MANAGEMENT’S DISCUSSION AND ANALYSIS 12

MANAGEMENT’S DISCUSSION AND 

ANALYSIS 

Introduction 

The FY 2022 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 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 164 federal consolidation entities (see 

organizational chart on the next page and Appendix A). As it has for the past 25 years, GAO issued a disclaimer of opinion 

on the accrual-based, consolidated financial statements for the fiscal years ended September 30, 2022, and 2021. GAO also 

issued a disclaimer of opinion on the sustainability financial statements, which consist of the 2022 and 2021 SLTFP; the 

2022, 2021, 2020, 2019, and 2018 SOSI; and the 2022 and 2021 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 FY 2022, 332 of the 40 most significant entities earned unmodified (“clean”) opinions on their 

financial statements.

The FY 2022 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 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, 2022, and 2021. Note 30—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 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 FY 1997. The consolidated financial statements include the legislative and judicial branches. 2 The 33 entities include the HHS, which received disclaimers of opinion on its 2022, 2021, 2020, 2019, and 2018 SOSI and on its 2022 and 2021 SCSIA.
13 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 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. PENSION BENEFIT GUARANTY CORPORATION

FARM CREDIT SYSTEM INSURANCE CORPORATION RAILROAD RETIREMENT BOARD

FEDERAL COMMUNICATIONS COMMISSION SECURITIES AND EXCHANGE COMMISSION

FEDERAL DEPOSIT INSURANCE CORPORATION SECURITY ASSISTANCE ACCOUNTS 

GENERAL FUND OF THE U.S. GOVERNMENT SMITHSONIAN INSTITUTION

MILLENNIUM CHALLENGE CORPORATION TENNESSEE VALLEY AUTHORITY

NATIONAL CREDIT UNION ADMINISTRATION U.S. INTERNATIONAL DEVELOPMENT FINANCE CORP

NATIONAL RAILROAD RETIREMENT INVESTMENT TRUST U.S. POSTAL SERVICE

OTHER CONSOLIDATION ENTITIES LISTED IN APPENDIX A OF THIS FINANCIAL REPORT (124)

THE UNITED STATES GOVERNMENT

THE CONSTITUTION
MANAGEMENT’S DISCUSSION AND ANALYSIS 14

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. 
15 MANAGEMENT’S DISCUSSION AND ANALYSIS

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

• This Financial Report includes discussion and analysis of the effects that the federal government’s response to the 

COVID-19 pandemic continued to have on the government’s financial position during FY 2022. 

• During FY 2022, the budget deficit decreased by $1.4 trillion (50.4 percent) to $1.4 trillion and net operating cost 

increased by $1.1 trillion (34.8 percent) to $4.2 trillion. 

• Net operating cost increased due largely to significant increases in non-cash costs (primarily losses stemming from 

changes in assumptions affecting cost and liability estimates for the government’s employee and veteran benefits 

programs). These amounts do not affect the current year budget deficit.

• The government’s gross costs of $7.4 trillion, less $531.1 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 $2.2 trillion in net 

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

cost of $9.1 trillion, an increase of $1.7 trillion or 23.8 percent compared to FY 2021.

• Deducting $4.9 trillion in tax and other revenues results in a “bottom line” net operating cost of $4.2 trillion for FY

2022, an increase of $1.1 trillion or 34.8 percent compared to FY 2021.

• Comparing total FY 2022 government assets of $5.0 trillion (including $1.4 trillion of loans receivable, net and $1.2 

trillion of PP&E) to total liabilities of $39.0 trillion (including $24.3 trillion in federal debt and interest payable3

, 

and $12.8 trillion of federal employee and veteran benefits payable) yields a negative net position of $34.1 trillion. 

• The budget deficit is primarily financed through borrowing from the public. As of September 30, 2022, debt held by 

the public, excluding accrued interest, was $24.3 trillion. This amount, plus intra-governmental debt ($6.7 trillion) 

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

2022, the government’s total debt subject to the debt limit was $30.9 trillion. Congress and the President most 

recently increased the debt limit by $480.0 billion in October 2021 and by $2.5 trillion in December 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 $79.5 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 $75.9 

trillion, a $4.9 trillion increase over 2021 social insurance projections.

• The Social Insurance and Total Federal Non-Interest Net Expenditures 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 decreased from $2.8 trillion in FY 2021 to $1.4 trillion in FY 2022. The deficit-to-GDP ratio 

similarly decreased from 12.4 percent in FY 2021 to 5.5 percent in 2022. 

• The budget deficit is primarily financed through borrowing from the public. As of September 30, 2022, the $24.3 

trillion in debt held by the public, excluding accrued interest, equates to 97.0 percent of GDP.

• The 2022 SOSI projection of $75.9 trillion net PV excess of expenditures over receipts over 75 years represents 

about 4.3 percent of the PV of GDP over 75 years. The excess of total projected non-interest spending over receipts 

of $79.5 trillion from the SLTFP represents 4.2 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 4.9 percent of GDP on average is needed (6.2 percent of GDP on 

average in the 2021 projections). The fiscal gap in the 2022 projections represents 26.0 percent of 75-year PV

receipts and 21.2 percent of 75-year PV non-interest spending. 

3 On the government’s Balance Sheet, federal debt and 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 PVs 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 PV, 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 FYs 2022 and 2021 SOSI, the amounts eliminated totaled $47.5 trillion and $43.2 

trillion, respectively. 
MANAGEMENT’S DISCUSSION AND ANALYSIS 16

FY 2022 Financial Statement Audit Results

For FY 2022, GAO issued a disclaimer of audit opinion on the accrual-based, government-wide financial statements, as 

it has for the past 25 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 222 of this Financial Report, discusses GAO’s findings.

In FY 2022, 20 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).6

The Government-wide 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 1.A, Significant 

Accounting Policies, Reporting Entity, 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 and the SPVs are disclosure 

entities and are not consolidated into the government’s financial statements. See Note 1.A and Note 27—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.7

Most significant consolidation entities prepare financial statements 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 FY 2022, 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.8 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.

6 The 20 entities include the HHS, which received disclaimers of opinions on its 2022, 2021, 2020, 2019, and 2018 SOSI and its 2022 and 2021 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 2021 audit results 

for these organizations if 2022 results are not available. 

7 See Note 23—Fiduciary Activities. 8 Under GAAP, most U.S. government revenues are recognized on a ‘modified cash’ basis, (see Financial Statement Note 1.B). The SOSI presents the PV 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 SLTFP presents the 75-year PV of the projected future receipts and non-interest spending for the federal government. 
17 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 basis” and “modified cash basis”

• Entity-based and retrospective – prior and present 

resources used to implement initiatives.

• Revenue: Tax revenue (more than 90.0 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

Three key components of the U.S. budget process are: 1) appropriations; 2) obligations; and 3) outlays. An

appropriation is a provision of law authorizing the expenditure of funds for a given purpose. Rescissions and cancellations 

are reductions in law of budgetary resources. They are considered permanent reductions unless legislation clearly indicates 

that the reduction is temporary. Once funds are appropriated by Congress, Treasury issues warrants that officially establish 

the amounts available to be obligated and spent (i.e., expended or outlayed) by each agency. An agency’s obligation of funds 

is a binding agreement to outlay funds for a particular purpose immediately or in the future. 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, calculated 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-based9 budget 

deficit decreased by $1.4 

trillion (50.4 percent) from 

approximately $2.8 trillion in 

FY 2021 to about $1.4 trillion 

in FY 2022 due to an increase 

in receipts combined with a

decrease in outlays in FY 2022. 

The $850.1 billion (21.0 

percent) increase in receipts can 

be attributed primarily to higher 

individual and corporation 

income tax collections and 

social insurance and retirement 

receipts, along with increases in 

most other sources of receipts. 

Outlays decreased $550.0 

billion (8.1 percent). The 

decrease in part reflects 

reductions in COVID-19

related spending, including 

unemployment insurance and SBA programs. Outlays for some other categories of spending increased, including student

loans, Medicare, and net interest. 10

With some adjustments, Treasury’s September 2022 MTS provides fiscal year-end 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, 

9 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 PV cost to the government, commonly referred to as credit 

subsidy cost. Credit subsidy cost excludes administrative costs.

10 10/21/22 press release – Joint Statement of Janet L. Yellen, Secretary of the Treasury, and Shalanda D. Young, Director of the Office of Management and 

Budget, on Budget Results for Fiscal Year 2022. Note that some amounts in this Financial Report reflect updates subsequent to publication of the press 

release. 
MANAGEMENT’S DISCUSSION AND ANALYSIS 18

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

may be associated with only one entity. For example, 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 2022 MTS.11

The government’s largely accrual-based net operating cost increased by $1.1 trillion (34.8 percent) to $4.2 trillion 

during FY 2022. As explained below, net operating costs are affected by changes in both revenues and costs.

The Reconciliation of Net Operating Cost and Budget Deficit statement articulates the relationship between the 

government’s accrual-based net operating cost and the primarily cash-based budget deficit. The difference between the 

government’s budget deficit and net operating cost is typically impacted by many variables. For example, from Table 2, 

nearly 95 percent of the $2.8 trillion net difference for FY 2022 is attributable to a $2.6 trillion net increase in liabilities for 

federal employee and veteran benefits payable (see Note 13—Federal Employee and Veteran Benefits Payable). Other 

differences include: 1) a $45.2 billion increase in advances from others and deferred revenue (see Note 17—Advances From 

Others and Deferred Revenue); 2) a $71.3 billion decrease in advances and prepayments made by the federal government (see 

Note 9—Advances and Prepayments); 3) a $65.5 billion decrease in net taxes receivable (see Note 3—Accounts Receivable, 

Net); and 4) a $58.5 billion timing difference between when credit reform costs are recorded in the budget versus net 

operating cost (see Note 4—Loans Receivable, Net and Loan Guarantee Liabilities).

Net operating cost increased due largely to significant increases in non-cash costs (primarily losses stemming from

changes in assumptions affecting cost and liability estimates for the government’s employee and veteran benefits programs). 

These amounts do not affect the current year budget deficit.

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, adjusted for unmatched transactions and balances), and its “bottom line” net operating cost (the difference 

between its revenues and costs) are also key financial indicators. 

Financial Effects of the Federal Government’s Pandemic Response

On March 11, 2020, a novel strain of the Coronavirus (COVID-19) was declared a pandemic by the WHO and 

precipitated a severe global health and economic crisis. A national emergency was declared in the U.S. on March 13, 2020. 

Since then, the federal government has taken broad action, including enacting multiple laws providing approximately $4.5

trillion across the government, to protect public health and economic stability from the effects of the unprecedented 

pandemic. These actions have included but are not limited to:

• Treasury funding has supported several efforts, including provision of refundable tax credits (recovery rebates or 

EIP), payments to state, local, territorial, and tribal governments to cover eligible costs, and investments in SPVs 

11 Final MTS for FY 2022 through September 30, 2022 and Other Periods.
19 MANAGEMENT’S DISCUSSION AND ANALYSIS

established by the Federal Reserve Board through the FRBNY and FRBB to enhance the liquidity of the U.S. 

financial system.

• SBA funding provided emergency and immediate economic relief and assistance through disaster response programs 

funded by COVID-19 appropriations. These programs include: 1) PPP; 2) CARES Act Debt Relief; 3) EIDL grants;

4) the Business Loan Fee Waiver and Debt Relief program; 5) the Targeted EIDL and Supplemental EIDL Advance 

programs; 6) the Restaurant Revitalization program; 7) the Shuttered Venue Operators Grants program; and 8) the 

Community Navigator Pilot program.

• HHS’s COVID-19 appropriations provided support testing, contact tracing, containment, mitigation, to monitor and 

suppress the spread of COVID-19, as well as support for COVID-19 vaccination programs and addressing 

disparities in obtaining quality healthcare. Programs also assisted households with paying for drinking water and 

wastewater services, and provide direct payment to participating eligible pharmacies and healthcare providers for up 

to eight free over-the-counter COVID-19 tests.

• Education has provided a variety of pandemic-oriented programs primarily through grants. COVID-19 relief 

legislation and administrative actions also provided support for student loan borrowers primarily by temporarily 

suspending nearly all federal loan payments, followed by announced broad-based debt relief.

• Several DOT programs received COVID-19 appropriations in support of maintaining and continuing the operations 

and business needs of various transportation systems.

• DHS’s COVID-19 appropriations provided funding for several programs serviced by the Customs and Border 

Protection, Cybersecurity and Infrastructure Security Agency, Countering Weapons of Mass Destruction Office, and 

FEMA.

The corresponding financial effects of the government’s response to the pandemic have been broad, impacting many 

agencies in a variety of ways and to varying degrees. The following include brief discussions of some of the continuing

effects of the pandemic on the government’s financial results for FY 2022. Please refer to Note 29—COVID-19 Activity and 

other disclosures in this Financial Report, as well as in the individual entities’ financial statements for more information. 

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, adjusted for unmatched

transactions and balances). 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.

Table 3 shows that the government’s “bottom line” net operating cost increased $1.1 trillion (34.8 percent) during 2022 

from $3.1 trillion to $4.2 trillion. This increase is due mostly to a $1.7 trillion (23.8 percent) increase in entity net costs, 

which more than offset a $670.0 billion (15.7 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 $7.4 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 veteran benefits to derive its net cost of $9.1 trillion, a $1.7 trillion (23.8 percent) increase compared to FY 

2021.
MANAGEMENT’S DISCUSSION AND ANALYSIS 20

Typically, the annual change in the government’s net cost is the result of a variety of offsetting increases and decreases 

across entities. As referenced earlier, these amounts continue to be affected by the ongoing federal government’s response to 

the COVID-19 pandemic and the related economic recovery. Including these amounts, offsetting changes in federal entity net 

cost during FY 2022 included: 

• Entities administering federal employee and veteran 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 

$2.2 trillion in FY 2022, a net loss 

increase (and a corresponding net cost 

increase) of $1.7 trillion compared to FY 

2021. The primary entities that administer 

programs impacted by these assumptions –

typically federal employee pension and 

benefit programs – are the OPM, DOD, 

and VA. All three of these entities 

recorded losses from changes in 

assumptions in the amounts of $148.2 billion, $527.0 billion, and $1.5 trillion, respectively. 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 FY 2022, changes in net cost at OPM ($102.8 billion increase), 

DOD ($568.4 billion increase), and VA ($1.2 trillion increase) were significantly impacted by the changes in losses 

from assumption changes at these entities.

• A $1.2 trillion increase in VA net cost was impacted largely by a $1.2 trillion increase in losses referenced above 

due to updates in actuarial assumptions underlying VA’s Veterans’ compensation plan participation and benefit 

level distribution rates, mortality rates and methodology for setting future long-term COLA. The increase in plan 

participation and benefit level distribution rates, based on an experience study, reflect the impact of various 

legislation and VA policy changes in prior years that expanded eligibility. The mortality rates decreased, which 

indicate Veterans are living longer with their disabilities. The projected COLA rate was updated to the long-term 

rate of inflation used by SSA.

• Most of the $568.4 billion increase in DOD net costs is primarily due to a $444.2 billion loss increase from changes 

in assumptions as referenced above. However, the majority of DOD’s net costs included military operations, 

readiness, and support; procurement; military personnel; and R&D, which also collectively increased

• A $303.9 billion decrease in SBA net costs due in large part to substantially lower pandemic-related loan activity. 

The SBA approved more than 11 million PPP loan applications and provided for over $799 billion in lending over 

the lifetime of the program. The program ended in May 2021, and existing borrowers may be eligible for PPP loan 

forgiveness, As of September 2022, over 10 million applications had been submitted requesting PPP loan 

forgiveness with nearly $753 billion total forgiveness paid.

• The $304.4 billion decrease in Treasury net costs is largely due to a significant decrease in disbursements of EIP

made to eligible recipients as part of pandemic relief efforts to help stimulate the economy, from $569.5 billion in 

FY 2021, to $13.1 billion during FY 2022. EIP amounts are reflected as offsets to net custodial revenue in the 

Treasury’s financial statements. This decrease is partially offset by a $109.1 billion net cost increase in FY 2022 that

is attributable to a decrease in GSE net revenue from $112.0 billion in FY 2021 to $2.9 billion in FY 2022. The 

decrease in GSE revenue is driven by FV changes to Treasury’s GSE investments and changes in liquidation 

preference of the GSEs senior preferred stock.

• A $152.1 billion net cost increase at HHS was driven largely by $111.1 billion total increases in Medicaid and 

Medicare HI and SMI costs. Notably, Medicaid benefit expense increased $66.4 billion due to higher grant awards 

to states to continue COVID-19 relief efforts.

• A significant portion of the $354.4 billion decrease at DOL is attributable to a $348.6 billion decrease in Income 

Maintenance programs costs, primarily due to decreases in unemployment benefits from the September 2021 

expiration of COVID-19 unemployment programs and fewer unemployment claims. DOL costs related to the 

COVID-19 pandemic were $9.7 billion and $313.0 billion in FYs 2022 and 2021, respectively; FY 2021 costs were

comprised mostly of unemployment benefit expenses for COVID-19 programs implemented in FY 2020 and 

extended into FY 2021, whereas FY 2022 costs reflect a decrease in benefit expenses due to the expiration of the 

COVID-19 unemployment benefit programs.
21 MANAGEMENT’S DISCUSSION AND ANALYSIS

• A $330.9 billion increase at Education, 

due largely to a $337.3 billion upward 

cost modification to its direct loan 

program. COVID-19 relief legislation 

and administrative actions provided 

support for student loan borrowers by

temporarily suspending nearly all 

federal student loan payments interest 

free. Education has announced broadbased debt relief in continued response 

to the pandemic to help borrowers at 

highest risk of delinquencies or default 

once payments resume. 

• A $100.3 billion increase at SSA, due 

to a 1.9 percent increase in the number 

of OASI beneficiaries, combined with 

a 5.9 percent COLA provided to 

beneficiaries in 2022. Total benefit 

expenses increased by $99.8 billion or 

8.5 percent.

• A $104.5 billion increase in interest on debt held by the public due largely to an increase in inflation adjustments, 

interest rates, and outstanding debt held by the public.

Chart 2 shows the composition of the government’s net cost for FY 2022. In FY 2022, approximately 87 percent of the 

federal government’s total net cost came from only six agencies (VA, HHS, DOD, SSA, Education, and Treasury), and 

interest on the debt. The other 150-plus entities included in the government’s FY 2022 Statement of Net Cost accounted for a 

combined 13 percent of the government’s total net cost for FY 2022. Chart 3 shows the five-year trend in these costs, 

illustrating the significant impact that the pandemic had on certain agency costs, particularly during FY 2020 and 2021. SBA

and DOL are included in Chart 3 above to further illustrate the recent effect of the pandemic on the government’s total costs. 

Aside from pandemic relief costs, as discussed above, HHS and SSA net costs for FY 2022 ($1.7 trillion and $1.3 trillion, 

respectively) are largely attributable to major social insurance programs administered by these entities. VA net costs of $1.9 

trillion support health, education and other benefits programs for our nation’s Veterans. DOD net costs of $1.5 trillion relate 

primarily to operations, readiness, and support; personnel; research; procurement; and retirement and health benefits. 

Treasury net costs of $526.4 billion support a broad array of programs that promote conditions for sustaining economic 

growth and stability, protecting the integrity of our nation’s financial system, and effectively managing the U.S. 

government’s finances and resources. Education net costs of $539.5 billion are largely associated with federal student loan 

programs. SBA net costs of $43.5 billion support agency programs and services that enable the establishment and vitality of 

small businesses and by providing assistance in the economic recovery of communities after disasters. DOL net costs of 

$42.4 billion support DOL’s mission to foster, promote, and develop the welfare of the wage earners, job seekers, and retirees 

of the U.S.; improve working conditions; advance opportunities for profitable employment; and assure work-related benefits 

and rights. 
MANAGEMENT’S DISCUSSION AND ANALYSIS 22

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 $670.0 

billion or 15.7 percent to $4.9 trillion for FY 2022. 

This increase is attributable mainly to an overall 

growth in individual income taxes collections and 

tax withholdings, as well as changes in taxes 

receivable. 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 81.5 percent and 7.8 percent of total 

revenue, respectively in FY 2022; 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 was more than offset by

the increase in net cost, yielding a $1.1 trillion increase to the government’s bottom line net operating cost to $4.2 trillion for 

FY 2022.

Please refer to Note 29—COVID-19 Activity, as well as the FY 2022 entities financial statements for additional 

information about the pandemic’s effects on the federal government’s costs and revenues.

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 Treasury’s Office of Tax Policy: 

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

Assets and Liabilities

The government’s net position at the end of the fiscal year is derived by netting the government’s assets against its 

liabilities, as presented in the Balance Sheet (summarized in Table 4).12 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.

12 As shown in Table 4, the government’s Balance Sheet includes an adjustment for unmatched transactions and balances, which represent unresolved 

differences in intra-governmental activity and balances between federal entities. These amounts are described in greater detail in the Other Information 

section of this Financial Report. 
23 MANAGEMENT’S DISCUSSION AND ANALYSIS

Assets 

From Table 4, as of September 30, 2022, more than three-fourths of the government’s $5.0 trillion in reported assets is 

comprised of: 1) cash and other monetary assets ($877.8 billion); 2) inventory and related property, net ($406.9 billion); 3)

loans receivable, net ($1.4 trillion); and 4) net PP&E ($1.2 trillion).13 Chart 5 compares the balances of these and other 

Balance Sheet amounts as of September 30, 2022, and 2021, some of which were substantially impacted by the pandemic 

response. 

Cash and other monetary assets ($877.8 billion) is comprised largely of the operating cash of the U.S. government. 

Operating cash held by Treasury increased $418.6 billion (211.0 percent) to $617.0 billion during FY 2022 due to Treasury

investment and borrowing policy decisions to manage the balance and timing of the government’s cash position. During 2021

the debt ceiling constraints forced Treasury to maintain a significantly lower operating cash balance. When the debt ceiling

was increased in December 2021, Treasury was able to bring the operating cash balance back to its one-week prudent policy

level (see Note 2—Cash and Other Monetary Assets). 

Inventory and Related Property is comprised of inventory, OM&S, and stockpiles. 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 (e.g., raw materials, finished goods, spare and repair parts, clothing and textiles, 

and fuels). OM&S consists of tangible personal property to be consumed in normal operations (e.g., spare and repair parts, 

ammunition, and tactical missiles). Stockpile materials are strategic and critical materials held due to statutory requirements 

for use in national defense, conservation, or local/national emergencies. DOD comprises approximately 82.9 percent of the 

government’s inventory and related property, net, as of September 30, 2022. Other contributing agencies include DOE, 

Treasury, DHS, and HHS (see Note 5—Inventory and Related Property, Net).

13 For financial reporting purposes, other than multi-use heritage assets, stewardship assets of the government are not recorded as part of PP&E. Stewardship 

assets are comprised of stewardship land and heritage assets. Stewardship land primarily 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 26—Stewardship PP&E.
MANAGEMENT’S DISCUSSION AND ANALYSIS 24

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. HUD loan programs support affordable homeownership, as well as the construction and rehabilitation of housing 

projects for the elderly and persons with disabilities. SBA loan programs enable the establishment and vitality of small 

businesses and assist in the economic recovery of communities after disasters. The federal government’s direct loan portfolio 

decreased by $216.9 billion (13.1 percent) to $1.4 trillion during FY 2022, with Education and SBA together accounting for 

nearly 80 percent of the total. The outstanding loan guarantee liability decreased by $224.3 billion. Significant changes to the 

federal government’s loans receivable, net, and loan guarantees liability, as discussed in Note 4, include:

• Education has loan programs that are authorized by Title IV of the Higher Education Act of 1965. The William D. 

Ford Federal Direct Loan Program (referred to as the Direct Loan Program), was established in FY 1994 and offered 

four types of educational loans: Stafford, Unsubsidized Stafford, Parent Loan for Undergraduate Students, and 

consolidation loans. While Education direct loan disbursements to eligible borrowers increased during FY 2022 

from approximately $104.8 billion to approximately $120.4 billion, Education’s direct loans receivable, net 

decreased during the same period from $1.1 trillion to $816.6 billion (56.9 percent of total loans receivable, net).

The COVID-19 relief legislation and administrative actions provided support for student loan borrowers by 

temporarily suspending nearly all federal student loan payments interest free. In addition, all federal wage 

garnishments and collections actions for borrowers with federally held loans in default were halted. Education 

announced broad-based debt relief during FY 2022 to address the financial harms of the pandemic by smoothing the 

transition back to repayment and helping borrowers at highest risk of delinquencies or default once payments 

resume. Borrowers with loans held by Education who received a Pell Grant in college and meet the specified income 

limits are eligible for up to $20,000 in debt relief, while non-Pell Grant recipients who meet the specified income 

limits are eligible for up to $10,000 in relief. A federal court order stayed the implementation of the debt relief; the 

matter is currently under review before the U.S. Supreme Court. See Note 30—Subsequent Events for more 

information.

• SBA’s credit program receivables comprise business and disaster direct loans and defaulted business loans 

purchased per the terms of SBA’s loan guaranty programs, offset by an allowance for related program subsidy costs. 

The CARES Act provides funding for SBA to offer low-interest EIDL for working capital to small businesses 

suffering substantial economic injury as a result of COVID-19 that can be used to pay fixed debts, payroll, accounts 

payable and other bills that cannot be paid because of the disaster’s impact. SBA’s credit program receivables 

increased $76.1 billion to $321.5 billion during FY 2022, stemming from a $117.8 billion increase in direct disaster 

loans as a direct result of CARES Act-funded loans. The loan guarantee PPP provides loan forgiveness for amounts 

used for eligible expenses for payroll and benefit costs, interest on mortgages, and rent, and utilities, worker 

protection costs related to COVID-19, uninsured property damage costs caused by looting or vandalism during 

2020, and certain supplier costs and expenses for operations. The loan guarantee liability for Small Business Loan 

Programs which includes the PPP decreased by $202.1 billion primarily due to PPP loan forgiveness to lenders.

Refer to SBA’s financial statements for additional information on each specific loan program.

Federal government general PP&E includes many of the physical resources that are vital to the federal government’s 

ongoing operations, including buildings, structures, facilities, equipment, internal use software, and general-purpose land. 

DOD comprises approximately 68.0 percent of the government’s reported general PP&E of $1.2 trillion as of September 30, 

2022. See Note 6—General Property, Plant, and Equipment, Net. 

“Other” assets of $1.0 trillion in Table 4 and Chart 5 includes: 1) $356.3 billion in accounts receivable, net; 2) $298.1 

billion in “Advances and Prepayments”; and 3) $223.7 billion in investments in GSEs. Treasury comprises approximately 
25 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 increased the debt limit by $2.5 trillion in 

December 2021 with the enactment of P.L. 117-73. 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 pre-existing commitments 

to its citizens, businesses, and investors domestically and around the world. 

66.8 percent of the government’s reported accounts receivable, net, mostly in the form of reported taxes receivable, which 

consist of unpaid assessments due from taxpayers, unpaid taxes related to IRC section 965, and deferred payments for 

employer’s share of FICA taxes pursuant to the CARES Act. Taxes receivable, net, decreased by $65.5 billion during FY 

2022, primarily due to the 50 percent year one installment payment of the deferred employer portion of FICA Social Security 

taxes. (See Note 3—Accounts Receivable, Net). Advances and Prepayments represent funds disbursed in contemplation of 

the future performance of services, receipt of goods, the incurrence of expenditures, or the receipt of other assets. The $71.2

billion decrease in this amount was largely attributable to: 1) additional liquidation by Treasury of advances paid to state, 

local, territorial, and tribal governments pursuant COVID-19 legislation; and 2) collections by HHS of COVID-19 

Accelerated & Advance Payment program advances (See Note 9—Advances and Prepayments). Investments in GSEs refers 

to actions taken by Treasury in the wake of the 2008 financial crisis to maintain the solvency of the GSEs (Fannie Mae and 

Freddie Mac) so they can continue to fulfill their vital roles in the mortgage market while the Administration and Congress 

determine what structural changes should be made to the housing finance system. (See Note 8—Investment in GSEs). 

Please refer to Note 29—COVID-19 Activity, as well as the FY 2022 entities’ financial statements for additional 

information about the pandemic’s continued effects on the federal government’s assets and liabilities over the past fiscal year.

In addition, as indicated earlier, Note 30—Subsequent Events, discusses the financial effects of significant events that 

occurred following the end of the fiscal year, but prior to issuance of this Financial Report. These and other subsequent 

events and their effects are discussed in Note 30.

Liabilities 

As indicated in Table 4 and Chart 6, of the 

government’s $39.0 trillion in total liabilities, the 

largest liability is federal debt and interest payable, 

the balance of which increased by $2.0 trillion (8.9 

percent) to $24.3 trillion as of September 30, 2022.

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 $2.6 trillion 

(25.8 percent) during FY 2022, to about $12.8 

trillion. This total amount is comprised of $3.1 

trillion in benefits payable for the current and 

retired civilian workforce, and $9.7 trillion for the 

military and veterans. OPM administers the largest 

civilian pension plan, covering nearly 2.8 million 

active employees, including the Postal Service, and 

more than 2.7 million annuitants, including 

survivors. The DOD military pension plan covers 

about 2.1 million current military personnel (including active service, reserve, and National Guard) and approximately 2.4

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 federal 

debt and interest payable 

(Balance Sheet liability), which is 

comprised of publicly-held debt 

and accrued interest payable, 

increased $2.0 trillion (8.9 

percent) to $24.3 trillion as of September 30, 2022. It is comprised of Treasury securities, such as bills, notes, and bonds, net 

of unamortized discounts and premiums issued or sold to the public; and accrued interest payable. The “public” consists of 
MANAGEMENT’S DISCUSSION AND ANALYSIS 26

individuals, corporations, state and local governments, FRB, 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 matures and new debt is issued to take its place. In FY 2022, new borrowings were $17.5 

trillion, and repayments of maturing debt held by the public were $15.7 trillion, both decreases from FY 2021. The $2.0 

trillion increase in publicly held debt and accrued interest payable is largely attributable to the need to finance the 

government’s operations, including support of economic relief and COVID-19 recovery efforts.

In addition to debt held by the public, the government has about $6.7 trillion in intra-governmental debt outstanding, 

which arises when one part of the government borrows from another. It represents debt issued by Treasury and held by 

government accounts, including the Social Security ($2.8 trillion) and Medicare ($345.4 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 

Treasury and assets of the government trust funds, they are eliminated as part of the consolidation process for the 

government-wide financial statements (see Financial Statement Note 12). 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 intra-governmental debt equals gross federal debt, which (with some adjustments), is subject to a 

statutory ceiling (i.e., the debt limit). Note that when intra-governmental debt decreases, debt held by the public will increase 

by an equal amount (if the general account of the U.S. government is in deficit), so that there is no net effect on gross federal 

debt. At the end of FY 2022, debt subject to the statutory limit was $30.9 trillion14 (see sidebar).

The federal debt held by the public measured as a percent of GDP (debt-to-GDP ratio) (Chart 7) 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 7 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 FYs 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 2008 economic and financial 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 FY 2014.

14 Beginning in FY 2021 and continuing into FY 2022, Treasury faced a delay 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 measures 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. A delay in raising the statutory debt limit occurred from 

August 1, 2021, through September 30, 2021. During the period of August 2, 2021, through September 30, 2021, Treasury departed from their normal debt 

management operations and undertook extraordinary measures to avoid exceeding the statutory debt limit. On October 14, 2021, P.L. 117-50 was enacted 

which raised the statutory debt limit by $480.0 billion, from $28,401.5 billion to $28,881.5 billion. Even with this increase, extraordinary measures

continued in order for Treasury to manage below the debt limit. On December 16, 2021, Congress and the President increased the debt limit by $2.5 trillion

to $31.4 trillion with the enactment of P.L. 117-73. On this date, Treasury discontinued its use of extraordinary measures and resumed normal debt 

management operations. On January 19, 2023, Treasury began taking extraordinary measures. See Note 12—Federal Debt and Interest Payable and Note 

30—Subsequent Events for additional information.
27 MANAGEMENT’S DISCUSSION AND ANALYSIS

• The debt was approximately 97.0 percent of GDP at the end of FY 2022. This ratio decreased during FY 2022

because GDP15, which increased as the economy continued to recover from the effects of the pandemic, grew faster 

than the debt.16 From Chart 7, since 1940, the average debt-to-GDP ratio is 50 percent.

The Economy in FY 2022 

A consideration of U.S. economic 

performance provides useful context when 

evaluating the government’s financial 

statements. Over the last three fiscal years, the 

economy has been deeply affected by the 

COVID-19 global pandemic. But in the most 

recent fiscal year, Russia’s illegal invasion of 

Ukraine in late February 2022 also caused 

significant disruption in commodities markets, 

including a sizeable run-up in energy prices.

With the help of the U.S. government’s 

extensive measures to protect consumers and 

businesses and restore growth, the number of 

payroll jobs at the end of FY 2022 exceeded the 

level in February 2020. In addition,

employment growth continued to be strong and 

activity in the current economic expansion has 

continued after a brisk recovery, albeit 

accompanied by price pressures. The disruption 

in commodities markets contributed to inflation, but actions by the Administration, including release of oil from the Strategic 

Petroleum Reserve, helped to mitigate energy price inflation.

After contracting in FY 2020, the economy bounced back in FY 2021, supported by the $2.2 trillion CARES Act, the 

widespread distribution of vaccines, and the reopening of industries that were hardest hit by the pandemic. Another economic 

aid package of roughly $900 billion was passed in December 2020, which funded smaller EIPs and a second draw of PPP 

loans for small businesses. Then early in calendar year 2021, the ARP provided an additional $1.9 trillion in economic aid, 

primarily through EIPs and direct aid to economically vulnerable low-to middle-income families. It also assisted state and 

local governments, provided additional funding for addressing COVID-19 infections and vaccinating the population, created 

new loans and grants for small businesses, and ended the deadline for PPP applications. As a result, households’ balance 

sheets were healthy, and real (i.e., inflation-adjusted) GDP rose 5.0 percent over the four quarters of FY 2021, the strongest 

pace of growth since FY 1984.

In FY 2022, the economy displayed remarkable resilience in the wake of the additional challenges posed by Russia’s 

invasion of Ukraine. As summarized in Table 5, the real GDP grew by 1.9 percent over the four quarters of FY 2022.

Business fixed investment and PCE continued to support growth in FY 2022, while inventory investment and net 

exports rebounded, making strong contributions as well. But after supporting growth in the previous fiscal year, residential 

investment and government spending all declined. Over the four quarters of FY 2022, business fixed investment expanded by 

3.5 percent, slowing from a gain of 7.6 percent over the previous four quarters. PCE grew 2.1 percent, returning to a more 

normal pace after outsized gains in the previous two fiscal years due to support from multiple federal financial programs. 

Inventory investment contributed 0.6 percentage points to growth in FY 2022, following a drag of 0.3 percentage points in 

FY 2021, as firms rebuilt depleted inventories. Net exports added 0.2 percentage points to growth in FY 2022, after 

subtracting 1.1 percentage points in FY 2021.

After providing strong support to the economy over the previous two fiscal years, residential investment growth turned 

negative in FY 2022, as rising mortgage rates and double-digit increases in home price indexes weighed on housing 

affordability. Residential investment declined 12.9 percent in FY 2022, after rising by 7.5 percent the previous fiscal year. As 

pandemic-related financial support programs continued to unwind, government spending declined 0.5 percent in the latest 

fiscal year, after increasing by 0.7 percent in FY 2021.

In labor markets, the economy recovered the number of jobs lost during March and April 2020. At that time, the 

imposition of stay-at-home orders and mandated business closures contributed to a loss of more than 22 million payroll jobs 

and an increase in the unemployment rate to a post-World War II high of 14.7 percent. Over the ensuing months and years 

job creation was unexpectedly robust, and in the latest fiscal year, labor markets have tightened to a historic degree, as labor 

15 GDP, in this context, refers to nominal GDP. 16 The increase in debt of $2.0 trillion was greater than the FY 2022 deficit of $1.4 trillion primarily because of increases in the government’s cash balance, 

as well as the restoration of uninvested principal as discussed in Note 12—Federal Debt and Interest Payable. 
MANAGEMENT’S DISCUSSION AND ANALYSIS 28

supply remained constrained and labor demand, as measured by job openings, surged to new heights. On average, the 

economy added 473,000 payroll jobs per month in FY 2022, nearly matching the monthly average of 475,000 in FY 2021. By 

the end of FY 2022, the unemployment rate had dropped 11.2 percentage points from the peak to 3.5 percent, returning to the 

half-century and pre-pandemic low.

Although inflation had slowed in FY 2020 at the headline and core (which excludes food and energy) levels, both 

accelerated in FY 2021. In the latest fiscal year, inflation picked up more, reflecting in part higher demand for durable goods 

and supply-chain disruptions that reduced the availability of goods. Later in the year, demand for services started to recover, 

though the full rotation to the pre-pandemic balance between goods and services remains elusive, and food and energy price 

pressures increased related to Russia’s invasion of Ukraine. The CPI rose 8.2 percent over the 12 months of FY 2022, picking 

up from the 5.4 percent pace during the previous fiscal year. Core inflation was 6.6 percent over the fiscal year ending 

September 2022, accelerating from the 4.0 percent pace during FY 2021.

Higher inflation offset solid gains in nominal income and wages, eroding purchasing power in real terms. Real 

disposable personal income decreased 3.3 percent over the 12 months of FY 2022, after declining 1.4 percent during the 

previous fiscal year. The pace of nominal average hourly earnings growth for production and non-supervisory workers was 

relatively strong in FY 2021 at 5.9 percent, and the gain remained steady at 5.8 percent in the latest fiscal year. But faster 

inflation more than offset the gain, resulting in an outright drop in real wages. Overall, real average hourly earnings declined 

2.5 percent during FY 2022, after a slight decline of 0.1 percent the previous fiscal year. Nonfarm labor productivity 

decreased 1.2 percent over the four quarters of FY 2022, after declining 0.2 percent during FY 2021. The latest fiscal year 

saw a 3.4 percent advance in hours worked as employment continued to pick up, which more than offset a 1.9 percent 

increase in output. Over the four quarters of FY 2021, gains in hours worked and output were about the same, each in excess 

of 6.0 percent.

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 24). The Statements display the PV of 75-year projections of the federal government’s receipts and noninterest spending17 for FY 2022 and FY 2021. 

Fiscal Sustainability 

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

projections based on the assumptions in this Financial Report indicate that current policy is not sustainable. This report 

presents data, including debt, as a percent of GDP to help readers assess whether current fiscal policy is sustainable. The 

debt-to-GDP ratio was approximately 97 percent at the end of FY 2022, and was approximately 100 percent at the end of FY 

2021. The long-term fiscal projections in this report are based on the same economic and demographic assumptions that 

underlie the 2022 SOSI, which is as of January 1, 2022.18 As discussed below, if current policy is left unchanged and based 

on this report’s assumptions, the debt-to-GDP ratio is projected to exceed 200 percent by 2046 and reach 566 percent in 

2097. 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 4.9 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 as shown in Table 6 below.

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 policy19 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

17 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. 

18 The 2022 long-term fiscal projections are not adjusted for the more current near-term economic information (e.g., higher inflation and lower real growth). 19 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).
29 MANAGEMENT’S DISCUSSION AND ANALYSIS

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 effects of the government’s response thereto. 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. The 

primary deficit-to-GDP ratio again spiked in 2020, rising to 13.3 percent of GDP in 2020, due to increased spending to 

address the COVID-19 pandemic and lessen the economic impacts of stay-at-home and social distancing orders on 

individuals, hard-hit industries, and small businesses. Spending remained elevated in 2021 due to additional funding to 

support economic recovery, but increased receipts reduced the primary deficit-to-GDP to 10.8 percent. 

The primary deficit-to-GDP ratio in 2022 was 3.6 percent, decreasing by 7.2 percentage points from 2021 as spending 

attributable to the pandemic winds down. The primary deficit-to-GDP ratio is projected to fall to 2.2 percent in 2023, based 

on the technical assumptions20 in this report, and then average 3.0 percent through 2029. After 2029, 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 peak at 4.8 percent of GDP in 

2044. Primary deficits as a share of GDP gradually decrease beyond that point, as aging of the population continues at a 

slower pace, and reaches 3.5 percent of GDP in 2097, 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 18.0 percent

of GDP by 2015, before falling below the 30-year average of 17.2 percent in 2018, after enactment of the TCJA.

Receipts were 19.6 percent of GDP in 

2022, 1.5 percentage points above 2021.

Receipts are projected to fall to 17.7 

percent of GDP in 2023 and then further 

decrease to 17.1 percent of GDP in 2025. 

Receipts are projected to be 18.1 percent of 

GDP in 2032 when corporation income tax 

and other receipts stabilize as a share of 

GDP. After 2032, receipts grow slightly 

more rapidly than GDP over the projection 

period as increases in real (i.e., inflationadjusted) incomes cause more taxpayers 

and a larger share of income to fall into the 

higher individual income tax brackets.21

On the spending side, the non-interest 

spending share of GDP was 23.2 percent in 

2022, 5.8 percentage points below the share 

of GDP in 2021, which was 28.9 percent. 

The ratio of non-interest spending to GDP 

is projected to fall to 19.9 percent in 2023 

and then rise gradually, reaching 23.8 

percent of GDP in 2078. The ratio of noninterest spending to GDP then declines to 23.3 percent in 2097, the end of the projection period. Beginning in 2025, these

increases are principally due to faster growth in Social Security, Medicare, and Medicaid spending (see Chart 8). The aging

of the baby boom generation, among other factors, is projected to increase the spending shares of GDP of Social Security and 

Medicare by about 0.9 and 1.5 percentage points, respectively, from 2023 to 2040. After 2040, the Social Security and 

Medicare spending shares of GDP continue to increase in most years, albeit at a slower rate, due to projected increases in 

health care costs and population aging, before declining toward the end of the projection period. 

On a PV basis, deficit projections reported in the FY 2022 Financial Report decreased in both present-value terms and

as a percent of the current 75-year PV of GDP. As discussed in Note 24, the largest factor affecting the projections is an 

adjustment to the model’s technical assumptions, which decreases the imbalance by 0.7 percent of the 75-year PV of GDP

($11.9 trillion). In last year’s projections, discretionary spending grew from the 2022 baseline estimate in the President’s 

Budget. As discussed below, discretionary spending in this year’s projections grows with GDP from actual budget results 

20 Projections for discretionary and mandatory programs – other than Social Security, Medicare, and Medicaid – exclude COVID-19-related spending judged 

to be temporary. The primary deficit-to-GDP ratio would likely be higher in the near-term if projections assumed outlays of remaining COVID-19 relief 

funding. See Note 24 for more detail on technical assumptions for the long-term fiscal projections. 21 Other possible paths for the receipts-to-GDP ratio and the projected debt held by the public are illustrated in the “Alternative Scenarios” section.
MANAGEMENT’S DISCUSSION AND ANALYSIS 30

following an adjustment to remove outlays of supplemental funding22 provided in response to the COVID-19 pandemic. This 

adjustment prevents inflating projections with spending considered temporary. The second largest factor is the effect of new 

Social Security, Medicare, and Medicaid program-specific actuarial assumptions, which decrease this imbalance as a share of 

the 75-year PV of GDP by 0.3 percentage points ($5.0 trillion). The third largest factor affecting the projections – decreasing 

the imbalance as a share of the 75-year PV of GDP by 0.2 percentage points ($4.6 trillion) – is attributable to actual budget 

results for FY 2022 and baseline estimates published in the FY 2023 President’s Budget, and changes to spending and 

receipts from legislation enacted toward the end of the fiscal year.

23 This improvement in the fiscal position is primarily due 

to a lower 75-year PV of spending for mandatory programs other than Social Security, Medicare, and Medicaid. That 

decrease in spending is partially offset by a lower 75-year PV of individual income taxes receipts and other receipts (includes 

excise taxes, estate and gift taxes, customs duties, and miscellaneous receipts). The fourth factor was the update of economic

and demographic assumptions. While the 75-year PV of receipts less non-interest spending deteriorated by $1.5 trillion and 

appears to worsen the fiscal position, the imbalance decreased by 0.2 percentage points as a share of the 75-year PV of GDP. 

The 75-year PV of GDP for this year’s projections is $1,872.9 trillion, greater than last year’s $1,724.4 trillion. That increase 

in GDP exceeds the increase in the imbalance of receipts less non-interest spending, and thus improves the fiscal position as a

percent of GDP. Larger GDP is attributable to updates that raised the level of GDP for 2022 and higher growth rates near the 

start of the projection period. The last factor, the change in reporting period – the effect of shifting calculations from 2022

through 2096 to 2023 through 2097 – increases the imbalance of the 75-year PV of receipts less non-interest spending by 

$2.1 trillion, which has a negligible effect on the 75-year PV of GDP.

One of the most important assumptions underlying the projections is that current federal policy 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. Another important assumption is the future growth of health care costs. As discussed in Note 25, 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 2022 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 25, the Medicare projections 

are subject to much uncertainty about the ultimate effects of these provisions to reduce health care cost growth. Certain 

features of current law may result in some challenges for the Medicare program including physician payments, payment rate 

updates for most non-physician categories, and productivity adjustments. Payment rate updates for most non-physician 

categories of Medicare providers are reduced by the growth in economy-wide private nonfarm business total factor 

productivity although these health providers have historically achieved lower levels of productivity growth. Should payment 

rates prove to be inadequate for any service, beneficiaries’ access to and the quality of Medicare benefits would deteriorate

over time, or future legislation would need to be enacted that would likely increase program costs beyond those projected 

under current law. 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. The projections in the Medicaid Actuarial Report, which end in 2027, are adjusted to 

accord with the actual Medicaid spending in FY 2022. Actual Medicaid spending includes temporary spending increases due 

to changes in enrollment and other temporary measures related to the pandemic. The amounts related to these temporary 

spending increases cannot be identified, which adds uncertainty to the projections. After 2027, the projections assume no 

further change in State Medicaid coverage under the PPACA, and the numbers of aged beneficiaries (65-plus years) and nonaged beneficiaries (less than 65 years) are expected to grow at the same rates as the aged and non-aged populations, 

respectively. The most recent Social Security and Medicare Trustees Reports were released in June 2022. See Note 24—

Long-Term Fiscal Projections for additional information.

As discussed in Note 24 of the FY 2022 Financial Report, other key assumptions include, but are not limited to the 

following. For receipts, individual income taxes are based on the share of individual income taxes of salaries and wages in 

the current law baseline projection in the FY 2023 President’s Budget, and the salaries and wages projections in the Social 

Security 2022 Trustees Report. That baseline accords with the tendency of effective tax rates to increase as growth in income 

per capita outpaces inflation (also known as “bracket creep”) and the expiration dates of individual income and estate and gift 

tax provisions of the TCJA. Effects of recent legislation enacted toward the end of FY 2022 are added to projections based on 

CBO estimates and assumed to continue through the projection period. After falling to 19 percent of wages and salaries in

2024, individual income taxes increase gradually to 29 percent of wages and salaries in 2097 as real taxable incomes rise over 

22 Discretionary outlays of supplemental funding provided in response to COVID-19 are identified using Disaster Emergency Fund Code attributes in budget 

execution data for the following laws: the Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020 (P.L. 116-123); Families First 

Coronavirus Response Act (P.L. 116-127); the CARES Act (P.L. 116-136); the Paycheck Protection Program and Health Care Enhancement Act (P.L. 116-

139); and the CAA (P.L. 116-260, Division M). 23 Legislation enacted toward the end of FY 2022 includes: An act making appropriations for Legislative Branch for the fiscal year ending September 30, 

2022, and for other purposes (P.L. 117-167); PACT Act (P.L. 117-168); and an act to provide for reconciliation pursuant to title II of S.Con.Res. 14 (P.L. 

117-169). 
31 MANAGEMENT’S DISCUSSION AND ANALYSIS

time and an increasing share of total income is taxed in the higher tax brackets. Through the first ten years of the projections,

corporation tax receipts as a percent of GDP reflect the economic and budget assumptions used in developing the FY 2023 

President’s Budget ten-year advance baseline budgetary estimates plus estimated effects of recent legislation. After this time, 

corporation tax receipts grow at the same rate as nominal GDP. Other receipts also reflect FY 2023 President’s Budget

baseline levels as a share of GDP throughout the budget window, plus estimated effects of recent legislation, and grow with 

GDP outside of the budget window. Corporation tax receipts peak at 1.8 percent of GDP in 2024 before falling to 1.3 percent 

of GDP in 2032, where they stay for the remainder of the projection period. The ratio of other receipts, including excise 

taxes, estate and gift taxes, customs duties, and miscellaneous receipts, to GDP is estimated to be 1.3 percent in 2023, after 

which it gradually declines to 1.1 percent by 2032 where it remains through the projection period. Projections for the other 

categories of receipts and spending are consistent with the economic and demographic assumptions in the Trustees Reports 

and include updates for actual budget results for FY 2022 or budgetary estimates from the FY 2023 President’s Budget. 

Where possible, those budget totals are adjusted before spending is projected to remove outlays for programs or activities that 

are judged to be temporary, such as spending related to the COVID-19 pandemic and economic recovery. Such an adjustment 

is not possible for increased Medicaid outlays under the COVID-19 Public Health Emergency, resulting in higher projections 

of future spending, increasing the uncertainty surrounding the projections. See Note 24—Long-Term Fiscal Projections for 

additional information about the assumptions used in this analysis.

The primary deficit-to-GDP projections in Chart 8, projections for interest rates, and projections for GDP together

determine the debt-to-GDP ratio projections shown in Chart 9. That ratio was approximately 97 percent at the end of FY

2022 and under current policy is 

projected to exceed the historic high of 

106 percent in 2029, rise to 200 percent 

by 2046 and reach 566 percent by 2097. 

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 

primary deficits lead to higher levels of 

debt, which lead to higher net interest 

expenditures, and higher net interest 

expenditures lead to higher debt.24 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 both the 2021 and 2020 

Financial Reports. For example, the last 

year of the 75-year projection period used in the FY 2020 Financial Report is 2095. In the FY 2022 Financial Report, the 

debt-to-GDP ratio for 2095 is projected to be 552 percent, which compares with 692 and 623 percent for the 2095 projection 

year in the FY 2021 Financial Report and the FY 2020 Financial Report, respectively.25

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 2097 to remain at its level in 2022. The projections show that projected primary deficits average 4.2 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, 4.9 percentage points higher than the projected PV of receipts less noninterest spending shown in the basic financial statements. Hence, the 75-year fiscal gap is estimated to equal 4.9 percent of 

GDP. This amount is, in turn, equivalent to 26.0 percent of 75-year PV receipts and 21.2 percent of 75-year PV non-interest 

spending. This estimate of the fiscal gap is 1.4 percentage points smaller than was estimated in the FY 2021 Financial Report

(6.2 percent of GDP).

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 

24 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. 25 See the Note 26 of the FY 2021 Financial Report of the U.S. Government for more information about changes in the long-term fiscal projections between 

FYs 2021 and 2020.
MANAGEMENT’S DISCUSSION AND ANALYSIS 32

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 4.9 percent of GDP on average between 2023 and 2097 (i.e., some combination of reducing

spending and increasing revenue by a combined 4.9 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 over shorter periods. For example, if policy 

reform is delayed by 10 years, closing the fiscal gap requires increasing the primary surpluses by 5.7 percent of GDP on 

average between 2033 and 2097. Similarly, delaying reform by 20 years requires primary surplus increases of 7.0 percent of 

GDP on average between 2043 and 2097. The differences between the required primary surplus increases that start in 2033

and 2043 (5.7 and 7.0 percent of GDP, respectively) and that which starts in 2023 (4.9 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 debt-to-GDP ratio is projected to rise over the 75-year projection period and beyond if current policy is unchanged, 

based on this report’s assumptions, 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 24 and the 

RSI section of this Financial Report. The fiscal sustainability under alternative scenarios for the growth rate of health care 

costs, interest rates, discretionary spending, and receipts are illustrated in the “Alternative Scenarios” section within the RSI.

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.26 For these 

programs, the SOSI reports: 1) the actuarial PV 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.

This year’s projections for Social Security and Medicare are based on the same economic and demographic assumptions

that underlie the 2022 Social Security and Medicare Trustees Reports27 and the 2022 SOSI, while comparative information

presented from last year’s report is based on the 2021 Social Security and Medicare Trustees Reports and the 2021 SOSI.

Table 7 summarizes amounts reported in the SOSI, showing that net social insurance expenditures are projected to be $75.9 

trillion over 75 years as of January 1, 2022 for the open group, an increase of $4.9 trillion over net expenditures of $71.0 

trillion projected in the FY 2021 Financial Report.28 The current-law 2022 amounts reported for Medicare reflect the 

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

26 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. RRB’s 

projections are based on economic and demographic assumptions that underlie the 28th Actuarial Valuation of the Assets and Liabilities Under the Railroad 

Retirement Acts as of December 31, 2019 with Technical Supplement and the 2022 Annual Report on the Railroad Retirement System required by Section 

502 of the Railroad Retirement Solvency Act of 1983 (P.L. 98-76). 27 These assumptions were developed based on data primarily as of January 1, 2022. Subsequent to January 1, 2022, inflation and interest rates increased 

faster than previously expected. The SOSI projections are not adjusted for the more current near-term economic information. 28 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 RSI section in this Financial Report for more information. 

 
33 MANAGEMENT’S DISCUSSION AND ANALYSIS

payment rates, but not the payment reductions and/or delays that would result from trust fund depletion.29 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 government-wide 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 FYs 2022 and 2021 SOSI, the amounts eliminated totaled $47.5 

trillion and $43.2 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 24). 

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 nonmarketable 

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.

29 MACRA permanently replaces the Sustainable Growth Rate 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 APM; 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 34

Table 8 identifies the principal 

reasons for the changes in projected 

social insurance amounts during 2022 

and 2021.

The following briefly 

summarizes the significant changes for 

the current valuation (as of January 1, 

2022) as disclosed in Note 25—Social 

Insurance. Note 25 is compiled from 

disclosures included in the financial 

statements of those entities 

administering these programs, 

including SSA and HHS. See Note 25 

for additional information.

• Change in valuation period 

(affects both Social Security 

and Medicare): This change 

replaces a small negative net 

cash flow for 2021 with a 

much larger negative net cash 

flow for 2096. As a result, the 

PV of the estimated future net 

cash flows decreased (became more negative) by $0.7 trillion and $1.0 trillion for Social Security and Medicare, 

respectively. 

• Changes in demographic data, assumptions, and methods (affects both Social Security and Medicare): There was 

one notable change in demographic methodology. An improvement was made to put more emphasis on recent 

mortality data by increasing the weights for the most recent years in the regressions used to calculate the starting 

rates of improvement and starting death rates. This change decreased the PV of the estimated future net cash flows.

In addition, the starting demographic values and the way these values transition to the ultimate assumptions were 

changed. Final birth rate data for calendar year 2020 indicated slightly lower birth rates than were assumed in the 

prior valuation. Death rates increased significantly for 2020 and 2021. Overall, changes to these assumptions caused 

the PV of the estimated future net cash flows to decrease (became more negative) by $0.3 trillion and $0.5 trillion 

for Social Security and Medicare, respectively.

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

ultimate economic assumptions since the last valuation period. Economic starting values and near-term growth 

assumptions were updated to reflect the stronger-than-expected recovery from the pandemic-induced recession. In 

addition to these changes in ultimate economic assumptions, the starting economic values and the way these values 

transition to the ultimate assumptions were changed. Near-term real interest rates are assumed to be slightly higher 

on average than those for the prior valuation. Economic starting values and near-term growth assumptions were 

updated to reflect the stronger-than-expected recovery from the pandemic-induced recession. The level of potential 

GDP for years 2021 and later is assumed to be about 1.1 percent higher than the level in the prior valuation, 

reflecting the strong recovery and the expectation of a permanent level shift in total economy labor productivity.

There were no additional notable changes in economic methodology. Overall, changes to economic data, 

assumptions, and methods caused the PV of the estimated future net cash flows to decrease (became more negative) 

by $0.2 trillion for Social Security.

• Changes in law or policy (affects both Social Security and Medicare): The monetary effect of the changes in law or 

policy on the PV of estimated future net cash flows of the OASDI and Medicare programs was not significant at the 

consolidated level. Please refer to SSA’s and HHS’s financial statements for additional information related to the 

impact of the changes in law or policy on the PV of estimated future net cash flows of the OASDI and Medicare 

programs.

• 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 (beginning on January 1, 

2022). The most significant are as follows: The ultimate disability incidence rate was lowered from 5.0 per thousand 

exposed in the prior valuation to 4.8 in the current valuation. The current valuation is updated using a 10.0 percent 

sample of all newly entitled worker beneficiaries to project average benefit levels of retired-worker and disabledworker beneficiaries. Recent data and estimates provided by the Office of Tax Analysis at Treasury indicate higher 

near-term and ultimate levels of revenue from taxation of OASDI benefits than projected in the prior valuation. 

Updates were made to the post-entitlement benefit adjustment factors. These factors are used to account for changes 

in benefit levels, primarily due to differential mortality by benefit level and earnings after benefit entitlement. 
35 MANAGEMENT’S DISCUSSION AND ANALYSIS

Overall, changes to programmatic data and methods caused the PV of the estimated future net cash flows to increase 

by $0.6 trillion for Social Security.

• Changes in economic and 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: 

high projected spending growth for outpatient hospital services and for physician-administered drugs; and slower 

price growth and higher direct and indirect remuneration. Overall, these changes decreased the PV of estimated 

future net cash flow by $5.3 trillion for Medicare.

• Change in Projection Base (affects Medicare only): Actual income and expenditures in 2021 were different than 

what was anticipated when the 2021 Medicare Trustees Report projections were prepared. For Part A and Part B 

income and expenditures in 2021 were lower than estimated based on experience. Part D income and expenditures 

were higher than estimated based on actual experience. Actual experience of the Medicare Trust Funds between 

January 1, 2021, and January 1, 2022, is incorporated in the current valuation and is more than projected in the prior 

valuation. Overall, the net impact of Part A, B, and D projection base change is an increase in the estimated future 

net cash flows by $2.5 trillion for Medicare.

As reported in Note 25, 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 25 includes an alternative projection 

to illustrate the uncertainty of projected Medicare costs. As indicated earlier, GAO disclaimed opinions on the 2022, 2021, 

2020, 2019 and 2018 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.30 According to the Medicare Trustees Report, spending on Medicare 

is projected to rise from its current level of 3.9 percent of GDP to 6.2 percent in 2046 and to 6.5 percent in 2096.31 As for 

Social Security, combined spending is projected to generally increase from its current level of 5.0 percent of GDP to a peak 

of 6.2 percent for 2077, and then decline to 5.9 percent by 2096. 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 HI and 

Social Security Trust Funds.

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.

Reporting on Climate Change 

As stated in EO 14008, Tackling the Climate Crisis at Home and Abroad “the United States and the world face a 

profound climate crisis...Domestic action must go hand in hand with United States international leadership, aimed at 

30 A Summary of the 2022 Annual Social Security and Medicare Trust Fund Reports, page 12. 31 Percent of GDP amounts are expressed in gross terms (including amounts financed by premiums and state transfers).
MANAGEMENT’S DISCUSSION AND ANALYSIS 36

significantly enhancing global action.” Among other things, the EO “directs each federal agency to develop a plan to increase 

the resilience of its facilities and operations to the impacts of climate change and directs relevant agencies to report on ways 

to expand and improve climate forecast capabilities – helping facilitate public access to climate related information and 

assisting governments, communities, and businesses in preparing for and adapting to the impacts of climate change.” As a 

corollary to EO 14008, EO 14030, Climate-Related Financial Risk, is intended to help the American people understand how 

climate change could impact their financial security, to strengthen the U.S. financial system so that climate change does not 

affect the system’s stability, and to inform federal government decision-making to mitigate the risks of climate change. 

Section 5(a) of EO 14030 specifically tasks OMB and the National Economic Council, in consultation with Treasury, to 

develop recommendations to integrate climate-related financial risk into financial management and reporting, with a focus on 

the climate-related financial risk of lending programs. Section 5(a) directs the recommendations to include an evaluation of 

changes to accounting standards where appropriate for federal financial reporting. As required by EO 14030, in October

2021, the National Economic Council issued a report32 laying out a government-wide strategy to address the financial risk 

that climate change poses to the government and the U.S. economy. Finally, on December 8, 2021, EO 14057, Catalyzing 

Clean Energy Industries and Jobs Through Federal Sustainability, was issued. Among other things, this EO directs agencies 

to develop plans, processes, and analytic tools that will allow federal agencies and programs to adapt to climate change.

In November 2021, President Biden signed a $1 trillion bipartisan infrastructure bill, the IIJA that, in part, included 

historic funding to protect the country against the detrimental effects of climate change, including expanded access to clean 

drinking water, programs that help reduce flood risk and damage investments in clean energy transmissions and electric 

vehicle infrastructure, electrifying thousands of school and transit buses across the country, and creating a new Grid 

Deployment Authority to build a resilient, 21st century electric grid. Less than a year later, President Biden signed legislation 

that made the largest climate investment in U.S. history: IRA provides tax incentives and other clean energy initiatives to 

reduce energy costs for consumers and small businesses, including investments in underserved communities and historic 

energy communities. For example, the IRA provides a range of tax incentives to accelerate the build-out of a clean energy 

economy, as well as direct consumer rebates and tax incentives to purchase more efficient appliances and electric vehicles.

These investments have put America on track to decrease greenhouse gas emissions by about 40 percent below 2005 levels in 

2030.33

Many of the 24 CFO Act agencies have leveraged their FY 2022 financial statements to discuss a wide range of topics 

concerning how their agencies are responding to the climate crisis. The form of the required financial statement climaterelated reporting is at the discretion of each agency, so the content varies across the reports, but taken in combination, the 

following summary provides a broad picture of the many efforts in effect across the 24 CFO Act agencies. 

More than half of CFO Act agency heads cited climate change in their financial statements’ transmittal messages. For 

example: 

• The Secretary of the Interior referenced the BIL as having made a major investment in the conservation and 

stewardship of America’s public lands, including several provisions that invest in DOI initiatives, such as restoring 

critical habitats, addressing the drought crisis, assisting with wildlife management, and helping communities prepare 

for extreme weather events. 

• The Secretary of Agriculture stated that USDA has embarked on a department-wide effort to enact climate-smart 

agriculture, forestry, and rural clean energy policies that are voluntary, flexible, and producer-led. In service of this 

goal, USDA announced the new Partnerships for Climate-Smart Commodities Program, which finances pilot 

projects for U.S. agriculture and forestry products that use climate-smart practices. 

• The NASA Administrator stated that NASA contributes significantly to what is known about Earth’s changing 

climate and cited recent agency efforts related to climate change, disaster mitigation, fighting forest fires, and 

improving real-time agricultural processes.

• The GSA Administrator stated that accelerating clean energy and innovation was a priority area, noting that GSA 

manages the largest civilian vehicle fleet in the country which it is working to electrify, as well as to build to the 

infrastructure to support it. GSA is advancing clean energy through its buildings portfolio, including through the 

IRA, which has historic investments for low carbon materials, emerging clean technology, and more. 

All but one of the CFO Act agencies referenced their climate action and adaptation plans, or sustainability reports,

including:

• State’s plan focuses on three goals: 1) protect the health and safety of personnel; 2) adapt department facilities, 

operations, and mission-critical services to be more resilient to the impacts of climate change; and 3) lead by 

example through showcasing climate adaptation and resilience solutions.

• Commerce’s sustainability reports contain information regarding the department’s performance toward energy and 

sustainability goals in the following categories: facility energy use, water use, renewable energy, facility efficiency 

investments, high performance sustainable buildings, fleet petroleum and alternative fuel, and greenhouse gas 

emissions.

32 The report can be found here: A ROADMAP TO BUILD A CLIMATE-RESILIENT ECONOMY (whitehouse.gov). 33 DOE Projects Monumental Emissions Reduction From Inflation Reduction Act
37 MANAGEMENT’S DISCUSSION AND ANALYSIS

• EPA’s Sustainability Report and Implementation Plan identifies targets for reducing agency-wide greenhouse gas 

emissions and outlines steps to reduce energy, water, waste, and other resource use. 

• Referencing its Climate Action Plan and Office of the Chief Sustainability Officer, SSA notes that it has identified 

five priority areas at delegated facilities located in four of the ten climate regions identified in the National Climate 

Assessment Report. 

Several agencies, including State indicated that their plans include discussions of climate-related financial risk and 

efforts to manage that risk, using a framework developed by the global Task Force on Climate-Related Financial Disclosures

– Governance, Strategy, Risk Management, and Metrics. 

Approximately two-thirds of CFO Act agencies discussed climate change in the context of their strategic and 

performance goals. For example:

• Many of DOI’s strategic goals and objectives reference climate change remediation efforts, including Strategic Goal 

2 – “conserve, protect, manage, and restore natural and cultural resources in the face of climate change and other 

stressors”. Efforts supporting this goal includes DOI’s Wildland Fire Management Program, featuring a suite of 

activities, including preparedness, suppression, fuels management, burned area rehabilitation, and science.

• EPA’s strategic goals include a new goal focused exclusively on tackling the climate crisis and an unprecedented 

strategic goal to advance environmental justice and civil rights.

• Treasury’s strategic goals include “Combat Climate Change”, supported by four objectives: 1) to demonstrate global 

leadership through reengagement with international partners; 2) to promote the flow of capital towards clean and 

renewable investments; 3) to identify and mitigate climate-related financial risks through improved measuring and 

monitoring of climate impacts; and 4) to reduce greenhouse gas emissions. 

• DOE’s strategic plan includes two climate-oriented goals: 1) “Drive U.S. Energy Innovation and Deployment on a 

Path to Net-Zero Emissions by 2050”, which is supported by DOE’s Office of Clean Energy Demonstrations; and 2)

“Strengthen the Nation’s Energy, Security, Resilience, Affordability, and Reliability”. Each of DOE’s objectives 

within this goal are aimed at fulfilling the mission of the National Climate Strategy to keep America on track to 

achieve a clean energy economy with net-zero emissions by 2050. Efforts include: supporting major breakthroughs

in the development of cost-effective electric heat pumps to help decarbonize the building sector; completing field 

development activities for carbon storage; and accelerating deployment of clean technologies at scale and pace.

• DOT’s discussion of agency performance includes Agency Priority Goal 5: Joint U.S./DOE Electric Vehicle 

Charging Infrastructure Deployment under the BIL. The BIL invests in the deployment of a national network of 

electric vehicle chargers as one of many important ways to address the climate crisis across DOT, DOE, and their 

newly formed Joint Office of Energy and Transportation. All three entities will support building a national network 

of electric vehicle chargers. 

Approximately one-third of the CFO Act agencies discussed climate change as part of the forward-looking content of 

their MD&A. 

• State’s Special Presidential Envoy for Climate leads diplomatic engagement on the climate crisis, exercises climate 

leadership in international fora, increases international climate ambition and ensures that climate change is 

integrated into all elements of the Administration’s foreign policy-making process.

• SBA reports that for every $1 spent on hazard mitigation, can save up to $6 in future disaster recovery costs. In 

2022, SBA spotlighted the promotion of its disaster mitigation loan option through an Agency Priority Goal to drive 

increased awareness of this option and encourage businesses and homeowners to invest in their own preparedness.

• HHS’s Office of Climate Change and Health Equity will launch the Inter-agency Working Group to Decrease Risk 

of Climate Change to Children, the Elderly, People with Disabilities, and the Vulnerable in 2023 in addition to 

updating the Sustainable and Climate Resilient Healthcare Facilities Toolkit.

• HUD’s Strategic Plan prioritizes the sustainable, inclusive development of American communities, with added 

emphasis on furthering social equity and environmental justice. Overarching priorities include increasing social 

equity throughout all HUD programs and operations, as well as prioritizing the needs of vulnerable populations and 

underserved communities. HUD also discusses its roles under the National Disaster Recovery Framework, wherein 

HUD has both coordinating and primary roles in the housing recovery function after a declared disaster. 

• VA discussed its primary climate vulnerabilities being built, infrastructure and burdens placed on its health care 

delivery systems, and interruptions in the supply of energy and material. VA has identified specific adaptation 

actions to decrease its vulnerability to the impacts of climate change, including implementing changes to building 

design and resilience standards, and updating sustainable building certification requirements. 

A few CFO Act agencies discussed the financial effects of their climate-related efforts by relating those efforts to the 

budgetary expenses and/or financial costs incurred to execute these important programs. For example:

• USAID identifies the net costs associated with its program areas focused on climate change, including sustainable 

landscapes, clean energy, and adaptation, and provides detail of those costs by USAID’s many bureaus. 

• State indicates that it budgeted a total of $658.3 million in 2021 for climate change programming to reduce the 

federal government’s exposure to climate related financial risks. Funding supported a variety of projects, including 

those to improve energy efficiency and resilience, such as the installation of on-site renewable energy storage 
MANAGEMENT’S DISCUSSION AND ANALYSIS 38

systems, for maintenance and repairs to department facilities, and for tools to analyze potential for future climate 

risks. 

• DOI’s Net Cost of Operations links DOI net costs with its four mission areas, including two climate-oriented areas:

1) “Conserve, Protect, Manage, and Restore Natural and Cultural Resources in the Face of Climate Change and 

Other Stressors” ($7.0 billion); and 2) “Sustainably Balance the Use of Resources While Supporting Communities

and the Economy” ($8.0 billion). A related note disclosure provides additional detail presenting these net costs by 

bureau or responsibility segment (e.g., BIA, BLM, etc.). 

Approximately one-third of the Inspectors General from CFO Act agencies identified climate change as a management 

challenge. 

• Treasury’s OIG added a new Management Challenge in FY 2022, Tackling the Climate Crisis at Home and Abroad, 

stating that Treasury will play a significant role working with other federal agencies, foreign governments, and 

international financial institutions to stimulate global action on addressing climate change.

• DOD’s OIG includes Adapting to Climate Change, Accelerating Resilience, and Protecting the Environment among 

DOD’s Management Challenges. DOD’s response to this effort addresses three lines of effort of DOD’s Climate 

Adaptation Plan – making climate-informed decisions, training and equipping a climate-ready force, and building 

resilient installations and infrastructure. Key to this challenge is expanding climate literacy and training, integrating 

climate effects into operations, and addressing installations’ maintenance and improvement backlog.

• DOT’s OIG identified executing federal priorities related to the impact of climate change, advancing equity, and 

promoting resilience in infrastructure as among the top management challenges facing the agency. A primary 

challenge for DOT will be balancing these goals and priorities with the need to execute IIJA projects timely, costeffectively, and in a manner that provides value. 

EO 14008 established the Justice40 Initiative a whole of government effort with the goal that 40 percent of the overall 

benefits of certain federal investments flow to disadvantaged communities that are marginalized, underserved, and 

overburdened by pollution. The Justice40 investment categories are: climate change, clean energy and energy efficiency, 

clean transit, affordable and sustainable housing, training and workforce development, remediation and reduction of legacy 

pollution, and the development of critical clean water and wastewater infrastructure. Several agencies referenced their 

Justice40 or environmental justice efforts in their financial statements, including DOE, DOT, EPA, and HUD. 

The diversity of climate-related risks reported in agency financial statements is an indicator of the emergent and 

evolving nature of these efforts and the significant challenge that climate change presents to the nation. 

Financial Management 

Grants

In FY 2022, the federal government obligated over $1.1 trillion for grants and cooperative agreements, according to

USAspending.gov. This figure does not include obligations for other types of financial assistance, such as loans or direct

appropriations. A large portion of grant funding went to support the nation’s response to the pandemic through the ARP, the

CARES Act, and other COVID-19 funding. Improving access to key financial assistance data continues to be a priority for

OMB and was highlighted in OMB Memorandum M-22-02, New Financial Assistance Transparency Reporting

Requirements, which requires agencies to report additional information to USAspending.gov. M-22-02 also supports efforts

to improve the financial management of grants and other forms of financial assistance.

On November 15, 2021, President Biden signed into law the IIJA and subsequently OMB issued two memoranda to

provide guidance to agencies regarding IIJA program implementation. First, OMB issued M-22-08, Identification of Federal

Financial Assistance Infrastructure Programs Subject to the Build America, Buy America Provisions of the Infrastructure

Investment and Jobs Act, which required agencies to identify all existing infrastructure programs. Second, OMB issued M22-11, Initial Implementation Guidance on Application of Buy America Preference in Federal Financial Assistance

Programs for Infrastructure, which required that by May 14, 2022, agencies take actions to ensure that “none of the funds

made available for a federal financial assistance program for infrastructure, including each deficient program, may be

obligated for a project unless all of the iron, steel, manufactured products, and construction materials used in the project are

produced in the United States.”

Also in FY 2022, OMB issued M-22-12, Advancing Effective Stewardship of Taxpayer Resources and Outcomes in the

Implementation of the Infrastructure Investment and Jobs Act, which provided initial implementation guidance to agencies to

ensure proper governance and management of IIJA programs both within and across agencies and to ensure regular

engagement by agencies with the oversight community, including the Inspectors Generals and the GAO. The Memorandum

also provided guidance on program planning, design, and execution; managing risk; public reporting of financial, award, and

post-award data; and hiring and managing workforce needs.

On May 12, 2022, OMB issued the FY 2022 Compliance Supplement, which was the earliest the Supplement has been

issued in 15 years. The Supplement provides audit guidance for federal grant programs and for FY 2022 included five new

programs that are funded by ARP.
39 MANAGEMENT’S DISCUSSION AND ANALYSIS

Payment Integrity

Preventing improper payments in the federal government continues to be a management priority. To be successful in 

preventing improper payments, there must be a focus on systemic enhancements intended to make payments correctly the 

first time with an emphasis on minimizing monetary loss. The federal government, through the CFO community, continues to

develop strategies to better analyze and prevent monetary loss.

Agencies with programs reporting more than $100.0 million in monetary loss provide a quarterly scorecard at 

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. Details, including FY 2022 improper payment data, for 

programs with more than $100.0 million in monetary loss can also be found at PaymentAccuracy.gov. PaymentAccuracy.gov

also includes payment integrity information that had previously been reported in agency financial reports, allowing

information about program compliance, corrective actions, and accountability mechanisms to be provided in a consistent 

format across all programs.

OMB will continue to work with agencies, the CFO Council, and other stakeholders 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. 

Agency Financial Report Audits 

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 FY 2022, 20 of the 24 CFO Act agencies obtained an unmodified 

opinion from the independent auditors on their financial statements.34 In addition, 50 auditor-identified material weaknesses 

were identified for FY 2022, three more than in FY 2021. Twenty-eight of these are associated with DOD. The other 22

material weaknesses are associated with non-DOD agencies. Although virtually all federal agencies have adopted and 

maintained disciplined financial reporting operations, implemented effective internal controls over financial reporting, and 

integrated transaction processing with accounting records, weaknesses in financial management practices continue to prevent 

the government as a whole from achieving an audit opinion.

34 The 20 entities include HHS, which received an unmodified (“clean”) opinion on all statements except the SOSI and the SCSIA.
MANAGEMENT’S DISCUSSION AND ANALYSIS 40

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 decreased to seven in FY 2022, and the number of auditors reporting lack of 

substantial compliance with one or more of the three Section 803(a) FFMIA requirements decreased to eight in FY 2022.

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. Treasury works closely with agencies to manage 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. 

Treasury was designated as the Financial Management Systems QSMO in 2020 and continues to pursue financial 

management improvement strategies that have government-wide implications. These strategies include standing up a 

financial management systems marketplace and developing system standards, standardized processes, system requirements, 

and system interfaces. These efforts are providing a path to the decommissioning of legacy systems and migration to updated 

systems, leveraging modernized technologies. In addition, agencies continue to coordinate with the Treasury QSMO to 

improve their financial management and financial reporting systems as described in their financial reports, congressional

budget justifications, and performance plans. DOD continues 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.

HHS was designated as the Grants QSMO in 2021 and continues working to modernize and streamline the

government’s vast and aging legacy grants management systems. The goal of this effort is to allow agencies to successfully

manage grants through the entire award cycle and allow grants management systems to interface with agency financial

management systems.
41 MANAGEMENT’S DISCUSSION AND ANALYSIS

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 CFO Act agencies was 50 for FY 2022, three 

more than in FY 2021. Effective internal controls are a challenge at the agency level and at the government-wide level, with 

GAO reporting that at the government-wide 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.

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 government-wide 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.

Conclusion 

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

than 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. Together with Treasury and OMB, agencies are building on tools and capabilities to improve 

financial accountability and transparency.

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. This Financial Report, as well as those from previous years, is also available at 

Treasury, OMB, and GAO websites at: 

https://www.fiscal.treasury.gov/reports-statements/; https://www.whitehouse.gov/omb/management/office-federal-financialmanagement/; and https://www.gao.gov/federal-financial-accountability respectively. Other related government resources

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, 

• Your Guide to America’s Finances,

• Economic Report of the President, and 

• Trustees Reports for the Social Security and Medicare Programs.