10.0 percent per annum fixed rate

dividend on the total liquidation preference (as discussed below) to an amount equivalent to the GSE’s positive net worth

above a capital reserve amount. The capital reserve amount, which was initially set at $3.0 billion for calendar year 2013,

declined by $600 million at the beginning of each calendar year thereafter, and was scheduled to reach zero by calendar year

2018. On December 21, 2017, Treasury and the FHFA modified the SPSPAs between Treasury and the GSEs to increase the

capital reserve amount for each GSE back to $3 billion, effective with the December 2017 dividend payment. In exchange for

the increase in the capital reserve, Treasury’s liquidation preference in each GSE increased by $3 billion on December 31,

2017. On September 27, 2019, Treasury and the FHFA agreed to increase the capital reserve amounts of Fannie Mae and

Freddie Mac to $25 billion and $20 billion, representing an increase of $22 billion and $17 billion, respectively, over the

prior reserve amount of $3 billion each. In exchange, Treasury’s liquidation preference in each GSE will gradually increase

up to the adjusted capital reserve amounts based on the quarterly earnings of each GSE. For the fiscal year ended September

30, 2019, Treasury’s liquidation preference in Fannie Mae and Freddie Mac increased by $3.4 billion and $1.8 billion,

respectively. The GSEs will not pay a quarterly dividend if their positive net worth is below the required capital reserve

threshold. Cash dividends of $3.9 billion and $3.6 billion were received during fiscal years ended September 30, 2019, and

2018, respectively.

The SPSPAs, which have no expiration date, require that Treasury will disburse funds to the GSEs if at the end of any

quarter, the FHFA determines that the liabilities of either GSE exceed its assets. Draws from Treasury under the SPSPAs are

designed to ensure that the GSEs maintain positive net worth, with a fixed maximum amount available to each GSE under

this agreement established as of December 31, 2012 (refer to the “Contingent Liability to GSEs” section below and Note 18

—Contingencies). Draws against the funding commitment of the SPSPAs do not result in the issuance of additional shares of

senior preferred stock; instead, it increases the liquidation preference of the initial 1,000,000 shares by the amount of the

draw. The combined cumulative liquidation preference totaled $204 billion and $199 billion as of September 30, 2019 and

2018, respectively. There were no payments to the GSEs for the fiscal year ended September 30, 2019. Actual payments of

$4.0 billion were made to the GSEs for the fiscal year ended September 30, 2018.
 91 NOTES TO THE FINANCIAL STATEMENTS

Senior Preferred Stock and Warrants for Common Stock

In determining the fair value of the senior preferred stock and warrants for common stock, Treasury relied on the GSEs’

public filings and press releases concerning their financial statements, as well as non-public, long-term financial forecasts,

monthly summaries, quarterly credit supplements, independent research regarding preferred stock trading, independent

research regarding the GSEs’ common stock trading on the OTC Bulletin Board, discussions with each of the GSEs and

FHFA, and other information pertinent to the valuations. Because the instruments are not publicly traded, there is no

comparable trading information available. The fair valuations rely on significant unobservable inputs that reflect assumptions

about the expectations that market participants would use in pricing.

The fair value of the senior preferred stock considers the amount of forecasted cash flows to equity. The fair valuations

assume that a hypothetical buyer would acquire the discounted dividend stream as of the transaction date. The fair value of

the senior preferred stock decreased as of September 30, 2019 when compared to September 30, 2018, mainly driven by the

increase in the market value of the GSEs’ other equity securities that comprise the GSEs’ total equity value. The effect of the

market value increase was partially offset by a lower discount rate, driven by a lower risk-free rate and reduced volatility

among comparable companies.

Factors impacting the fair value of the warrants include the nominal exercise price and the large number of potential

exercise shares, the market trading of the common stock that underlies the warrants as of September 30, the principal market,

and the market participants. Other factors impacting the fair value include, among other things, the holding period risk related

directly to the assumption of the amount of time that it will take to sell the exercised shares without depressing the market.

The fair value of the warrants increased at the end of fiscal year 2019, when compared to 2018, primarily due to increases in

the market price of the underlying common stock of each GSE.

Estimation Factors

Treasury’s forecasts concerning the GSEs may differ from actual experience. Estimated senior preferred values and

future draw amounts will depend on numerous factors that are difficult to predict including, but not limited to, changes in

government policy with respect to the GSEs, the business cycle, inflation, home prices, unemployment rates, interest rates,

changes in housing preferences, home financing alternatives, availability of debt financing, market rates of guarantee fees,

outcomes of loan refinancings and modifications, new housing programs, and other applicable factors.

Contingent Liability to GSEs

As part of the annual process undertaken by Treasury, a series of long-term financial forecasts are prepared to assess, as

of September 30, the likelihood and magnitude of future draws to be required by the GSEs under the SPSPAs within the

forecast time horizon. Treasury used 25-year financial forecasts prepared through years 2044 and 2043 in assessing if a

contingent liability was required as of September 30, 2019 and 2018, respectively. If future payments under the SPSPAs are

deemed to be probable within the forecast horizon, and Treasury can reasonably estimate such payment, Treasury will accrue

a contingent liability to the GSEs to reflect the forecasted equity deficits of the GSEs. This accrued contingent liability will

be undiscounted and will not take into account any of the offsetting dividends that could be received, as the dividends, if any,

would be owed directly to the General Fund. Treasury will adjust such recorded accruals in subsequent years as new

information develops or circumstances change. If future payments are reasonably possible, they are disclosed but not

recorded as an accrued contingent liability.

Based on the annual forecasts as of September 30, 2019 and 2018, Treasury estimated there was no probable future

funding draws. As of September 30, 2019, it is reasonably possible that market volatility or non-recurring events—for

instance, changes to accounting policies that impact credit loss provisions—could potentially cause the GSEs to generate

quarterly losses and, therefore, result in future funding draws against the funding commitment. Due to challenges quantifying

future market volatility or the timing, magnitude, and likelihood of non-recurring events, the total amount of this reasonably

possible future funding liability could not be estimated as of September 30, 2019. There were no payments to the GSEs for

fiscal year ended September 30, 2019. At September 30, 2019 and 2018, the maximum remaining funding commitment to the

GSEs for the remaining life of the SPSPAs was $254.1 billion. Subsequent funding draws will reduce the remaining

commitments. Refer to Note 19—Commitments for a full description of other commitments and risks.

In assessing the need for an estimated contingent liability, Treasury relied on the GSEs’ public filings and press releases

concerning their financial statements, monthly summaries, and quarterly credit supplements, as well as non-public, long-term

financial forecasts, the FHFA House Price Index, discussions with each of the GSEs and FHFA, and other information

pertinent to the liability estimates. The forecasts prepared in assessing the need for an estimated contingent liability as of

September 30, 2019 include three potential wind-down scenarios, with varying assumptions regarding the timing as to when

the GSEs would cease new business activities, including purchasing mortgage loans and issuing new guaranteed MBS. The

forecasts as of September 30, 2019, also assumed the maintenance of the GSEs’ retained mortgage portfolios (and
NOTES TO THE FINANCIAL STATEMENTS 92

corresponding net interest income) below the $250 billion maximum permitted under the SPSPAs. The maximum balance of

each GSE’s retained mortgage portfolio was initially set at $650 billion as of December 31, 2012, and the amended SPSPAs

required that the GSEs reduce this maximum balance to $250 billion by December 31, 2018, which was accomplished by

both GSEs.

Regulatory Environment

To date, Congress has not passed legislation nor has FHFA taken actions to end the conservatorships to address the

future of the GSEs. The GSEs continue to operate under the direction of their conservator, the FHFA. On March 27, 2019,

the President issued a Memorandum that directed the Secretary of the Treasury to develop a plan for administrative and

legislative reforms to achieve the following housing finance reform goals: (1) ending the conservatorships of the GSEs upon

completion of specified reforms; (2) facilitating competition in the housing finance market; (3) establishing regulation of the

GSEs that safeguards their safety and soundness and minimizes the risks they pose to the financial stability of the U.S.; and

(4) providing that the federal government is properly compensated for any explicit or implicit support it provides to the GSEs

or the secondary housing finance market. On September 5, 2019, Treasury released their Housing Reform Plan, which

included recommended legislative and administrative reforms to achieve each of these goals.

 The Temporary Payroll Tax Cut Continuation Act of 2011 (P.L. 112-78) was funded by an increase of ten basis points in

the GSEs’ guarantee fees (referred to as “the incremental fees”) which began in April 2012 and is effective through

September 30, 2021. The incremental fees are remitted to Treasury and not retained by the GSEs and, thus, do not affect the

profitability of the GSEs. For fiscal years 2019 and 2018, the GSEs remitted to Treasury the incremental fees totaling $3.9

billion and $3.6 billion, respectively.

As of September 30, 2019, and 2018, GSEs investments consisted of the following:

Investments in GSEs as of September 30, 2019

Cumulative

Gross Valuation Fair

(In billions of dollars) Investments Gain/(Loss) Value

Fannie Mae senior preferred stock ................................. 127.0 (78.3) 48.7

Freddie Mac senior preferred stock ................................ 77.3 (38.5) 38.8

Fannie Mae warrants common stock .............................. 3.1 12.9 16.0

Freddie Mac warrants common stock ............................. 2.3 6.3 8.6

Total investments in GSEs ......................................... 209.7 (97.6) 112.1

Investments in GSEs as of September 30, 2018

Cumulative

Gross Valuation Fair

(In billions of dollars) Investments Gain/(Loss) Value

Fannie Mae senior preferred stock ................................. 123.7 (64.5) 59.2

Freddie Mac senior preferred stock ................................ 75.4 (31.2) 44.2

Fannie Mae warrants common stock .............................. 3.1 3.2 6.3

Freddie Mac warrants common stock ............................. 2.3 1.2 3.5

Total investments in GSEs .......................................... 204.5 (91.3) 113.2
 93 NOTES TO THE FINANCIAL STATEMENTS

Note 9. Other Assets

Other Assets as of September 30, 2019, and 2018

Restated

(In billions of dollars) 2019 2018

Advances and prepayments................................................................ 68.0 70.0

Regulatory assets............................................................................... 18.8 17.3

Investments in Multilateral Development Banks.................................... 7.8 7.7

FDIC receivable from resolution activity, net......................................... 2.8 3.0

Other................................................................................................. 13.2 13.8

Total other assets ............................................................................ 110.6 111.8

Advances and prepayments are assets that represent funds disbursed in contemplation of the future performance of

services, receipt of goods, the incurrence of expenditures, or the receipt of other assets. These include advances to contractors

and grantees, travel advances, and prepayments for items such as rents, taxes, insurance, royalties, commissions, and

supplies.

With regard to regulatory assets, the DOE’s PMAs and TVA record certain amounts as assets in accordance with FASB

ASC Topic 980, Regulated Operations. The provisions of FASB ASC Topic 980 require that regulated enterprises reflect rate

actions of the regulator in their financial statements, when appropriate. These rate actions can provide reasonable assurance

of the existence of an asset, reduce or eliminate the value of an asset, or impose a liability on a regulated enterprise. In order

to defer incurred costs under FASB ASC Topic 980, a regulated entity must have the statutory authority to establish rates that

recover all costs, and those rates must be charged to and collected from customers. If the PMAs’ or TVA’s rates should

become market-based, FASB ASC Topic 980 would no longer be applicable, and all of the deferred costs under that standard

would be expensed.

On behalf of the U.S., Treasury invests in certain MDBs, through subscriptions to capital, which allows the MDBs to

issue loans at market-based rates to middle-income developing countries. These paid-in capital investments are nonmarketable equity investments valued at cost.

The FDIC has the responsibility for resolving failed institutions in an orderly and efficient manner. The resolution

process involves valuing a failing institution, marketing it, soliciting and accepting bids for the sale of the institution,

determining which bid is least costly to the insurance fund, and working with the acquiring institution through the closing

process. FDIC records receivables for resolutions that include payments by the DIF to cover obligations to insured

depositors, advances to receiverships and conservatorships for working capital, and administrative expenses paid on behalf of

receiverships and conservatorships.

Other items included in “other” are contract financing payments and estimated future payments to contractors,

purchased power generating capacity, deferred nuclear generating units, derivative assets, the balance of assets held by the

experience rated carriers participating in the Health Benefits and Life Insurance Program (pending disposition on behalf of

OPM), and the cost contribution to buildout the Nationwide Public Safety Broadband.

In fiscal year 2019, a misstatement related to Smithsonian Institution resulted in a decrease of $1.9 billion to the Other

assets line and an increase to Note 7—Debt and Equity Securities for fiscal year 2018.
NOTES TO THE FINANCIAL STATEMENTS 94

Note 10. Accounts Payable

Accounts Payable as of September 30, 2019, and 2018

(In billions of dollars) 2019 2018

Department of Defense ............................................................................................... 39.7 29.2

Department of Veterans Affairs .................................................................................... 12.2 13.5

Department of Justice ................................................................................................. 4.2 5.1

Department of Energy ................................................................................................. 4.2 3.7

General Services Administration .................................................................................. 3.8 3.1

Department of Education............................................................................................. 3.8 3.8

Department of State.................................................................................................... 3.7 3.6

Department of the Treasury ......................................................................................... 3.6 3.8

Department of Homeland Security................................................................................ 2.4 2.5

U.S. Agency for International Development................................................................... 2.3 2.4

Security Assistance Accounts ...................................................................................... 2.3 1.0

Department of Agriculture............................................................................................ 2.2 1.9

Department of Commerce ........................................................................................... 2.2 2.0

U.S. Postal Service ..................................................................................................... 1.8 1.8

All other...................................................................................................................... 9.6 9.3

Total accounts payable............................................................................................. 98.0 86.7

 Accounts payable includes amounts due for goods and property ordered and received, services rendered by other than 

federal employees, cancelled appropriations for which the U.S. government has contractual commitments for payment, and 

non-debt related interest payable. 
 95 NOTES TO THE FINANCIAL STATEMENTS

Note 11. Federal Debt Securities Held by the Public and Accrued 

Interest

Federal Debt Securities Held by the Public and Accrued Interest as of 

September 30, 2019, and 2018

Net

Change

During

Balance Fiscal Balance Average Interest

September 30, Year September 30, Rate

(In billions of dollars) 2018 2019 2019 2019 2018

Treasury securities (public):

Marketable securities:

Treasury bills ............................ 2,239.5 136.9 2,376.4 2.1% 2.1%

Treasury notes ......................... 9,150.3 605.7 9,756.0 2.2% 2.0%

Treasury bonds ........................ 2,115.0 196.5 2,311.5 3.9% 4.1%

Treasury inflation-protected 

securities (TIPS) ....................... 1,376.2 78.5 1,454.7 0.8% 0.8%

Treasury floating rate notes 

(FRN) ....................................... 369.1 55.0 424.1 2.0% 2.2%

Total marketable Treasury 

securities ................................... 15,250.1 1,072.6 16,322.7

Nonmarketable securities............. 511.1 (24.7) 486.4 2.2% 2.8%

Net unamortized 

premiums/(discounts) ................ (44.8) 2.1 (42.7)

Total Treasury securities, net 

(public) ......................................... 15,716.4 1,050.0 16,766.4

Agency securities:

Tennessee Valley Authority.......... 22.4 (1.4) 21.0

All other agencies........................ 0.1 - 0.1

Total agency securities, net of 

unamortized premiums and 

discounts ...................................... 22.5 (1.4) 21.1

Accrued interest payable ............. 73.8 (0.3) 73.5

Total federal debt securities held 

by the public and accrued 

interest ........................................ 15,812.7 1,048.3 16,861.0

Types of marketable securities:

Bills–Short-term obligations issued with a term of 1 year or less.

Notes–Medium-term obligations issued with a term of 2-10 years. 

Bonds–Long-term obligations of more than 10 years.

TIPS–Term of more than 5 years.

FRN–Term of 2 years.
NOTES TO THE FINANCIAL STATEMENTS 96

Federal debt securities held by the public outside the government are held by individuals, corporations, state or local 

governments, FRBs, foreign governments, and other non-federal entities. The above table details government borrowing 

primarily to finance operations and shows marketable and nonmarketable securities at face value less net unamortized 

premiums and discounts including accrued interest.

Securities that represent federal debt held by the public are issued primarily by the Treasury and include:

• Interest-bearing marketable securities (bills, notes, bonds, inflation-protected, and FRN).

• Interest-bearing nonmarketable securities (Government Account Series held by fiduciary and certain deposit funds, 

foreign series, state and local government series, domestic series, and savings bonds).

• Non-interest-bearing marketable and nonmarketable securities (matured and other).

Gross federal debt (with some adjustments) is subject to a statutory ceiling (i.e., the debt limit). Prior to 1917, Congress 

approved each debt issuance. In 1917, to facilitate planning in World War I, Congress and the President first enacted a 

statutory dollar ceiling for federal borrowing. With the Public Debt Act of 1941 (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 debt limit increases. 

During fiscal years 2019 and 2018, Treasury faced two delays in raising the statutory debt limit that required it to depart 

from its normal debt management procedures and to invoke legal authorities to avoid exceeding the statutory debt limit. 

During these periods, extraordinary actions taken by Treasury have resulted in federal debt securities not being issued to 

certain federal government accounts with the securities being restored including lost interest to the affected federal 

government accounts subsequent to the end of the delay period. The first delay occurred from December 9, 2017 through 

February 8, 2018. On Friday, February 9, 2018, the BBA of 2018 (P.L. 115-123) was enacted suspending the statutory debt 

limit through March 1, 2019. The second delay in raising the statutory debt limit occurred from March 2, 2019 through 

August 1, 2019. On Friday, August 2, 2019, the BBA of 2019 (P.L. 116-37) was enacted suspending the statutory debt limit 

through July 31, 2021.

As of September 30, 2019, and 2018, debt subject to the statutory debt limit was $22,686.6 billion and $21,474.8 

billion, respectively. The debt subject to the limit includes Treasury securities held by the public and government guaranteed 

debt of federal agencies (shown in the table above) and intragovernmental debt holdings (shown in the following table). 
 97 NOTES TO THE FINANCIAL STATEMENTS

Intragovernmental Debt Holdings: Federal Debt Securities

Held as Investments by Government Accounts as of September 30, 2019, and 2018

Net

Change

During

Balance Fiscal Balance

(In billions of dollars) 2018 2019 2019

Social Security Administration, Federal Old-Age and Survivors 

Insurance Trust Fund ............................................................ 2,801.3 3.1 2,804.4

Office of Personnel Management, Civil Service Retirement 

and Disability Fund................................................................ 923.0 16.7 939.7

Department of Defense, Military Retirement Fund.................... 743.4 84.0 827.4

Department of Defense, Medicare-Eligible Retiree Health 

Care Fund ............................................................................ 240.2 14.0 254.2

Department of Health and Human Services, Federal Hospital 

Insurance Trust Fund ............................................................ 202.8 (4.2) 198.6

Department of Health and Human Services, Federal 

Supplementary Medical Insurance Trust Fund ........................ 98.2 6.5 104.7

Federal Deposit Insurance Corporation, Deposit Insurance 

Fund..................................................................................... 96.4 7.6 104.0

Social Security Administration, Federal Disability Insurance 

Trust Fund ........................................................................... 93.4 3.1 96.5

Department of Labor, Unemployment Trust Fund ................... 72.6 11.8 84.4

Department of Energy, Nuclear Waste Disposal Fund.............. 53.4 0.6 54.0

Department of Housing and Urban Development, FHA, Mutual 

Mortgage Insurance Capital Reserve Account ........................ 27.0 23.6 50.6

Office of Personnel Management, Employees Life Insurance 

Fund .................................................................................... 46.6 1.6 48.2

Office of Personnel Management, Postal Service Retiree 

Health Benefits Fund ............................................................. 47.1 (2.5) 44.6

Pension Benefit Guaranty Corporation ................................... 31.7 5.0 36.7

Department of Transportation, Highway Trust Fund................. 41.2 (13.0) 28.2

Office of Personnel Management, Employees Health Benefits 

Fund..................................................................................... 27.4 0.4 27.8

Department of the Treasury, Exchange Stabilization Fund ...... 22.3 0.3 22.6

Department of State, Foreign Service Retirement and 

Disability Fund ..................................................................... 19.2 0.1 19.3

Department of Housing and Urban Development, Guarantees 

of Mortgage-Backed Securities Capital Reserve Account......... 16.2 (0.5) 15.7

National Credit Union Share Insurance Fund........................... 14.9 0.4 15.3

Department of Transportation, Airport and Airway Trust Fund .. 14.2 0.8 15.0

Pension Benefit Guaranty Corporation Deposit Fund ............... 13.6 0.0 13.6

U.S. Postal Service, Postal Service Fund................................ 10.5 (1.2) 9.3

All other programs and funds ................................................. 98.4 (3.0) 95.4

Subtotal ............................................................................. 5,755.0 155.2 5,910.2

Total net unamortized premiums/(discounts) for 

intragovernmental ................................................................. 69.9 3.2 73.1

Total intragovernmental debt holdings, net......................... 5,824.9 158.4 5,983.3
NOTES TO THE FINANCIAL STATEMENTS 98

Intragovernmental debt holdings represent the portion of the gross federal debt held as investments by government

entities such as trust funds, revolving funds, and special funds.

Government entities that held investments in Treasury securities include trust funds that have funds from dedicated

collections. For more information on funds from dedicated collections, see Note 20─Funds from Dedicated Collections.

These intragovernmental debt holdings are eliminated in the consolidation of these financial statements.
 99 NOTES TO THE FINANCIAL STATEMENTS

Note 12. Federal Employee and Veteran Benefits Payable

Federal Employee and Veteran Benefits Payable as of September 30, 2019, and 2018

Civilian Military Total

(In billions of dollars) 2019 2018 2019 2018 2019 2018

Pension and accrued benefits ................... 2,094.1 2,048.9 1,759.2 1,621.3 3,853.3 3,670.2

Veterans compensation and burial 

benefits ................................................... N/A N/A 3,129.8 2,956.3 3,129.8 2,956.3

Post-retirement health and accrued 

benefits ................................................... 415.1 403.3 830.2 787.0 1,245.3 1,190.3

Veterans education and training benefits.... N/A N/A 105.9 65.7 105.9 65.7

Life insurance and accrued benefits........... 54.6 54.9 5.7 6.3 60.3 61.2

FECA benefits.......................................... 29.6 27.3 8.2 8.3 37.8 35.6

Liability for other benefits .......................... 1.4 1.2 6.5 1.8 7.9 3.0

Total federal employee and veteran 

benefits payable .................................... 2,594.8 2,535.6 5,845.5 5,446.7 8,440.3 7,982.3

Note: "N/A" indicates not applicable.

Change in Pension and Accrued Benefits

Civilian Military Total

(In billions of dollars) 2019 2018 2019 2018 2019 2018

Actuarial accrued pension liability, 

beginning of fiscal year............................. 2,048.9 2,013.8 1,621.3 1,568.0 3,670.2 3,581.8

Pension expense:

Prior (and past) service costs from plan 

amendments or new plans...................... - - - 8.9 - 8.9

Normal costs ......................................... 44.0 42.3 32.3 34.2 76.3 76.5

Interest on liability .................................. 66.3 68.7 56.1 57.5 122.4 126.2

Actuarial (gains)/losses (from 

experience) ........................................... 15.0 (2.0) 1.1 9.6 16.1 7.6

Actuarial (gains)/losses (from 

assumption changes)............................. 12.5 15.8 108.9 2.1 121.4 17.9

Other .................................................... 0.2 0.1 - - 0.2 0.1

Total pension expense ........................... 138.0 124.9 198.4 112.3 336.4 237.2

Less benefits paid .................................... (92.8) (89.8) (60.5) (59.0) (153.3) (148.8)

Actuarial accrued pension liability, end of 

fiscal year ................................................ 2,094.1 2,048.9 1,759.2 1,621.3 3,853.3 3,670.2
NOTES TO THE FINANCIAL STATEMENTS 100

Change in Post-Retirement Health and Accrued Benefits

Civilian Military Total

(In billions of dollars) 2019 2018 2019 2018 2019 2018

Actuarial accrued post-retirement health 

benefits liability, beginning of fiscal year..... 403.3 375.7 787.0 781.6 1,190.3 1,157.3

Post-Retirement health benefits 

expense: 

Prior (and past) service costs from plan 

amendments or new plans...................... - - - (20.9) - (20.9)

Normal costs ......................................... 16.3 15.8 21.5 20.5 37.8 36.3

Interest on liability .................................. 14.3 14.1 28.6 30.0 42.9 44.1

Actuarial (gains)/losses (from 

experience) ........................................... 6.4 0.7 (15.3) (17.2) (8.9) (16.5)

Actuarial (gains)/losses (from 

assumption changes)............................. (9.0) 12.9 30.1 14.7 21.1 27.6

Total post-retirement health benefits 

expense ................................................ 28.0 43.5 64.9 27.1 92.9 70.6

Less claims paid....................................... (16.2) (15.9) (21.7) (21.7) (37.9) (37.6)

Actuarial accrued post-retirement health 

benefits liability, end of fiscal year.............. 415.1 403.3 830.2 787.0 1,245.3 1,190.3

The government offers its employees retirement and other benefits, as well as health and life insurance. The liabilities

for these benefits, which include both actuarial amounts and amounts due and payable to beneficiaries and health care

carriers, apply to current and former civilian and military employees. Large fluctuations in actuarial amounts can result from

changes in estimates to future outflows for benefits based on complex assumptions and cost models.

OPM administers the largest civilian plan. DOD and VA administer the largest military plans. Other significant pension

plans with more than $10 billion in actuarial accrued liability include those of the Coast Guard (DHS), Foreign Service

(State), TVA, and HHS’s Public Health Service Commissioned Corps Retirement System. Please refer to the financial

statements of the entities listed for further details regarding their pension plans and other benefits.

Change in Civilian Life Insurance and Accrued Benefits

(In billions of dollars) 2019 2018

Actuarial accrued life insurance benefits liability, beginning of fiscal year .... 54.9 53.1

Life insurance benefits expense:

New entrant expense ............................................................................ 0.5 0.6

Interest on liability ................................................................................. 1.8 1.9

Actuarial (gains)/losses (from experience) .............................................. (0.4) (0.6)

Actuarial (gains)/losses (from assumption changes)................................ (1.6) 0.5

Total life insurance benefits expense ................................................... 0.3 2.4

Less costs paid ....................................................................................... (0.6) (0.6)

Actuarial accrued life insurance benefits liability, end of fiscal year ............. 54.6 54.9
 101 NOTES TO THE FINANCIAL STATEMENTS

Significant Long-Term Economic Assumptions Used in Determining Pension 

Liability and the Related Expense

Civilian Military

2019 2018 2019 2018

FERS CSRS FERS CSRS

Rate of interest .............................. 3.50% 2.90% 3.60% 3.00% 3.40% 3.50%

Rate of inflation.............................. 1.60% 1.60% 1.60% 1.60% 1.80% 1.50%

Projected salary increases.............. 1.10% 1.10% 1.30% 1.30% 1.80% 2.00%

Cost of living adjustment ............... 1.30% 1.60% 1.40% 1.60% 1.80% 1.50%

Significant Long-Term Economic Assumptions Used in Determining 

Post-Retirement Health Benefits and the Related Expense

Civilian Military

2019 2018 2019 2018

Rate of interest ............................................. 3.50% 3.60% 3.50% 3.60%

Single equivalent medical trend rate............... 4.40% 4.50% 4.25% 4.16%

Ultimate medical trend rate............................ 3.10% 3.20% 4.05% 4.00%

Significant Long-Term Economic Assumptions Used in Determining Life Insurance 

Benefits and the Related Expense

Civilian

2019 2018

Rate of interest ............................................. 3.30% 3.40%

Rate of increase in salary .............................. 1.10% 1.30%

The actuarial accrued liability represents an estimate of the present value of the cost of benefits that have accrued, 

determined based on future economic and demographic assumptions. Actuarial accrued liabilities can vary widely from year 

to year, due to actuarial gains and losses that result from changes to the assumptions and from experience that has differed 

from prior assumptions. 

In accordance with SFFAS No. 33, Pension, Other Retirement Benefits, and Other Postemployment Benefits: Reporting 

the Gains and Losses from Changes in Assumptions and Selecting Discount Rates and Valuation Dates, entities are required 

to separately present gains and losses from changes in long-term assumptions used to estimate liabilities associated with 

pensions, ORB, and OPEB on the Statement of Net Cost. SFFAS No. 33 also provides a standard for selecting the discount 

rate assumption for present value estimates of federal employee pension, ORB, and OPEB liabilities. The SFFAS No. 33

standard for selecting the discount rate assumption requires it be based on a historical average of interest rates on marketable

Treasury securities consistent with the cash flows being discounted. Additionally, SFFAS No. 33 provides a standard for 

selecting the valuation date for estimates of federal employee pension, ORB, and OPEB liabilities that establishes a 

consistent method for such measurements. 

To provide a sustainable, justifiable data resource for the affected entities, Treasury developed a new model and 

methodology for developing these interest rates in fiscal year 2014. The model is based on the methodology used to 
NOTES TO THE FINANCIAL STATEMENTS 102

produce the HQM Yield Curve pursuant to the Pension Protection Act of 2006.

2 As of July 2014, Treasury began

releasing interest rate yield curve data using this new Treasury’s TNC yield curve, which is derived from Treasury notes

and bonds. The TNC yield curve provides information on Treasury nominal coupon issues and the methodology extrapolates 

yields beyond 30 years through 100 years maturity. The TNC yield curve is used to produce a Treasury spot yield curve (a 

zero coupon curve), which provides the basis for discounting future cash flows.

Civilian Employees

Pensions

OPM administers the largest civilian pension plan, which covers substantially all full-time, permanent civilian federal 

employees. This plan includes two components of defined benefits, the CSRS and the FERS. The basic benefit components 

of the CSRS and the FERS are financed and operated through the CSRDF, a trust fund. CSRDF monies are generated 

primarily from employees’ contributions, federal entity contributions, payments from the General Fund, and interest on 

investments in Treasury securities. As of September 30, 2019, USPS has accrued, but not paid OPM, $8.2 billion in CSRS 

and FERS retirement benefit expenses since 2014.

The FRTIB administers the TSP. The TSP investment options include two fixed income funds (the G and F Funds), 

three stock funds (the C, S, and I Funds) and five lifecycle funds (L 2050, L 2040, L 2030, L 2020, and L Income). The L 

Funds diversify participant accounts among the G, F, C, S, and I Funds, using professionally determined investment mixes 

(allocations) that are tailored to different time horizons. Treasury securities held in the G Fund are included in federal debt 

securities held by the public and accrued interest on the Balance Sheet. The G Fund held $243.4 billion and $245.5 billion in 

nonmarketable Treasury securities as of September 30, 2019, and 2018, respectively. 

The actuarial liability for civilian pension and accrued benefits payable increased $45.2 billion. This increase is partly 

attributable to changes in actuarial assumptions. The assumption loss results primarily from decreases to the assumed rates of 

interest, which was partly offset by a modest gain from changes to the assumed rates of salary increases and FERS annuitant 

COLA. 

Post-Retirement Health Benefits

The post-retirement civilian health benefit liability is an estimate of the government’s future cost of providing postretirement health benefits to current employees and retirees. Although active and retired employees pay insurance premiums 

under the Federal Employee Health Benefits Program, these premiums cover only a portion of the costs. The OPM actuary 

applies economic and demographic assumptions to historical cost information to estimate the liability. 

As of September 30, 2019, the USPS has accrued but not paid to the Postal Service Retiree Health Benefits Fund $47.2 

billion in payments required under the Postal Accountability and Enhancement Act of 2006 (P.L. 109-435, Title VIII). As of 

September 30, 2019, USPS has indicated payment of the total $47.2 billion due will remain open. The cost for each year’s 

payment, including defaulted payments, along with all other benefit program costs, are included in USPS’ net cost for that 

year in the consolidated Statements of Net Cost. The liability is not included on the governmentwide balance sheet due to the 

USPS liability being eliminated with the OPM receivable.

The post-retirement civilian health benefit liability increased $11.8 billion. This increase is due to the accruing cost of 

benefits and interest on the existing liability, slightly offset by an actuarial gain primarily attributable to updated cost curve, 

retirement plan choice assumptions and population changes. 

Life Insurance Benefits

One of the other significant employee benefits is the FEGLI Program. Employee and annuitant contributions and 

interest on investments fund a portion of this liability. The actuarial life insurance liability is the expected present value of 

future benefits to pay to, or on behalf of, existing FEGLI participants, less the expected present value of future contributions 

to be collected from those participants. The OPM actuary uses salary increase and interest rate yield curve assumptions that 

are generally consistent with the pension liability.

As of September 30, 2019, the total amount of FEGLI insurance in-force is estimated at $711.5 billion ($608.5 billion 

for employees and $103.0 billion for annuitants).

2 Treasury’s HQM resource is available at: https://www.treasury.gov/resource-center/economic-policy/corp-bond-yield/Pages/Corp-Yield-Bond-CurvePapers.aspx.
 103 NOTES TO THE FINANCIAL STATEMENTS

Workers’ Compensation Benefits

DOL determines both civilian and military entities’ liabilities for future workers’ compensation benefits for civilian 

federal employees, as mandated by the FECA, for death, disability, medical, and miscellaneous costs for approved 

compensation cases, and a component for incurred, but not reported, claims. The FECA liability is determined annually using 

historical benefit payment patterns related to injury years to predict the future payments. 

The actuarial methodology provides for the effects of inflation and adjusts historical payments to constant dollars by 

applying wage inflation factors (COLA) and medical inflation factors (CPIM) to the calculation of projected benefits. 

DOL selects the COLA factors, CPIM factors, and discount rate by averaging the COLA rates, CPIM rates, and interest 

rates for the current and prior four years. Using averaging renders estimates that reflect historical trends over five years 

instead of conditions that exist in one year. 

The COLAs and CPIMs used in the projections for fiscal year 2019 are listed below in the table. 

DOL selected the interest rate assumptions whereby projected annual payments were discounted to present value based

on interest rate assumptions on the TNC Yield Curve to reflect the average duration of income payments and medical

payments. The average durations for income payments and medical payments were 14.8 years and 9.3 years, respectively.

Based on averaging the TNC Yield Curves for the current and prior four years, the interest rate assumptions for income

payments and medical payments were 2.61% and 2.35%, respectively.

For the COLAs, CPIMs, average durations, and interest rate assumptions used in the projections for fiscal year 2018,

refer to the fiscal year 2018 Financial Report.

Military Employees (Including Veterans)

Pensions

The Military Retirement System consists of a funded, noncontributory, defined benefit plan for military personnel

(Services of Army, Navy, Air Force, and the Marine Corps) with an entry date prior to January 1, 2018 and the BRS,

generally for military personnel with an entry date on or after January 1, 2018. The defined benefit plan includes nondisability retired pay, disability retired pay, survivor annuity programs, and Combat-Related Special Compensation. The

Service Secretaries may approve immediate non-disability retired pay at any age with credit of at least 20 years of active duty

service. Reserve retirees must be at least 60 years old and have at least 20 qualifying years of service before retired pay

commences; however, in some cases, the age can be less than 60 if the reservist performs certain types of active service. P.L.

110-181 provides for a 90-day reduction in the reserve retirement age from age 60 for every 3 months of certain active duty

service served within a fiscal year for service after January 28, 2008 (not below age 50). There is no vesting of defined

benefits before non-disabled retirement. There are distinct non-disability benefit formulas related to four populations within

the Military Retirement System: Final Pay, High-3, Career Status Bonus/Redux, and the BRS enacted in the National

Defense Authorization Act for Fiscal Year 2016, effective January 1, 2018. The BRS is a new retirement benefit merging

aspects of both a defined benefit annuity with a defined contribution account, through the TSP. The date an individual enters

the military generally determines which retirement system they would fall under and if they have the option to select, via a

one-time irrevocable election, their retirement system. Military personnel with a start date on or after January 1, 2018 are

automatically enrolled in BRS. Although all members serving as of December 31, 2017 were grandfathered under the prior

retirement system, Active Duty, National Guard and Reserve personnel meeting established criteria may have opted into BRS

during calendar year 2018. Under the BRS, retiring members are given the option to receive a portion of their retired pay

annuity in the form of a lump sum distribution. For more information on these benefits, see DOD’s Office of Military

Compensation website https://militarypay.defense.gov.
NOTES TO THE FINANCIAL STATEMENTS 104

The DOD Military Retirement Fund was established by P.L. 98-94 (currently Chapter 74 of Title 10, U.S.C.) and

accumulates funds to finance, on an accrual basis, the liabilities of DOD military retirement and survivor benefit programs.

This Fund receives income from three sources: monthly normal cost payments from the Services to pay for DOD’s portion of

the current year’s service cost; annual payments from the Treasury to amortize the unfunded liability and pay for the increase

in the normal cost attributable to Concurrent Receipt (certain beneficiaries with combat-related injuries who are receiving

payments from VA) per P.L. 108-136; and investment income.

The $137.9 billion increase in the Military Retirement Pension liability is primarily attributable to actuarial losses from

assumptions changes, specifically, an increase in the assumed rate of future COLAs and decrease in the assumed rate of

future interest.

Post-Retirement Health Benefits

Military retirees who are not yet eligible for Medicare (and their non-Medicare eligible dependents) are eligible for

post-retirement medical coverage provided by DOD. Depending on the benefit plan selected, retirees and their eligible

dependents may receive care from MTFs on a space-available basis or from civilian providers. This TRICARE coverage is

available as Select (a preferred provider organization – a health plan that contracts with medical providers to create a network

of participating providers; member cost-shares are typically higher for services received out-of-network) and PRIME (a

health maintenance organization- a health plan that limits services to a specific network of medical personnel and facilities

and usually by requiring referral by a primary-care physician for specialty care; coverage is also available for non-referred

and out-of-network care, subject to higher cost-sharing). These postretirement medical benefits are paid by the Defense

Health Agency on a pay-as-you-go basis.

Since fiscal year 2002, DOD has provided medical coverage to Medicare-eligible retirees (and their eligible Medicareeligible dependents). This coverage, called TFL, is a Medicare Supplement plan which includes inpatient, outpatient and

pharmacy coverage. Enrollment in Medicare Part B is required to maintain eligibility in TFL. Retirees with TFL coverage

can obtain care from MTFs on a space-available basis or from civilian providers.

10 U.S.C., Chapter 56 created the DOD MERHCF, which became operative on October 1, 2002. The purpose of this

fund is to account for and accumulate funds for the health benefit costs of Medicare-eligible military retirees, and their

dependents and survivors who are Medicare eligible. The Fund receives revenues from three sources: interest earnings on

MERHCF assets, Uniformed Services normal cost contributions, and Treasury contributions. The DOD Medicare-Eligible

Retiree Health Care Board of Actuaries (the MERHCF Board) approves the methods and assumptions used in actuarial

valuations of the MERHCF for the purpose of calculating the per capita normal cost rates (to fund the annual accrued

benefits) and determining the unfunded liability amortization payment (the U.S. Treasury contribution). The Secretary of

Defense directs the Secretary of Treasury to make DOD’s normal cost payments. The MERHCF pays for medical costs

incurred by Medicare-eligible beneficiaries at MTFs and civilian providers (including payments to U.S. Family Health Plans

for grandfathered beneficiaries), plus the costs associated with claims administration.

DOD’s actuaries calculate the actuarial liabilities annually using assumptions and experience (e.g., mortality and

retirement rates, health care costs, medical trend rates, and the discount rate). Actuarial liabilities are calculated for all DOD

retiree medical benefits, including both the benefits funded through the MERHCF as well as the benefits for pre-Medicare

retirees who are paid on a pay-as-you-go basis. Military post-retirement health and accrued benefits payable increased $43.2

billion. This increase is due primarily to changes in actuarial assumptions and normal and interest costs, offset by changes

due to benefit outlays and favorable recent claims experience. The change in actuarial assumptions totaling $30.1 billion is

attributable to a $14.7 billion loss resulting from an increase in average medical trends and a $15.4 billion loss due to other

assumption changes. 

In addition to the health care benefits the federal government provides for civilian and military retirees and their

dependents, the VA also provides medical care to veterans on an “as available” basis, subject to the limits of the annual

appropriations. In accordance with 38 CFR 17.36(c), VA’s Secretary makes an annual enrollment decision that defines the

veterans, by priority, who will be treated for that fiscal year subject to change based on funds appropriated, estimated

collections, usage, the severity index of enrolled veterans, and changes in cost. While VA expects to continue to provide

medical care to veterans in future years, an estimate of such future benefits cannot be reasonably made. Accordingly, medical

care expenses are recognized in the period the medical care services are provided and included on the Statement of Net Cost.

For the fiscal years 2015 through 2019, the average medical care cost per year was $68.5 billion.
 105 NOTES TO THE FINANCIAL STATEMENTS

Veterans Compensation and Burial Benefits

The government compensates disabled veterans and their survivors. Veterans’ compensation is payable as a disability

benefit or a survivor’s benefit. Entitlement to compensation depends on the veteran’s disabilities incurred in or aggravated

during active military service, death while on duty, or death resulting from service-connected disabilities after active duty.

Eligible veterans who die or are disabled during active military service-related causes, as well as their dependents, and

dependents of service members who died during active military service, receive compensation benefits. In addition, service

members who die during active military service and veterans who separated under other than dishonorable conditions are

provided with a burial flag, headstone/marker, and grave liner for burial in a VA national cemetery or are provided a burial

flag, headstone/marker and a plot allowance for burial in a private cemetery. These benefits are provided under 38 U.S.C.,

Part 2, Chapter 23 in recognition of a veteran’s military service and are recorded as a liability in the period the requirements

are met.

The liability for veterans’ compensation and burial benefits payable is based on an actuarial estimate of future

compensation and burial payments. It increased by $173.5 billion in fiscal year 2019. The $173.5 billion increase is primarily

attributable to experience losses and assumption changes. The major impact of experience losses was an increase in veterans

who first became eligible for benefits during fiscal year 2019. The major impact of losses from assumption changes was due

to a decrease in the discount rate.

Several significant actuarial assumptions were used in the valuation of compensation and burial benefits to calculate the

present value of the liability. A liability was recognized for the projected benefit payments to: 1) those beneficiaries,

including veterans and survivors, currently receiving benefit payments; 2) current veterans who are expected in the future to

become beneficiaries of the compensation program; and 3) a proportional share of those in active military service as of the

valuation date who are expected to be future veterans and to become beneficiaries of the compensation program. Future

benefit payments to survivors of those veterans in classes 1, 2, and 3 above are also incorporated into the projection.

Additionally, on June 25, 2019, the President signed into law the Blue Water Navy Vietnam Veterans Act of 2019 (P.L. 116-

23) which extends the presumption of herbicide exposure, such as Agent Orange, to veterans who served in the offshore of

the Republic of Vietnam between January 9, 1962 and May 7, 1975. The estimated cost of P.L. 116-23 was included as part

of the prior service costs in the fiscal year 2019 liability estimate. The projected liability does not include any administrative

costs.

The veterans’ compensation and burial benefits liability is developed on an actuarial basis. It is impacted by interest on

the liability balance, experience gains or losses, changes in actuarial assumptions, prior service costs, and amounts paid for

costs included in the liability balance.

Change in Veterans Compensation and Burial Benefits

Compensation Burial Total

(In billions of dollars) 2019 2018 2019 2018 2019 2018

Actuarial accrued liability, beginning of 

fiscal year ............................................... 2,949.1 2,805.1 7.2 4.9 2,956.3 2,810.0

Current year expense:

Interest on the liability balance................ 103.8 102.7 0.3 0.2 104.1 102.9

Prior (and past) service costs from 

program amendments or new programs 

during the period.................................... 20.7 14.3 - - 20.7 14.3

Actuarial (gains)/losses (from 

experience) .......................................... 121.2 45.5 (0.1) (0.1) 121.1 45.4

Actuarial (gains)/losses (from 

assumption changes)............................. 20.9 66.8 - 2.4 20.9 69.2

Total current year expense................... 266.6 229.3 0.2 2.5 266.8 231.8

Less benefits paid ................................... (93.0) (85.3) (0.3) (0.2) (93.3) (85.5)

Actuarial accrued liability, end of fiscal 

year......................................................... 3,122.7 2,949.1 7.1 7.2 3,129.8 2,956.3
NOTES TO THE FINANCIAL STATEMENTS 106

Significant Economic Assumptions Used in Determining Veterans Compensation and 

Burial Benefits as of September 30, 2019, and 2018

2019 2018

Rate of interest.................................................................... 3.42% 3.52%

Rate of inflation ................................................................... 2.23% 2.28%

Veterans Education and Training Benefits

For eligible Veterans and their dependents, the VA provides four education/retraining type programs: 

• Post 9/11 GI Bill

• Montgomery GI Bill-Active Duty 

• VR&E 

• Survivors’ & Dependents’ Educational Assistance 

Based on the actuarial estimates of future payments, the total liability for the four education and training programs 

increased by $40.2 billion in fiscal year 2019. The $40.2 billion increase is primarily attributable to experience losses and

assumption changes. The addition of new projections for inclusion of future new enrollees in its actuarial models 

significantly increased the current year expenses and is included in the actuarial losses from assumption changes. 

Prior to fiscal year 2019, the education actuarial modeling estimates were based only on enrollees who had already 

started to use their benefits and did not include assumptions for potential future new enrollees as an input to calculate the 

estimated liability. However, based on experience, it was probable that new enrollees would enroll in these programs in 

future years and that the associated liability needed to be recognized. However, during the fiscal year 2018, there was no 

reliable and credible experience data about new enrollees that could be used to develop an accurate estimate. As a result, a 

$12.0 billion adjustment was made outside of the model to account for the potential new enrollees in the next year. That 

adjustment was based on the number of new enrollees who began to use their Post-9/11 GI Bill benefits in fiscal year 2018. 

In fiscal year 2019, VA conducted an in-depth experience study to refine the impact of the potential new enrollee 

assumption to be used in the estimates. As a result of the in-depth study, VA’s September 30, 2019 education and training 

liability now includes an estimate of $48.3 billion for potential new enrollees who are eligible for Post-9/11 GI Bill and 

VR&E benefits.

For details regarding actuarial assumptions and the four education and training type programs, please refer to VA’s 

financial statements.

Change in Veterans Education and Training Benefits

(In billions of dollars) 2019 2018

Actuarial accrued liability, beginning of fiscal year...................................... 65.7 50.7

Current year expense:

Interest on liability ................................................................................. 1.5 1.3

Actuarial (gains)/losses (from experience) .............................................. 12.7 14.6

Actuarial (gains)/losses (from assumption changes)................................ 37.1 10.0

Total current year expense.................................................................. 51.3 25.9

Less benefits paid ................................................................................... (11.1) (10.9)

Actuarial accrued liability, end of fiscal year .............................................. 105.9 65.7
 107 NOTES TO THE FINANCIAL STATEMENTS

Life Insurance Benefits

The largest veterans’ life insurance programs consist of the following:

• NSLI covers policyholders who served during World War II.

• VSLI was established in 1951 to meet the insurance needs of veterans who served during the Korean Conflict and 

through the period ending January 1, 1957.

• S-DVI program was established in 1951 to meet the insurance needs of veterans who received a service-connected 

disability rating.

The components of veteran life insurance liability for future policy benefits are presented below:

Veterans Life Insurance Liability as of September 30, 2019, and 2018

(In billions of dollars) 2019 2018

Insurance death benefits:

NSLI....................................................................................................... 1.8 2.3

VSLI....................................................................................................... 1.0 1.1

S-DVI ..................................................................................................... 0.8 0.7

Other...................................................................................................... 0.3 0.3

Total death benefits .............................................................................. 3.9 4.4

Disability income & waiver.......................................................................... 0.8 0.8

Insurance dividends payable ...................................................................... 0.8 0.9

Unpaid policy claims .................................................................................. 0.2 0.2

Total veterans life insurance liability ......................................................... 5.7 6.3

Death benefit liabilities consist of reserves for permanent plan and term policies as well as policy benefits for Veterans

Mortgage Life Insurance. Disability income and waiver liabilities consist of reserves to fund the monthly payments to

disabled insureds under the Total Disability Income Provision and the policy premiums waived for qualifying disabled

veterans. Insurance dividends payable consists of dividends left on deposit with VA and dividends payable to policyholders.

Unpaid policy claims consists of insurance claims that are pending at the end of the reporting period, an estimate of claims

that have been incurred but not yet reported, and disbursements in transit.

The VA supervises SGLI and Veterans Group Life Insurance programs that provide life insurance coverage to members

of the uniformed armed services, reservists, and post-Vietnam Veterans as well as their families. VA has entered into a group

policy with the Prudential Insurance Company of America to administer and provide the insurance payments under these

programs. All SGLI insureds are automatically covered under the Traumatic Injury Protection program, which provides for

insurance payments to veterans who suffer a serious traumatic injury in service.

The amount of insurance in-force is the total face amount of life insurance coverage provided by each administered and

supervised program at the end of the fiscal year. It includes any paid-up additional coverage provided under these policies.

The supervised programs’ policies and face values are not reflected in VA’s liabilities because the risk of loss on these

programs is assumed by Prudential and its reinsurers through the terms and conditions of the group policy. As a result, the

information provided for the supervised programs is for informational purposes only and is unaudited. The face value for

supervised programs as of September 30, 2019, and 2018, was $1,167.3 billion and $1,207.8 billion, respectively. The face

value for administered programs as of September 30, 2019, and 2018, was $6.6 billion and $7.3 billion, respectively. The

face value of the insurance provided by Prudential and its reinsurers represents 99 percent of the total insurance in-force for

both fiscal years 2019 and 2018.

Pension Benefits

The VA also provides certain veterans and/or their dependents with pension benefits, based on annual eligibility

reviews. The pension program for veterans is not accounted for as a “federal employee pension plan” under SFFAS No. 5,

Accounting for Liabilities of the Federal Government due to differences between its eligibility conditions and those of federal

employee pensions. Therefore, a future liability for pension benefits is not recorded. VA pension liabilities are recognized
NOTES TO THE FINANCIAL STATEMENTS 108

when due and payable. The projected amounts of future payments for pension benefits (presented for informational purposes

only) as of September 30, 2019, and 2018, was $100.2 billion and $104.8 billion, respectively.

Liability for Other Benefits

Liability for other benefits includes several programs. The largest program is VA’s Community Care Program, with an

estimated liability of $4.7 billion.
 109 NOTES TO THE FINANCIAL STATEMENTS

Note 13. Environmental and Disposal Liabilities

Environmental and Disposal Liabilities as of September 30, 2019, and 2018

(In billions of dollars) 2019 2018

Department of Energy........................................................................................ 505.3 494.0

Department of Defense...................................................................................... 76.1 70.4

All other entities ................................................................................................ 14.0 12.9

Total environmental and disposal liabilities ....................................................... 595.4 577.3

During World War II and the Cold War, DOE (or predecessor entities) developed a massive industrial complex to

research, produce, and test nuclear weapons. This included nuclear reactors, chemical-processing buildings, metal machining

plants, laboratories, and maintenance facilities.

At all sites where these activities took place, some environmental contamination occurred. This contamination was

caused by the production, storage, and use of radioactive materials and hazardous chemicals, which resulted in contamination

of soil, surface water, and groundwater. The environmental legacy of nuclear weapons production also includes thousands of

contaminated buildings and large volumes of waste and special nuclear materials requiring treatment, stabilization, and

disposal.

Estimated cleanup costs at sites for which there are no current feasible remediation approaches are excluded from the

estimates, although applicable stewardship and monitoring costs for these sites are included. DOE has not been required

through regulation to establish remediation activities for these sites.

Estimating DOE’s environmental cleanup liability requires making assumptions about future activities and is inherently

uncertain. The future course of DOE’s environmental cleanup and disposal will depend on a number of fundamental technical

and policy choices, many of which have not been made. Some sites and facilities could be restored to a condition suitable for

any desirable use or could be restored to a point where they pose no near-term health risks to the surrounding communities.

Achieving the former condition of the sites and facilities would have a higher cost but these costs may be warranted in some

cases or may be legally required. The environmental and disposal liability estimates include contingency estimates intended

to account for the uncertainties associated with the technical cleanup scope of the program. Congressional appropriations at

lower than anticipated levels, or lack of congressional approval, unplanned delays in project completions, unforeseen

technical issues, among other things, could cause increases in life-cycle costs.

DOE’s environmental and disposal liabilities also include the estimated cleanup and post-closure responsibilities,

including surveillance and monitoring activities, soil and groundwater remediation, and disposition of excess material for

sites. DOE is responsible for the post-closure activities at many of the closure sites as well as other sites. The costs for these

post-closure activities are estimated for a period of 75 years after the balance sheet date, i.e., through 2094 in fiscal year 2019

and through 2093 in fiscal year 2018. While some post-cleanup monitoring and other long-term stewardship activities post2094 are included in the liability, there are others DOE expects to continue beyond 2094 for which the costs cannot

reasonably be estimated.

A portion of DOE’s environmental and disposal liabilities at various field sites includes anticipated costs for facilities

managed by DOE’s ongoing program operations, which will ultimately require stabilization, deactivation, and

decommissioning. The estimate is largely based upon a cost-estimating model. Site specific estimates are used in lieu of the

cost-estimating model, when available. Cost estimates for ongoing program facilities are updated each year. For facilities

newly contaminated since fiscal year 1997, cleanup costs allocated to future periods and not included in environmental and

disposal liabilities amounted to $0.9 billion for both fiscal years 2019 and 2018.

The predominant change in DOE's environmental liabilities estimates in fiscal year 2019 resulted from inflation

adjustments to reflect constant dollars for the current year; improved and updated estimates for the same scope of work,

including changes resulting from deferral or acceleration of work; revisions in technical approach or scope, including

additional contamination; updated estimates of projected waste volumes; legal and regulatory changes; and cleanup activities

performed. In fiscal year 2019, the Mixed Oxide project was terminated. DOE transitioned to using the dilute and dispose

approach for plutonium disposition which, in turn, lowered the related costs.
NOTES TO THE FINANCIAL STATEMENTS 110

Please refer to the financial statements of DOE for detailed information regarding DOE’s environmental and disposal

liabilities, including cleanup costs.

DOD must restore active installations, installations affected by base realignment and closure, and other areas formerly

used as DOD sites. DOD also bears responsibility for disposal of chemical weapons and environmental costs associated with

the disposal of weapons systems (primarily nuclear powered aircraft carriers and submarines).

DOD follows the Superfund Amendments and Reauthorization Act, CERCLA, RCRA and other applicable federal or

state laws to clean up contamination. The CERCLA and RCRA require DOD to clean up contamination in coordination with

regulatory entities, current owners of property damaged by DOD, and third parties that have a partial responsibility for the

environmental restoration. Failure to comply with agreements and legal mandates puts the DOD at risk of incurring fines and

penalties.

DOD uses engineering estimates and independently validated models to estimate environmental costs. The engineering

estimates are based upon extensive data obtained during the remedial investigation/feasibility phase of the environmental

project.

For general PP&E placed into service after September 30, 1997, DOD expenses associated environmental costs

systematically over the life of the asset using two methods: physical capacity for operating landfills and life expectancy in

years for all other assets. DOD expenses the full cost to clean up contamination for stewardship PP&E at the time the asset is

placed into service. DOD has expensed the costs for cleanup associated with general PP&E placed into service before

October 1, 1997, except for costs intended to be recovered through user charges; for those costs, DOD has expensed cleanup

costs associated with that portion of the asset life that has passed since it was placed into service. DOD systematically

recognizes the remaining cost over the remaining life of the asset. The unrecognized portion of the estimated total cleanup

costs associated with disposal of general PP&E was $4.3 billion and $4.8 billion as of September 30, 2019 and 2018,

respectively.

DOD is unable to estimate and report a liability for environmental restoration and corrective action for buried chemical

munitions and agents, because the extent of the buried chemical munitions and agents is unknown at this time. DOD is also

unable to provide a complete estimate for the Formerly Utilized Sites Remedial Action Program. DOD has ongoing studies

and will update its estimate as additional liabilities are identified. DOD has the potential to incur costs for restoration

initiatives in conjunction with returning overseas DOD facilities to host nations. However, DOD is unable to provide a

reasonable estimate at this time because the extent of required restoration is unknown.

Please refer to the financial statements of DOD for further information regarding DOD’s environmental and disposal

liabilities, including cleanup costs.
 111 NOTES TO THE FINANCIAL STATEMENTS

Note 14. Benefits Due and Payable

Benefits Due and Payable as of September 30, 2019, and 2018

(In billions of dollars) 2019 2018

Federal Old-Age and Survivors Insurance.................................................. 79.8 75.1

Grants to States for Medicaid.................................................................... 37.1 35.6

Federal Supplementary Medical Insurance (Medicare Parts B and D).......... 37.1 30.7

Federal Hospital Insurance (Medicare Part A)............................................ 34.4 31.5

Federal Disability Insurance...................................................................... 22.4 24.6

All other benefits programs ....................................................................... 12.8 13.6

Total benefits due and payable............................................................... 223.6 211.1

Benefits due and payable are amounts owed to program recipients or medical service providers as of September 30 that

have not been paid. Most of the benefits due and payable relate to programs administered by HHS and SSA. For a description

of the programs, see Note 22—Social Insurance and the unaudited RSI—Social Insurance section.
NOTES TO THE FINANCIAL STATEMENTS 112

Note 15. Insurance and Guarantee Program Liabilities

Insurance and Guarantee Program Liabilities as of September 30, 2019, and 2018

(In billions of dollars) 2019 2018

Insurance and Guarantee Program Liabilities:

Defined Benefit Pension Plans - Pension Benefit Guaranty Corporation ...... 181.1 158.0

Federal Crop Insurance - Department of Agriculture................................... 8.9 10.3

National Flood Insurance Programs - Department of Homeland Security ..... 3.4 1.7

Ginnie Mae's Mortgage-Backed Securities - Department of Housing and 

Urban Development ................................................................................ 1.0 -

Other insurance and guarantee programs.................................................. 0.1 0.2

Total insurance and guarantee program liabilities .................................... 194.5 170.2

The federal government incurs liabilities related to various insurance and guarantee programs as detailed in the table

above. Note 18—Contingencies includes a discussion of contingencies and other risks related to significant insurance and

guarantee programs. Insurance information, and related liability, concerning federal employee and veteran benefits is

included in Note 12—Federal Employee and Veteran Benefits Payable. Social insurance and loan guarantees are not

considered insurance under SFFAS No. 51, Insurance Programs. Loan guarantees are disclosed in Note 4—Loans

Receivable and Loan Guarantee Liabilities, Net, and social insurance information is included primarily in the sustainability

financial statements and in Note 22—Social Insurance.

Insurance and guarantee program liabilities are recognized for known losses and contingent losses to the extent that the

underlying contingency is deemed probable and a loss amount is reasonably measurable. Please see Note 18—Contingencies

for discussion on the meaning of “probable” depending on the accounting framework used by each significant consolidation

entity. As discussed in Note 1.L—Insurance and Guarantee Program Liabilities, certain significant consolidation entities (i.e.,

PBGC and FDIC) apply FASB standards, and such entities, as permitted by SFFAS No. 47, Reporting Entity, are

consolidated into the U.S. government’s consolidated financial statements without conversion to FASAB standards. PBGC

administers the largest insurance and guarantee program liability, the Defined Benefit Pension Plans, and applies FASB

standards.

As of September 30, 2019, and 2018, $181.1 billion and $158.0 billion, respectively, pertain to pension plans in

PBGC’s single-employer and multi-employer programs. PBGC insures pension benefits for participants in covered defined

benefit pension plans. The total increase of $23.1 billion in PBGC’s liability for insured pension plans includes increases of

$11.2 billion and $11.9 billion for single-employer and multi-employer plans, respectively. For both single-employer and

multi-employer programs, the increases were primarily driven by changes in actuarial assumptions related to changes in

interest factors. As of September 30, 2019, and 2018, PBGC had total liabilities of $187.4 billion and $163.7 billion, and its

total liabilities exceeded its total assets by $56.5 billion and $51.4 billion, respectively. Refer to PBGC’s financial statements

for more information and to Note 18—Contingencies for additional information regarding insurance contingencies and

exposure. PBGC is currently assessing the effect of the legislation enacted subsequent to September 30, 2019 on its liabilities

and contingency disclosures. Please see Note 27—Subsequent Events for additional information.

As of September 30, 2019, and 2018, $8.9 billion and $10.3 billion, respectively, pertain to USDA’s Federal Crop

Insurance Program. The Federal Crop Insurance Program is administered by the Federal Crop Insurance Corporation, who

provides insurance to reduce agricultural producers’ economic losses due to natural disasters.

As of September 30, 2019, and 2018, $3.4 billion and $1.7 billion, respectively, pertain to the DHS NFIP. The NFIP

insurance liability represents an estimate based on the loss and loss adjustment expense factors inherent to the NFIP

Insurance Underwriting Operations, including trends in claim severity and frequency. The estimate is driven primarily by

flooding activity in the U.S. and can vary significantly year over year depending on the timing and severity of flooding

activity.

As of September 30, 2019, $1.0 billion pertains to the HUD Ginnie Mae’s MBS program. Ginnie Mae’s MBS program

is an exchange transaction insurance program other than life insurance under SFFAS No. 51. Ginnie Mae’s MBS program
 113 NOTES TO THE FINANCIAL STATEMENTS

guarantees the timely payment of principal and interest on securities backed by pools of mortgage loans insured by FHA,

Public and Indian Housing, and Rural Housing Service, or guaranteed by the VA.
NOTES TO THE FINANCIAL STATEMENTS 114

Note 16. Other Liabilities

Other Liabilities as of September 30, 2019, and 2018 Restated

(In billions of dollars) 2019 2018

Liability for advances and prepayments ...................................................... 111.3 99.3

Other liabilities without related budgetary obligations................................... 64.0 54.7

Other deferred revenue ............................................................................. 63.7 62.2

Contingent liabilities .................................................................................. 50.9 51.8

Allocation of special drawing rights............................................................. 48.1 49.3

Other liabilities with related budgetary obligations........................................ 40.0 38.5

Actuarial liabilities for Treasury-managed benefits program.......................... 35.1 32.4

Unfunded leave......................................................................................... 21.3 20.5

Accrued funded payroll and leave............................................................... 20.3 18.8

Liability for non-fiduciary deposit funds and undeposited collections ............. 14.0 12.2

Other miscellaneous liabilities .................................................................... 41.6 39.2

Total other liabilities ................................................................................ 510.3 478.9

Other liabilities are the amounts owed to the public for goods and services provided but not paid for. Other liabilities are 

liabilities not reported elsewhere in the balance sheet and are presented on a comparative basis by major category.

• Liability for advances and prepayments are the amounts of payments received in advance of performance of 

activities for which revenue has not been earned.

• Other liabilities without related budgetary obligations represent those unfunded liabilities for which Congressional 

action is needed before budgetary resources can be provided. 

• Other deferred revenue are the amounts of revenue or income received but not yet earned not otherwise classified as 

advances or prepayments. 

• Contingent liabilities are amounts that are recognized as a result of a past event where a future outflow or sacrifice 

of resource is probable and measurable.

• Allocation of SDRs are the amounts of corresponding liability representing the value of the reserve assets allocated

by the IMF to meet global needs to supplement existing reserve assets. SDRs derive their quality as reserve assets 

from the undertakings of the members to accept them in exchange for “freely useable” currencies (the U.S. dollar, 

European euro, Japanese Yen, and British pound sterling).

• Other liabilities with related budgetary obligations are amounts of liabilities for which there is a related budgetary 

obligation.

• Actuarial liabilities for Treasury-managed benefit programs are the amounts recorded by Treasury for actuarial 

liabilities of future benefit payments to be paid from programs such as the D.C. Federal Pension Fund and the D.C. 

Judicial Retirement Fund.

• Unfunded leave are the amounts recorded by an employer federal entity for unpaid leave earned that an employee is 

entitled to upon separation and that will be funded by future years’ budgetary resources.

• Accrued funded payroll and leave are the estimated amounts of liabilities for salaries, wages and funded annual 

leave and sick leave that have been earned but are unpaid.

• Liability for non-fiduciary deposit funds and undeposited collections are the amounts of offsetting undeposited 

collections and collections deposited in non-fiduciary deposit funds awaiting disposition.

• Other miscellaneous liabilities are the liabilities not otherwise classified above. Many entities reported relatively 

small amounts.
 115 NOTES TO THE FINANCIAL STATEMENTS

This new presentation for fiscal years 2018 and 2019 provides a more transparent view of the significant line items for 

Other Liabilities.

The entities below are listed in order of significance and comprise 95.2 percent of the government’s reported Other 

Liabilities of $510.3 billion as of September 30, 2019. Please refer to the entities’ financial statements for additional details.

• DOE • USDA • TVA 

• SAA • DOT • EPA 

• Treasury • DHS • DOI 

• HHS • USPS • State

• DOD • PBGC • FCC

• DOL • VA • Education

• DOJ

Certain amounts related to DOD have been restated which resulted in a $0.1 billion decrease of Other Liabilities. The 

corrections were a result of an identified overstatement during fiscal year 2018 for the Liability for advances and 

prepayments.
NOTES TO THE FINANCIAL STATEMENTS 116

Note 17. Collections and Refunds of Federal Revenue

Collections of Federal Tax Revenue for the Year Ended September 30, 2019

Federal Tax Year to Which Collections Relate

Tax

Revenue Prior

(In billions of dollars) Collections 2019 2018 2017 Years

Individual income tax and tax 

withholdings .................................. 3,176.4 2,023.0 1,087.9 37.3 28.2

Corporate income taxes ................. 277.1 181.6 85.3 4.1 6.1

Excise taxes .................................. 105.0 69.6 35.0 0.1 0.3

Unemployment taxes ..................... 39.6 33.0 6.5 - 0.1

Customs duties .............................. 74.8 74.8 - - -

Estate and gift taxes ....................... 17.6 0.8 13.7 1.5 1.6

Railroad retirement taxes ................ 6.2 4.8 1.4 - -

Fines, penalties, interest, and other 

revenue ......................................... 7.4 7.4 - - -

Subtotal 3,704.1 2,395.0 1,229.8 43.0 36.3

Less: amounts collected for nonfederal entities ............................... (0.5)

Total............................................ 3,703.6

Treasury is the government’s principal revenue-collecting entity. Collections of individual income and tax withholdings

include FICA/SECA and individual income taxes. These taxes are characterized as non-exchange revenue.

Excise taxes, also characterized as non-exchange revenue, consist of taxes collected for various items, such as airline

tickets, gasoline products, distilled spirits and imported liquor, tobacco, firearms, and others.

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. The Congressional Budget Act of 1974 (P.L. 93-344 or Budget Act) requires that a list of tax expenditures be

included in the annual Budget. 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 include deductions and exclusions, which reduce the amount of income subject to tax. Examples are

the deduction for mortgage interest on personal residences and the exclusion of interest on state and local bonds. Tax

expenditures also include tax credits, which reduce tax liability dollar for dollar for the amount of credit. For example, the

child tax credit reduces liability by $2,000 per child for taxpayers eligible to use it fully. Other credits are targeted at business

activity, such as credits for producing electricity from renewable energy or the research and experimentation credit, which

encourages businesses in the U.S. to increase investment in research activities. In addition, tax expenditures include some

provisions that allow taxpayers to defer tax liability. Examples include provisions that allow immediate expensing or

accelerated depreciation of certain capital investments, and others that allow taxpayers to defer their tax liability, such as the

deferral of recognition of income on contributions to and income accrued within qualified retirement plans.

The Total Revenues reported in the Statement of Operations and Changes in Net Position and the related information

reported in this note, do not include explicit line items for tax expenditures, but the total revenue amounts and budget results

reflect the effect of these expenditures. Tax expenditures are discussed in this note, the unaudited MD&A, and in the

unaudited Other Information section of the Financial Report.
 117 NOTES TO THE FINANCIAL STATEMENTS

Federal Tax Refunds Disbursed for the Year Ended September 30, 2019

Tax Year to Which Refunds Relate

Refunds Prior

(In billions of dollars) Disbursed 2019 2018 2017 Years

Individual income tax and tax 

withholdings .......................................... 397.8 58.1 301.0 30.1 8.6

Corporate income taxes ......................... 51.3 3.9 14.8 10.7 21.9

Other taxes, fines, and penalties ............. 6.1 2.2 2.1 0.8 1.0

Total .................................................. 455.2 64.2 317.9 41.6 31.5

Reconciliation of Revenue to Tax Collections for the Year

Ended September 30, 2019, and 2018

(In billions of dollars) 2019 2018

Consolidated revenue per the Statement of Operations and Changes in Net 

Position ............................................................................................................ 3,621.0 3,384.3

Tax refunds ...................................................................................................... 455.2 466.1

Individual and other tax credits ........................................................................... (154.3) (134.0)

Federal Insurance Contributions Act - Tax .......................................................... 15.8 22.7

Federal Reserve earnings ................................................................................. (52.8) (70.8)

Change in taxes receivable as it relates to Section 965(h) ................................... (85.9) -

Nontax-related fines and penalties reported by entities ........................................ (80.0) (79.8)

Nontax-related earned revenue .......................................................................... (15.4) (13.8)

Collections of federal tax revenue ...................................................................... 3,703.6 3,574.7

Consolidated revenue in the Statement of Operations and Changes in Net Position is presented on a modified cash basis,

net of tax refunds, and includes other non-tax related revenue. There was a presentation change for 2018 and 2019 that

replaced lines Earned income tax and child tax credit imputed revenue and Other tax credits and accrual adjustments with

Individual and other tax credits. Individual and other tax credits amounts are included in gross cost in the Statements of Net

Cost. Refer to Note 3—Accounts and Taxes Receivable, Net for further explanation of line Changes in taxes receivable as it

relates to Section 965(h). The FICA – Tax paid by federal entities is included in the Individual income and tax withholdings

line in the Collections of federal tax revenue; however, it is not reported on the Statement of Operations and Changes in Net

Position as these collections are intragovernmental revenue and eliminated in consolidation. The table above reconciles total

revenue to federal tax collections.
NOTES TO THE FINANCIAL STATEMENTS 118

Collections of Federal Revenue for the Year Ended September 30, 2018

Federal Tax Year to Which Collections Relate

Tax

Revenue Prior

(In billions of dollars) Collections 2018 2017 2016 Years

Individual income tax and tax 

withholdings ...................................... 3,089.8 1,932.6 1,096.7 33.5 27.0

Corporate income taxes ..................... 262.7 150.3 99.7 1.7 11.0

Excise taxes ...................................... 98.5 73.3 24.9 0.1 0.2

Unemployment taxes ......................... 43.4 34.1 9.1 0.1 0.1

Customs duties .................................. 43.4 43.4 - - -

Estate and gift taxes ........................... 23.9 0.1 20.9 1.1 1.8

Railroad retirement taxes .................... 6.3 4.9 1.4 - -

Fines, penalties, interest and other 

revenue ............................................ 7.2 7.1 0.1 - -

Subtotal .......................................... 3,575.2 2,245.8 1,252.8 36.5 40.1

Less: amounts collected for nonfederal entities ................................... (0.5)

Total ............................................... 3,574.7

Federal Tax Refunds Disbursed for the Year Ended September 30, 2018

Tax Year to Which Refunds Relate

Refunds Prior

(In billions of dollars) Disbursed 2018 2017 2016 Years

Individual income tax and tax 

withholdings ........................................ 401.4 54.4 307.9 29.8 9.3

Corporate income taxes ....................... 60.1 4.8 25.9 9.2 20.2

Other taxes, fines, and penalties ........... 4.6 1.6 1.3 0.7 1.0

Total ................................................. 466.1 60.8 335.1 39.7 30.5
 119 NOTES TO THE FINANCIAL STATEMENTS

Note 18. Contingencies

Loss contingencies are existing conditions, situations, or sets of circumstances involving uncertainty as to possible loss 

to an entity. The uncertainty will ultimately be resolved when one or more future events occur or fail to occur. The 

government is subject to loss contingencies related to:

• Legal and environmental and disposal; 

• Insurance and guarantees; and

• Other Contingencies.

The government is involved in various litigation, including administrative proceedings, legal actions, and tort claims, 

which may ultimately result in settlements or decisions adverse to the government. In addition, the government is subject to 

loss contingencies for a variety of environmental cleanup costs for the storage and disposal of hazardous material as well as 

the operations and closures of facilities at which environmental contamination may be present. Refer to the Legal 

Contingencies and Environmental and Disposal Contingencies section of this note for further details.

The government provides insurance and guarantees via a variety of programs. At the time an insurance policy or 

guarantee is issued, a contingency arises. The contingency is the risk of loss assumed by the insurer, that is, the risk of loss 

from events that may occur during the term of the policy. For more information, refer to the Insurance and Guarantees 

sections of this note.

Other contingencies include those related to the government’s establishment of construction budgets without receiving 

appropriations from Congress for such projects, appeals of Medicaid audit and program disallowances by the states, and 

potential draws by GSEs. The government is also a party to treaties and other international agreements. These treaties and 

other international agreements address various issues including, but not limited to, trade, commerce, security, and law 

enforcement that may involve financial obligations or give rise to possible exposure to losses. For a more detailed discussion 

of the government’s other loss contingencies, refer to the Other Contingencies section of this note.

Financial Treatment of Loss Contingencies

The reporting of loss contingencies depends on the likelihood that a future event or events will confirm the loss or 

impairment of an asset or the incurrence of a liability and the likelihood of loss can range from probable to remote. SFFAS 

No. 5, Accounting for Liabilities of the Federal Government, identifies the probability classifications used to assess the range 

for the likelihood of loss as probable, reasonably possible, and remote. Loss contingencies where a past event or exchange 

transaction has occurred, and where a future outflow or other sacrifice of resources is assessed as probable and measurable, 

are accrued in the financial statements. Loss contingencies that are assessed to be at least reasonably possible are disclosed in 

this note, and loss contingencies that are assessed as remote are neither reported in the financial statements, nor disclosed in 

the notes. The following table provides criteria for how federal entities are to account for loss contingencies, based on the

likelihood of the loss and measurability.3

3 In addition, a third condition must be met to be a loss contingency: a past event or an exchange transaction must occur.
NOTES TO THE FINANCIAL STATEMENTS 120

Likelihood of future 

outflow or other 

sacrifice of resources

Loss amount can be

reasonably measured

Loss range can be 

reasonably measured

Loss amount or range 

cannot be reasonably 

measured

Probable

Future confirming 

event(s) are more likely 

to occur than not.4

Accrue the liability. 

Report on Balance Sheet 

and Statement of Net 

Cost.

Accrue liability of best 

estimate or minimum 

amount in loss range if 

there is no best estimate 

and disclose nature of 

contingency and range of 

estimated liability.

Disclose nature of 

contingency and include 

a statement that an 

estimate cannot be 

made.

Reasonably possible

Possibility of future 

confirming event(s) 

occurring is more than 

remote and less than likely.

Disclose nature of 

contingency and 

estimated amount.

Disclose nature of 

contingency and 

estimated loss range.

Disclose nature of 

contingency and include 

a statement that an 

estimate cannot be 

made.

Remote

Possibility of future 

event(s) occurring is 

slight.

No action is required. No action is required. No action is required.

Loss contingencies arise in the normal course of operations and their ultimate disposition is unknown. Based on 

information currently available, however, it is management’s opinion that the expected outcome of these matters, individually

or in the aggregate, will not have a material adverse effect on the financial statements, except for the litigation and insurance 

described in the following sections, which could have a material adverse effect on the financial statements.

Certain significant consolidation entities apply financial accounting and reporting standards issued by FASB, and such 

entities, as permitted by SFFAS No. 47, Reporting Entity, are consolidated into the U.S. government’s consolidated financial 

statements without conversion to financial and reporting standards issued by FASAB.5 Generally, under FASAB standards, a 

contingency is considered “probable” if the future event or events are more likely than not to occur. Under FASB standards, a

contingency is considered “probable” if the future event or events are likely to occur. “Likely to occur” is considered to be 

more certain than “more likely than not to occur.” Under both accounting frameworks, a contingency is considered 

“reasonably possible” if occurrence of the future event or events is more likely than remote, but less likely than “probable” 

(“probable” as defined within each corresponding accounting framework). 

4 For pending or threatened litigation and unasserted claims, the future confirming event or events are considered “probable” if such events are likely to 

occur.

5 Significant consolidation entities that apply FASB standards without conversion to FASAB standards are FDIC, PBGC, FCSIC, TVA, Smithsonian 

Institution, NRRIT, and USPS.
 121 NOTES TO THE FINANCIAL STATEMENTS

Legal Contingencies and Environmental and Disposal Contingencies

Legal Contingencies and Environmental and Disposal Contingencies as of 

September 30, 2019, and 2018 Restated

2019 2018

Estimated Range of Loss Estimated Range of Loss

for Certain Cases 2 for Certain Cases 2

Restated Restated

Accrued Accrued

(In billions of dollars) Liabilities 1 Lower End Upper End Liabilities 1 Lower End Upper End

Probable ............................ 38.4 37.4 39.1 41.2 40.0 43.8

Reasonably possible............ N/A 6.7 29.2 N/A 8.1 29.1

1 Accrued liabilities are recorded and presented in other liabilities on the Balance Sheet.

2 Does not reflect the total range of loss; many cases assessed as reasonably possible of an unfavorable outcome did not include 

estimated losses that could be determined.

Notes: "N/A" indicates not applicable. 

Management and legal counsel have determined that it is “probable” that some legal actions, litigation, tort claims, and

environmental and disposal contingencies will result in a loss to the government and the loss amounts are reasonably

measurable. The estimated liabilities for “probable” cases against the government are $38.4 billion and $41.2 billion as of

September 30, 2019, and 2018, respectively, and are included in “Other Liabilities” on the Balance Sheet. For example, the

U.S. Supreme Court 2012 decision in Salazar v. Ramah Navajo Chapter, and subsequent cases related to contract support

costs have resulted in increased claims against the Indian Health Service, which is a component within HHS. As a result of

this decision, many tribes have filed claims. Some claims have been paid and others have been asserted but not yet settled. It

is expected that some tribes will file additional claims for prior years. The estimated amount recorded for contract support

costs is $5.2 billion in fiscal year 2019 and $4.8 billion in fiscal year 2018.

There are also administrative claims and legal actions pending where adverse decisions are considered by management

and legal counsel as “reasonably possible” with an estimate of potential loss or a range of potential loss. The estimated

potential losses reported for such claims and actions range from $6.7 billion to $29.2 billion as of September 30, 2019, and

from $8.1 billion to $29.1 billion as of September 30, 2018. Amounts reported for 2018 have been restated to correct DOE’s

estimated range of loss for reasonably possible contingencies. The restatement increased the lower end range of loss by $0.5

billion and the upper end range of loss increased by $2.0 billion. For example, as of September 30, 2019, EPA has received

claims under the Federal Tort Claims Act in regards to the Gold King Mine, from individuals and businesses situated on or

near affected waterways alleging lost wages, loss of business income, agricultural and livestock losses, property damage,

diminished property value, and personal injury. The amounts estimated related to the Gold King Mine are $2.0 billion but

they are only reasonably possible, and the final outcomes are not probable.

In accordance with the NWPA, DOE entered into more than 68 standard contracts with utilities in which, in return for

payment of fees into the Nuclear Waste Fund, DOE agreed to begin disposal of SNF by January 31, 1998. Because DOE has

no facility available to receive SNF under the NWPA, it has been unable to begin disposal of the utilities’ SNF as required by

the contracts. Therefore, DOE is subject to significant SNF litigation claiming damages for partial breach of contract as a

result of this delay. Based on settlement estimates, the total liability estimates as of September 30, 2019 is $36.5 billion. After

deducting the cumulative amount paid of $8.0 billion as of September 30, 2019 under settlements, and as a result of final

judgments, the remaining liability is estimated to be approximately $28.5 billion, compared to approximately $28.1 billion as

of September 30, 2018.

A number of class action and/or multiple plaintiff tort suits have been filed against current and former DOE contractors

in which the plaintiffs seek damages for alleged exposures to radioactive and/or toxic substances as a result of the historic

operations of DOE’s nuclear facilities. Collectively, damages in excess of $1.1 billion are currently being sought in these

cases.
NOTES TO THE FINANCIAL STATEMENTS 122

Numerous litigation cases are pending where the outcome is uncertain or it is reasonably possible that a loss has been

incurred and where estimates cannot be made. There are other litigation cases where the plaintiffs have not made claims for

specific dollar amounts, but the settlement may be significant. The ultimate resolution of these legal actions for which the

potential loss could not be determined may materially affect the U.S. government’s financial position or operating results.

A number of plaintiffs filed claims in the U.S. Court of Federal Claims requesting that Treasury redeem matured

savings bonds not possessed by the applicable states, but which have registered owners with last known addresses in those

states. Treasury informed the applicable states it would not redeem these savings bonds since those states are not registered

owners of the bonds. On August 20, 2015, the U.S. Court of Federal Claims partially dismissed one claim and denied the

U.S. government’s motion to dismiss with respect to other claims. On August 8, 2017, the court ruled in favor of two states,

and the U.S. government appealed. On August 13, 2019, the Court of Appeals for the Federal Circuit reversed the August 8,

2017 ruling, and the two states filed a petition for a rehearing on September 27, 2019. That petition was denied on December

11, 2019 and the plaintiffs intended to seek further review by the U.S. Supreme Court. At this time, the government is unable

to determine the likelihood of an unfavorable outcome or make an estimate of potential loss.

A number of cases were filed in the U.S. Court of Federal Claims and U.S. District Courts in which the plaintiffs allege,

among other things, that the U.S. government took their property, breached contractual rights of preferred and common

stockholders, and breached fiduciary duties when the third amendments to the SPSPAs between Treasury and each GSE were

executed in August 2012. One case also alleges that the U.S. government took plaintiffs’ property and contractual rights

when the GSEs were placed into conservatorship and entered into the SPSPAs with Treasury in September 2008. In the U.S.

Court of Federal Claims, the plaintiffs seek just compensation and other damages from the U.S. government. In the U.S.

District Courts, the plaintiffs seek to set aside the third amendments to the SPSPAs as well as damages, and in some cases a

declaration that the FHFA’s structure violates the separation of powers. Cases in the U.S. District Court for the District of

Delaware and the U.S. District Court for the Northern District of Iowa have been dismissed by those District Courts, and the

Third and Eighth Circuit Courts of Appeals affirmed the dismissals. A case in the U.S. District Court for the Southern

District of Texas was dismissed by that District Court; and the Fifth Circuit Court of Appeals affirmed dismissal of all claims

against Treasury but allowed one claim against the FHFA to proceed. The plaintiffs have sought review in the Supreme Court

of their claim that the FHFA’s structure violates the separation of powers, and the Solicitor General is considering whether to

seek further review in the Supreme Court of the claim the court of appeals allowed to proceed. A case in the U.S. District

Court for the District of Minnesota was dismissed by that District Court, and an appeal is pending. Cases in the Western

District of Michigan and Eastern District of Pennsylvania remain in litigation, and motions to dismiss are pending. Treasury

is unable to determine the likelihood of an unfavorable outcome or an estimate of potential loss in these cases at this time.

In prior years environmental and disposal contingencies were presented separately in this note.

Insurance and Guarantees

As discussed in Note 1 L—Insurance and Guarantee Program Liabilities, certain consolidation entities with significant

insurance and guarantee programs apply FASB standards, while other insurance programs are accounted for in the

consolidated financial statements pursuant to FASAB standards. See Note 15—Insurance and Guarantee Program Liabilities

for insurance and guarantee liabilities and Note 12—Federal Employee and Veteran Benefits Payable for insurance related to

federal employee and veteran benefits.

Entities Accounted for under FASB

PBGC, FCSIC, and FDIC are consolidation entities with significant insurance or guarantee programs that apply FASB

standards, which provide that an entity shall disclose information about certain loss contingencies even though the possibility

of loss may be remote.

PBGC insures pension benefits for participants in covered defined benefit pension plans. Under current law, PBGC's

liabilities may be paid only from PBGC's assets. Accordingly, PBGC's liabilities are not backed by the full faith of the U.S.

government. In fiscal year 2019, PBGC's single-employer and multi-employer pension insurance programs had $128.1 billion

and $2.9 billion in total assets, respectively.

PBGC operates two separate pension insurance programs: a single-employer program and a multi-employer program.

The single-employer program covered about 24.7 million people (excluding those in plans that PBGC has trusteed) in fiscal

year 2019, down from about 26.2 million people in fiscal year 2018, and the maximum guaranteed annual benefit for

participants who are in a plan that terminated in fiscal year 2019 and commence benefits at age 65 is $67,295. The maximum

guaranteed benefit for single-employer plan participants varies with a number of factors such as the date of the sponsoring

employer's bankruptcy and the age at which the participant commences benefits. The number of covered ongoing plans at the

end of fiscal year 2019 was about 24,000.

The multi-employer program covers about 10.8 million participants in about 1,400 insured plans and the maximum

annual benefit is $12,870 to a participant who worked for 30 years in jobs covered by the plan. The maximum benefit for
 123 NOTES TO THE FINANCIAL STATEMENTS

multi-employer plan participants varies with covered service and would be lower if the participant worked less than 30 years

and higher if the participant worked more than 30 years. PBGC projects a high likelihood that the multi-employer program

will become insolvent by the end of 2025, at which point its financial assistance to multi-employer plans will be limited to

the premiums collected by the program. Please refer to Note 27—Subsequent Events and PBGC financial statements for

further details.

FCSIC insures the timely payment of principal and interest on Systemwide Debt Securities. Systemwide Debt Securities

are the general unsecured joint and several obligations of the Farm Credit Banks. Systemwide Debt Securities are not

obligations of and are not guaranteed by the U.S. government. Outstanding Systemwide Debt Securities totaled $282.9 billion

as of September 30, 2019. The insurance provided by FCSIC is also not an obligation of and is not guaranteed by the U.S.

government. Under current law, if FCSIC does not have sufficient funds to pay unpaid principal and interest on insured

Systemwide Debt Securities, the Farm Credit System banks will be required to make payments under joint and several

liability. As of September 30, 2019, FCSIC reported an Insurance Fund balance of $5.1 billion.

FDIC insures bank and savings association deposits, which exposes FDIC to various risks. FDIC has estimated total

insured deposits of $7,736.9 billion as of September 30, 2019, and $7,376.6 billion as of September 30, 2018, for the DIF.

The government has guarantee contingencies that are reasonably possible in the amount of $165.6 billion as of

September 30, 2019, and $185.4 billion as of September 30, 2018.

PBGC reported $165.5 billion and $184.8 billion as of September 30, 2019, and 2018, respectively, for the estimated

aggregate unfunded vested benefits exposure to the PBGC for private-sector single-employer and multi-employer defined

benefit pension plans that are classified as a reasonably possible exposure to loss. The decrease comprised primarily from the

single-employer program contingencies is primarily due to the increase in the interest factors used for valuing liabilities and

the decline in the number of companies with lower than investment grade bond rating and/or credit scores.

FDIC reported $0.1 billion and $0.3 billion as of September 30, 2019, and 2018, respectively, for identified additional

risk in the financial services industry that could result in additional loss to the DIF should potentially vulnerable insured

institutions ultimately fail. Actual losses, if any, will largely depend on future economic and market conditions.

Entities Accounted for under FASAB

The total amount of coverage provided by an insurer as of the end of the reporting period is referred to as insurance inforce. Insurance in-force represents the total amount of unexpired insurance arrangements for the corresponding program as

of a given date. Insurance in-force is presented to provide the reader with a better understanding of the unexpired insurance

arrangements that are not considered a liability. It is extremely unlikely that losses equal to the maximum risk exposure

would be incurred. The table below shows the estimate of insurance in-force as of September 30, 2019 for consolidation

entities with significant insurance programs that apply FASAB standards in accordance with SFFAS No. 51, Insurance

Programs.

Insurance In-force as of September 30, 2019

(In billions of dollars) 2019

Insurance In-force:

Ginnie Mae - Department of Housing and Urban Development ..................................... 2,092.8

National Flood Insurance Program - Department of Homeland Security ......................... 1,330.0

National Credit Union Share Insurance Fund - National Credit Union Administration....... 1,200.0

Federal Crop Insurance - Department of Agriculture..................................................... 109.0

Ginnie Mae insures MBS and commitments, which exposes Ginnie Mae to various risks. The Ginnie Mae MBS are

backed by pools of mortgage loans guaranteed by FHA, Public and Indian Housing, Rural Housing Service, and VA.

Accordingly, Ginnie Mae’s credit risk related to outstanding MBS is greatly mitigated by guarantees discussed in Note 4–

Loans Receivable and Loan Guarantee Liabilities, Net.

NFIP, administered by DHS, is considered an exchange transaction insurance program and pays claims to policy

holders who experience flood damage due to flooding within the NFIP rules and regulations. NFIP is authorized to secure

reinsurance coverage from private reinsurance and capital markets to maintain the financial ability of the program to pay

claims from major flooding events.
NOTES TO THE FINANCIAL STATEMENTS 124

FEMA, a component of DHS, is authorized to borrow from Treasury up to $30.4 billion to fund the payment of flood

insurance claims and claims-related expenses of the NFIP. This authority is used only as needed to pay existing obligations

for claims and expenses. Insurance premiums collected are used to pay insurance claims and to repay borrowings. As of

September 30, 2019, and 2018, FEMA had drawn from Treasury $20.5 billion, leaving $9.9 billion available to be borrowed.

Premiums collected by FEMA for the NFIP based on subsidized rates are not sufficient to cover the debt repayments. Given

the current premium rate structure, FEMA will not be able to generate sufficient resources from premiums to repay its debt.

NCUSIF, managed by NCUA, insures member shares (deposits) in all federal credit unions and in qualifying statechartered credit unions requesting insurance. NCUSIF insures the balance of each members’ accounts, dollar-for-dollar, up to

at least the standard maximum share insurance amount of $250,000.

The Federal Crop Insurance Program, administered by USDA’s FCIC, is considered an exchange transaction insurance

program. The crop insurance policies insure against unexpected declines in yield and/or price due to natural causes. In crop

year 2019 there were approximately 1.1 million crop insurance policies in force. The insurance policies are structured as a

contract between Approved Insurance Provider and agricultural producers, with the FCIC providing reinsurance to Approved

Insurance Providers. Crop insurance policies automatically renew each year, unless producers cancel them by a published

annual deadline.

The FCIC may request the Secretary of Agriculture to provide borrowing authority funds of the Commodity Credit

Corporation if at any time the amounts in the insurance fund are insufficient to allow FCIC to carry out its duties. Even

though the authority exists, FCIC did not request Commodity Credit Corporation funds in the reporting period. USDA has

permanent indefinite appropriations available to fund certain costs of the crop insurance program; such as premium subsidy,

delivery expenses, losses in excess of premiums, and research costs. FCIC has no outstanding borrowing as of September 30,

2019.

For further information, please refer to HUD, DHS, NCUA and USDA, financial statements.

The Terrorism Risk Insurance Act of 2002, as amended, created TRIP, which requires participating insurers to make

insurance available for losses resulting from acts of terrorism and provides a federal government backstop for the insurers’

resulting financial exposure. This statue was enacted following the terrorist attacks on September 11, 2001, to address

disruptions in the market for terrorism risk insurance, to help ensure the continued availability and affordability of

commercial property and casualty insurance for terrorism risk, and to allow for the private markets to stabilize and build

insurance capacity to absorb any future losses for terrorism events. Most recently, the Terrorism Risk Insurance Program

Reauthorization Act of 2019 authorized TRIP until December 31, 2027. The claims process under TRIP commences once the

Secretary of the Treasury (in consultation with the Secretary of the DHS and the U.S. Attorney General) certifies an event as

an “act of terrorism.” In the event of certification of an “act of terrorism” insurers may be eligible to receive reimbursement

from the U.S. government for associated insured losses assuming an aggregate insured loss threshold (“program trigger”) has

been reached once a particular insurer has satisfied its designated deductible amount. For calendar years 2019 and 2018, the

program trigger amount was $180.0 million and $160.0 million, respectively. This amount will increase by $20.0 million

annually through calendar year 2027. Insured losses above insurer deductibles will be shared between insurance companies

and the U.S. government. TRIP includes both mandatory and discretionary authority for Treasury to recoup federal payments

made under TRIP through policyholder surcharges under certain circumstances, and contains provisions designed to manage

litigation arising from or relating to a certified act of terrorism. There were no claims under TRIP as of September 30, 2019

or 2018.

Other Contingencies

DOT and HHS, and Treasury reported the following other contingencies:

The FHWA has a reasonably possible contingency due to their authority to approve projects using advance construction

under 23 U.S.C. 115(a) and 23 CFR 630.701-630.709. FHWA does not guarantee the ultimate funding to the states for these

“advance construction” projects and, accordingly, does not obligate any funds for these projects. When funding becomes

available to FHWA, the states can then apply for reimbursement of costs that they have incurred on such projects, at which

time FHWA can accept or reject such requests. As of September 30, 2019, and 2018, FHWA has pre-authorized $66.8 billion

and $60.8 billion, respectively, under these arrangements. Congress has not provided appropriations for these projects and no

liability is accrued in the DOT consolidated financial statements. Therefore, these are considered reasonably possible.

Contingent liabilities have been accrued as a result of Medicaid audit and program disallowances that are currently

being appealed by the states. The Medicaid amounts are $9.9 billion and $6.3 billion for fiscal years ending September 30,

2019, and 2018, respectively. The states could return the funds through payments to HHS, or HHS could recoup the funds by

reducing future grant awards to the states. Conversely, if the appeals are decided in favor of the states, HHS will be required

to pay these amounts. In addition, certain amounts for payment have been deferred under the Medicaid program when there is

reasonable doubt as to the legitimacy of expenditures claimed by a state. There are also outstanding reviews of the state

expenditures in which a final determination has not been made.
 125 NOTES TO THE FINANCIAL STATEMENTS

Treasury has a contingency for future draws by the GSE’s. There were no probable future draws accrued at September

30, 2019 and 2018 and the total amount of reasonable possible future draws is not estimable as of September 30, 2019 and

2018. See Note 8—Investments in Government-Sponsored Enterprises for further information.

When a contingency originates from the U.S. government’s involvement in a treaty or other international agreement, the

responsible reporting entity must establish a contingent liability, and include a required note disclosure to its financial

statements, or both in accordance with guidance in SFFAS No. 5. Also see Note 19—Commitments for information

concerning commitments related to treaties and other international agreements.
NOTES TO THE FINANCIAL STATEMENTS 126

Note 19. Commitments

Long-Term Operating Leases as of September 30, 2019, and 2018

Restated

(In billions of dollars) 2019 2018

General Services Administration ................................................................. 22.0 21.6

U.S. Postal Service.................................................................................... 4.6 3.5

Department of Veterans Affairs................................................................... 4.2 3.9

Department of State................................................................................... 1.4 1.4

Department of Health and Human Services ................................................. 1.1 0.8

Other operating leases ............................................................................... 3.7 4.8

Total long-term operating leases ............................................................. 37.0 36.0

The government has entered into contractual commitments that require future use of financial resources. It has

significant amounts of long-term lease obligations.

Certain amounts related to VA have been restated for fiscal year 2018 which resulted in a $3.9 billion increase of Total

long-term operating leases. The corrections were a result of an identified understatement during fiscal year 2018 for VA’s

operating leases.

Undelivered Orders and Other Commitments as of September 30, 2019, and 2018

Restated

(In billions of dollars) 2019 2018

Undelivered Orders:

Department of Defense.............................................................................. 381.7 319.8

Security Assistance Accounts..................................................................... 184.0 168.4

Department of Health and Human Services................................................. 131.5 122.7

Department of Education............................................................................ 121.6 132.7

Department of Transportation..................................................................... 110.6 110.5

Department of Agriculture .......................................................................... 58.1 58.3

Department of Housing and Urban Development ......................................... 52.0 48.9

Department of Homeland Security .............................................................. 43.9 42.3

Department of Energy................................................................................ 31.5 27.0

Department of State................................................................................... 24.0 24.0

U.S. Agency for International Development ................................................. 18.2 17.4

All other entities......................................................................................... 141.4 126.6

Total undelivered orders .......................................................................... 1,298.5 1,198.6

Other Commitments:

GSE Senior Preferred Stock Purchase Agreements..................................... 254.1 254.1

U.S. Participation in the International Monetary Fund................................... 151.4 154.9

Callable Capital Subscriptions for Multilateral Development Banks................ 121.7 121.1

All other commitments ............................................................................... 25.8 28.8

Total other commitments ......................................................................... 553.0 558.9
 127 NOTES TO THE FINANCIAL STATEMENTS

Undelivered Orders and Other Commitments

Undelivered Orders

Undelivered orders represent the value of goods and services ordered that have not yet been received. As of September 

30, 2019, and 2018, the total reported undelivered orders were $1,298.5 billion and $1,198.6 billion, respectively. As of 

September 30, 2019, and 2018, DOD reported undelivered orders of $381.7 billion and $319.8 billion, respectively. The 

$61.9 billion increase primarily resulted from enhanced methods used in the classification of federal and non-federal 

undelivered orders.

GSE Senior Preferred Stock Purchase Agreements

At September 30, 2019 and 2018, the maximum remaining potential commitment to the GSEs for the remaining life of 

the SPSPAs was $254.1 billion, which was established on December 31, 2012. Refer to Note 8—Investments in 

Government-Sponsored Enterprises for a full description of the SPSPAs related commitments and contingent liability, if any, 

as well as additional information.

U.S. Participation in the International Monetary Fund

The government participates in the IMF through a quota subscription and certain borrowing arrangements that 

supplement IMF resources. As of September 30, 2019, and 2018, the financial commitment, including funded portion, under 

the U.S. quota and borrowing arrangements was $151.4 billion and $154.9 billion, respectively. Refer to Note 2—Cash and 

Other Monetary Assets and Note 25—Disclosure Entities and Related Parties for more information regarding the U.S. 

participation in the IMF.

Callable Capital Subscriptions for Multilateral Development Banks

The government has callable subscriptions in certain MDBs, which are international financial institutions that finance 

economic and social development projects in developing countries. Callable capital in the MDBs serves as a supplemental 

pool of resources that may be redeemed and converted into ordinary paid in shares, if the MDB cannot otherwise meet certain 

obligations through its other available resources. MDBs are able to use callable capital as backing to obtain favorable 

financing terms when borrowing from international capital markets. To date, there has never been a call on this capital at any 

MDBs and none is anticipated. As of September 30, 2019, and 2018, the capital commitment to MDBs was $121.7 billion 

and $121.1 billion, respectively. 

All Other Commitments

 Certain amounts related to DOT have been restated which resulted in a prior year increase of $6.4 billion. The 

corrections were a result from DOT reevaluating the disclosure requirements for commitments specifically related to its grant 

programs. 

Other Risks

U.S. Contributions to International Organizations

The U.S. government enters into agreements to pay future contributions to international organizations in which it 

participates as a member. These contributions may include financial and in-kind support, including assessed contributions, 

voluntary contributions, grants, and other assistance to international organizations. Following are examples of international

organizations and their underlying missions that are supported by U.S. contributions:

• Office of the United Nations High Commissioner for Refugees, which was established to safeguard the rights and 

well-being of refugees; 

• International Committee of the Red Cross, which provides humanitarian protection and assistance for victims of 

armed conflict and other situations of violence;

• International Organization for Migration, which supports migration programs and the U.S. Refugee Assistance 

Program;

• North Atlantic Treaty Organization, which promotes conflict prevention and peaceful resolution of disputes;

• United Nations, which enables the world’s nations to work together toward freedom, democracy, peace, and human

rights;
NOTES TO THE FINANCIAL STATEMENTS 128

• World Food Program, which provides emergency nutrition programming;

• Global Environment Facility, which is a multilateral trust fund that provides grants for global environmental 

projects;

• Green Climate Fund, which was established to support the efforts of developing countries to respond to the 

challenge of climate change;

• United Nations Children’s Fund, which promotes humanitarian and developmental assistance to children and 

mothers in developing countries; and

• World Health Organization, which provides international health activities within the United Nations system and aids 

in health systems; including activities that address non-communicable and communicable diseases; environmental 

health; and natural and man-made emergencies.
 129 NOTES TO THE FINANCIAL STATEMENTS

Note 20. Funds from Dedicated Collections

Funds from Dedicated Collections as of September 30, 2019, and 2018

Restated

2019 2018

SSA's SSA's

Funds All Other Total Funds Funds All Other Total Funds 

from Funds from from from Funds from from 

Dedicated Dedicated Dedicated Dedicated Dedicated Dedicated 

Collections Collections Collections Collections Collections Collections 

(In billions of dollars) (Combined) (Combined) (Combined) (Combined) (Combined) (Combined)

Assets:

Cash and other monetary 

assets............................ - 66.1 66.1 - 66.7 66.7

Accounts and taxes 

receivables, net................. 7.6 38.7 46.3 7.7 38.4 46.1

Loans receivable, net .......... - 3.1 3.1 - 3.5 3.5

Inventories and related 

property, net .................... - 1.2 1.2 - 2.6 2.6

Property, plant and 

equipment, net.................. - 35.4 35.4 - 33.7 33.7

Debt and equity securities..... - 33.6 33.6 - 35.0 35.0

Other assets .................... - 20.1 20.1 - 19.7 19.7

Federal assets .................. 3,023.3 978.0 4,001.3 3,015.6 922.0 3,937.6

Total assets .................. 3,030.9 1,176.2 4,207.1 3,023.3 1,121.6 4,144.9

Liabilities and net position:

Accounts payable .............. - 7.2 7.2 - 7.9 7.9

Federal employee and 

veteran benefits payable ...... - 7.0 7.0 - 7.7 7.7

Environmental and disposal 

liabilities ......................... - 26.1 26.1 - 26.7 26.7

Benefits due and payable ..... 102.5 73.6 176.1 100.4 64.2 164.6

Insurance and guarantee 

program liabilities............... - 4.4 4.4 - 1.7 1.7

Other liabilities .................. - 147.6 147.6 - 148.8 148.8

Federal liabilities................ 109.6 212.0 321.6 107.3 199.5 306.8

Total liabilities ................ 212.1 477.9 690.0 207.7 456.5 664.2
NOTES TO THE FINANCIAL STATEMENTS 130

Funds from Dedicated Collections as of September 30,2019, and 2018, continued1

Restated

2019 2018

SSA's SSA's

Funds All Other Total Funds Funds All Other Total Funds 

from Funds from from from Funds from from 

Dedicated Dedicated Dedicated Dedicated Dedicated Dedicated 

Collections Collections Collections Collections Collections Collections 

(In billions of dollars) (Combined) (Combined) (Combined) (Combined) (Combined) (Combined)

Net position:

Total net position............. 2,818.8 698.3 3,517.1 2,815.6 665.1 3,480.7

Total liabilities and net 

position ..................... 3,030.9 1,176.2 4,207.1 3,023.3 1,121.6 4,144.9

Change in net position:

Net position, beginning of 

period ............................ 2,815.6 665.1 3,480.7 2,812.8 606.7 3,419.5

Adjustments to beginning net 

position .......................... - - - - 22.6 22.6

Beginning net position, 

adjusted....................... 2,815.6 665.1 3,480.7 2,812.8 629.3 3,442.1

Individual income taxes........ 932.4 286.2 1,218.6 873.2 264.8 1,138.0

Other taxes and 

miscellaneous earned 

revenue.......................... 0.1 146.4 146.5 0.1 150.9 151.0

Other changes in fund 

balance (e.g., appropriations, 

transfers) ....................... 24.7 381.3 406.0 24.5 345.3 369.8

Federal non-exchange 

revenue.......................... 81.7 13.8 95.5 83.5 15.0 98.5

Total financing sources...... 1,038.9 827.7 1,866.6 981.3 776.0 1,757.3

Program gross costs and nonprogram expenses ............. 1,035.9 959.2 1,995.1 978.6 893.7 1,872.3

Less: program revenue ........ 0.2 164.7 164.9 0.1 153.5 153.6

Net cost ....................... 1,035.7 794.5 1,830.2 978.5 740.2 1,718.7

Ending net position .......... 2,818.8 698.3 3,517.1 2,815.6 665.1 3,480.7

1By law, certain expenses (costs), revenues, and other financing sources related to the administration of the above funds are not charged

to the funds and are therefore financed and/or credited to other sources.
 131 NOTES TO THE FINANCIAL STATEMENTS

Generally, funds from dedicated collections are financed by specifically identified revenues, often supplemented by

other financing sources, provided to the government by non-federal sources, which remain available over time. These

specifically identified revenues and other financing sources are required by statute to be used for designated activities,

benefits, or purposes and must be accounted for separately from the government’s general revenues. Funds from dedicated

collections generally include trust funds, public enterprise revolving funds (not including credit reform financing funds), and

special funds. Funds from dedicated collections specifically exclude any fund established to account for pensions, ORB,

OPEB, or other benefits provided for federal employees (civilian and military). In the federal budget, the term “trust fund”

means only that the law requires a particular fund to be accounted for separately, used only for a specified purpose, and

designated as a trust fund. A change in law may change the future receipts and the terms under which the fund’s resources are

spent. In the private sector, trust fund refers to funds of one party held and managed by a second party (the trustee) in a

fiduciary capacity. The activity of funds from dedicated collections differs from fiduciary activities primarily in that assets

within funds from dedicated collections are government-owned. For further information related to fiduciary activities, see

Note 21—Fiduciary Activities.

Public enterprise revolving funds include expenditure accounts authorized by law to be credited with offsetting

collections, mostly from the public, that are generated by and dedicated to finance a continuing cycle of business-type

operations. Some of the financing for these funds may be from appropriations.

Special funds are federal funds dedicated by law for a specific purpose. Special funds include the special fund receipt

account and the special fund expenditure account.

Total assets represent the unexpended balance from all sources of receipts and amounts due to the funds from dedicated

collections, regardless of source, including related governmental transactions. These are transactions between two different

entities within the government or intradepartmental (for example, monies received by one entity of the government from

another entity of the government).

The federal assets are comprised of fund balances with Treasury, investments in Treasury securities—including

unamortized amounts, and other assets that include the related accrued interest receivable on federal investments. These

amounts were excluded in preparing the principal financial statements. The non-federal assets include activity with

individuals and organizations outside of the government.

Most of the assets within funds from dedicated collections are invested in intragovernmental debt holdings. The

government does not set aside assets to pay future benefits or other expenditures associated with funds from dedicated

collections. The cash receipts collected from the public for funds from dedicated collections are deposited in the General

Fund, which uses the cash for general government purposes. Treasury securities are issued to federal entities as evidence of

its receipts. Treasury securities are an asset to the federal entities and a liability to Treasury and, therefore, they do not

represent an asset or a liability in the Financial Report. These securities require redemption if a fund’s disbursements exceeds

its receipts. Redeeming these securities will increase the government’s financing needs and require more borrowing from the

public (or less repayment of debt) or will result in higher taxes than otherwise would have been needed, or less spending on

other programs than otherwise would have occurred, or some combination thereof. See Note 11—Federal Debt Securities

Held by the Public and Accrued Interest for further information related to the investments in federal debt securities.
NOTES TO THE FINANCIAL STATEMENTS 132

Funds from Dedicated Collections as of September 30, 20191

Federal Federal

Hospital Supplementary

Federal Insurance Federal Medical

Old-Age and Trust Disability Insurance

Survivors Fund Insurance Trust Fund

Insurance (Medicare Trust (Medicare

Trust Fund Part A) Fund (Parts B and D)

(In billions of dollars) (Combined) (Combined) (Combined) (Combined)

Total assets............................................ 2,905.8 236.9 125.1 141.3

Total liabilities ......................................... 165.6 78.3 46.5 72.3

Total net position ...................................... 2,740.2 158.6 78.6 69.0

Gross cost ............................................. 893.2 321.0 142.7 346.8

Program revenues .................................... - 4.1 - 102.6

 Net cost ............................................ 893.2 316.8 142.7 244.2

Total financing sources............................... 3,633.4 475.4 221.3 313.2

 Changes in net position.......................... 2,740.2 158.6 78.6 69.0

1By law, certain expenses (costs), revenues, and other financing sources related to the administration of the above funds are not charged

to the funds and are therefore financed and/or credited to other sources.

Funds from Dedicated Collections as of September 30, 2018 (Restated)1

Federal Federal

Hospital Supplementary

Federal Insurance Federal Medical

Old-Age and Trust Disability Insurance

Survivors Fund Insurance Trust Fund

Insurance (Medicare Trust (Medicare

Trust Fund Part A) Fund (Parts B and D)

(In billions of dollars) (Combined) (Combined) (Combined) (Combined)

Total assets............................................ 2,899.1 238.2 124.2 132.2

Total liabilities ......................................... 156.4 71.7 51.3 66.4

Total net position ...................................... 2,742.7 166.5 72.9 65.8

Gross cost ............................................. 837.4 303.4 141.2 318.0

Program revenues .................................... - 4.0 - 96.2

 Net cost............................................ 837.4 299.4 141.2 221.8

Total financing sources............................... 3,580.1 465.9 214.1 287.6

Changes in net position ......................... 2,742.7 166.5 72.9 65.8

1By law, certain expenses (costs), revenues, and other financing sources related to the administration of the above funds are not charged

to the funds and are therefore financed and/or credited to other sources.

 Depicted in the tables above is a breakout of OASI, HI, DI and Federal SMI Trust Funds. There funds are major funds

from dedicated collections chosen based on their significant financial activity and importance to taxpayers.
 133 NOTES TO THE FINANCIAL STATEMENTS

 Depicted below is a description of the major funds from dedicated collections shown in the above tables, which also 

identifies the government entities that administer each particular fund. For detailed information regarding funds from 

dedicated collections, please refer to the financial statements of the corresponding administering entities. For information on

the benefits due and payable liability associated with certain funds from dedicated collections, see Note 14—Benefits Due 

and Payable.

Federal Old-Age and Survivors Insurance Trust Fund

The OASI Trust Fund, administered by SSA, provides retirement and survivors benefits to qualified workers and their 

families.

Payroll and self-employment taxes primarily fund the OASI Trust Fund. Interest earnings on Treasury securities, federal 

entities’ payments for the Social Security benefits earned by military and federal civilian employees, and Treasury payments for 

a portion of income taxes collected on Social Security benefits provide the fund with additional income. The law establishing the 

OASI Trust Fund and authorizing the depositing of amounts to the credit of the fund is set forth in 42 U.S.C. § 401.

Federal Hospital Insurance Trust Fund

(Medicare Part A)

The HI Trust Fund, administered by HHS, finances the HI (Medicare Part A). This program funds the cost of inpatient 

hospital and related care for individuals age 65 or older who meet certain insured status requirements and individuals younger 

than age 65 with certain disabilities. 

The HI Trust Fund is financed primarily by payroll taxes, including those paid by federal entities. It also receives 

income from interest earnings on Treasury securities, a portion of income taxes collected on Social Security benefits, 

premiums paid by, or on behalf of, aged uninsured beneficiaries, and receipts from fraud and abuse control activities. Section 

1817 of the Social Security Act established the Medicare Hospital Trust Fund.

Federal Disability Insurance Trust Fund

The DI Trust Fund, administered by SSA, provides assistance and protection against the loss of earnings due to a wage 

earner’s disability in form of monetary payments. 

Like the OASI Trust Fund, payroll taxes primarily fund the DI Trust Fund. The fund also receives income from interest 

earnings on Treasury securities, federal entities’ payments for the Social Security benefits earned by military and federal 

civilian employees, and Treasury payments for a portion of income taxes collected on Social Security benefits. The law 

establishing the DI Trust Fund and authorizing the depositing of amounts to the credit of the fund is set forth in 42 U.S.C. § 

401.

Federal Supplementary Medical Insurance Trust Fund

(Medicare Parts B and D)

The Federal SMI Trust Fund, administered by HHS, finances the SMI Program (Medicare Part B) and the Medicare 

Prescription Drug Benefit Program (Medicare Part D). These programs provide SMI for enrolled eligible participants to 

cover physician and outpatient services not covered by Medicare Part A and to obtain qualified prescription drug coverage, 

respectively. Medicare Part B financing is not based on payroll taxes; it is primarily based on monthly premiums, income 

from the General Fund, and interest earnings on Treasury securities. The Medicare SMI Trust Fund was established by 

Section 1841 of the Social Security Act.

Medicare Part D was created by the Medicare Modernization Act of 2003 (P.L.108-173). Medicare Part D financing is 

similar to Part B; it is primarily based on monthly premiums and income from the General Fund, not on payroll taxes. The 

fund also receives transfers from states. 
NOTES TO THE FINANCIAL STATEMENTS 134

All Other Funds from Dedicated Collections

The government is responsible for the management of numerous funds from dedicated collections that serve a wide 

variety of purposes. The funds from dedicated collections presented on an individual basis in the above tables represent the 

majority of the government’s net position attributable to funds from dedicated collections. All other activity attributable to 

funds from dedicated collections is aggregated in accordance with SFFAS No. 27, Identifying and Reporting Funds from 

Dedicated Collections, as amended by SFFAS No. 43, Funds from Dedicated Collections: Amending Statement of Federal 

Financial Accounting Standards 27, Identifying and Reporting Earmarked Funds. The majority entities with funds from 

dedicated collections within the “all other” aggregate, include the following:

• HHS • RRB

• DOT • DOE

• DOL • HUD

• DOI • DOJ

• Treasury • DOD

• DHS

In accordance with SFFAS No. 43, any funds established to account for pension, other retirement, or other postemployment benefits to civilian or military personnel are excluded from the reporting requirements related to funds from 

dedicated collections.

The 2018 adjustments to beginning net position is $22.6 billion of which $20.0 billion was restated in fiscal year 2019. 

Certain amounts were restated to improve the consistency of entities combined presentation and to adequately represent 

intradepartmental eliminations of $9.0 billion. Certain amounts related to DOD have been restated which resulted in an 

adjustment to beginning net position for fiscal year 2018 of $11.0 billion. In fiscal year 2019, DOD brought offline 

adjustments from published component AFRs into its reporting system. This correction resulted in an adjustment between 

funds from dedicated collections and funds other than those from dedicated collections, with no effect on the consolidated 

total.

In fiscal year 2019, the presentation methodology for Note 20—Funds from Dedicated Collections was changed to

provide consistency among all entities. For comparative purposes, fiscal year 2018 was also restated. This restatement was

primarily related to an increase in the total amount of federal assets and federal liabilities reported for Funds from Dedicated

Collections. The majority of these increases came from SSA, DOT, EPA, and DOE due to intragovernmental transfers

receivable and loans receivable.
 135 NOTES TO THE FINANCIAL STATEMENTS

Note 21. Fiduciary Activities

Fiduciary activities are the collection or receipt, and the management, protection, accounting, investment and

disposition by the government of cash or other assets in which non-federal individuals or entities have an ownership interest

that the government must uphold. Fiduciary cash and other assets are not assets of the government and are not recognized on

the consolidated Balance Sheet. Examples of the government’s fiduciary activities include the TSP, which is administered by

the FRTIB, and the Indian Tribal and individual Indian Trust Funds, which are administered by the DOI.

Schedule of Fiduciary Net Assets as of September 30, 2019, and 2018

(In billions of dollars) 2019 2018

Thrift Savings Plan ..................................................................................... 611.5 589.0

Department of the Interior ........................................................................... 5.7 5.4

All other ..................................................................................................... 6.5 5.2

Total fiduciary net assets .......................................................................... 623.7 599.6

In accordance with the requirements of SFFAS No. 31, Accounting for Fiduciary Activities, fiduciary investments in

Treasury securities and fund balance with Treasury held by fiduciary funds are to be recognized on the Balance Sheet as debt

held by the public and a liability for fiduciary fund balance with Treasury, respectively.

As of September 30, 2019, total fiduciary investments in Treasury securities and in non-Treasury securities are $249.6

billion and $362.7 billion, respectively. As of September 30, 2018, total fiduciary investments in Treasury securities and in

non-Treasury securities were $250.3 billion and $363.0 billion, respectively. Refer to Note 11—Federal Debt Securities Held

by the Public and Accrued Interest for more information on the Treasury securities.

As of September 30, 2019, and 2018, the total fiduciary fund balance with Treasury is $1.5 billion and $1.8 billion,

respectively. A liability for this fiduciary fund balance with Treasury is reflected as other miscellaneous liabilities in Note

16—Other Liabilities.

As of September 30, 2019, and 2018, collectively, the fiduciary investments in Treasury securities and fiduciary fund

balance with Treasury held by all government entities represent $7.8 billion and $6.6 billion, respectively, of unrestricted

cash included within cash held by Treasury for governmentwide operations shown in Note 2—Cash and Other Monetary

Assets.

Thrift Savings Plan

The TSF maintains and holds in trust the assets of the TSP. The TSP is administered by an independent government

entity, the FRTIB, which is charged with operating the TSP prudently and solely in the interest of the participants and their

beneficiaries.

The TSP is a retirement savings and investment plan for federal employees and members of the uniformed services. It

was authorized by the U.S. Congress in the Federal Employees’ Retirement System Act of 1986. The Plan provides federal

employees and members of the uniformed services with a savings and tax benefit similar to what many private sector

employers offer their employees under 401(k) plans. The Plan was primarily designed to be a key part of the retirement

package (along with a basic annuity benefit and Social Security) for employees who are covered by FERS.

As of September 30, 2019, and 2018, the TSP held $611.5 billion and $589.0 billion, respectively, in net assets, which

included $243.4 billion and $245.5 billion, respectively, of Treasury securities. The TSF combines the net assets of the TSP

and the FRTIB in its financial statements. Only the TSP net assets of the TSF financial statements are disclosed in this note.

The most recent audited financial statements for the TSF are as of December 31, 2018, and 2017. For further information

about FRTIB and the TSP, please refer to the FRTIB website at https://www.frtib.gov.
NOTES TO THE FINANCIAL STATEMENTS 136

Department of Interior–Indian Trust Funds

As stated above, DOI has responsibility for the assets held in trust on behalf of American Indian Tribes and individuals.

DOI maintains accounts for Tribal and Other Trust Funds (including the Alaska Native Escrow Fund) and IIM Trust Funds in

accordance with the American Indian Trust Fund Management Reform Act of 1994. The fiduciary balances that have

accumulated in these funds have resulted from land use agreements, royalties on natural resource depletion, other proceeds

derived directly from trust resources, judgment awards, settlements of claims, and investment income. These funds are

maintained by the Office of the Special Trustee for American Indians and ONRR, both components of Departmental Offices

and Indian Affairs for the benefit of individual Native Americans as well as for designated Indian tribes. DOI maintains

separate financial statements for these trust funds, which are prepared using a cash or modified cash basis of accounting, a

comprehensive basis of accounting other than GAAP. The independent auditors’ reports on the Tribal and Other Trust Funds

were qualified as it was not practical to extend audit procedures sufficiently to satisfy themselves as to the fairness of the

trust fund balances. The IIM Trust Funds received an unmodified opinion from the auditors. As of September 30, 2019, and

2018, the DOI held $5.7 billion and $5.4 billion, respectively, in net assets. For further information related to these assets,

please refer to the DOI website at https://www.doi.gov.

All Other Entities with Fiduciary Activities

The government is responsible for the management of other fiduciary net assets on behalf of various non-federal

entities. The component entities presented individually in the table on the previous page represent the vast majority of the

government’s fiduciary net assets. All other component entities with fiduciary net assets are aggregated in accordance with

SFFAS No. 31. As of September 30, 2019, and 2018, including TSP and DOI, there are a total of 20 and 19 federal entities,

respectively, with fiduciary activities at a grand total of 66 and 65 fiduciary funds, respectively. SBA and LOC are the

significant entities relating to the fiduciary activities of the remaining component entities within the “all other” aggregate

balance. As of September 30, 2019, “all other” fiduciary net assets were $6.5 billion, compared to $5.2 billion as of

September 30, 2018.
 137 NOTES TO THE FINANCIAL STATEMENTS

Note 22. Social Insurance

SOSI presents the projected actuarial present value of the estimated future revenue and estimated future expenditures of

the Social Security, Medicare, Railroad Retirement, and Black Lung social insurance programs which are administered by the

SSA, HHS, RRB, and DOL, respectively. These estimates are based on the intermediate economic and demographic

assumptions presented later in this note as set forth in the relevant Social Security and Medicare Trustees’ Reports and in the

AFRs of SSA, HHS, and DOL, as well as in the relevant entity PAR for RRB. Due to a change in the presentation of the

consolidated SOSI and this note from billions of dollars to trillions of dollars beginning in fiscal year 2016, some amounts in

the narrative will not be traceable to the corresponding AFRs. The SOSI projections, with one exception related to Medicare

Part A and OASDI, are based on current law. The one exception is that they assume that scheduled social insurance benefit

payments would continue after related trust funds are projected to be depleted, contrary to current law. By law, once trust

fund asset reserves are depleted, expenditures cannot be made except to the extent covered by ongoing tax receipts and other

trust fund income, but the BLDTF has the ability to borrow and use the borrowed funds to pay benefits and other

expenditures. The estimates in the consolidated SOSI of the open group measures are for persons who are participants or

eventually will participate in the programs as contributors (workers) or beneficiaries (retired workers, survivors, dependents,

and disabled) during the 75-year projection period. To enhance comparability of the BLDTF social insurance information and

continue to illustrate the fund’s long-term condition and sustainability, in fiscal year 2017 DOL revised its projection period

from a fixed terminus of September 30, 2040 to a rolling 25-year projection period that begins on the September 30 valuation

date each year. Contributions consist of: payroll, income, and excise taxes, premiums from, and state transfers on behalf of,

participants in Medicare, and miscellaneous reimbursements from the General Fund. The SOSI also includes projected

general revenues that, under current law, would be used to finance the remainder of the expenditures in excess of revenues

for Medicare Parts B and D that is reported in the SOSI. Expenditures include benefit payments scheduled under current law

and administrative expenses. Current Social Security and Medicare law provides for full benefit payments only to the extent

that there are sufficient balances in the trust funds. Expenditures reflect full benefit payments even after the point at which

trust fund asset reserves are projected to be depleted. For more information regarding the estimates to prepare the SOSI, see

Note 27—Subsequent Events.

Actuarial present values of estimated future income (excluding interest) and estimated future expenditures for the Social

Security and Medicare social insurance programs are presented for three different groups of participants: (1) current

participants who have not yet attained eligibility age; (2) current participants who have attained eligibility age; and (3) new

entrants, who are expected to become participants in the future. Current participants in the Social Security and Medicare

programs are the “closed group” of taxpayers and/or beneficiaries who are at least age 15 years at the start of the projection

period. Since the projection period for the Social Security, Medicare, and Railroad Retirement social insurance programs

consists of 75 years, the period covers virtually all of the current participants’ working and retirement years, a period that

could be greater than 75 years in a relatively small number of instances. Future participants for Social Security and Medicare

include births during the projection period and individuals below age 15 as of January 1 of the valuation year. Railroad

Retirement’s future participants are the projected new entrants as of October 1 of the valuation year. For fiscal year 2015 and

years prior, future participants for Railroad Retirement were the projected new entrants as of January 1 of the valuation year.6

The present values of estimated future expenditures in excess of estimated future revenue are calculated by subtracting

the actuarial present values of future scheduled contributions as well as dedicated tax income by and on behalf of current and

future participants from the actuarial present value of the future scheduled benefit payments to them or on their behalf. To

determine a program’s funding shortfall over any given period of time, the starting trust fund balance is subtracted from the

present value of expenditures in excess of revenues over the period.

The trust fund balances as of the valuation date for the respective programs, including interest earned, are shown in the

table below. 7 Substantially all of the OASDI, HI, and SMI Trust Fund balances consist of investments in special

nonmarketable Treasury securities that are backed by the full faith and credit of the U.S. government. For more information,

see Note 20—Funds from Dedicated Collections.

6 Beginning with the fiscal year 2016 reporting period, the valuation date for the RRP was changed from calendar year to fiscal year. 7 Trust fund balances for the Railroad Retirement and Black Lung programs are not included, as these balances are less than $50 billion.
NOTES TO THE FINANCIAL STATEMENTS 138

Social Insurance Programs Trust Fund Balances 1

(In trillions of dollars) 2019 2018 2017 2016 2015

Social Security .................................... 2.9 2.9 2.8 2.8 2.8

Medicare ............................................ 0.3 0.3 0.3 0.3 0.3

1 As of the valuation date of the respective programs.

Social Security

The OASI Trust Fund, established on January 1, 1940, and the DI Trust Fund, established on August 1, 1956,

collectively referred to as OASDI or “Social Security,” provides cash benefits for eligible U.S. citizens and residents.

Eligibility and benefit amounts are determined under the laws applicable for the period. Current law provides that the amount

of the monthly benefit payments for workers and their eligible dependents or survivors is based on the workers’ lifetime

earnings histories.

The primary financing of the OASDI Trust Funds are taxes paid by workers, their employers, and individuals with selfemployment income, based on work covered by the OASDI Program. Refer to the unaudited RSI—Social Insurance section

for additional information on Social Security program financing.

The portion of each trust fund not required to pay benefits and administrative costs is invested, on a daily basis, in interestbearing obligations of the U.S. government. The Social Security Act authorizes the issuance by the Treasury of special

nonmarketable, intragovernmental debt obligations for purchase exclusively by the trust funds. Although the special issues

cannot be bought or sold in the open market, they are redeemable at any time at face value and thus bear no risk of fluctuation in

principal value due to changes in market yield rates. Interest on the bonds is credited to the trust funds and becomes an asset to

the funds and a liability to the General Fund. These Treasury securities and related interest are eliminated in consolidation at the

governmentwide level.

Medicare

The Medicare Program, created in 1965, has two separate trust funds: the HI (Medicare Part A) and SMI (Medicare

Parts B and D) Trust Funds. HI helps pay for inpatient hospital stays, home health care following a hospital stay, and skilled

nursing facility and hospice care. SMI helps pay for hospital outpatient services, physician services, and assorted other

services and products through Part B and for prescription drugs through Part D. Though the events that trigger benefit

payments are similar, HI and SMI have different dedicated financing structures. Similar to OASDI, HI is financed primarily

by payroll contributions. Other income to the HI Trust Fund includes a small amount of premium income from voluntary

enrollees, receipts from fraud and abuse control activities, a portion of the federal income taxes that beneficiaries pay on

Social Security benefits and interest credited on Treasury securities held in the HI Trust Fund. These Treasury securities and

related interest are eliminated in the consolidation at the governmentwide level.

For SMI, transfers from the General Fund represent the largest source of income for both Parts B and D. Generally,

beneficiaries finance the remainder of Parts B and D costs via monthly premiums to these programs. With the introduction of

Part D drug coverage, Medicaid is no longer the primary payer of drug costs for full-benefit dually eligible beneficiaries of

Medicare and Medicaid. For those beneficiaries, states are subject to a contribution requirement and must pay a portion of

their estimated foregone drug costs into the Part D account (referred to as state transfers). The estimated foregone drug costs

is the estimated difference between the drug costs that used to be fully covered by Medicaid for full-benefit dually eligible

beneficiaries (i.e., for Medicare and Medicaid) prior to the introduction of Part D, and the drug cost that is now covered for

such dually eligible beneficiaries by Medicare Part D. Fees related to brand-name prescription drugs, required by the

PPACA, are included as income for Part B of SMI. As with HI, interest received on Treasury securities held in the SMI Trust

Fund is credited to the fund and these Treasury securities as well as related interest are eliminated in consolidation at the

governmentwide level. By accounting convention, the transfers of general revenues are eliminated in the consolidation of the

SOSI at the governmentwide level and as such, the General Fund transfers that are used to finance Medicare Parts B and D

are also shown as eliminations in these calculations. For the fiscal years 2019 and 2018 SOSI, the amounts eliminated totaled
 139 NOTES TO THE FINANCIAL STATEMENTS

$36.8 trillion and $33.0 trillion, respectively. Refer to unaudited RSI—Social Insurance section for additional information on

Medicare program financing.

The financial projections for the Medicare program reflect substantial, but very uncertain, cost savings deriving from

specific provisions of the PPACA and the MACRA that lowered increases in Medicare payment rates to most categories of

health care providers.

The PPACA became law in fiscal year 2010 and provided funding for the establishment by CMS of a Center for

Medicare and Medicaid Innovation to test innovative payment and service delivery models to reduce program expenditures

while preserving or enhancing the quality of care furnished to individuals. It also allowed for the establishment of a CCIIO.

One of the main programs under CCIIO is Exchanges. A brief description of these programs is presented below. There are

two additional programs – Transitional Reinsurance and Risk Corridors – that are no longer in operation.

Health Insurance Exchanges. Grants have been provided to the states to establish Health Insurance Exchanges. The

initial grants were made by HHS to the states “not later than one year after the date of enactment.” Thus, HHS made the

initial grants by March 23, 2011. Subsequent grants were issued by CMS through December 31, 2014, after which time no

further grants could be made. All Exchanges were launched on October 1, 2013.

Risk Adjustment Program. The Risk Adjustment Program is a permanent program. It applies to non-grandfathered

individuals and small group plans inside and outside the Exchanges. It provides payments to health insurance issuers that

disproportionately attract higher-risk populations (such as individuals with chronic conditions) and transfers funds from plans

with relatively lower risk enrollees to plans with relatively higher risk enrollees to protect against adverse selection. States

that operate a state-based exchange are eligible to establish a risk adjustment program. States operating a risk adjustment

program may have an entity other than the Exchanges perform this function. CMS operates a risk adjustment program for

each state that does not operate its own.

It is important to note that the Medicare projections depend in part on the long-range feasibility of the various costsaving measures in the PPACA. Physician payment update amounts are specified for all years in the future, and these

amounts do not vary based on underlying economic conditions, nor are they expected to keep pace with the average rate of

physician cost increases. These rate updates could be an issue in years when levels of inflation are high and would be

problematic when the cumulative gap between the price updates and physician costs becomes large. Payment rate updates for

most non-physician categories of Medicare providers are reduced by the growth in economy-wide private nonfarm business

multifactor productivity although these health providers have historically achieved lower levels of productivity growth. If the

health sector cannot transition to more efficient models of care delivery and if the provider reimbursement rates paid by

commercial insurers continue to be based on the same negotiated process used to date, then the availability, particularly with

respect to physician services, and quality of health care received by Medicare beneficiaries would, under current law, fall

over time compared to that received by those with private health insurance.

A transformation of health care in the U.S., affecting both the means of delivery and the method of paying for care, is

also a possibility. Private health insurance and Medicare are taking important steps in this direction by initiating programs of

research into innovative payment and service delivery models, such as accountable care organizations, patient-centered

medical homes, improvement in care coordination for individuals with multiple chronic health conditions, better coordination

of post-acute care, payment bundling, pay for performance, and assistance for individuals in making informed health choices.

Such changes have the potential to reduce health care costs as well as cost growth rates and could, as a result, help lower

health care spending to levels compatible with the lower price updates payable under current law.

The ability of new delivery and payment methods to lower cost growth rates is uncertain at this time. Preliminary

indications are that some of these delivery reforms have had modest levels of success in lowering costs, but at this time it is

too early to tell if these reductions in spending will continue, or if they will grow to the magnitude needed to align with the

statutory Medicare price updates. For those providers affected by the productivity adjustments and the specified updates to

physician payments, sustaining the price reductions will be challenging, as the best available evidence indicates that most

providers cannot improve their productivity to this degree for a prolonged period given the labor-intensive nature of these

services and that physician costs will grow at a faster rate than the specified updates. As a result, actual Medicare

expenditures are highly uncertain for reasons apart from the inherent difficulty in projecting health care cost growth over

time.

The specified rate updates could be an issue in years when levels of inflation are high and would be problematic when

the cumulative gap between the price updates and physician costs becomes large. The gap will continue to widen throughout

the projection, and it is estimated that physician payment rates under current law will be lower than they would have been

under the SGR formula by 2048. Absent a change in the delivery system or level of update by subsequent legislation, access

to Medicare-participating physicians may become a significant issue in the long term under current law. Overriding the price

updates in current law, as lawmakers repeatedly did in the case of physician payment rates, would lead to substantially higher

costs for Medicare in the long range than those projected in this report.
NOTES TO THE FINANCIAL STATEMENTS 140

To help illustrate and quantify the potential magnitude of the cost understatement, the Trustees asked the Office of

the Actuary at CMS to prepare an illustrative Medicare Trust Fund projection under a hypothetical alternative. This

scenario illustrates the impact that would occur if the payment updates that are affected by the productivity adjustments

transition from current law to the payment updates assumed for private health plans over the period 2028 to 2042. It also

reflects physician payment updates that transition from current law to the increase in the Medicare Economic Index over

the same period. Finally, the scenario assumes the continuation of the 5 percent bonuses for physicians in advanced APMs

and of the $500-million payments for physicians in the merit-based incentive payment system, which are set to expire in

2025. This alternative was developed for illustrative purposes only; the calculations have not been audited; no

endorsement of the policies underlying the illustrative alternative by the Trustees, CMS, or the Office of the Actuary

should be inferred; and the examples do not attempt to portray likely or recommended future outcomes. Thus, the

illustrations are useful only as general indicators of the substantial impacts that could result from future legislation

affecting the productivity adjustments and physician updates under Medicare and of the broad range of uncertainty

associated with such impacts. The table on the following page contains a comparison of the Medicare 75-year present

values of estimated future income and estimated future expenditures under current law with those under the illustrative

alternative scenario.
 141 NOTES TO THE FINANCIAL STATEMENTS

Medicare Present Values (in trillions) (Unaudited)

2019 Consolidated Illustrative

SOSI Alternative

Current Law Scenario 1, 2

Income:

 Part A.................................................. 24.4 24.4

 Part B 3 ................................................ 10.9 12.7

 Part D 4 ................................................ 3.2 3.2

 Total income ..................................... 38.5 40.3

Expenditures: 

 Part A ................................................. 29.8 34.9

 Part B ................................................. 39.7 46.3

 Part D ................................................. 11.2 11.2

 Total expenditures ............................. 80.7 92.4

Income less expenditures:

 Part A ................................................. (5.4) (10.5)

 Part B.................................................. (28.8) (33.6)

 Part D ................................................. (8.0) (8.0)

 Excess of expenditures over income (42.2) (52.1)

1These amounts are not presented in the 2019 Trustees' Report.

2At the request of the Trustees, the Office of the Actuary at CMS has prepared an illustrative set of Medicare Trust Fund projections 

that differ from current law. No endorsement of the illustrative alternative to current law by the Trustees, CMS, or the Office of the 

Actuary should be inferred.

3Excludes $28.8 trillion and $33.6 trillion of General Revenue Contributions from the 2019 Consolidated SOSI Current Law projection 

and the Illustrative Alternative Scenario's projection, respectively; i.e., to reflect Part B income on a consolidated governmentwide 

basis.

4Excludes $8.0 trillion of General Revenue Contributions from both the 2019 Consolidated SOSI Current Law projection and the 

Illustrative Alternative projection; i.e., to reflect Part D income on a consolidated governmentwide basis.
NOTES TO THE FINANCIAL STATEMENTS 142

The difference between the current-law and illustrative alternative projections is substantial for Parts A and B. All Part

A fee-for-service providers and roughly half of Part B fee-for-service providers are affected by the productivity adjustments,

so the current-law projections reflect an estimated 1 percent reduction in annual cost growth each year for these providers. If

the payment updates that are affected by the productivity adjustments were to gradually transition from current law to the

payment updates assumed for private health plans, the physician updates transitioned to the Medicare Economic Index, and

the 5 percent bonuses paid to physicians in advanced APMs did not expire, as illustrated under the alternative scenario, the

estimated present values of Part A and Part B expenditures would each be higher than the current-law projections by roughly

17 percent. As indicated above, the present value of Part A income is basically unaffected under the alternative scenario.

The Part D values are the same under each projection because the services are not affected by the productivity

adjustments or the physician updates. The extent to which actual future Part A and Part B costs exceed the projected amounts

due to changes to the productivity adjustments and physician updates depends on what specific changes might be legislated

and whether Congress would pass further provisions to help offset such costs. As noted, these examples reflect only

hypothetical changes to provider payment rates.

Social Security and Medicare–Demographic and Economic Assumptions

The Boards of Trustees8 of the OASDI and Medicare Trust Funds provide in their annual reports to Congress shortrange (10-year) and long-range (75-year) actuarial estimates of each trust fund. Significant uncertainty surrounds the

estimates, especially for a period as long as 75 years. To illustrate the range of uncertainty, the Trustees use three alternative

scenarios (low-cost, intermediate, and high-cost) that use specific assumptions. These assumptions include fertility rates,

rates of change in mortality, LPR and other-than-LPR immigration levels, emigration levels, changes in real GDP, changes in

the CPI, changes in average real wages, unemployment rates, trust fund real yield rates, and disability incidence and recovery

rates. The assumptions used for the most recent set of projections shown in the Social Security and Medicare demographic

and economic assumption tables are generally referred to as the “intermediate assumptions,” and reflect the Trustees’

reasonable estimate of expected future experience. For further information on Social Security and Medicare demographic and

economic assumptions, refer to SSA’s and HHS’s AFRs.

8 The boards are composed of six members. Four members serve by virtue of their positions in the federal government: the Secretary of the Treasury, who is

the Managing Trustee; the Secretary of Labor; the Secretary of HHS; and the Commissioner of Social Security. The President appoints and the Senate

confirms the other two members to serve as public representatives. These two positions are currently vacant.
 143 NOTES TO THE FINANCIAL STATEMENTS

Social Security – Demographic and Economic Assumptions

Demographic Assumptions

Age-Sex2

Adjusted Net Annual3 Period Life4

Total 1 Death Immigration Expectancy

Fertility Rate (persons per at Birth

Year Rate (per 100,000) year) Male Female

2019 1.75 785.9 1,409,000 76.6 81.3

2020 1.76 779.9 1,413,000 76.7 81.4

2030 2.00 716.5 1,329,000 77.9 82.4

2040 2.00 657.7 1,280,000 79.0 83.3

2050 2.00 606.0 1,251,000 80.1 84.2

2060 2.00 560.6 1,236,000 81.1 85.0

2070 2.00 520.6 1,227,000 82.0 85.7

2080 2.00 485.1 1,221,000 82.8 86.4

2090 2.00 453.5 1,218,000 83.6 87.1

Economic Assumptions

Real5 Average6

Wage Annual Wage Total 9 Average10

Differ- in Covered Real 8 Employ- Annual

ential Employment CPI7 GDP ment Interest

(percent (percent (percent (percent (percent Rate

Year change) change) change) change) change) (percent)

2019 2.19 4.02 1.83 2.8 1.0 3.3

2020 2.08 4.71 2.63 2.4 0.6 3.5

2030 1.29 3.89 2.60 2.0 0.4 5.1

2040 1.20 3.80 2.60 2.0 0.4 5.1

2050 1.25 3.85 2.60 2.1 0.5 5.1

2060 1.25 3.85 2.60 2.0 0.4 5.1

2070 1.19 3.79 2.60 2.0 0.4 5.1

2080 1.16 3.76 2.60 2.1 0.5 5.1

2090 1.16 3.76 2.60 2.0 0.4 5.1

1

The total fertility rate for any year is the average number of children that would be born to a woman in her lifetime if she were to experience, at each age of 

her life, the birth rate observed in, or assumed for, the selected year, and if she were to survive the entire childbearing period.

2

The age-sex-adjusted death rate is based on the enumerated total population as of April 1, 2010, if that population were to experience the death rates by age 

and sex observed in, or assumed for, the selected year. It is a summary measure and not a basic assumption; it summarizes the basic assumptions from 

which it is derived.

3

Net annual immigration is the number of persons who enter during the year (both as LPRs and otherwise) minus the number of persons who leave during the 

year. It is a summary measure and not a basic assumption; it summarizes the effects of the basic assumptions from which it is derived.

4

The period life expectancy at birth for a given year is the average number of years expected prior to death for a person born on January 1 in that year, using 

the mortality rates for that year over the course of his or her remaining life. It is a summary measure and not a basic assumption; it summarizes the effects of 

the basic assumptions from which it is derived. 5

The real-wage differential is the annual percentage change in the average annual wage in covered employment less the annual percentage change in the 

CPI for CPI-W. Values are rounded after all computations. 6

The average annual wage in covered employment is the total amount of wages and salaries for all employment covered by the OASDI program in a year, 

divided by the number of employees with any such earnings during the year. It is a summary measure and not a basic assumption; it summarizes the basic 

assumptions from which it is derived.

7

The CPI is the CPI-W.

8

The real GDP is the value of total output of goods and services in 2012 dollars. It is a summary measure and not a basic assumption; it summarizes the 

effects of the basic assumptions from which it is derived. 

9

Total employment is total U.S. military and civilian employment. It is a summary measure and not a basic assumption; it summarizes the basic 

assumptions from which it is derived.

10The average annual interest rate is the average of the nominal interest rates, compounded semiannually, for special public-debt obligations issuable to 

the OASI and DI Trust Funds in each of the 12 months of the year. It is a summary measure and not a basic assumption; it summarizes the basic 

assumptions from which it is derived.
NOTES TO THE FINANCIAL STATEMENTS 144

Medicare – Demographic and Economic Assumptions

Demographic Assumptions

Age-Sex

Adjusted2 Net Annual3

Total 1 Death Immigration

Fertility Rate (persons per

Year Rate (per 100,000) year)

2019 1.75 785.9 1,409,000

2020 1.76 779.9 1,413,000

2030 2.00 716.5 1,329,000

2040 2.00 657.7 1,280,000

2050 2.00 606.0 1,251,000

2060 2.00 560.6 1,236,000

2070 2.00 520.6 1,227,000

2080 2.00 485.1 1,221,000

2090 2.00 453.5 1,218,000

Economic Assumptions

Real4 Average5 Per Beneficiary Cost8

Wage Annual Wage (percent change)

Differ- In Covered Real7 Real9

ential Employment CPI6 GDP SMI Interest

(percent (percent) (percent (percent Rate

Year change) change) change) change) HI Part B Part D (percent)

2019 2.19 4.02 1.83 2.8 3.5 5.5 (1.5) 1.0

2020 2.08 4.71 2.63 2.4 3.8 5.0 3.5 0.7

2030 1.29 3.89 2.60 2.0 4.2 5.6 4.9 2.5

2040 1.20 3.80 2.60 2.0 4.5 4.4 4.7 2.5

2050 1.25 3.85 2.60 2.1 4.0 4.0 4.7 2.5

2060 1.25 3.85 2.60 2.0 3.7 3.8 4.5 2.5

2070 1.19 3.79 2.60 2.0 3.8 3.7 4.4 2.5

2080 1.16 3.76 2.60 2.1 3.9 3.8 4.5 2.5

2090 1.16 3.76 2.60 2.0 3.5 3.6 4.3 2.5

1

Average number of children per woman.

2

The age-sex-adjusted death rate per 100,000 that would occur in the enumerated population as of April 1, 2010, if that population were to experience the 

death rates by age and sex observed in, or assumed for, the selected year. 

3

Includes legal immigration, net of emigration, as well as other, non-legal, immigration.

4

Difference between percentage increases in wages and the CPI.

5

Average annual wage in covered employment.

6

CPI represents a measure of the average change in prices over time in a fixed group of goods and services.

7

Total dollar value of all goods and services produced in the U.S., adjusted to remove the impact of assumed inflation growth.

8

These increases reflect the overall impact of more detailed assumptions that are made for each of the different types of service provided by the Medicare 

program (for example, hospital care, physician services, and pharmaceutical costs). These assumptions include changes in the payment rates, utilization, and 

intensity of each type of service.

9

Average rate of interest earned on new trust fund securities, above and beyond rate of inflation.
 145 NOTES TO THE FINANCIAL STATEMENTS

Railroad Retirement

The Railroad Retirement and Survivor Benefit program pays full retirement annuities at age 60 to railroad workers with

30 years of service. The program pays disability annuities based on total or occupational disability. It also pays annuities to

spouses and divorced spouses of retired workers and to widow(er)s, surviving divorced spouses, remarried widow(er)s,

children, and parents of deceased railroad workers. Medicare covers qualified railroad retirement beneficiaries in the same

way as it does Social Security beneficiaries.

The RRB and the SSA share jurisdiction over the payment of retirement and survivor benefits. The RRB has

jurisdiction over the payment of retirement benefits if the employee has at least 10 years of railroad service, or five years if

performed after 1995. For survivor benefits, RRB requires that the employee’s last regular employment before retirement or

death be in the railroad industry. If a railroad employee or his or her survivors do not qualify for railroad retirement benefits,

the RRB transfers the employee’s railroad retirement credits to SSA, where they are treated as social security credits.

Payroll taxes paid by railroad employers and their employees are a primary source of funding for the Railroad

Retirement and Survivor Benefit Program. By law, railroad retirement taxes are coordinated with Social Security taxes.

Employees and employers pay Tier I taxes at the same rate as Social Security taxes and Tier II taxes to finance railroad

retirement benefit payments that are higher than Social Security levels.

Revenues in excess of benefit payments are invested to provide additional trust fund income. Legislation enacted in

2001 allowed for Railroad Retirement Account funds transferred to the NRRIT to be invested in non-governmental assets, as

well as in governmental securities. Funds transferred from the SSEB Account to the NRRIT are allowed to be invested only

in governmental securities. Under the financial interchange provisions, the RRP’s SSEB Account and the trust funds

interchange amounts on an annual basis so that each trust fund is in the same position it would have been had railroad

retirement always been covered under Social Security.

Since its inception, NRRIT has received $21.3 billion from RRB (including $19.2 billion in fiscal year 2003, pursuant

to the Railroad Retirement and Survivors’ Improvement Act of 2001) and returned $24.7 billion. During fiscal year 2019, the

NRRIT made net transfers of $1.8 billion to the RRB to pay retirement benefits. Administrative expenses of the trust are paid

out of trust assets. The balance as of September 30, 2019, and 2018, of non-federal securities and investments of the NRRIT

are disclosed in Note 7—Debt and Equity Securities.

Another major source of income to the Railroad Retirement and Survivor Benefit program consists of financial

transactions with the Social Security and Medicare Trust Funds. The RRB, SSA, and CMS are parties to a financing

arrangement, the “financial interchange”, which is intended to put the OASDI and Medicare HI Trust Funds in the same

positions they would have been had railroad employment been covered under the Social Security and FICAs.

Other sources of program income include revenue resulting from federal income taxes on railroad retirement benefits, and

appropriations provided after 1974 as part of a phase out of certain vested dual benefits. From a governmentwide perspective,

these future financial interchanges and transactions are intragovernmental transfers and are eliminated in consolidation.

The estimated future revenues and expenditures reflected in the SOSI are based on various economic, employment, and

other actuarial assumptions, and assume that the RRP will continue as presently constructed. The calculations assume that all

future transfers required by current law under the financial interchange will be made. For further details on actuarial

assumptions related to the RRP and how these assumptions affect amounts presented on the SOSI and SCSIA, consult the

Technical Supplement to the 27th Actuarial Valuation of the Assets and Liabilities Under the Railroad Retirement Acts as of

December 31, 2016 and RRB’s financial statements.

Black Lung–Disability Benefit Program

The BLDBP provides for compensation, medical, and survivor benefits for eligible coal miners who are totally disabled 

due to pneumoconiosis (black lung disease) arising out of their coal mine employment, and the BLDTF provides benefit 

payments when no RMO can be assigned the liability or when the liability is adjudicated to the BLDTF, which may occur as 

a result of, among other things, bankruptcy of the RMO. DOL operates the BLDBP. 

Black lung disability benefit payments are funded by excise taxes from coal mine operators based on the domestic sale 

of coal, as are the fund’s administrative costs. These taxes are collected by the IRS and transferred to the BLDTF, which was

established under the authority of the Black Lung Benefits Revenue Act and administered by the Treasury. 

P.L. 110-343, Division B-Energy Improvement and Extension Act of 2008, enacted on October 3, 2008, among other 

things, restructured the BLDTF debt by refinancing the outstanding high interest rate repayable advances with low interest 

rate discounted debt instruments similar in form to zero-coupon bonds, plus a one-time appropriation. This Act also allowed 

that any subsequent debt issued by the BLDTF may be used to make benefit payments, other authorized expenditures, or to 

repay debt and interest from the initial refinancing.

The significant assumptions used in the projections for the SOSI are the coal excise tax revenue estimates, the tax rate 

structure, number of beneficiaries, life expectancy, federal civilian pay raises, medical cost inflation, and interest rates used to 
NOTES TO THE FINANCIAL STATEMENTS 146

discount future cash flows. These assumptions affect the amounts reported on the SOSI and the SCSIA. The program’s 

valuation date is September 30 for each year of information presented in the SOSI and the SCSIA. Refer to DOL’s financial 

statements for further details on significant assumptions related to the BLDBP, and how these assumptions affect amounts 

presented on the SOSI and SCSIA.

Statement of Changes in Social Insurance Amounts

The SCSIA reconciles the change (between the current valuation and the prior valuation) in the present value of 

estimated future revenue less estimated future expenditures for current and future participants (the open group measure) over 

the next 75 years (except Black Lung which has a rolling 25-year projection period through September 30, 2044). The 

reconciliation identifies several components of the changes that are significant and provides reasons for the changes. The 

following disclosures relate to the SCSIA including the reasons for the components of the changes in the open group measure 

during the reporting period from the end of the previous reporting period for the government’s social insurance programs. For

more information regarding the estimates used to prepare the SCSIA, see Note 27—Subsequent Events.

Social Security

The SCSIA shows two reconciliations for Social Security: (1) changes from the period beginning on January 1, 2018, to 

the period beginning on January 1, 2019, and (2) changes from the period beginning on January 1, 2017, to the period 

beginning on January 1, 2018. All estimates relating to the Social Security Program in the SCSIA represent values that are 

incremental to the prior change. As an example, the present values shown for economic data, assumptions, and methods 

represent the additional effect of these new data, assumptions, and methods after considering the effects from demography 

and the change in the valuation period. In general, an increase in the present value of net cash flows represents a positive 

change (improving financing), while a decrease in the present value of net cash flows represents a negative change 

(worsening financing).

Assumptions Used for the Components of the Changes for the Social Security Program

The present values included in the SCSIA are for the current and prior years and are based on various economic as well 

as demographic assumptions used for the intermediate assumptions in the Social Security Trustees’ Reports for these years. 

The Social Security – Demographic and Economic Assumptions table summarizes these assumptions for the current year.

From the period beginning on January 1, 2018 to the period beginning on January 1, 2019

Present values as of January 1, 2018 are calculated using interest rates from the intermediate assumptions of the 2018 

Trustees’ Report. All other present values in this part of the SCSIA are calculated as a present value as of January 1, 2019. 

Estimates of the present value of changes in social insurance amounts due to changing the valuation period and changing 

demographic data, assumptions, and methods are presented using the interest rates under the intermediate assumptions of the 

2018 Trustees’ Report. Because interest rates are an economic estimate and all estimates in the table are incremental to the 

prior change, all other present values in this part of the SCSIA are calculated using the interest rates under the intermediate 

assumptions of the 2019 Trustees’ Report.

From the period beginning on January 1, 2017 to the period beginning on January 1, 2018

Present values as of January 1, 2017 are calculated using interest rates from the intermediate assumptions of the 2017 

Trustees’ Report. All other present values in this part of the SCSIA are calculated as a present value as of January 1, 2018. 

Estimates of the present value of changes in social insurance amounts due to changing the valuation period and changing 

demographic data, assumptions, and methods are presented using the interest rates under the intermediate assumptions of the 

2017 Trustees’ Report. Because interest rates are an economic estimate and all estimates in the table are incremental to the 

prior change, all other present values in this part of the SCSIA are calculated using the interest rates under the intermediate 

assumptions of the 2018 Trustees’ Report.

Changes in Valuation Period

From the period beginning on January 1, 2018 to the period beginning on January 1, 2019

The effect on the 75-year present values of changing the valuation period from the prior valuation period (2018–2092) 

to the current valuation period (2019–2093) is measured by using the assumptions for the prior valuation and extending them 

to cover the current valuation. Changing the valuation period removes a small negative net cash flow for 2018, replaces it 

with a much larger negative net cash flow for 2093, and measures the present values as of January 1, 2019, one year later. 
 147 NOTES TO THE FINANCIAL STATEMENTS

Thus, the present value of estimated future net cash flows (excluding the combined OASI and DI Trust Fund asset reserves at 

the start of the period) decreased (became more negative) when the 75-year valuation period changed from 2018–2092 to 

2019–2093. In addition, the effect on the level of asset reserves in the combined OASI and DI Trust Funds of changing the 

valuation period is measured by assuming all values projected in the prior valuation for the year 2018 are realized. The 

change in valuation period decreased the starting level of asset reserves in the combined OASI and DI Trust Funds. As a 

result, the present value of the estimated future net cash flows decreased by $0.5 trillion.

From the period beginning on January 1, 2017 to the period beginning on January 1, 2018

The effect on the 75-year present values of changing the valuation period from the prior valuation period (2017-2091) to 

the current valuation period (2018-2092) is measured by using the assumptions for the prior valuation and extending them to 

cover the current valuation. Changing the valuation period removes a small negative net cash flow for 2017, replaces it with a 

much larger negative net cash flow for 2092, and measures the present values as of January 1, 2018, one year later. Thus, the

present value of estimated future net cash flows (excluding the combined OASI and DI Trust Fund asset reserves at the start 

of the period) decreased (became more negative) when the 75-year valuation period changed from 2017-2091 to 2018-2092. 

In addition, the effect on the level of asset reserves in the combined OASI and DI Trust Funds of changing the valuation 

period is measured by assuming all values projected in the prior valuation for the year 2017 are realized. The change in 

valuation period increased the starting level of asset reserves in the combined OASI and DI Trust Funds. As a result, the 

present value of the estimated future net cash flows decreased by $0.6 trillion.

Changes in Demographic Data, Assumptions, and Methods

From the period beginning on January 1, 2018 to the period beginning on January 1, 2019

The ultimate demographic assumptions for the current valuation (beginning on January 1, 2019) are the same as those for 

the prior valuation. However, the starting demographic values and the way these values transition to the ultimate assumptions

were changed. 

• The numbers of new LPRs for calendar years 2018 and 2019 were assumed to be slightly lower than projected in the 

prior valuation period, due to recent lower annual refugee ceilings set by the Administration. 

• The current valuation incorporated a gradual rise in 2017 and 2018 of other-than-LPR immigrants, reaching the 

ultimate assumed level in 2019. In contrast, the prior valuation incorporated a surge in the number of other-thanLPR immigrants for years 2016 through 2021. 

• Final birth rate data for 2017 indicated slightly lower birth rates than were assumed in the prior valuation. 

• Incorporating 2016 mortality data obtained from the NCHS for ages under 65 and 2016 and preliminary 2017 

mortality data from Medicare experience for ages 65 and older resulted in higher death rates for all future years than 

were projected in the prior valuation.

Inclusion of the lower numbers of LPRs in the short-term, eliminating the surge in other-than-LPRs, and lower birth 

rates decreased the present value of estimated future net cash flows, while the inclusion of the recent mortality data increased 

the present value of estimated future net cash flows. 

There were two notable changes in demographic methodology: 

• Improved the method for projecting fertility rates by better incorporating detailed provisional birth rate data 

available from NCHS. 

• Incorporated more comprehensive Medicare mortality data from CMS.

Inclusion of the fertility change decreased the present value of estimated future cash flows, while the mortality change 

increased the present value of estimated future net cash flows. Overall, changes to these assumptions caused the present value 

of the estimated future net cash flows to increase by $0.4 trillion.

From the period beginning on January 1, 2017 to the period beginning on January 1, 2018

The ultimate demographic assumptions for the current valuation (beginning on January 1, 2018), with the exception of a 

small decrease of 10,000 LPR immigrants per annum in the future, are the same as those for the prior valuation. However, the 

starting demographic values and the way these values transition to the ultimate assumptions were changed.

• Final birth rate data for 2016 indicated slightly lower birth rates than were assumed in the prior valuation.

• Recent fertility data suggests that the short-term increase in the total fertility rate used in the prior valuation to 

account for an assumed deferral in childbearing (resulting from the recent economic downturn) was no longer 

warranted. The observed persistent drop in the total fertility rate in recent years is now assumed to be a loss of 

potential births rather than just a deferral for this period.
NOTES TO THE FINANCIAL STATEMENTS 148

• Incorporating 2015 mortality data obtained from NCHS for ages under 65 and preliminary 2015 mortality data from 

Medicare experience for ages 65 and older resulted in higher death rates for all future years than were projected in 

the prior valuation.

• More recent LPR and other-than-LPR immigration data and historical population data were included.

Inclusion of the recent birth rate data, eliminating the short-term increase in fertility, and immigration data decreased the 

present value of estimated future net cash flows, while the inclusion of the recent mortality data and historical population data 

increased the present value of estimated future net cash flows.

There was one notable change in demographic methodology:

• Improved the method for projecting mortality rates by marital status by utilizing recent data from NCHS and the 

American Community Survey.

Inclusion of this new method increased the present value of estimated future net cash flows. Overall, changes to these 

assumptions caused the present value of the estimated future net cash flows to increase by $0.1 trillion.

Changes in Economic Data, Assumptions, and Methods

From the period beginning on January 1, 2018 to the period beginning on January 1, 2019

For the current valuation (beginning on January 1, 2019), there were four changes to the ultimate economic

assumptions.

• The ultimate annual rate of change in total-economy labor productivity was lowered from 1.68 percent in the prior 

valuation to 1.63 percent in the current valuation, reflecting an expected slower rate of productivity growth in the 

long term.

• The difference between the ultimate growth rates for the CPI-W and the GDP implicit price deflator (the "price 

differential"), was decreased from 0.40 percentage point in the prior valuation to 0.35 percentage points in the 

current valuation.

• The ultimate average real-wage differential was increased from 1.20 percentage points in the prior valuation to 1.21 

percentage points in the current valuation.

• The ultimate real interest rate was lowered by 0.20 percentage point, from 2.70 percent in the prior valuation to 2.50 

percent in the current valuation.

The lower ultimate annual rate of change in total-economy labor productivity and the lower ultimate real interest rate 

decreased the present value of estimated future net cash flows, while the smaller price differential and the higher ultimate 

average real-wage differential increased the present value of estimated future net cash flows.

In addition to these changes in ultimate assumptions, the starting economic values and the way these values transition to 

the ultimate assumptions were changed. The most notable change was to include the July 2018 revisions in historical GDP 

estimated by the BEA of the DOC. This and other smaller changes in starting values and near-term growth assumptions 

combined to increase the present value of estimated future net cash flows.

There was one notable change in economic methodology:

• Incorporated more recent projections of disability prevalence in the labor force participation model.

Inclusion of this new method increased the present value of estimated future net cash flows. Overall, changes to these 

assumptions caused the present value of the estimated future net cash flows to decrease by $1.0 trillion.

From the period beginning on January 1, 2017 to the period beginning on January 1, 2018

The ultimate economic assumptions for the current valuation (beginning on January 1, 2018), are the same as those for 

the prior valuation. However, the starting economic values and the way these values transition to the ultimate assumptions 

were changed.

• The estimated level of potential GDP was reduced by about 1 percent in 2017 and throughout the projection period, 

primarily due to the slow growth in labor productivity for 2010 through 2017 and low unemployment rates in 2017. 

This lower estimated level of potential GDP means that cumulative growth in actual GDP is 1 percent less over the 

remainder of the projected recovery than was assumed in the prior valuation.

• Near-term interest rates were decreased, reflecting a more gradual path for the rise to the ultimate real interest rate 

than was assumed in the prior valuation.

• New data from the BEA indicated lower-than-expected ratios of labor compensation to GDP for 2016 and 2017, 

while new data from the IRS indicated lower-than-expected ratios of taxable payroll to GDP for 2016 and 2017. 

This new data led to assumed extended recoveries in these ratios to the unchanged ultimate ratios.

The changes in near-term interest rates and GDP decreased the present value of estimated future net cash flows. The 

new data from BEA and IRS and the resulting extended recovery in the ratios of labor compensation to GDP and taxable 

payroll to GDP increased the present value of estimated future net cash flows.
 149 NOTES TO THE FINANCIAL STATEMENTS

There was one notable change in economic methodology:

• Improved the method for projecting educational attainment among women in age groups 45-49 and 50-54 in the 

labor force participation model.

Inclusion of this new method increased the present value of estimated future net cash flows. Overall, changes to these 

assumptions caused the present value of the estimated future net cash flows to decrease by $0.5 trillion.

Changes in Law or Policy

From the period beginning on January 1, 2018 to the period beginning on January 1, 2019

The monetary effect of the changes in law or policy on the present value of estimated future net cash flows of the 

OASDI program was not significant at the consolidated level. Please refer to SSA’s financial statements for further 

information related to the impact of the changes in law or policy on the present value of estimated future net cash flows of the 

OASDI program.

From the period beginning on January 1, 2017 to the period beginning on January 1, 2018

The monetary effect of the changes in law or policy on the present value of estimated future net cash flows of the 

OASDI program was not significant at the consolidated level. Please refer to SSA’s financial statements for further 

information related to the impact of the changes in law or policy on the present value of estimated future net cash flows of the 

OASDI program.

Changes in Methodology and Programmatic Data

From the period beginning on January 1, 2018 to the period beginning on January 1, 2019

Several methodological improvements and updates of program-specific data are included in the current valuation

(beginning on January 1, 2019). The most significant are identified below.

• The ultimate disability incidence rate was lowered from 5.4 per thousand exposed in the prior valuation to 5.2 in the 

current valuation. In addition, recent levels of disability applications and awards are lower than expected in the prior 

valuation, and estimated disability incidence rates in the current valuation are assumed to increase more gradually 

toward the assumed ultimate level than in the prior valuation.

• As in the prior valuation, the current valuation uses a 10-percent sample of newly-entitled worker beneficiaries in 

2015 to project average benefit levels of retired-worker and disabled-worker beneficiaries. For the current valuation, 

the model’s projection of earnings for workers becoming newly entitled in future years was improved to better 

reflect the “dispersion” in taxable earnings levels observed from 1970 to 2010. Over this historical period, increases 

in taxable earnings were higher for workers with taxable earnings above the median than for workers with taxable 

earnings below the median.

• The current valuation includes an improvement in the method for calculating future benefit levels for those who are 

awarded benefits more than two years after their date of initial benefit entitlement. This improvement mainly affects 

DI benefit levels.

• The current valuation updated two sets of benefit adjustment factors based on new programmatic data: the postentitlement adjustment factors and the WEP factors.

Lowering the ultimate disability incidence rate and inclusion of recent disability data, reflecting earnings dispersion, and 

the change to benefit levels for those awarded more than two years after entitlement increased the present value of estimated

future net cash flows. Updating the post-entitlement and WEP data decreased the present value of estimated cash flows. 

Overall, changes to these assumptions caused the present value of the estimated future net cash flows to increase by $0.5 

trillion.

From the period beginning on January 1, 2017 to the period beginning on January 1, 2018

Several methodological improvements and updates of program-specific data are included in the current valuation 

(beginning on January 1, 2018). The most significant are identified below.

• The prior valuation assumed 99 percent of fully insured women (excluding those who are receiving a disability or 

widow benefit) were in receipt of a retired-worker benefit at age 70. The current valuation increases this percentage 

to 99.5 which is equivalent to the assumption for men.

• For the current valuation, a 10 percent sample of newly-entitled worker beneficiaries in 2015 was used to project 

average benefit levels of retired-worker and disabled-worker beneficiaries. This sample was updated from the 2013 

sample used for the prior valuation. In addition, the method used to estimate earnings histories for retired-worker 

beneficiaries becoming newly entitled in each year after 2017 has been expanded to better match targeted average 

taxable earnings levels for each of nine birth cohorts (those becoming entitled at ages 62 through 70 in a year).
NOTES TO THE FINANCIAL STATEMENTS 150

• Recent data and estimates provided by the OTA at the Treasury were incorporated, which indicate higher ultimate 

levels of revenue from taxation of OASDI benefits than assumed in the prior valuation. These higher levels are 

primarily due to changes OTA made in their modeling, resulting in a larger share of benefits being subject to income 

tax.

• The current valuation incorporates both a better data source for determining the total number of months of 

retroactive benefits for newly awarded disabled-worker beneficiaries and a new adjustment factor which better 

aligns projected months of disabled-worker retroactive benefit entitlement with observed historical experience.

Increasing the percentage of fully insured women who are in receipt of a retired-worker benefit at age 70 decreased the 

present value of estimated cash flows. Updating the sample year for average benefit level calculations, increasing the ultimate 

taxation of benefits ratios, and the changes to estimates of retroactive benefit payments increased the present value of 

estimated future net cash flows. Overall, changes to these assumptions caused the present value of the estimated future net 

cash flows to increase by $0.2 trillion.

Medicare

The SCSIA shows two reconciliations for Medicare: (1) changes from the period beginning on January 1, 2018, to the 

period beginning on January 1, 2019, and (2) changes from the period beginning on January 1, 2017, to the period beginning 

on January 1, 2018. All estimates relating to the Medicare program in the SCSIA represent values that are incremental to the 

prior change. As an example, the present values shown for demographic data, assumptions, and methods represent the 

additional effect that these assumptions have, once the effects from the change in the valuation period and projection base 

have been considered. In general, an increase in the present value of net cash flows represents a positive change, while a 

decrease in the present value of net cash flows represents a negative change.

Assumptions Used for the Components of the Changes for the Medicare Program

The present values included in the SCSIA are for the current and prior years and are based on various economic and 

demographic assumptions used for the intermediate assumptions in the Medicare Trustees’ Reports for these years. The 

Medicare – Demographic and Economic Assumptions table summarizes these assumptions for the current year.

From the period beginning on January 1, 2018 to the period beginning on January 1, 2019

Present values as of January 1, 2018 are calculated using interest rates from the intermediate assumptions of the 2018 

Trustees’ Report. All other present values in this part of the SCSIA are calculated as a present value as of January 1, 2019.

Estimates of the present value of changes in social insurance amounts due to changing the valuation period, projection base, 

demographic assumptions, and law are presented using the interest rates under the intermediate assumptions of the 2018 

Trustees’ Report. Since interest rates are an economic estimate and all estimates in the table are incremental to the prior 

change, the estimates of the present values of changes in economic and health care assumptions are calculated using the 

interest rates under the intermediate assumptions of the 2019 Trustees’ Report.

From the period beginning on January 1, 2017 to the period beginning on January 1, 2018

Present values as of January 1, 2017 are calculated using interest rates from the intermediate assumptions of the 2017 

Trustees’ Report. All other present values in this part of the SCSIA are calculated as a present value as of January 1, 2018. 

Estimates of the present value of changes in social insurance amounts due to changing the valuation period, projection base, 

demographic assumptions, and law are presented using the interest rates under the intermediate assumptions of the 2017 

Medicare Trustees’ Report. Since interest rates are an economic estimate and all estimates in the table are incremental to the 

prior change, the estimates of the present values of changes in economic and health care assumptions are calculated using the 

interest rates under the intermediate assumptions of the 2018 Trustees’ Report.

Changes in Valuation Period

From the period beginning on January 1, 2018 to the period beginning on January 1, 2019

The effect on the 75-year present values of changing the valuation period from the prior valuation period (2018-2092) to 

the current valuation period (2019-2093) is measured by using the assumptions for the prior valuation period and extending 

them, in the absence of any other changes, to cover the current valuation period. Changing the valuation period removes a 

small negative net cash flow for 2018, replaces it with a much larger negative net cash flow for 2093, and measures the 

present values as of January 1, 2019, one year later. Thus, the present value of estimated future net cash flow (including or 

excluding the combined Medicare Trust Fund assets at the start of the period) decreased (made more negative) when the 75-

year valuation period changed from the prior valuation period (2018-2092) to the current valuation period (2019-2093). In 

addition, the effect on the level of assets in the combined Medicare Trust Funds of changing the valuation period is measured 

by assuming all values projected in the prior valuation for the year 2018 are realized. The change in valuation period resulted 
 151 NOTES TO THE FINANCIAL STATEMENTS

in a slight increase in the starting level of assets in the combined Medicare Trust Funds. As a result, the present value of the 

estimated future net cash flows decreased by $1.4 trillion.

From the period beginning on January 1, 2017 to the period beginning on January 1, 2018

The effect on the 75-year present values of changing the valuation period from the prior valuation period (2017-2091) to 

the current valuation period (2018-2092) is measured by using the assumptions for the prior valuation period and extending 

them, in the absence of any other changes, to cover the current valuation period. Changing the valuation period removes a 

small negative net cash flow for 2017, replaces it with a much larger negative net cash flow for 2092, and measures the 

present values as of January 1, 2018, one year later. Thus, the present value of estimated future net cash flow (including or 

excluding the combined Medicare Trust Fund assets at the start of the period) decreased (became more negative) when the 

75-year valuation period changed from 2017-2091 to 2018-2092. In addition, the effect on the level of assets in the combined 

Medicare Trust Funds of changing the valuation period is measured by assuming all values projected in the prior valuation 

for the year 2017 are realized. The change in valuation period resulted in a very slight increase in the starting level of assets 

in the combined Medicare Trust Funds. As a result, the present value of the estimated future net cash flows decreased by $1.4 

trillion.

Changes in the Demographic Data, Assumptions, and Methods

From the period beginning on January 1, 2018 to the period beginning on January 1, 2019

The demographic assumptions used in the Medicare projections are the same as those used for the OASDI and are 

prepared by the Office of the Chief Actuary at the SSA. 

The ultimate demographic assumptions for the current valuation (beginning on January 1, 2019) are the same as those 

for the prior valuation. However, the starting demographic values and the way these values transition to the ultimate

assumptions were changed. The numbers of new LPRs for calendar years 2018 and 2019 were assumed to be slightly lower 

than projected in the prior valuation period, due to recent lower annual refugee ceilings set by the Administration. 

• The current valuation incorporated a gradual rise in 2017 and 2018 of other-than-LPR immigrants, reaching the 

ultimate assumed level in 2019. In contrast, the prior valuation incorporated a surge in the number of other-thanLPR immigrants for years 2016 through 2021. 

• Final birth rate data for 2017 indicated slightly lower birth rates than were assumed in the prior valuation. 

• Incorporating 2016 mortality data obtained from the NCHS for ages under 65 and 2016 and preliminary 2017 

mortality data from Medicare experience for ages 65 and older resulted in higher death rates for all future years than 

were projected in the prior valuation. 

There were two notable changes in demographic methodology: 

• Improved the method for projecting fertility rates by better incorporating detailed provisional birth rate data 

available from NCHS. 

• Incorporated more comprehensive Medicare mortality data from CMS. 

These changes lowered overall Medicare enrollment for the current valuation period and resulted in a slight increase in 

the estimated future net cash flow. The present value of estimated income and expenditures are lower for Parts A, Part B, and

Part D. Overall, changes to these assumptions caused the present value of the estimated future net cash flows to increase by 

$0.4 trillion.

From the period beginning on January 1, 2017 to the period beginning on January 1, 2018 

The demographic assumptions used in the Medicare projections are the same as those used for OASDI and are prepared 

by the Office of the Chief Actuary at SSA.

The ultimate demographic assumptions for the current valuation (beginning on January 1, 2018), with the exception of a 

small decrease of 10,000 LPR immigrants per annum in the future, are the same as those for the prior valuation. However, the 

starting demographic values and the way these values transition to the ultimate assumptions were changed.

• Final birth rate data for 2016 indicated slightly lower birth rates than were assumed in the prior valuation.

• Recent fertility data suggests that the short-term increase in the total fertility rate used in the prior valuation to 

account for an assumed deferral in childbearing (resulting from the recent economic downturn) was no longer 

warranted. The observed persistent drop in the total fertility rate in recent years is now assumed to be a loss of 

potential births rather than just a deferral for this period.

• Incorporating 2015 mortality data obtained from the NCHS at ages under 65 and preliminary 2015 mortality data 

from Medicare experience at ages 65 and older resulted in higher death rates for all future years than were projected 

in the prior valuation.

• More recent LPR and other-than-LPR immigration data and historical population data were included.

There was one notable change in demographic methodology:
NOTES TO THE FINANCIAL STATEMENTS 152

• Improved the method for projecting mortality rates by marital status by utilizing recent data from NCHS and the 

American Community Survey.

These changes lowered overall Medicare enrollment for the current valuation period and resulted in an increase in the 

estimated future net cash flow. The present value of estimated income and expenditures are both lower for Part A and Part B 

but higher for Part D. Overall, changes to these assumptions caused the present value of the estimated future net cash flows to 

increase by $0.6 trillion.

Changes in Economic and Other Health Care Assumptions

From the period beginning on January 1, 2018 to the period beginning on January 1, 2019

The economic assumptions used in the Medicare projections are the same as those used for OASDI and are prepared by 

the Office of the Chief Actuary at SSA. 

For the current valuation (beginning on January 1, 2019), there were four changes to the ultimate economic 

assumptions. 

• The ultimate annual rate of change in total-economy labor productivity was lowered from 1.70 percent in the prior 

valuation to 1.60 percent in the current valuation, reflecting an expected slower rate of productivity growth in the 

long term. 

• The difference between the ultimate growth rates for the CPI-W and the GDP implicit price deflator (the "price 

differential"), was decreased from 0.40 percentage point in the prior valuation to 0.35 percentage point in the current 

valuation. 

• The ultimate average real-wage differential was increased from 1.20 percentage points in the prior valuation to 1.21 

percentage points in the current valuation. 

• The ultimate real interest rate was lowered by 0.20 percentage point, from 2.70 percent in the prior valuation to 2.50 

percent in the current valuation. 

In addition to these changes in ultimate assumptions, the starting economic values and the way these values transition to 

the ultimate assumptions were changed. The most notable change was to include the July 2018 revisions in historical GDP 

estimated by BEA of DOC. This and other smaller changes in starting values and near-term growth assumptions combined to 

increase the present value of estimated future net cash flows. 

There was one notable change in economic methodology: 

• Incorporated more recent projections of disability prevalence in the labor force participation model. 

The health care assumptions are specific to the Medicare projections. The following health care assumptions were 

changed in the current valuation: 

• Lower assumed growth in economy-wide productivity, which results in higher payment updates for certain 

providers. 

• Faster projected spending growth for physician-administered drugs under Part B. 

• Higher projected drug manufacturer rebates and slower overall drug price increases assumed in the short-range 

period. 

The net impact of these changes resulted in a decrease in the estimated future net cash flow for total Medicare. For Part 

A and Part B, these changes increased the present value of estimated future income and expenditures. For Part D, these 

changes resulted in a decrease in the present value of estimated expenditures (and also income). Overall, the net impact of 

these changes caused the present value of estimated future net cash flows to decrease by $3.0 trillion.

From the period beginning on January 1, 2017 to the period beginning on January 1, 2018

The economic assumptions used in the Medicare projections are the same as those used for the OASDI and are prepared 

by the Office of the Chief Actuary at SSA. 

The ultimate economic assumptions for the current valuation (beginning on January 1, 2018) are the same as those for 

the prior valuation. However, the starting economic values and the way these values transition to the ultimate assumptions 

were changed.

• The estimated level of potential GDP was reduced by about 1 percent in 2017 and throughout the projection period, 

primarily due to the slow growth in labor productivity for 2010 through 2017 and low unemployment rates in 2017. 

This lower estimated level of potential GDP means that cumulative growth in actual GDP is 1 percent less over the 

remainder of the projected recovery than was assumed in the prior valuation. 

• Near-term interest rates were decreased, reflecting a more gradual path for the rise to the ultimate real interest rate 

than was assumed in the prior valuation.

• New data from the BEA indicated lower-than-expected ratios of labor compensation to GDP for 2016 and 2017, 

while new data from the IRS indicated lower-than-expected ratios of taxable payroll to GDP for 2016 and 2017.

• This new data led to assumed extended recoveries in these ratios to the unchanged ultimate ratios.
 153 NOTES TO THE FINANCIAL STATEMENTS

There was one notable change in economic methodology:

• Improved the method for projecting educational attainment among women in age groups 45-49 and 50-54 in the 

labor force participation model.

The health care assumptions are specific to the Medicare projections. The following health care assumptions were 

changed in the current valuation.

• Utilization rate assumptions for inpatient hospital services were decreased.

• Utilization rate and case mix for skilled nursing facilities services were decreased. Payment rates to private health 

plans are higher than projected in last year’s report primarily due to higher risk scores and increased coding by 

plans. 

• Higher projected drug manufacturer rebates.

The net impact of these changes resulted in a decrease in the estimated future net cash flow for total Medicare. For Part 

A, these changes resulted in an overall decrease in the estimated future net cash flow. For Part B, these changes increased the 

present value of estimated future expenditures (and also income). For Part D, these changes decreased the present value of 

estimated expenditures (and also income). Overall, the net impact of these changes caused the present value of estimated 

future net cash flows to decrease by $1.5 trillion.

Changes in Law

From the period beginning on January 1, 2018 to the period beginning on January 1, 2019

The provisions enacted as part of Medicare legislation since the prior valuation date had no measurable impact on 

program expenditures. For more information on the legislation please see section V.A of the 2019 Medicare Trustees’ Report.

From the period beginning on January 1, 2017 to the period beginning on January 1, 2018

Most of the provisions enacted as part of Medicare legislation since the prior valuation date had little or no impact on 

the program. The following provisions did have a financial impact on the present value of the 75-year estimated future 

income, expenditures, and net cash flow.

• The Disaster Tax Relief and Airport and Airway Extension Act of 2017 (P.L. 115-63, enacted on September 29, 

2017) included one provision that affects the HI and SMI Part B programs.

• An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for 

Fiscal Year 2018 (P.L. 115-97, enacted on December 22, 2017, and also referred to as the TCJA of 2017) included 

three provisions that affect the HI program.

• An Act Making Further Continuing Appropriations for the Fiscal Year Ending September 30, 2018, and for Other 

Purposes (P.L. 115-120, enacted on January 22, 2018) included one provision that affects the HI and SMI programs.

• The BBA of 2018 (P.L. 115-123, enacted on February 9, 2018) included provisions that affect the HI and SMI 

programs.

Overall, these provisions resulted in a decrease in the estimated future net cash flow for total Medicare. For Part A,

these changes resulted in an increase to the present value of estimated future expenditures and a slight decrease to the present 

value of estimated future income, with an overall net decrease in the estimated future net cash flow. For Part B and Part D, 

these changes increased the present value of estimated future expenditures (and also income). Overall, these changes to these 

assumptions caused the present value of the estimated future net cash flows to decrease by $1.0 trillion.

Change in Projection Base

From the period beginning on January 1, 2018 to the period beginning on January 1, 2019

Actual income and expenditures in 2018 were different than what was anticipated when the 2018 Trustees’ Report 

projections were prepared. Part A income in 2018 was lower and expenditures were higher than anticipated based on actual 

experience. For both Part B and Part D, total income and expenditures were higher than estimated based on actual experience. 

The net impact of the Part A, B, and D projection base changes is a decrease in the estimated future net cash flow. Actual 

experience of the Medicare Trust Funds between January 1, 2018 and January 1, 2019 is incorporated in the current valuation 

and is more than projected in the prior valuation. Overall, the net impact of the Part A, B, and D projection base changes is a 

decrease in the estimated future net cash flows by $0.5 trillion.

From the period beginning on January 1, 2017 to the period beginning on January 1, 2018 

Actual income and expenditures in 2017 were different than what was anticipated when the 2017 Medicare Trustees’ 

Report projections were prepared. Part A payroll tax income in 2017 was lower attributable to lowered wages and 

expenditures were higher than anticipated based on actual experience. Part B total income and expenditures were higher than 

estimated based on actual experience. For Part D, actual income and expenditures were both lower than prior estimates. The 
NOTES TO THE FINANCIAL STATEMENTS 154

net impact of the Part A, B, and D projection base changes is a decrease in the estimated future net cash flow. Actual 

experience of the Medicare Trust Funds between January 1, 2017 and January 1, 2018 is incorporated in the current valuation 

and is less than projected in the prior valuation. Overall, the net impact of the Part A, B, and D projection base changes is a 

decrease in the estimated future net cash flows by $0.9 trillion.

Other

The present values included in the SCSIA for the RRP are for the current and prior valuation and are based on various 

employment, demographic, and economic assumptions that reflect the RRB’s reasonable estimate of expected future financial 

and actuarial status of the trust funds. For a more detailed description of the primary reasons for the changes in the 2019 and 

2018 SCSIA, refer to RRB’s financial statements.

The significant assumptions used in the projections of the Black Lung social insurance program, referenced earlier in 

this note, affect the amounts reported on the SCSIA, which presents the net change in the open group measure of the BLDTF 

for the years ended September 30, 2019 and 2018, and provide information about the change. For a more detailed description 

of the primary reasons for the changes in the 2019 and 2018 SCSIA, refer to DOL’s financial statements.
 155 NOTES TO THE FINANCIAL STATEMENTS

Note 23. Long-Term Fiscal Projections

The SLTFP is prepared pursuant to SFFAS No. 36, Comprehensive Long-Term Projections for the U.S. Government. 

The financial statement, Note 23, and unaudited RSI provide information to aid readers of the Financial Report in assessing 

whether current policies for federal spending and taxation can be sustained and the extent to which the cost of public services 

received by current taxpayers will be shifted to future taxpayers. This assessment requires prospective information about 

receipts and spending, the resulting debt, and how these amounts relate to the size of the economy. A sustainable policy is 

defined as one where the ratio of federal debt held by the public to GDP (the debt-to-GDP ratio) is ultimately stable or 

declining. The Financial Report does not address the sustainability of state and local government fiscal policy.

The projections and analysis presented here are extrapolations based on an array of assumptions described in detail 

below. A fundamental assumption is that current federal policy will not change. This assumption is made so as to inform the 

question of whether current fiscal policy is sustainable and, if it is not sustainable, the magnitude of needed reforms to make 

fiscal policy sustainable. The projections are therefore neither forecasts nor predictions. If policy changes are implemented, 

perhaps in response to projections like those presented here, then actual financial outcomes will be different than those 

projected. The methods and assumptions underlying the projections are subject to continuing refinement.

The projections focus on future cash flows, and do not reflect either the accrual basis or the modified-cash basis of 

accounting. These cash-based projections reflect receipts or spending at the time cash is received or when a payment is made 

by the government. In contrast, accrual-based projections would reflect amounts in the time period in which income is earned 

or when an expense or obligation is incurred. The cash basis accounting underlying the long-term fiscal projections is 

consistent with methods used to prepare the SOSI and the generally cash-based federal budget. 

The SLTFP displays the present value of 75-year projections for various categories of the federal government’s receipts 

and non-interest spending.9 The projections for fiscal years 2019 and 2018 are expressed in present value dollars and as a 

percent of the present value of GDP10 as of September 30, 2019 and September 30, 2018, respectively. The present value of a 

future amount, for example $1 billion in October 2094, is the amount of money that if invested on September 30, 2019 in an 

account earning the government borrowing rate would have a value of $1 billion in October 2094.11 

The present value of a receipt or spending category over 75 years is the sum of the annual present value amounts. When 

expressing a receipt or spending category over 75 years as a percent of GDP, the present value dollar amount is divided by 

the present value of GDP over 75 years. Measuring receipts and spending as a percent of GDP is a useful indicator of the 

economy’s capacity to sustain federal government programs. 

Fiscal Projections

Receipt categories in the long-term fiscal projections include individual and corporation income taxes, Social Security 

and Medicare payroll taxes, and a residual remaining category of “other receipts.” Non-interest spending categories include 

discretionary spending that is funded through annual appropriations, such as spending for national security; and mandatory 

(entitlement) spending that is generally funded with permanent or multi-year appropriations, such as spending for Social 

Security and Medicare. This year’s projections for Social Security and Medicare are based on the same economic and 

demographic assumptions that underlie the 2019 Social Security and Medicare Trustees’ Reports and the 2019 SOSI, while 

comparative information presented from last year’s report is based on the 2018 Social Security and Medicare Trustees’ 

Reports and the 2018 SOSI.12 Projections for the other categories of receipts and spending are consistent with the economic 

and demographic assumptions in the Trustees’ Reports. The projections assume the continuance of current policy which, 

builds off current law, but can be different than current law in cases where lawmakers have in the past periodically changed 

the law in a consistent way. The specific assumptions that depart from current law and are used for the current policy basis of 

these projections are explained below.

The projections shown in the SLTFP are made over a 75-year time frame, consistent with the time frame featured in the 

Social Security and Medicare Trustees’ Reports. However, these projections are for fiscal years starting on October 1, 

9 For the purposes of this analysis, spending is defined in terms of outlays. In the context of federal budgeting, spending can either refer to budget authority –

the authority to commit the government to make a payment; to obligations – binding agreements that will result in payments, either immediately or in the 

future; or to outlays – actual payments made. 10 GDP is a standard measure of the overall size of the economy and represents the total market value of all final goods and services produced domestically 

during a given period of time. The components of GDP are: private sector consumption and investment, government consumption and investment, and net 

exports (exports less imports). Equivalently, GDP is a measure of the gross income generated from domestic production over the same time period. 11 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. 12 Social Security and Medicare Trustees’ Reports can be found at https://www.ssa.gov/OACT/TR/.
NOTES TO THE FINANCIAL STATEMENTS 156

whereas the Trustees’ Reports feature calendar-year projections. Using fiscal years allows the projections to start from the 

actual budget results from fiscal years 2019 and 2018.

This year’s estimate of the 75-year present value imbalance of receipts less non-interest spending is 3.2 percent of the 

current 75-year present value of GDP, compared to 3.3 percent as was projected in last year’s Financial Report.

13 The above 

table reports the effects of various factors on the updated projections.

• The largest factor, affecting the projections was the update of economic and demographic assumptions. While the 

present value of receipts less non-interest spending deteriorated by an additional $1.6 trillion and appears to worsen 

the fiscal position, as a percent of the 75-year present value of GDP ($1,531.8 trillion, compared to last year’s 

$1,406.3 trillion), the imbalance shrunk by 0.1 percentage point. In moving from the 75-year window’s present 

value of GDP in 2018 to that of these 2019 projections, the increase in GDP exceeded the increase in the imbalance 

of receipts less non-interest spending and thus improved the fiscal position as a percent of GDP. Larger GDP is 

attributable both to strong growth assumptions in the projection window and lower projected interest rates that raise 

the present value of future-year GDP values.

• The second largest factor is the effect of new Social Security and Medicare program-specific actuarial assumptions, 

which increase this imbalance by about 0.1 percent of the 75-year present value of GDP ($1.1 trillion).

14

• The third largest change in the table, the change in reporting period – the effect of shifting calculations from 2019 

through 2093 to 2020 through 2094 – increases the imbalance of the 75-year present value of receipts less noninterest spending by about $1.0 trillion.

• The last factor – with an overall effect of decreasing the imbalance by about 0.1 percent of GDP ($0.9 trillion) - is 

attributable to actual budget results for fiscal year 2019 and the budgetary estimates published in the 2020 

President’s Budget. These were primarily driven by higher individual income tax receipts arising from higher wages 

and salaries.

The net effect of the changes in the table above, equal to the penultimate row in the SLTFP, shows that this year’s 

estimate of the overall 75-year present value of receipts less non-interest spending is negative -3.2 percent of the 75-year 

present value of GDP (negative $49 trillion, as compared to a GDP of $1,531.8 trillion). This imbalance can be broken down 

by funding source. Spending exceeded receipts by 1.7 percent of GDP (about $25.5 trillion) among programs funded by the 

13 The fiscal imbalances reported in the long-term fiscal projections do not include the initial level of publicly held debt, which was $16.8 trillion in 2019 and 

$15.8 trillion in 2018, and, therefore, they do not by themselves answer the question of how large fiscal reforms must be to make fiscal policy sustainable. 

See “Sustainability and the Fiscal Gap” and footnote 10 for additional discussion. More information on the projections in last year’s Financial Report can be 

found in Note 23 to the Financial Statements here: https://fiscal.treasury.gov/reports-statements/# 14 For more information on Social Security and Medicare actuarial estimates, refer to Note 22, “Social Insurance.” 
 157 NOTES TO THE FINANCIAL STATEMENTS

government’s general revenues, and there is an imbalance of 1.5 percent of GDP (about $23.5 trillion)15 for the combination 

of Social Security (OASDI) and Medicare Part A, which under current law are funded with payroll taxes and not in any 

material respect with general revenues.16, 17 By comparison, the fiscal year 2018 projections showed that programs funded by 

the government’s general revenues had an excess of spending over receipts of 1.7 percent of GDP ($24.2 trillion) while the 

payroll tax-funded programs had an imbalance of spending over receipts of 1.6 percent of GDP ($22.1 trillion).

Sustainability and the Fiscal Gap

As discussed further in the unaudited RSI, the projections in this report indicate that current policy is not sustainable. If

current policy is left unchanged, the projections show the debt-to-GDP ratio will rise about 5 percentage points to a level of 

84 percent by 2022, exceed 100 percent by 2030, and reach 474 percent in 2094. Moreover, if the trends that underlie the 75-

year projections were to continue, the debt-to-GDP ratio would continue to rise beyond the 75-year window. 

The fiscal gap measures how much the primary surplus (receipts less non-interest spending) must increase in order for 

fiscal policy to achieve a target debt-to-GDP ratio in a particular future year. In these projections, the fiscal gap is estimated 

over a 75-year period, from 2020 to 2094, and the target debt-to-GDP ratio is equal to the ratio at the beginning of the 

projection period, in this case the debt-to-GDP ratio at the end of fiscal year 2019 or about 79 percent. The target year is the 

last year of the 75-year period (2094). 

The 75-year fiscal gap under current policy is estimated at 3.8 percent of GDP, which is 20.3 percent of the 75-year 

present value of projected receipts and 17.4 percent of the 75-year present value of non-interest spending. This estimate of the 

fiscal gap is 0.2 percentage points smaller than was estimated in 2018 (4.1 percent of GDP).

The projections show that projected primary deficits average 3.2 percent of GDP over the next 75 years under current

policy. If policies were put in place that would result in a zero fiscal gap, the average primary surplus over the next 75 years 

would be slightly over 0.6 percent of GDP, 3.8 percentage points higher than the projected present value of receipts less noninterest spending shown in the SLTFP. In these projections, closing the fiscal gap requires running a substantially positive 

level of primary surplus, rather than simply eliminating the primary deficit. The primary reason is that the projections assume 

future interest rates will exceed the growth rate of GDP. Achieving primary balance (that is, running a primary surplus of 

zero) implies that the debt held by the public grows each year by the amount of interest spending, which under these 

assumptions would result in debt growing faster than GDP.

Assumptions Used and Relationship to Other Financial Statements

A fundamental assumption underlying the projections is that current federal policy (defined below) does not change. 

The projections are therefore neither forecasts nor predictions, and do not consider large infrequent events such as natural 

disasters, military engagements, or economic crises. By definition, they do not build in future changes to policy. If policy

changes are enacted, perhaps in response to projections like those presented here, then actual fiscal outcomes will be different 

than those projected.

Even if policy does not change, actual spending and receipts could differ materially from those projected here. Longrange projections are inherently uncertain and are necessarily based on simplifying assumptions. For example, one key 

simplifying assumption is that interest rates paid on debt held by the public remain unchanged, regardless of the amount of 

debt outstanding. To the contrary, it is likely that future interest rates would increase if the debt-to-GDP ratio rises as shown 

15 The 75-year present value imbalance for Social Security and Medicare Part A of $23.5 trillion is comprised of several line items from the SLTFP – Social 

Security outlays net of Social Security payroll taxes ($23.0 trillion) and Medicare Part A outlays net of Medicare payroll taxes ($10.1 trillion) – as well as 

subcomponents of these programs not presented separately in the statement. These subcomponents include Social Security, Medicare Part A, and Medicare 

Part B administrative costs that are classified as non-defense discretionary spending ($0.9 trillion) and Social Security and Medicare Part A income other 

than payroll taxes: taxation of benefits (-$4.8 trillion), federal employer share (-$1.3 trillion), and other income (-$4.4 trillion). 16 Social Security and Medicare Part A expenditures can exceed payroll tax revenues in any given year to the extent that there are sufficient balances in the 

respective trust funds; these balances derive from past excesses of payroll tax revenues over expenditures and interest earned on those balances and represent 

the amount the General Fund owes the respective trust fund programs. When spending does exceed payroll tax revenues, as has occurred each year since 

2008 for Medicare Part A and 2010 for Social Security, the excess spending is financed first with interest due from the General Fund and secondly with a 

drawdown of the trust fund balance; in either case, the spending is ultimately supported by general revenues or borrowing. Under current law, benefits for 

Social Security and Medicare Part A can be paid only to the extent that there are sufficient balances in the respective trust funds. In order for the long-term 

fiscal projections to reflect the full size of these program’s commitments to pay future benefits, the projections assume that all scheduled benefits will be 

financed with borrowing to the extent necessary after the trust funds are depleted. 17 The fiscal imbalances reported in the long-term fiscal projections are limited to future outlays and receipts. They do not include the initial level of 

publicly-held debt, $16.8 trillion in 2019 and $15.8 trillion in 2018, and therefore they do not by themselves answer the question of how large fiscal reforms 

must be to make fiscal policy sustainable, or how those reforms divide between reforms to Social Security and Medicare Part A and to other programs. Other 

things equal, past cash flows (primarily surpluses) for Social Security and Medicare Part A reduced federal debt at the end of 2019 by $3.1 trillion (the trust 

fund balances at that time); the contribution of other programs to federal debt at the end of 2019 was therefore $19.9 trillion. Similarly, the $23.5 trillion 

imbalance between outlays and receipts over the next 75 years for Social Security and Medicare Part A does not take account of the Social Security and 

Medicare Part A trust fund balances, it overstates the magnitude of reforms necessary to make Social Security and Medicare Part A solvent over 75 years by 

$3.1 trillion. The $3.1 trillion combined Social Security and Medicare Part A trust fund balance represents a claim on future general revenues.
NOTES TO THE FINANCIAL STATEMENTS 158

in these projections. To help illustrate this uncertainty, projections that assume higher and lower interest rates are presented in 

the “Alternative Scenarios” discussion in the unaudited RSI section of this Financial Report.

As is true for prior long-term fiscal projections for the Financial Report, the assumptions for GDP, interest rates, and 

other economic and demographic variables underlying this year’s projections are the same assumptions that underlie the most 

recent Social Security and Medicare Trustees’ Report projections, adjusted for historical revisions that occur annually. These 

assumptions differ from those in the President’s Budget because they extend for 75 years, rather than 25 years. Additionally, 

they assume extension of current policy whereas the economic assumptions in the President’s Budget assume full 

implementation of policies reflected in the Budget.18 The use of discount factors consistent with the Social Security Trustees’ 

rate allows for consistent present value calculations over 75 years between the SLTFP and the SOSI. 

The following bullets summarize the key assumptions used for the categories of receipts and spending presented in the 

SLTFP and the disclosures:

• Social Security: Projected Social Security (OASDI) spending excludes administrative expenses, which are 

classified as discretionary spending, and is based on the projected spending in the 2019 Social Security Trustees’ 

Report for benefits and for the Railroad Retirement interchange. The projections of Social Security payroll taxes and 

Social Security spending are based on future spending and payroll taxes projected in the 2019 Social Security 

Trustees’ Report, adjusted for presentational differences and converted to a fiscal year basis. More information 

about the assumptions for Social Security cost growth can be found in Note 22 and the unaudited RSI discussion of 

Social Insurance.

• Medicare: Projected Medicare spending also excludes administrative expenses, which are classified as other 

mandatory spending, and is based on projected spending from the 2019 Medicare Trustees’ Report. The projections 

here make some adjustments to the Trustees’ Report projections. Medicare Part B and D premiums, as well as State 

contributions to Part D, are subtracted from gross spending in measuring Part B and Part D spending, just as they are 

subtracted from gross cost to yield net cost in the financial statements.19 Here, as in the federal budget, premiums are 

treated as “negative spending” rather than receipts since they represent payment for a service rather than payments 

obtained through the government’s sovereign power to tax. This is similar to the financial statement treatment of 

premiums as “earned” revenue as distinct from all other sources of revenue, such as taxes. The projections are based 

on Medicare spending in the Medicare Trustees’ Report, adjusted for presentational differences and converted to a 

fiscal year basis. Medicare Part A payroll taxes are projected similarly. More information about the assumptions for 

Medicare cost growth can be found in Note 22 and the unaudited RSI discussion of Social Insurance. As discussed 

in Note 22, there is uncertainty about whether the reductions in health care cost growth assumed in the Medicare 

Trustees’ Report will be fully achieved. Note 22 illustrates this uncertainty by considering Medicare cost growth 

assumptions under varying policy assumptions. 

• Medicaid: The Medicaid spending projections start with the projections from the 2017 Medicaid Actuarial Report

prepared by CMS’s Office of the Actuary.20 These projections are based on recent trends in Medicaid spending; the 

demographic, economic, and health cost growth assumptions in the 2017 Medicare Trustees’ Report; and projections 

of the effect of the PPACA on Medicaid enrollment. The projections in the Medicaid Actuarial Report, which end in 

2026, are adjusted to accord with the actual Medicaid spending in fiscal year 2019. After 2026, the projections 

assume no further change in State Medicaid coverage under the PPACA, and the numbers of aged beneficiaries (65-

plus years) and non-aged beneficiaries (less than 65 years) are expected to grow at the same rates as the aged and 

non-aged populations, respectively. Medicaid costs per beneficiary are assumed to grow at the same rate as 

Medicare benefits per beneficiary, as is generally consistent with the experience since 1987. Between 1987 and 

2017, the average annual growth rate of spending per beneficiary for Medicaid and Medicare were within 0.3 

percentage point of each other. Projections of Medicaid spending are subject to added uncertainty related to: (1) 

assumed reductions in health care cost growth discussed above in the context of Medicare, (2) the projected size of 

the Medicaid enrolled population, which depends on a variety of factors, including future State actions regarding the 

PPACA Medicaid expansion, and (3) certain limitations relating to the data used to generate the projected per 

enrollee spending in the 2017 Medicaid actuarial report. 

• Other Mandatory Spending: Other mandatory spending, which includes federal employee retirement, veterans’ 

disability benefits, and means-tested entitlements other than Medicaid, is projected in two steps. First, spending prior 

to the automatic spending cuts called for by the enforcement provisions of the BCA is projected and, second, the 

18 See the fiscal year 2020 President’s Budget, Analytical Perspectives Volume, Chapter 3 “Long-Term Budget Outlook” 19 Medicare Part B and D premiums and State contributions to Part D are subtracted from the Part B and D spending displayed in the SLTFP. The total 75-

year present value of these subtractions is $15.5 trillion, or 1.0 percent of GDP.

20 Christopher J. Truffer, Christian J. Wolfe, and Kathryn E. Rennie, 2017 Actuarial Report on the Financial Outlook for Medicaid, Office of the Actuary, 

Centers for Medicare and Medicaid Services, U.S. Department of Health and Human Services, September 2018. An updated Medicaid actuarial report for 

2018 had not been published in time to be included in this year’s sustainability estimates. 
 159 NOTES TO THE FINANCIAL STATEMENTS

effect of the BCA enforcement is projected through 2027. With regard to pre-BCA spending: (1) current mandatory 

spending components that are judged permanent under current policy are assumed to increase by the rate of growth 

in nominal GDP starting in 2020, implying that such spending will remain constant as a percent of GDP;21 and (2) 

projected spending for insurance exchange subsidies starting in 2020 grows with growth in the non-elderly 

population and with the National Health Expenditure (NHE) projected per enrollee cost growth for other private 

health insurance for the NHE projection period (through 2027 for the fiscal year 2019 projections), and with growth 

in per enrollee health care costs as projected for the Medicare program after that period. As discussed in Note 22, 

there is uncertainty about whether the reductions in health care cost growth projected in the Medicare Trustees’ 

Report will be fully achieved. Projected exchange subsidy spending as a percent of GDP remains below the failsafe 

provision in the PPACA that limits the federal share of spending to 0.504 percent of GDP. 

• Defense and Non-defense Discretionary Spending: These projections assume that discretionary spending (1) stays 

within statutory caps that apply through 2021 under the 2019 BBA (or is approximately 6.5% of GDP), (2) falls to a 

6.1 percent share of GDP in 2022 and grows to a 6.2 percent share in 2029, where it remains thereafter.22 Projected 

overseas contingency operations spending, which is not subject to the caps, is assumed to grow from the actual level 

in the most recent year at the same rate as nominal GDP. To illustrate sensitivity to different assumptions, present 

value calculations under alternative discretionary growth scenarios are presented in the unaudited “Alternative 

Scenarios” RSI section.

• Receipts (Other than Social Security and Medicare Payroll Taxes): Individual income taxes equal the same 

share of wages and salaries as in the current law baseline projection in the President’s Budget for fiscal year 2020. 

That baseline accords with current policy as defined above, including the continuation of the individual income, 

estate, and gift tax provisions of the TCJA23 and the tendency of effective tax rates to increase as growth in income 

per capita outpaces inflation (also known as “bracket creep”). After reaching about 22 percent of wages and salaries 

in 2033, individual income taxes increase gradually to 28 percent of wages and salaries in 2094 as real taxable 

incomes rise over time and an increasing share of total income is taxed in the higher tax brackets. Through the first 

10 years of the projections, corporation tax receipts as a percent of GDP reflect the economic and budget 

assumptions used in developing the 2020 President’s Budget ten-year advance baseline budgetary estimates. After 

this time, corporation tax receipts grow at the same rate as nominal GDP. All other receipts also reflect 2020 

President’s Budget levels as a share of GDP throughout the budget window and grow with GDP outside of the 

budget window. Corporation tax receipts peak at 1.5 percent of GDP in 2025 before falling to 1.2 percent of GDP in 

2029, where they stay for the remainder of the projection period. The ratio of all other receipts combined, excluding 

corporation tax receipts, to GDP is estimated to settle at 1.4 percent in 2021, where it generally remains through the 

projection period. Also, please see Note 27—Subsequent Events. To illustrate uncertainty, present value calculations 

under higher and lower receipts growth scenarios are presented in the “Alternative Scenarios” section.

• Debt and Interest Spending: Interest spending is determined by projected interest rates and the level of outstanding 

debt held by the public. The long-run interest rate assumptions accord with those in the 2019 Social Security 

Trustees’ Report.24 The average interest rate over this year’s projection period is 4.9 percent, down from the 2018 

Financial Report’s 5.0 percent. These rates are also used to convert future cash flows to present values as of the start 

of fiscal year 2020. Debt at the end of each year is projected by adding that year’s deficit and other financing 

requirements to the debt at the end of the previous year.

 

21 This assumed growth rate for other mandatory programs exceeds the growth rate in the most recent OMB and CBO 10-year budget baselines. 22 The 2018 projections assumed that spending in fiscal year 2019 would be consistent with BBA of 2018 spending caps and thereafter grow with GDP 

subject to Joint Select Committee on Deficit Reduction Controls. See the fiscal year 2018 Financial Report. 23 The expiring individual income and estate and gift tax provisions of the TCJA are assumed to continue past their legal expiration on December 31, 2025 

because of the recent historical pattern of such tax rates being extended; additional discussion may be found in the last section of this note. 24 As indicated in the more detailed discussion of Social Insurance in Note 22 to the financial statements.
NOTES TO THE FINANCIAL STATEMENTS 160

Departures of Current Policy from Current Law 

The long-term fiscal projections are made on the basis of current policy, which in some cases is assumed to be different 

from current law. The notable differences between current policy that underlies the projections and current law are: (1) 

projected spending, receipts, and borrowing levels assume raising or suspending the current statutory limit on federal debt; 

(2) continued discretionary appropriations are assumed throughout the projection period; (3) scheduled Social Security and 

Medicare benefit payments are assumed to occur beyond the projected point of trust fund depletion; (4) many mandatory 

programs with expiration dates prior to the end of the 75-year projection period are assumed to be reauthorized; and (5) tax 

changes under the TCJA are assumed to continue beyond 2025. The last difference aligns with the historical pattern of such 

legislation being routinely extended or made permanent. As is true in the Medicare Trustees’ Report and in the SOSI, the 

projections incorporate programmatic changes already scheduled in law, such as the PPACA productivity adjustment for nonphysician Medicare services and the expiration of certain physician bonus payments in 2025.
 161 NOTES TO THE FINANCIAL STATEMENTS

Note 24. Stewardship Land and Heritage Assets

Stewardship PP&E consists of items whose physical properties resemble those of general PP&E traditionally capitalized 

in financial statements. However, stewardship PP&E differs from general PP&E in that their values may be indeterminable or 

may have little meaning (for example, museum collections, monuments, assets acquired in the formation of the nation) or that 

allocating the cost of such assets to accounting periods that benefit from the ownership of such assets is meaningless. 

Stewardship PP&E includes stewardship land (land not acquired for or in connection with general PP&E) and heritage assets 

(for example, federal monuments and memorials and historically or culturally significant property). The majority of 

stewardship land was acquired by the government during the first century of the nation’s existence.

Investments in stewardship land are reported on a non-financial basis. For example, measurement may be based on 

physical units, such as acres of land. National forests, parks, and historic sites are examples of stewardship land. 

Additional detailed information concerning stewardship land, such as entity stewardship policies, physical units by 

major categories, and the condition of stewardship land, can be obtained from the financial statements of DOC, DOD, DOI, 

AOC, and USDA.

Heritage assets are government-owned assets that have one or more of the following characteristics:

• Historical or natural significance;

• Cultural, educational, or artistic importance; or

• Significant architectural characteristics.

Like stewardship land, heritage assets are also reported on a non-financial basis. Some stewardship land assets are also 

included in non-collectible heritage assets, and may be reported by the total units, such as the total number of National Parks 

reported by DOI. The public entrusts the government with these assets and holds it accountable for their preservation. 

Examples of heritage assets include the Declaration of Independence, the U.S. Constitution, and the Bill of Rights preserved 

by the National Archives. Also included are national monuments/structures such as the Washington Monument, the Lincoln 

Memorial and the LOC. Many other sites such as battlefields, historic structures, and national historic landmarks are placed 

in this category, as well.

Heritage assets are classified into two categories: collection and non-collection. Collection type heritage assets include 

objects gathered and maintained for exhibition, for example, museum collections, art collections, and library collections. 

Non-collection type heritage assets include parks, memorials, monuments, and buildings. In some cases, heritage assets may 

serve two purposes: a heritage function and general government operations. In those cases, the heritage asset should be 

considered a multi-use heritage asset if the predominant use of the asset is in general government operations (e.g., the main 

Treasury building used as an office building). The cost of acquisition, improvement, reconstruction, or renovation of multiuse heritage assets should be capitalized as general PP&E and depreciated over its estimated useful life. 

This discussion of the government’s heritage assets is not exhaustive. Rather, it highlights significant heritage assets 

reported by federal entities. Please refer to the individual financial statements of the DOI, DOC, VA, DOT, State, DOD, 

USDA, as well as websites for the LOC (https://loc.gov), the Smithsonian Institution (https://si.edu), and the Architect of the 

Capitol (https://aoc.gov) for additional information on multi-use heritage assets, entity stewardship policies, and physical 

units by major categories. 
NOTES TO THE FINANCIAL STATEMENTS 162

Note 25. Disclosure Entities and Related Parties

SFFAS No. 47, Reporting Entity provides criteria for identifying organizations that are consolidation entities, disclosure 

entities and related parties, and how such organizations are reported within the Financial Report. For consolidation entities, 

the assets, liabilities, results of operations, and related activity are consolidated into the government’s financial statements. 

For disclosure entities and related parties, balances and transactions with such entities are included in the financial statements 

and certain information about their relationship with the federal government is disclosed in the notes to the consolidated 

financial statements. Disclosure entities and related parties are important to the Financial Report but are not consolidated into 

the government’s financial statements. 

Disclosure Entities 

Disclosure entities are organizations similar to consolidation entities in that they are either (a) in the budget, (b) majority 

owned by the government, (c) controlled by the government, or (d) would be misleading to exclude. Disclosure entities have 

a greater degree of autonomy with the government than consolidation entities. In addition, organizations may be owned or 

controlled by the government as a result of (a) regulatory actions (such as organizations in receivership or conservatorship) or 

(b) other government intervention actions. Under such regulatory or other intervention actions, if the relationship with the 

government is not expected to be permanent, such entities generally would be classified as disclosure entities based on their 

characteristics taken as a whole. 

Based on the criteria in GAAP for federal entities, the disclosure entities in the Financial Report are FR System, Fannie 

Mae, Freddie Mac, and National Railroad Passenger Corporation (more commonly referred to as Amtrak). In addition, there 

are additional disclosure entities reported by component reporting entities that do not meet the qualitative or quantitative 

criteria in SFFAS No. 47 to be reported in the Financial Report.

Federal Reserve System

Congress, under the Federal Reserve Act, created the FR System. The FR System includes the Board, the FRBs, and 

FOMC. Collectively, the FR System serves as the nation’s central bank and is responsible for formulating and conducting 

monetary policy, issuing and distributing currency (Federal Reserve Notes), supervising and regulating financial institutions, 

providing nationwide payment systems (including large-dollar transfers of funds, Automated Clearing House operations, and 

check collections), providing certain financial services to federal entities and fiscal principals, and serving as the U.S. 

government’s bank. Monetary policy includes actions undertaken by the FR System that influence the availability and cost of 

money and credit as a means of helping to promote national economic goals. The FR System also conducts operations in 

foreign markets in order to counter disorderly conditions in exchange markets or to meet other needs specified by the FOMC 

to carry out its central bank responsibilities. The FR System is considered an independent central bank, and the executive 

branch of the government does not ratify its decisions. 

The 12 FRBs are chartered under the Federal Reserve Act, which requires each member bank to own the capital stock of 

its FRB. Each FRB has a board of directors that exercises supervision and control of each FRB, with three members 

appointed by the Board, and six board members elected by their member banks. The FRBs participate in formulating and 

conducting monetary policy, distributing currency and coin, and serving as the government’s fiscal agent, as well as the fiscal 

agent for other fiscal principals. Fiscal principals, generally speaking, relate to banks, credit unions, and savings and loan 

institutions. Additionally, the FRBs provide short-term loans to depository institutions and loans to participants in programs 

or facilities with broad-based eligibility in unusual and crucial circumstances when approved by the Board and the Secretary 

of the Treasury. 

The government interacts with FRBs in a variety of ways, including the following:

• The FRBs serve as the government’s fiscal agent and depositary, executing banking and other financial transactions 

on the government’s behalf. The government reimburses the FRBs for these services, the cost of which is included 

on the Statements of Net Cost;

• The FRBs hold Treasury and other federal securities in the FRBs’ SOMA for the purpose of conducting monetary 

policy (see Note 11—Federal Debt Securities Held by the Public and Accrued Interest);

• The FRBs hold gold certificates issued by the government in which the certificates are collateralized by gold (see 

Note 2—Cash and Other Monetary Assets);

• The FRBs hold SDR certificates issued by the government which are collateralized by SDRs (see Note 2—Cash and 

Other Monetary Assets); and,

• The FRBs are required by Board policy to transfer their excess earnings to the government, which are included in 

Other Taxes and Receipts on the Statements of Operations and Changes in Net Position.
 163 NOTES TO THE FINANCIAL STATEMENTS

• Federal Reserve System Structure

The Board is an independent organization governed by seven members who are appointed by the President and 

confirmed by the Senate. The full term of a Board member is 14 years, and the appointments are staggered so that one 

term expires on January 31 of each even-numbered year. The Board has a number of supervisory and regulatory 

responsibilities for institutions including, among others, state-chartered banks that are members of the FR System, bank 

holding companies, and savings and loan holding companies. In addition, the Board has general supervisory 

responsibilities for the 12 FRBs, and issues currency (Federal Reserve Notes) to the FRBs for distribution.

The FOMC is comprised of the seven Board members and five of the 12 FRB presidents, and is charged with 

formulating and conducting monetary policy primarily through open market operations (the purchase and sale of certain 

securities in the open market), the principal tool of national monetary policy. These operations affect the amount of 

reserve balances available to depository institutions, thereby influencing overall monetary and credit conditions. 

• Federal Reserve Monetary Policy Action

During fiscal year 2019, the Federal Reserve FOMC gradually lowered its target range for the federal funds rate 

and gradually reduced its securities in the SOMA. The Federal Reserve initially raised its target range in December 

2018 and thereafter lowered its target range for the federal funds rate from 2.0 – 2.25 percent in September 2018, to 1.5 

– 1.75 percent in September 2019. The Federal Reserve reduced its U.S. Treasury and federal entity and governmentsponsored enterprise MBS in the SOMA on its balance sheet from approximately $4.1 trillion as of September 30, 2018, 

to approximately $4.0 trillion as of September 30, 2019. FOMC announced plans to conclude the reduction of its 

aggregate securities holdings at the end of September 2019. In addition, FOMC also implemented the use of repurchase 

agreement operations to maintain reserves at or above the level that prevailed in early September.

• Federal Reserve System Assets, Liabilities, Revenues, Expenses, Gains, and Losses

The FRBs hold Treasury and other securities in the SOMA for the purpose of conducting monetary policy. As of 

September 30, 2019, Treasury securities held by the FRBs totaled $1,638.0 billion, which excludes $475.0 billion in 

Treasury Securities used in overnight reverse repurchase transactions. As of September 30, 2018, Treasury securities 

held by the FRBs totaled $1,782.5 billion, which excludes $531.8 billion in Treasury securities used in overnight 

reverse repurchase transactions. Such securities are included in federal debt securities held by the public and accrued 

interest (see Note 11—Federal Debt Securities Held by the Public and Accrued Interest). For fiscal years ended 

September 30, 2019, and 2018, Treasury incurred interest cost relating to the FRB’s U.S. Treasury holdings amounting 

to $59.0 billion and $64.1 billion, respectively, which is included in interest on Treasury securities held by the public on 

the Statement of Net Cost. Unrestricted Cash held on deposit at the FRBs as of September 30, 2019, and 2018, was 

$376.1 billion and $378.5 billion, respectively, and are included in cash and other monetary assets. In addition, 

restricted cash as of September 30, 2019, and 2018, was $44.7 billion and $31.6 billion, respectively; a significant 

portion is held on deposit at the FRBs (see Note 2—Cash and Other Monetary Assets). The government issued SDR 

certificates to the Federal Reserve, valued at $5.2 billion as of September 30, 2019 and 2018, which were reported under 

Other Liabilities on the government’s balance sheet (see Note 16—Other Liabilities).

Treasury securities are generally subject to the same market condition as other financial instruments. In the open 

market, the FRBs purchase and sell Treasury securities as a mechanism for controlling the money supply.

Financial and other information concerning the FR System, including financial statements for the Board and the 

FRBs, may be obtained at https://federalreserve.gov.

• FRB Residual Earnings Transferred to the Government

FRBs generate income from interest earned on securities, reimbursable services provided to federal entities, and 

the provision of priced services to depository institutions, as specified by the Monetary Control Act of 1980. Although 

the FRBs generate earnings from carrying out open market operations (via the earnings on securities held in the SOMA 

account), their execution of these operations is for the purpose of accomplishing monetary policy rather than generating 

earnings. Each FRB is required by Board policy to transfer to the government its residual (or excess) earnings, after 

providing for the cost of operations, payment of dividends, and surplus funds not to exceed an FRB’s allocated portion 

of an aggregate of $7.5 billion for all FRBs. These residual earnings may vary due to, among other things, changes in 

the SOMA balance levels that may occur in conducting monetary policy. If an FRB’s earnings for the year are not 

sufficient to provide for the cost of operations, payment of dividends, or allocated portion of $7.5 billion aggregate 

surplus funds limitation, an FRB will suspend its payments to the government until such earnings become sufficient.

These funds are part of restricted cash at the Federal Reserve (see Note 2—Cash and Other Monetary Assets). The FRB 

residual earnings of $52.8 billion and $70.8 billion for fiscal years ended September 30, 2019, and 2018, respectively, 
NOTES TO THE FINANCIAL STATEMENTS 164

are reported as other taxes and receipts on the Statements of Operations and Changes in Net Position. Accounts and 

taxes receivables, net, includes a receivable for FRB’s residual earnings which represents the earnings due to the 

General Fund as of September 30, but not collected by the General Fund until after the end of the month. As of 

September 30, 2019, and 2018, accounts receivable on FRB’s residual earnings are $0.6 billion and $0.4 billion, 

respectively (see Note 3—Accounts and Taxes Receivables, Net).

Fannie Mae and Freddie Mac

In 2008, during the financial crisis, the government placed Fannie Mae and Freddie Mac under conservatorship to help 

ensure their financial stability. These entities meet the criteria in SFFAS No. 47, for disclosure entities as both (a) 

“receiverships and conservatorships,” and, (b) as entities wherein “federal government intervention actions resulted in control 

or ownership” with intervention actions not expected to be permanent. Accordingly, these entities are not consolidated into 

the government's consolidated financial statements. However, the values of the investments in such entities, changes in value, 

and related activity with these entities are included in the government's consolidated financial statements (see Note 8—

Investments in Government-Sponsored Enterprises for additional information).

Amtrak

Amtrak was incorporated in 1971 pursuant to the Rail Passenger Service Act of 1970 and is authorized to operate a 

nationwide system of passenger rail transportation. Amtrak is a private, for-profit corporation under 49 U.S.C. § 24301 and 

District of Columbia law. It is not a department, entity, or instrumentality of the federal government. Amtrak’s classification 

as a disclosure entity is attributable to being (a) listed in the budget, (b) financed mostly by sources other than taxes, and (c) 

governed by an independent Board of Directors, which is comprised of 10 directors. The Secretary of Transportation 

(Secretary), who is a director by statute, and eight of the other Amtrak directors, are appointed by the President with the 

advice and consent of the U.S. Senate. The 10th board member, appointed by the board, is the President and Chief Executive 

Officer of Amtrak. Amtrak does not take actions on behalf of the government but benefits the national economy by providing 

a transportation option in 46 states and the District of Columbia.

The government (through the DOT) owns 100 percent of Amtrak’s preferred stock (109,396,994 shares of $100 par 

value). Each share of preferred stock is convertible into ten shares of common stock. The common stockholders have voting 

rights for “amendments to Amtrak’s Articles of Incorporation proposed by the Board of Directors and for certain other 

extraordinary events.” Although Section 4.02(g) of the Amtrak Articles of Incorporation allow for the conversion of preferred 

stock to common stock, current government administrative policy is to not convert its holdings without Congressional 

authorization. Section 4.02(g) of the Amtrak Articles of Incorporation does not limit the timing of conversion or require any 

preapprovals. Conversion is effective the business day following receipt of written notice of the holder’s election to convert.

The government does not recognize the Amtrak preferred stock in its financial statements because, under the corporation’s 

current financial structure, the preferred shares do not have a liquidation preference over the common shares, the preferred 

shares do not have any voting rights, and dividends are neither declared nor in arrears.

In addition to the purchase/ownership of the Amtrak preferred stock, the government has provided funding to Amtrak, 

since 1972, primarily through grants and loans. Amtrak receives grants from the government that cover a portion of the 

corporation’s annual operating expenses and capital investments. Funding provided to Amtrak through grant agreements are 

included in the government’s annual budget and the DOT financial statements. For the fiscal year ended September 30, 2019, 

the net cost amount was $2.4 billion, and total budgetary outlays were $1.9 billion. For the fiscal year ended September 30, 

2018, the net cost amount was $960.0 million, and total budgetary outlays were $2.0 billion. 

The government has possession of two long-term notes with Amtrak. The first note is for $4.0 billion and matures in 

2975 and, the second note is for $1.1 billion and matures in 2082 with renewable 99-year terms. Interest is not accruing on 

these notes as long as the current financial structure of Amtrak remains unchanged. If the financial structure of Amtrak 

changes, both principal and accrued interest are due and payable. The government does not recognize the long-term notes in 

its financial statements since the notes, with maturity dates of 2975 and 2082, are considered fully uncollectible due to the 

lengthy terms, Amtrak’s history of operating losses, and ability to generate funds for repayment. Amtrak’s ability to continue 

to operate in its current form is dependent upon the continued receipt of subsidies from the government.

Financial and other information concerning Amtrak including financial statements may be obtained at 

https://www.amtrak.com/reports-documents.
 165 NOTES TO THE FINANCIAL STATEMENTS

Related Parties

Related parties exist if the existing relationship, or one party to the existing relationship, has the ability to exercise 

significant influence over the party’s policy decisions. Related parties do not meet the principles for inclusion, but are 

reported in the Financial Report if they maintain relationships of such significance that it would be misleading to exclude.

Based on the criteria in SFFAS No. 47, the related parties reported in the Financial Report are FHLBanks, IMF, 

Multilateral Banks, and PEFCO. In addition, there are additional related parties reported by component reporting entities that 

do not meet the criteria to be reported in the Financial Report.

Federal Home Loan Banks

The government is empowered with supervisory and regulatory oversight of the 11 FHLBanks. The government is 

responsible for ensuring that each regulated entity operates in a safe and sound manner, including maintenance of adequate 

capital and internal control, and carries out its housing and community development finance missions. Each FHLBank 

operates as a separate federally chartered corporation with its own board of directors, management, and employees. The 

FHLBanks are GSEs that were organized under the Federal Home Loan Bank Act of 1932, to serve the public by enhancing 

the availability of credit for residential mortgages and targeted community development. They are financial cooperatives that

provide a readily available, competitively-priced source of funds to their member institutions. The FHLBanks do not have 

any special purpose entities or any other type of off-balance sheet conduits. The FHLBanks are not government entities and 

do not receive financial support from taxpayers. The government does not guarantee, directly or indirectly, the debt securities 

or other obligations of FHLBanks.

By law, in the event of certain adverse circumstances, Treasury is authorized to purchase up to $4.0 billion of 

obligations of the FHLBanks. This authority may be exercised only if alternative means cannot be effectively employed to 

permit the FHLBanks to continue to supply reasonable amounts of funds to the mortgage market, and the ability to supply 

such funds is substantially impaired because of monetary stringency and a high level of interest rates. Any funds borrowed 

from the U.S. Treasury shall be repaid by the FHLBanks at the earliest practicable date. Treasury has not used such authority. 

Also, in accordance with the Government Corporations Control Act, Treasury prescribes certain terms concerning the 

FHLBanks issuance of obligations to the public. Financial and other information concerning FHLBanks including financial 

statements may be obtained at http://www.fhlbanks.com/.

International Monetary Fund and Multilateral Development Banks

The IMF’s primary purpose is to ensure the stability of the international monetary system—the system of exchange 

rates and international payments that enables countries to transact with each other. Member countries provide resources for 

IMF loans through their subscription quotas (quotas). The IMF also has two pools of resources that can be used in the event 

of a crisis that requires lending beyond the level available from quota resources: (i) the NAB and (ii) bilateral borrowing 

arrangements. Participation in the IMF works like an exchange of monetary assets.

Quotas are the principal component of the IMF’s financial resources and are denominated in SDRs. The size of each 

member’s quota is based broadly on its relative position in the world economy. The U.S. holds the largest quota of any IMF 

member. Since 2016, U.S. quota in the IMF has been about SDRs 83 billion. The equivalent dollar value of the quota total 

U.S. as of September 30, 2019 and 2018, was approximately $113.0 billion and approximately $115.6 billion, respectively. 

The government has funded a portion of U.S. quota to the IMF for lending, represented by U.S. reserve position at the IMF, 

while the remainder of the U.S. quota is represented by a letter of credit on which the IMF can draw as needed for lending.

The U.S. reserve position was approximately $23.0 billion as of September 30, 2019, and approximately $15.4 billion as of 

September 30, 2018, with the remaining undrawn letter of credit representing the balance (see Note 2—Cash and Other 

Monetary Assets and Note 19—Commitments). The government’s quota serves as the key determinant for its 16.5 percent 

share of voting rights in various IMF decisions. Since certain key IMF decisions require approval by at least 85 percent of the 

voting power, the government (represented by the Secretary of the Treasury) holds a substantial voice in the IMF and 

exercises significant influence over IMF policies, including veto power over major IMF decisions.

Some IMF members also supplement the IMF’s resources through the NAB and bilateral borrowing agreements. 

Through the NAB, the U.S. and other participating members make additional resources available to the IMF if required to 

cope with or forestall an impairment of the international monetary system. The government's participation in the NAB as of 

September 30, 2019 and 2018, was SDR 28.2 billion, which is equivalent to $38.4 billion and $39.3 billion, respectively. 

When the government transfers funds to the IMF under the NAB, it receives a liquid and interest-bearing claim on the IMF. 

As of September 30, 2019, and 2018, loans outstanding to the IMF from the government under the NAB stood at $2.5 billion 

and $4.5 billion, respectively. These loans were reported under Loans Receivable on the Balance Sheet. The NAB is not 

currently activated, and the U.S. has veto power over its activation, as well as over most changes to its terms or size. The 

government does not have a bilateral borrowing agreement with the IMF, though it exercises indirect control over their 

activation, since NAB activation is a prerequisite for the IMF to draw on its bilateral borrowing arrangements.
NOTES TO THE FINANCIAL STATEMENTS 166

As of September 30, 2019, and 2018, the government's total undrawn financial commitment to the IMF was $125.9

billion and $135.0 billion, respectively, which is composed of the quota related letter of credit and the undrawn portion of the 

NAB (see Note 19—Commitments).

Under the IMF Articles of Agreement, the IMF may allocate SDRs to member countries in proportion to their IMF 

quotas. SDR allocations are an international reserve asset created by the IMF to supplement its member countries’ official 

reserves. The SDR allocation creates an asset and a liability on the Balance Sheet but does not increase the IMF’s available 

lending resources. The SDR asset as of September 30, 2019 and 2018, amounted to $50.1 billion and $51.0 billion, 

respectively, and includes the SDR allocation as well as purchased SDRs (see Note 2—Cash and Other Monetary Assets). 

The SDR liability as of September 30, 2019 and 2018, amounted to $48.1 billion and $49.3 billion, respectively (see Note 

16—Other Liabilities).

Historically, IMF has never experienced a default by a borrowing country. The government, which is not directly 

exposed to borrowers from the IMF, has never experienced a loss of value on its IMF quota or an instance of non-repayment,

and it is not likely that the government will experience future losses as a result of its additional commitments.

Additionally, the government invests in and provides funding to the MDBs to support poverty reduction and promote 

sustainable economic growth in developing countries. The MDBs provide financial and technical support by means of 

strengthening institutions, providing assistance that addresses the root causes of instability in fragile and conflict-affected 

countries, responding to global crisis, and fostering economic growth and entrepreneurship. The government’s participation 

in the MDBs is in the form of financial contributions used to ensure the effectiveness and impact of the MDBs’ global 

development agenda. The U.S. has voting power in each of the MDBs to which it contributes, ranging from approximately 6 

percent to 50 percent (see Note 9—Other Assets and Note 19—Commitments for additional information).

Private Export Funding Corporation 

The financial statements reflect the results of agreements with PEFCO. PEFCO, which is owned by a consortium of 

private-sector banks, industrial companies, and financial services institutions, makes and purchases from private sector 

lenders, medium-term and long-term fixed-rate, and variable-rate loans guaranteed by EXIM Bank to foreign borrowers to 

purchase U.S. made equipment “export loans.”

EXIM Bank’s credit and guarantee agreement with PEFCO provides that EXIM Bank will guarantee the due and 

punctual payment of interest on PEFCO’s secured debt obligations which EXIM Bank has approved. It grants to EXIM Bank 

a broad measure of supervision over PEFCO's major financial management decisions, including the right to have 

representatives be present in all meetings of PEFCO’s board of directors, advisory board, and exporters’ council, and to 

review PEFCO’s financials and other records. However, EXIM Bank does not have voting rights and does not influence 

normal operations. This agreement extends through December 31, 2020.

In addition, PEFCO has an agreement with EXIM Bank which provides that EXIM Bank will generally provide PEFCO 

with an unconditional guarantee covering the due and punctual payment of principal and interest on export loans PEFCO 

makes and purchases. PEFCO’s guarantees on the export loans plus the guarantees on the secured debt obligations 

aggregating to $4,060.5 million at September 30, 2019 and $5,196.6 million at September 30, 2018, are included by EXIM 

Bank in the total for guarantee, insurance and undisbursed loans. The allowance related to these transactions is included in 

the Guaranteed Loan Liability on the Balance Sheets.

EXIM Bank received fees totaling $44.7 million in fiscal year 2019 and $40.8 million in fiscal year 2018 for the 

agreements, which are included in Earned Revenue on the Statements of Net Cost.
 167 NOTES TO THE FINANCIAL STATEMENTS

Note 26. Public-Private Partnerships

The government enters into various collaborative relationships with private sector entities in which the goals, structures,

governance, roles and responsibilities are mutually determined to produce a risk-sharing arrangement. These relationships are

referred to as P3s, in accordance with SFFAS No. 49, Public-Private Partnerships: Disclosure Requirements. While many of

the government’s relationships are classified as and may be referred to as a P3, only those meeting the disclosure

requirements outlined in SFFAS No. 49 are disclosed.

The National Energy Conservation Policy Act, as amended, authorizes federal entities to enter into ESPC contracts for

the purpose of achieving energy savings and other related benefits. In consultations with the entity, the contractor designs and

constructs a project that meets the entity’s needs and arranges the necessary funding. The contractor guarantees that the

improvements will generate energy cost savings sufficient to pay for the project over the term of the contract. The cost of the

ESPC project must be covered by the energy, water and related cost savings generated at the project site. DOE and GSA have

entered into contracts with the private sector that meet the criteria for P3. These contracts allow federal entities to produce

energy savings and facility improvements with no up-front capital costs or special appropriations from Congress. Future

aggregate payments to be made by DOE and GSA are $1.4 billion and $1.6 billion, respectively, over the course of the

agreements. After an ESPC contract ends, all additional cost savings accrue to the entities. The entities are responsible for

contract administration over the term of the contracts and by statute, P3s cannot exceed 25 years.

In addition to the energy contracts, the DOC has entered into P3 contracts on other matters. Congress has tasked DOC’s

FirstNet with the responsibility to ensure the deployment and operation of a nationwide interoperable broadband network to

meet the communication needs of public safety. This network must be designed to be reliable, functional, safe, and secure,

and to provide optimal levels of operational capability at all times. This network will help produce lower costs, consumerdriven economies of scale, and rapid evolution of advanced communication capabilities. The Nationwide Public Safety

Broadband Network will be built out, deployed, operated, and maintained under a 25-year contract awarded by FirstNet to

AT&T in March 2017. The service will cover all 50 U.S. states, five territories, and the District of Columbia, including rural

communities and tribal nations. Under the terms of the contract, future receipts for DOC are $17.6 billion based on annual

payments AT&T is required to make. Additionally, DOC is required to make payments to AT&T for success-based payment

milestones under fixed firm price buildout task orders. The total paid in fiscal year 2019 was $1.5 billion. No estimates can

be made at this time as to any further payments to AT&T that might occur under the contract.

Only entities material to the Financial Report are included, for more information please refer to the individual financial

statements of DOC, DOE and GSA for further details on P3 activity.
NOTES TO THE FINANCIAL STATEMENTS 168

Note 27. Subsequent Events

Patient Protection and Affordable Care Act Excise Tax

The SOSI, SCSIA and SLTFP do not reflect legislation enacted subsequent to September 30, and the end of the fiscal

year. In December 2019, the Further Consolidated Appropriations Act, 2020 repealed the PPACA excise tax on certain

applicable employer-sponsored healthcare coverage. The effect of this legislation on the SOSI, SCSIA, and SLTFP is not

currently reasonably estimable, but may be material, and will be incorporated into the estimates for the fiscal year 2020

SOSI, SCSIA, and SLTFP.

 

PBGC Multi-Employer Program

In December 2019, the enactment of the Bipartisan American Miners Act of 2019 provided additional funding for future

annual Treasury transfers to the 1974 United Mine Workers of America Pension Plan (covered by PBGC’s multi-employer

program). PBGC is currently assessing the effect of the legislation on its liabilities and contingency disclosures (including the

estimated insolvency date for the multi-employer program), but the effect is not currently reasonably estimable.

Please refer to Note 15—Insurance and Guarantee Program Liabilities and Note 18—Contingencies for more

information.
 169 NOTES TO THE FINANCIAL STATEMENTS

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REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) 170

United States Government

Required Supplementary Information 

(Unaudited) For the Fiscal Years Ended

September 30, 2019, and 2018

The Sustainability of Fiscal Policy

One of the important purposes of the Financial Report is to help citizens and policymakers assess whether current fiscal 

policy is sustainable and, if it is not, the urgency and magnitude of policy reforms necessary to make fiscal policy 

sustainable. A sustainable policy is one where the ratio of debt held by the public to GDP (the debt-to-GDP ratio) is 

ultimately stable or declining. 

As discussed below, the projections in this report indicate that current policy is not sustainable. If current policy is left

unchanged, the projections show the debt-to-GDP ratio will rise from 79 percent in 2019 to 84 percent by 2022, to over 100 

percent by 2030, and to 474 percent in 2094. For comparison, under the 2018 projections, the debt-to-GDP ratio was 84 

percent in 2022, but then reached 103 percent by 2030, and 530 percent in 2093.

These conclusions are rooted in the projected trends in receipts, spending, and deficits in the context of current law and 

policy, although, as described in the following pages, there is considerable uncertainty surrounding these projections. The 

projections are on the basis of policies currently in place and are neither forecasts nor predictions. Changes in policy – from 

health care reform and renegotiated trade arrangements, to more routine developments such as changes in aggregate funding 

for discretionary programs – could have a significant effect on eventual fiscal outcomes.
 171 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)

Current Policy Projections for Primary Deficits

A key determinant of growth in the debt-to-GDP ratio and hence fiscal sustainability is the ratio of the primary deficitto-GDP. The primary deficit is the difference between non-interest spending and receipts, and the primary deficit-to-GDP 

ratio is the primary deficit expressed as a percent of GDP. As shown in Chart 1, the primary deficit-to-GDP ratio spiked 

during 2009 through 2012 due to the 2008-09 financial crisis and the ensuing severe recession, as well as the increased 

spending and temporary tax reductions enacted to stimulate the economy and support recovery. These elevated primary 

deficits resulted in a sharp increase in the ratio of debt to GDP, which rose from 39 percent at the end of 2008 to 70 percent at 

the end of 2012. As an economic recovery took hold, the primary deficit ratio fell, averaging 2.1 percent of GDP over 2013 

through 2019 (1.9 through 2018). This deficit level led debt held by the public to increase further relative to GDP, ending 

2019 at 79 percent. The primary deficit-to-GDP ratio is projected to rise to 2.9 percent in 2020 and then shrink slightly as the 

economy grows. After 2024, however, increased spending for Social Security and health programs due in part to the 

continued retirement of the baby boom generation is projected to result in increasing primary deficits that reach 3.1 percent of 

GDP in 2028. The primary deficit peaks at 3.9 percent of GDP in 2040, gradually decreases beyond that point as the aging of 

the population continues at a slower pace, and reaches 2.5 percent in 2094, the last year of the projection period. 

Trends in the primary deficit are heavily influenced by tax receipts. The receipt share of GDP was markedly depressed 

in 2009 through 2012 because of the recession and tax reductions enacted as part of the ARRA and the Tax Relief, 

Unemployment Insurance Reauthorization, and Job Creation Act of 2010. The share subsequently increased to 18 percent of 

GDP by 2015 then decreased to 16.2 percent by 2019, after enactment of the TCJA and below its 30-year average of 17.2 

percent. Receipts are projected to grow slightly more rapidly than GDP over the projection period as increases in real (i.e., 

inflation-adjusted) incomes cause more taxpayers and a larger share of income to fall into the higher individual income tax 

brackets. Other possible paths for the receipts-to-GDP ratio and the implications for projected debt held by the public are 

analyzed in the “Alternative Scenarios” section. 

On the spending side, the non-interest spending share of GDP is projected to rise gradually from 19.0 percent in 2019 to 

21.0 percent of GDP in 2029 and ends at 23.0 percent in 2094, the end of the projection period. Beginning in 2020, these 

increases are principally due to faster growth in Medicare, Medicaid, and Social Security spending (see Chart 1). The aging 

of the baby boom generation over the next 25 years, among other factors, is projected to increase the Social Security, 

Medicare, and Medicaid spending shares of GDP by about 0.9 percentage points, 1.8 percentage points, and 0.6 percentage 

points, respectively. After 2035, the Social Security and Medicaid spending shares of GDP remain relatively stable, while the 

Medicare spending share of GDP continues to increase, albeit at a slower rate, due to projected increases in health care costs 

and population aging.

Current Policy Projections for Debt and Interest Payments

The primary deficit projections in Chart 1, along with projections for interest rates and GDP, determine the projections 

for the debt-to-GDP ratio shown in Chart 2. That ratio was 79 percent at the end of fiscal year 2019, and under current policy 

is projected to be 84 percent by 2022, over 100 percent by 2030, and 474 percent in 2094. The continuous rise of the debt-toGDP ratio indicates that current policy is unsustainable.
REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) 172

As a general approximation, the change in debt held by the public from one year to the next is the budget deficit, the 

difference between total spending and total receipts.1 Total spending is non-interest spending plus interest spending. Chart 3 

shows that the rapid rise in total spending and the unified deficit (total receipts less total spending) is almost entirely due to 

projected net interest, which results from the growing debt. As a percent of GDP, interest spending was 1.8 percent in 2019, 

and under current policy is projected to reach 7.0 percent in 2039 and 23.2 percent in 2094. 

1 The change in debt each year is also affected by certain transactions not included in the budget deficit, such as changes in Treasury’s cash balances and the 

non-budgetary activity of federal credit financing accounts. These transactions are assumed to hold constant at about 0.3 percent of GDP each year, with the 

same effect on debt as if the primary deficit was higher by that amount.
 173 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)

Another way of viewing the change in the financial outlook in this year’s report relative to previous years’ reports is in 

terms of the projected debt-to-GDP ratio in 2092, the last year of the 75-year projection period used in the fiscal year 2017 

report. This ratio is projected to reach 461 percent in the fiscal year 2019 projections, which compares with 522 percent 

projected in the fiscal year 2018 projections and 297 percent projected in the fiscal year 2017 projections.2

The Cost of Delay in Closing the 75-Year Fiscal Gap

The longer policy action to close the fiscal gap3 is delayed, the larger the post-reform primary surpluses must be to 

achieve the target debt-to-GDP ratio at the end of the 75-year period. This can be illustrated by varying the years in which 

reforms closing the fiscal gap are initiated while holding the target ratio of debt to GDP in 2094 equal to the 2019 ratio (79 

percent). Three timeframes for reforms are considered, each one beginning in a different year, and each one increasing the 

primary surplus relative to current policy by a fixed percent of GDP starting in the reform year. The analysis shows that the 

longer policy action is delayed, the larger the post-reform primary surplus must be to bring the debt-to-GDP ratio to 79 

percent of GDP in 2094. Future generations are burdened by delays in policy changes because delay necessitates higher 

primary surpluses during their lifetimes, and those higher primary surpluses must be achieved through some combination of 

lower spending and higher revenue.

As previously shown in Chart 1, under current policy, primary deficits occur throughout the projection period. Table 1 

shows primary surplus changes necessary to make the debt-to-GDP ratio in 2094 equal to its level in 2019 under each of the 

three timeframes. If reform begins in 2020, then it is sufficient to raise the primary surplus share of GDP by 3.8 percentage 

2 For further information on changes from the 2016 projections, see the unaudited RSI in the 2018 Financial Report. 3 The fiscal gap reflects how much the primary surplus (receipts less non-interest spending) must increase to maintain the debt-to-GDP ratio at the 2019 level 

of 79 percent. See Note 23 for a more complete discussion of the fiscal gap.
REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) 174

points in every year between 2020 and 2094 in order for the debt-to-GDP ratio in 2094 to equal its level in 2019 (79 percent). 

This policy raises the average 2020-2094 primary surplus-to-GDP ratio from -3.2 percent to slightly over +0.6 percent.

In contrast to a reform that begins immediately, if reform begins in 2030 or 2040, then the primary surpluses must be 

raised by 4.5 percent and 5.6 percent of GDP, respectively, in order for the debt-to-GDP ratio in 2094 to equal 79 percent. 

The difference between the primary surplus increase necessary if reform begins in 2030 or 2040 and the increase necessary if 

reform begins in 2020, an additional 0.7 and 1.8 percentage points, respectively, is a measure of the additional burden policy

delay would impose on future generations. The costs of delay are due to the additional debt that accumulates between the end 

of 2019 and the year reform is initiated, in comparison to the scenario in which reform begins immediately. 

Alternative Scenarios 

The long-run projections are highly uncertain. This section illustrates this inherent uncertainty by presenting alternative 

scenarios for the growth rate of health care costs, interest rates, discretionary spending, and receipts. (Not considered here are 

the effects of alternative assumptions for long-run trends in birth rates, mortality, and immigration.) 

The population is aging rapidly and will continue to do so over the next several decades, which puts pressure on 

programs such as Social Security, Medicare, and Medicaid. A shift in projected fertility, mortality, or immigration rates could 

have important effects on the long-run projections. Higher-than-projected immigration, fertility, or mortality rates would 

improve the long-term fiscal outlook. Conversely, lower-than-projected immigration, fertility, or mortality rates would result 

in deterioration in the long-term fiscal outlook. 

Effect of Changes in Health Care Cost Growth

One of the most important assumptions underlying the projections is the future growth of health care costs. These future 

growth rates – both for health care costs in the economy generally and for federal health care programs such as Medicare, 

Medicaid, and PPACA exchange subsidies – are highly uncertain. In particular, enactment of the PPACA in 2010 and the 

MACRA in 2015 established cost controls for Medicare hospital and physician payments whose long-term effectiveness is 

still to be demonstrated. The Medicare spending projections in the long-term fiscal projections are based on the projections in 

the 2019 Medicare Trustees’ Report, which assume the PPACA and MACRA cost control measures will be effective in 

producing a substantial slowdown in Medicare cost growth. As discussed in Note 22—Social Insurance, the Medicare 

projections are subject to much uncertainty about the ultimate effects of these provisions to reduce health care cost growth. 

For the long-term fiscal projections, that uncertainty also affects the projections for Medicaid and exchange subsidies, 

because the cost per beneficiary in these programs grows at the same reduced rate as Medicare cost growth per beneficiary. 

As an illustration of the dramatic effect of variations in health care cost growth rates, Table 2 shows the effect on the 

size of reforms necessary to close the fiscal gap of per capita health care cost growth rates that are one percentage point 

higher or two percentage points higher than the growth rates in the base projection, as well as the effect of delaying closure of 

the fiscal gap.4 As indicated earlier, if reform is initiated in 2020, eliminating the fiscal gap requires that the 2020-2094 

primary surplus increase by an average of 3.8 percent of GDP in the base case. However, that figure increases to 7.3 percent 

4 The base case health cost growth rates are derived from the projections in the 2019 Medicare Trustees’ Report. These projections are summarized and 

discussed in Note 22 (see Table 1B in particular) and the “Medicare Projections” section of the unaudited RSI for the SOSI.
 175 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)

of GDP if per capita health cost growth is assumed to be 1.0 percentage point higher, and 13.0 percent of GDP if per capita 

health cost growth is 2.0 percentage points higher. The cost of delaying reform is also increased if health care cost growth is 

higher because debt accumulates more rapidly during the period of inaction. For example, the lower part of Table 2 shows 

that delaying reform initiation from 2020 to 2030 requires that 2030-2094 primary surpluses be higher by an average of 0.7 

percent of GDP in the base case, 1.3 percent of GDP if per capita health cost growth is 1.0 percentage point higher, and 2.4 

percent of GDP if per capita health cost growth is 2.0 percentage points higher. The dramatic deterioration of the long-run 

fiscal outlook caused by higher health care cost growth shows the critical importance of managing health care cost growth.

Effects of Changes in Interest Rates

A higher debt-to-GDP ratio is likely to increase the interest rate on government debt, making it costlier for the 

government to service its debt. Table 3 displays the effect of several alternative scenarios using different nominal (and real) 

interest rates than assumed in the base case on the size of reforms to close the fiscal gap as well as the effect of delaying 

closure of the fiscal gap. If reform is initiated in 2020, eliminating the fiscal gap requires that the 2020-2094 primary surplus 

increase by an average of 3.8 percent of GDP in the base case, 4.5 percent of GDP if the interest rate is 1.0 percentage point 

higher in every year, and 3.2 percent of GDP if the interest rate is 1.0 percentage point lower in every year. The cost of 

delaying reform is also increased if interest rates are higher, due to the fact that interest paid on debt accumulates more 

rapidly during the period of inaction. For example, the lower part of Table 3 shows that delaying reform initiation from 2020

to 2030 requires that 2030-2094 primary surpluses be higher by an average of 0.7 percent of GDP in the base case, 1.1 

percent of GDP if the interest rate is 1.0 percentage point higher in every year, and 0.4 percent of GDP if the interest rate is 

1.0 percentage point lower in every year. 
REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) 176

Effects of Changes in Discretionary Spending Growth

The growth of discretionary spending has a large impact on long-term fiscal sustainability. The current base projection 

for discretionary spending assumes that spending (1) stays within statutory caps for 2020 and 2021 under the 2019 BBA (or 

is approximately 6.5 percent of GDP), and (2) falls to a 6.1 percent share of GDP in 2022 and grows to a 6.2 percent share in

2029, where it remains thereafter.5 The implications of two alternative scenarios are shown in Table 4. In the first alternative 

scenario, discretionary spending for 2020 and 2021 is the same as in the base case (approximately 6.5 percent of GDP), then 

it falls to 6.1 percent of GDP in 2022 and grows with inflation and population so as to hold discretionary spending constant 

on a real per capita basis. (This growth rate assumption is slower than growth with GDP but is still higher than the standard

10-year budget baseline assumption, which assumes that discretionary spending grows with inflation but not with 

population.) In the second alternative scenario, the rate of nominal GDP growth is applied to discretionary spending after 

2021. As shown in Table 4, if discretionary spending grows with inflation and population, eliminating the fiscal gap requires 

that the 2020-2094 primary surplus increase by an average of 1.7 percent of GDP. If discretionary spending grows with 

nominal GDP the fiscal gap increases to 4.2 percent of GDP. The cost of delaying reform is greater when discretionary 

spending levels are higher. Initiating reforms in 2030 requires that the primary surplus increase by an average of 0.7 percent 

of GDP per year in the base case, and increase by 0.8 percent of GDP if discretionary levels grow at the rate of GDP without 

any spending controls from 2021 onward. If delayed until 2040, the primary surplus must increase by an average of 1.8 

percent of GDP in the base case, and increase by 1.9 percent of GDP when spending grows at the rate of GDP without being 

subject to spending controls.

5 The base case reflects the 2020 President’s Budget, which includes the continuation of discretionary spending reductions required by the Joint Committee. 

The BCA established statutory caps on discretionary spending for fiscal years 2012 through 2021, and established the Joint Committee, which was tasked 

with identifying $1.2 trillion in deficit reduction. The failure of the Joint Committee to propose, and Congress to enact, legislation sufficient to reduce the 

deficit triggered automatic spending reductions through adjustments to the discretionary spending caps and sequestration of mandatory spending. After 2021, 

these projections continue this approach, assuming spending grows with nominal GDP but that such amounts are then reduced by amounts based on Joint 

Committee deficit reduction spending controls through 2029, the last year presented in the 2020 President’s Budget. After 2029, this policy is maintained 

with the annual reductions growing at the same rate as GDP. The BBA of 2019 extended the mandatory spending reductions through 2029, and this change in 

law will be reflected in next year’s Financial Report.
 177 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)

Effects of Changes in Individual Income Receipt Growth

The growth rate of receipts, specifically individual income taxes, is another key determinant of long-term sustainability. 

The base projections assume growth in individual income taxes over time to account primarily for the slow shift of 

individuals into higher tax brackets due to real wage growth (“real bracket creep”). This assumption approximates the longterm historical growth in individual income taxes relative to wages and salaries and is consistent with current policy without 

change, as future legislation would be required to prevent real bracket creep. As an illustration of the effect of variations in 

individual income tax growth, Table 5 shows the effect on the size of reforms necessary to close the fiscal gap and the effect 

of delaying closure of the fiscal gap if long-term receipt growth as a share of wages and salaries is 0.1 percentage point 

higher than the base case, as well as 0.1 percentage point lower than the base case. If reform is initiated in 2020, eliminating 

the fiscal gap requires that the 2020-2094 primary surplus increase by an average of 3.8 percent of GDP in the base case, only 

2.7 percent of GDP if receipt growth is 0.1 percentage point higher, but 5.0 percent of GDP if receipt growth is 0.1

percentage point lower. The cost of delaying reform is also affected if receipt growth assumptions change, much as was the 

case in the previous alternative scenarios. 
REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) 178

Fiscal Projections in Context

In this report, a sustainable fiscal policy has been defined as one where the federal debt-to-GDP ratio is stable or 

declining over the projection period. However, this definition does not indicate what a sustainable debt-to-GDP ratio might 

be. Any particular debt ratio is not the ultimate goal of fiscal policy. Rather, the goals of fiscal policy are many. They include 

financing public goods, such as infrastructure and government services; promoting a strong and growing economy; and 

managing the debt so that it is not a burden on future generations. These goals are interrelated, and readers should consider 

how policies intended to affect one might depend on or affect another. 

This report shows that current policy is not sustainable. In evaluating policies that could make policy sustainable, note 

that debt may play roles in both facilitating and hindering a healthy economy. For example, government deficit spending 

supports demand and allows economies to emerge from recessions more quickly. Debt may also be a cost-effective means of 

financing capital investment that promotes future economic growth, which may in turn make future debt levels more 

manageable. However, economic theory also suggests that high levels of debt may contribute to higher interest rates, leading 

to lower private investment and a smaller capital stock which the economy can use to grow. Unfortunately, it is unclear what 

debt-to-GDP ratio would be sufficiently high to produce these negative outcomes, or whether the key concern is the level of 

debt per se, or a trend that shows debt increasing over time. 

While several empirical studies have attempted to discern a definite relationship between debt and economic growth 

from the past experience of countries, the evidence is mixed. One study suggested that as advanced countries’ debt-to-GDP 

ratios exceeded 90 percent it had significant negative consequences for real GDP growth through rising interest rates, 

crowding out of private investment, and reduced capital formation.6 Real GDP growth is generally lower by about 1 percent 

when the countries’ debt-to-GDP ratios are above 90 percent relative to the times when they are below 90 percent.7 However, 

6 Reinhart, Carmen M., and Kenneth S. Rogoff. 2010. “Growth in a Time of Debt.” American Economic Review, 100(2): 573-78. 7 Errata: “Growth in a Time of Debt,” Carmen M. Reinhart and Kenneth S. Rogoff. Harvard University, 2013.
 179 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)

after removing sample countries with very high indebtedness – those with debt-to-GDP ratios of more than 120 percent – and 

very low indebtedness – those with debt-to-GDP ratios of less than 30 percent – the negative relationship between growth 

and debt is difficult to determine. Another study reports that differences in average GDP growth in countries with debt-toGDP ratios between 30-60 percent, 60-90 percent, and 90-120 percent cannot be statistically distinguished.8 Some countries 

with high debt-to-GDP ratios have been observed to experience lower-than-average growth, while other countries with 

similarly high debt ratios have continued to enjoy robust growth. Analogously, low debt-to-GDP ratios are no guarantee of 

strong economic growth. Moreover, the direction of causality is unclear. High debt may undermine growth through increased 

interest rates and lower business confidence, or low growth may contribute to high debt by depressed tax revenues and 

increased deficit spending on social safety net programs.

Nevertheless, to put the current and projected debt-to-GDP ratios in context, it is instructive to examine how the U.S. 

experience compares with that of other countries. The U.S. government’s debt as a percent of GDP is relatively large 

compared with central government debt of other countries, but far from the largest among developed countries. Based on 

historical data as reported by the IMF for 28 advanced economies, the debt-to-GDP ratio in 2016 ranged from 6.3 percent of 

GDP to 192.2 percent of GDP.9 The U.S. is not included in this set of statistics, which underscores the difficulty in 

calculating debt ratios under consistent definitions, but the projections in this report show the 2019 debt-to-GDP ratio as 79 

percent. Despite using consistent definitions where available, these debt measures are not strictly comparable due to 

differences in the share of government debt that is debt of the central government, how government responsibilities are 

shared between central and local governments, how current policies compare with the past policies that determine the current 

level of debt, and how robustly each economy grows. 

The historical experience of the U.S. may also provide some perspective. As Chart 4 shows, the debt-to-GDP ratio was 

highest in the 1940s, following the debt buildup during World War II. In the projections in this report, the U.S. would reach 

the previous peak debt ratio in 2031. However, the origins of current and future federal debt are quite different from the 

wartime debt of the 1940s, which limits the pertinence of past experience.

8 Herndon, Thomas, Michael Ash, and Robert Pollard, “Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogoff,” 

Cambridge Journal of Economics, 2013. 9 Government Finance Statistics Yearbook, Main Aggregates and Balances, available at https://data.imf.org. Data is for D1 debt liabilities for the central 

government, excluding social security funds, for Advanced Economies.
REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) 180

As the cross-country and historical comparisons suggest, there is a very imperfect relationship between the current level 

of central government debt and the sustainability of overall government policy. Past accrual of debt is certainly important, but 

current policies and their implications for future debt accumulation are as well. 

Conclusion

The past 12 years saw debt held by the public nearly double as a share of GDP, bringing it to a level not seen since 

shortly after World War II. The projections in this Financial Report indicate that if policy remains unchanged, the debt-toGDP ratio will steadily increase and soon far exceed historical levels, which implies current policy is not sustainable and 

must ultimately change. Subject to the important caveat that policy changes are not so abrupt that they slow economic 

growth, the sooner policies are put in place to avert these trends, the smaller are the adjustments necessary to return the nation 

to a sustainable fiscal path, and the lower the burden of the debt will be to future generations.
 181 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)

Social Insurance

The social insurance programs consisting of Social Security, Medicare, Railroad Retirement, Black Lung, and UI were

developed to provide income security and health care coverage to citizens under specific circumstances as a responsibility of

the government. Because taxpayers rely on these programs in their long-term planning, social insurance program information

should indicate whether the current statutory provisions of the programs can be sustained, and more generally what effect

these provisions likely have on the government’s financial condition. The resources needed to run these programs are raised

through taxes and fees. Eligibility for benefits depends in part on earnings and time worked by the individuals. Social

Security benefits are generally redistributed intentionally toward lower-wage workers (i.e., benefits are progressive). In

addition, each social insurance program has a uniform set of eligibility events and schedules that apply to all participants.

Social Security and Medicare

Social Security

The OASI and DI Trust Funds were established on January 1, 1940 and August 1, 1956 respectively as separate 

accounts in the Treasury. The OASI fund pays cash retirement benefits to eligible retirees and their eligible dependents and 

survivors, and the much smaller DI fund pays cash benefits to eligible individuals who are unable to work because of medical 

conditions and certain family members of such eligible individuals. All financial operations of the OASI and DI Programs are 

handled through these respective funds. The two funds are often referred to as the combined OASDI Trust Funds. At the end 

of calendar year 2018, OASDI benefits were paid to approximately 63 million beneficiaries.

The events that trigger benefit payments are quite different however both trust funds have the same dedicated financing 

structure: taxes paid by workers, their employers, and individuals with self-employment income, based on work covered by 

the OASDI Program. Currently, employers and employees each pay 6.2 percent of taxable earnings, and the self-employed 

pay 12.4 percent of taxable earnings. Payroll taxes are levied on wages and net earnings from self-employment up to a 

specified maximum annual amount, referred to as maximum taxable earnings ($132,900 in 2019), that increases each year 

with economy-wide average wages.

Legislation passed in 1984 subjected up to half of OASDI benefits to income tax and allocated the revenue to the 

OASDI Trust Funds. In 1993 legislation increased the potentially taxed portion of benefits to 85 percent and allocated the 

additional revenue to the Medicare’s HI Trust Fund.

Medicare

The Medicare Program, created in 1965, has two separate trust funds: the HI Trust Fund (otherwise known as Medicare 

Part A) and the SMI Trust Funds (which consists of the Medicare Part B and Part D10 accounts). HI helps pay for inpatient 

hospital stays, home health care following a hospital stay, and skilled nursing facility and hospice care. SMI helps pay for 

hospital outpatient services, physician services, and assorted other services and products through Part B and for prescription 

drugs through Part D.

Though the events that trigger benefit payments are similar, HI and SMI have different dedicated financing structures. 

Similar to OASDI, HI is financed primarily by payroll contributions. Currently, employers and employees each pay 1.45 

percent of earnings, while self-employed workers pay 2.9 percent of their net earnings. Beginning in 2013, employees and 

self-employed individuals with earnings above certain thresholds pay an additional HI tax of 0.9 percent on earnings above 

those thresholds. Other income to the HI Trust Fund includes a small amount of premium income from voluntary enrollees, a 

portion of the federal income taxes that beneficiaries pay on Social Security benefits, and interest credited on Treasury 

securities held in the HI Trust Fund. These Treasury securities and related interest have no effect on the consolidated 

statement of governmentwide finances.

For SMI, direct transfers from the General Fund financed 73 percent and 71 percent of 2019 program costs for Parts B 

and D, respectively. Premiums paid by beneficiaries and, for Part D state transfers, generally financed the remainder of 

expenditures. For beneficiaries dually eligible for Medicare and Medicaid, states must pay the Part D account a portion of 

their estimated foregone drug costs for this population (referred to as state transfers). As with HI, interest received on 

10 Medicare legislation in 2003 created the new Part D account in the SMI Trust Fund to track the finances of a new prescription drug benefit that began in 

2006. As is the case for Medicare Part B, a little less than three-quarters of revenues to the Part D account will come from future transfers from the General 

Fund. Consequently, the nature of the relationship between the SMI Trust Fund and the federal budget described below is largely unaffected by the presence 

of the Part D account though the magnitude will be greater.
REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) 182

Surplus 

Borrowed

Interest 

Credited

Benefit 

Taxes

Interest 

Credited

Surplus 

Borrowed

E

X

P

E

N

D

I

T

U

R

E

S

General

Government

Expenditures,

Net Interest

SMI Trust

Fund 

Account

Other

Government

Accounts

HI, OASDI

Trust Fund 

Accounts

M

E

A

N

S

O

F

F

I

N

A

N

C

I

N

G

SMI

Premiums and 

State Transfers

Income Taxes,

Benefit Taxes, 

Other Revenues,

Borrowing from

the Public

Payroll Taxes and

HI

Premiums

HI, OASDI, SMI

Benefits

Other 

Government 

Transfers

Treasury securities held in the SMI Trust Fund is credited to the fund. These Treasury securities and related interest have no 

effect on the consolidated statement of governmentwide finances. See Note 22—Social Insurance, for additional information 

on Medicare program financing.

Figure 1

Social Security, Medicare, and Governmentwide Finances

Social Security, Medicare, and Governmentwide Finances

The current and future financial status of the separate OASDI, HI, and SMI Trust Funds is the focus of the Social 

Security and Medicare Trustees’ Reports, a focus that may appropriately be referred to as the “trust fund perspective.” In 

contrast, the government primarily uses the budget concept as the framework for budgetary analysis and presentation. It 

represents a comprehensive display of all federal activities, regardless of fund type or on- and off-budget status, and has a 

broader focus than the trust fund perspective that may appropriately be referred to as the “budget perspective” or the 

“governmentwide perspective.” Social Security and Medicare are among the largest expenditure categories of the U.S. 

federal budget. This section describes in detail the important relationship between the trust fund perspective and the 

governmentwide perspective.

Figure 1 is a simplified depiction of the interaction of the Social Security and Medicare Trust Funds with the rest of the 

federal budget.11 The boxes on the left show sources of funding, those in the middle represent the trust funds and other 

government accounts, which include the General Fund into which that funding flows, and the boxes on the right show 

simplified expenditure categories. The figure is intended to illustrate how the various sources of program revenue flow 

through the budget to beneficiaries. The general approach is to group revenues and expenditures that are linked specifically to 

Social Security and/or Medicare separately from those for other government programs.

11 The federal budget encompasses all government financing and is synonymous with a governmentwide perspective.
 183 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)

Each of the trust funds has its own sources and types of revenue. With the exception of General Fund transfers to SMI, 

each of these revenue sources represents revenue from the public that is dedicated specifically for the respective trust fund 

and cannot be used for other purposes. In contrast, personal and corporate income taxes as well as other revenue go into the 

General Fund and are drawn down for any government program for which Congress has approved spending.12 The arrows 

from the boxes on the left represent the flow of the revenues into the trust funds and other government accounts.

The heavy line between the top two boxes in the middle of Figure 1 represents intragovernmental transfers to the SMI 

Trust Fund from other government accounts. The Medicare SMI Trust Fund is shown separately from the two Social Security 

Trust Funds (OASI and DI) and the Medicare HI Trust Fund to highlight the unique financing of SMI. Currently, SMI is the 

only one of the programs that is funded through transfers from the General Fund, which is part of the other government 

accounts (the SMI Part D account also receives transfers from the states). The direct transfers finance roughly three-fourths of 

SMI Program expenses. The transfers are automatic; their size depends on how much the program requires, not on how much 

revenue comes into the Treasury. If General Fund revenues become insufficient to cover both the mandated transfer to SMI 

and expenditures on other general government programs, Treasury has to borrow to make up the difference. In the longer run, 

if transfers to SMI increase beyond growth in general revenues—and as shown in the Medicare Trustees’ Report and Chart 5 

later in this section, they are projected to increase significantly in coming years—then Congress must either raise taxes, cut 

other government spending, reduce SMI benefits, or borrow even more.

The dotted lines between the middle boxes of Figure 1 also represent intragovernmental transfers but those transfers 

arise in the form of “borrowing/lending” between the government accounts. Interest credited to the trust funds arises when 

the excess of program income over expenses is loaned to the General Fund. The vertical lines labeled Surplus Borrowed

represent these flows from the trust funds to the other government accounts. These loans reduce the amount the General Fund 

has to borrow from the public to finance a deficit (or likewise increase the amount of debt paid off if there is a surplus). 

However, the General Fund has to credit interest on the loans from the trust fund programs, just as if it borrowed the money 

from the public. The credits lead to future obligations for the General Fund (which is part of the other government accounts). 

These transactions are indicated in Figure 1 by the vertical arrows labeled Interest Credited. The credits increase trust fund 

income exactly as much as they increase credits (future obligations) in the General Fund. From the governmentwide 

standpoint, at least in an accounting sense, these interest credits are a wash.

When the trust funds get the receipts that they loan to the General Fund, these receipts provide additional authority to 

spend on benefits and other program expenses. The General Fund, in turn, has taken on the obligation of paying interest on 

these loans every year and repaying the principal when trust fund income from other sources falls below expenditures.

How loans from the trust funds to the General Fund and later repayments of those loans affect tax income and 

expenditures of the General Fund is uncertain. Two extreme cases encompass the possibilities. At one extreme, each dollar 

the trust funds loan to the General Fund might reduce borrowing from the public by a dollar at the time the loan is extended,

in which case the General Fund could repay all trust fund loans by borrowing from the public without raising the level of 

public debt above the level that would have occurred in the absence of the loans. At the other extreme, each dollar the trust

funds loan to the General Fund might result in some combination of higher General Fund spending and lower General Fund 

revenues amounting to one dollar at the time the loans are extended, in which case General Fund loan repayments to the trust 

funds might initially be financed with borrowing from the public but must at some point be financed with a combination of 

higher General Fund taxes and lower General Fund spending than would have occurred in the absence of the loans. In this 

latter extreme, trust fund loans result in additional largess (i.e., higher spending and/or lower taxes) in General Fund 

programs at the time the loans are extended, but ultimately that additional largess is financed with additional austerity (i.e., 

lower spending and/or higher taxes) in General Fund programs at later dates. The actual impact of trust fund loans to the 

General Fund and their repayment on General Fund programs is at one of these two extremes or somewhere in between.

Actual dollar amounts roughly corresponding to the flows presented in Figure 1 are shown in the following table for 

fiscal year 2019. The table shows revenues from the public (left side of Figure 1) and expenditures to the public (right side of 

Figure 1) are shown separately from transfers between government accounts (middle of Figure 1). Note that the transfers 

($333.1 billion) and interest credits ($92.1 billion) received by the trust funds appear as negative entries under “All Other” 

and are thus offsetting when summed for the total budget column. These two intragovernmental transfers are the key to the 

differences between the trust fund and budget perspectives.

From the governmentwide perspective, only revenues received from the public and state transfers and expenditures 

made to the public are important for the final balance. Trust fund revenue from the public consists of payroll taxes, benefit 

12 Other programs also have dedicated revenues in the form of taxes and fees (and other forms of receipt) and there are a large number of dedicated trust 

funds in the federal budget. Total trust fund receipts account for about 40 percent of total government receipts with the Social Security and Medicare Trust 

Funds accounting for about two-thirds of trust fund receipts. For further discussion, see the report issued by the Government Accountability Office, Federal 

Trust and Other Earmarked Funds, GAO-01-199SP, January 2001. In the figure and the discussion that follows, all other programs, including these other 

dedicated trust fund programs, are grouped under “Other Government Accounts” to simplify the description and maintain the focus on Social Security and 

Medicare.
REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) 184

taxes, and premiums. For HI, the difference between total expenditures made to the public ($323.7 billion) and revenues 

($311.0 billion) was $12.7 billion in 2019, indicating that HI had a relatively small negative effect on the overall budget 

outcome in that year. For the SMI account, revenues from the public (primarily premiums) fell short of total expenditures 

made to the public by $329.4 billion in 2019, which resulted in a net draw on the overall budget balance in that year. For 

OASDI, the difference between total expenditures made to the public ($1,044.5 billion) and revenues from the public ($968.5 

billion) was $76.0 billion in 2019, indicating that OASDI had a negative effect on the overall budget outcome in that year. 

Combined OASDI payroll and benefit tax revenues were increased by $59.6 billion in fiscal year 2019.

The trust fund perspective is captured in the bottom section of each of the three trust fund columns. For HI, total 

expenditures exceeded total revenues by $4.5 billion in 2019, as shown at the bottom of the first column. For SMI, total 

revenues exceeded total expenditures by $5.1 billion. The total revenue for SMI is $463.2 billion ($128.7 + $334.5), which 

includes $334.5 billion transferred from the General Fund. Transfers to the SMI Program from the General Fund, amounting 

to about 72.4 percent of program costs, are obligated under current law and, therefore, appropriately viewed as revenue from 

the trust fund perspective. For OASDI, total revenues of $1,051.0 billion ($968.5 + $82.5) exceeded total expenditures of 

$1,044.5 billion by $6.5 billion. Total revenues for OASDI included $82.5 billion in transfers from the General Fund, made 

up of interest credits of $82.5 billion.
 185 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)

Revenues and Expenditures for Medicare and Social Security Trust Funds and the Total

Federal Budget for the Fiscal Year ended September 30, 2019

Trust Funds

(In billions of dollars) HI SMI OASDI Total All Other Total1

Payroll taxes and other public 

revenues:

Payroll and benefit taxes ..................... 305.2 - 968.5 1,273.7 - 1,273.7

Premiums........................................... 5.8 114.1 - 119.9 - 119.9

Other taxes and fees........................... - 14.6 - 14.6 2,054.0 2,068.6

Total .................................................. 311.0 128.7 968.5 1,408.2 2,054.0 3,462.2

 Total expenditures to the public2 ........ 323.7 458.1 1,044.5 1,826.3 2,620.3 4,446.6

Net results for budget perspective3..... (12.7) (329.4) (76.0) (418.1) (566.3) (984.4)

Revenues from other government 

accounts:

Transfers ........................................... 1.3 331.8 - 333.1 (333.1)

Interest credits.................................... 6.9 2.7 82.5 92.1 (92.1)

Total ................................................. 8.2 334.5 82.5 425.2 (425.2)

Net results for trust fund 

perspective3 ........................................ (4.5) 5.1 6.5 7.1 N/A N/A

1 This column is the sum of the preceding two columns and shows data for the total federal budget. The figure $984.4 was the total federal 

deficit in fiscal year 2019.

2 The OASDI figure includes $4.9 billion transferred to the RRB for benefit payments and is therefore an expenditure to the public.

3 Net results are computed as revenues less expenditures.

 "N/A" indicates not applicable.

Cash Flow Projections

Background

Economic and Demographic Assumptions. The Boards of Trustees of the OASDI and Medicare Trust Funds provide in

their annual reports to Congress short-range (10-year) and long-range (75-year) actuarial estimates of each trust fund.

Because of the inherent uncertainty in estimates for 75 years into the future, the boards use three alternative sets of economic

and demographic assumptions to show a range of possibilities. The economic and demographic assumptions used for the

most recent set of intermediate projections for Social Security and Medicare are shown in the “Social Security” and

“Medicare” sections of Note 22—Social Insurance.
REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) 186

Worker-to-Beneficiary Ratio. The expenditure projections for both the OASDI and Medicare Programs reflect the aging 

of the large baby-boom generation, born in the years 1946 to 1964, and its ultimate passing. Under the intermediate 

assumptions, cost rates (the ratio of program cost to taxable payroll) are projected to rise rapidly between 2019 and 2038, 

primarily because the number of beneficiaries rises much more rapidly than the number of covered workers as the baby-boom 

generation retires. For the most part, current workers pay for current benefits. Due to the lower fertility rates of the babyboom generation as compared to those of their parents’ generation, and the expected low fertility rates of all future 

generations, there is a relatively smaller number of persons born after the baby boom who will then finance the retirement of 

the baby-boom generation. Chart 1 shows that in 2018, every OASDI beneficiary had 2.8 workers to pay for his or her 

benefit. In 2030, however, after the last baby boomer turns 65, there will be only about 2.4 workers per beneficiary. The 

projected ratio continues to decline until there are just 2.1 workers per beneficiary by 2093. A similar demographic pattern 

confronts the Medicare Program. The number of workers per HI beneficiary declines from 3.0 in 2018 to 2.4 in 2030, and 

continues to decline throughout the projection period to 2093, when there are just 2.2 workers per HI beneficiary.

Chart 1—Number of Covered Workers per OASDI Beneficiary

1970-2093
 187 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)

Social Security Projections

Income and Expenditures. Chart 2 shows historical values and actuarial estimates of combined OASDI annual noninterest income and expenditures for 1970-2093. The estimates are for the open-group population of all workers and 

beneficiaries projected to be alive in each year. The expenditure projections in Chart 2 and all subsequent charts assume all 

scheduled benefits are paid regardless of whether the income and assets are available to finance them.

Chart 2—OASDI Income (Excluding Interest) and Expenditures

1970-2093

(In billions of dollars)

Annual OASDI cost has exceeded non-interest income every year beginning with 2010. It is projected that cost will 

continue to exceed non-interest income throughout the 75-year valuation period. Projected OASDI cost increases more 

rapidly than projected non-interest income through 2040 primarily because the retirement of the baby-boom generation will 

increase the number of beneficiaries much faster than the number of covered workers increases, as subsequent lower-birthrate generations replace the baby-boom generation at working ages. From 2040 to 2051, the cost rate generally declines 

because the aging baby-boom generation is gradually replaced at retirement ages by subsequent low-birth-rate generations. 

Thereafter, increases in life expectancy cause OASDI cost to increase generally relative to non-interest income, but more 

slowly than between 2010 and 2040. Beginning in 2020, cost is projected to exceed total income, and combined OASI and DI 

Trust Fund reserves diminish until they become depleted in 2035. After trust fund reserve depletion, continuing income is 

sufficient to support expenditures at a level of 80 percent of program cost for the rest of 2035, declining to 75 percent for 

2093. To meet all OASDI cost on a timely basis, the combined OASI and DI Trust Funds will need to redeem Treasury 

securities. This redemption differs from the situation of prior years when the combined OASI and DI Trust Funds had been 

net lenders to the General Fund. Therefore, the combined OASI and DI Trust Funds will be net borrowers from the General 

Fund going forward, rather than net lenders. The government could finance increased redemptions by increasing its 

borrowing from the public, raising taxes (other than OASDI payroll taxes), and/or reducing expenditures (other than OASDI 

cost).
REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) 188

Income and Expenditures as a Percent of Taxable Payroll. Chart 3 shows annual non-interest income and expenditures 

expressed as percentages of taxable payroll, commonly referred to as the income rate and cost rate, respectively. Under the 

intermediate assumptions, demographic factors would by themselves cause the projected cost rate to rise rapidly for the next 

two decades before leveling off in about 2040. However, the recent recession temporarily depressed taxable earnings and 

increased the number of beneficiaries, which in turn sharply, but temporarily, increased the cost rate starting in 2009. From a 

peak in 2013, the cost rate declined through 2017 under the economic recovery and thereafter returns to a gradually rising 

trend. The projected income rate is stable at about 13 percent throughout the 75-year period.

Chart 3—OASDI Income (Excluding Interest) and Expenditures

as a Percent of Taxable Payroll

1970-2093
 189 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)

Income and Expenditures as a Percent of GDP. Chart 4 shows estimated annual non-interest income and expenditures, 

expressed as a percent of GDP, which is the total value of goods and services produced in the U.S. This alternative 

perspective shows the size of the OASDI Program in relation to the capacity of the national economy to sustain it. In calendar 

year 2018, OASDI cost was about $1 trillion, which was about 4.9 percent of GDP. Under current law, the cost of the 

program rises rapidly to 5.9 percent by 2039, then declines to 5.8 percent by 2052, and then generally increases to 6.0 percent 

by 2093. The rapid increase from 2019 to 2035 is projected to occur as baby boomers become eligible for OASDI benefits, 

lower birth rates result in fewer workers per beneficiary, and beneficiaries continue to live longer. In 2093, expenditures are 

projected to exceed income by approximately 1.43 percent of GDP. Social Security’s non-interest income is projected to rise 

from to 4.6 percent of GDP in 2019, to 4.8 percent by 2029. Thereafter, non-interest income as a percent of GDP declines 

gradually, to about 4.6 percent by 2093, because the Trustees expect the share of employee compensation provided as noncovered fringe benefits to increase gradually.

Chart 4—OASDI Income (Excluding Interest) and Expenditures

as a Percent of GDP

1970-2093
REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) 190

Sensitivity Analysis. Projections of the future financial status of the OASDI program depend on many demographic and 

economic assumptions, including mortality, fertility, average wages, inflation, net immigration, and interest rates on Treasury 

securities. The income will depend on how these factors affect the size and composition of the working population and the 

level and distribution of wages and earnings. Similarly, the cost will depend on how these factors affect the size and 

composition of the beneficiary population and the general level of benefits.

Because perfect long-range projections of these factors are impossible and actual experience is likely to differ from the 

estimated or assumed values of these factors, this section is included to illustrate the sensitivity of the long-range projections 

to changes in assumptions by analyzing six key assumptions: average annual reduction in death rates, total fertility rate, realwage differential, CPI change, net immigration, and real interest rate. The following table shows the present values of the 

estimated excess of OASDI cost over income for the 75-year period, using various assumptions, which are shown in 

parentheses. For this analysis, the intermediate assumptions are used as the reference point, and each selected assumption is 

varied individually. The variation used for each individual assumption reflects the levels used for that assumption in the lowcost and high-cost projections. For example, when analyzing sensitivity with respect to variation in real wages, income, and 

expenditure projections using the intermediate assumptions are compared to the outcome when projections are done by 

changing only the real wage assumption to either low-cost or high-cost alternatives.

The low-cost alternative is characterized by assumptions that improve the financial status of the program (relative to the 

intermediate assumption) such as slower improvement in mortality (beneficiaries die younger). In contrast, assumptions 

under the high-cost alternative worsen the financial outlook. All present values are calculated as of January 1, 2019 and are 

based on estimates of income and cost during the 75-year projection period 2019-2093.

The table demonstrates that if the annual reduction in death rates were changed from 0.77 percent, the intermediate 

assumption, to 0.41 percent, meaning that people die younger, the shortfall for the period of estimated OASDI income 

relative to cost would decrease to $14,147 billion from $16,764 billion; if the annual reduction were changed to 1.16 percent, 

meaning that people live longer, the shortfall would increase to $19,646 billion.

A higher fertility rate means more workers relative to beneficiaries over the projection period, thereby lowering the 

shortfall relative to the intermediate assumption. The table demonstrates that if the ultimate total fertility rate were changed 

from 2.0 children per woman, the intermediate assumption, to 1.8 children per woman, the shortfall for the period of 

estimated OASDI income relative to cost would increase to $18,539 billion from $16,764 billion; if the ultimate rate were 

changed to 2.2 children per woman, the shortfall would decrease to $14,959 billion.

The annual real-wage differential is the difference between the percentage increases in: (1) the average annual wage in 

OASDI covered employment; and (2) the average annual CPI. Higher real wage growth results in faster income growth 

relative to expenditure growth. As shown in the table, if the ultimate real-wage differential were changed from 1.21 

percentage points, the intermediate assumption, to 0.60 percentage points, the shortfall for the period of estimated OASDI 

income relative to cost would increase to $19,449 billion from $16,764 billion; if the ultimate real-wage differential were 

changed from 1.21 to 1.84 percentage points, the shortfall would decrease to $12,606 billion.

The table demonstrates that if the ultimate annual increase in the CPI were changed from 2.6 percent, the intermediate 

assumption, to 2.0 percent, the shortfall for the period of estimated OASDI income relative to cost would increase to $17,320 

billion from $16,764 billion; if the ultimate annual increase in the CPI were changed to 3.2 percent, the shortfall would 

decrease to $16,235 billion. The seemingly counter-intuitive result that higher CPI increases result in decreased shortfalls 

(and vice versa) is explained by the time lag between the effects of the CPI changes on taxable payroll and on benefit

payments. The effect on taxable payroll due to a greater increase in average wages is experienced immediately, while the 

effect on benefits is experienced with a lag of about one year. For this reason, larger increases in the CPI cause earnings and 

income to increase sooner and, therefore, by more each year, than benefits and cost.

Immigration generally occurs at relatively young adult ages, so there is no significant effect on beneficiaries (and, 

therefore, on benefits) in the early years of the projection period, but the effect on the numbers of workers (and, therefore, on 

payroll tax income) is immediate. Therefore, even in the early years, the present values, year by year, are generally higher (less 

negative in later years) for higher net annual immigration. However, the increased payroll taxes for a given year are eventually 

offset by benefits paid in that year to earlier immigrant cohorts. Therefore, the present values based on the three assumptions 

about net annual immigration become more similar at the end of the projection period. The table shows that if the intermediate 

immigration assumptions were changed so that the average level for the 75-year period decreased from 1,265,000 persons to 

949,000 persons, the present value of the shortfall for the period of estimated OASDI income relative to cost would increase to 

$17,558 billion from $16,764 billion. If, instead, the immigration assumptions were changed so that net annual immigration 

would be expected to average 1,601,000 persons, the present value of the shortfall would decrease to $15,934 billion.

Finally, the table shows the sensitivity of the shortfall to variations in the real interest rate or, in present value 

terminology, the sensitivity to alternative discount rates assuming a higher discount rate results in a lower present value. If 

the ultimate real interest rate were changed from 2.5 percent, the intermediate assumption, to 2.0 percent, the shortfall for the 

period of estimated OASDI income relative to cost, when measured in present-value terms would increase to $19,912 billion 
 191 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)

from $16,764 billion; if the ultimate annual real interest rate were changed to 3.0 percent, the present-value shortfall would 

decrease to $14,263 billion.

Present Values of Estimated OASDI Expenditures in Excess of Income

Under Various Assumptions, 2019-2093

(Dollar values in billions; values of assumptions shown in parentheses)

Financing Shortfall Range

Assumption Low Intermediate High

Average annual reduction in death rates .................................... 14,147 16,764 19,646

(0.41) (0.77) (1.16)

Total fertility rate....................................................................... 14,959 16,764 18,539

(2.2) (2.0) (1.8)

Real-wage differential............................................................... 12,606 16,764 19,449

(1.84) (1.21) (0.60)

CPI change.............................................................................. 16,235 16,764 17,320

(3.2) (2.6) (2.0)

Net immigration1 ....................................................................... 15,934 16,764 17,558

(1,601,000) (1,265,000) (949,000)

Real interest rate...................................................................... 14,263 16,764 19,912

(3.0) (2.5) (2.0)

1 Amounts represent the average annual net immigration over the 75-year projection period.

Source: 2019 OASDI Trustees' Report and SSA.

Medicare Projections

Medicare Legislation. The projections in this year’s report are based on current law, certain features of which may 

result in some challenges for the Medicare program. Physician payment update amounts are specified for all years in the 

future, and these amounts do not vary based on underlying economic conditions, nor are they expected to keep pace with the 

average rate of physician cost increases. These rate updates could be an issue in years when levels of inflation are high and 

would be problematic when the cumulative gap between the price updates and physician costs becomes large. Payment rate 

updates for most non-physician categories of Medicare providers are reduced by the growth in economy-wide private 

nonfarm business multifactor productivity although these health providers have historically achieved lower levels of 

productivity growth. If the health sector cannot transition to more efficient models of care delivery and if the provider 

reimbursement rates paid by commercial insurers continue to be based on the same negotiated process used to date, then the 

availability, particularly with respect to physician services, and quality of health care received by Medicare beneficiaries 

would, under current law, fall over time compared to that received by those with private health insurance.

Incorporated in these projections is the sequestration of non-salary Medicare expenditures as required by the following

laws:

• BCA of 2011 (P.L. 112-25, enacted on August 2, 2011), as amended by the American Taxpayer Relief Act of 2012

(P.L. 112-240, enacted on January 2, 2013);

• Continuing Appropriations Resolution, 2014 (P.L. 113-67, enacted on December 26, 2013);
REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) 192

• Sections 1 and 3 of P.L. 113-82, enacted on February 15, 2014;

• Protecting Access to Medicare Act of 2014 (P.L. 113-93, enacted on April 1, 2014);

• BBA of 2015 (P.L. 114-74, enacted on November 2, 2015); and

• BBA of 2018 (P.L. 115-123, enacted on February 9, 2018).

The sequestration reduces benefit payments by 2 percent from April 1, 2013 through March 31, 2027, and by 4 percent

from April 1, 2027 through September 30, 2027. Due to sequestration, non-salary administrative expenses are reduced by an

estimated 5 to 7 percent from March 1, 2013 through September 30, 2027.

The financial projections for the Medicare program reflect substantial, but very uncertain, cost savings deriving from 

specific provisions of the PPACA. These PPACA and MACRA provisions lower increases in Medicare payment rates to 

most categories of health care providers, but such adjustments would probably not be viable indefinitely without fundamental 

change in the current delivery system. It is conceivable that providers could improve their productivity, reduce wasteful 

expenditures, and take other steps to keep their cost growth within the bounds imposed by the Medicare price limitations. For

such efforts to be successful in the long range, however, providers would have to generate and sustain unprecedented levels 

of productivity gains—a very challenging and uncertain prospect. In view of the factors described above, it is important to 

note that Medicare’s actual future costs are highly uncertain for reasons apart from the inherent challenges in projecting

health care cost growth over time. 

Changes in Projection Methods. The projections in this year’s report, with one exception related to Part A, are based on 

current law; that is, it is assumed that laws on the books will be implemented and adhered to with respect to scheduled taxes, 

premium revenues, and payments to providers and health plans. The one exception is that the projections disregard payment 

reductions that would result from the projected depletion of the HI Trust Fund. Under current law, payments would be 

reduced to levels that could be covered by incoming tax and premium revenues when the HI Trust Fund was depleted.
 193 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)

Total Medicare. Chart 5 shows expenditures and current-law non-interest revenue sources for HI and SMI combined as 

a percent of GDP. Under the PPACA, beginning in 2013 the HI Trust Fund receives an additional 0.9 percent tax on earnings 

in excess of $250,000 for joint tax return filers and $200,000 for individual tax return filers. As a result of this provision, it is 

projected that payroll taxes will grow slightly faster than GDP. After 2018, HI revenue from income taxes on Social Security 

benefits will gradually increase as a share of GDP as the share of benefits subject to such taxes increases. Beginning in 2009, 

as HI payroll tax receipts declined due to the recession and general revenue transfers increased, the latter income source 

became the largest single source of income to the Medicare program as a whole. General revenue transfers to the Part B 

account increased significantly in 2016, as required by the BBA of 2015 to compensate for premium revenue that was not 

received in 2016 due to the hold harmless provision, which limited the Part B premium increase for a majority of 

beneficiaries. After decreasing from 2016 to 2017, general revenues will gradually increase as a share of Medicare financing 

from 2018 through 2032 and grow to about 49 percent, stabilizing thereafter. SMI premiums will also grow in proportion to 

general revenue transfers, placing a growing burden on beneficiaries. High-income beneficiaries have paid an income-related 

premium for Part B since 2007 and for Part D since 2011. SMI general revenues equal 1.6 percent of GDP in 2018 and will 

increase to an estimated 3.0 percent in 2093 under current law.

Chart 5—Total Medicare (HI and SMI) Expenditures and Non-interest Income

as a Percent of GDP

1970-2093
REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) 194

Medicare, Part A (HI)─ Income and Expenditures. Chart 6 shows historical and actuarial estimates of HI annual income 

(excluding interest) and expenditures for 1970-2093 in nominal dollars. The estimates are for the open-group population.

Chart 6—Medicare Part A Income (Excluding Interest) and Expenditures

1970-2093

(In billions of dollars)
 195 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)

Medicare, Part A Income and Expenditures as a Percent of Taxable Payroll. Chart 7 illustrates income (excluding 

interest) and expenditures as a percentage of taxable payroll over the next 75 years. The projected HI cost rates shown in the 

2019 report are higher than those from the 2018 report for all years largely due to higher spending and lower taxable payroll 

in all projected years. The standard HI payroll tax rate is scheduled to remain constant at 2.9 percent (for employees and 

employers, combined). In addition, starting in 2013, high-income workers pay an additional 0.9 percent of their earnings 

above $200,000 (for single workers) or $250,000 (for married couples filing joint income tax returns). Since these income 

thresholds are not indexed, over time an increasing proportion of workers and their earnings will become subject to the 

additional HI tax rate. (By the end of the long-range projection period, an estimated 79 percent of workers would be subject 

to this tax.) Thus, HI payroll tax revenues will increase steadily as a percentage of taxable payroll. Similarly, after 2019, HI 

income from taxation of Social Security benefits will also increase faster than taxable payroll because the income thresholds

determining taxable benefits are not indexed for price inflation. The cost rate has mostly been declining since 2010 largely 

due to (1) expenditure growth that was constrained in part by low utilization and low payment updates, and (2) a rebound of 

taxable payroll growth from 2007-2009 recession levels. In 2019 and beyond, the cost rate is projected to rise primarily due 

to retirements of those in the baby-boom generation and partly due to a projected return to modest health services cost 

growth. This cost rate increase is moderated by the accumulating effect of the productivity adjustments to provider price 

updates, which are estimated to reduce annual HI per capita cost growth by an average of 0.8 percent through 2028 and 1.0 

percent thereafter. The non-interest income is projected to decrease from 89 percent in 2026 to 78 percent in 2043, and then 

to increase to about 83 percent by the end of the projection period.

Chart 7—Medicare Part A Income (Excluding Interest) and Expenditures

as a Percent of Taxable Payroll

1970-2093
REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) 196

Medicare, Part A Income and Expenditures as a Percent of GDP. Chart 8 shows estimated annual non-interest income 

and expenditures, expressed as a percent of GDP, the total value of goods and services produced in the U.S. This alternative 

perspective shows the size of the HI Program in relation to the capacity of the national economy to sustain it. Under the 

intermediate and high-cost assumptions, the HI annual balance is negative for all years of the projection period. Under the 

intermediate assumptions, annual deficits generally increase through 2046, and then generally decline thereafter.

Chart 8—Medicare Part A Income (Excluding Interest) and Expenditures

as a Percent of GDP

1970-2093
 197 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)

Medicare, Parts B and D SMI. Chart 9 shows historical and actuarial estimates of Medicare Part B and Part D premiums 

(including state transfers) as well as expenditures for each of the next 75 years, in dollars. Beneficiary premiums and general 

revenue contributions for both Part B and Part D are established annually to cover the expected costs for the upcoming year. 

Should actual costs exceed those anticipated when the financing is determined, future financing rates can include adjustments 

to recover the shortfall. Likewise, should actual costs be less than those anticipated, the savings would result in lower future 

financing rates. The gap between program expenditures and revenues from premiums, drug fees, and state transfers grows 

throughout the projection period. This gap will need to be filled with general revenue transfers.

Chart 9—Medicare Part B and Part D Premium and State

Transfer Income and Expenditures

1970-2093

(In billions of dollars)
REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) 198

Medicare Part B and Part D Premium as well as State Transfer Income and Expenditures as a Percent of GDP. Chart 

10 shows expenditures for the SMI Program over the next 75 years expressed as a percent of GDP, providing a perspective 

on the size of the SMI Program in relation to the capacity of the national economy to sustain it. SMI costs are projected to 

continue to outpace growth in GDP but at a slower rate compared to the last 10 years. Total SMI expenditures amounted to 

2.1 percent of GDP in 2018 and are projected to grow to about 3.8 percent of GDP within 25 years and to 4.2 percent by the 

end of the projection period. The relatively high growth during the period 2019-2028 is due to the continuing retirement of 

the baby-boom generation and modest increases in cost trends. Growth rates are projected to decline during the 2029-2043 

period primarily as a result of a deceleration in beneficiary population growth. For the last 50 years of the projection period, 

cost growth moderates further due to the continued deceleration in beneficiary population growth and lower health care cost 

growth rate assumptions. To match the faster growth rates for SMI expenditures, beneficiary premiums, along with general 

revenue contributions, would increase more rapidly than GDP over time but at a slower rate compared to the last 10 years. 

Average per beneficiary costs for Part B and Part D benefits are projected to increase after 2018 by about 4.4 percent 

annually. The associated beneficiary premiums—and general revenue financing—would increase by approximately the same 

rate.

Chart 10—Medicare Part B and Part D Premium and State Transfer

Income and Expenditures as a Percent of GDP

1970-2093

Medicare Sensitivity Analysis. This section illustrates the sensitivity of long-range cost and income estimates for the 

Medicare Program to changes in selected individual assumptions. As with the OASDI analysis, the intermediate assumption 

is used as a reference point, and each selected assumption is varied individually. The variation used for each individual 

assumption reflects the levels used for that assumption in the low-cost and high-cost projections (see description of 

sensitivity analysis for OASDI). All present values are calculated as of January 1, 2019 and are based on estimates of income 

and expenditures during the 75-year projection period.

The following table shows the NPV of cash flow during the 75-year projection period under three alternative 

assumptions for the annual growth rate in the aggregate cost of providing covered health care services to beneficiaries. These 

assumptions are that the ultimate annual growth rate in such costs, relative to taxable payroll, will be 1 percent slower than 
 199 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)

the intermediate assumptions, the same as the intermediate assumptions, and 1 percent faster than the intermediate 

assumptions. The assumptions are shown in parentheses. The table demonstrates that if the ultimate growth rate assumption 

is 1 percentage point lower than the intermediate assumption, the deficit decreases by $8,606 billion. On the other hand, if the 

ultimate growth rate assumption is 1 percentage point higher than the intermediate assumption, the deficit increases 

substantially by $13,837 billion. This assumption has a dramatic impact on projected HI cash flow. The present value of the 

net cash flow under the ultimate growth rate assumption of 1 percentage point lower than the intermediate assumption 

actually becomes a surplus due to the improved financial outlook for the HI trust fund as a result of the PPACA. Several 

factors, such as the utilization of services by beneficiaries or the relative complexity of services provided, can affect costs 

without affecting tax income. As the table indicates, the financial status of the HI Trust Fund is extremely sensitive to the 

relative growth rates for health care service costs.

The fertility rate assumption has a substantial impact on projected HI cash flows. As demonstrated by the table, for an 

increase of 0.2 in the assumed ultimate fertility rate, the projected present value of the HI deficit decreases by approximately 

$633 billion, and for a decrease of 0.2 in the assumed ultimate fertility rate, the projected present value of the HI deficit

increases by approximately $621 billion. Under the higher fertility rate assumptions, there will be additional workers in the 

labor force after 20 years, and many will become subject to the additional HI tax, thereby lowering the deficit proportionately 

more on a present-value-dollar basis. On the other hand, under the lower fertility rate assumptions, there will be fewer 

workers in the workforce with a smaller number subject to the additional tax, in turn raising the HI deficit. It is important to 

point out that if a longer projection period were used, the impact of a fertility rate change would be more pronounced.

Relative to the intermediate assumption, for an increase in the ultimate real-wage differential assumption of 0.6 

percentage points, the deficit—expressed in present-value dollars—decreases by approximately $2,586 billion. Conversely, 

for a decrease in the ultimate real-wage differential assumption of 0.6 percentage points, the deficit increases by about $1,403 

billion. When expressed in present-value dollars, faster real-wage growth results in smaller HI cash flow deficits. A higher 

real-wage differential immediately increases both HI expenditures for health care and wages for all workers. There is a full 

effect on wages and payroll taxes, but the effect on benefits is only partial, since not all health care costs are wage-related. In 

practice, faster real-wage growth always improves the financial status of the HI trust fund, regardless of whether there is a 

small or large imbalance between income and expenditures.

As the table indicates, the change in CPI inflation has an impact when the cash flow is expressed as present values. If 

the ultimate CPI-increase assumption is changed from 2.6 percent, the intermediate assumption, to 3.2 percent, the deficit 

decreases by $1,153 billion. On the other hand, if the ultimate CPI-increase is changed from 2.6 percent, the intermediate 

assumption, to 2.0 percent, the deficit increases by $1,462 billion. The projected present values of HI cash flow are relatively 

insensitive to the assumed level of general price inflation because price inflation has about the same proportionate effect on 

income as it does on costs. In present value terms, a smaller deficit results under high-inflation conditions because the present 

values of HI expenditures are not significantly different under the various CPI scenarios, but under high-inflation conditions 

the present value of HI income increases as more people become subject to the additional 0.9 percent HI tax rate required by 

the PPACA. Since the thresholds are not indexed, additional workers become subject to the additional tax more quickly under 

conditions of faster inflation, and vice versa.

Higher net immigration results in smaller HI cash flow deficits. Since immigration tends to occur most often among 

people at working ages, who work and pay taxes into the HI system, a change in the net immigration assumption affects 

revenues from payroll taxes almost immediately. However, the impact on expenditures occurs later as those individuals age 

and become beneficiaries.

The table also shows that the present value of net HI expenditures is approximately 15 percent lower if the real interest 

rate is 3.0 percent rather than 2.5 percent, and approximately 19 percent higher if the real interest rate is 2.0 percent rather 

than 2.5 percent.
REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) 200

Present Values of Estimated Medicare Part A Expenditures in Excess of Income

Under Various Assumptions, 2019-2093

(Dollar values in billions; values of assumptions shown in parentheses)

Financing Shortfall Range

Assumption1 Low Intermediate High

Average annual growth in health costs2 ..................................... (3,122) 5,484 19,321

(2.8) (3.8) (4.8)

Total fertility rate3 ..................................................................... 4,851 5,484 6,105

(2.2) (2.0) (1.8)

Real wage differential .............................................................. 2,898 5,484 6,887

(1.8) (1.2) (0.6)

CPI change ............................................................................. 4,331 5,484 6,946

(3.2) (2.6) (2.0)

Net immigration4....................................................................... 5,299 5,484 5,705

(1,601,000) (1,265,000) (949,000)

Real interest rate ..................................................................... 4,664 5,484 6,534

(3.0) (2.5) (2.0)

1 The sensitivity of the projected HI net cash flow to variations in future mortality rates also is of interest. At this time, however,

relatively little is known about the relationship between improvements in life expectancy and the associated changes in health 

status and per beneficiary health expenditures. As a result, it is not possible at present to prepare meaningful estimates of the 

Part A, mortality sensitivity.

2 Annual growth rate is the aggregate cost of providing covered health care services to beneficiaries. The low-cost and high-cost 

alternatives assume that costs increase 1 percent slower or faster, respectively, than the intermediate assumption, relative to 

growth in taxable payroll.

3 The total fertility rate for any year is the average number of children who would be born to a woman in her lifetime if she were 

to experience the birth rates by age observed in, or assumed for, the selected year and if she were to survive the entire 

childbearing period.

4 Amount represents the average annual net immigration over the 75-year projection period.

Source: CMS

The following table shows the effects of various assumptions about the growth in health care costs on the present value

of estimated SMI expenditures in excess of income. As with HI, net SMI expenditures are very sensitive to changes in the

health care cost growth assumption. For the low-cost alternative, the slower assumed growth in health costs reduces the

governmentwide resources needed for Part B from $28,798 billion to $20,665 billion and in Part D from $7,988 billion to

$5,630 billion, about a 28 percent and 30 percent difference for Part B and Part D, respectively. The high-cost assumption

increases governmentwide resources needed to $41,590 billion for Part B and to $11,757 billion for Part D, about a 44

percent and a 47 percent difference for Part B and Part D, respectively.
 201 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)

Present Values of Estimated Medicare Parts B and D Future Expenditures 

Less Premium Income and State Transfers Under Three Health Care Cost

Growth Assumptions, 2019-2093

(In billions of dollars)

Governmentwide Resources Needed

Low Intermediate High

Medicare Program1 (3.3) (4.3) (5.3)

Part B........................................................................................... 20,665 28,798 41,590

Part D........................................................................................... 5,630 7,988 11,757

1 Annual growth rate is the aggregate cost of providing covered health care services to beneficiaries. The low and high scenarios

assume that costs increase 1 percent slower or faster, respectively, than the intermediate assumption.

Source: CMS

Sustainability of Social Security and Medicare

75-Year Horizon

According to the 2019 Medicare Trustees’ Report, the HI Trust Fund is projected to remain solvent until 2026 and,

according to the 2019 Social Security Trustees’ Report, the OASI and DI Trust Funds are projected to have sufficient asset

reserves to pay full benefits on time until 2034 and 2052, respectively. In each case, some general revenues must be used to

satisfy the authorization of full benefit payments until the year of trust fund depletion. This occurs when the trust fund

interest income and balances accumulated during prior years are needed to pay benefits, which leads to a transfer from

general revenues to the trust funds. Moreover, under current law, General Fund transfers to the SMI Trust Fund will occur

into the indefinite future and will continue to grow with the growth in health care expenditures.

The potential magnitude of future financial obligations under these three social insurance programs is, therefore,

important from a budget perspective as well as for understanding generally the growing resource demands of the programs on

the economy. A common way to present future cash flows is in terms of their present value. This approach recognizes that a

dollar paid or collected next year is worth less than a dollar today because a dollar today could be saved and earn a year’s

worth of interest. From the 75-year budget perspective, the present value of the additional resources that would be necessary

to meet projected expenditures, for the three programs combined, is $59.0 trillion. To put this figure in perspective, it would

represent 4.2 percent of the present value of projected GDP over the same period ($1,389 trillion). These resource needs

would be in addition to the payroll taxes, benefit taxes, and premium payments. Asset redemptions and SMI general revenue

transfers represent formal budget commitments, but no provision exists for covering the HI and OASDI Trust Fund deficits

once assets are depleted.

The table below shows the magnitudes of the primary expenditures and sources of financing for the three trust funds

computed on an open-group basis for the next 75 years and expressed in present values. The data are consistent with the

SOSI included in the principal financial statements. For HI, revenues from the public are projected to fall short of total

expenditures by $5,484 billion in which is the additional amount needed in order to pay scheduled benefits over the next 75

years.13 From the trust fund perspective, the amount needed is $5,284 billion after subtracting the value of the existing trust

fund balances. For SMI, revenues from the public for Part B and D combined are estimated to be $36,786 billion less than

total expenditures for the two accounts, an amount that, from a budget perspective, will be needed to keep the SMI program

solvent for the next 75 years. From the trust fund perspective, however, total revenues and total expenditures for the SMI

Program are roughly equal due to the annual adjustment of revenue from other government accounts to meet program costs. 14

For OASDI, projected revenues from the public fall short of total expenditures by $16,764 billion, and by $13,869 billion

from the trust fund perspective.

13 Interest income is not a factor in this table as dollar amounts are in present value terms. 14 The SMI Trust Fund has $88 billion of existing assets.
REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) 202

From the governmentwide perspective, the present value of the total resources needed for the Social Security and

Medicare Programs over and above current-law funding sources (payroll taxes, benefit taxes, and premium payments from

the public) is $59,034 billion. From the trust fund perspective, which counts the trust funds ($3,199 billion) and the general

revenue transfers to the SMI Program ($36,786 billion) as dedicated funding sources, additional resources needed to fund the

programs are $19,049 billion.

Present Values of Costs Less Revenues of 75-Year Open Group Obligations

HI, SMI, and OASDI

SMI

(In billions of dollars, as of January 1, 2019) HI Part B Part D OASDI Total

Revenues from the public:

Taxes ..................................................................... 24,359 - - 70,465 94,824

Premiums and state transfers................................... - 10,854 3,244 - 14,098

Total....................................................................... 24,359 10,854 3,244 70,465 108,922

Total costs to the public ........................................... 29,843 39,652 11,232 87,229 167,956

Net results - budget perspective1 .............................. 5,484 28,798 7,988 16,764 59,034

Revenues from other government accounts ............. - 28,798 7,988 - 36,786

Trust fund balances as of 1/1/2019........................... 200 96 8 2,895 3,199

Net results - trust fund perspective1 .......................... 5,284 (96) (8) 13,869 19,049

1Net results are computed as costs less revenues and trust fund balances. Negative values are indicative of surpluses.

Source: 2019 OASDI and Medicare Trustees' Reports

Infinite Horizon

The 75-year horizon represented in the above table is consistent with the primary focus of the Social Security and

Medicare Trustees’ Reports. For the OASDI Program, for example, an additional $16.8 trillion in present value will be

needed above currently scheduled taxes to pay for scheduled benefits ($13.9 trillion from the trust fund perspective). Experts

have noted that limiting the projections to 75 years understates the magnitude of the long-range unfunded obligations because

summary measures (such as the actuarial balance and open-group unfunded obligations) reflect the full amount of taxes paid

by the next two or three generations of workers, but not the full amount of their benefits. One approach to addressing the

limitations of 75-year summary measures is to extend the projection horizon indefinitely, so that the overall results reflect the

projected costs and revenues after the first 75 years. Such extended projections can also help indicate whether the financial

imbalance would be improving or continuing to worsen beyond the normal 75-year period. The open-group infinite horizon

net obligation is the present value of all expected future program outlays less the present value of all expected future program

tax and premium revenues. Such a measure is provided in the following table for the three trust funds represented above.

From the budget or governmentwide perspective, the values in line 1 plus the values in line 4 are summed in the last line

of the table and represent the value of resources needed to finance each of the programs into the infinite future. The total

resources needed for all the programs sums to $126.4 trillion in present value terms. This need can be satisfied only through

increased borrowing, higher taxes, reduced program spending, or some combination.

The second line shows the value of the trust fund at the beginning of 2019. For the HI and OASDI Programs this

represents the extent the programs are funded from the trust fund perspective. From that perspective, when the trust fund is

subtracted, an additional $43.1 trillion is needed to sustain the OASDI program into the infinite future, while the HI program

reflects a projected surplus of $3.9 trillion over the infinite horizon. As described above, from the trust fund perspective, the

SMI Program is fully funded; from a governmentwide basis, the substantial gap that exists between premiums, state transfer

revenue, and program expenditures in the SMI Program ($61.1 trillion and $22.9 trillion for Parts B and D, respectively)

represents future general revenue obligations of the federal budget.
 203 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)

In comparison to the analogous 75-year number in the table above, extending the calculations beyond 2093, captures the

full lifetime benefits, plus taxes and premiums of all current and future participants. The shorter horizon understates the total

financial needs by capturing relatively more of the revenues from current and future workers and not capturing all of the

benefits that are scheduled to be paid to them.

Present Values of Costs Less Tax, Premium and State Transfer Revenue

through the Infinite Horizon, HI, SMI, OASDI

SMI

(in trillions of dollars as of January 1, 2019) HI Part B Part D OASDI Total

Present value of future costs less future taxes, 

premiums, and state transfers for current participants

participants ................................................................ 13.0 23.8 5.8 38.1 80.7

Less current trust fund balance ................................... 0.2 0.1 - 2.9 3.2

Equals net obligations for past and current participants

participants ................................................................ 12.8 23.7 5.8 35.2 77.5

Plus net obligations for future participants .................... (16.7) 37.4 17.1 7.9 45.7

Equals net obligations through the infinite future for

all participants............................................................ (3.9) 61.1 22.9 43.1 123.2

Present values of future costs less the present

values of future income over the infinite horizon ........... (3.7) 61.2 22.9 46.0 126.4

Source: 2019 OASDI and Medicare Trustees' Reports
REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) 204

Railroad Retirement, Black Lung, and Unemployment Insurance

Railroad Retirement

The RRB was created in the 1930s to establish a retirement benefit program for the nation’s railroad workers. As the

Social Security Program legislated in 1935 would not give railroad workers credit for service performed prior to 1937,

legislation was enacted in 1934, 1935, and 1937 (collectively the Railroad Retirement Acts of the 1930s) to establish a

railroad retirement system separate from the Social Security Program.

As was discussed previously in this report, railroad retirement pays full retirement annuities at age 60 to railroad

workers with 30 years of service. The program pays disability annuities based on total or occupational disability. It also pays

annuities to spouses, divorced spouses, widow(er)s, remarried widow(er)s, surviving divorced spouses, children, and parents

of deceased railroad workers. Medicare covers qualified railroad retirement beneficiaries in the same way as it does Social

Security beneficiaries.

Payroll taxes paid by railroad employers and their employees provide a primary source of income for the Railroad

Retirement and Survivors’ Benefit Program. Other sources of program income include: the RRB-SSA-CMS Financial

Interchanges with the Social Security and Medicare Trust Funds, earnings on investments, federal income taxes on railroad

retirement benefits, and appropriations.

For further detail related to RRP financing and actuarial assumptions, see Note 22—Social Insurance.

Cash Flow Projections

Income and Expenditures. Railroad retirement cash flow projections are based on the intermediate set of assumptions

used in the RRB’s actuarial valuation of the program. The estimates are for the open-group population, which includes all

persons projected to participate in the RRP as railroad workers or beneficiaries during the period. Thus, the estimates include

payments from, and on behalf of, those who will be employed by the railroads during the period as well as those already

employed at the beginning of the period. They also include expenditures made to, and on behalf of, such workers during that

period. Estimated railroad retirement expenditures are expected to exceed estimated income (excluding interest and financial

interchange income), in dollars, for the entire projection period (2019-2093).

Sensitivity Analysis. The projections of the future financial status of the RRP depend on many economic and

demographic assumptions. For further information on the sensitivity of the long-range projections of the RRP and how the

projections are impacted by changes in certain key assumptions, refer to RRB’s financial statements.

Sustainability of Railroad Retirement

Consistent with SOSI the primary expenditures and sources of financing for the RRP are computed on an open-group

basis for the next 75 years and are expressed in present values as of October 1, 2018. From a governmentwide perspective,

revenues are expected to fall short of expenditures by approximately $117.8 billion, which represents the present value of

resources needed to sustain the RRP. From a trust fund perspective, when the trust fund balance ($28.3 billion) and the

financial interchange and transfers ($90.8 billion) are included, the combined balance of the NRRIT, the Railroad Retirement

Account, and the SSEB Account show a slight surplus ($1.3 billion). For further detail related to the sustainability of the

RRP, refer to RRB’s financial statements.
 205 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)

Black Lung

The Federal Coal Mine Health and Safety Act of 1969 created the BLDBP to provide compensation, medical, and

survivor benefits for eligible coal miners who are totally disabled due to pneumoconiosis (black lung disease) arising out of

their coal mine employment and the BLDTF provides benefit payments when no RMO can be assigned the liability.

As was stated in the note to Social Insurance earlier in this report, black lung disability benefit payments are funded by

excise taxes from coal mine operators based on the domestic sale of coal, as are the program’s administrative costs. These

taxes are collected by the IRS and transferred to the BLDTF.

P.L. 110-343, Division B-Energy Improvement and Extension Act of 2008, enacted on October 3, 2008, among other

things, restructured the BLDTF debt by refinancing the outstanding high interest rate repayable advances with low interest

rate discounted debt instruments similar in form to zero-coupon bonds, plus a one-time appropriation. This Act also allowed

that any subsequent debt issued by the BLDTF may be used to make benefit payments, other authorized expenditures, or to

repay debt and interest from the initial refinancing. For more information on BLDBP financing and actuarial assumptions,

see Note 22—Social Insurance.

Cash Flow Projections

Projected Cash Inflows and Outflows, in Constant Dollars, for the Open Group. The significant assumptions used in the

projections, in constant dollars, are the coal excise tax revenue estimates, tax rate structure, number of beneficiaries, life

expectancy, federal civilian pay raises, medical cost inflation, interest rate on new debt issued by the BLDTF, and the CPI-U

for goods and services. Effective for fiscal year 2017 reporting, DOL revised its projection period from a fixed terminus of

fiscal year 2040 to a rolling 25-year period beginning on the valuation date. In order to be consistent with Executive Branch

policy on regulations pursuant to the CPP, DOL’s estimates of future excise tax income were based on EIA projections of

future coal production that do not reflect CPP regulation; effective September 6, 2019, the CPP regulation was repealed and

the EPA issued the Affordable Clean Energy regulation. The EIA projections reflect the continuing trend of lower coal

production which would lead to lower future excise tax income. The projections, in constant dollars for the open group, made

over the 25-year period ending September 30, 2044, indicate that cash outflows for benefit payments and administrative

expenses will exceed cash inflows from excise taxes for all years in the projection period.

Sensitivity Analysis. For the projected cash inflows and outflows with sensitivity analysis, in constant dollars for the

open group, the significant assumption for medical cost inflation was increased by 1 percent. For the sensitivity analysis, the

other significant assumptions (coal excise tax revenue estimates, tax rate structure, number of beneficiaries, life expectancy,

federal civilian pay raises, interest rate on new debt issued by the BLDTF, and CPI-U for goods and services) were left

unchanged. Cash projections depend on the assumptions used and actual experience may differ materially from the

projections. These projections with sensitivity analysis, in constant dollars for the open group, made over the 25-year period

ending September 30, 2044, indicate cash outflows for benefit payments and administrative expenses will exceed cash

inflows from excise taxes for all years in the projection period. For further information on the sensitivity of the projections of

the BLDBP and how the projections are impacted by changes in assumptions, refer to DOL’s financial statements.

Sustainability of Black Lung

On September 30, 2019, total liabilities of the BLDTF exceeded assets by $5.85 billion. This net position deficit

represents the accumulated shortfall of excise taxes necessary to meet benefit payments, administrative costs, and interest

expense incurred prior to and subsequent to the debt refinancing pursuant to P.L. 110-343. Prior to the enactment of P.L. 110-

343, this shortfall was funded by repayable advances to the BLDTF, which were repayable with interest. Pursuant to P.L.

110-343, any shortfall will be financed with debt instruments similar in form to zero-coupon bonds, with a maturity date of

one year and bear interest at the Treasury 1-year rate. For further detailed information on the sustainability of the BLDBP,

refer to DOL’s financial statements.

Unemployment Insurance

The UI Program was created in 1935 to provide income assistance to unemployed workers who lose their jobs generally

through no fault of their own, and are unemployed due to a lack of suitable work. The program protects workers during

temporary periods of unemployment through the provision of unemployment compensation benefits. The program is

administered through a unique system of federal and state partnerships established in federal law but executed through

conforming state laws by state officials. The federal government provides broad policy guidance and program direction

through the oversight of DOL, while program details are established through individual state UI statutes, administered

through state UI entities.

The UI Program is financed through the collection of federal and state unemployment taxes levied on subject employers

and deposited in the UTF and federal appropriations. The fund was established to account for the receipt, investment, and
REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) 206

disbursement of unemployment taxes. Federal unemployment taxes are used to pay for the administrative costs of the UI

Program, including grants to each state to cover the costs of state UI operations and the federal share of extended UI benefits.

Federal unemployment taxes are also used to fund an account within the UTF to make advances to state UI accounts when a

state’s UI account balance has been exhausted and the state is unable to make benefit payments.

The UI Program provides regular and extended benefit payments to eligible unemployed workers. Regular UI program

benefits are established under state law and are payable for a period not to exceed a maximum duration. In 1970 federal law

began to require states to extend this maximum period of benefit duration by 50 percent during periods of high

unemployment. In certain circumstances, the duration of extended benefits may exceed 50% of regular duration. These

extended benefit payments are paid equally from federal and state accounts.

Cash Flow Projections

Projected Cash Inflows and Outflows, in Constant Dollars, Under Expected Economic Conditions. The significant

assumptions used in the cash flow projections of the UTF include total unemployment rates, civilian labor force levels,

percent of unemployed receiving benefits, total wages, distribution of benefit payments by state, state tax rate structures, state

taxable wage bases, interest rates on UTF investments, and the CPI-U for goods and services. Cash projections depend on the

assumptions used and actual experience may differ materially from the projections. Under expected economic conditions,

total cash inflows are projected to exceed total cash outflows through the end of the ten-year projection period ending

September 30, 2029.

Sensitivity Analyses. The effect on the accumulated UTF assets of projected total cash inflows and cash outflows of the

UTF, in constant dollars, over the ten-year period ending September 30, 2029, are demonstrated in two sensitivity analyses.

Each sensitivity analysis uses an open group, which includes current and future participants in the UI Program. Sensitivity

Analysis I assumes higher rates of unemployment and Sensitivity Analysis II assumes even higher rates of unemployment

compared to expected economic conditions. In Sensitivity Analysis I, which uses a higher unemployment rate of 5.35 percent

beginning in fiscal year 2020, net cash inflows are negative in fiscal years 2020 through 2024, but become positive in fiscal

year 2025, and continue to be positive through 2029. In Sensitivity Analysis II, net cash outflows, including interest earnings

and expenses, are projected in fiscal years 2020 through 2025, but inflows exceed outflows in fiscal years 2026 through 2029.

Net cash inflows are reestablished in fiscal year 2026 and peak in fiscal year 2028, with a drop in the unemployment rate to

below 8.0 percent in fiscal year 2025, and then steadily downward for fiscal years 2026 through 2029. The example of

expected economic conditions and two sensitivity analyses, in constant dollars, demonstrate the counter cyclical nature of the

UI Program, which experiences net cash inflows during periods of low unemployment that are depleted by net cash outflows

during periods of increased unemployment. For further detail on the sensitivity of the projections of the UI Program, refer to

DOL’s financial statements.

Sustainability of Unemployment Insurance

The ability of the UI Program to meet a participant’s future benefit payment needs depends on the availability of

accumulated taxes and earnings within the UTF. The effect of projected benefit payments on the accumulated net assets of

the UTF is measured, under an open group scenario, which includes current and future participants in the UI Program. As of

September 30, 2019, total assets within the UTF exceeded total liabilities by $87.7 billion. At the present time there is a

surplus; any surplus of tax revenues and earnings on these revenues over benefit payment expenses is available to finance

benefit payments in future periods when tax revenues may be insufficient. For more information on the sustainability of the

UI Program, refer to DOL’s financial statements.

Unemployment Trust Fund Solvency

Each state’s accumulated UTF net assets or reserve balance should provide a defined level of benefit payments over a

defined period. To be minimally solvent, a state’s reserve balance should provide for one year’s projected benefit payment

needs based on the highest levels of benefit payments experienced by the state over the last 20 years. A ratio of 1.0 or greater

indicates that the state UTF account balance is minimally solvent. States below this level are vulnerable to exhausting their

funds in a recession. States exhausting their reserve balance must borrow funds from the FUA to make benefit payments. In

fiscal year 2019, there were no FUA borrowings.

The results of DOL’s state by state analysis indicate 21 state funds plus the fund of the Virgin Islands were below the

minimal solvency ratio of 1.0 at September 30, 2019.
 207 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)

Deferred Maintenance and Repairs

DM&R result from maintenance not being performed on a timely basis and is the estimated cost to bring governmentowned PP&E to an acceptable condition. DM&R exclude the cost of expanding the capacity of assets or upgrading them to 

serve needs different from those originally intended. The consequences of not performing regular maintenance and repairs 

could include increased safety hazards, poor service to the public, higher costs in the future, and inefficient operations. 

Estimated DM&R costs are not accrued in the Statements of Net Cost or recognized as a liability on the Balance Sheets.

The amounts disclosed for DM&R are allowed to be measured using one of the following three methods:

• Condition assessment surveys which are periodic inspections of government-owned property to determine the 

current condition and estimated cost to bring the property to an acceptable condition.

• Life-cycle cost forecast that is an acquisition or procurement technique that considers operation, maintenance, and 

other costs in addition to the acquisition cost of assets.

• Any other method of choice that is similar to the condition assessment survey or life-cycle costing methods.

The table below of DM&R is presented as a single estimate in accordance with SFFAS No. 42, Deferred Maintenance 

and Repairs: Amending Statements of Federal Financial Accounting Standards 6, 14, 29, and 32. These amounts were all 

measured using the condition assessment survey method. Please refer to the individual financial statements of DOD, DOI, 

VA, DOE, USDA, NASA, HHS, GSA, DHS, and DOT for detailed significant information on DM&R. 

Deferred Maintenance and Repairs as of September 30, 2019, and 2018

(In billions of dollars) 2019 2018

Asset category:

General property, plant, and equipment ...................................................................... 161.4 147.3

Heritage assets ......................................................................................................... 20.9 18.9

Stewardship land....................................................................................................... 0.5 0.4

Total deferred maintenance and repairs ................................................................... 182.8 166.6

Other Claims for Refunds

Other claims for refunds are claims filed for which specific administrative actions such as review by the courts are

required before payments can be made and unasserted claims for refund by taxpayers or importers that may or may not

become payable depending upon the resolution of subsequent events. As stated in SFFAS No. 7, Accounting for Revenue and

Other Financing Sources and Concepts for Reconciling Budgetary and Financial Accounting, unasserted claims for refund

such as unfiled claims for refunds or drawbacks for which no claim has been filed, are not known, therefore estimates are not

able to be determined, and are not recognized on the balance sheet. Claims filed for refunds where required administrative

actions are not yet complete as of the close of the reporting period may not be known however, the refunds, may be

reasonably estimable.

Management has estimated amounts that may be paid out as other claims for tax refunds. This estimate represents an

amount (principal and interest) that may be paid for claims pending judicial review by the federal courts or, internally, by

appeals. The total estimated payout (including principal and interest) for claims pending judicial review by the federal courts

is $7.8 billion and $11.1 billion for fiscal years 2019 and 2018, respectively. For those under appeal, the estimated payout is

$2.3 billion and $1.8 billion for fiscal years 2019 and 2018, respectively. To the extent judgments against the government for

these claims prompt other similarly situated taxpayers to file similar refund claims, these amounts could become significantly

greater.
REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) 208

Tax Assessments

The government is authorized and required to make inquiries, determinations, and assessments of all taxes that have not

been duly paid. Unpaid assessments result from taxpayers filing returns without sufficient payment, as well as enforcement

programs such as examination, under-reporter, substitute for return, and combined annual wage reporting. Under federal

accounting standards, unpaid assessments are categorized as taxes receivable if taxpayers agree or a court has determined the

assessments are owed. If neither of these conditions are met, the unpaid assessments are categorized as compliance

assessments. Assessments with little or no future collection potential are called write-offs. Although compliance assessments

and write-offs are not considered receivables under federal accounting standards, they represent legally enforceable claims of

the government. There is, however, a significant difference in the collection potential between compliance assessments and

receivables.

Compliance assessments and pre-assessment work in process are $77.8 billion and $67.5 billion for fiscal years 2019

and 2018, respectively. The amount of allowance for uncollectible amounts pertaining to compliance assessments cannot be

reasonably estimated, and thus the net realizable value of the pre-assessment work-in-process cannot be determined. The

amount of assessments that entities have statutory authority to collect at the end of the period but that have been written off

and excluded from accounts receivable are $106.0 billion and $115.0 billion for fiscal years 2019 and 2018, respectively.
 209 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)

Federal Oil and Gas Resources

The DOI is responsible for managing the nation’s oil and natural gas resources and the mineral revenues on federal

lands, both onshore and on the Outer Continental Shelf. This management process can be broken down into six essential

analysis components: pre-leasing, post-leasing and pre-production, production and post-production, revenue collection, fund

disbursement, and compliance.

Federal Oil and Gas Resources as of September 30, 2019, and 2018

Offshore Onshore Total

(In billions of dollars) 2019 2018 2019 2018 2019 2018

Oil and lease condensate.................. 30.3 20.9 18.7 11.6 49.0 32.5

Natural gas, wet after lease 

separation........................................ 2.2 1.9 17.7 11.3 19.9 13.2

Total ............................................. 32.5 22.8 36.4 22.9 68.9 45.7

The above table presents the estimated present value of future federal royalty receipts on estimated proved reserves15 as

of September 30, 2019 and 2018. The federal government’s estimated petroleum royalties have as their basis the DOE’s EIA

estimates of proved reserves. The EIA provides such estimates directly for federal offshore areas and they are adjusted to

extract the federal subset of onshore proved reserves. The federal proved reserves were then further adjusted to correspond

with the effective date of the actual production for calendar year 2017, the most recently published EIA proved reserves

report and then are projected, separately for oil and natural gas, over time to simulate a schedule of when the reserves would

be produced. Future royalties are then calculated from these production streams by applying future price estimates by the

OMB, production growth estimates from the EIA’s 2019 Annual Energy Outlook, and effective royalty rates, adjusted for

transportation allowances and other allowable deductions. The valuation method used for gas captures royalties from three

products–dry gas, wet gas, and natural gas liquids–which collectively are reported as natural gas, wet after lease separation.

The present value of these royalties are then determined by discounting the revenue stream back to the effective date at a

public discount rate assumed to be equal to the OMB’s estimates of future 30-year Treasury bill rates. The 30-year rate was

chosen because this maturity life most closely approximates the productive lives of the proved reserves estimates.

15 Per the EIA, lease condensate is a mixture consisting primarily of pentanes and heavier hydrocarbons which is recovered as a liquid from natural gas in

lease separation facilities. This category excludes natural gas plant liquids, such as butane and propane, which are recovered at downstream natural gas

processing plants or facilities. Also, per the EIA, natural gas, wet after lease separation, is the volume of natural gas remaining after removal of lease

condensate in lease and/or field separation facilities, if any, and after exclusion of nonhydrocarbon gases where they occur in sufficient quantity to render the

gas unmarketable. Natural gas liquids may be recovered from volume of natural gas, wet after lease separation, and at natural gas processing plants

(https://www.eia.gov/dnav/ng/TblDefs/ng_prod_deep_tbldef2.asp).
REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) 210

Estimated Federal Oil and Gas Petroleum Royalties (Proved Reserves)

As of September 30, 2019, and 2018

Average Purchase Average Royalty

Quantity (in millions) Price ($) Rate (%)

Petroleum Category 2019 2018 2019 2018 2019 2018

Oil and lease condensate (Bbl):

Offshore ......................................... 4,576.0 3,491.3 62.62 65.41 13.18 12.96

Onshore ......................................... 3,191.7 2,361.0 52.50 60.16 12.53 12.19

Total ............................................. 7,767.7 5,852.3

Natural gas, wet after lease 

separation (Mcf):

Offshore ......................................... 5,413.3 5,370.3 3.21 3.50 11.79 11.89

Onshore ......................................... 44,592.3 37,828.7 2.95 2.94 10.55 10.36

Total ............................................. 50,005.6 43,199.0

Bbl = barrels

Mcf = 1,000 cubic feet

The table above provides the estimated quantity, a weighted average purchase price, and a weighted average royalty rate

by category of estimated federal petroleum royalties at the end of fiscal years 2019 and 2018.16 The estimated quantities,

average purchase prices and royalty rates vary by region; the above table reflects an overall weighted average purchase price

and royalty rate, and is not presented on a regional basis, but is instead calculated based on regional averages. The prices and

royalty rates are based upon historical (or estimated) averages, excluding prior-period adjustments, if any, and are affected by

such factors as accounting adjustments and transportation allowances, resulting in effective average prices and royalty rates.

Prices are valued at the lease rather than at the market center, and differ from those used to compute the asset estimated

present values, which are forecasted and discounted based upon OMB economic assumptions. For further details on federal

oil and gas resources, refer to the financial statements of DOI. In addition to the oil and gas resources discussed above, the

federal government also owns oil and gas resources that are not currently under lease.

16 Gulf of Mexico proved reserves are royalty bearing volumes. In the Gulf of Mexico, an additional 613.0 million Bbl for fiscal year 2019 and 860.6 million

Bbl for fiscal year 2018 of proved oil reserves, and 622.8 million Mcf for fiscal year 2019 and 739.9 million Mcf for fiscal year 2018 of proved gas reserves

are not reflected in these totals as they are estimated to be producible royalty free under various royalty relief provisions. The NPV of the royalty value of the

royalty free proved reserves volumes in the Gulf of Mexico is estimated to be $4.2 billion for fiscal year 2019 and $5.4 billion for fiscal year 2018.
 211 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)

Federal Natural Resources Other than Oil and Gas

Federal Natural Resources Other than Oil and Gas as of September 30, 2019, and 2018

(in billions of dollars)

Natural Resource Category 2019 2018

Coal royalties .......................................................................................... 8.9 8.8

Total..................................................................................................... 8.9 8.8

The ONRR within DOI is responsible for the management and collection of revenues associated with federal coal leases

which are managed by the BLM within DOI. The ONRR achieves optimal value by ensuring that all natural resource

revenues are efficiently and accurately collected as well as disbursed to recipients in a timely manner by performing audit and

revenue compliance activities.

The Mineral Leasing Act of 1920, as amended, and the Mineral Leasing Act for Acquired Lands of 1947, as amended,

gives DOI the responsibility for coal leasing on approximately 700 million acres of federal mineral estate which includes 570

million of acres where coal development is allowed. The surface estate of these lands may be under the control of BLM, the

U.S. Forest Service (within USDA), private or state land owners, or other federal entities.

Public lands are available for coal leasing after the lands have been evaluated through a multiple-use planning process.

The Mineral Leasing Act, as amended by the Federal Coal Leasing Amendments Act of 1976, generally requires that coal be

leased competitively and that the federal government must receive a fair market value for land leased for coal development.

Once a lease is issued, federal coal leasing laws and lease terms determine the federal government’s share of production from

coal leasing operations.

DOI receives coal leasing revenues from a bonus paid at the time of the lease, an annual rent payment of $3.00 per acre,

and royalties paid on the value of the coal after it has been mined. A portion of the total federal coal royalties will be

distributed to other non-federal entities. The royalty rate for surface-mining methods is 12.50 percent and is 8.00 percent for

underground mining, and the BLM can approve reduced royalty rates based on maximum economic recovery. Regulations

that govern BLM’s coal leasing program are contained in Title 43, Groups 3000 and 3400 of the Code of Federal

Regulations.

The above table presents the estimated present value of federal coal royalties under lease contract or other long-term

arrangements as of September 30, 2019 and 2018. The federal government’s estimated coal royalties have as their basis the

DOI’s BLM estimates of recoverable reserves. The federal recoverable reserves are then further adjusted to correspond with

the effective date of the analysis and then are projected over time to simulate a schedule of when the reserves would be

produced. Future royalties are then calculated by applying future price estimates and effective royalty rates, adjusted for

transportation allowances and other allowable deductions. The present value of these royalties are then determined by

discounting the revenue stream back to the effective date at a public discount rate assumed to be equal to the OMB’s

estimates of future 30-year Treasury bill rates. The 30-year rate was chosen because this maturity life most closely

approximates the productive lives of the recoverable reserves estimates.

In addition to the coal resources discussed above, the federal government has other natural resources under lease

contract whereby the lessee is required to pay royalties on the sale of the natural resource. These natural resources include

soda ash, potash muriates of potash and langbeinite phosphate, lead concentrate, copper concentrate, and zinc concentrate.

Soda ash and potash have the largest estimated present value of future royalties. The federal government also owns coal

resources and certain other natural resources that are not currently under lease. For further details on federal natural

resources-other than oil and gas, refer to the financial statements of DOI.
OTHER INFORMATION (UNAUDITED) 212

United States Government

Other Information (Unaudited) for the

Years Ended September 30, 2019, and 2018

Tax Burden

The Internal Revenue Code provides for progressive tax rates, whereby higher earned income is generally subject to

higher tax rates. The following tables present the latest available information on income tax and related income, deductions,

and credit: for individuals by income level, and for corporations by size of assets.

Individual Income Tax Liability for Tax Year 2017

Average

Total Average Income

Number of Income AGI Per Tax per Income

Taxable AGI Tax Return Return Tax as a

Adjusted Gross Income Returns (in millions (in millions (in whole (in whole Percentage

(AGI) (In thousands) of dollars) of dollars) dollars) dollars) of AGI

Under $15,000 .................... 34,167 19,440 1,990 569 58 10.2%

$15,000 under $30,000........ 29,474 652,767 18,925 22,147 642 2.9%

$30,000 under $50,000........ 27,125 1,062,968 59,757 39,188 2,203 5.6%

$50,000 under $100,000...... 34,467 2,457,203 218,619 71,291 6,343 8.9%

$100,000 under $200,000.... 19,951 2,707,841 340,993 135,725 17,092 12.6%

$200,000 under $500,000.... 6,215 1,770,816 339,963 284,926 54,700 19.2%

$500,000 or more................ 1,505 2,338,866 625,034 1,554,064 415,305 26.7%

 Total ............................... 152,904 11,009,901 1,605,281
 213 OTHER INFORMATION (UNAUDITED)

Corporate Income Tax Liability for Tax Year 2016

Percentage of

Income Subject Total Income Tax Income Tax After

Total Assets to Tax After Credits Credits to 

(In thousands of dollars) (in millions of dollars) (in millions of dollars) Taxable Income

Zero Assets ................................ 32,008 10,314 32.2%

$1 under $500............................. 7,032 1,337 19.0%

$500 under $1,000 ...................... 3,716 901 24.2%

$1,000 under $5,000 ................... 13,109 3,879 29.6%

$5,000 under $10,000.................. 8,362 2,678 32.0%

$10,000 under $25,000................ 13,270 4,309 32.5%

$25,000 under $50,000................ 12,686 4,163 32.8%

$50,000 under $100,000.............. 14,401 4,630 32.2%

$100,000 under $250,000............ 24,546 7,883 32.1%

$250,000 under $500,000............ 26,100 7,715 29.6%

$500,000 under $2,500,000 ......... 105,577 31,259 29.6%

$2,500,000 or more ..................... 1,010,414 237,291 23.5%

 Total ...................................... 1,271,221 316,359

Tax Gap

The tax gap is the difference between the amount of tax imposed by law and what taxpayers actually pay on time. The

tax gap provides an estimate of the level of overall noncompliance and voluntary compliance during the relevant tax periods.

Tax gap estimates provide periodic appraisals about the nature and extent of noncompliance for use in formulating tax

administration strategies. Estimating the tax gap is inherently challenging and requires assessing the merits of alternative

methods, assumptions, and data sources. There is no single approach that can be used for estimating all the components of the

tax gap, so multiple methods are used. The most recent estimates covering the Tax Year 2011-2013 timeframe were released

in Fiscal Year 2019.

The gross tax gap is the amount of a tax liability that is not paid voluntarily and on time. The estimated annual average

gross tax gap is $441.0 billion. The gross tax gap is comprised of three components: nonfiling, underreporting, and

underpayment. The estimated gross tax gap for each of these components is $39.0 billion, $352.0 billion, and $50.0 billion,

respectively. The gross tax gap estimates are also segmented by type of tax; individual income tax, corporation income tax,

employment tax, and estate and excise tax. The estimated gross tax gap for each of these types of tax is $314.0 billion, $42.0

billion, $81.0 billion, and $3.0 billion, respectively.

The net tax gap is the gross tax gap less tax that subsequently will be paid either late through voluntary payments or

collected through IRS administrative and enforcement activities and is the portion of the gross tax gap that will not be paid. It

is estimated that $60.0 billion of the gross tax gap will eventually be paid resulting in a net tax gap of $381.0 billion. The net

tax gap estimates are also segmented by type of tax; individual income tax, corporation income tax, employment tax, and

estate and excise tax. The estimated net tax gap for each of these types of tax is $271.0 billion, $32.0 billion, $77.0 billion,

and $1.0 billion, respectively.

The IRS remains committed to finding ways to increase compliance and reduce the tax gap, while minimizing the

burden on the vast majority of taxpayers who pay their taxes accurately and on time. For further detailed information on the

Tax Gap, refer to the Treasury’s financial statements.
OTHER INFORMATION (UNAUDITED) 214

Tax Expenditures

As discussed in greater detail in Note 17—Collections and Refunds of Federal Revenue, tax and other revenues reported 

reflect the effects of tax expenditures, which are special exclusions, exemptions, or deductions or which provide tax credits, 

preferential tax rates or deferrals of tax liability, that allow individuals and businesses to reduce taxes they may otherwise 

owe.

The figures reported in the following table are estimates of tax expenditures using data from previous years and 

economic forecast from the fiscal year 2020 Midsession Review. The largest tax expenditures in fiscal year 2019 are the 

following (and see the table below):

• The exclusion from workers’ taxable income of employers’ contributions for health care, health insurance 

premiums, and premiums for long-term care insurance; 

• The exclusion of contributions to and the earnings of employer defined benefit and defined contribution pension 

funds (minus pension benefits that are included in taxable income); 

• Imputed rental income forms part of the total value of goods and services produced in a country. But unlike returns 

from other investments, the return on homeownership “imputed rent” is excluded from taxable income. In contrast, 

landlords must count as income the rent they receive, and renters may not deduct the rent they pay. A homeowner is 

effectively both landlord and renter, but the tax code treats homeowners the same as renters while ignoring their 

simultaneous role as their own landlords and exempting potential rent they would have paid themselves; 

• Preferential tax rates on long-term capital gains; and

• Taxpayer’s with children under age 17 can qualify for a $2,000 per child tax credit (figure in table includes nonrefundable portion of credit. 

Largest Income Tax Expenditures as of September 30, 2019

(In billions of dollars) 2019

Exclusion of employer contributions for medical insurance premiums & health care..................... 202.3

Defined benefit & defined contribution pension funds ................................................................ 147.3

Exclusion of net imputed rental income .................................................................................... 121.3

Preferential tax rates on long term capital gains ........................................................................ 111.5

Child tax credit........................................................................................................................ 74.9

Generally, identifying and measuring a tax expenditure requires defining a baseline tax system against which identified 

tax provisions are exceptions. The tax expenditures prepared for the Budget are estimated relative to a simplified 

comprehensive income tax, which defines income as the sum of consumption and the change in net wealth in a given period 

of time. 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, for the following reasons: 

• Eliminating a tax expenditure may have incentive effects that alter economic behavior, which can affect the resulting 

magnitudes of the activity or of other tax provisions or government programs. For example, if capital gains were 

taxed at ordinary rates, capital gain realizations would be expected to decline, resulting in lower tax receipts. Such 

behavioral effects are not reflected in the estimates. 

• Tax expenditures are interdependent even without incentive effects. Repeal of a tax expenditure provision can 

increase or decrease the tax revenue effect of other provisions. For example, even if behavior does not change, 

repeal of an itemized deduction could increase revenue costs from other deductions as some taxpayers move into 

higher tax brackets. Alternatively, an itemized deduction repeal could lower the revenue foregone from other 

deductions if taxpayers choose to claim the standard deduction over itemizing. Similarly, if two provisions were 

repealed simultaneously, the tax liability increase could be greater or less than the sum of the two separate tax 

expenditures, because each is estimated assuming that the other remains in force. 
 215 OTHER INFORMATION (UNAUDITED)

• Repeal effects may depend on concurrent tax rate changes. Lowering or raising tax rates can decrease or increase the 

estimated revenues from a particular provision. A $10,000 charitable contributions deduction is worth $3,500 in 

corporate tax revenues at a 35 percent tax rate, but only $2,100 at a 21 percent tax rate. 

The President’s fiscal year 2020 Budget provided a presentation of the Treasury’s review of the tax expenditure budget. 

It focused on potential alternative baselines to a comprehensive income tax, including using a consumption tax, and defining 

negative tax expenditures (provisions that cause taxpayers to pay too much tax). Relative to a consumption tax baseline, a 

number of current tax provisions would be negative tax expenditures. More specifically, a consumption tax will not extend to 

saving or capital income. As an example, the exclusion for contributions to and earnings from retirement accounts would not 

be treated as a tax expenditure. Some of these also may not necessarily be negative tax expenditures under a comprehensive 

income tax as a baseline; the current reference law and normal law baselines represent a simplified version of comprehensive 

income. As an example, some medical expenditures may not be discretionary and perhaps should be excluded from income. 

A more comprehensive ranking, including rankings over a 10 year period, and descriptions of tax expenditures can be 

found at the following location from the Treasury’s Office of Tax Policy https://home.treasury.gov/policy-issues/taxpolicy/tax-expenditures. 
OTHER INFORMATION (UNAUDITED) 216

Unmatched Transactions and Balances

Unmatched Transactions and Balances as of September 30, 2019 and 2018

Restated

Fiscal Year Fiscal Year

(in millions of dollars) 2019 2018

Change in intragovernmental unmatched balances:

Benefit program contributions payable/receivable..................... 30.5 0.5

Accounts payable/receivable................................................... 16.2 58.6

Advances from/to others & deferred credits/prepayments ......... 308.2 (406.8)

Fund balance with Treasury.................................................... (184.8) 640.1

170.1 292.4

Unmatched intragovernmental transactions:

Borrowings interest revenue/expense-exchange ...................... - 62.0

Non-expenditure transfers-in/out ............................................. - (475.1)

Expenditure transfers-in/out*................................................... - 2,118.5

Custodial transfers non-exchange*.......................................... 388.9 -

Transfers-in/out without reimbursement ................................... - 7.1

Benefit program revenue/cost ................................................. 646.6 339.7

Non-reciprocating................................................................... (4,726.2) 4,884.5

Appropriations expended........................................................ - (102.2)

Appropriations used ............................................................... - 102.2

Appropriations received/warrants issued.................................. - 154.3

Custodial and non-entity collections transferred out/in .............. - (6,450.7)

Other taxes and receipts/trust fund warrants ............................ - (1,513.2)

Other..................................................................................... 1,896.3 2,959.2

(1,794.4) 2,086.3

Unmatched transactions and balances, net ................................ (1,624.3) 2,378.7

( ) Parentheses indicate a decrease to Net Position.

* The fiscal year 2018 amounts for Custodial transfers non-exchange are included under "Expenditure transfers-in/out."

The Statement of Operations and Changes in Net Position includes an amount for unmatched transactions and balances

that result from the consolidation of federal reporting entities. Transactions between federal entities must be eliminated in

consolidation to calculate the financial position of the government. Many of the amounts included in the table represent

intragovernmental activity and balances that differed between federal entity trading partners and often totaled significantly

more in the absolute than the net amounts shown. The table also reflects other consolidating adjustments and other

adjustments that contributed to the unmatched transactions and balances amount. A number of lines in the unmatched

transactions and balances table were adjusted to zero after intragovernmental difference analysis determined they were

immaterial at or below $0.1 billion. The adjustments were added to, or subtracted from, gross cost in the Statement of Net

Cost.

Unmatched transactions and balances between federal entities impact not only in the period in which differences

originate but also in the periods where differences are resolved. As a result, it would not be proper to conclude that increases

or decreases in the unmatched amounts shown in the “Unmatched Transactions and Balances” table reflect improvements or

deteriorations in the government’s ability to resolve intragovernmental transactions. The federal community considers the

identification and accurate reporting of intragovernmental activity a priority.
 217 OTHER INFORMATION (UNAUDITED)

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REQUIRED SUPPLEMENTARY STEWARDSHIP INFORMATION (UNAUDITED) 218

United States Government

Required Supplementary Stewardship

Information (Unaudited) for the Years

Ended September 30, 2019, and 2018

Stewardship Investments

Stewardship investments focus on government programs aimed at providing long-term benefits by improving the

nation’s productivity and enhancing economic growth. These investments can be provided through direct federal spending or

grants to state and local governments for certain education and training programs, R&D, and federally financed but not

federally owned property, such as bridges and roads. When incurred, these investments are included as expenses in

determining the net cost of operations. Stewardship investments for the current year and for the immediately preceding four

years are shown in the table below.

Stewardship Investments for the Years Ended

September 30, 2015, through 2019

(In billions of dollars) 2019 2018 2017 2016 2015

Investments in non-federal physical property... 68.2 66.3 65.0 65.1 64.8

Investments in human capital......................... 179.0 107.7 111.6 131.1 97.8

Research and development:

Investments in basic research...................... 38.7 40.1 36.5 35.5 29.4

Investments in applied research................... 41.5 38.2 32.7 32.5 28.8

Investments in development ........................ 88.7 75.0 68.2 64.9 63.3

Total investments ..................................... 416.1 327.3 314.0 329.1 284.1
 219 REQUIRED SUPPLEMENTARY STEWARDSHIP INFORMATION (UNAUDITED)

Non-Federal Physical Property

The government makes grants and provides funds for the purchase, construction, and/or major renovation of state and

local government physical properties. Costs for non-federal physical property programs are included as expenses in the

Statements of Net Cost and are reported as investments in the table. They are measured on the same accrual basis of

accounting used in the Financial Report.

DOT, HUD, EPA, and DOD had $58.6 billion (85.9 percent), $3.9 billion (5.7 percent), $3.3 billion (4.8 percent), and

$1.2 billion (1.7 percent), respectively, of the total non-federal physical property investments in fiscal year 2019.

Within DOT, the FHWA invested $43.4 billion during fiscal year 2019, primarily via reimbursement from the Highway

Trust Fund, for states’ construction costs on projects related to the federal highway system. The main programs in which the

states participate are the National Highway System, Interstate Systems, Surface Transportation, and Congestion

Mitigation/Air Quality Improvement programs. The states’ contribution is 10 percent for the Interstate System and 20 percent

for most other programs.

Human Capital

The government runs several programs that invest in human capital. Those investments go toward increasing and

maintaining a healthy economy by educating and training the general public. Costs do not include training expenses for

federal workers.

Education, VA, DOL, HHS and DOI had $152.6 billion (85.3 percent), $14.2 billion (7.9 percent), $6.2 billion (3.5

percent), $2.0 billion (1.1 percent) and $0.9 billion (0.5 percent), respectively, of the total human capital investments in fiscal

year 2019. Historically, the changes in Education’s annual human capital investments have been primarily attributable to

fluctuations in the loan program subsidy estimate and loan modification costs.

Education administers a wide variety of programs related to general public education and training programs that are

intended to increase or maintain national economic productive capacity. The Office of Federal Student Aid administers needbased financial assistance programs for students pursuing postsecondary education and makes available federal grants, direct

loans, and work-study funding to eligible undergraduate and graduate students.

The significant human capital programs administered by VA include veterans rehabilitation and employment programs

which are provided to service disabled veterans; they are designated to improve employability and promote independence for

the disabled. They also include education and training programs intended to provide higher education to dependents that

might not be able to participate otherwise.

The significant human capital programs administered by DOL relate to grants for job training and employment

programs. Investments in human capital administered by HHS primarily relate to NIH research training and career

development programs and Health Resources and Services Administration Health Workforce programs. Human Capital

investments administered by DOI play a vital role in providing quality educational opportunities from early childhood

throughout life, with consideration given to the mental, physical, emotional, spiritual, and cultural aspects of the people

served.

Research and Development

Federal investments in R&D comprise those expenses for basic research, applied research, and development that are 

intended to increase or maintain national economic productive capacity or yield other future benefits.

• Investments in basic research are for systematic studies to gain knowledge or understanding of the fundamental 

aspects of phenomena and of observable facts without specific applications toward processes or products in mind.

• Investments in applied research are for systematic studies to gain knowledge or understanding necessary for 

determining the means by which a recognized and specific need may be met.

• Investments in development are the systematic use of the knowledge and understanding gained from research for the 

production of useful materials, devices, systems, or methods, including the design and development of prototypes 

and processes.

With regard to basic research, HHS, NASA, NSF, and DOE had $19.3 billion (49.9 percent), $5.8 billion (15.1 percent),

$5.8 billion (14.9 percent), and $5.3 billion (13.7 percent), respectively, of the total basic research investments in fiscal year

2019. Further, HHS, DOD, DOE, and NASA had $18.6 billion (44.8 percent), $8.5 billion (20.4 percent), $6.3 billion (15.1
REQUIRED SUPPLEMENTARY STEWARDSHIP INFORMATION (UNAUDITED) 220

percent), and $2.5 billion (6.0 percent), respectively, of the total applied research investments in fiscal year 2019. The DOD 

and NASA had $80.2 billion (90.4 percent) and $4.5 billion (5.1 percent), respectively, of total development investments in 

fiscal year 2019. 

Within HHS, NIH-supported research seeks fundamental knowledge about the nature and behavior of living systems 

and the application of that knowledge to enhance health, lengthen life, and reduce illness and disability. NIH supports 

extramural and intramural activities that span the spectra of medical research, including fundamental, disease-oriented, preclinical laboratory animal, observational, population-based, behavioral, social science, and translational research. NIH’s 

clinical research activities aim to understand healthy and disease states, move laboratory findings into medical applications, 

as well as assess new treatments or compare different treatment approaches. NIH also regards the expeditious transfer of the 

results of its medical research for further development and commercialization of biomedical products as an important 

component to improve public health. 

NASA R&D programs include activities to extend the knowledge of Earth, its space environment, and the universe, and 

to invest in new aeronautics and advanced space transportation technologies that support the development and application of 

technologies critical to the economic, scientific, and technical competitiveness of the U.S.

NSF’s investment in basic and applied research support both the conduct of research and the necessary supporting 

infrastructure, including state-of-the-art instrumentation, equipment, computing resources, aircraft, and multi-user facilities 

such as digital libraries, observatories, and research vessels.

DOE R&D programs facilitate the creation, advancement, and deployment of new technologies and support the 

Department’s mission to advance U.S. national security and economic growth through transformative science and technology 

innovation that promotes affordable and reliable energy through market solutions, and meets nuclear security and 

environmental cleanup challenges.

Major outputs of DOD R&D are scientific studies, investigations, research papers, hardware components, software 

codes, or limited construction of a weapon system component, to include non-system-specific development efforts. 

Development takes what has been discovered or learned from basic research and uses it to establish technological feasibility, 

assessment of operability, and production capability. Development is comprised of five stages: 1) advanced technology 

development, 2) advanced component development and prototypes, 3) system development and demonstration, 4) research, 

development, test and evaluation management support, and 5) operational systems development.
 221 REQUIRED SUPPLEMENTARY STEWARDSHIP INFORMATION (UNAUDITED)

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APPENDIX A 222

Appendix A: Reporting Entity

This appendix lists the entities (consolidation or disclosure entities) included in the U.S. government’s Financial 

Report, as well as related parties. SFFAS No. 47, Reporting Entity, provides guidance for identifying entities that are 

consolidation entities, disclosure entities, and related parties. 

The Financial Report includes all organizations meeting the inclusion principles of (a) budgeted for by elected officials 

of the government, (b) owned by the government, and (c) controlled by the government with risk of loss or expectation of 

benefits. In addition, the Financial Report includes organizations where it would be misleading to exclude even though the 

organization does not meet any of the three inclusion principles. If an organization meets the inclusion principles, a 

determination of consolidation or disclosure is made.

SFFAS No. 47 identifies consolidation entities as organizations that should be consolidated in the financial statements 

based on the assessment of the following characteristics as a whole, the organization: (a) is financed through taxes and other 

non-exchange revenues, (b) is governed by the Congress or the President, (c) imposes or may impose risks and rewards to the 

government, and (d) provides goods and services on a non-market basis. It also includes organizations that would result in 

misleading or incomplete financial statements, if excluded. 

Disclosure entities are entities with which the federal government has relationships that meet the inclusion criteria in 

SFFAS No. 47, but are afforded a greater degree of autonomy than consolidation entities. These entities may maintain a 

separate legal identity, have a governance structure that vests most decision-making authorities in a governing body to 

insulate the organization from political influence, and/or have relative financial independence. Other organizations that are 

owned or controlled by the government as a result of regulatory actions, or other government intervention actions are,

generally, deemed to be disclosure entities if the relationship with the government is not expected to be permanent. 

Related parties exist if the existing relationship, or one party to the existing relationship, has the ability to exercise 

significant influence over the other party’s policy decisions. Related parties do not meet the principles for inclusion, but are 

reported in the Financial Report, if they maintain relationships of such significance that it would be misleading to exclude.

1. Consolidation Entities included in the Financial Report:

There are a total of 162 entities that meet the consolidation criteria, and as such are included in the Financial Report. 

The lists below describe three groups of consolidation entities that comprise the consolidated governmentwide reporting 

entity for the Financial Report and include entities from all three branches of government.

Twenty-Four Chief Financial Officer Act Consolidation Entities

Department of Agriculture

www.usda.gov

Department of Labor

www.dol.gov

Department of Commerce

www.doc.gov

Department of State

www.state.gov

Department of Defense

www.defense.gov

Department of Transportation

www.dot.gov

Department of Education

www.ed.gov

Department of the Treasury

www.treasury.gov

Department of Energy

www.energy.gov

Department of Veterans Affairs

www.va.gov

Department of Health and Human Services

www.hhs.gov

Environmental Protection Agency

www.epa.gov

Department of Homeland Security

www.dhs.gov

General Services Administration

www.gsa.gov

Department of Housing and Urban Development

www.hud.gov

National Aeronautics and Space Administration

www.nasa.gov

Department of the Interior

www.doi.gov

National Science Foundation

www.nsf.gov

Department of Justice

www.usdoj.gov

Office of Personnel Management

www.opm.gov
 223 APPENDIX A

Small Business Administration

www.sba.gov

U.S. Agency for International Development

www.usaid.gov

Social Security Administration

www.ssa.gov

U.S. Nuclear Regulatory Commission

www.nrc.gov

Sixteen Additional Significant Consolidation Entities

Export-Import Bank of the U.S. 

www.exim.gov

Farm Credit System Insurance Corporation

www.fcsic.gov

Federal Communications Commission

www.fcc.gov

Federal Deposit Insurance Corporation

www.fdic.gov

General Fund of the U.S. Government

www.fiscal.treasury.gov/general-fund

Millennium Challenge Corporation

www.mcc.gov

National Credit Union Administration

www.ncua.gov

National Railroad Retirement Investment Trust

www.rrb.gov

Overseas Private Investment Corporation

www.opic.gov

Pension Benefit Guaranty Corporation

www.pbgc.gov

Railroad Retirement Board 

www.rrb.gov

Securities and Exchange Commission

www.sec.gov

Security Assistance Accounts

www.dsca.mil

Smithsonian Institution

www.si.edu

Tennessee Valley Authority

www.tva.gov

U.S. Postal Service

www.usps.com

One Hundred Twenty-two Additional Consolidation Entities

Access Board Congressional-Executive Commission on the People’s 

Administrative Conference of the U.S. Republic of China

Advisory Council on Historic Preservation Consumer Product Safety Commission

African Development Foundation Corporation for National and Community Service

American Battle Monuments Commission Council of the Inspector General on Integrity and

Appalachian Regional Commission Efficiency

Architect of the Capitol Court of Appeals for Veterans Claims

Armed Forces Retirement Home Court Services and Offender Supervision Agency for DC

Barry Goldwater Scholarship and Excellence in DC Courts

 Education Foundation DC Courts–Defender Services

Broadcasting Board of Governors Defense Nuclear Facilities Safety Board

Bureau of Consumer Financial Protection Delta Regional Authority

Central Intelligence Agency Denali Commission

Chemical Safety and Hazard Investigation Board Dwight D. Eisenhower Memorial Commission

Christopher Columbus Fellowship Foundation Election Assistance Commission

Commission for the Preservation of America’s Environmental Dispute Resolution Fund

 Heritage Abroad Equal Employment Opportunity Commission

Commission on Civil Rights Executive Office of the President

Commission of Fine Arts Farm Credit Administration

Commission on International Religious Freedom Federal Election Commission

Commission on Security and Cooperation in Europe Federal Financial Institutions Examination Council

Commission to Eliminate Child Abuse and Neglect Federal Housing Finance Agency

 Fatalities* Federal Labor Relations Authority

Committee for Purchase from People Who Are Blind Federal Maritime Commission

 or Severely Disabled Federal Mediation and Conciliation Service

Commodity Futures Trading Commission Federal Mine Safety and Health Review Commission

Congressional Budget Office Federal Trade Commission
APPENDIX A 224

Government Accountability Office National Transportation Safety Board

Government Publishing Office Neighborhood Reinvestment Corporation

Gulf Coast Ecosystem Restoration Council Northern Border Regional Commission

Harry S. Truman Scholarship Foundation Nuclear Waste Technical Review Board

House of Representatives Occupational Safety and Health Review Commission

Indian Law and Order Commission* Office of Congressional Workplace Rights

Institute of Museum and Library Services Office of Government Ethics

Intelligence Community Management Account Office of Navajo and Hopi Indian Relocation

Inter-American Foundation Office of Nuclear Waste Negotiator*

International Trade Commission Office of Special Counsel

James Madison Memorial Fellowship Foundation Office of the Federal Coordination for Alaska Natural

Japan-U.S. Friendship Commission Gas Transportation Projects*

John C. Stennis Center for Public Service Open World Leadership Center

 Training and Development Patient Centered Outcomes Research Trust Fund

John F. Kennedy Center for the Performing Arts Peace Corps

Judiciary Presidio Trust

Library of Congress Privacy and Civil Liberties Oversight Board

Marine Mammal Commission Public Building Reform Board

Medicaid and Children’s Health Insurance Program Public Defender Service for the DC

 Payment and Access Commission Recovery Act Accountability and Transparency Board*

Medicare Payment Advisory Commission Selective Service System

Merit Systems Protection Board Senate Commission on Art

Military Compensation and Retirement Modernization St. Lawrence Seaway Development Corporation

 Commission* State Justice Institute

Morris K. Udall and Stewart L. Udall Surface Transportation Board

 Foundation Thrift Savings Fund

National Archives and Records Administration U.S. Capitol Police

National Capital Planning Commission U.S. Capitol Preservation Commission

National Commission on Military Aviation Safety U.S. China Economic and Security Review Commission

National Commission on Military, National and Public U.S. Holocaust Memorial Museum

 Service U.S. Institute of Peace

National Council on Disability U.S. Interagency Council on Homelessness

National Endowment for the Arts U.S. Semiquincentennial Commission

National Endowment for the Humanities U.S. Senate

National Gallery of Art U.S. Tax Court

National Labor Relations Board U.S. Trade and Development Agency

National Mediation Board Vietnam Education Foundation

National Railroad Passenger Corporation, Office of the Western Hemisphere Drug Policy Commission

 Inspector General Women’s Suffrage Centennial Commission

National Security Commission on Artificial Woodrow Wilson International Center for Scholars

 Intelligence WWI Centennial Commission

*These entities are no longer active and have either returned all remaining fund balances to Treasury during fiscal year 2019

or have remaining fund balances pending final return to Treasury as of September 30, 2019.
 225 APPENDIX A

2. Disclosure Entities and Related Parties of the Financial Report

The entities included below, after considering various factors including quantitative and qualitative materiality, meet the 

criteria of SFFAS No. 47 to be reported as disclosure entities or related parties in the Financial Report. Information about the 

government’s relationship with these entities is disclosed in Note 25—Disclosure Entities and Related Parties. Additionally, 

component entities have also identified additional disclosure entities and related parties that do not meet the qualitative or 

quantitative criteria in SFFAS No. 47 to be reported in the Financial Report and are not included in the entities below. The 

component entity of each disclosure entity is provided in the brackets below. Refer to the financial reports of the component 

entities for more information on additional disclosure entities and related parties.

Disclosure Entities

Amtrak (National Railroad Passenger Service Corp) [DOT]

Federal Home Loan Mortgage Corporation (Freddie Mac) [Treasury]/[FHFA] 

Federal National Mortgage Association (Fannie Mae) [Treasury]/[FHFA]

Federal Reserve System [Treasury]

Related Parties 

Federal Home Loan Banks [FHFA]

International Monetary Fund and Multilateral Development Banks [Treasury]

Private Export Funding Corporation [EXIM]
APPENDIX B 226

Appendix B: Glossary of Acronyms

This is the current list of acronyms used in the Financial Report. 

AFR Agency Financial Report

AGI Adjusted Gross Income

APM Alternative Payment Models

ARRA American Recovery and Reinvestment Act of 2009

ASC Accounting Standards Codification

AT&T American Telephone & Telegraph Company

BAR Budget and Accrual Reconciliation

BBA Bipartisan Budget Act

Bbl Barrel

BCA Budget Control Act of 2011

BEA Bureau of Economic Analysis

BLDBP Black Lung Disability Benefit Program

BLDTF Black Lung Disability Trust Fund

BLM Bureau of Land Management

Board Federal Reserve Board of Governors

BP British Petroleum

BRS Blended Retirement System

Budget Budget of the U.S. Government

CAP Cross Agency Priority

CCIIO Center for Consumer Information and Insurance Oversight

CERCLA Comprehensive Environmental Response, Compensation, and Liability Act

CFO Chief Financial Officers

CFO Act Chief Financial Officers Act of 1990

CFOC Chief Financial Officers Council

CHIP Children’s Health Insurance Program

CMS Centers for Medicare & Medicaid Services

COLA Cost of Living Adjustments

CPI Consumer Price Index

CPIM Consumer Price Index–Medical

CPI-U Consumer Price Index for All Urban Consumers

CPI-W Consumer Price Index for Urban Wage Earners and Clerical Workers

CPP Clean Power Plan

CSRDF Civil Service Retirement and Disability Fund

CSRS Civil Service Retirement System

DATA Act Digital Accountability and Transparency Act of 2014

DHS Department of Homeland Security

DI Disability Insurance

DIF Deposit Insurance Fund
 227 APPENDIX B

DM&R Deferred Maintenance and Repairs

DOC Department of Commerce

DOD Department of Defense

DOE Department of Energy

DOI Department of the Interior

DOJ Department of Justice

DOL Department of Labor

DOT Department of Transportation

Education Department of Education

EIA Energy Information Administration

EPA Environmental Protection Agency

ERM Enterprise Risk Management

ESPC Energy Savings Performance Contract

Exchanges Affordable Insurance Exchanges

EXIM Bank Export-Import Bank of the U.S.

Fannie Mae Federal National Mortgage Association

FASAB Federal Accounting Standards Advisory Board

FASB Financial Accounting Standards Board

FCC Federal Communications Commission

FCIC Federal Crop Insurance Corporation

FCSIC Farm Credit System Insurance Corporation

FDIC Federal Deposit Insurance Corporation

FECA Federal Employees’ Compensation Act

Federal Reserve Act Federal Reserve Act of 1913

FEGLI Federal Employees’ Group Life Insurance

FERS Federal Employees’ Retirement System

FFEL Federal Family Education Loan

FFMIA Federal Financial Management Improvement Act of 1996

FHA Federal Housing Administration

FHFA Federal Housing Finance Agency

FHLBanks Federal Home Loan Banks

FHWA Federal Highway Administration

FICA Federal Insurance Contribution Act

Financial Report Financial Report of the U.S. Government

FirstNet First Responder Network Authority

FOMC Federal Open Market Committee

FPMRA Federal Property Management Reform Act of 2016

FR System Federal Reserve System

FRBs Federal Reserve Banks

Freddie Mac Federal Home Loan Mortgage Corporation

FRNs Floating Rate Notes

FRPC Federal Real Property Council
APPENDIX B 228

FRPP Federal Real Property Profile

FRTIB Federal Retirement Thrift Investment Board

FTC Federal Trade Commission

FUA Federal Unemployment Account

GAAP U.S. Generally Accepted Accounting Principles

GAO U.S. Government Accountability Office

GAB General Arrangements to Borrow

GDP Gross Domestic Product

General Fund General Fund of the U.S. Government

Ginnie Mae Government National Mortgage Association

GSA General Services Administration

GSE Government-Sponsored Enterprises

HECM Home Equity Conversion Mortgage

HHS Department of Health and Human Services

HI Hospital Insurance

HQM High Quality Market

HUD Department of Housing and Urban Development

IIM Individual Indian Monies

IMF International Monetary Fund

IRS Internal Revenue Service

Joint Committee Joint Select Committee on Deficit Reduction

LOC Library of Congress

LPR Lawful Permanent Resident

MACRA Medicare Access and CHIP Reauthorization Act of 2015

MBS Mortgage-Backed Securities

MDBs Multilateral Development Banks

MERHCF Medicare Eligible Retiree Health Care Fund

MOX Mixed Oxide

MTFs Military Treatment Facilities

MTS Monthly Treasury Statement

NAB New Arrangements to Borrow

NASA National Aeronautics and Space Administration

NAV Net Asset Value

NCHS National Center for Health Statistics

NCUA National Credit Union Administration

NCUSIF The National Credit Union Share Insurance Fund

NFIP National Flood Insurance Program

NIH National Institutes of Health

NIST National Institute of Standards and Technology

NPV Net Present Value

NRRIT National Railroad Retirement Investment Trust

NSLI National Service Life Insurance
 229 APPENDIX B

NWPA Nuclear Waste Policy Act of 1982

OASDI Old-Age, Survivors, and Disability Insurance

OASI Old-Age and Survivors Insurance

OM&S Operating Materials and Supplies

OMB Office of Management and Budget

ONRR Office of Natural Resources Revenue

OPEB Other Postemployment Benefits

OPM Office of Personnel Management

ORB Other Retirement Benefits

OSLTF The Oil Spill Liability Trust Fund

OTA Office of Tax Analysis

OTC Over-the-counter

P3s Public-Private Partnerships

PAR Performance and Accountability Report

PAYGO Pay As You Go

PBGC Pension Benefit Guaranty Corporation

PEFCO Private Export Funding Corporation

P.L. Public Law

PMA President’s Management Agenda

PMAs Power Marketing Administrations

PPACA Patient Protection and Affordable Care Act

PP&E Property, Plant, and Equipment

PV Present Value

RCRA Resource Conservation and Recovery Act

R&D Research and Development

RMO Responsible Mine Operator

RRB Railroad Retirement Board

RRP Railroad Retirement Program

RSI Required Supplementary Information

RSSI Required Supplementary Stewardship Information

RTF Reduce the Footprint

SAA Security Assistance Accounts

SAFRA Student Aid and Fiscal Responsibility Act

SAM System for Award Management

SBA Small Business Administration

SCSIA Statements of Changes in Social Insurance Amounts

SDRs Special Drawing Rights

S-DVI Service-Disabled Veterans Insurance

SECA Self-Employment Contributions Act

SFFAS Statement of Federal Financial Accounting Standards

SGLI Service Members Group Life Insurance

SGR Sustainable Growth Rate

SLTFP Statements of Long-Term Fiscal Projections
APPENDIX B 230

SMI Supplementary Medical Insurance

SNF Spent Nuclear Fuel

SOMA System Open Market Account

SOSI Statements of Social Insurance

SPSPA Senior Preferred Stock Purchase Agreements

SSA Social Security Administration

SSEB Social Security Equivalent Benefit

State Department of State

TCJA Tax Cuts and Jobs Act of 2017

TFL TRICARE for Life

TIPS Treasury Inflation-Protected Securities

TNC yield curve Yield Curve for Treasury Nominal Coupon Issues

Treasury Department of the Treasury

TRIP Terrorism Risk Insurance Program

TSF Thrift Savings Fund

TSP Thrift Savings Plan

TVA Tennessee Valley Authority

UI Unemployment Insurance

U.S. United States

USAID U.S. Agency for International Development

U.S.C. United States Code

USCG The United States Coast Guard

USDA U.S. Department of Agriculture

USPS United States Postal Service

UTF Unemployment Trust Fund

VA Department of Veterans Affairs

VR&E Vocational Rehabilitation and Employment

VSLI Veterans’ Special Life Insurance

WEP Windfall Elimination Provision
 231 APPENDIX B

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U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 232

Independent Auditor’s Report

The President

The President of the Senate

The Speaker of the House of Representatives

In our audits of the U.S. government’s consolidated financial statements as of and for the fiscal years 

ended September 30, 2019, and 2018, we found the following:

• Certain material weaknesses1 in internal control over financial reporting and other limitations on the 

scope of our work resulted in conditions that continued to prevent us from expressing an opinion on 

the accompanying accrual-based consolidated financial statements as of and for the fiscal years 

ended September 30, 2019, and 2018.2

• Significant uncertainties (discussed in Note 22 to the consolidated financial statements), primarily 

related to the achievement of projected reductions in Medicare cost growth, prevented us from 

expressing an opinion on the sustainability financial statements,3 which consist of the 2019 and 

2018 Statements of Long-Term Fiscal Projections;4 the 2019, 2018, 2017, 2016, and 2015 

Statements of Social Insurance;5 and the 2019 and 2018 Statements of Changes in Social 

1A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there 

is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected 

and corrected, on a timely basis. A deficiency in internal control exists when the design or operation of a control does not allow 

management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, 

misstatements on a timely basis.

2The accrual-based consolidated financial statements as of and for the fiscal years ended September 30, 2019, and 2018, 

consist of the (1) Statements of Net Cost, (2) Statements of Operations and Changes in Net Position, 

(3) Reconciliations of Net Operating Cost and Budget Deficit, (4) Statements of Changes in Cash Balance from Budget and 

Other Activities, and (5) Balance Sheets, including the related notes to these financial statements. Most revenues are recorded 

on a modified cash basis. We previously reported that certain material weaknesses and, for some years, other limitations on 

the scope of our work prevented us from expressing an opinion on the accrual-based consolidated financial statements of the 

U.S. government for fiscal years 1997 through 2018.

3The sustainability financial statements are based on projections of future receipts and spending, while the accrual-based 

consolidated financial statements are based on historical information, including the federal government’s assets, liabilities, 

revenue, and net cost.

4The 2019 and 2018 Statements of Long-Term Fiscal Projections present, for all the activities of the federal government, the 

present value of projected receipts and non-interest spending under current policy without change, the relationship of these 

amounts to projected gross domestic product (GDP), and changes in the present value of projected receipts and non-interest 

spending from the prior year. These statements also present the fiscal gap, which is the combination of non-interest spending 

reductions and receipts increases necessary to hold debt held by the public as a share of GDP at the end of the projection 

period to its value at the beginning of the period. The valuation date for the Statements of Long-Term Fiscal Projections is 

September 30.

5Statements of Social Insurance are presented for the current year and each of the 4 preceding years as required by U.S. 

generally accepted accounting principles. For the Statements of Social Insurance, the valuation date is January 1 for the 

Social Security and Medicare programs, October 1 for the Railroad Retirement program (January 1 for 2015), and September 

30 for the Black Lung program. 
233 U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT

Insurance Amounts. A material weakness in internal control also prevented us from expressing an 

opinion on the 2019 and 2018 Statements of Long-Term Fiscal Projections.

• Material weaknesses resulted in ineffective internal control over financial reporting for fiscal year 

2019.

• Material weaknesses and other scope limitations, discussed above, limited tests of compliance with 

selected provisions of applicable laws, regulations, contracts, and grant agreements for fiscal year 

2019.

This audit report discusses the following in more detail.

• Our report on the accompanying consolidated financial statements, which includes (1) two 

emphasis of matters—long-term fiscal challenges and equity investments in the Federal National 

Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie 

Mac); (2) required supplementary information (RSI),6 required supplementary stewardship 

information (RSSI),7 and other information8 included with the consolidated financial statements in 

the Fiscal Year 2019 Financial Report of the United States Government (2019 Financial Report); 

and (3) information on Chief Financial Officers Act of 1990 (CFO Act) agency financial management 

systems.

• Our report on internal control over financial reporting. 

• Our report on compliance with laws, regulations, contracts, and grant agreements. 

• The Department of the Treasury’s (Treasury) and the Office of Management and Budget’s (OMB) 

comments on a draft of this audit report.

Appendix I discusses our audit objectives, scope, and methodology. 

Report on the Consolidated Financial Statements 

The Secretary of the Treasury, in coordination with the Director of OMB, is required to annually submit 

audited financial statements for the U.S. government to the President and Congress. GAO is required 

to audit these statements.9 As noted above, the consolidated financial statements consist of the 

accrual-based consolidated financial statements as of and for the fiscal years ended September 30, 

2019, and 2018, and the sustainability financial statements, consisting of the 2019 and 2018 

Statements of Long-Term Fiscal Projections; the 2019, 2018, 2017, 2016, and 2015 Statements of 

6The RSI consists of Management’s Discussion and Analysis and information in the Required Supplementary Information 

section of the Fiscal Year 2019 Financial Report of the United States Government. 

7The RSSI consists of information on stewardship investments in the Required Supplementary Stewardship Information 

section of the Fiscal Year 2019 Financial Report of the United States Government. 

8Other information consists of information in the Fiscal Year 2019 Financial Report of the United States Government other 

than the consolidated financial statements, RSI, RSSI, auditor’s report, and Statement of the Comptroller General of the 

United States.

9The Government Management Reform Act of 1994 has required such reporting, covering the executive branch of 

government, beginning with financial statements prepared for fiscal year 1997. 31 U.S.C. § 331(e). The consolidated financial

statements include the legislative and judicial branches.
U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 234

Social Insurance; the 2019 and 2018 Statements of Changes in Social Insurance Amounts; and the 

related notes to the financial statements. 

We performed sufficient audit work to provide this report on the consolidated financial statements. We 

considered the limitations on the scope of our work regarding the accrual-based consolidated financial 

statements and the sustainability financial statements in forming our conclusions. We performed our 

work in accordance with U.S. generally accepted government auditing standards.

Management’s Responsibility

Management of the federal government is responsible for (1) the preparation and fair presentation of 

annual consolidated financial statements of the U.S. government in accordance with U.S. generally 

accepted accounting principles; (2) preparing, measuring, and presenting the RSI and RSSI in 

accordance with U.S. generally accepted accounting principles; (3) preparing and presenting other 

information included in documents containing the consolidated financial statements and auditor’s 

report, and ensuring the consistency of that information with the consolidated financial statements, RSI, 

and RSSI; and (4) maintaining effective internal control over financial reporting, including the design, 

implementation, and maintenance of internal control relevant to the preparation and fair presentation of 

financial statements that are free from material misstatement, whether due to fraud or error. 

Auditor’s Responsibility

Our responsibility is to express opinions on these consolidated financial statements based on 

conducting the audit in accordance with U.S. generally accepted government auditing standards. We 

are also responsible for applying certain limited procedures to the RSI, RSSI, and other information 

included with the consolidated financial statements. Because of the matters discussed below, we were 

unable to obtain sufficient appropriate evidence to provide a basis for audit opinions on the 

consolidated financial statements.

Basis for Disclaimers of Opinion on the Consolidated Financial Statements

Accrual-Based Consolidated Financial Statements 

The federal government is not able to demonstrate the reliability of significant portions of the 

accompanying accrual-based consolidated financial statements as of and for the fiscal years ended 

September 30, 2019, and 2018, principally because of limitations related to certain material 

weaknesses in internal control over financial reporting and other limitations affecting the reliability of 

these financial statements and the scope of our work, as discussed below.10 As a result of these 

limitations, readers are cautioned that amounts reported in the accrual-based consolidated financial 

statements and related notes may not be reliable.

10Such limitations include (1) the Department of Defense and the Railroad Retirement Board both received disclaimers of 

opinion on their respective fiscal years 2019 and 2018 financial statements; (2) the Department of Housing and Urban 

Development received a qualified opinion on its fiscal year 2019 financial statements and a disclaimer of opinion on its fiscal 

year 2018 financial statements; (3) the General Fund of the U.S. Government (General Fund) received a disclaimer of opinion 

on the Schedules of the General Fund for fiscal year 2018; the financial information for the General Fund was not audited for 

fiscal year 2019 to allow Treasury sufficient time to develop and begin to implement a remediation plan to address the issues

we identified as part of the fiscal year 2018 audit; and (4) for fiscal years 2019 and 2018, the financial information for Security 

Assistance Accounts was unaudited.
235 U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT

The federal government did not maintain adequate systems or have sufficient appropriate evidence to 

support certain material information reported in the accompanying accrual-based consolidated financial 

statements. The underlying material weaknesses in internal control, which have existed for years, 

contributed to our disclaimer of opinion on the accrual-based consolidated financial statements. 

Specifically, these weaknesses concerned the federal government’s inability to

• satisfactorily determine that property, plant, and equipment and inventories and related property, 

primarily held by the Department of Defense (DOD), were properly reported in the accrual-based 

consolidated financial statements; 

• reasonably estimate or adequately support amounts reported for certain liabilities, such as 

environmental and disposal liabilities, or determine whether commitments and contingencies were 

complete and properly reported; 

• support significant portions of the reported total net cost of operations, most notably related to DOD, 

and adequately reconcile disbursement activity at certain federal entities;

• adequately account for intragovernmental activity and balances between federal entities; 

• reasonably assure that the consolidated financial statements are (1) consistent with the underlying 

audited entities’ financial statements, (2) properly balanced, and (3) in accordance with U.S. 

generally accepted accounting principles; and 

• reasonably assure that the information in the (1) Reconciliations of Net Operating Cost and Budget 

Deficit and (2) Statements of Changes in Cash Balance from Budget and Other Activities is 

complete, properly supported, and consistent with the underlying information in the audited entities’ 

financial statements and other financial data. 

These material weaknesses continued to (1) hamper the federal government’s ability to reliably report a 

significant portion of its assets, liabilities, costs, and other related information; (2) affect the federal 

government’s ability to reliably measure the full cost, as well as the financial and nonfinancial 

performance, of certain programs and activities; (3) impair the federal government’s ability to 

adequately safeguard significant assets and properly record various transactions; and (4) hinder the 

federal government from having reliable, useful, and timely financial information to operate effectively 

and efficiently. Because of these material weaknesses and other limitations on the scope of our work 

discussed below, additional issues may exist that were not identified and could affect the accrual-based 

consolidated financial statements. Appendix II describes these material weaknesses in more detail and 

highlights the primary effects of these material weaknesses on the accompanying accrual-based 

consolidated financial statements and on the management of federal government operations.

Sustainability Financial Statements

Significant uncertainties (discussed in Note 22 to the consolidated financial statements), which primarily 

relate to the achievement of projected reductions in Medicare cost growth, affect the sustainability 

financial statements. In addition, the material weakness related to the Reconciliations of Net Operating 

Cost and Budget Deficit and the Statements of Changes in Cash Balance from Budget and Other 

Activities, discussed above, hampers the federal government’s ability to demonstrate the reliability of 

historical budget information used for certain key inputs to the 2019 and 2018 Statements of Long-Term 

Fiscal Projections. As a result of these significant uncertainties and this material weakness, readers are 

cautioned that amounts reported in the 2019 and 2018 Statements of Long-Term Fiscal Projections; the 

2019, 2018, 2017, 2016, and 2015 Statements of Social Insurance; the 2019 and 2018 Statements of 
U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 236

Changes in Social Insurance Amounts; and the related notes to these financial statements may not 

fairly present, in all material respects, the sustainability information for those years in accordance with 

U.S. generally accepted accounting principles.

These significant uncertainties primarily relate to the following.

• Medicare projections in the 2019 and 2018 Statements of Long-Term Fiscal Projections and the 

2019, 2018, 2017, 2016, and 2015 Statements of Social Insurance were based on benefit formulas 

under current law and included a significant reduction in Medicare payment rate updates for 

productivity improvements for most categories of Medicare providers,11 based on full 

implementation of the provisions of the Patient Protection and Affordable Care Act, as amended 

(PPACA),12 and physician payment updates specified by the Medicare Access and CHIP 

Reauthorization Act of 2015 (MACRA).13

• Management has noted that actual future costs for Medicare are likely to exceed those shown by 

the projections under current law presented in the 2019, 2018, 2017, 2016, and 2015 Statements of 

Social Insurance because of, for example, the likelihood of changes to the scheduled reductions in 

Medicare payment rate updates for productivity adjustments relating to most categories of Medicare 

providers and the specified physician payment updates. The extent to which actual future costs 

exceed the amounts projected under current law because of changes to the scheduled reductions 

in Medicare payment rate updates for productivity adjustments and specified physician payment 

updates depends on both the specific changes that might be enacted and whether enacted 

legislation would include further provisions to help offset such costs. Consequently, there are 

significant uncertainties concerning the achievement of these projected reductions in Medicare 

payment rate updates.

• Management has developed an illustrative alternative projection intended to provide additional

context regarding the long-term sustainability of the Medicare program and to illustrate the 

uncertainties in the Statement of Social Insurance projections. The present value of future 

estimated expenditures in excess of future estimated revenue for Medicare, included in the 

illustrative alternative projection in Note 22, exceeds the $42.2 trillion estimate in the 2019 

Statement of Social Insurance by $9.9 trillion. 

11Under the Patient Protection and Affordable Care Act’s productivity adjustment provisions, productivity improvements are 

expected to result in lower overall Medicare spending because of smaller annual increases in the Medicare payment rates

paid to many health care providers. This is often referred to as a reduction in Medicare payment rate updates. The health care 

provider categories affected include, but are not limited to, inpatient/outpatient hospital services, skilled nursing facilities, 

home health care, ambulance, ambulatory surgical centers, durable medical equipment, and prosthetics.

12PPACA, Pub. L. No. 111-148, 124 Stat. 119 (Mar. 23, 2010), as amended by the Health Care and Education Reconciliation 

Act of 2010, Pub. L. No. 111-152, 124 Stat. 1029 (Mar. 30, 2010). In this report, references to PPACA include any 

amendments made by the Health Care and Education Reconciliation Act of 2010.

13MACRA, Pub. L. No. 114-10, title I, § 101, 129 Stat. 87, 89 (Apr. 16, 2015). MACRA included many provisions that affect 

Medicare, including the repeal of the sustainable growth rate formula for calculating annual updates to Medicare 

reimbursement payment rates to physicians and certain non-physician medical providers, and established an alternative set of 

annual updates.
237 U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT

• Management noted that these significant uncertainties about projected reductions in health care 

cost growth also affect the projected Medicare and Medicaid costs reported in the 2019 and 2018 

Statements of Long-Term Fiscal Projections.

Projections of Medicare costs are sensitive to assumptions about future policymaker decisions and 

about consumer, employer, and health care provider behavioral responses as policy, incentives, and 

the health care sector change over time. Such secondary effects are not fully reflected in the 

sustainability financial statements but could be expected to influence the excess cost growth rate used 

in the projections.14 Key drivers of uncertainty about the excess cost growth rate include the future 

development and deployment of medical technology, the evolution of personal income, and the cost 

and availability of insurance, as well as federal policy changes, such as the implementation of PPACA. 

As discussed in the RSI section of the 2019 Financial Report, the projections are very sensitive to 

changes in the health care cost growth assumption.

As discussed in Notes 22 and 23 to the financial statements, the sustainability financial statements are 

based on management’s assumptions. These sustainability financial statements present the present 

value of the U.S. government’s estimated future receipts and future spending using a projection period 

sufficient to illustrate long-term sustainability.15 The sustainability financial statements are intended to 

aid users in assessing whether future resources will likely be sufficient to sustain public services and to 

meet obligations as they come due. 

In preparing the sustainability financial statements, management selects assumptions and data that it 

believes provide a reasonable basis to illustrate whether current policy is sustainable. As discussed in 

the 2019 Financial Report, current policy is based on current law but includes several adjustments. In 

the Statements of Long-Term Fiscal Projections, notable adjustments to current law include (1) 

projected spending, receipts, and borrowing levels assume raising or suspending the current statutory 

limit on federal debt; (2) continued discretionary appropriations are assumed throughout the projection 

period; (3) scheduled Social Security and Medicare Part A benefit payments are assumed to occur 

beyond the projected point of trust fund depletion; and (4) many mandatory programs with expiration 

dates prior to the end of the 75-year projection period are assumed to be reauthorized. In the 

Statements of Social Insurance, the one adjustment to current law is that scheduled Social Security and 

Medicare Part A benefit payments are assumed to occur beyond the projected point of trust fund 

depletion. Assumptions underlying such sustainability information do not consider changes in policy or 

all potential future events that could affect future revenue and expenditures and, hence, sustainability. 

Also, the projections assume that debt could continuously rise without severe economic consequences. 

The RSI section of the 2019 Financial Report includes unaudited information on how changes in 

various assumptions would affect the Statements of Long-Term Fiscal Projections and Statements of 

Social Insurance. The sustainability financial statements are not forecasts or predictions. 

14The excess cost growth rate is the increase in health care spending per person relative to the growth of GDP per person 

after removing the effects of demographic changes on health care spending.

15The projection period used for the Social Security, Medicare, and Railroad Retirement social insurance programs is 75 years. 

Beginning in fiscal year 2017, the Black Lung program has a rolling 25-year projection period. For fiscal years 2015 and 2016, 

the Black Lung program projection period was through September 30, 2040.
U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 238

As discussed in the unaudited RSI section of the 2019 Financial Report, the combined Social Security 

trust funds are projected to be depleted in 2035, and the Medicare Hospital Insurance (Part A) trust 

fund is, based on the achievement of the cost growth reductions discussed above, projected to be 

depleted in 2026, at which time the trust funds would be unable to pay the full amount of scheduled 

future benefits.16 For Social Security, future revenues were projected to be sufficient to pay 80 percent 

of scheduled benefits in 2035, the year of projected trust funds (combined) depletion, and decreasing to 

75 percent of scheduled benefits in 2093. For Medicare Hospital Insurance (Part A), future revenues 

were projected to be sufficient to pay 89 percent of scheduled benefits in 2026, the year of projected 

trust fund depletion, declining to 78 percent by 2043, and then gradually increasing to 83 percent of 

scheduled benefits in 2093.

Because of the large number of factors that affect the sustainability financial statements and the fact 

that future events and circumstances cannot be estimated with certainty, even if current policy is 

continued, there will be differences between the estimates in the sustainability financial statements and 

the actual results, and those differences may be material.

Other Limitations on the Scope of Our Work

For fiscal years 2019 and 2018, there were other limitations on the scope of our work, in addition to the 

material weaknesses and significant uncertainties noted above, that contributed to our disclaimers of 

opinion on the consolidated financial statements. Such limitations primarily relate to our ability to obtain 

adequate representations from management. Treasury and OMB depend on representations from 

certain federal entities to provide their representations to us regarding the U.S. government’s 

consolidated financial statements. Treasury and OMB were unable to provide us with adequate 

representations regarding the U.S. government’s accrual-based consolidated financial statements for 

fiscal years 2019 and 2018, primarily because certain federal entities provided them insufficient or no 

representations.

Disclaimers of Opinion on the Consolidated Financial Statements

Accrual-Based Consolidated Financial Statements 

Because of the significance of the related matters described in the Basis for Disclaimers of Opinion on 

the Consolidated Financial Statements section above, we were not able to obtain sufficient appropriate 

audit evidence to provide a basis for an audit opinion on the accrual-based consolidated financial 

statements. Accordingly, we do not express an opinion on the accrual-based consolidated financial 

statements as of and for the fiscal years ended September 30, 2019, and 2018.

Sustainability Financial Statements

Because of the significance of the related matters described in the Basis for Disclaimers of Opinion on 

the Consolidated Financial Statements above, we were not able to obtain sufficient appropriate audit 

evidence to provide a basis for an audit opinion on the Statements of Long-Term Fiscal Projections for 

2019 and 2018; the Statements of Social Insurance for 2019, 2018, 2017, 2016, and 2015; and the 

Statements of Changes in Social Insurance Amounts for 2019 and 2018. Accordingly, we do not 

express an opinion on these sustainability financial statements.

16The combined Social Security trust funds consist of the Federal Old-Age and Survivors Insurance trust fund and the Federal 

Disability Insurance trust fund. For the Federal Old-Age and Survivors Insurance trust fund, future revenues were projected to 

be sufficient to pay 77 percent of scheduled benefits in 2034, the year of projected trust fund depletion, decreasing to 73 

percent in 2093. For the Federal Disability Insurance trust fund, future revenues were projected to be sufficient to pay 91 

percent of scheduled benefits in 2052, the year of projected trust fund depletion, decreasing to 87 percent in 2093.
239 U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT

Emphasis of Matters

The following key items deserve emphasis in order to put the information in the consolidated financial 

statements and the Management’s Discussion and Analysis section of the 2019 Financial Report into 

context. However, our disclaimers of opinion noted above are not modified with respect to these 

matters.

Long-Term Fiscal Challenges

The 2019 Statement of Long-Term Fiscal Projections and related information in Note 23 and in the 

unaudited RSI section of the 2019 Financial Report show that absent policy changes, the federal 

government continues to face an unsustainable long-term fiscal path. For the 2019 projections, debt-togross domestic product (GDP) at the end of the 75-year projection period was 474 percent. The budget 

deficit increased for the fourth consecutive year in fiscal year 2019 and is projected to continue to grow 

in almost all of the next 75 years. Over the long term, the imbalance between spending and revenue 

that is built into current policy and law is projected to lead to continued growth of the deficit and debt 

held by the public as a share of GDP. This situation—in which debt grows faster than GDP—means the 

current federal fiscal path is unsustainable. 

Under the 2019 Financial Report projections, spending for the major health and retirement programs 

will increase more rapidly than GDP in the coming decades, in part because of an aging population and 

projected continued increases in health care costs. These projections for Social Security and Medicare 

are based on the same assumptions underlying the information presented in the Statement of Social 

Insurance and assume that the provisions enacted in PPACA designed to slow the growth of Medicare 

costs are sustained and remain effective throughout the projection period. The projections also reflect 

the effects of MACRA, which, among other things, revised the methodology for determining physician 

payment rates. If, however, the Medicare cost containment measures and physician payment rate 

methodology are not sustained over the long term—concerns expressed by the Trustees of the 

Medicare trust funds, the Centers for Medicare & Medicaid Services’ Chief Actuary, the Congressional 

Budget Office (CBO), and others—spending on federal health care programs will grow more rapidly 

than assumed in the projections. In addition, based on the 2019 Financial Report projections, spending 

on net interest (primarily interest on debt held by the public) will surpass Social Security spending and 

becomes the largest category of spending in 2035. Net interest is projected to increase from 1.8 

percent of GDP in fiscal year 2019 to 7.0 percent in fiscal year 2039 to 23.2 percent in fiscal year 2094. 

GAO and CBO also prepare long-term federal fiscal simulations, which also continue to show federal 

debt held by the public rising as a share of GDP in the long term.17 GAO, CBO, and the 2019 Financial 

Report all project that debt held by the public as a share of GDP will surpass its historical high (106 

percent in 1946) within the next 11 to 14 years. Each of these long-term projections uses somewhat 

different assumptions, but their overall conclusions are the same: absent policy changes, the federal 

government’s fiscal path is unsustainable.

17For more information on GAO’s simulations, see GAO, America’s Fiscal Future, accessed on February 19, 2020, 

https://www.gao.gov/americas_fiscal_future. For more information on CBO’s simulations, see Congressional Budget Office, 

The 2019 Long-Term Budget Outlook (Washington, D.C.: June 25, 2019). 
U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 240

At the end of fiscal year 2019, debt held by the public reached about 79 percent of GDP, far above the 

post–World War II (since 1946) average of 46 percent. Debt held by the public at these high levels 

could limit the federal government’s flexibility to address emerging issues and unforeseen challenges, 

such as another economic downturn or large-scale disaster. These unforeseen events, also known as 

fiscal risks or fiscal exposures, place additional pressure on the federal budget. They result in 

responsibilities, programs, and activities that may legally commit or create expectations for future 

federal spending based on current policy, past practices, or other factors. A more complete 

understanding of them can help policymakers anticipate changes in future spending and can enhance 

oversight of federal resources.

Equity Investments in Fannie Mae and Freddie Mac

In 2008, during the financial crisis, the federal government placed Fannie Mae and Freddie Mac under 

conservatorship and entered into preferred stock purchase agreements with these governmentsponsored enterprises (GSE) to help ensure their financial stability. The agreements with the GSEs 

could affect the federal government’s financial position. As of September 30, 2019, the federal 

government reported about $112 billion of investments in the GSEs, which is net of about $98 billion in 

valuation losses. The reported maximum remaining contractual commitment to the GSEs, if needed, is 

$254.1 billion.

In valuing these equity investments, management considered and selected assumptions and data that 

it believed provided a reasonable basis for the estimated values reported in the accrual-based 

consolidated financial statements. However, as discussed in Note 1 to the consolidated financial 

statements, there are many factors affecting these assumptions and estimates that are inherently 

subject to substantial uncertainty arising from the uniqueness of the transactions and the likelihood of 

future changes in general economic, regulatory, and market conditions. As such, there will be 

differences between the estimated values as of September 30, 2019, and the actual results, and such 

differences may be material. Also, as discussed in Note 1 to the consolidated financial statements, the 

assets, liabilities, and results of operations of Fannie Mae and Freddie Mac are not consolidated into 

the government’s consolidated financial statements. Treasury and OMB have determined that these 

entities do not meet the criteria for consolidation.18 The ultimate role of the GSEs could affect the 

federal government’s financial position and the financial condition of federal entities, including the 

Federal Housing Administration (FHA), which in the past expanded its lending role in distressed 

housing and mortgage markets. The Government National Mortgage Association (Ginnie Mae) 

guarantees the performance of about $2 trillion in securities backed by federally insured mortgages—

$1.2 trillion of which were insured by FHA and $0.8 trillion by other federal entities, such as the 

Department of Veterans Affairs.

18For additional information on the GSE preferred stock purchase agreements and valuation of the investment in the GSEs, 

see Note 8 to the consolidated financial statements. For additional information on the criteria used to determine which federal 

entities are included in the reporting entity for the consolidated financial statements, as well as the reasons for not including 

certain entities, such as Fannie Mae and Freddie Mac, see app. A of the 2019 Financial Report. 
241 U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT

Other Matters

Required Supplementary Information and Required Supplementary Stewardship Information

U.S. generally accepted accounting principles issued by the Federal Accounting Standards Advisory 

Board (FASAB) require that the RSI and RSSI be presented in the 2019 Financial Report to 

supplement the financial statements. Although the RSI and RSSI are not a part of the financial 

statements, FASAB considers this information to be an essential part of financial reporting for placing 

the financial statements in appropriate operational, economic, or historical context. We were unable to 

apply certain limited procedures to the RSI and RSSI in accordance with U.S. generally accepted 

government auditing standards because of the material weaknesses and other scope limitations 

discussed in this audit report. We did not audit and do not express an opinion or provide any assurance 

on the RSI or RSSI. 

Other Information

Other information included in the 2019 Financial Report contains a wide range of information, some of 

which is not directly related to the consolidated financial statements. This information is presented for 

purposes of additional analysis and is not a required part of the consolidated financial statements, RSI, 

or RSSI. We read the other information included with the consolidated financial statements in order to 

identify material inconsistencies, if any, with the consolidated financial statements. We did not audit and 

do not express an opinion or provide any assurance on the other information in the 2019 Financial 

Report.

Readers are cautioned that the material weaknesses, significant uncertainties, and other scope 

limitations discussed in this audit report may affect the reliability of certain information contained in the 

RSI, RSSI, and other information that is taken from the same data sources as the accrual-based 

consolidated financial statements and the sustainability financial statements.

CFO Act Agency Financial Management Systems

The federal government’s ability to efficiently and effectively manage and oversee its day-to-day 

operations and programs relies heavily on the ability of entity financial management systems to 

produce complete, reliable, timely, and consistent financial information for use by executive branch 

agencies and Congress.19 The Federal Financial Management Improvement Act of 1996 (FFMIA) was 

designed to lead to system improvements that would result in CFO Act agency managers routinely 

having access to reliable, useful, and timely financial information with which to measure performance 

and increase accountability throughout the year. 

The 24 CFO Act agencies are responsible for implementing and maintaining financial management 

systems that substantially comply with FFMIA requirements. FFMIA requires auditors, as part of the 24

CFO Act agencies’ financial statement audits, to report whether those agencies’ financial management 

systems substantially comply with (1) federal financial management systems requirements, (2) 

applicable federal accounting standards, and (3) the federal government’s U.S. Standard General 

Ledger at the transaction level. 

For fiscal year 2019, auditors of eight of the 24 CFO Act agencies reported that the agencies’ financial 

management systems did not substantially comply with one or more of the three FFMIA requirements. 

19The Federal Financial Management Improvement Act of 1996, which is reprinted in 31 U.S.C. § 3512 note, defines “financial 

management systems” to include the financial systems and the financial portions of mixed systems necessary to support 

financial management, including automated and manual processes, procedures, controls, data, hardware, software, and 

support personnel dedicated to the operation and maintenance of system functions.
U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 242

For fiscal year 2018, auditors of nine of the 24 CFO Act agencies reported that the agencies’ financial 

management systems did not substantially comply with one or more of the three FFMIA requirements. 

Agency management at the 24 CFO Act agencies also annually report on FFMIA compliance. For both 

fiscal years 2019 and 2018, agency management of seven of the 24 CFO Act agencies reported that 

their agencies’ financial management systems did not substantially comply with one or more of the 

three FFMIA requirements. Based on agency financial reports, differences in the assessments of 

substantial compliance between the auditors and agency management reflect differences in 

management’s and auditors’ views regarding the effect of reported deficiencies on agencies’ financial 

management systems. 

Long-standing financial management systems weaknesses at several large CFO Act agencies, along 

with the size and complexity of the federal government, continue to present a formidable management 

challenge in providing accountability and have contributed significantly to certain of the material 

weaknesses and other limitations discussed in this audit report.

Report on Internal Control over Financial Reporting

Management’s Responsibility

Management of the federal government is responsible for (1) maintaining effective internal control over 

financial reporting, including the design, implementation, and maintenance of internal control relevant to 

the preparation and fair presentation of financial statements that are free from material misstatement, 

whether due to fraud or error, and (2) evaluating the effectiveness of internal control over financial 

reporting, based on criteria established under the Federal Managers’ Financial Integrity Act (FMFIA).20

Auditor’s Responsibility

The purpose of an audit of financial statements is to express an opinion on the financial statements. An 

audit of financial statements includes considering internal control over financial reporting to design audit 

procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion 

on the effectiveness of internal control over financial reporting. Accordingly, we do not express an 

opinion on the effectiveness of internal control over financial reporting. We did not consider all internal 

controls relevant to operating objectives as broadly established under FMFIA, such as those controls 

relevant to preparing performance information and ensuring efficient operations. 

Our responsibility is to report any material weaknesses or significant deficiencies in internal control over 

financial reporting for fiscal year 2019 that come to our attention as a result of our audit.21 Based on the 

scope of our work and the effects of the other limitations on the scope of our audit noted throughout this 

audit report, our internal control work was not designed to, and would not necessarily, identify all 

deficiencies in internal control, including those that might be material weaknesses or significant 

deficiencies. Therefore, additional material weaknesses or significant deficiencies may exist that were 

not identified. We performed our work in accordance with U.S. generally accepted government auditing 

standards.

2031 U.S.C. § 3512 (c), (d) (commonly referred to as FMFIA). This act requires executive agency heads to evaluate and report 

annually to the President and Congress on the adequacy of their internal control and accounting systems and on actions to 

correct significant problems. 

21A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less 

severe than a material weakness yet important enough to merit attention by those charged with governance. 
243 U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT

Definitions and Inherent Limitations of Internal Control over Financial Reporting

An entity’s internal control over financial reporting is a process effected by those charged with 

governance, management, and other personnel, the objectives of which are to provide reasonable 

assurance that (1) transactions are properly recorded, processed, and summarized to permit the 

preparation of financial statements in accordance with U.S. generally accepted accounting principles, 

and assets are safeguarded against loss from unauthorized acquisition, use, or disposition and (2) 

transactions are executed in accordance with provisions of applicable laws (including those governing 

the use of budget authority), regulations, contracts, and grant agreements, noncompliance with which 

could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent, or detect 

and correct, misstatements due to fraud or error.

Material Weaknesses Resulted in Ineffective Internal Control over Financial Reporting 

The material weaknesses discussed in this audit report resulted in ineffective internal control over 

financial reporting. Consequently, the federal government’s internal control did not provide reasonable 

assurance that a material misstatement of the consolidated financial statements would be prevented, or 

detected and corrected, on a timely basis. 

In addition to the material weaknesses that contributed to our disclaimers of opinion on the accrualbased consolidated financial statements and the sustainability financial statements, which were 

discussed previously, we found three other material weaknesses in internal control. These other 

material weaknesses were the federal government’s inability to 

• determine the full extent to which improper payments occur and reasonably assure that appropriate 

actions are taken to reduce them, 

• identify and resolve information security control deficiencies and manage information security risks 

on an ongoing basis, and

• effectively implement internal controls over estimating the cost of credit programs and determining 

the value of loans receivable and loan guarantee liabilities.

These material weaknesses are discussed in more detail in appendix III, including the primary effects of 

the material weaknesses on the accrual-based consolidated financial statements and on the 

management of federal government operations.

We also found three significant deficiencies in the federal government’s internal control related to 

implementing effective internal controls at certain federal entities for the following areas:

• taxes receivable,

• federal grants management, and 

• Medicare social insurance information.

These significant deficiencies are discussed in more detail in appendix IV.
U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 244

Further, individual federal entity financial statement audit reports identified additional control 

deficiencies that the entities’ auditors reported as either material weaknesses or significant deficiencies 

at the individual entity level. We do not consider these additional deficiencies to represent material 

weaknesses or significant deficiencies with respect to the U.S. government’s consolidated financial 

statements.

Intended Purpose of Report on Internal Control over Financial Reporting

The purpose of this report on internal control over financial reporting is solely to describe the scope of 

our consideration of internal control over financial reporting, and the results of our procedures, and not 

to provide an opinion on the effectiveness of internal control over financial reporting. This report on 

internal control over financial reporting is an integral part of an audit performed in accordance with U.S. 

generally accepted government auditing standards. Accordingly, this report on internal control over 

financial reporting is not suitable for any other purpose.

Report on Compliance with Laws, Regulations, Contracts, and Grant Agreements

Management’s Responsibility

Management of the federal government is responsible for the federal government’s compliance with 

laws, regulations, contracts, and grant agreements. 

Auditor’s Responsibility

An audit of federal financial statements includes testing compliance with selected provisions of 

applicable laws, regulations, contracts, and grant agreements that have a direct effect on the 

determination of material amounts and disclosures in the financial statements, and performing certain 

other limited procedures. Accordingly, we did not test the federal government’s compliance with all 

laws, regulations, contracts, and grant agreements. Because of the limitations discussed below and the 

scope of our procedures, noncompliance may occur and not be detected by these tests. 

Our objective was not to provide an opinion on the federal government’s compliance with laws, 

regulations, contracts, and grant agreements. Accordingly, we do not express such an opinion. We 

performed our work in accordance with U.S. generally accepted government auditing standards.

Results of Tests for Compliance with Laws, Regulations, Contracts, and Grant Agreements

Our work to test compliance with selected provisions of applicable laws, regulations, contracts, and 

grant agreements was limited by certain of the material weaknesses and other scope limitations 

discussed in this audit report. U.S. generally accepted government auditing standards and OMB 

guidance require auditors to report on entities’ compliance with selected provisions of applicable laws, 

regulations, contracts, and grant agreements. Certain component entity audit reports contain instances 

of noncompliance. None of these instances were deemed to be reportable noncompliance with regard 

to the accompanying U.S. government’s consolidated financial statements.
245 U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT

Intended Purpose of Report on Compliance with Laws, Regulations, Contracts, and Grant Agreements

The purpose of this report on compliance with laws, regulations, contracts, and grant agreements is 

solely to describe the scope of our testing of compliance with selected provisions of applicable laws, 

regulations, contracts, and grant agreements, and the results of that testing, and not to provide an 

opinion on compliance. This report on compliance with laws, regulations, contracts, and grant 

agreements is an integral part of an audit performed in accordance with U.S. generally accepted 

government auditing standards in considering compliance. Accordingly, this report on compliance with 

laws, regulations, contracts, and grant agreements is not suitable for any other purpose.

Agency Comments

We provided a draft of this audit report to Treasury and OMB officials, who provided technical 

comments that we have incorporated as appropriate. Treasury and OMB officials expressed their 

continuing commitment to addressing the problems this report outlines.

Robert F. Dacey

Chief Accountant

U.S. Government Accountability Office

February 19, 2020
U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 246

Appendix I

Objectives, Scope, and Methodology

Our objectives were to audit the consolidated financial statements consisting of the (1) accrual-based 

consolidated financial statements as of and for the fiscal years ended September 30, 2019, and 2018, 

and (2) sustainability financial statements, which consist of the 2019 and 2018 Statements of LongTerm Fiscal Projections; the 2019, 2018, 2017, 2016, and 2015 Statements of Social Insurance; and 

the 2019 and 2018 Statements of Changes in Social Insurance Amounts. Our objectives also included 

reporting on internal control over financial reporting and on compliance with selected provisions of 

applicable laws, regulations, contracts, and grant agreements. 

The Chief Financial Officers Act of 1990 (CFO Act), as expanded by the Government Management 

Reform Act of 1994 (GMRA), requires the inspectors general of the 24 CFO Act agencies to be 

responsible for annual audits of agency-wide financial statements prepared by these agencies.22

GMRA requires GAO to be responsible for the audit of the U.S. government’s consolidated financial 

statements.23 The Accountability of Tax Dollars Act of 2002 (ATDA) requires most other executive 

branch entities to prepare financial statements annually and have them audited.24 The Office of 

Management and Budget and the Department of the Treasury (Treasury) have identified 40 federal 

entities that are significant to the U.S. government’s fiscal year 2019 consolidated financial statements, 

including the 24 CFO Act agencies.25 We consider these 40 entities to be significant component entities 

for purposes of our audit of the consolidated financial statements. For the significant component entities 

audited by inspectors general and independent public accountants, we performed our work in 

coordination and cooperation with them to achieve our respective audit objectives. Our audit approach 

regarding the accrual-based consolidated financial statements primarily focused on determining the 

current status of the material weaknesses that contributed to our disclaimer of opinion on the accrualbased consolidated financial statements and the other material weaknesses affecting internal control 

that we reported in our report on the consolidated financial statements for fiscal year 2018.26 We also 

separately audited the financial statements of certain component entities, and parts of a significant 

component entity, including the following. 

• We audited and expressed an unmodified opinion on the Internal Revenue Service’s (IRS) financial 

statements as of and for the fiscal years ended September 30, 2019, and 2018.27 In fiscal years 

2019 and 2018, IRS collected about $3.6 trillion and $3.5 trillion, respectively, in tax payments and 

paid about $452 billion and $464 billion, respectively, in refunds and outlays to taxpayers. For fiscal 

year 2019, we also reported that although internal controls could be improved, IRS maintained, in 

all material respects, effective internal control over financial reporting. In addition, we reported that 

we found no reportable noncompliance for fiscal year 2019 with provisions of applicable laws, 

regulations, contracts, and grant agreements we tested. 

2231 U.S.C. § 3521(e). GMRA authorized the Office of Management and Budget to designate agency components that also 

must report financial statements and have them audited. See 31 U.S.C. § 3515(c).

23GMRA, Pub. L. No. 103-356, § 405(c), 108 Stat. 3410, 3416-17 (Oct. 13, 1994), codified at 31 U.S.C. § 331(e)(2). 

24ATDA, Pub. L. No. 107-289, 116 Stat. 2049 (Nov. 7, 2002), codified at 31 U.S.C. § 3515.

25See app. A of the Fiscal Year 2019 Financial Report of the United States Government for a list of the 40 entities.

26GAO, Financial Audit: Fiscal Years 2018 and 2017 Consolidated Financial Statements of the U.S. Government, GAO-19-

294R (Washington, D.C.: Mar. 28, 2019). 

27GAO, Financial Audit: IRS’s FY 2019 and FY 2018 Financial Statements, GAO-20-159 (Washington, D.C.: Nov. 8, 2019). 
247 U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT

• We audited and expressed an unmodified opinion on the Schedules of Federal Debt managed by 

Treasury’s Bureau of the Fiscal Service (Fiscal Service) for the fiscal years ended September 30, 

2019, and 2018.28 For these 2 fiscal years, the schedules reported 

(1) approximately $16.8 trillion (2019) and $15.8 trillion (2018) of federal debt held by the public,29

(2) about $5.9 trillion (2019) and $5.7 trillion (2018) of intragovernmental debt holdings,30 and (3) 

about $404 billion (2019) and $357 billion (2018) of interest on federal debt held by the public. We 

also reported that although internal controls could be improved, Fiscal Service maintained, in all 

material respects, effective internal control over financial reporting relevant to the Schedule of 

Federal Debt as of September 30, 2019. In addition, we reported that we found no reportable 

noncompliance for fiscal year 2019 with provisions of applicable laws, regulations, contracts, and 

grant agreements we tested related to the Schedule of Federal Debt.

• We audited and expressed unmodified opinions on the U.S. Securities and Exchange 

Commission’s (SEC) and its Investor Protection Fund’s (IPF) financial statements as of and for the 

fiscal years ended September 30, 2019, and 2018.31 We also reported that SEC maintained, in all 

material respects, effective internal control over financial reporting for both the entity as a whole and 

IPF as of September 30, 2019. In addition, we reported that we found no reportable noncompliance 

for either SEC or IPF for fiscal year 2019 with provisions of applicable laws, regulations, contracts, 

and grant agreements we tested. 

• We audited and expressed an unmodified opinion on the Federal Housing Finance Agency’s 

(FHFA) financial statements as of and for the fiscal years ended September 30, 2019, and 2018.32

We also reported that FHFA maintained, in all material respects, effective internal control over 

financial reporting as of September 30, 2019. In addition, we reported that we found no reportable 

noncompliance for fiscal year 2019 with provisions of applicable laws, regulations, contracts, and 

grant agreements we tested.

• We audited and expressed an unmodified opinion on the Office of Financial Stability’s (OFS) 

financial statements for the Troubled Asset Relief Program (TARP) as of and for the fiscal years 

ended September 30, 2019, and 2018.33 We also reported that OFS maintained, in all material 

respects, effective internal control over financial reporting for TARP as of September 30, 2019. In 

addition, we reported that we found no reportable noncompliance for fiscal year 2019 with 

provisions of applicable laws, regulations, contracts, and grant agreements we tested.

28GAO, Financial Audit: Bureau of the Fiscal Service’s FY 2019 and FY 2018 Schedules of Federal Debt, GAO-20-117

(Washington, D.C.: Nov. 8, 2019). 

29Debt held by the public on the Schedules of Federal Debt represents federal debt that Treasury issued and that is held by 

investors outside of the federal government, including individuals, corporations, state or local governments, the Federal 

Reserve, and foreign governments.

30Intragovernmental debt holdings represent federal debt that Treasury owes to federal government accounts, primarily federal 

trust funds, such as those established for Social Security and Medicare.

31GAO, Financial Audit: Securities and Exchange Commission’s FY 2019 and FY 2018 Financial Statements, GAO-20-204R

(Washington, D.C.: Nov. 15, 2019).

32GAO, Financial Audit: Federal Housing Finance Agency’s FY 2019 and FY 2018 Financial Statements, GAO-20-198R

(Washington, D.C.: Nov. 19, 2019). 

33GAO, Financial Audit: Office of Financial Stability (Troubled Asset Relief Program) FY 2019 and FY 2018 Financial 

Statements, GAO-20-160R (Washington, D.C.: Nov. 8, 2019). 
U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 248

• We audited and expressed an unmodified opinion on the Bureau of Consumer Financial 

Protection’s (BCFP)34 financial statements as of and for the fiscal years ended

September 30, 2019, and 2018.35 We also reported that BCFP maintained, in all material respects, 

effective internal control over financial reporting as of September 30, 2019. In addition, we reported 

that we found no reportable noncompliance for fiscal year 2019 with provisions of applicable laws, 

regulations, contracts, and grant agreements we tested. 

• We audited and expressed a disclaimer of opinion on the Schedules of the General Fund36 as of 

and for the fiscal year ended September 30, 2018.37 The underlying scope limitations, which were 

the basis for our disclaimer of opinion on the Schedules of the General Fund, primarily related to (1) 

readily identifying and tracing transactions to determine whether they were properly recorded in the 

Schedules of the General Fund, (2) evaluating and resolving differences with entity reported 

amounts, and (3) supporting the beginning liability for fund balance with Treasury. The Schedules of 

the General Fund as of and for the fiscal year ended September 30, 2019, were not audited to allow 

Treasury sufficient time to develop and begin to implement a remediation plan to address the issues 

we identified as part of our audit of the fiscal year 2018 Schedules of the General Fund.

In addition, we considered the significant entities’ fiscal years 2019 and 2018 financial statements and 

the related auditors’ reports that the inspectors general or contracted independent public accountants 

prepared. Financial statements and audit reports for these entities provide information about the 

entities’ operations. We did not audit, and we do not express an opinion on, any of these individual 

federal entity financial statements. 

Our audit approach included performing work over Treasury processes and controls used to prepare 

the consolidated financial statements. We also considered our ongoing audit work on the General Fund 

of the U.S. Government.

We also considered the disclaimers of opinion issued by the Department of Defense (DOD) Office of 

Inspector General (OIG) on DOD’s department-wide financial statements as of and for the fiscal years 

ended September 30, 2019, and 2018.38 The disclaimers of opinion were partially based on the 

disclaimers of opinion for multiple DOD components, including the Army, Navy, Air Force, U.S. Marine 

Corps, Defense Health Program, Defense Logistics Agency, U.S. Transportation Command, and U.S. 

Special Operations Command. The DOD OIG also reported 25 material weaknesses in internal control 

over financial reporting, including those related to (1) property, plant, and equipment; (2) inventory and 

related property; (3) environmental and disposal liabilities; (4) reconciliations of disbursement activity; 

(5) intragovernmental eliminations; (6) financial statement compilation; and (7) financial management 

systems and information technology. 

34The Bureau of Consumer Financial Protection, which was established by the Dodd-Frank Wall Street Reform and Consumer 

Protection Act, Pub. L. No. 111-203, Title X, § 1011(a), 124 Stat. 1376, 1964 (July 21, 2010), codified at 12 U.S.C. § 5491(a), 

is often referred to as the Consumer Financial Protection Bureau (CFPB).

35GAO, Financial Audit: Bureau of Consumer Financial Protection’s FY 2019 and FY 2018 Financial Statements, GAO-20-

192R (Washington, D.C.: Nov. 15, 2019). 

36The General Fund of the U.S. Government is a component of Treasury’s central accounting function. It is a stand-alone 

reporting entity that comprises the activities fundamental to funding the federal government (e.g., issued budget authority, 

cash activity, and debt financing activities). 

37GAO, Financial Audit: Bureau of the Fiscal Service’s Fiscal Year 2018 Schedules of the General Fund, GAO-19-185

(Washington, D.C.: May 15, 2019).

38Department of Defense, United States Department of Defense Agency Financial Report for Fiscal Year 2019, (Alexandria, 

Va.: Nov. 15, 2019).
249 U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT

Our audit approach for the 2019 and 2018 Statements of Long-Term Fiscal Projections focused 

primarily on assuring that the information relating to the Statements of Social Insurance is properly 

reflected therein and testing the methodology used as well as evaluating key assumptions. We also 

evaluated whether the internal control deficiencies related to the accrual-based consolidated financial 

statements affected certain key inputs used in generating the projections.

Because of the significance of the amounts presented in the Statements of Social Insurance and 

Statements of Changes in Social Insurance Amounts related to the Social Security Administration 

(SSA) and the Department of Health and Human Services (HHS), our audit approach regarding these 

statements focused primarily on these two federal entities. For each federal entity preparing a 

Statement of Social Insurance and Statement of Changes in Social Insurance Amounts,39 we 

considered the entity’s 2019, 2018, 2017, 2016, and 2015 Statements of Social Insurance and the 2019 

and 2018 Statements of Changes in Social Insurance Amounts, as well as the related auditor’s reports 

that the inspectors general or contracted independent public accountants prepared. 

We performed sufficient audit work to provide our reports on (1) the consolidated financial statements; 

(2) internal control over financial reporting; and (3) compliance with selected provisions of applicable 

laws, regulations, contracts, and grant agreements. We considered the limitations on the scope of our 

work regarding the accrual-based consolidated financial statements and the sustainability financial 

statements in forming our conclusions. We performed our work in accordance with U.S. generally 

accepted government auditing standards. 

39These entities are SSA, HHS, the Railroad Retirement Board, and the Department of Labor.
U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 250

Appendix II

Material Weaknesses Contributing to Our Disclaimer of Opinion on the Accrual-Based 

Consolidated Financial Statements

The material weaknesses discussed below contributed to our disclaimer of opinion on the federal 

government’s accrual-based consolidated financial statements.40 The federal government did not have 

sufficient appropriate evidence to support information reported in the accompanying accrual-based 

consolidated financial statements, as described below. 

Property, Plant, and Equipment and Inventories and Related Property 

The federal government could not satisfactorily determine that property, plant, and equipment (PP&E) 

and inventories and related property were properly reported in the accrual-based consolidated financial 

statements. Most of the PP&E and inventories and related property are the responsibility of the 

Department of Defense (DOD). As in past years, DOD did not maintain adequate systems or have 

sufficient records to provide reliable information on these assets. Certain other entities’ auditors 

reported continued deficiencies in internal control procedures and processes related to PP&E.

Deficiencies in internal control over PP&E and inventories and related property could affect the federal 

government’s ability to fully know the assets it owns, including their location and condition. They can 

also affect the government’s ability to effectively (1) safeguard assets from physical deterioration, theft, 

or loss; (2) account for acquisitions and disposals of such assets and reliably report asset balances; (3) 

ensure that the assets are available for use when needed; (4) prevent unnecessary storage and 

maintenance costs or purchase of assets already on hand; and (5) determine the full costs of programs 

that use these assets.

Liabilities and Commitments and Contingencies 

The federal government could not reasonably estimate or adequately support amounts reported for 

certain liabilities. For example, DOD was not able to estimate with assurance key components of its 

environmental and disposal liabilities. In addition, DOD could not support a significant amount of its 

estimated military postretirement health benefits liabilities included in federal employee and veteran 

benefits payable. These unsupported amounts relate to the cost of direct health care that DODmanaged military treatment facilities provided. Further, the federal government could not determine 

whether commitments and contingencies, including any related to treaties and other international 

agreements entered into to further the federal government’s interests, were complete and properly 

reported. 

Problems in accounting for liabilities affect the determination of the full cost of the federal government’s 

current operations and the extent of its liabilities. Also, deficiencies in internal control supporting the 

process for estimating environmental and disposal liabilities could result in improperly stated liabilities, 

and could adversely affect the federal government’s ability to determine priorities for cleanup and 

disposal activities and to appropriately consider future budgetary resources needed to carry out these 

activities. In addition, to the extent disclosures of commitments and contingencies are incomplete or 

incorrect, reliable information is not available about the extent of the federal government’s obligations.

40The material weakness related to the Reconciliations of Budget Deficit to Net Operating Cost and Changes in Cash Balance 

also contributed to our disclaimer on the 2019 and 2018 Statements of Long-Term Fiscal Projections.
251 U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT

Cost of Government Operations and Disbursement Activity 

Reported net costs were affected by the previously discussed material weaknesses in reporting assets 

and liabilities; material weaknesses in financial statement preparation, as discussed below; and the lack 

of adequate disbursement reconciliations at certain federal entities. As a result, the federal government 

was unable to support significant portions of the reported total net cost of operations, most notably 

those related to DOD. 

With respect to disbursements, auditors of DOD and certain other federal entities reported continued 

control deficiencies in reconciling disbursement activity. For fiscal years 2019 and 2018, inadequate 

reconciliations of disbursement activity included (1) unreconciled differences between federal entities’ 

and the Department of the Treasury’s (Treasury) records of disbursements and (2) unsupported federal 

entity adjustments, which could also affect the balance sheet.

Unreliable cost information affects the federal government’s ability to control and reduce costs, assess 

performance, evaluate programs, and set fees to recover costs where required or authorized. If 

disbursements are improperly recorded, this could result in misstatements in the financial statements 

and in certain data that federal entities provide for inclusion in The Budget of the United States 

Government (President’s Budget) concerning obligations and outlays. 

Intragovernmental Activity and Balances 

Significant progress has been made over the past few years, but the federal government continues to 

be unable to adequately account for intragovernmental activity and balances between federal entities. 

Federal entities are responsible for properly accounting for and reporting their intragovernmental 

activity and balances in their entity financial statements. When preparing the consolidated financial 

statements, intragovernmental activity and balances between federal entities should be in agreement 

and must be subtracted out, or eliminated, from the financial statements. If the two federal entities 

engaged in an intragovernmental transaction do not both record the same intragovernmental 

transaction in the same year and for the same amount, the intragovernmental transactions will not be in 

agreement, and if not properly resolved, would result in errors (i.e., differences or unmatched amounts) 

in the consolidated financial statements. The Office of Management and Budget (OMB) and Treasury 

have issued guidance directing component entities to reconcile intragovernmental activity and balances 

with their trading partners and resolve identified differences. In addition, the guidance directs the chief 

financial officers (CFO) of significant component entities to report to Treasury, their respective 

inspectors general, and GAO on the extent and results of their intragovernmental activity and balance 

reconciliation efforts as of the end of the fiscal year.

To support this process during fiscal year 2019, Treasury continued to actively work with significant 

component entities to provide information and assistance to aid them in resolving intragovernmental 

differences. Treasury’s quarterly scorecard process41 highlights differences needing the entities’ 

attention, identifies differences that need to be resolved through a formal dispute resolution process,42

and reinforces the entities’ responsibilities to resolve intragovernmental differences. Treasury continued 

to perform procedures for identifying and monitoring systemic root causes of intragovernmental 

41For each quarter, Treasury produces a scorecard for each significant entity, as well as any other component entity reporting 

significant intragovernmental balances or differences, that reports various aspects of the entity’s intragovernmental differences 

with its trading partners, including the composition of the differences by trading partner and category. Pursuant to Treasury 

guidance, entities are expected to resolve, with their respective trading partners, the differences identified in their scorecards. 

42When an entity and its respective trading partner cannot resolve an intragovernmental difference, Treasury guidance directs 

the entity to request that Treasury resolve the dispute. Treasury will review the dispute and issue a decision on how to resolve 

the difference, which the entities must follow.
U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 252

differences and related corrective action plans to address the root causes. In addition, Treasury worked 

with DOD concerning its material weakness in intragovernmental activity and balances. Further, over 

the past few years, Treasury has made significant progress by (1) improving the accounting for and 

reporting of General Fund transactions and balances, (2) working to resolve significant differences 

between the General Fund of the U.S. Government (General Fund) and federal entity trading partners, 

and (3) including differences involving General Fund activity and balances in the quarterly scorecard 

process.43 As a result of these and other actions, a significant number of intragovernmental differences 

were identified and resolved. 

While progress was made, we continued to note that amounts reported by federal entity trading 

partners to Treasury were not in agreement by material amounts. Reasons for the differences that 

several CFOs cited included differing accounting methodologies, accounting errors, and timing 

differences. Auditors for several significant component entities continued to report that the entities did 

not have effective processes for reconciling intragovernmental activity and balances with their trading 

partners. For example, auditors reported that the DOD accounting systems were unable to capture 

intradepartmental and intragovernmental data at the transaction level for reconciliation and reporting, 

which resulted in a high risk of material misstatement for all financial statement line items.

The federal government’s ability to determine the effect of the intragovernmental deficiencies discussed 

above on the accrual-based consolidated financial statements is significantly impaired. Addressing the 

intragovernmental transactions problem remains a difficult challenge and will require federal entities’ 

strong and sustained commitment to resolving differences with their trading partners timely, as well as 

Treasury’s and OMB’s continued strong leadership.

Preparation of Consolidated Financial Statements

Treasury, in coordination with OMB, has implemented corrective actions in recent years related to the 

preparation of the consolidated financial statements. Corrective actions included improving systems 

and implementing new processes for preparing the consolidated financial statements, enhancing 

guidance for collecting data from component entities, and implementing procedures to address certain 

internal control deficiencies detailed in our previously issued management report.44 However, the 

federal government’s systems, controls, and procedures were not adequate to reasonably assure that 

the consolidated financial statements are consistent with the underlying audited entity financial 

statements, properly balanced, and in accordance with U.S. generally accepted accounting principles 

(U.S. GAAP). During our fiscal year 2019 audit, deficiencies in the preparation of the consolidated 

financial statements included the following.

• For fiscal year 2019, auditors reported internal control deficiencies at several component entities 

regarding their entity-level controls, including the control environment, risk assessment, information 

and communication, and monitoring components of internal control, that could affect Treasury’s 

ability to obtain reliable financial information from federal entities for consolidation. For example, 

DOD did not have sufficient entity-level controls to establish an internal control system that will 

produce reliable financial reporting, Also, the Department of Veterans Affairs (VA) lacked an 

effective entity-level control system, which, coupled with a decentralized reporting structure and 

43The General Fund of the U.S. Government is a component of Treasury’s central accounting function. It is a stand-alone 

reporting entity that comprises the activities fundamental to funding the federal government (e.g., issued budget authority, 

cash activity, and debt financing activities).

44Most of the issues we identified in fiscal year 2019 existed in fiscal year 2018, and many have existed for a number of years. 

Most recently, in September 2019, we reported on the status of the issues we identified to Treasury and OMB and provided 

recommendations for corrective action. See GAO, Management Report: Improvements Needed in Controls over the 

Processes Used to Prepare the U.S. Consolidated Financial Statements, GAO-19-624 (Washington, D.C.: Sept. 4, 2019). 
253 U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT

legacy system issues, has led to systemic and pervasive control deficiencies that impede VA’s 

ability to process, summarize, and report reliable financial information in a timely manner.

• For fiscal year 2019, auditors reported internal control deficiencies at several component entities 

related to the entities’ financial reporting processes that could affect information included in the 

consolidated financial statements. For example, DOD could not demonstrate that its financial 

statements were consistent with underlying records.

• For fiscal year 2019, Treasury did not have sufficient procedures, as part of its new process for 

preparing the consolidated financial statements, to reasonably assure that certain information was 

adequately supported by audited entity-level financial information. For example, Treasury recorded 

significant adjustments to federal entities’ dedicated collection information, but such adjustments 

were not based on audited entity-level financial information. Some amounts in the draft 

consolidated financial statements were materially incorrect and the supporting documentation was 

not sufficient. Treasury corrected the amounts and provided additional support after the preparation 

of the first draft.

• While progress has been made, Treasury is unable to properly balance the accrual-based 

consolidated financial statements because of its inability to fully eliminate intragovernmental activity 

and balances. To make the fiscal years 2019 and 2018 consolidated financial statements balance, 

Treasury recorded a net decrease of $1.6 billion and a net increase of $2.4 billion, respectively, to 

net operating cost on the Statements of Operations and Changes in Net Position, which were 

identified as “Unmatched transactions and balances.”45 Treasury recorded an additional net $4.5 

billion and $1.3 billion of unmatched transactions in the Statements of Net Cost for fiscal years 2019 

and 2018, respectively. The material weakness in the federal government’s ability to account for 

intragovernmental activity and balances, discussed above, significantly contributes to this issue.

• Over the past several years, Treasury has taken significant actions to help ensure that financial 

information is reported or disclosed in the consolidated financial statements in accordance with U.S. 

GAAP. For example, Treasury has developed and implemented U.S. GAAP compliance operating 

procedures and checklists. Also, Treasury continued working with entities to improve reporting of 

commitments and contingencies related to treaties and other international agreements. However, 

Treasury’s reporting of certain financial information required by U.S. GAAP continues to be 

impaired. Because of certain control deficiencies noted in this audit report—for example, 

commitments and contingencies related to treaties and other international agreements—Treasury is 

precluded from determining if U.S. GAAP requires additional disclosure in the consolidated financial 

statements, and we are precluded from determining whether the omitted information is material. 

Further, Treasury’s ability to report information in accordance with U.S. GAAP will also remain 

impaired until federal entities can provide Treasury with the complete and reliable information 

required to be reported in the consolidated financial statements. For example, in fiscal year 2019 

DOD auditors reported that DOD did not properly recognize and disclose property transfers that 

occurred in connection with the Military Housing Privatization Initiative. 

45Although Treasury was unable to determine how much of the unmatched transactions and balances relates to net operating 

cost, it reported this amount as a component of net operating cost in the accompanying consolidated financial statements. 
U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 254

In fiscal year 2019, Treasury continued to make progress with corrective actions intended to resolve 

internal control deficiencies in the processes used to prepare the consolidated financial statements. For 

example, Treasury designed and implemented additional tools to consistently report restatements, 

reclassifications, and adjustments to beginning net position in the consolidated financial statements. 

Treasury also made improvements to the processes and procedures for obtaining and assessing legal 

contingency information, such as enhancing the schedule submitted by entities summarizing the 

contingencies included in their legal representation letters.

However, until these internal control deficiencies have been fully addressed, the federal government’s 

ability to reasonably assure that the consolidated financial statements are consistent with the 

underlying audited federal component entities’ financial statements, properly balanced, and in 

accordance with U.S. GAAP will be impaired. In recent years, Treasury has continued to improve its 

systems and processes for preparing the consolidated financial statements. It is important that Treasury 

(1) continues to improve its systems and processes and (2) remains committed to maintaining the 

progress that has been made in this area and building on that progress to make needed improvements 

that fully address the magnitude of the financial reporting challenges it faces. Resolving the remaining 

internal control deficiencies continues to be a difficult challenge and will require a strong and sustained 

commitment from Treasury, OMB, and federal entities.

Reconciliations of Budget Deficit to Net Operating Cost and Changes in Cash Balance 

The Reconciliations of Net Operating Cost and Budget Deficit and the Statements of Changes in Cash 

Balance from Budget and Other Activities (Reconciliation Statements) reconcile (1) the accrual-based 

net operating cost to the primarily cash-based budget deficit and (2) the budget deficit to changes in 

cash balances. The budget deficit is calculated by subtracting actual budget outlays (outlays) from 

actual budget receipts (receipts).46 The outlays and receipts are key inputs to the Statements of LongTerm Fiscal Projections. 

Treasury continued to develop its process for preparing the Reconciliation Statements. For example, 

during fiscal year 2019, Treasury implemented procedures and developed new transaction codes to 

improve the accounting for and reporting of General Fund transactions and balances that Treasury 

uses to compute the budget deficit reported in the consolidated financial statements. However, as 

reported in our disclaimer of opinion on the fiscal year 2018 Schedules of the General Fund, Treasury 

was unable to timely provide sufficient appropriate evidence to support certain information reported in 

the Schedules of the General Fund. Such limitations primarily related to (1) readily identifying and 

tracing transactions to determine whether they were properly recorded in the Schedules of the General 

Fund, (2) evaluating and resolving differences with entity-reported amounts, and (3) supporting the 

beginning liability for fund balance with Treasury.47 One of the two General Fund schedules provides 

information supporting the Statements of Changes in Cash Balance from Budget and Other Activities. 

Treasury developed and began to implement a remediation plan to address the issues we identified as 

part of our audit of the fiscal year 2018 Schedules of the General Fund. Because of the nature and 

complexity of issues identified, some of the control deficiencies are expected to be remediated over 

several years. 

46The budget deficit, receipts, and outlays amounts are reported in Treasury’s Monthly Treasury Statement and the President’s 

Budget.

47GAO, Financial Audit: Bureau of the Fiscal Service’s Fiscal Year 2018 Schedules of the General Fund, GAO-19-185

(Washington, D.C.: May 15, 2019).
255 U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT

As of the end of fiscal year 2019, Treasury’s processes and procedures for preparing the reconciliation 

statements were not effective in (1) identifying and reporting all the items in the Reconciliation 

Statements, (2) properly supporting amounts used in calculating the budget deficit, and (3) reasonably 

assuring that the information in these statements was fully consistent with the underlying information in 

the significant component entities’ audited financial statements and other financial data. Consequently, 

there may be misstatements in the Reconciliation Statements.

In fiscal year 2019, we again noted that several entities’ auditors reported internal control deficiencies 

related to monitoring, accounting, reconciliation, and reporting of budgetary transactions, including 

deficiencies related to federal entities’ budget and accrual reconciliations.48 These control deficiencies 

could affect the reporting and calculation of the net outlay amounts in the entities’ Statements of 

Budgetary Resources. In addition, such deficiencies may also affect the entities’ ability to report reliable 

budgetary information to Treasury and OMB and may affect the budget deficit reported in the accrualbased consolidated financial statements. Treasury also reports the budget deficit in its Combined 

Statement of Receipts, Outlays, and Balances and in other federal government publications.49

48Statement of Federal Financial Accounting Standards 53, Budget and Accrual Reconciliation: Amending SFFAS 7, and 24, 

and Rescinding SFFAS 22, became effective for periods beginning after September 30, 2018, and provides for the budget and 

accrual reconciliation (BAR) to replace the statement of financing. The BAR explains the relationship between the entity’s net 

outlays on a budgetary basis and the net cost of operations during the period. 

49Treasury’s Combined Statement of Receipts, Outlays, and Balances presents budget results and cash-related assets and 

liabilities of the federal government with supporting details. According to Treasury, this report is the recognized official 

publication of receipts and outlays of the federal government based on entity reporting.
U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 256

Appendix III

Other Material Weaknesses

Material weaknesses in internal control discussed in this audit report resulted in ineffective controls 

over financial reporting. In addition to the material weaknesses discussed in appendix II that contributed 

primarily to our disclaimer of opinion on the accrual-based consolidated financial statements, we found 

the following three other material weaknesses in internal control. 

Improper Payments50

The federal government is unable to determine the full extent to which improper payments occur and 

reasonably assure that appropriate actions are taken to reduce them. Reducing improper payments is 

critical to safeguarding federal funds.51 The Improper Payments Information Act of 2002 (IPIA), as 

amended by the Improper Payments Elimination and Recovery Act of 2010 (IPERA) and the Improper 

Payments Elimination and Recovery Improvement Act of 2012 (IPERIA),52 requires federal executive 

agencies53 to do the following: 

1. Review all programs and activities. 

2. Identify those that may be susceptible to significant improper payments. 

3. Estimate the annual amount of improper payments for those programs and activities identified as 

susceptible to significant improper payments. 

4. Implement actions to reduce improper payments and set reduction targets with respect to the risksusceptible programs and activities. 

5. Report on the results of addressing the foregoing requirements. 

Agency improper payment estimates totaled about $175 billion for fiscal year 2019, based on improper 

payment estimates reported by federal program or activity.54 This represents about 4 percent of the 

federal government’s reported outlays for fiscal year 2019 of $4.4 trillion. The government-wide total of 

reported estimated improper payments, among programs and activities that reported estimates, 

50Since the conclusion of fiscal year 2019, Congress passed the Payment Integrity Information Act of 2019 (PIIA). S. 375, 

116th Cong. This bill would repeal IPIA, IPERA, and IPERIA and would enact a new Subchapter in Title 31 of the U.S. Code, 

containing substantially similar provisions. Under PIIA, some details would change; however, the core structure of executive 

agency assessment, estimation, and reporting of improper payments would remain consistent with the statutory framework in 

effect during fiscal year 2019, as described in this report.

51Under the Improper Payments Information Act of 2002, as amended, an improper payment is statutorily defined as any 

payment that should not have been made or that was made in an incorrect amount (including overpayments and 

underpayments) under statutory, contractual, administrative, or other legally applicable requirements. It includes any payment 

to an ineligible recipient, any payment for an ineligible good or service, any duplicate payment, any payment for a good or 

service not received (except for such payments where authorized by law), and any payment that does not account for credit for 

applicable discounts. Office of Management and Budget guidance also provides that when an agency's review is unable to 

discern whether a payment was proper as a result of insufficient or lack of documentation, this payment must also be 

considered an improper payment.

52IPIA, Pub. L. No. 107-300, 116 Stat. 2350 (Nov. 26, 2002), as amended by IPERA, Pub. L. No. 111-204, 124 Stat. 2224 (July 

22, 2010), and IPERIA, Pub. L. No. 112-248, 126 Stat. 2390 (Jan. 10, 2013), and reprinted in 31 U.S.C. § 3321 note. 

53IPIA, as amended, statutorily defines agencies as executive agencies as that term is defined under 31 U.S.C. § 102 to mean 

departments, agencies, or instrumentalities in the executive branch of the United States.

54As in fiscal years 2017 and 2018, the Fiscal Year 2019 Financial Report of the United States Government did not include a 

government-wide improper payment estimate or improper payment rate (also sometimes referred to as an error rate). From 

fiscal year 2003 through fiscal year 2016, a government-wide estimate and error rate had been reported in financial reports 

based on the programs and activities that reported estimates.
257 U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT

increased by about $24 billion from the prior year estimate of about $151 billion. While decreases in 

estimated improper payments were reported for several programs and activities, these were offset by 

increases for certain other programs and activities.55 For example, the Department of Health and 

Human Services (HHS) reported an increase of estimated improper payments in excess of $21 billion 

for Medicaid in fiscal year 2019. Also, estimated improper payments of about $9 billion for two

Department of the Treasury (Treasury) tax programs were reported for the first time. It is important to 

note that reported improper payment estimates include overpayments, underpayments, and payments 

for which the agency could not find sufficient documentation, and may also be based on payment data 

and sampling drawn from periods that do not coincide with the fiscal year for which the estimates are 

reported. Federal agencies reported about $75 billion of the government-wide estimate as monetary 

loss, an amount that should not have been paid and in theory should or could be recovered.

The specific programs and activities included in the government-wide total of reported improper 

payment estimates may change from year to year. For example, four agencies did not report fiscal year 

2019 estimated improper payment amounts for six programs and activities that were identified by the 

agency or OMB as risk-susceptible, including HHS’s Temporary Assistance for Needy Families 

(TANF).56 Further, various inspectors general reported deficiencies related to 

55For fiscal year 2019, agencies reported decreases in total estimated improper payments in excess of $1 billion for five 

programs and activities and increases in total estimated improper payments in excess of $1 billion for six programs and 

activities. The five programs and activities with a decrease in excess of $1 billion were the Department of Education’s 

(Education) Pell Grant activity; Education’s Direct Loan activity; the Department of Health and Human Services’ (HHS) 

Medicare Fee-for-Service; the Social Security Administration’s (SSA) Old-Age, Survivors, and Disability Insurance; and the 

Department of the Treasury’s (Treasury) Earned Income Tax Credit (EITC). The six programs and activities with increases in 

excess of $1 billion were HHS’s Medicaid; Treasury’s Additional Child Tax Credit (ACTC); the Department of Defense’s (DOD) 

Military Pay; Treasury’s American Opportunity Tax Credit (AOTC); HHS’s Children’s Health Insurance Program (CHIP); and 

HHS’s Medicare Advantage (Part C).

56The six programs and activities were (1) HHS's TANF, (2) HHS's Advance Premium Tax Credit, (3) Treasury’s Premium Tax 

Credit, (4) the Department of Agriculture’s (USDA) Summer Food Service Program, (5) the Department of Housing and Urban 

Development’s (HUD) Rental Housing Assistance Program (RHAP) – Tenant-Based Rental Assistance, and (6) HUD’s RHAP 

– Project-Based Rental Assistance. In addition, for fiscal year 2019, the Department of Labor (Labor) reported that it did not 

report an improper payment estimate for the National Disaster Workforce Grants program, and the Department of Homeland 

Security reported that it did not report improper payment estimates for 10 disaster relief programs. These programs were 

subject to improper payment reporting because in fiscal year 2017 or fiscal year 2018, or both, they received supplemental 

appropriations for disaster relief and expended more than $10 million of such funds in one fiscal year, thus meeting the 

appropriations’ criteria for determining programs’ susceptibility to significant improper payments for the purposes of the IPIA. 

See Additional Supplemental Appropriations for Disaster Relief Requirements Act, 2017, Pub. L. No. 115-72, div. A, § 305(b), 

131 Stat. 1224, 1228 (Oct. 26, 2017), as amended by the Further Additional Supplemental Appropriations for Disaster Relief 

Requirements Act, 2018, Pub. L. No. 115-123, div. B, §§ 21207, 21208(a)(2), (b), 132 Stat. 64, 108 (Feb. 9, 2018).
U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 258

compliance with the criteria listed in IPERA for fiscal year 2018 at their respective agencies,57 including 

risk-susceptible programs and activities that did not report improper payment estimates, estimation 

methodologies that may not produce reliable estimates, and risk assessments that may not accurately 

assess the risk of improper payment. For example, the Department of Defense (DOD) Office of 

Inspector General reported that DOD did not ensure that all required payments were included in certain 

programs’ improper payment estimates, and as a result, DOD published unreliable estimates of 

improper payments for fiscal year 2018.58

For fiscal year 2019, agencies reported estimated improper payment rates of 10 percent or greater for 

22 risk-susceptible programs and activities,59 accounting for about 59 percent of the government-wide 

total of reported estimated improper payments.60 Under IPERA, if an agency’s inspector general 

determines that the entity is not in compliance with the criteria listed in IPERA, such as reporting an 

improper payment rate of 10 percent or greater for any risk-susceptible program or activity, that agency 

must submit a plan to Congress describing the actions that it will take to come into compliance. 

Further, agency auditors continued to report internal control deficiencies over financial reporting in their 

fiscal year 2019 financial statement audit reports, such as financial system limitations and information 

system control weaknesses. Such deficiencies could significantly increase the risk that improper 

payments may occur and not be detected promptly. 

The President’s fiscal years 2019 and 2020 budgets included program integrity proposals at multiple 

agencies aimed at reducing improper payments. Also, efforts continue to implement IPERIA 

requirements in order to better identify and prevent improper payments, waste, fraud, and abuse, as 

well as to recover overpayments. Among other things, IPERIA established the statutory Do Not Pay 

initiative, requiring agencies to review prepayment and pre-award procedures and ensure a thorough 

review of available databases to determine program or award eligibility before the release of any 

57IPERA established a requirement for agency inspectors general to report annually on their respective agencies’ compliance 

with criteria listed in section three of IPERA. The six criteria are that the agency has (1) published an annual financial 

statement and accompanying materials in the form and content that OMB requires for the most recent fiscal year and posted 

that report on the agency website; (2) conducted a risk assessment for each specific program or activity that conforms with 

IPIA, as amended; (3) published estimates of improper payments for all programs and activities identified as susceptible to 

significant improper payments under the agency’s risk assessment; (4) published corrective action plans for programs and 

activities assessed to be at risk for significant improper payments; (5) published and met annual reduction targets for all 

programs and activities assessed to be at risk for significant improper payments; and (6) reported a gross improper payment 

rate of less than 10 percent for each program and activity for which an improper payment estimate was published. The most 

recent inspector general reports on compliance with the criteria listed in IPERA were issued in 2019 for fiscal year 2018. 

Pursuant to the OMB implementing guidance in OMB Memorandum M-18-20, appendix C to OMB Circular No. A-123, 

Requirements for Payment Integrity Improvement (June 26, 2018), inspector general reports are due by May 15 of the 

following year (or the next business day if May 15 falls on a weekend). Therefore, inspector general reports on fiscal year 2019 

compliance with the criteria listed in IPERA are expected to be issued no later than May 15, 2020.

58Department of Defense, Office of Inspector General, Audit of the DoD’s FY 2018 Compliance with the Improper Payments 

Elimination and Recovery Act Requirements, Report No. DODIG-2019-087 (Alexandria, Va.: May 15, 2019).

59The improper payment rate reflects the estimated improper payments as a percentage of total annual outlays.

60The 22 programs and activities that reported estimated improper payment rates of 10 percent or greater for fiscal year 2019 

were (1) the Department of Veterans Affairs’ (VA) Purchased Long Term Services and Support; (2) VA’s Community Care; (3) 

VA’s Medical Care Contracts and Agreements; (4) VA’s Communications, Utilities, and Other Rent; (5) the Corporation for 

National and Community Service’s (CNCS) Retired and Senior Volunteer; (6) CNCS’s Senior Companion; (7) CNCS’s Foster 

Grandparent; (8) Treasury’s AOTC; (9) Treasury’s EITC; (10) USDA’s Farm Service Agency (FSA) Noninsured Crop Disaster 

Assistance; (11) VA’s Supplies and Materials; (12) VA’s Beneficiary Travel; (13) USDA’s FSA Livestock Forage Disaster; (14) 

CNCS’s AmeriCorps; (15) USDA’s FSA Agriculture Risk and Price Loss Coverage; (16) USDA’s FSA Hurricane Harvey –

Emergency Conservation; (17) HHS’s CHIP; (18) Treasury’s ACTC; (19) HHS’s Medicaid; (20) the Federal Communications 

Commission’s Rural Health Care; (21) Labor’s Unemployment Insurance; and (22) USDA’s Food and Nutrition Service (FNS) 

School Breakfast.
259 U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT

federal funds. IPERIA also directs OMB to annually identify a list of high-priority federal programs for 

greater levels of oversight and review and requires each agency responsible for administering one of 

these high-priority programs to annually submit a program report to its inspector general and make the 

report available to the public.61 In addition, in March 2018, the President’s Management Agenda 

outlined a long-term vision for modernizing federal operations and improving agencies’ ability to 

achieve outcomes that included a Getting Payments Right initiative. OMB’s current goals for this 

initiative are to (1) build trust in government by better understanding the nature of improper payments 

and their relationship to payment integrity and (2) demonstrate stewardship of taxpayer dollars by 

focusing on getting government payments right the first time they are made and preventing monetary 

loss.62

Until the federal government has implemented effective processes to determine the full extent to which 

improper payments occur and has taken appropriate actions across agencies and programs and 

activities to effectively reduce improper payments, it will not have reasonable assurance that the use of 

federal funds is adequately safeguarded.

Information Security 

GAO has reported information security as a government-wide material weakness since fiscal year 

1997.63 During our fiscal year 2019 audit, we found that serious and widespread information security 

control deficiencies continued to place federal assets at risk of inadvertent or deliberate misuse, 

financial information at risk of unauthorized modification or destruction, sensitive information at risk of 

inappropriate disclosure, and critical operations at risk of disruption. Eighteen of the 24 agencies 

covered by the Chief Financial Officers Act of 1990 reported information security as a material 

weakness or significant deficiency for fiscal year 2019. Specifically, control deficiencies were identified 

related to (1) security management; (2) access to computer data, equipment, and facilities; (3) changes 

to and configuration of information system resources; (4) segregation of incompatible duties; and (5) 

contingency planning. 

Such information security control deficiencies increase the risk of unauthorized access to, modification 

of, or disclosure of sensitive data and programs and disruptions of critical operations. A primary reason 

for these deficiencies is that federal entities generally have not yet fully institutionalized comprehensive 

security management programs, which are critical to identifying information security control 

deficiencies, resolving information security problems, and managing information security risks on an 

ongoing basis. Until agencies identify and resolve these deficiencies and effectively manage 

information security risks on an ongoing basis, federal data and systems, including financial 

information, will remain at risk.

61OMB has designated high-priority programs as those programs and activities with improper payment estimates that exceed 

$2 billion annually. The 14 programs and activities with reported improper payment estimates greater than $2 billion in fiscal 

year 2019 were (1) HHS’s Medicaid; (2) HHS’s Medicare Fee-for-Service; (3) Treasury’s EITC; (4) HHS’s Medicare 

Advantage; (5) DOD’s Military Pay; (6) Treasury’s ACTC; (7) VA’s Community Care; (8) SSA’s Supplemental Security Income; 

(9) USDA’s FNS Supplemental Nutrition Assistance; (10) Labor’s Unemployment Insurance; (11) HHS’s CHIP; (12) SSA’s Old 

Age, Survivors, and Disability Insurance; (13) VA’s Purchased Long Term Services and Support; and (14) Treasury’s AOTC.

62According to OMB Circular No. A-136, Financial Reporting Requirements (rev. June 28, 2019), at II.4.5., “monetary loss” 

represents an amount that should not have been paid and in theory should or could be recovered.

63We have also reported information security as a government-wide high-risk area since 1997. For more information, see 

GAO, High-Risk Series: Substantial Efforts Needed to Achieve Greater Progress on High-Risk Areas, 

GAO-19-157SP (Washington, D.C.: Mar. 6, 2019).
U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 260

Loans Receivable and Loan Guarantee Liabilities

Internal control deficiencies were identified at certain federal entities that accounted for a majority of the 

reported balances of loans receivable and loan guarantee liabilities.64 The deficiencies related to credit 

program cost estimation, associated control activities, and financial reporting processes. These 

deficiencies and complexities associated with estimating the costs of loan and loan guarantee 

programs and related financing activities significantly increase the risk that misstatements in federal 

entity and government-wide financial statements could occur and go undetected. Further, these 

deficiencies can adversely affect the entities’ ability to support annual budget requests for these 

programs, make future budgetary decisions, manage program costs, and measure the performance of 

lending activities.

64Entities contributing to the material weakness for loans receivable and loan guarantee liabilities include the Department of 

Education, Department of Housing and Urban Development, Department of Transportation, Department of Veterans Affairs, 

and Small Business Administration.
261 U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT

Appendix IV

Significant Deficiencies

In addition to the material weaknesses discussed in appendixes II and III, we found three significant 

deficiencies in the federal government’s internal control related to maintaining effective internal controls 

at certain federal entities, as described below. 

Taxes Receivable

During fiscal year 2019, a significant deficiency continued to affect the federal government’s ability to 

manage its taxes receivable effectively. While the Department of the Treasury’s Internal Revenue 

Service (IRS) made necessary and appropriate adjustments derived from a statistical estimation 

process to correct its financial statements, IRS’s underlying records did not always reflect the correct 

amount of taxes owed by the public to the federal government at interim periods and year-end because 

of financial system limitations and other control deficiencies that led to errors in taxpayers’ accounts. 

Such inaccurate tax records impair management’s ability to effectively manage taxes receivable 

throughout the year and place an undue burden on taxpayers who may be compelled to respond to IRS 

inquiries caused by errors in taxpayer accounts.

Federal Grants Management

In fiscal year 2019, several federal entities’ auditors continued to identify internal control deficiencies 

related to grants management.65 Reported deficiencies primarily related to monitoring of grant activities, 

accounting for grants, and untimely recognition of grant expenses. These internal control deficiencies 

could adversely affect the federal government’s ability to provide reliable financial statements as well as 

reasonable assurance that grants are awarded properly, recipients are eligible, and federal grant funds 

are used as intended. 

Medicare Social Insurance Information

In fiscal year 2019, auditors for the Department of Health and Human Services (HHS) identified internal 

control deficiencies in certain controls related to the sufficiency of the review of methodologies and 

related calculations and estimates used in HHS’s preparation of its Statement of Social Insurance for 

the Medicare program. Such control deficiencies could result in misstatements to the Statement of 

Social Insurance.

65Key entities contributing to the significant deficiency for federal grants management include the Departments of Homeland 

Security, Housing and Urban Development, and Transportation.