MANAGEMENT’S DISCUSSION AND ANALYSIS 12

MANAGEMENT’S DISCUSSION AND

ANALYSIS

Introduction

The FY 2021 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.

government1to the President and Congress no later than six months after the September 30 fiscal year-end. The first audited

Financial Report covered FY 1997, making the FY 2021 Financial Report the 25th edition of this important vehicle for

federal accountability and transparency.

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

organizational chart on the next page and Appendix A). As it has for the past 24 years, GAO issued a disclaimer of opinion

on the accrual-based, consolidated financial statements for the fiscal years ended September 30, 2021 and 2020. GAO also

issued a disclaimer of opinion on the sustainability financial statements, which consist of the 2021 and 2020 SLTFP; the

2021, 2020, 2019, 2018, and 2017 SOSI; and the 2021 and 2020 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 2021, 34

2 of the 40 most significant entities earned unmodified (“clean”) opinions on their

financial statements.

The FY 2021 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, 2021 and 2020. Note 31—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 34 entities include the HHS, which received disclaimers of opinion on its 2021, 2020, 2019, 2018, and 2017 SOSI and on its 2021 and 2020 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 (122)

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 significant impact that the federal government’s

response to the COVID-19 pandemic had on the government’s financial position during FY 2021.

• During FY 2021, the budget deficit decreased by $356.3 billion (11.4 percent) to $2.8 trillion and net operating cost

decreased by $746.5 billion (19.4 percent) to $3.1 trillion.

• The government’s gross costs of $7.3 trillion, less $462.3 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 $518.4 billion in net

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

cost of $7.4 trillion, a slight decrease of $62.2 billion or 0.8 percent compared to FY 2020.

• Deducting $4.3 trillion in tax and other revenues results in a “bottom line” net operating cost of $3.1 trillion for FY

2021, a decrease of $746.5 billion or 19.4 percent compared to FY 2020.

• Comparing total FY 2021 government assets of $4.9 trillion to total liabilities of $34.8 trillion (comprised mostly of

$22.3 trillion in federal debt and interest payable3, and $10.2 trillion of federal employee and veteran benefits

payable) yields a negative net position of $29.9 trillion.

• The budget deficit is primarily financed through borrowing from the public. As of September 30, 2021, debt held by

the public, excluding accrued interest, was $22.3 trillion. This amount, plus intra-governmental debt ($6.2 trillion)

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

2021, the government’s total debt subject to the debt limit was $28.4 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 $97.6 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 $71.0

trillion, a $5.5 trillion increase over 2020 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 $3.1 trillion in FY 2020 to $2.8 trillion in FY 2021. The deficit-to-GDP ratio

similarly decreased from 15.0 percent in FY 2020 to 12.4 percent in 2021.

• The budget deficit is primarily financed through borrowing from the public. As of September 30, 2021, the $22.3

trillion in debt held by the public, excluding accrued interest, equates to just under 100 percent of GDP.

• The 2021 SOSI projection of $71.0 trillion net PV excess of expenditures over receipts over 75 years represents

about 4.4 percent of the PV of GDP over 75 years. The excess of total projected non-interest spending over receipts

of $97.6 trillion from the SLTFP represents 5.7 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 6.2 percent of GDP on average is needed (5.4 percent of GDP on

average in the 2020 projections). The fiscal gap represents 32.4 percent of 75-year PV receipts and 25.0 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 2021 and 2020 SOSI, the amounts eliminated totaled $43.2 trillion and $40.9

trillion, respectively.
MANAGEMENT’S DISCUSSION AND ANALYSIS 16

FY 2021 Financial Statement Audit Results

For FY 2021, GAO issued a disclaimer of audit opinion on the accrual-based, government-wide financial statements, as

it has for the past 24 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 228 of this Financial Report, discusses GAO’s findings.

In FY 2021, 21 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 11 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 28—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 2021, 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 21 entities include the HHS, which received disclaimers of opinions on its 2021, 2020, 2019, 2018, and 2017 SOSI and its 2021 and 2020 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 2020 audit results

for these organizations, if 2021 results are not available.

7 See Note 24—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 to be 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 $356.3

billion (about 11.4 percent)

from approximately $3.1

trillion in FY 2020 to about

$2.8 trillion in FY 2021 due to

an increase in receipts that

exceeded an increase in outlays

in FY 2021. The $626.0 billion

(18.3 percent) increase in

receipts can be attributed

primarily to higher net

individual and corporation

income taxes from the

improved economy. Outlays

increased $269.7 billion (4.1

percent). The increase reflects

continued spending from laws

enacted during the previous

administration, such as the

CARES Act and the CAA, and

programs created or enhanced by the ARP to provide relief to Americans and support the economy.10

With some adjustments, Treasury’s September 2021 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,

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

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 10/22/21 press release – Joint Statement by Secretary of the Treasury Janet L. Yellen and Acting Director of the Office of Management and Budget

Shalanda D. Young on Budget Results for Fiscal Year 2021. Note that some amounts in this Financial Report reflect updates subsequent to publication of

the press release.
MANAGEMENT’S DISCUSSION AND ANALYSIS 18

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 2021 MTS.11

The government’s largely accrual-based net operating cost decreased by $746.5 billion (19.4 percent) to $3.1 trillion

during FY 2021. 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, the

$319.3 billion net difference for FY 2021 is largely affected by: 1) a $767.5 billion net increase in liabilities for federal

employee and veteran benefits payable (see Note 14—Federal Employee and Veteran Benefits Payable); 2) a $112.0 billion

increase in value of the government’s investments in GSEs (see Note 9—Investments in Government-Sponsored

Enterprises); 3) a $150.7 billion increase in advances and prepayments attributed mostly to advances and prepayments for

certain COVID-19 related programs (see Note 10—Advances and Prepayments); 4) a $68.0 billion increase in net taxes

receivable (see Note 3—Accounts Receivable, Net); and 5) a $75.1 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).

The Federal Government’s Response to the Pandemic

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

emergency was declared in the U.S. on March 13, 2020. The global spread of COVID-19, which continued through FY 2021,

resulted in a severe global health and economic crisis. During FY 2020 and FY 2021, the federal government took broad

action to protect public health from the effects of the unprecedented pandemic, enacting several major pieces of legislation,

including:

• Coronavirus Preparedness and Response Supplemental Appropriations Act of 2020 (P.L. 116-123);

• Families First Coronavirus Response Act (FFCRA, P.L. 116-127);

• Coronavirus Aid, Relief, and Economic Security Act (CARES Act, P.L. 116-136);

• Paycheck Protection Program and Health Care Enhancement Act (PPPHCE Act, P.L. 116-139);

• Consolidated Appropriations Act, 2021 (CAA, P.L. 116-260); and

• American Rescue Plan Act of 2021 (ARP, P.L. 117-2).

These laws address the health and economic effects of COVID-19, providing assistance to American workers and

families, small businesses, and state, local, tribal governments, and preserving jobs for American industry. As indicated here

and in the Financial Report, the federal government’s response to the pandemic continued to have significant effects on the

federal government’s budgetary and financial results.

11 Final MTS for FY 2021 through September 30, 2021 and Other Periods.
19 MANAGEMENT’S DISCUSSION AND ANALYSIS

Table 3 summarizes the more than $4.8 trillion in appropriations, net of rescissions, enacted for key pandemic-related

assistance programs as of September 30, 2021 (i.e., during FY 2020 and FY 2021) by federal agency. Examples of FY 2021

efforts are summarized below.

• Treasury received COVID-19 appropriations of $1.2 trillion under the CAA and ARP in FY 2021 and $975.0 billion

under the CARES Act in FY 2020. In FY 2021, the CAA eliminated Treasury’s ability to make new loans and

investments and rescinded $478.8 billion of $500 billion provided to Treasury under the CARES Act. These changes

and the return of unused and permanent authority and obligation adjustments of $71.2 billion resulted in the net

appropriations amount of $632.8 billion for FY 2021 shown in Table 3 above. Treasury funding supports several

efforts, including $587.0 billion for refundable tax credits (recovery rebates or EIP) in FY 2021. In FY 2021, IRS

disbursed $569.5 billion of EIPs to eligible recipients in every state and territory and at foreign addresses. In

addition, appropriations of $428.5 billion ($25.0 billion CAA and $403.5 billion ARP) provided for payments to

state, local, territorial, and tribal governments to cover eligible costs incurred in response to the pandemic through

several funds including: 1) SLFRF; 2) Coronavirus Capital Projects Funds; 3) ERA; 4) HAF; 5) State Small

Business Credit Initiative; and 6) Local Assistance and Tribal Consistency Fund. In addition, pursuant to the

CARES Act, in response to the COVID-19 pandemic, the government invested in SPVs established by the Federal

Reserve Board through the FRBNY and FRBB during FY 2020 for the purpose of enhancing the liquidity of the

U.S. financial system.

• SBA received appropriations of $389.3 billion in FY 2021 and $751.8 billion in FY 2020. FY 2021 appropriation

totals were reduced by a $146.5 billion rescission under the CAA of amounts appropriated under the CARES Act,

resulting in net appropriations for FY 2021 of $242.8 billion as shown in Table 3 above. SBA appropriations

primarily funded two programs: 1) the PPP, a loan guarantee program designed to provide a direct incentive for

small businesses to retain employees by providing loan forgiveness for amounts used for eligible expenses for

payroll and benefit costs, interest on mortgages, rent, and utilities; and 2) SBA also provides loans to small business

owners through the EIDL program.

• DOL received $451.5 billion in funding in FY 2021 under ARP and $394.3 billion in FY 2020 under the CARES

Act. Through multiple UI programs, DOL expands states’ ability to provide UI for many workers impacted by the

pandemic, including for workers who are not eligible for regular/traditional unemployment benefits. These programs

include, but are not limited to: 1) the FPUC program; 2) the PUA program; and 3) the Short-term Compensation

program.

• Through the PHSSEF and other efforts, HHS provides broad support, including, but not limited to: reimbursements

to health care providers for expenses or lost revenues attributable to the pandemic, and support for the development

and purchase of vaccines, therapeutic treatment, testing, and medical supplies. In FY 2021, HHS received $233.7

billion and $250.4 billion COVID-19 response-related funding in FYs 2021 and 2020, respectively. These funds

support testing, contact tracing, surveillance, containment, mitigation to monitor and suppress the spread of COVID19, as well as support for COVID-19 vaccination programs; and ARP funding provided supplemental relief funding

to workers and families for nationwide testing sites and community vaccination sites as well as addressing

disparities in obtaining quality healthcare.
MANAGEMENT’S DISCUSSION AND ANALYSIS 20

• Education COVID-19 appropriations funded a variety of programs administered primarily through grant programs.

COVID-19 relief legislation and administrative actions also provided support for student loan borrowers primarily

by temporarily suspending nearly all federal loan payments.

• USDA received CAA, ARP, and supplemental CARES Act appropriations in the amount of $91.3 billion in FY

2021 and $73.2 billion in CARES Act funding in FY 2020. This funding extended modifications to federal nutrition

assistance programs; funded programs to support agricultural producers, growers, and processors; and provided

additional relief to address the continued impact of COVID-19 on the economy, public health, state and local

governments, individuals, and businesses.

• DHS received supplemental appropriations of $70.0 billion under CAA and ARP in FY 2021, and $45.9 billion

under the CARES Act in FY 2020. DHS funding supports a wide range of efforts including FEMA’s Disaster Relief

Fund. FEMA is authorized to provide many types of assistance including, but not limited to Public Assistance for

emergency protective measures, including vaccination activities, direct federal assistance, personal protective

equipment, state and local Emergency Operations Center operations, non-congregate sheltering, medical field

stations, medical ships, personnel to support medical sites, National Guard deployments, and crisis counseling.

• DOT received $70.2 billion ($27.0 billion CAA and $43.2 billion ARP) of supplemental COVID-19 appropriations

in FY 2021 and $36.0 billion of supplemental appropriations under the CARES Act in FY 2020. DOT funding

supports the maintaining and continuing of operations and business needs of various transportation systems in

response to COVID-19.

• Many other agencies and programs comprise the “Other” amount shown in Table 3. Note 30—COVID-19 Activity

and agency financial statements provide additional details concerning federal agency pandemic response efforts.

Budgetary activity, such as appropriations, obligations, and outlays are different from, but related to financial activity,

such as costs, assets, and liabilities. As agencies implement programs, appropriations, obligations, and outlays precipitate a

wide range of financial effects, including the incurrence of program costs, and the creation of or changes in assets such as

advances or loans receivable, or liabilities such as loan guarantees. These corresponding financial effects stemming from

pandemic relief and economic recovery efforts, and the federal government’s operations in general are discussed in the

following section.

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

The financial effects of the government’s response to the COVID-19 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 more significant

effects of the pandemic on the government’s financial results for FY 2021. Please refer to Note 30—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.
21 MANAGEMENT’S DISCUSSION AND ANALYSIS

Table 4 shows that the government’s “bottom line” net operating cost decreased $746.5 billion (19.4 percent) during

2021 from $3.8 trillion to $3.1 trillion. This decrease is due mostly to a slight $62.2 billion (0.8 percent) decrease in entity net

costs, offset by a $684.3 billion (19.2 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 $7.3 trillion, subtracts revenues earned for

goods and services provided (e.g., Medicare premiums, national park entry fees, and postal service fees), and adjusts the

balance for gains or losses from changes in actuarial assumptions used to estimate certain liabilities, including federal

employee and veteran benefits to derive its net cost of $7.4 trillion, a slight $62.2 billion (0.8 percent) decrease compared to

FY 2020.

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 impacted 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 2021 included:

• A $211.6 billion decrease in SBA net costs largely driven by a $230.0 billion decrease in loan subsidy costs,

including reestimates, attributable to the PPP and Debt Relief programs under the CARES Act. As noted earlier, the

PPP provides loan forgiveness for amounts used for eligible expenses for payroll and benefit costs. Under the Debt

Relief program, SBA pays six months of principal, interest, and any associated fees that borrowers owe for all

current loans in regular servicing status in its 7(a), 504, and Microloan programs, as well as new 7(a), 504, and

Microloans disbursed prior to September 27, 2020.

• The $270.1 billion increase in Treasury net costs is largely due to disbursement during FY 2021 of $569.5 billion in

refundable tax credits (also referred to as EIP) to eligible recipients in every state and territory and at foreign

addresses, compared to $274.7 billion of EIP disbursements during FY 2020, which is partially offset by a $112.0

billion net cost reduction in FY 2021 that is attributable to the increase in liquidation preference of the GSEs senior

preferred stock of $31.9 billion and FV gains on the investment in GSEs of $80.1 billion. The increase in GSE

senior preferred stock FV is primarily a result of GSE higher projected cash flows, a decrease in the market value of

GSEs’ other equity securities that comprise its total equity, and a lower discount rate.

• A $100.8 billion net cost increase at HHS was driven largely by $115.4 billion total cost increases across Medicare

and Medicaid. Of note, a $63.2 billion increase in Medicaid net cost was largely attributable to a $57.0 billion

benefit expense increase related to higher grant awards to states to continue COVID-19 relief efforts. Medicare HI

and SMI program benefits expenses also increased. These cost increases were offset by a net decrease in other

program costs primarily due to the PHSSEF receiving less funding for COVID-19 relief during FY 2021.

• A significant portion of the $96.4 billion decrease at DOL is attributable to a $100.7 billion decrease in Income

Maintenance programs costs, primarily due to decreases in unemployment benefits as less jobless claims are filed.

DOL costs related to the COVID-19 pandemic were $313.0 and $352.2 billion in FYs 2021 and 2020, respectively,

comprised mostly of unemployment benefit expenses for programs implemented in FY 2020 and extended into FY

2021.
MANAGEMENT’S DISCUSSION AND ANALYSIS 22

• 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

$518.4 billion in FY 2021, a loss decrease

(and a corresponding net cost decrease) of

$161.1 billion compared to FY 2020. 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 $84.9 billion, $346.3 billion,

and $82.8 billion, 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

2021, changes in net cost at OPM ($30.6 billion increase), DOD ($144.8 billion increase), and VA ($291.8 billion

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

• While most of the $144.8 billion increase in DOD net costs is primarily due to a $100.2 billion loss increase from

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

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

• A $36.5 billion increase at SSA, due to

a 1.4 percent increase in the number of

OASI beneficiaries, combined with a

1.3 percent COLA provided to

beneficiaries in 2021. These increases

were offset by cost decreases for the

DI and Supplemental Security Income

benefits programs primarily due to a

decrease in the number of

beneficiaries.

• A $291.8 billion decrease in VA net

cost was impacted largely by a

decrease in losses from changes in

assumptions underlying VA’s

compensation, burial, education, and

VR&E benefits programs. These

assumption changes included, but were

not limited to a lower than anticipated

numbers of veterans, offset by changes

in discount rate and COLA

assumptions.

• A $20.9 billion increase in interest on debt held by the public due largely to an increase in inflation adjustments and

an increase in outstanding debt held by the public.

Chart 2 shows the composition of the government’s net cost for FY 2021. In FY 2021, approximately 85 percent of the

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

interest on the debt. The other 150-plus entities included in the government’s FY 2021 Statement of Net Cost accounted for a

combined 15 percent of the government’s total net cost for FY 2021. Chart 3 shows the five-year trend in these costs,

illustrating the significant impact that the pandemic had on certain agency costs as summarized above. Aside from pandemic

relief costs, as discussed above, HHS and SSA net costs for FY 2021 ($1.5 trillion and $1.2 trillion, respectively) are largely

attributable to major social insurance programs administered by these entities. VA net costs of $693.4 billion support health,

education and other benefits programs for our nation’s Veterans. DOD net costs of $890.6 billion relate primarily to

operations, readiness, and support; personnel; research; procurement; and retirement and health benefits. Treasury net costs

of $830.8 billion support a broad array of programs that promote conditions for sustaining economic growth and stability,
23 MANAGEMENT’S DISCUSSION AND ANALYSIS

protecting the integrity of our Nation’s financial system, and effectively managing the U.S. government’s finances and

resources. SBA net costs of $347.4 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.

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 $684.3

billion or 19.2 percent to $4.3 trillion for FY 2021.

This increase is attributable mainly to an overall

growth in income taxes collections, partially offset

by increased refunds. 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

Social Security resulting from the CARES Act,

increased $68.0 billion during FY 2021. This

increase was principally due to the two-year

deferral of FICA Social Security taxes. Earned

revenues from Table 4 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 77.0 percent and 10.7 percent of total revenue, respectively in FY 2021; other revenues from Chart 4 include

Federal Reserve earnings, excise taxes, unemployment taxes, and customs duties.

As previously shown in Table 4, the increase in tax and other revenue combined with the decrease in net cost, yielded a

$746.5 billion decrease to the government’s bottom line net operating cost to $3.1 trillion for FY 2021.

Please refer to Note 30—COVID-19 Activity, as well as the FY 2021 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 5).

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

12 As shown in Table 5, 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.
MANAGEMENT’S DISCUSSION AND ANALYSIS 24

Social Security) as well as other fiscal projections, commitments and contingencies, are reported in separate statements and

disclosures. This information is discussed later in this MD&A section, the financial statements, and RSI sections of this

Financial Report.

Assets

From Table 5, as of September 30, 2021, more than three-fourths of the government’s $4.9 trillion in reported assets is

comprised of: 1) cash and other monetary assets ($475.0 billion); 2) accounts receivable, net ($401.0 billion); 3) net loans

receivable ($1.7 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, 2021 and 2020, some of which were substantially impacted by the pandemic response.

Cash and other monetary assets ($475.0 billion) is comprised largely of the operating cash of the U.S. government.

Operating cash held by Treasury decreased $1.6 trillion (88.8 percent) to $198.4 billion during FY 2021 due to Treasury

maintaining an elevated cash balance in FY 2020 to maintain prudent liquidity in light of the size and relative uncertainty of

COVID-19 related outflows, combined with needing to reduce the cash balance to well under Treasury’s prudent policy level

at the end of FY 2021 due to debt ceiling constraints (see Note 2—Cash and Other Monetary Assets).

Treasury comprises approximately 76.0 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. Other accounts

receivable, gross increased significantly year to year, primarily as a result of DOL’s $18.6 billion increase in benefit

overpayments from programs related to COVID-19 as well as a $7.0 billion increase to HHS receivables, primarily due to

Medicare (see Note 3—Accounts Receivable, 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 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 27—Stewardship PP&E.
25 MANAGEMENT’S DISCUSSION AND ANALYSIS

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. Significant changes to the federal

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

• Education’s Federal Direct Student Loan Program accounted for $1.1 trillion (66.9 percent) of total loans receivable,

net. 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. During FY 2021, Education direct loan disbursements to eligible borrowers decreased by

approximately $12.6 billion to $104.8 billion. While the CARES Act provision supporting student loan borrowers

by temporarily suspending nearly all federal student loan payments expired on September 30, 2020, administrative

action temporarily suspended payments during FY 2021. In addition, all federal wage garnishments and collections

actions for borrowers with federally held loans in default were halted.

• 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. These receivables increased to $244.1

billion during FY 2021, stemming from a $62.6 billion increase in direct disaster COVID-19 EIDL funded loans

primarily funded from the CARES Act. 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 $284.9 billion primarily due to SBA forgiveness payments to PPP lenders. For

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

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 68.8 percent of the government’s reported general PP&E of $1.2 trillion as of September 30,

2021. See Note 6—General Property, Plant, and Equipment, Net.

“Other” Assets of $1.2 trillion in Table 5 and Chart 5 includes: 1) $369.3 billion in “Advances and Prepayments”; and

2) $26.4 billion of “Investments in SPVs”. The $150.7 billion increase in advances and prepayments is largely due to

disbursements by Treasury to states, local, territorial, and tribal governments pursuant to the CRF, SLFRF, ERA, and HAF

programs to cover eligible costs recipients incur in response to the pandemic (see Note 10—Advances and Prepayments).

In addition, in response to the COVID-19 pandemic, under Section 4003 of the CARES Act, Treasury holds equity

investments in SPVs established through the FRBNY and FRBB for the purpose of enhancing the liquidity of the U.S.

financial system. These non-federal investment holdings are reported at their FV on the Balance Sheet, and changes in the

valuation of these investments are recorded on the Statement of Net Cost. These investments decreased by $82.0 billion

during FY 2021 primarily due to an aggregate $86.1 billion of capital contributions that was returned to Treasury by the

Federal Reserve in connection with interim and final distributions made pursuant to the amended SPV LLC Agreements. See
MANAGEMENT’S DISCUSSION AND ANALYSIS 26

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.

Note 8—Investments in Special Purpose Vehicles, and Note 30—COVID-19 Activity, as well as Treasury’s FY 2021

financial statements for additional information.

Please refer to Note 30—COVID-19 Activity, as well as the FY 2021 entities’ financial statements for additional

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

In addition, as indicated earlier, Note 31—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 31.

Liabilities

As indicated in Table 5 and Chart 6, of the

government’s $34.8 trillion in total liabilities, the

largest liability is federal debt and interest payable,

the balance of which increased by $1.3 trillion (6.0

percent) to $22.3 trillion as of September 30, 2021.

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 $767.5 billion

(8.2 percent) during FY 2021, to about $10.2

trillion. This total amount is comprised of $2.9

trillion in benefits payable for the current and

retired civilian workforce, and $7.3 trillion for the

military and veterans. OPM administers the largest

civilian pension plan, covering more than 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 2.3 million retirees and survivors.

Federal Debt

The budget surplus or deficit is the difference between total federal spending and receipts (e.g., taxes) in a given year.

The government borrows from the public (increases federal debt levels) to finance deficits. During a budget surplus (i.e.,

when receipts exceed spending), the government typically uses those excess funds to reduce the debt held by the public. The

Statement of Changes in Cash Balance from Budget and Other Activities reports how the annual budget surplus or deficit

relates to the federal government’s borrowing and changes in cash and other monetary assets. It also explains how a budget

surplus or deficit normally affects changes in debt balances.

The government’s federal debt and interest payable (Balance Sheet liability), which is comprised of publicly-held debt

and accrued interest payable, increased $1.3 trillion (6.0 percent) to $22.3 trillion as of September 30, 2021. 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 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 2021, new borrowings were

$20.4 trillion, and repayments of maturing debt held by

the public were $19.2 trillion, both increases from FY

2020.

In addition to debt held by the public, the

government has about $6.2 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 ($2.9 trillion) and Medicare ($306.9

billion) trust funds. Intra-governmental debt is primarily held in government trust funds in the form of special nonmarketable
27 MANAGEMENT’S DISCUSSION AND ANALYSIS

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 13). 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-government 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 2021, debt subject to the statutory limit was $28.4 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 last economic and fiscal crisis and the

consequent actions taken by the federal government, combined with slower economic growth in the wake of the

crisis, pushed the debt-to-GDP ratio up to 74 percent by the end of FY 2014.

• The debt was approximately 100 percent of GDP at the end of FY 2021 similar, but slightly below the debt-to-GDP

ratio at the end of FY 2020 This ratio decreased slightly during FY 2021, because GDP, which increased as the

economy continued to recover from the effects of the pandemic, grew faster than the debt.

15 From Chart 7, since

1940, the average debt-to-GDP ratio is 49 percent.

14During FY 2021, 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. On August 2, 2019, the BBA of 2019 (P.L. 116-37) was enacted suspending the statutory

debt limit through July 31, 2021. 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. See Note 13—

Federal Debt and Interest Payable and Note 31—Subsequent Events for additional information.

15The increase in debt of $1.3 trillion was less than the FY 2021 deficit of $2.8 trillion primarily because of a $1.6 trillion decrease in the government’s cash

balance.
MANAGEMENT’S DISCUSSION AND ANALYSIS 28

The Economy in FY 2021

An analysis of U.S. economic

performance provides useful background

when evaluating the government’s

financial statements. During the last two

fiscal years, the economy’s performance

has been deeply affected by the COVID19 global pandemic as well as the U.S.

government’s extensive measures to

prevent infection, support consumers and

businesses, and restore growth.

Reflecting the brunt of restrictions

implemented after the pandemic’s onset

in early 2020, the economy contracted by

2.9 percent during FY 2020. Real GDP dropped sharply over the second and third quarters of the fiscal year, as state and

local governments implemented stay-at-home orders and required non-essential businesses to close, in order to protect the

public and mitigate the impact of the pandemic on health care resources. The U.S. government responded quickly to support

American households and small businesses during the pandemic; by late March 2020, three economic aid packages were

passed totaling roughly $2.7 trillion. These measures included EIPs, expanded eligibility for unemployment insurance

payments, delays in tax and loan payments, and implemented a moratorium on evictions. In addition, Treasury and the SBA

launched the PPP – a forgivable loan for small businesses – in March 2020 and received a supplemental appropriation before

the first round of applications closed in September 2020. Due to these measures and the rescission of stay-at-home orders, the

economy grew in the final quarter of FY 2020 at the fastest quarterly pace in 70 years, accompanied by rapid payroll job and

wage growth.

The recovery’s momentum continued in FY 2021, with the help of additional government financial support the

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

aid package of roughly $900.0 billion was passed in December 2020, which funded smaller EIPs and a second draw of PPP

loans for small businesses. Then early in calendar 2021, President Biden signed the ARP into law. The ARP provided an

additional $1.9 trillion in economic aid, primarily through EIPs and direct aid to low-to middle-income families and to the

economically vulnerable. 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 extended the deadline for

PPP applications.

As summarized in Table 6, the U.S. economy grew briskly in FY 2021 after the contraction in FY 2020. Real (i.e.,

inflation-adjusted) GDP surged by 4.9 percent over the four quarters of FY 2021, after declining by 2.9 percent during the

previous fiscal year. Business fixed investment and PCE rebounded from the temporary collapses seen in the previous fiscal

year, and residential investment, government spending, and net exports all continued to support growth to varying degrees.

Over the four quarters of FY 2021, business fixed investment expanded by 9.0 percent, swinging sharply from the 7.0 percent

drop over the previous four quarters and supported in part by rising oil prices. PCE grew 7.0 percent, reflecting the two

rounds of federal financial support as well as pent-up demand as more sectors opened; PCE growth in FY 2021 stood in sharp

contrast with the 2.8 percent decline during FY 2020 as domestic demand collapsed.

Residential investment continued to provide consistently strong support for the economy, growing 5.4 percent in FY

2021, after a 7.7 percent gain in FY 2020. Government spending grew more slowly in the latest fiscal year, rising 0.6 percent

after a 2.1 percent advance during FY 2020. This deceleration masks the significant further steps undertaken by the U.S.

government during the FY 2021 to support the economy, which were largely transfers to households and businesses rather

than direct government spending. Net exports posed less of a drag on growth during FY 2021, shaving 1.2 percentage points

from real GDP after subtracting 3.3 percentage points during the previous fiscal year. Inventory investment contributed

positively to growth in both fiscal years, adding 6.8 percentage points to growth during FY 2020 and adding 2.1 percentage

points in the latest fiscal year, as inventories began to be drawn down to meet rising consumption.

The imposition of stay-at-home orders and mandated business closures brought about a severe decline in economic

activity in FY 2020, such that more than 22 million payroll jobs were lost over March and April 2020, and the unemployment

rate jumped to post-World War II high of 14.7 percent. Thereafter, job creation resumed more quickly than expected, and by

the end of FY 2020, the unemployment rate had dropped 6.8 percentage points from the peak to 7.9 percent, and a total of

11.1 million jobs, or 50.6 percent of the total lost, had been recovered. Labor markets continued to improve, if at a slower

pace, during FY 2021. By the end of the fiscal year, the unemployment rate had dropped another 3.2 percentage points to 4.7

percent, and a further 5.7 million jobs had been recovered. At the end of FY 2021, the unemployment rate stood only 1.2

percentage points above the half-century low of 3.5 percent registered just before the pandemic’s onset, and nearly 76.4

percent of the jobs lost during March and April 2020 had been recovered.
29 MANAGEMENT’S DISCUSSION AND ANALYSIS

Headline inflation slowed during FY 2020, as the effects of lower oil prices and reduced consumption offset an

acceleration in food price inflation. Core inflation (which excludes food and energy) also slowed in FY 2020. However,

inflation at the headline and core levels accelerated during FY 2021, reflecting an array of upward but partly temporary

pressures, including increased demand for durable goods, supply-side disruptions, the reopening of many service industries,

and rising oil prices. The CPI rose 5.4 percent over the 12 months of FY 2021, picking up markedly from the 1.4 percent

pace during the previous fiscal year. Core inflation was 4.0 percent over the fiscal year ending September 2021, accelerating

from the 1.7 percent pace during FY 2020.

A more rapid pace of inflation offset small but positive gains in income growth during FY 2021, resulting in an erosion

of purchasing power in real terms. Real Disposable Personal Income declined 1.1 percent over the 12 months of FY 2021,

after advancing 5.6 percent during the previous fiscal year. The pace of nominal average hourly earnings growth increased

noticeably in FY 2020, reflecting the temporary unemployment of lower wage workers, and then accelerated further in FY

2021 as labor shortages developed. Faster inflation eroded wages in real terms for most industries, save where nominal wage

growth gains were sufficient to offset, such as in the leisure and hospitality sector. Overall, real average hourly earnings

declined 0.4 percent during FY 2021, after advancing 3.2 percent during the previous fiscal year. Growth of non-farm labor

productivity declined 0.5 percent over the four quarters of FY 2021, after growing 3.6 percent during FY 2020, but the

deterioration in the latest fiscal year reflected growth in output that was offset by a faster advance in hours worked, as more

workers were rehired.

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 26). The Statements display the PV of 75-year projections of the federal government’s receipts and noninterest spending16 for FY 2021 and FY 2020.

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 100 percent at the end of FY 2021, similar to (but slightly below) the ratio at the end of

FY 2020. The long-term fiscal projections in this report are based on the same economic and demographic assumptions that

underlie the 2021 Social Security and Medicare Trustees’ Reports. The data and projections presented in the 2021 Trustees’

Reports include the Trustees’ best estimates of the effects of the COVID-19 pandemic and the 2020 recession, which were

not reflected in last year’s reports. 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 2041 and reach 701 percent in 2096. 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 6.2 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 7 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 policy17 remains unchanged, and hence, are neither forecasts nor

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

sustainability.

The Primary Deficit, Interest, and Debt

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

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

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

16 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.

17 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).
MANAGEMENT’S DISCUSSION AND ANALYSIS 30

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 ratio is projected to fall to 4.7 percent in 2022 and then decrease to 4.3 percent in 2027 as the

economy grows and spending due to legislation enacted in response to the COVID-19 pandemic decreases. After 2027,

however, increased spending for Social Security and health programs due to the ongoing retirement of the baby boom

generation and increases in the price of health care services is projected to result in increasing primary deficit ratios that reach

5.0 percent of GDP in 2030. The primary deficit ratio peaks at 6.3 percent in 2043, gradually decreases beyond that point as

aging of the population continues at a slower pace, and reaches 4.9 percent of GDP in 2096, the last year of the projection

period.

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

2009 through 2012 because of the recession and the effects of the government’s response thereto. The share subsequently

increased to 18.0 percent of GDP by 2015, before falling below the 30-year average of 17.1 percent in 2018, after enactment

of the TCJA.

Receipts were 18.1 percent of GDP in

2021. After 2025, receipts grow slightly

more rapidly than GDP over the projection

period as increases in real incomes cause

more taxpayers and a larger share of

income to fall into the higher individual

income tax brackets.

On the spending side, the non-interest

spending share of GDP, was 28.9 percent in

2021, slightly less than the share of GDP in

2020. The ratio of non-interest spending to

GDP is projected to fall to 22.0 percent in

2022 and remain near that level through

2024. After 2024, the non-interest spending

share of GDP is projected to rise gradually,

reaching 25.7 percent in 2078, before

declining to 25.3 percent in 2096, the end

of the projection period. Beginning in 2025,

these increases are principally due to faster

growth in Medicare and Social Security

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 are projected to increase by

about 0.9 and 1.5 percentage points, respectively, from 2022 to 2041. After 2041, 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 2021 Financial Report increased in both present-value terms and

as a percent of the current 75-year PV of GDP. As discussed in Note 26, the largest factor affecting the projections was the

actual budget results for FY 2021 and the budget estimates published in the FY 2022 President’s Budget. Actual budget

results for FY 2021 lead to higher 75-year PV of spending for mandatory programs other than Social Security, Medicare, and

Medicaid. Budgetary estimates result in higher 75-year PVs for individual income tax receipts and outlays for non-defense

discretionary programs. The second largest factor was the update of economic and demographic assumptions which increases

the imbalance by 0.2 percent of the 75-year PV of GDP ($6.3 trillion). The third largest factor is the effect of new Social

Security, Medicare, and Medicaid program-specific actuarial assumptions, which increase this imbalance as a share of the 75-

year PV of GDP by 0.2 percentage points ($3.6 trillion). The change in reporting period – the effect of shifting calculations

from 2021 through 2095 to 2022 through 2096 – increases the imbalance of the 75-year PV of receipts less non-interest

spending by $1.4 trillion.

One of the most important assumptions underlying the projections 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
31 MANAGEMENT’S DISCUSSION AND ANALYSIS

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 2021 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. 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 2021. 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 non-aged 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 August 2021. See Note 26—Long-Term Fiscal Projections

for additional information.

As discussed in Note 26 for the FY 2021 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 2022 President’s Budget, and the salaries and wages projections in the Social Security 2021

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.

18 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 2021 or budgetary

estimates from the FY 2022 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. Where not possible, budget totals were not adjusted, resulting in higher projections of

future spending, increasing the uncertainty surrounding this year’s projections. See Note 26—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 100 percent at the end of FY

2021 and under current policy is

projected to exceed the historic high of

106 percent in 2024, rise to 200 percent

by 2041 and reach 701 percent by 2096.

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.19 The

continuous rise of the debt-to-GDP ratio

indicates that current policy is

unsustainable.

These debt-to-GDP projections are

higher than the corresponding

projections in both the 2020 and 2019

Financial Reports. For example, the last

year of the 75-year projection period used in the FY 2019 Financial Report is 2094. In the FY 2021 Financial Report, the

debt-to-GDP ratio for 2094 is projected to be 682 percent, which compares with 614 and 474 percent projected for that same

year in the FY 2020 Financial Report and the FY 2019 Financial Report, respectively.

20

18 The 2020 projections assumed the individual income and estate and gift tax provisions of the TCJA would continue past their legal expiration on

December 31, 2025. See the FY 2020 Financial Report.

19 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.

20 See the Note 24 of the FY 2020 Financial Report of the U.S. Government for more information about changes in the long term fiscal projections between

FYs 2019 and 2020.
MANAGEMENT’S DISCUSSION AND ANALYSIS 32

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 2096 to remain at its level in 2021. The projections show that projected primary deficits average 5.7 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, 6.2 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 6.2 percent of

GDP. This amount is, in turn, equivalent to 32.4 percent of 75-year PV receipts and 25.0 percent of 75-year PV non-interest

spending. The fiscal gap was estimated at 5.4 percent in the FY 2020 Financial Report.

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

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

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

the amount of interest

spending, which under

these assumptions would

result in debt growing

faster than GDP.

Table 7 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 6.2 percent of GDP on average between 2022 and 2096 (i.e., some combination of reducing

spending and increasing revenue by a combined 6.2 percent of GDP on average over the 75-year projection period). Table 7

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 7.3 percent of GDP on

average between 2032 and 2096. Similarly, delaying reform by 20 years requires primary surplus increases of 9.0 percent of

GDP on average between 2042 and 2096. The differences between the required primary surplus increases that start in 2032

and 2042 (7.3 and 9.0 percent of GDP, respectively) and that which starts in 2022 (6.2 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 26 and the

RSI section of this Financial Report.

Image from TABLE - RSI&MDA Cost of Delay(B16:J26))
33 MANAGEMENT’S DISCUSSION AND ANALYSIS

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.21 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 2021 Social Security and Medicare Trustees’ Reports and the 2021 SOSI, while comparative information

presented from last year’s report is based on the 2020 Social Security and Medicare Trustees’ Reports and the 2020 SOSI.

Table 8 summarizes amounts reported in the SOSI, showing that net social insurance expenditures are projected to be $71.0

trillion over 75 years as of January 1, 2021 for the “Open Group,” an increase of $5.5 trillion over net expenditures of $65.5

trillion projected in the FY 2020 Financial Report.

22 The current-law 2021 amounts reported for Medicare reflect the

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

payment rates, but not the payment reductions and/or delays that would result from trust fund depletion.23 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 8. For the FYs 2021 and 2020 SOSI, the amounts eliminated totaled $43.2

trillion and $40.9 trillion, respectively. SOSI programs and amounts are included in the broader fiscal sustainability analysis

in the previous section, although on a slightly different basis (as described in Note 26).

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.

21 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. Railroad

Retirement Board’s projections are based on economic 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.

22'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.

23 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 9 identifies the principal

reasons for the changes in projected

social insurance amounts during 2021

and 2020.

The following briefly

summarizes the significant changes for

the current valuation (as of January 1,

2021) 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 2020 with a

much larger negative net cash

flow for 2095. As a result, the

PV of the estimated future net

cash flows decreased (became more negative) by $2.2 trillion.

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

two changes to ultimate demographic assumptions compared to prior valuation: the ultimate total fertility rate was

increased; and an additional cause of death category was added, by separating dementia out from the all-othercauses category, and ultimate mortality improvement rates were updated for cardiovascular disease. In addition to

this ultimate demographic assumption change, the starting demographic value and the way these values transition to

the ultimate assumptions were changed. Birth rate data through the third quarter of 2020 indicated somewhat lower

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

PV of the estimated future net cash flows to increase (become less negative) by $1.5 trillion.

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

ultimate economic assumptions since the last valuation period. The ultimate average real wage differential
35 MANAGEMENT’S DISCUSSION AND ANALYSIS

increased. Additionally, the real wage differential assumptions for the first ten years of the projection period were

also increased. The ultimate age-sex-adjusted unemployment rate was reduced. The higher real wage differential and

then combined changes to the unemployment assumption and the labor force methodology increased the PV of

estimated future net cash flows. 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 interest

rates were adjusted downward. Real interest rates are now assumed to be negative for calendar year 2021 through

2024, with a gradual rise to the ultimate real interest rate. The level of potential GDP is assumed to be roughly 1.0

percent lower than the level beginning with the second quarter 2020. The changes to near-term interest rate and the

starting values and near-term economic growth assumptions decrease the PV of the estimated future net cash flows.

There were no additional notable changes in economic methodology. Overall, changes to these assumptions caused

the PV of the estimated future net cash flows to decrease (become more negative) by $1.2 trillion.

• Changes in law or policy (affects both Social Security and Medicare): For Social Security, between the prior

valuation and the current valuation, one change in policy is expected to have significant effect on the long-range

cost. The DACA policy extends indefinitely the ability of those qualifying to remain in the country and work

lawfully. A memorandum was issued on January 20, 2021. Most of the provisions enacted as part of Medicare

legislation since the prior valuation date has little or no impact on the program. The following provisions did have

financial impact. The CARES Act (P.L. 116-136, enacted on March 27, 2020) included provisions that affect the HI

and SMI programs. The CAA (P.L. 116-260, enacted on December 7, 2020) included provisions that affect the HI

and SMI Programs. An Act to Prevent-the-Board Direct Spending Cuts and for Other Purposes (P.L. 117-7, enacted

on April 14, 2021) included provisions that affect the HI and SMI Programs. Overall, the changes to these laws,

regulations, and policies caused the PV of the estimated future net cash flows to decrease (become more negative)

by $0.2 trillion for Social Security and Medicare, with $0.1 trillion each for Social Security and Medicare.

• 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,

2020). The most significant are as follows: The current valuation uses a 10-percent sample of all newly entitled

worker beneficiaries in a recent year to project average benefit levels of retired-workers and disabled-workers

beneficiaries. Recent data and estimates indicated lower near-term and ultimate levels of revenue from taxation of

Social Security benefits than projected. The methodology for projecting retroactive benefits for retired workers was

improved to better capture the different rules for workers who become newly entitled prior to normal retirement age

versus those who become entitled at or after normal retirement age. Overall, changes in methodology and

programmatic data caused the PV of the estimated future net cash flows to decrease (become more negative) by $1.2

trillion for Social Security.

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

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

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

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

slightly faster projected spending growth for outpatient services and for physician-administered drugs; and higher

direct and indirect remuneration and shifts to Medicare Advantage offset higher gross drug prices. The net impact of

these changes caused the PV of the estimated future net cash flows to decrease (become more negative) by $3.8

trillion.

• Change in Projection Base (affects Medicare only): Actual income and expenditures in 2020 were different than

what was anticipated when the 2020 Medicare Trustees’ Report projections were prepared. For Part A and Part B

income and expenditure in 2020 were lower than anticipated based on actual experience, mainly due to the impact of

the COVID-19 pandemic. Part D was largely unaffected by the pandemic and total income and expenditures were

only slightly higher than the estimated based on actual experience. Actual experience of the Medicare Trust Funds

between January 1, 2020 and January 1, 2021 is incorporated in the current valuation and is more than projected in

the prior valuation. Overall, the net impact of the Part A, B, and D projection base change is an increase (become

less negative) in the estimated future net cash flows by $1.6 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 2021, 2020,

2019, 2018 and 2017 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.24 According to the Medicare Trustees’ Report, spending on Medicare

is projected to rise from its current level of 4.0 percent of GDP to 6.2 percent in 2045 and to 6.5 percent in 2095.25 As for

24A Summary of the 2021 Annual Social Security and Medicare Trust Fund Reports, page 12.

25 Percent of GDP amounts are expressed in gross terms (including amounts financed by premiums and state transfers).
MANAGEMENT’S DISCUSSION AND ANALYSIS 36

Social Security, combined spending is projected to generally increase from its current level of 5.1 percent of GDP to a peak

of 6.2 percent for 2077, and then decline to 5.9 percent by 2095. 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 10 summarizes

additional current status and projected trend information, including years of projected depletion, for the Medicare Hospital

Insurance 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

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.

Although not required to do so, many agencies included similar types of information about climate change in their FY

2021 financial reports and/or included climate information in different sections of their financial reports.

Approximately one third of the CFO Act agencies referred to their climate action or adaptation plans. SSA has

developed plans to prepare for power disruptions, increased flooding in both coastal and non-coastal locations, reduced water

supply, and disruptions and damage to transportation infrastructure. VA is implementing changes to building design and

resilience standards, developing a facility climate risk list, updating sustainable building certification requirements, preparing

for surges in demand for medical supplies and pharmaceuticals, and planning to create a bio-surveillance system and

epidemiologic investigation program to surveil for high consequence infections in veterans receiving VA care.

In addition, at least one quarter of the CFO Act agencies discussed climate change in the context of program

performance. For example, HHS has established the first national level office established to address climate change and

health equity; it is seeking to protect vulnerable communities who disproportionately bear the brunt of pollution and climatedriven disasters (such as drought and wildfires) at the expense of public health. Treasury has initiated work related to: climate

transition finance, climate-related economic and tax policy, and climate-related financial risks.

Also, one third of the CFO Act agencies discussed climate change in the forward-looking section of their MD&A. State

has a new Special Presidential Envoy for Climate to lead diplomatic engagement on the climate crisis, exercise climate

leadership in international fora, increase international climate ambition and ensure that climate change is integrated into all

elements of the Administration’s foreign policy-making process. DOI’s 2022-2026 Strategic Plan will, among other things,
37 MANAGEMENT’S DISCUSSION AND ANALYSIS

address the climate crisis and invest in a clean energy future. DOI will also strengthen climate resilience and conservation

partnerships and increase renewable energy production on public lands and waters to support a carbon pollution-free power

sector by 2035.

One third of the Inspectors General from CFO Act agencies identified climate change as a management challenge.

DOI’s Office of Inspector General recognized that climate change is a cross-cutting issue affecting tribal communities, land

use, water resources, wildlife, and their habitats, and the frequency and severity of natural disasters. EPA’s Office of

Inspector General identified climate change as among the top management challenges facing the agency focusing on EPA’s

role in providing leadership on this issue.

Like Inspectors General, agency heads also recognized the importance of climate change, with about one third of the

CFO Act agency heads citing climate change in their financial statements transmittal messages. 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

Secretary of Transportation noted that the Infrastructure Investment and Jobs Act will address the climate crisis by building a

network of electric vehicle chargers across the country, by helping make our transportation infrastructure more resilient, and

by making it safer and easier for people to get around without a car.

As required by EO 14030, in October, the National Economic Council issued a report26 laying out a government-wide

strategy to address the financial risk that climate change poses to the government and the U.S. economy. In addition, FASAB,

which is an advisory committee under the Federal Advisory Committee Act and the generally accepted accounting principles

standard setter for the federal government, has begun a research project on climate-related financial reporting. The project

includes development of draft staff implementation guidance, which is intended to summarize existing FASAB guidance that

may be applied to climate-related events or transactions. The project also includes an assessment of the need for additional

guidance. Lastly, on December 8, 2021, after the end of FY 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.

Financial Management

Grants

In FY 2021, the federal government obligated over $1.2 trillion for grants and cooperative agreements and more when

accounting for other types of financial assistance, such as loans and 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.

Recognizing the need to distribute ARP funding in a timely manner and to also ensure accountability, transparency, and

program results, OMB issued Memorandum M-21-20, Promoting Public Trust in the Federal Government through Effective

Implementation of the American Rescue Plan Act and Stewardship of the Taxpayer Resources. M-21-20 leveraged ongoing

OMB efforts to promote standardization and a shared IT infrastructure, manage risk, and achieve program objectives. It

required agencies to apply the requirements of Title 2 of the CFR to all federal financial assistance provided under ARP, to

the maximum extent allowed by law, and to consider existing flexibilities in Title 2 of the CFR to both comply with existing

requirements and achieve intended program outcomes. Appendix 2 of M-21-20 outlined the flexibilities agencies are required

to consider and highlighted Managing for Results: The Performance Management Playbook for Federal Awarding Agencies

for new programs. The Playbook promotes a common understanding of performance practices in an effort to improve

program performance. M-21-20 also emphasized the importance of award descriptions reported to USAspending.gov and the

requirement for agencies to consult the relevant QSMO before developing new or modernized technology or considering an

existing provider.

In addition to providing guidance to support proper administration of ARP funding, OMB provided guidance on the

administration of other COVID-19 emergency programs. In December 2020, OMB issued audit guidance for fourteen new

COVID-19 programs in an addendum to the 2020 Compliance Supplement (which is a compendium of applicable statutory,

regulatory, and other requirements relevant to the “single audit” requirements for federal financial assistance recipients,

including grant recipients). Recognizing the importance of quality subaward data in tracking COVID-19 funding, the 2020

addendum and 2021 Compliance Supplement include instructions for auditors to review compliance with subaward reporting

under the Federal Funding Accountability and Transparency Act. 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

Requirements, which requires agencies to report additional information to USAspending.gov. Going forward, OMB will

continue to prioritize efforts to improve the financial management of grants and other forms of financial assistance, including

efforts to improve transparency.

26 The report can be found here: A ROADMAP TO BUILD A CLIMATE-RESILIENT ECONOMY (whitehouse.gov).
MANAGEMENT’S DISCUSSION AND ANALYSIS 38

Payment Integrity

Preventing improper payments in the federal government is 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. In FY 2021, OMB published Memorandum M-21-19, Appendix C to

OMB Circular No. A-123, Requirements for Payment Integrity Improvement. M-21-19 implements the requirements from the

Payment Integrity Information Act of 2019. Also in 2021, the CFO Council published two guides on cfo.gov that provide

strategies to identify a “tolerable rate” of improper payments and strategies based on behavioral research.

Since FY 2018, agencies with programs reporting more than $100.0 million in monetary loss have provided a quarterly

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

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

FY 2021 improper payment data can be found at https://paymentaccuracy.gov/. Beginning in FY 2020,

PaymentAccuracy.gov also began providing payment integrity information that had previously been reported in agencies

financial statements. Information about program compliance, corrective actions, and accountability mechanisms is now

available in a consistent format across all programs.

OMB will continue to work with agencies, the Chief Financial Officers 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 11, for FY 2021, 21 of the 24 CFO Act agencies obtained an unmodified

opinion from the independent auditors on their financial statements.27 In addition, 47 auditor-identified material weaknesses

were identified for FY 2021, the same as for FY 2020. Twenty-eight of these are associated with DOD. The other 19 material

weaknesses are associated with non-DOD agencies, which represents a slight decline from the 22 reported for FY 2020.

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.

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

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 increased to eight in FY 2021, and the number of auditors reporting lack of

substantial compliance with one or more of the three Section 803(a) FFMIA requirements remained at nine in FY 2021.

Because of the federal government’s size and diversity, its financial management infrastructure consists of both legacy

and modernized systems and standardized and customized systems. As the government’s fiscal agent, Treasury 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.

In 2020, Treasury was designated as the Financial Management Systems QSMO and is pursuing 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 provide a path to the decommissioning of legacy systems and migration to updated systems,

leveraging modernized technologies. In addition, agencies are coordinating 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.

In January 2021, the HHS was designated as the Grants QSMO. In this capacity, HHS has been and will continue

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.
MANAGEMENT’S DISCUSSION AND ANALYSIS 40

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 47 for FY 2021, the same

as for FY 2020. 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 publications

include, but are not limited to the:

• Budget of the United States Government,

• Treasury Bulletin,

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

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

• Economic Report of the President, and

• Trustees’ Reports for the Social Security and Medicare Programs.