NOTES TO THE FINANCIAL STATEMENTS 66

United States Government

Notes to the Financial Statements

for the Fiscal Years Ended September 30,

2018, and 2017

Note 1. Summary of Significant Accounting Policies

A. Reporting Entity

The government includes the executive branch, the legislative branch, and the judicial branch. This Financial Report

includes the financial status and activities related to the operations of the government. SFFAS No. 47, Reporting Entity,

effective for fiscal year 2018, provides criteria for identifying organizations that are included in the Financial Report as

“consolidation entities” and “disclosure entities.” Consolidation entities are consolidated into the government’s financial

statements. For disclosure entities, information is disclosed in the notes to the financial statements concerning (a) the nature

of the federal government’s relationship with the disclosure entities, (b) the nature and magnitude of relevant activity with the

disclosure entities during the period and balances at the end of the period, and (c) a description of financial and non-financial

risks, potential benefits and, if possible, the amount of the federal government’s exposure to gains and losses from the past or

future operations of the disclosure entity or entities.

Disclosure entities have a greater degree of autonomy than consolidation entities. Disclosure entities may maintain a

separate legal identity, have a governance structure that vests most decision-making authorities in a governing body to

insulate the organization from political influence, and/or have relative financial independence. These entities may include,

but are not limited to, quasi-governmental and/or financially independent entities and organizations owned and/or controlled

by the federal government as a result of (a) regulatory actions (such as organizations in receivership or conservatorship) or

(b) other federal government intervention actions if the relationship with such entities is not expected to be permanent.

SFFAS No. 47 also provides guidance for identifying related parties and in determining what information to provide

about related party relationships of such significance that it would be misleading to exclude such information. (See Appendix

A—Reporting Entity, for a more detailed discussion.)

Based on the criteria in GAAP for federal entities, the assets, liabilities, and results of operations of Fannie Mae and

Freddie Mac are not consolidated into the government's consolidated financial statements. However, the values of the

investments in such entities, changes in value, and related activity with these entities are included in the government's

consolidated financial statements. Although federal investments in Fannie Mae and Freddie Mac are significant, these entities

do not meet the GAAP criteria for consolidation entities.

For fiscal year 2018, under SFFAS No. 47 criteria, Fannie Mae and Freddie Mac were owned or controlled by the

federal government as a result of (a) regulatory actions (such as organizations in receivership or conservatorship) or (b) other

federal government intervention actions. Under the regulatory or other intervention actions, the relationship with the federal

government is not expected to be permanent. These entities are classified as disclosure entities based on their characteristics

as a whole. For fiscal year 2017, these entities met the criteria of paragraph 50 of Statement of Federal Financial Accounting

Concepts (SFFAC) No. 2, Entity and Display and do not appear in the federal budget section “Federal Programs by Agency

and Account." SFFAS No. 47 replaced reporting entity criteria in SFFAC No. 2 (see Note 25—Disclosure Entities and

Related Parties for additional information on these disclosure entities).

Also, under GAAP criteria, the FR System is not consolidated into the government's consolidated financial statements

(see Note 25—Disclosure Entities and Related Parties for further information concerning the Federal Reserve System).

Implementation of SFFAS No. 47, as of October 1, 2017, did not have a significant impact on the composition of the

entities consolidated in the Financial Report as compared to entities consolidated under SFFAC No. 2, for fiscal year 2017

(see Note 1.S—Adjustments to Beginning Net Position for information on the changes in accounting principles). For further

information regarding Reporting Entity, see Appendix A—Reporting Entity.
67 NOTES TO THE FINANCIAL STATEMENTS

B. Basis of Accounting and Revenue Recognition

Consolidated Financial Statements

The consolidated financial statements of the government were prepared using GAAP, primarily based on Federal 

Accounting Standards Advisory Board’s (FASAB’s) SFFAS. Intragovernmental transactions are eliminated in consolidation, 

except as described in the Other Information– Unmatched Transactions and Balances. See Note 1.R—Unmatched 

Transactions and Balances for detailed information. The consolidated financial statements include accrual-based financial 

statements and sustainability financial statements, which are discussed in more detail below, and the related notes to the 

consolidated financial statements. Collectively, the accrual-based financial statements, the sustainability financial statements, 

and the notes represent basic information that is deemed essential for the financial statements and notes to be presented in 

conformity with GAAP.

Accounting standards allow certain presentations and disclosures to be modified, if needed, to prevent the disclosure of 

classified information. Accordingly, modifications may have been made to certain presentations and disclosures.

Accrual-Based Financial Statements

The accrual-based financial statements were prepared under the following principles:

x Expenses are generally recognized when incurred.

x Non-exchange revenue, including taxes, duties, fines, and penalties, are recognized when collected and adjusted for 

the change in net measurable and legally collectible amounts receivable (modified cash basis). Related refunds and 

other offsets, including those that are measurable and legally payable, are netted against non-exchange revenue.

x Exchange (earned) revenue is recognized when the government provides goods and services to the public for a price. 

Exchange revenue includes user charges such as admission to federal parks and premiums for certain federal 

insurance.

The basis of accounting used for budgetary purposes, which is primarily on a cash basis (budget deficit) and follows 

budgetary concepts and policies, differs from the basis of accounting used for the financial statements which follow GAAP. 

See the Reconciliations of Net Operating Cost and Budget Deficit in the Financial Statements section.

Sustainability Financial Statements

The sustainability financial statements were prepared based on the projected present value of the estimated future 

revenue and estimated future expenditures, primarily on a cash basis, for a 75 year period.1 They include the SLTFP, 

covering all federal government programs, and the Statements of Social Insurance and the Statements of Changes in Social 

Insurance Amounts, covering social insurance programs (Social Security, Medicare, Railroad Retirement, and Black Lung 

programs). These estimates are based on economic as well as demographic assumptions presented in Notes 22 and 23. The 

sustainability financial statements are not forecasts or predictions. The sustainability financial statements are designed to 

illustrate the relationship between receipts and expenditures, if current policy is continued. For this purpose, the projections 

assume, among other things, that scheduled social insurance benefit payments would continue after related trust funds are 

projected to be depleted, contrary to current law, and that debt could continue to rise indefinitely without severe economic 

consequences.

By accounting convention, the Statements of Social Insurance do not include projected general revenues that, under 

current law, would be used to finance the remainder of the expenditures in excess of revenues for Medicare Parts B and D 

that is reported in the Statements of Social Insurance. The SLTFP include all revenues (including general revenues) of the 

federal government.

New Standards Issued in Prior and Current Years and Implemented in Current Year

Beginning in fiscal year 2018, the government implemented, or began to implement, the requirements of new standards 

for: Reporting Entity, Tax Expenditures, Budget and Accrual Reconciliation, Assigning Assets to Component Reporting 

Entities, Amending Inter-Entity Cost Provisions, and Classified Activities. The new standards implemented are:

x SFFAS No. 47, Reporting Entity. SFFAS No. 47 established principles to identify organizations for which elected 

officials are accountable. The standard also guides preparers of general purpose federal financial reports (GPFFRs) 

in determining what organizations to report upon, whether such organizations are considered “consolidation entities” 

or “disclosure entities,” and what information should be presented about those organizations. The standard also 

requires information to be provided about related party relationships of such significance that it would be misleading 

1 With the exception of the Black Lung program, which has a rolling 25-year projection period that begins on the September 30 valuation date each year.
NOTES TO THE FINANCIAL STATEMENTS 68

to exclude information. Note 25— Disclosure Entities and Related Parties has been added to the Financial Report to 

capture additional information required under SFFAS No. 47. Refer to Note 25—Disclosure Entities and Related 

Parties and Appendix A for detailed information. SFFAS No. 47 became effective in fiscal year 2018.

x SFFAS No. 52, Tax Expenditures. SFFAS No. 52 requires certain information on tax expenditures to be included in 

the Financial Report to assist users in understanding the existence, purpose, and impact of tax expenditures. 

Disclosures within the notes to the financial statements should include a “plain language” definition, examples of 

types, and a description of how tax expenditures affect non-exchange revenue, tax collections and refunds, as well as 

whether tax expenditure amounts are presented in the basic financial statements. The MD&A should include a “plain 

language” definition, the general purpose, and examples of types of tax expenditures. The MD&A should also 

include information about other factors that may affect tax collections in order to place tax expenditure information 

in an appropriate context, a description of how tax expenditures are treated for budgetary and financial reporting 

purposes, and a statement regarding the availability of published information on tax expenditures, such as the 

Treasury Office of Tax Policy’s unaudited annual report on tax expenditures, and how that information can be 

obtained. SFFAS No. 52 also encourages presentation of tax expenditures as unaudited other information (OI) in the 

Financial Report. SFFAS No. 52 became effective in fiscal year 2018.

x In October 2017, FASAB issued SFFAS No. 53, Budget and Accrual Reconciliation; Amending SFFAS No. 7, and 

24 and Rescinding SFFAS No. 22. SFFAS No. 53 amends component entity requirements for a reconciliation 

between budgetary and financial accounting information established by SFFAS No. 7, Accounting for Revenue and 

Other Financing Sources and Concepts for Reconciling Budgetary and Financial Accounting. To increase 

informational value and usefulness, and to support the governmentwide financial statement reconciling net operating 

cost to the budget deficit, this Statement provides for the budget and accrual reconciliation (BAR) to replace the 

statement of financing. The BAR explains the relationship between the entity’s net outlays on a budgetary basis and 

the net cost of operations during the reporting period. The BAR starts with net cost of operations and is adjusted by 

components of net cost that are not part of net outlays, components of net outlays that are not part of net cost, and 

other temporary timing differences, which reflect some special adjustments. SFFAS No. 53 is effective in 2019 and 

early implementation is permitted. During fiscal year 2018, USDA, VA, HHS, HUD, and Millennium Challenge 

Corporation (MCC) adopted this standard. 

x Technical Bulletin (TB) 2017-2, Assigning Assets to Component Reporting Entities. TB 2017-2 provides guidance to 

address areas not directly covered in existing Statements and clarifies existing standards. The TB provides that 

assets may be assigned by a reporting entity to its component reporting entities on a rational and consistent basis. 

The TB provides that assets may only be assigned by a component reporting entity to its own sub-component 

reporting entities (such as bureaus, components, or responsibility segments within the same larger reporting entity or 

department). This TB facilitates reporting for large and complex organizations so that reporting is better aligned 

with their operations and results in less costly financial reporting by permitting the reporting entity to align reporting 

with established funding and governance structures. Component reporting entities should describe the policies used 

to assign significant assets. This TB also reduces barriers to and cost of adopting GAAP. TB 2017-2 became 

effective in fiscal year 2018.

x In May 2018, FASAB issued SFFAS No. 55, Amending Inter-Entity Cost Provisions. SFFAS No. 55 revises SFFAS 

No. 4, Managerial Cost Accounting Standards and Concepts (including Interpretation 6, Accounting for Imputed 

Intra-departmental Costs: An Interpretation of SFFAS No. 4). SFFAS No. 4 required component reporting entities 

to recognize the full costs of services received from other federal reporting entities even if there was no requirement 

to reimburse the providing entity for the full cost of such services. This Statement revises SFFAS No. 4 to provide 

for the continued recognition of significant inter-entity costs by business-type activities and rescinds the following: 

a) SFFAS No. 30, Inter-Entity Cost Implementation: Amending SFFAS No. 4, Managerial Cost Accounting 

Standards and Concepts and b) Interpretation 6, Accounting for Imputed Intra-departmental Costs: An 

Interpretation of SFFAS No. 4. Recognition of inter-entity costs by activities that are not business-type activities is 

not required with the exception of inter-entity costs for personnel benefits and the Treasury Judgment Fund 

settlements unless otherwise directed by the OMB. Notwithstanding the absence of a requirement, non-business-type 

activities may elect to recognize imputed cost and corresponding imputed financing for other types of inter-entity 

costs. Component reporting entities should disclose that only certain inter-entity costs are recognized for goods and 

services that are received from other federal entities at no cost or at a cost less than the full costs. SFFAS No. 55 is 

effective in 2019 and early implementation is permitted. During fiscal year 2018, DOD adopted this standard.

x SFFAS No. 56, Classified Activities. SFFAS No. 56 permits financial statement modifications that do not affect net 

results of operations or net position to prevent the disclosure of classified national security information or activities.

In addition, this Statement allows a component reporting entity to be excluded from one reporting entity and 

consolidated into another reporting entity, and the effect of the modification may change the net results of operations 
69 NOTES TO THE FINANCIAL STATEMENTS

and/or net position. Further, interpretations of this Statement, which may themselves contain classified information, 

will address the requirements of this and other standards and permit other modifications when needed to prevent the 

disclosure of classified information. Modifications permitted by this Statement and future interpretations may affect 

the net results of operations and/or net position of those entities applying the interpretations. This standard may be 

implemented for fiscal year 2018.

In fiscal year 2016, the government began implementing the requirements of new standards related to the reporting for: 

Inventories and Related Property and Property, Plant, and Equipment. The standards being implemented are:

x FASAB issued SFFAS No. 48, Opening Balances for Inventory, Operating Materials and Supplies, and Stockpile 

Materials. SFFAS No. 48 permits a reporting entity to apply an alternative valuation method in establishing opening 

balances and applies when a reporting entity is presenting financial statements or one or more line items addressed 

by this statement. This standard can be applied for the first time or after a period during which existing systems 

could not provide the information necessary for producing GAAP-based financial statements without use of the 

alternative valuation methods. This is intended to provide an alternative method to adoption of GAAP when 

historical records and systems do not provide a basis for valuation of opening balances in accordance with SFFAS 

No. 3, Accounting for Inventory and Related Property. This application is available to each reporting entity only 

once per line item addressed in this statement. Reporting entities that meet either condition and elect to apply this 

statement should follow the guidance in SFFAS No. 21, Reporting Corrections of Errors and Changes in 

Accounting Principles. SFFAS No. 48 was effective beginning in fiscal year 2017. Early implementation was 

permitted. DOD did partially implement in 2016 and select component entities have continued to implement in 2017 

and 2018. DOD has not declared full implementation yet.

x FASAB issued SFFAS No. 50, Establishing Opening Balances for General Property, Plant and Equipment. SFFAS 

No. 50 permits a reporting entity to apply an alternative valuation method in establishing opening balances and

applies when a reporting entity is presenting financial statements or one or more line items addressed by this 

statement. This standard can be applied for the first time or after a period during which existing systems could not 

provide the information necessary for producing GAAP-based financial statements without use of the alternative 

valuation methods. This is intended to provide an alternative method to adoption of GAAP when historical records 

and systems do not provide a basis for valuation of opening balance in accordance with SFFAS No. 6, Accounting 

for Property, Plant, and Equipment. This application is available to each reporting entity only once per line item 

addressed in this statement. Reporting entities meeting the conditions and electing to apply this statement should 

follow the guidance in SFFAS No. 21, Reporting Corrections of Errors and Changes in Accounting Principles.

SFFAS No. 50 was effective beginning in fiscal year 2017. Early implementation was permitted. DOD did partially 

implement in 2016 and select component entities have continued to implement in 2017 and 2018. DOD has not 

declared full implementation yet.

New Standards Issued and Not Yet Implemented

FASAB issued the following new standards that are applicable to the Financial Report, but are not yet implemented at 

the governmentwide level for fiscal year 2018:

x In April 2016, FASAB issued SFFAS No. 49, Public-Private Partnerships Disclosure Requirements. SFFAS No. 49 

establishes principles to ensure disclosure about Public-Private Partnerships (P3s) are presented in the reporting 

entity’s GPFFRs. P3s are defined as “risk sharing” arrangements or transactions lasting more than five years 

between public and private sector entities. Disclosure requirements comprise quantitative and qualitative 

information to assist users in understanding the nature of P3s. P3 disclosures help achieve the operating performance 

and budgetary integrity objectives outlined in SFFAC No. 1. P3s are a form of investments. They should be 

adequately disclosed in order to assist report users in determining: (a) the important assets of the U.S. government 

and how effectively they are being managed and (b) the identification of risks. SFFAS No. 49 is effective for periods 

beginning after September 30, 2018 and early implementation is permitted; however, it is not being early 

implemented in fiscal year 2018.

x In January 2017, FASAB issued SFFAS No. 51, Insurance Programs. SFFAS No. 51 establishes accounting and 

financial reporting standards to ensure that insurance programs are adequately defined and report consistent 

information about the liabilities for losses incurred and claimed as well as expected losses during remaining 

coverage. These will replace the insurance guarantee program standards provided in paragraphs 97-121 of SFFAS 

No. 5, Accounting for Liabilities of the Federal Government. To support consistency, it identifies three categories: 

1) exchange transaction insurance programs other than life insurance, 2) non-exchange transaction insurance 

programs and 3) life insurance programs. Insurance programs are categorized based upon the type of revenue 

received as defined by SFFAS No. 7, Accounting for Revenue and Other Financing and Concepts for Reconciling 

Budgetary and Financial Accounting, as amended. SFFAS No. 51 provides guidance as to how and when insurance 
NOTES TO THE FINANCIAL STATEMENTS 70

programs should recognize revenue, expenses and liabilities according to the aforementioned categories. The 

recognition measurement, and disclosure guidance provides for concise, meaningful and transparent information 

regarding the operating performance of insurance programs. SFFAS No. 51 is effective for periods beginning after 

September 30, 2018 and early implementation is not permitted. 

x In April 2018, FASAB issued SFFAS No. 54, Leases: An Amendment of SFFAS No. 5, Accounting for Liabilities of 

the Federal Government, and SFFAS No. 6, Accounting for Property, Plant, and Equipment. SFFAS No. 54 revises 

the financial reporting standards for federal lease accounting. It provides a comprehensive set of lease accounting 

standards to recognize federal lease activities in the reporting entity’s GPFFRs and includes appropriate disclosures. 

This Statement requires that federal lessees recognize a lease liability and a leased asset at the commencement of the 

lease term, unless it meets any of the scope exclusions or the definition/criteria of short-term leases, or contracts or 

agreements that transfer ownership, or intragovernmental leases. A federal lessor would recognize a lease receivable 

and deferred revenue, unless it meets any of the scope exclusions or the definition/criteria or short-term leases, 

contracts or agreements that transfer ownership, or intragovernmental leases. SFFAS No. 54 is effective in 2021 and 

early adoption is not permitted. 

C. Accounts and Taxes Receivable

Accounts receivable represent claims to cash or other assets from entities outside the government that arise from the

sale of goods or services, duties, fines, certain license fees, recoveries, or other provisions of the law. Accounts receivable are

reported net of an allowance for uncollectible amounts. An allowance is established when it is more likely than not the

receivables will not be totally collected. The allowance method varies among the entities in the government and is usually

based on past collection experience and is reestimated periodically as needed. Methods include statistical sampling of

receivables, specific identification and intensive analysis of each case, aging methodologies, and percentage of total

receivables based on historical collection.

Taxes receivable consist primarily of uncollected tax assessments, penalties, and interest when taxpayers have agreed or

a court has determined the assessments are owed. Taxes receivable do not include unpaid assessments when taxpayers or a

court have not agreed that the amounts are owed (compliance assessments) or the government does not expect further

collections due to factors such as the taxpayer’s death, bankruptcy, or insolvency (write-offs). Taxes receivable are reported

net of an allowance for the estimated portion deemed to be uncollectible. The majority of the allowance for uncollectible

amounts is based on projections of collectible amounts from a statistical sample of unpaid assessments.

D. Loans Receivable and Loan Guarantee Liabilities

Direct loans obligated and loan guarantees committed after fiscal year 1991 are reported based on the present value of

the net cash flows estimated over the life of the loan or guarantee. The difference between the outstanding principal of the

direct loans and the present value of their net cash inflows is recognized as a subsidy cost allowance. The present value of

estimated net cash flows of the loan guarantees is recognized as a liability for loan guarantees.

The subsidy expense for direct or guaranteed loans disbursed during a fiscal year is the present value of estimated net

cash flows for those loans or guarantees. For the fiscal year during which new direct or guaranteed loans are disbursed, the

components of the subsidy expense of those new direct loans and loan guarantees are recognized separately among interest

subsidy costs, default costs, fees and other collections, and other subsidy costs. Credit programs reestimate the subsidy cost

allowance for outstanding direct loans and the liability for outstanding loan guarantees, by taking into account all factors that

may have affected the estimated cash flows. Any adjustment resulting from the reestimates is recognized as a subsidy

expense (or a reduction in subsidy expense).

Direct loans obligated and loan guarantees committed before fiscal year 1992 are valued under two different

methodologies within the government: the allowance-for-loss method and the present-value method. Under the allowancefor-loss method, the outstanding principal of direct loans is reduced by an allowance for uncollectible amounts; the liability

for loan guarantees is the amount the entity estimates would more likely than not require future cash outflow to pay default

claims. Under the present-value method, the outstanding principal of direct loans is reduced by an allowance equal to the

difference between the outstanding principal and the present value of the expected net cash flows. The liability for loan

guarantees is the present value of expected net cash outflows due to the loan guarantees.
71 NOTES TO THE FINANCIAL STATEMENTS

E. Inventories and Related Property

Inventory is tangible personal property that is (1) held for sale, principally to federal entities, (2) in the process of

production for sale, or (3) to be consumed in the production of goods for sale or in the provision of services for a fee. SFFAS

No. 3, Accounting for Inventory and Related Property, requires inventories held for sale and held in reserve for future sale

within the government to be valued using either historical cost or a method that reasonably approximates historical cost.

Historical cost methods include first-in-first-out, weighted average, and moving average. Any other valuation method may be

used if the results reasonably approximate one of the historical cost methods. FASAB issued additional guidance SFFAS No.

48, which permits a reporting entity to apply an alternative valuation method in establishing opening balances for inventory,

OM&S, and stockpile materials and is intended to provide an alternative valuation method when historical records and

systems do not provide a basis for valuation of opening balances in accordance with SFFAS No. 3.

As the largest contributor of inventories and related property, DOD values approximately 99 percent of its resale

inventory using the moving average cost method as of September 30, 2018. DOD reports the remaining 1 percent of resale

inventories at an approximation of historical cost using latest acquisition cost adjusted for holding gains and losses. OM&S

are valued using various methods including moving average cost, standard price, historical cost, replacement price, and direct

method. DOD uses both the consumption method (expensed when issued to an end user for consumption in normal

operations) and the purchase method (expensed when purchased) of accounting for OM&S. Stockpile Materials are

accounted for using actual cost or the lower of cost or market method. DOD continues to implement SFFAS No. 48,

permitting alternative methods in establishing opening balances.

F. Property, Plant, and Equipment

Property, Plant, and Equipment (PP&E) consists of tangible assets that have an estimated useful life of two or more

years, are not intended for sale in the ordinary course of business, and are intended to be used or available for use by the

entity. These tangible assets may include land, land rights, assets acquired through capital leases, buildings and structures,

furniture and fixtures, equipment, and vehicles.

SFFAS No. 6, Accounting for Property, Plant, and Equipment requires general PP&E to be recorded at cost. Cost shall

include all costs incurred to bring the PP&E to a form and location suitable for its intended use. PP&E used in government

operations are carried at acquisition cost, with the exception of some DOD equipment. FASAB issued additional guidance,

SFFAS No. 50, Establishing Opening Balances for General Property, Plant, and Equipment which states that a reporting

entity may choose alternative methods for establishing an opening balance for land and land rights. The entity may exclude

land and land rights from the opening balance of general PP&E. In so doing, future land and land right acquisitions should be

expensed. An entity electing to exclude land and land rights from its general PP&E opening balances must disclose, with a

reference on the balance sheet to the related disclosure, the number of acres held at the beginning of each reporting period,

the number of acres added during the period, the number of acres disposed of during the period, and the number of acres held

at the end of each reporting period. DOD generally records PP&E at the estimated historical cost. However, when applicable

DOD will continue to adopt SFFAS No. 50.

Costs to acquire PP&E, extend the useful life of existing PP&E, or enlarge or improve its capacity, that exceed federal

entities’ capitalization thresholds should be capitalized and depreciated or amortized. Depreciation and amortization expense

should be recognized on all capitalized PP&E, except land and land rights of unlimited duration. In the case of constructed

PP&E, the PP&E shall be recorded as construction work in process until it is placed in service, at which time the balance is

transferred to PP&E.

For financial reporting purposes, heritage assets (excluding multi-use heritage assets) and stewardship land are not

recorded as part of PP&E. Since heritage assets are intended to be preserved as national treasures, it is anticipated that they

will be maintained in reasonable repair and that there will be no diminution in their usefulness over time. Many assets are

clearly heritage assets. For example, the National Park Service manages the Washington Monument, the Lincoln Memorial

and the Mall. Heritage assets that are predominantly used in general government operations are considered multi-use heritage

assets and are included in PP&E. Stewardship land is also consistent with the treatment of heritage assets in that much of the

government’s land is held for the general welfare of the nation and is intended to be preserved and protected. Stewardship

land is land owned by the government but not acquired for or in connection with general PP&E. Because most federal land is

not directly related to general PP&E, it is deemed to be stewardship land and accordingly, it is not reported on the Balance

Sheet. Examples of stewardship land include national parks and forests. For more details on stewardship assets, see Note

24—Stewardship Land and Heritage Assets.
NOTES TO THE FINANCIAL STATEMENTS 72

G. Debt and Equity Securities

Debt and equity securities are classified as held-to-maturity, available-for-sale, and trading. Held-to-maturity debt and

equity securities are reported at cost, net of unamortized premiums and discounts. Available-for-sale debt and equity

securities are reported at fair value. Trading debt and equity securities are reported at fair value.

H. Investments in Government-Sponsored Enterprises

The senior preferred stock and associated warrants for the purchase of common stock in the GSEs (Fannie Mae and

Freddie Mac) are presented at their fair value. Senior Preferred Stock Purchase Agreements (SPSPAs), which Treasury

entered into with each GSE when they were placed under conservatorship, can result in payments to the GSEs when, at the

end of any quarter, the Federal Housing Finance Agency (FHFA), acting as the conservator, determines that the liabilities of

either GSE exceed its respective assets. Such payments result in an increase to the investment in the GSEs’ senior preferred

stock, with a corresponding decrease to cash held by Treasury.

The valuation to estimate the investment’s fair value incorporates forecasts, projections, and cash flow analyses.

Changes in valuation, including impairments, are deemed usual and recurring and thus are recorded as exchange transactions

on the Statement of Net Cost and investments in GSEs on the Balance Sheet. The government also records dividends related

to these investments as exchange transactions and accrues when declared.

The potential liabilities to the GSEs, if any, are assessed annually and recorded at the gross estimated amount. For more

detailed information on investments in GSEs, refer to Note 8—Investments in Government-Sponsored Enterprises.

I. Federal Debt

Accrued interest on Treasury securities held by the public is recorded as an expense when incurred, instead of when

paid. Certain Treasury securities are issued at a discount or premium. These discounts and premiums are amortized over the

term of the security using an interest method for all long-term securities and the straight line method for short-term securities.

Treasury also issues Treasury Inflation-Protected Securities (TIPS). The principal for TIPS is adjusted daily over the life of

the security based on the Consumer Price Index for all Urban Consumers (CPI-U).

J. Federal Employee and Veteran Benefits Payable

Generally, federal employee and veteran benefits payable are recorded during the time employee services are rendered.

The related liabilities for defined benefit pension plans, veterans’ compensation, burial and education benefits, postretirement health benefits, and post-retirement life insurance benefits, are recorded at estimated present value of future

benefits, less any estimated present value of future normal cost contributions. Normal cost is the portion of the actuarial

present value of projected benefits allocated as an expense for employee services rendered in the current year. Actuarial gains

and losses (as well as prior service cost, if any) are recognized immediately in the year they occur without amortization.

VA also provides certain veterans and/or their dependents with pension benefits, based on annual eligibility reviews, if

the veteran died or was disabled for nonservice-related causes. The actuarial present value of the future liability for these VA

pension benefits is a non-exchange transaction and is not required to be recorded on the Balance Sheet. These benefits are

recognized as expenses when benefits are paid rather than when employee services are rendered.

The liabilities for Federal Employees’ Compensation Act (FECA) benefits are recorded at estimated present value of

future benefits for injuries and deaths that have already been incurred.

Gains and losses from changes in long-term assumptions used to estimate federal employee pensions, Other Retirement

Benefits (ORB), and Other Postemployment Benefits (OPEB) liabilities are reflected separately on the Statement of Net Cost

and the components of the expense related to federal employee pension, ORB, and OPEB liabilities are disclosed in Note

12—Federal Employee and Veteran Benefits Payable as prescribed by SFFAS No. 33, Pensions, Other Retirement Benefits,

and Other Postemployment Benefits: Reporting the Gains and Losses from Changes in Assumptions and Selecting Discount

Rates and Valuation Dates. In addition, SFFAS No. 33 also provides a standard for selecting the discount rate assumption for

present value estimates of federal employee pension, ORB, and OPEB liabilities.
73 NOTES TO THE FINANCIAL STATEMENTS

K. Environmental and Disposal Liabilities

Environmental and disposal liabilities are recorded at the estimated current cost of the cleanup plan, including the level

of restoration to be performed, the current legal or regulatory requirements, and the current technology. Cleanup costs are the

costs of removing, containing or disposing of hazardous waste. Hazardous waste is a solid, liquid, or gaseous waste that,

because of its quantity or concentration, presents a potential hazard to human health or the environment. Cleanup costs

include, but are not limited to, decontamination, decommissioning, site restoration, site monitoring, closure, and post-closure

costs. Where technology does not exist to clean up radioactive or hazardous waste, only the estimable portion of the liability

(typically monitoring and safe containment) is recorded.

L. Insurance and Guarantee Program Liabilities

Insurance and guarantee programs (such as Federal Crop Insurance Program and Benefit Pension Plans Program) are

authorized by law to financially compensate a designated population of beneficiaries by accepting all or part of the risk for

losses incurred as a result of an insured event. Programs excluded from this category include social insurance, loan guarantee,

and federal employee and veteran benefit programs. Insurance and guarantee program funds are commonly held in revolving

funds in the government and losses sustained by participants are paid from these funds. Many of these programs receive

appropriations to pay excess claims or have authority to borrow from the Treasury. The values of insurance and guarantee

program liabilities are particularly sensitive to changes in underlying estimates and assumptions. Insurance and guarantee

programs with recognized liabilities in future periods (i.e., liabilities that extend beyond one year) are reported at their net

present value.

M. Deferred Maintenance and Repairs

Deferred maintenance and repairs are maintenance and repairs that were not performed when they should have been or

scheduled maintenance and repairs that were delayed or postponed. Maintenance is the act of keeping fixed assets in

acceptable condition, including preventative maintenance, normal repairs, and other activities needed to preserve the assets,

so they continue to provide acceptable service and achieve their expected life. Maintenance and repairs exclude activities

aimed at expanding the capacity of assets or otherwise upgrading them to serve needs different from those originally

intended. Deferred maintenance and repairs are not expensed in the Statements of Net Cost or accrued as liabilities on the

Balance Sheet. However, deferred maintenance and repairs information is disclosed in the unaudited RSI section of this

report. Please see unaudited RSI, Deferred Maintenance and Repairs for additional information including measurement

methods.

N. Contingencies

Liabilities for contingencies are recognized on the Balance Sheet when both:

x A past transaction or event has occurred, and

x A future outflow or other sacrifice of resources is probable and measurable.

The estimated contingent liability may be a specific amount or a range of amounts. If some amount within the range is a 

better estimate than any other amount within the range, then that amount is recognized. If no amount within the range is a 

better estimate than any other amount, then the minimum amount in the range is recognized and the range and a description 

of the nature of the contingency is disclosed.

Contingent liabilities that do not meet the above criteria for recognition, but for which there is at least a reasonable 

possibility that a loss may be incurred, are disclosed in Note 18—Contingencies. 
NOTES TO THE FINANCIAL STATEMENTS 74

O. Commitments

In the normal course of business, the government has a number of unfulfilled commitments that may require the use of

its financial resources. Note 19—Commitments describes the components of the government’s actual commitments that are

disclosed due to their nature and/or their amount. They include long-term leases, undelivered orders, and other commitments.

P. Social Insurance

A liability for social insurance programs (Social Security, Medicare, Railroad Retirement, Black Lung, and

Unemployment) is recognized for any unpaid amounts currently due and payable to beneficiaries or service providers as of

the reporting date. No liability is recognized for future benefit payments not yet due. For further information, see Note 22—

Social Insurance and the unaudited RSI—Social Insurance section.

Q. Funds from Dedicated Collections

Generally, funds from dedicated collections are financed by specifically identified revenues, provided to the 

government by non-federal sources, often supplemented by other financing sources that remain available over time. These 

specifically identified revenues and other financing sources are required by statute to be used for designated activities, 

benefits, or purposes, and must be accounted for separately from the government’s general revenues. The three required 

criteria for a fund from dedicated collections are:

x A statute committing the government to use specifically identified revenues and/or other financing sources that are 

originally provided to the government by a non-federal source only for designated activities, benefits, or purposes;

x Explicit authority for the fund to retain revenues and/or other financing sources not used in the current period for 

future use to finance the designated activities, benefits, or purposes; and

x A requirement to account for and report on the receipt, use, and retention of the revenues and/or other financing 

sources that distinguishes the fund from the government’s general revenues.

For more details on funds from dedicated collections, see Note 20—Funds from Dedicated Collections.

R. Unmatched Transactions and Balances

The reconciliation of the change in net position requires that the difference between ending and beginning net position 

equals the difference between revenue and cost, plus or minus prior-period adjustments.

The unmatched transactions and balances are needed to bring the change in net position into balance. The primary 

factors affecting this out of balance situation are:

x Unmatched intragovernmental transactions and balances between federal entities; and

x Errors and restatements in federal entities reporting.

As intragovernmental transactions and balances reduce to immaterial amounts, the corresponding individual lines in the 

Unmatched Transactions and Balances table are adjusted to remove the differences for the fiscal year. Please refer to the table 

of Unmatched Transactions and Balances in Other Information (Unaudited) for examples of the individual lines. Materiality 

for these adjustments is considered in the absolute value, when at or below $0.1 billion.

Refer to the Other Information (unaudited)—Unmatched Transactions and Balances for detailed information.

S. Adjustments to Beginning Net Position

During fiscal years 2017 and 2018, DOD reported adjustments to beginning net position impacting the financial

statements. DOD reported a decrease of $2.5 billion and an increase of over $37 billion in fiscal years 2018 and 2017,

respectively, to beginning net position due to continuing implementation of SFFAS No. 48, Opening Balances for Inventory,

Operating Materials and Supplies, and Stockpile Materials and SFFAS No. 50, Establishing Opening Balances for General

Property, Plant, and Equipment.
75 NOTES TO THE FINANCIAL STATEMENTS

SFFAS No. 47, Reporting Entity, was implemented in fiscal year 2018. The standard requires that consolidation entities

be consolidated in their entirety. Prior to fiscal year 2018, only the federal portion of Smithsonian Institution was

consolidated. For fiscal year 2018, all activities (federal and non-federal portions) of Smithsonian Institution were

consolidated, resulting in a $2.6 billion adjustment to the fiscal year 2018 beginning net position.

In fiscal year 2017, Note 20—Funds from Dedicated Collections included $0.2 billion in adjustments to beginning net

position for Gulf Coast Ecosystem Restoration Council and HUD. In fiscal year 2018, the adjustments to beginning net

position for Smithsonian Institution of $2.6 billion related to dedicated collection funds.

T. Reclassifications

Certain fiscal year 2017 amounts were reclassified to conform to the fiscal year 2018 presentation. For example,

reclassifications were made to certain line items presented on the Reconciliation of Net Operating Cost and Budget Deficit

and the Statement of Changes in Cash Balance from Budget and Other Activities to provide a further breakdown of certain

categories of transactions. Also, a review was done to enhance the format and readability of the Financial Report leading to

consolidation of immaterial lines within tables, removal of information not required by FASAB, and be more in line with

entity reporting requirements. In fiscal year 2018, the presentation of Note 4—Loans Receivable and Loan Guarantee

Liabilities, Net for fiscal year 2017 was reclassified to mirror entity financial reporting reducing the need for manual

calculations. The presentations of Note 5—Inventories and Related Property, Net, Note 6—Property, Plant, and Equipment,

Net, and Note 13—Environmental and Disposal Liabilities removed the breakout of DoD for fiscal years 2017 and 2018.

U. Restatements

In fiscal year 2018, HUD recognized material misstatements that were due to (1) a discounting error in the Federal

Housing Administration (FHA) cash flow model used to calculate the recovery rate applied to the annual financial statement

re-estimate and (2) FHA not accounting for a contingency paid by the Treasury Judgment Fund. The corrections resulted in

the restatement of certain prior year amounts reported on the Balance Sheet, Statement of Net Cost, Statement of Operations

and Changes in Net Position, Reconciliations of Net Operating Cost and Budget Deficit, Note 4—Loans Receivable and

Loans Guarantee Liabilities, Net (understated by $1.7 billion), and Note 16—Other Liabilities (overstated by $0.1 billion).

In fiscal year 2018, HUD made re-estimate presentation changes to subsidy expense (income) ($3.5 billion decrease),

principal amount of loans under guarantee ($3.2 billion increase), and principal amount guaranteed by the United States ($2.6

billion increase) presented in Note 4—Loans Receivable and Loans Guarantee Liabilities fiscal year 2017 tables. HUD also

changed the presentation of Note 20—Funds from Dedicated Collections from consolidation (includes eliminations) to

combined (excludes eliminations) adjusting the ending net position by $0.1 billion in fiscal year 2017.

Also, in fiscal year 2018 errors were noted in the presentation of Note 19—Commitments for undelivered orders and

other commitments that required correction of balances reported in fiscal year 2017. The corrections resulted in the

restatement of prior year amounts for DOJ’s undelivered orders ($13.9 billion increase) and Treasury’s all other

commitments ($10.8 billion increase).

Fiscal year 2017 beginning net position was restated by $51.2 billion due to compilation errors in the presentation of the

Balance Sheet and Note 6—Property, Plant, and Equipment, Net. In addition, the related activity caused a restatement on the

Statement of Net Cost in the amount of $1.3 billion.

V. Fiduciary Activities

Fiduciary activities are the collection or receipt, as well as the management, protection, accounting, investment and

disposition by the government of cash or other assets in which non-federal individuals or entities have an ownership interest

that the government must uphold. Fiduciary cash and other fiduciary assets are not assets of the government and are not

recognized on the Balance Sheet. See Note 21—Fiduciary Activities, for further information.
NOTES TO THE FINANCIAL STATEMENTS 76

W. Use of Estimates

The government has made certain estimates and assumptions relating to the reporting of assets, liabilities, revenues,

expenses, and the disclosure of contingent liabilities to prepare these financial statements. There are a large number of factors

that affect these assumptions and estimates, which are inherently subject to substantial uncertainty arising from the likelihood

of future changes in general economic, regulatory, and market conditions. As such, actual results will differ from these

estimates and such differences may be material.

Significant transactions subject to estimates are included in the balance of loans and credit program receivables, federal

employee and veteran benefits payable, credit reform subsidy costs, investments in GSEs, and other non-federal securities

and related impairment, tax receivables, loan guarantees, depreciation, imputed costs, other actuarial liabilities, cost and

earned revenue allocations, as well as contingencies and any related recognized liabilities.

The government recognizes the sensitivity of credit reform modeling to slight changes in some model assumptions and

uses regular review of model factors, statistical modeling, and annual reestimates to reflect the most accurate cost of the

credit programs to the U.S. government. Federal Credit Reform Act of 1990 (FCRA) loan receivables and loan guarantees are

disclosed in Note 4—Loans Receivable and Loan Guarantee Liabilities, Net.

The forecasted future cash flows used to determine credit reform amounts are sensitive to slight changes in model

assumptions, such as general economic conditions, specific stock price volatility of the entities in which the government has

an equity interest, estimates of expected default, and prepayment rates. Therefore, forecasts of future financial results have

inherent uncertainty.

The annual valuation performed as of September 30 on the senior preferred stock and warrants comprising the

Investments in GSEs line item on the Balance Sheets incorporates various forecasts, projections, and cash flow analyses to

develop an estimate of the asset’s fair value. The value of the senior preferred stock is estimated by first estimating the fair

value of the total equity of each GSE (which, in addition to the senior preferred stock, is comprised of other equity

instruments including common stock, common stock warrants, and junior preferred stock). The fair value of the total equity

is based on a discounted cash flow valuation methodology, whereby the primary input is the present value of the projected

quarterly dividend payments. The fair value of the GSEs’ other equity instruments are then deducted from its total equity,

with the remainder representing the fair value of the senior preferred stock. The primary input into the warrants valuation is

the market value of the shares of common stock of the GSEs which, along with the junior preferred stock, are traded on the

over-the-counter (OTC) Bulletin Board. Treasury evaluates the need for adjusting the OTC market-based valuation of the

warrants for the effects, if any, of significant events occurring after the close of the market but before the end of the

measurement date. Treasury records any changes in valuation, including impairment, on the Statement of Net Cost and the

Balance Sheet. Since the valuation is an annual process, Treasury deems changes in valuation of the senior preferred stock

and warrants as usual and recurring.

Treasury performs annual calculations, as of September 30, to assess the need for recording an estimated liability in

accordance with SFFAS No. 5, Accounting for Liabilities of The Federal Government, related to the government’s funding

commitment to the GSEs under the SPSPAs. Liability recognition is predicated on the probable future occurrence of an

excess of liabilities and minimum capital reserve amounts, as defined, over the assets of either GSE at the end of any

reporting quarter. The occurrence of future GSE deficits, which ultimately determines the liability to the GSEs, is most

sensitive to future changes in the housing price index and, to a lesser extent, future changes in guarantee fees received by the

GSEs on single family mortgages and interest rates. For more detailed information on investments in GSEs and the amended

SPSPAs, see Note 8—Investments in Government-Sponsored Enterprises.

The government offers its employees’ pension and other post-employment retirement benefits, as well as life and health

insurance. OPM administers the largest civilian plan and DOD and VA administer the military plans. Generally the benefits

payable are recorded during the time employee services are rendered. The related liabilities for defined benefit pension plans,

veterans’ compensation and burial benefits, post-retirement health benefits, life insurance benefits, education benefits, and

FECA benefits are recorded at estimated present value of future benefits, less any estimated present value of future normal

cost contributions. See Note 12—Federal Employee and Veteran Benefits Payable for additional information.

X. Credit Risk

Credit risk is the potential, no matter how remote, for financial loss from a failure of a borrower or counterparty to

perform in accordance with underlying contractual obligations. The government takes on credit risk when it makes direct
77 NOTES TO THE FINANCIAL STATEMENTS

loans or guarantees to non-federal entities, provides credits to foreign entities, or becomes exposed to institutions which

engage in financial transactions with foreign countries.

The government also takes on credit risk related to committed, but undisbursed direct loans, funding commitments to

GSEs, and other activities. These activities generally focus on the underlying problems in the credit markets. These programs

were developed to provide credit where borrowers are not able to get access to credit with reasonable terms and conditions.

Because these programs attempt to correct for a market imperfection, it can expose the government to potential costs and

losses. The extent of the risk assumed is described in more detail in the notes to the financial statements, and where

applicable, is factored into credit reform models and reflected in fair value measurements.

Y. Treaties and Other International Agreements

For accounting purposes, treaties and other international agreements may be understood as falling into three broad 

categories:

x No commitment to spend money,

x Commitment to spend money, or

x Potential obligation to spend money.

The proper financial reporting of treaties and other international agreements depends on the probable future outflow or 

other sacrifice of resources as a result of entering into the agreement.

In many cases, treaties and other international agreements establish frameworks that govern cooperative activities with 

other countries, but leave to the discretion of the parties whether to engage in any such activities. In other cases, the 

agreements may contemplate specific cooperative activities, but obligations to engage in them are made subject to the 

availability of funds. Cooperative activities relevant to these treaties and other international agreements fall under the first 

category, which does not result in the U.S. government incurring any financial liability. Since these treaties and other 

international agreements have no financial impact, they are not reported or disclosed in this Financial Report.

Some treaties and other international agreements fall under the second category, involving specific obligations by the 

U.S. government to pay money to other countries or international organizations. Examples of such agreements include those 

that establish international organizations under which the U.S. government undertakes obligations to pay assessed dues to the 

organization; grant agreements under which the U.S. government provides foreign assistance funds to other countries; and 

claims settlement agreements under which the U.S. government agrees to pay specific sums of money to settle claims. For 

further information related to treaties and other international agreements that fall under the second category, refer to Note

19—Commitments.

The last category encompasses those treaties or other international agreements that may result in contingent liabilities 

arising from litigation or claims. Information relevant to contingent liabilities stemming from the U.S. government’s 

involvement in treaties or other international agreements is captured in the annual legal representation letter process, and, if 

applicable, reported on the Balance Sheet or disclosed in Note 18—Contingencies.
NOTES TO THE FINANCIAL STATEMENTS 78

Note 2. Cash and Other Monetary Assets

Cash and Other Monetary Assets as of September 30, 2018, and 2017

(In billions of dollars) 2018 2017

Unrestricted cash:

Cash held by Treasury for governmentwide operations ................................. 378.5 153.3

Other......................................................................................................... 4.9 3.7

Restricted..................................................................................................... 31.6 26.1

Total cash ............................................................................................... 415.0 183.1

International monetary assets ........................................................................ 66.7 63.3

Gold and silver ............................................................................................. 11.1 11.1

Foreign currency........................................................................................... 14.7 13.7

Total cash and other monetary assets ....................................................... 507.5 271.2

Unrestricted cash includes cash held by Treasury for governmentwide operations (Operating Cash) and all other

unrestricted cash held by the federal entities. Operating Cash represents balances from tax collections, federal debt receipts,

and other various receipts net of cash outflows for federal debt repayments and other payments. Treasury checks outstanding

are netted against Operating Cash until they are cleared by the FR System. Other unrestricted cash not included in Treasury’s

Operating Cash balance includes balances representing cash, cash equivalents, and other funds held by entities, such as

undeposited collections, deposits in transit, demand deposits, amounts held in trust, and imprest funds. Operating Cash held

by the Treasury increased by $225.2 billion (an increase of approximately 147 percent) in fiscal year 2018 due to Treasury’s

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

Restrictions on cash are due to the imposition on cash deposits by law, regulation, or agreement. Restricted cash is

primarily composed of cash held by the Security Assistance Accounts (SAA), which execute Foreign Military Sales. The

SAA included $26.3 billion and $21.3 billion as of September 30, 2018, and 2017, respectively.

International monetary assets include the U.S. reserve position in the International Monetary Fund (IMF) and U.S.

holdings of Special Drawing Rights (SDRs). The U.S. reserve position in the IMF is an interest-bearing claim on the IMF

that includes the reserve asset portion of the financial subscription that the U.S. has paid in as part of its participation in the

IMF as well as any amounts drawn by the IMF from a letter of credit made available by the U.S. as part of its financial

subscription to the IMF. The IMF promotes international monetary cooperation and a stable payments system to facilitate

growth in the world economy. Its primary activities are surveillance of members’ economies, financial assistance, as

appropriate, and technical assistance.

Only a portion of the U.S. financial subscription to the IMF is made in the form of reserve assets; the remainder is

provided in the form of a letter of credit from the U.S. to the IMF. The balance available under the letter of credit totaled

$100.0 billion and $105.3 billion as of September 30, 2018, and 2017 respectively. The U.S. reserve position in the IMF had

a U.S. dollar equivalent of $15.4 billion and $11.5 billion as of September 30, 2018, and 2017, respectively.

The SDR is an international reserve asset created by the IMF to supplement the existing reserve assets of its members.

These interest-bearing assets can be obtained by IMF allocations, transactions with IMF member countries, or in the form of

interest earnings on SDR holdings and reserve positions in the IMF. U.S. SDR holdings are an interest-bearing asset of

Treasury’s Exchange Stabilization Fund (ESF). The total amount of SDR holdings of the U.S. was the equivalent of $51.0

billion and $51.5 billion as of September 30, 2018, and 2017, respectively.

The IMF allocates SDRs to its members in proportion to each member’s quota in the IMF. The SDR Act, enacted in

1968, authorized the Secretary of the Treasury to issue SDR Certificates (SDRCs) to the Federal Reserve in exchange for

dollars. The amount of SDRCs outstanding cannot exceed the dollar value of SDR holdings. The Secretary of the Treasury

determines when Treasury will issue or redeem SDRCs. SDRCs outstanding totaled $5.2 billion as of September 30, 2018,

and 2017, and are included in Note 16—Other Liabilities.
79 NOTES TO THE FINANCIAL STATEMENTS

As of September 30, 2018, and 2017, other liabilities included $49.3 billion and $49.9 billion, respectively, of interestbearing liability to the IMF for SDR allocations. The SDR allocation item represents the cumulative total of SDRs distributed

by the IMF to the U.S. in allocations. The U.S. has received no SDR allocations since 2009.

Gold is valued at the statutory price of $42.2222 per fine troy ounce. The number of fine troy ounces of gold was

261,498,927 as of September 30, 2018, and 2017. The market value of gold on the London Fixing was $1,187 and $1,283 per

fine troy ounce as of September 30, 2018, and 2017, respectively. In addition, silver is valued at the statutory price of

$1.2929 per fine troy ounce. The number of fine troy ounces of silver was 16,000,000 as of September 30, 2018, and 2017.

The market value of silver on the London Fixing was $14.31 and $16.86 per fine troy ounce as of September 30, 2018, and

2017, respectively. Gold totaling $11.0 billion as of September 30, 2018, and 2017, was pledged as collateral for gold

certificates issued and authorized to the FRBs by the Secretary of the Treasury. Gold certificates were valued at $11.0 billion

as of September 30, 2018, and 2017, which are included in Note 16—Other Liabilities. Treasury may redeem the gold

certificates at any time. Foreign currency is translated into U.S. dollars at the exchange rate at fiscal year-end. The foreign

currency is maintained by the ESF and various U.S. federal entities as well as foreign banks.
NOTES TO THE FINANCIAL STATEMENTS 80

Note 3. Accounts and Taxes Receivable, Net

Accounts and Taxes Receivable as of September 30, 2018, and 2017

(In billions of dollars) 2018 2017

Accounts receivable:

Gross accounts receivable.......................................................................... 112.4 117.9

Allowance for uncollectible amounts ............................................................ (30.5) (29.8)

Accounts receivable, net............................................................................. 81.9 88.1

Taxes receivable:

Gross taxes receivable ............................................................................... 226.7 203.8

Allowance for uncollectible amounts ............................................................ (163.7) (148.6)

Taxes receivable, net.................................................................................. 63.0 55.2

Total accounts and taxes receivable, net ................................................... 144.9 143.3

Gross accounts receivable include related interest receivable of $3.6 billion and $3.4 billion as of September 30, 2018, 

and 2017, respectively.

Treasury comprises approximately 41.1 percent of the government’s reported accounts and taxes receivable, net, as of 

September 30, 2018. The following list of entities comprise 98.3 percent of the government’s accounts and taxes receivable, 

net, of $144.9 billion as of September 30, 2018. Please refer to the following entities financial statements for details on gross 

accounts and taxes receivable and the related allowance for uncollectible amounts:

x Treasury

x HHS

x SSA

x DOI

x DHS

x DOD

x PBGC

x DOE

x Federal Deposit Insurance Corporation (FDIC)

x VA

x Tennessee Valley Authority (TVA)

x OPM

x DOL

x USDA

x USPS

x Federal Communications Commission (FCC)

x HUD

x Federal Trade Commission (FTC)

x Environmental Protection Agency (EPA)
81 NOTES TO THE FINANCIAL STATEMENTS

Accounts and Taxes receivable, net include amounts related to criminal restitution owed to the government. In fiscal year 

2018, accounts and taxes receivable, net included $7.9 billion of gross receivable related to criminal restitution orders 

monitored by responsible entities, of which $0.7 billion is determined to be collectible. Of this gross receivable amount, 

Treasury and HHS collectively accounts for $5.7 billion of which $0.5 billion is determined to be collectible as of September 

30, 2018. In fiscal year 2017, this balance included $8.8 billion of gross receivables related to criminal restitution orders, of 

which $0.6 billion is determined to be collectible. Of this gross receivable amount, Treasury, HHS, and SSA collectively 

account for $8.0 billion of which $0.5 billion is determined to be collectible as of September 30, 2017.
NOTES TO THE FINANCIAL STATEMENTS 82

Note 4. Loans Receivable and Loan Guarantee Liabilities, Net

Loans Receivable as of September 30, 2018

(In billions of dollars)

Loans 

Receivable, 

gross

Interest 

Receivable

Foreclosed 

Property

Allowance 

for Subsidy

Net Loans 

Receivable

Subsidy 

Expense 

(Income) 

for the 

Fiscal Year

Federal Direct Student Loans -

Education ................................. 1,083.7 72.0 - (40.7) 1,115.0 4.4

Federal Family Education Loans 

- Education ............................... 95.1 21.1 - (23.3) 92.9 2.4

Electric Loans - USDA............... 49.3 0.3 - (2.2) 47.4 (0.1)

Rural Housing Services - USDA . 24.4 0.2 0.1 (2.1) 22.6 0.1

Export-Import Bank Loans ......... 19.4 0.2 - (2.0) 17.6 -

Housing and Urban 

Development Loans................... 30.6 9.3 1.3 (15.1) 26.1 (0.2)

All other programs ..................... 108.9 3.8 1.2 (16.4) 97.5 1.7

Total loans receivable 1,411.4 106.9 2.6 (101.8) 1,419.1 8.3

Loans Receivable as of September 30, 2017 (Restated)

(In billions of dollars)

Loans 

Receivable, 

gross

Interest 

Receivable

Foreclosed 

Property

Allowance 

for Subsidy

Net Loans 

Receivable

Subsidy 

Expense 

(Income) 

for the 

Fiscal Year

Federal Direct Student Loans -

Education ................................. 998.8 59.5 - (16.8) 1,041.5 5.3

Federal Family Education Loans 

- Education ............................... 101.6 19.3 - (18.5) 102.4 2.4

Electric Loans - USDA............... 48.2 0.3 - (2.1) 46.4 -

Rural Housing Services - USDA . 24.7 0.3 0.1 (2.3) 22.8 0.1

Export-Import Bank Loans ......... 21.7 0.2 - (1.6) 20.3 0.1

Housing and Urban 

Development Loans................... 26.3 6.5 1.6 (13.9) 20.5 -

All other programs ..................... 107.1 3.2 1.3 (15.3) 96.3 (0.1)

Total loans receivable ............. 1,328.4 89.3 3.0 (70.5) 1,350.2 7.8
83 NOTES TO THE FINANCIAL STATEMENTS

Loan Guarantee Liabilities as of September 30, 2018, and 2017

Principal Amount 

of Loans Under 

Guarantee

Principal Amount 

Guaranteed by the 

United States

Loan Guarantee 

Liabilities

Subsidy Expense 

(Income) for the 

Fiscal Year

Restated Restated

(In billions of dollars) 2018 2017 2018 2017 2018 2017 2018 2017

Federal Housing Administration 

Loans - HUD.............................. 1,470.8 1,409.5 1,326.8 1,277.4 19.1 20.6 (8.9) 13.0

Veterans Housing Benefit 

Programs - VA ........................... 663.7 596.5 167.9 151.9 8.7 10.4 (2.8) (0.6)

Rural Housing Services - USDA .. 123.0 120.4 110.6 108.3 (0.2) 0.1 (0.2) (0.5)

Small Business Loans - SBA....... 128.8 121.0 105.6 99.5 2.7 2.6 (1.1) (0.9)

Federal Family Education Loans 

- Education ................................ 157.1 176.4 153.8 172.7 2.6 3.7 (1.2) 1.0

All other guaranteed loan 

programs ................................... 99.8 114.3 95.6 109.3 5.3 5.5 (0.1) 0.5

Total loan guarantee liabilities... 2,643.2 2,538.1 1,960.3 1,919.1 38.2 42.9 (14.3) 12.5

The government has two types of loan programs: direct loans and loan guarantees. One major type of loan is direct

loans such as the Education Federal Direct Student Loans. The second type is loan guarantee programs, such as the HUD’s

FHA Loans program.

Direct loans and loan guarantee programs are used to promote the nation’s welfare by making financing available to

segments of the population not served adequately by non-federal institutions, or otherwise providing for certain activities or

investments. For those unable to afford credit at the market rate, federal credit programs provide subsidies in the form of

direct loans offered at an interest rate lower than the market rate. For those to whom non-federal financial institutions are

reluctant to grant credit because of the high risk involved, federal credit programs guarantee the payment of these non-federal

loans and absorb the cost of defaults.

The amount of the long-term cost of post-1991 direct loans and loan guarantees outstanding equals the subsidy cost

allowance for direct loans and the liability for loan guarantees (including defaulted guaranteed loans) as of September 30.

The amount of the long-term cost of pre-1992 direct loans and loan guarantees equals the allowance for subsidy amounts (or

present value allowance) for direct loans and the liability for loan guarantees. The long-term cost is based on all direct loans

and guaranteed loans disbursed in this fiscal year and previous years that are outstanding as of September 30. It includes the

subsidy cost of these loans and guarantees estimated as of the time of loan disbursement and subsequent adjustments such as

modifications, reestimates, amortizations, and write-offs.

Net loans receivable includes related interest and foreclosed property. Foreclosed property is property that is transferred

from borrowers to a federal credit program, through foreclosure or other means, in partial or full settlement of post-1991

direct loans or as a compensation for losses that the government sustained under post-1991 loan guarantees. Please refer to

the financial statements of the USDA, VA, and HUD for significant detailed information regarding foreclosed property. The

total subsidy expense/(income) is the cost of direct loans and loan guarantees recognized during the fiscal year. It consists of

the subsidy expense/(income) incurred for direct and guaranteed loans disbursed during the fiscal year, for modifications

made during the fiscal year of loans and guarantees outstanding, and for upward or downward reestimates as of the end of the

fiscal year of the cost of loans and guarantees outstanding. This expense/(income) is included in the Statements of Net Cost.
NOTES TO THE FINANCIAL STATEMENTS 84

Loan Programs

The majority of the loan programs are provided by Education, HUD, USDA, Small Business Administration (SBA),

VA, and Export-Import (EXIM) Bank. For significant detailed information regarding the direct and guaranteed loan

programs listed in the tables above, please refer to the financial statements of the entities.

Education has two major loan programs, authorized by Title IV of the Higher Education Act of 1965. The first program

is the William D. Ford Federal Direct Loan Program, (referred to as the Direct Loan Program) that was established in fiscal

year 1994. The Direct Loan Program offered four types of educational loans: Stafford, Unsubsidized Stafford, PLUS for

parents and/or graduate or professional students, and consolidation loans. With this program, the government makes loans

directly to students and parents through participating institutions of higher education. Direct loans are originated and serviced

through contracts with private vendors. Education disbursed approximately $134.1 billion in Direct Loans to eligible

borrowers in fiscal year 2018 and approximately $142.5 billion in fiscal year 2017. The second program is the FFEL

Program. This program was established in fiscal year 1965, and is a guaranteed loan program. Like the Direct Loan Program,

it offered four types of loans: Stafford, Unsubsidized Stafford, PLUS for parents and/or graduate or professional students, and

consolidation loans. The Student Aid and Fiscal Responsibility Act (SAFRA), which was enacted as part of the Health Care

Education and Reconciliation Act of 2010 (P.L. 111-152), eliminated the authority to guarantee new FFEL after June 30,

2010. During fiscal year 2018, Education net loans receivable increased by $64.1 billion, largely the result of increased

Direct Loan Program disbursements for new loan originations and FFEL consolidations, net of borrower principal and

interest collections.

HUD’s Office of Housing plays a vital role for the nation’s homebuyers, homeowners, renters, and communities

through its nationally administered programs. It includes FHA, the largest mortgage insurer in the world. FHA provides over

$1.3 trillion in mortgage insurance on mortgages for Single Family homes, Multifamily properties, and Healthcare facilities.

In fiscal year 2018, HUD recognized material misstatements that resulted in corrections to certain prior year amounts

reported on the Balance Sheet and Loans Receivable and Loans Guarantee Liabilities, Net (understated by $1.7 billion).

Please refer to the Note 1 Restatements section for more information.

USDA’s Rural Development offers both direct and guaranteed loans with unique missions to bring prosperity and

opportunity to rural areas. The Rural Housing programs provide affordable, safe, and sanitary housing and essential

community facilities to rural communities. Rural Utility programs help improve the quality of life in rural areas through a

variety of loan programs for electric energy, telecommunications, and water and environmental projects.

The EXIM Bank aids in financing and promoting U.S. exports. Loans and guarantees extended under the medium-term

loan program typically have repayment terms of one to seven years, while loans and guarantees extended under the long-term

program usually have repayment terms in excess of seven years. Generally, both the medium-term and the long-term loan and

guarantee programs cover up to 85 percent of the U.S. contract value of shipped goods.

The SBA provides guarantees that help small businesses obtain bank loans and licensed companies to make investments

in qualifying small businesses. The SBA also makes loans to microloan intermediaries and provides a direct loan program

that assists homeowners, renters and businesses recover from disasters.

VA operates the following direct loan and loan guarantee programs: Vendee Loans, Acquired Loans, Native American

Direct Loans, Housing Guaranteed Loans, Vocational Rehabilitation and Employment Loans, Insurance Loans, and Loan

Sale Guarantees. The VA Home Loans program is the largest of the VA loan guarantee programs. The Home Loans program

provides loan guarantees and direct loans to veterans, service members, qualifying dependents, and limited non-veterans to

purchase homes and retain homeownership with favorable market terms. During fiscal year 2018, the face value of

outstanding principal on loans guaranteed by the VA increased by $67.2 billion. This increase was primarily due to $146.3

billion in new loans guaranteed by the VA, partially offset by $77.7 billion in guaranteed loan terminations.
85 NOTES TO THE FINANCIAL STATEMENTS

Note 5. Inventories and Related Property, Net

Inventories and Related Property, Net as of September 30, 2018, and 2017

Reclass

(In billions of dollars) 2018 2017

Inventory purchased for resale ............................................................................... 68.0 61.8

Inventory and operating material and supplies held for repair .................................... 71.1 67.1

Inventory—excess, obsolete, and unserviceable ..................................................... 0.8 0.9

Operating materials and supplies held for use ......................................................... 124.7 143.8

Operating materials and supplies held in reserve for future use ................................ 13.8 0.2

Operating materials and supplies-excess, obsolete, and unserviceable ..................... 2.9 2.5

Stockpile materials held in reserve for future use...................................................... 51.9 49.3

Stockpile materials held for sale ............................................................................. 4.6 5.1

Other related property ............................................................................................ 8.6 3.8

Allowance for loss ................................................................................................. (8.9) (7.8)

Total inventories and related property, net.............................................................. 337.5 326.7

Beginning in fiscal year 2018, all entities are now reported together in each line item total for Inventories and Related 

Property, Net. DOD comprises approximately 81.7 percent of the government’s inventories and related property, net, as of 

September 30, 2018. DOD continues to implement SFFAS No. 48 which permits alternative methods in establishing opening 

balances for inventories and related property.

The following entities comprise over 98 percent of the government’s reported inventories and related property, net of 

$337.5 billion as of September 30, 2018. Refer to each entities’ financial statements for details.

x DOD

x DOE

x HHS
NOTES TO THE FINANCIAL STATEMENTS 86

Note 6. Property, Plant, and Equipment, Net

Property, Plant, and Equipment as of September 30, 2018, and 2017

Accumulated 

Depreciation/ 

Amortization

Accumulated 

Depreciation/ 

Cost Net Cost Amortization Net

(In billions of dollars) 2018 2017 Restated

Buildings, structures, and facilities.................. 728.4 431.1 297.3 692.6 406.9 285.7

Furniture, fixtures, and equipment ..................1,363.9 782.7 581.2 1,320.6 752.6 568.0

Construction in progress................................ 159.5 N/A 159.5 168.2 N/A 168.2

Land............................................................. 21.5 N/A 21.5 24.0 N/A 24.0

Other property, plant, and equipment ............. 87.4 56.4 31.0 84.1 43.0 41.1

Total property, plant, and equipment, net...2,360.7 1,270.2 1,090.5 2,289.5 1,202.5 1,087.0

Beginning in fiscal year 2018, all entities are now reported together in each line item total for PP&E. DOD comprises 

approximately 69.6 percent of the government’s reported property, plant, and equipment, net, as of September 30, 2018. 

DOD continues to implement SFFAS No. 50, Establishing Opening Balances for General Property, Plant, and Equipment

which permits alternative methods in establishing opening balances for general PP&E. The total acreage of land and land 

rights excluded in this manner was 20,926,485 as of September 30, 2018.

In fiscal year 2017, restatements due to compilation errors in the presentation of the Balance Sheet and PP&E, net 

totaled $52.5 billion. 

The following entities comprise over 90 percent of the government’s reported PP&E net of $1,090.5 billion as of 

September 30, 2018. Please refer to the entities’ financial statements for details.

x DOD

x DOE

x GSA

x VA

x TVA

x DOI

x State

x DOT

x USPS

x DHS

x NASA

x DOC

x DOJ

x HHS

Certain PP&E are multi-use heritage assets, see Note 24—Stewardship Land and Heritage Assets for additional 

information on multi-use heritage assets.
87 NOTES TO THE FINANCIAL STATEMENTS

Note 7. Debt and Equity Securities

Debt and Equity Securities as of September 30, 2018

Book

(In billions of dollars) Cost Adjustment Value

Held-To Maturity

Debt securities:

Non-U.S. government....................... - - -

Mortgage/asset backed .................... 0.2 - 0.2

Equity Securities:

All other equity securities .................. 3.5 - 3.5

Total Held-To-Maturity (Net Investment) 3.7 - 3.7

Available-for-Sale:

Debt Securities: 3.5 0.2 3.7

Total Available-for-Sale (Fair Value) 3.5 0.2 3.7

Trading Securities:

Debt Securities:

Non-U.S. government....................... 12.9 (0.2) 12.7

Commercial .................................... 0.2 - 0.2

Mortgage/asset backed..................... 3.8 (0.1) 3.7

Corporate and other bonds ............... 15.9 (0.2) 15.7

All other debt securities..................... 2.5 (1.0) 1.5

Equity Securities:

Unit Trust......................................... 16.3 9.5 25.8

Common Stocks............................... 2.0 0.3 2.3

All other equity securities .................. 14.3 0.9 15.2

Total Trading Securities (Fair Value) 67.9 9.2 77.1

Total

Total debt and equity securities categorized

as held-to-maturity, available-for-sale or trading........................................................................... 84.5

Total NRRIT debt and equity securities (Fair Value) ..................................................................... 25.8

Total debt and equity securities................................................................................................... 110.3
NOTES TO THE FINANCIAL STATEMENTS 88

Debt and Equity Securities as of September 30, 2017 

Book 

(In billions of dollars) Cost Adjustment Value

Held-To Maturity

Debt securities:

Non-U.S. government....................... - - -

Mortgage/asset backed .................... 0.2 - 0.2

Equity Securities:

All other equity securities .................. 3.6 - 3.6

Total Held-To-Maturity (Net Investment) 3.8 - 3.8

Available-for-Sale:

Debt Securities: 5.4 0.2 5.6

Total Available-for-Sale (Fair Value) 5.4 0.2 5.6

Trading Securities:

Debt Securities:

Non-U.S. government....................... 12.2 0.6 12.8

Commercial .................................... 0.2 - 0.2

Mortgage/asset backed .................... 3.9 - 3.9

Corporate and other bonds ............... 16.4 0.6 17.0

All other debt securities..................... 4.0 (0.1) 3.9

Equity Securities:

Unit Trust......................................... 18.0 8.2 26.2

Common Stocks............................... 2.1 0.1 2.2

All other equity securities .................. 15.2 (0.1) 15.1

Total Trading Securities (Fair Value) 72.0 9.3 81.3

Total

Total debt and equity securities categorized

as held-to-maturity, available-for-sale or trading.......................................................................... 90.7

*Total RRB debt and equity securities (Fair Value)...................................................................... 25.5

Total debt and equity securities.................................................................................................. 116.2

*Includes amounts from NRRIT in 2017. In 2018, NRRIT amounts are reported separately.

These debt and equity securities do not include nonmarketable Treasury securities that have been eliminated in

consolidation. Held-to-maturity debt and equity securities are reported as total net investment, net of unamortized discounts

and premiums. Available-for-sale debt and equity securities are reported at fair value, net of unrealized gain or loss. Trading

debt and equity securities are reported at fair value, net of unrealized gain or loss.

NRRIT on behalf of the RRB, manages and invests railroad retirement assets that are to be used to pay retirement

benefits to the nation’s railroad workers under the Railroad Retirement Program. As an investment company, NRRIT is

subject to different accounting standards that do not require the classifications presented above. Please refer to NRRIT’s

financial statements for more detailed information concerning this specific investment.

Certain significant consolidation entities apply financial accounting and reporting standards issued by the Financial

Accounting Standards Board (FASB) (FASB standards), and such entities, as permitted by SFFAS No.47, are consolidated

into the U.S. government’s consolidated financial statements without conversion to financial and reporting standards issued

by the FASAB (FASAB standards). PBGC, NRRIT, and TVA debt and equity securities are recorded at fair value and have

been categorized based upon a fair value hierarchy, in accordance with FASB ASC Section 820, Fair Value Measures and

Disclosures, in their respective financial statements.
89 NOTES TO THE FINANCIAL STATEMENTS

Debt and Equity Securities as of September 30, 2018, and 2017

(In billions of dollars) 2018 2017

Pension Benefit Guaranty Corporation....................................... 62.0 66.7

National Railroad Retirement Investment Trust........................... 25.8 -

Tennessee Valley Authority....................................................... 11.5 11.4

*Railroad Retirement Board...................................................... - 25.5

All other................................................................................... 11.0 12.6

Total securities and investments ............................................. 110.3 116.2

*Includes amounts from NRRIT in 2017. In 2018, NRRIT amounts are reported separately.

PBGC and TVA invest primarily in fixed maturity and equity securities, classified as trading. PBGC reported an

unrealized loss related to trading securities as of September 30, 2018 of $1.2 billion, and an unrealized gain related to trading

securities as of September 30, 2017 of $3.3 billion. TVA reported gains related to trading securities held as of September 30,

2018 and 2017 of $1.6 billion and $1.2 billion, respectively. The TVA balance includes $8.4 billion and $8.5 billion as of

September 30, 2018, and 2017, respectively, for the Tennessee Valley Authority Retirement System (TVARS). TVARS

includes unrealized gains of $0.8 billion as of both September 30, 2018 and 2017. PBGC, NRRIT, and TVA base market

values on the last sale of a listed security, on the mean of the “bid-and-ask” for nonlisted securities, or on a valuation model

in the case of fixed income securities that are not actively traded. These valuations are determined as of the end of each fiscal

year. Purchases and sales of securities are recorded on the trade date. Please refer to the individual financial statements of

PBGC, NRRIT, and TVA for more detailed information related to debt and equity securities. These entities comprise 90.0

percent of the total reported debt and equity securities of $110.3 billion as of September 30, 2018.
NOTES TO THE FINANCIAL STATEMENTS 90

Note 8. Investments in Government-Sponsored Enterprises

Congress established Fannie Mae and Freddie Mac as GSEs to support mortgage lending. A key function of the GSEs is

to purchase mortgages, package those mortgages into securities, which are subsequently sold to investors, and guarantee the

timely payment of principal and interest on these securities.

Leading up to the financial crisis, increasingly difficult conditions in the housing market challenged the soundness and

profitability of the GSEs, thereby threatening to undermine the entire housing market. In response Congress passed Housing

and Economic Recovery Act of 2008 (HERA) (P.L.110-289) in July 2008. This act created FHFA, with enhanced regulatory

authority over the GSEs, and provided the Secretary of the Treasury with certain authorities intended to ensure the financial

stability of the GSEs, if necessary. In September 2008, FHFA placed the GSEs under conservatorship and Treasury invested

in the GSEs by entering into a SPSPA with each GSE. These actions were taken to preserve the GSEs’ assets, ensure a sound

and solvent financial condition, and mitigate systemic risks that contributed to market instability.

The purpose of such actions is to maintain the solvency of the GSEs so they can continue to fulfill their vital roles in the

home mortgage market while the Administration and Congress determine what structural changes should be made to the

housing finance system. Draws under the SPSPAs result in an increased investment in the GSEs as further discussed below.

For fiscal year 2018, under SFFAS No. 47 criteria Fannie Mae and Freddie Mac were owned or controlled by the federal

government only as a result of (a) regulatory actions (such as organizations in receivership or conservatorship) or (b) other

federal government intervention actions. Under the regulatory or other intervention actions, the relationship with the federal

government was and is not expected to be permanent. These entities are classified as disclosure entities based on their

characteristics as a whole. Accordingly, these entities are not consolidated into the financial statements of the government;

however, the value of the investments in these entities, changes in value, and related activity with these entities are included

in the consolidated financial statements. This treatment is consistent with how these entities were reported prior to fiscal year

2018 under SFFAC No. 2, Entity and Display.

Senior Preferred Stock Purchase Agreements

Under the SPSPAs, Treasury initially received from each GSE: 1) 1,000,000 shares of non-voting variable liquidation

preference senior preferred stock with a liquidation preference value of $1,000 per share and 2) a non-transferable warrant for

the purchase, at a nominal cost, of 79.9 percent of common stock on a fully-diluted basis. The warrants expire on September

7, 2028. Under the amended SPSPAs, the quarterly dividend payment changed from a 10.0 percent per annum fixed rate

dividend on the total liquidation preference (as discussed below) to an amount equivalent to the GSE’s positive net worth

above a capital reserve amount. The capital reserve amount, which was initially set at $3.0 billion for calendar year 2013,

declined by $600 million at the beginning of each calendar year thereafter, and was scheduled to reach zero by calendar year

2018. On December 21, 2017, Treasury and the FHFA agreed to modify the SPSPAs between Treasury and the GSEs to

increase the capital reserve amount for each GSE back to $3 billion, effective with the December 2017 dividend payment. In

exchange for the increase in the capital reserve, Treasury’s liquidation preference in each GSE increased by $3 billion on

December 31, 2017. The GSEs will not pay a quarterly dividend if their positive net worth is below the required capital

reserve threshold. Cash dividends of $9.9 billion and $25.3 billion were received during fiscal years ended September 30,

2018, and 2017, respectively.

The SPSPAs, which have no expiration date, require that Treasury will disburse funds to the GSEs if at the end of any

quarter, the FHFA determines that the liabilities of either GSE exceed its assets. Draws from Treasury under the SPSPAs are

designed to ensure that the GSEs maintain positive net worth, with a fixed maximum amount available to each GSE under

this agreement established as of December 31, 2012 (refer to the “Contingent Liability to GSEs” section below and Note 18

—Contingencies). Draws against the funding commitment of the SPSPAs do not result in the issuance of additional shares of

senior preferred stock; instead, it increases the liquidation preference of the initial 1,000,000 shares by the amount of the

draw. The combined cumulative liquidation preference totaled $199 billion and $189 billion as of September 30, 2018 and

2017, respectively. Actual payments of $4.0 billion were made to the GSEs for the fiscal year ended September 30, 2018.

There were no payments to the GSEs for the fiscal year ended September 30, 2017.

Senior Preferred Stock and Warrants for Common Stock

In determining the fair value of the senior preferred stock and warrants for common stock, Treasury relied on the GSEs’

public filings and press releases concerning their financial statements, as well as non-public, long-term financial forecasts,

monthly summaries, quarterly credit supplements, independent research regarding preferred stock trading, independent

research regarding the GSEs’ common stock trading on the OTC Bulletin Board, discussions with each of the GSEs and

FHFA, and other information pertinent to the valuations. Because the instruments are not publicly traded, there is no
91 NOTES TO THE FINANCIAL STATEMENTS

comparable trading information available. The fair valuations rely on significant unobservable inputs that reflect assumptions

about the expectations that market participants would use in pricing.

The fair value of the senior preferred stock considers the amount of forecasted dividend payments. The fair valuations

assume that a hypothetical buyer would acquire the discounted dividend stream as of the transaction date. The fair value of

the senior preferred stock increased as of September 30, 2018 when compared to September 30, 2017, reflecting higher

forecasted GSE net income, mainly driven by the reduction in the U.S. corporate tax rate resulting from the December 22,

2017 enactment of the Tax Cuts and Jobs Act (P.L. 115-97), a lower discount rate driven by lower volatility among

comparable companies, as well as a reduction in the market value of the GSEs’ other equity securities that comprise their

total equity value.

Factors impacting the fair value of the warrants include the nominal exercise price and the large number of potential

exercise shares, the market trading of the common stock that underlies the warrants as of September 30, the principal market,

and the market participants. Other factors impacting the fair value include, among other things, the holding period risk related

directly to the assumption of the amount of time that it will take to sell the exercised shares without depressing the market.

The fair value of the warrants decreased at the end of fiscal year 2018, when compared to 2017, primarily due to decreases in

the market price of the underlying common stock of each GSE.

Contingent Liability to GSEs

As part of the annual process undertaken by Treasury, a series of long-term financial forecasts are prepared to assess, as

of September 30, the likelihood and magnitude of future draws to be required by the GSEs under the SPSPAs within the

forecast time horizon. Treasury used 25-year financial forecasts prepared through years 2043 and 2042 in assessing if a

contingent liability was required as of September 30, 2018 and 2017, respectively. If future payments under the SPSPAs are

deemed to be probable within the forecast horizon, and Treasury can reasonably estimate such payment, they will accrue a

contingent liability to the GSEs to reflect the forecasted equity deficits of the GSEs. This accrued contingent liability will be

undiscounted and will not take into account any of the offsetting dividends that could be received, as the dividends, if any,

would be owed directly to the General Fund. Such recorded accruals will be adjusted in subsequent years as new information

develops or circumstances change. If future payments are reasonably possible, they are disclosed but not recorded as an

accrued contingent liability.

Based on the annual forecasts as of September 30, 2018 and 2017, Treasury estimated there was no probable future

funding draws. As of September 30, 2018, it is reasonably possible that market volatility or non-recurring events—for

instance, changes to accounting policies that impact credit loss provisions—could potentially cause the GSEs to generate

quarterly losses and, therefore, result in future funding draws against the funding commitment. Due to challenges quantifying

future market volatility or the timing, magnitude, and likelihood of non-recurring events, the total amount of this reasonably

possible future funding liability could not be estimated as of September 30, 2018.

P.L. 115-97 caused each GSE to reduce the value of its deferred tax assets in the quarter in which the legislation was

enacted. The reduction of the GSEs deferred tax assets resulted in $4.0 billion in actual payments made to the GSEs to ensure

they maintained positive net worth, which reduced the remaining funding commitment. At September 30, 2018 and 2017, the

maximum remaining funding commitment to the GSEs for the remaining life of the SPSPAs was $254.1 billion and $258.1

billion, respectively. Subsequent funding draws will reduce the remaining commitments. Refer to Note 19—Commitments

for a full description of other commitments and risks.

In assessing the need for an estimated contingent liability, Treasury relied on the GSEs’ public filings and press releases

concerning their financial statements, monthly summaries, and quarterly credit supplements, as well as non-public, long-term

financial forecasts, the FHFA House Price Index, discussions with each of the GSEs and FHFA, and other information

pertinent to the liability estimates. The forecasts prepared in assessing the need for an estimated contingent liability as of

September 30, 2018 include three potential wind-down scenarios, with varying assumptions regarding the timing as to when

the GSEs would cease new business activities, including purchasing mortgage loans and issuing new guaranteed mortgagebacked securities. The forecasts also assume a continued gradual wind-down of the retained portfolios (and corresponding net

interest income) through 2018, as directed under the amended SPSPAs for each GSE to reduce the maximum balance of its

retained mortgage portfolio by 15.0 percent per annum beginning December 31, 2013. The maximum balance of each GSE’s

retained mortgage portfolio was initially set at $650 billion as of December 31, 2012, and the amended SPSPAs requires that

each GSE reduce this maximum balance to $250 billion by December 31, 2018.

Estimation Factors

Treasury’s forecasts concerning the GSEs may differ from actual experience. Estimated senior preferred values and

future draw amounts will depend on numerous factors that are difficult to predict including, but not limited to, changes in

government policy with respect to the GSEs, the business cycle, inflation, home prices, unemployment rates, interest rates,
NOTES TO THE FINANCIAL STATEMENTS 92

changes in housing preferences, home financing alternatives, availability of debt financing, market rates of guarantee fees,

outcomes of loan refinancings and modifications, new housing programs, and other applicable factors.

Regulatory Environment

To date, Congress has not approved a plan to address the future of the GSEs, thus the GSEs continue to operate under

the direction of their conservator, the FHFA, whose stated strategic goals for the GSEs are to: (1) maintain, in a safe and

sound manner, foreclosure prevention activities and credit availability for new and refinanced mortgages to foster liquid,

efficient, competitive, and resilient national housing finance markets; (2) reduce taxpayer risk through increasing the role of

private capital in the mortgage market, and (3) build a new single-family securitization infrastructure for use by the GSEs and

adaptable for the use by other participants in the secondary market in the future.

The Temporary Payroll Tax Cut Continuation Act of 2011(P.L. 112-78) was funded by an increase of ten basis points in

the GSEs’ guarantee fees (referred to as “the incremental fees”) which began in April 2012 and is effective through October

1, 2021. The incremental fees are to be remitted to Treasury and not retained by the GSEs and, thus, do not affect the

profitability of the GSEs. For fiscal years 2018 and 2017, the GSEs remitted to Treasury the incremental fees totaling $3.6

billion and $3.2 billion, respectively.

 As of September 30, 2018, and 2017, GSEs investments consisted of the following:

 

Investments in GSEs as of September 30, 2018

Cumulative

Gross Valuation Fair

(In billions of dollars) Investments Gain/(Loss) Value

Fannie Mae senior preferred stock ................................. 123.7 (64.5) 59.2

Freddie Mac senior preferred stock ................................ 75.4 (31.2) 44.2

Fannie Mae warrants common stock .............................. 3.1 3.2 6.3

Freddie Mac warrants common stock ............................. 2.3 1.2 3.5

Total investments in GSEs ......................................... 204.5 (91.3) 113.2

Investments in GSEs as of September 30, 2017

Cumulative

Gross Valuation Fair

(In billions of dollars) Investments Gain/(Loss) Value

Fannie Mae senior preferred stock ................................. 117.0 (74.5) 42.5

Freddie Mac senior preferred stock ................................ 72.1 (41.0) 31.1

Fannie Mae warrants common stock .............................. 3.1 9.2 12.3

Freddie Mac warrants common stock ............................. 2.3 4.4 6.7

Total investments in GSEs.......................................... 194.5 (101.9) 92.6
93 NOTES TO THE FINANCIAL STATEMENTS

Note 9. Other Assets

Other Assets as of September 30, 2018, and 2017

(In billions of dollars) 2018 2017

Advances and prepayments................................................................... 70.0 97.4

Regulatory assets.................................................................................. 17.3 20.0

Investments in Multilateral Development Banks....................................... 7.7 7.7

FDIC receivable from resolution activity, net............................................ 3.0 9.3

Other.................................................................................................... 15.7 13.3

Total other assets ............................................................................... 113.7 147.7

Advances and prepayments are assets that represent funds disbursed in contemplation of the future performance of

services, receipt of goods, the incurrence of expenditures, or the receipt of other assets. These include advances to contractors

and grantees, travel advances, and prepayments for items such as rents, taxes, insurance, royalties, commissions, and

supplies.

With regard to regulatory assets, the DOE’s Power Marketing Administrations (PMAs) and TVA record certain

amounts as assets in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification

(ASC) Topic 980, Regulated Operations. The provisions of FASB ASC Topic 980 require that regulated enterprises reflect

rate actions of the regulator in their financial statements, when appropriate. These rate actions can provide reasonable

assurance of the existence of an asset, reduce or eliminate the value of an asset, or impose a liability on a regulated enterprise.

In order to defer incurred costs under FASB ASC Topic 980, a regulated entity must have the statutory authority to establish

rates that recover all costs, and those rates must be charged to and collected from customers. If the PMAs’ or TVA’s rates

should become market-based, FASB ASC Topic 980 would no longer be applicable, and all of the deferred costs under that

standard would be expensed.

On behalf of the U.S., Treasury invests in certain Multilateral Development Banks (MDB), through subscriptions to

capital, which allows the MDBs to issue loans at market-based rates to middle-income developing countries. These paid-in

capital investments are non-marketable equity investments valued at cost.

The FDIC has the responsibility for resolving failed institutions in an orderly and efficient manner. The resolution

process involves valuing a failing institution, marketing it, soliciting and accepting bids for the sale of the institution,

determining which bid is least costly to the insurance fund, and working with the acquiring institution through the closing

process. FDIC records receivables for resolutions that include payments by the Deposit Insurance Fund (DIF) to cover

obligations to insured depositors, advances to receiverships and conservatorships for working capital, and administrative

expenses paid on behalf of receiverships and conservatorships.

Other items included in “other” are contract financing payments and estimated future payments to contractors,

purchased power generating capacity, deferred nuclear generating units, derivative assets, the balance of assets held by the

experience rated carriers participating in the Health Benefits and Life Insurance Program (pending disposition on behalf of

OPM), and the cost contribution to buildout the Nationwide Public Safety Broadband.
NOTES TO THE FINANCIAL STATEMENTS 94

Note 10. Accounts Payable

Accounts Payable as of September 30, 2018, and 2017

(In billions of dollars) 2018 2017

Department of Defense ............................................................................................... 29.2 26.4

Department of Veterans Affairs .................................................................................... 13.5 3.6

Department of Justice ................................................................................................. 5.1 6.0

Department of the Treasury ......................................................................................... 3.8 3.9

Department of Education............................................................................................. 3.8 4.2

Department of Energy ................................................................................................. 3.7 3.7

Department of State.................................................................................................... 3.6 2.7

General Services Administration .................................................................................. 3.1 2.8

Department of Homeland Security................................................................................ 2.5 2.3

U.S. Agency for International Development................................................................... 2.4 1.8

Department of Commerce ........................................................................................... 2.0 0.4

Department of Agriculture............................................................................................ 1.9 1.8

U.S. Postal Service ..................................................................................................... 1.8 1.6

Tennessee Valley Authority ......................................................................................... 1.8 1.8

All other...................................................................................................................... 8.5 7.8

Total accounts payable ............................................................................................. 86.7 70.8

Accounts payable includes amounts due for goods and property ordered and received, services rendered by other than 

federal employees, cancelled appropriations for which the U.S. government has contractual commitments for payment, and 

non-debt related interest payable. 
95 NOTES TO THE FINANCIAL STATEMENTS

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

Interest

Federal Debt Securities Held by the Public and Accrued Interest

Net

Change

During

Balance Fiscal Balance Average Interest

September 30, Year September 30, Rate

(In billions of dollars) 2017 2018 2018 2018 2017

Treasury securities (public):

Marketable securities:

Treasury bills ............................ 1,799.6 439.9 2,239.5 2.1% 1.1%

Treasury notes ......................... 8,798.9 351.4 9,150.3 2.0% 1.8%

Treasury bonds ........................ 1,948.4 166.6 2,115.0 4.1% 4.2%

Treasury inflation-protected 

securities (TIPS) ....................... 1,286.1 90.1 1,376.2 0.8% 0.8%

Treasury floating rate notes 

(FRN) ....................................... 342.6 26.5 369.1 2.2% 1.2%

Total marketable Treasury 

securities ................................... 14,175.6 1,074.5 15,250.1

Nonmarketable securities............. 497.8 13.3 511.1 2.8% 2.3%

Net unamortized 

premiums/(discounts) ................ (39.2) (5.6) (44.8)

Total Treasury securities, net 

(public) ......................................... 14,634.2 1,082.2 15,716.4

Agency securities:

Tennessee Valley Authority.......... 23.9 (1.5) 22.4

All other agencies ........................ 0.1 - 0.1

Total agency securities, net of 

unamortized premiums and 

discounts ...................................... 24.0 (1.5) 22.5

Accrued interest payable ............. 65.9 7.9 73.8

Total federal debt securities held 

by the public and accrued 

interest ....................................... 14,724.1 1,088.6 15,812.7

Types of marketable securities:

Bills–Short-term obligations issued with a term of 1 year or less.

Notes–Medium-term obligations issued with a term of 2-10 years. 

Bonds–Long-term obligations of more than 10 years.

TIPS–Term of more than 5 years.

FRN–Term of 2 years.
NOTES TO THE FINANCIAL STATEMENTS 96

Federal debt securities held by the public outside the government are held by individuals, corporations, state or local 

governments, FRBs, foreign governments, and other nonfederal entities. The above table details government borrowing 

primarily to finance operations and shows marketable and nonmarketable securities at face value less net unamortized 

premiums and discounts including accrued interest.

Securities that represent federal debt held by the public are issued primarily by the Treasury and include:

x Interest-bearing marketable securities (bills, notes, bonds, inflation-protected, and floating rate notes).

x Interest-bearing nonmarketable securities (government account series held by fiduciary and certain deposit funds, 

foreign series, state and local government series, domestic series, and savings bonds).

x Non-interest-bearing marketable and nonmarketable securities (matured and other).

Gross federal debt (with some adjustments) is subject to a statutory ceiling (i.e., the debt limit). Prior to 1917, Congress 

approved each debt issuance. In 1917, to facilitate planning in World War I, Congress and the President first enacted a 

statutory dollar ceiling for federal borrowing. With the Public Debt Act of 1941 (P.L. 77-7), Congress and the President set an 

overall limit of $65 billion on Treasury debt obligations that could be outstanding at any one time; since then, Congress and 

the President have enacted a number of debt limit increases. 

During fiscal years 2018 and 2017, Treasury faced two delays in raising the statutory debt limit that required it to depart 

from its normal debt management procedures and to invoke legal authorities to avoid exceeding the statutory debt limit. 

During these periods, extraordinary actions taken by Treasury have resulted in federal debt securities not being issued to 

certain federal government accounts with the securities being restored including lost interest to the affected federal 

government accounts subsequent to the end of the delay period. The first delay occurred from March 16, 2017 through 

September 7, 2017. On Friday, September 8, 2017 the Continuing Appropriations Act, 2018 and Supplemental 

Appropriations for Disaster Relief Requirements Act, 2017 (P.L. 115-56) was enacted suspending the statutory debt limit 

through December 8, 2017. The second delay in raising the statutory debt limit occurred from December 9, 2017 through 

February 8, 2018. On Friday, February 9, 2018, the Bipartisan Budget Act (BBA) of 2018 (P.L. 115-123) was enacted 

suspending the statutory debt limit through March 1, 2019.

As of September 30, 2018, and 2017, debt subject to the statutory debt limit was $21,474.8 billion and $20,208.6 

billion, respectively. The debt subject to the limit includes Treasury securities held by the public and government guaranteed

debt of federal agencies (shown in the table above) and intragovernmental debt holdings (shown in the following table). See 

1RWHņSubsequent Events for additional information.
97 NOTES TO THE FINANCIAL STATEMENTS

Intragovernmental Debt Holdings: Federal Debt Securities

Held as Investments by Government Accounts as of September 30, 2018, and 2017

Net

Change

During

Balance Fiscal Year Balance

(In billions of dollars) 2017 2018 2018

Social Security Administration, Federal Old-Age 

and Survivors Insurance Trust Fund ....................... 2,820.2 (18.9) 2,801.3

Office of Personnel Management, Civil Service 

Retirement and Disability Fund............................... 905.1 17.9 923.0

Department of Defense, Military Retirement Fund.... 661.0 82.4 743.4

Department of Defense, Medicare-Eligible Retiree 

Health Care Fund.................................................. 225.8 14.4 240.2

Department of Health and Human Services, 

Federal Hospital Insurance Trust Fund ................... 197.8 5.0 202.8

Department of Health and Human Services, 

Federal Supplementary Medical Insurance Trust 

Fund .................................................................... 70.6 27.6 98.2

Federal Deposit Insurance Corporation, Deposit 

Insurance Fund ..................................................... 80.2 16.2 96.4

Social Security Administration, Federal Disability 

Insurance Trust Fund ............................................ 69.7 23.7 93.4

Department of Labor, Unemployment Trust Fund ... 60.7 11.9 72.6

Department of Energy, Nuclear Waste Disposal 

Fund..................................................................... 53.0 0.4 53.4

Office of Personnel Management, Postal Service 

Retiree Health Benefits Fund ................................. 49.5 (2.4) 47.1

Office of Personnel Management, Employees Life 

Insurance Fund .................................................... 45.7 0.9 46.6

Department of Transportation, Highway Trust Fund . 52.3 (11.1) 41.2

Pension Benefit Guaranty Corporation ................... 28.4 3.3 31.7

Office of Personnel Management, Employees 

Health Benefits Fund ............................................. 26.0 1.4 27.4

Department of Housing and Urban Development, 

FHA, Mutual Mortgage Insurance Capital Reserve 

Account ............................................................... 30.9 (3.9) 27.0

Department of the Treasury, Exchange 

Stabilization Fund ................................................. 22.1 0.2 22.3

Department of State, Foreign Service Retirement 

and Disability Fund ............................................... 18.8 0.4 19.2

Department of Housing and Urban Development, 

Guarantees of Mortgage-Backed Securities Capital 

Reserve Account................................................... 17.1 (0.9) 16.2

National Credit Union Share Insurance Fund........... 13.1 1.8 14.9

Department of Transportation, Airport and Airway 

Trust Fund ............................................................ 13.4 0.8 14.2

U.S. Postal Service, Postal Service Fund................ 11.0 (0.5) 10.5

All other programs and funds ................................. 99.1 12.9 112.0

Subtotal ............................................................. 5,571.5 183.5 5,755.0

Total net unamortized premiums/(discounts) for 

intragovernmental.................................................. 72.2 (2.3) 69.9

 Total intragovernmental debt holdings, net ......... 5,643.7 181.2 5,824.9
NOTES TO THE FINANCIAL STATEMENTS 98

Intragovernmental debt holdings represent the portion of the gross federal debt held as investments by government

entities such as trust funds, revolving funds, and special funds.

Government entities that held investments in Treasury securities include trust funds that have funds from dedicated

collections. For more information on funds from dedicated collections, see Note ņ)XQGV from Dedicated Collections.

These intragovernmental debt holdings are eliminated in the consolidation of these financial statements.
99 NOTES TO THE FINANCIAL STATEMENTS

Note 12. Federal Employee and Veteran Benefits Payable

Federal Employee and Veteran Benefits Payable as of September 30, 2018, and 2017

Civilian Military Total

Reclass Reclass

(In billions of dollars) 2018 2017 2018 2017 2018 2017

Pension and accrued benefits ................... 2,048.9 2,013.8 1,621.3 1,568.0 3,670.2 3,581.8

Veterans compensation and burial 

benefits.................................................... N/A N/A 2,956.3 2,810.0 2,956.3 2,810.0

Post-retirement health and accrued 

benefits ................................................... 403.3 375.7 787.0 781.6 1,190.3 1,157.3

Veterans education benefits...................... N/A N/A 65.7 50.7 65.7 50.7

Life insurance and accrued benefits........... 54.9 53.1 6.3 6.9 61.2 60.0

FECA benefits.......................................... 27.3 28.8 8.3 8.3 35.6 37.1

Liability for other benefits .......................... 1.2 1.2 1.8 2.0 3.0 3.2

Total federal employee and veteran 

benefits payable .................................... 2,535.6 2,472.6 5,446.7 5,227.5 7,982.3 7,700.1

Change in Pension and Accrued Benefits

Civilian Military Total

(In billions of dollars) 2018 2017 2018 2017 2018 2017

Actuarial accrued pension liability, 

beginning of fiscal year ............................. 2,013.8 1,910.7 1,568.0 1,490.6 3,581.8 3,401.3

Pension expense:

Prior (and past) service costs from plan 

amendments or new plans...................... - - 8.9 (0.9) 8.9 (0.9)

Normal costs ......................................... 42.3 38.8 34.2 27.4 76.5 66.2

Interest on liability .................................. 68.7 69.5 57.5 57.6 126.2 127.1

Actuarial (gains)/losses (from 

experience) ........................................... (2.0) (12.0) 9.6 (1.6) 7.6 (13.6)

Actuarial (gains)/losses (from

assumption changes)............................. 15.8 94.3 2.1 52.9 17.9 147.2

Other .................................................... 0.1 - - - 0.1 -

Total pension expense ........................... 124.9 190.6 112.3 135.4 237.2 326.0

Less benefits paid .................................... (89.8) (87.5) (59.0) (58.0) (148.8) (145.5)

Actuarial accrued pension liability, end of 

fiscal year ................................................ 2,048.9 2,013.8 1,621.3 1,568.0 3,670.2 3,581.8
NOTES TO THE FINANCIAL STATEMENTS 100

Change in Post-Retirement Health and Accrued Benefits

Civilian Military Total

(In billions of dollars) 2018 2017 2018 2017 2018 2017

Actuarial accrued post-retirement health 

benefits liability, beginning of fiscal year..... 375.7 352.3 781.6 799.7 1,157.3 1,152.0

Post-Retirement health benefits 

expense: 

Prior (and past) service costs from plan 

amendments or new plans...................... - - (20.9) - (20.9) -

Normal costs ......................................... 15.8 13.4 20.5 20.5 36.3 33.9

Interest on liability .................................. 14.1 13.9 30.0 32.3 44.1 46.2

Actuarial (gains)/losses (from 

experience) ........................................... 0.7 4.5 (17.2) (20.6) (16.5) (16.1)

Actuarial (gains)/losses (from 

assumption changes)............................. 12.9 7.5 14.7 (28.8) 27.6 (21.3)

Total post-retirement health benefits 

expense ................................................ 43.5 39.3 27.1 3.4 70.6 42.7

Less claims paid....................................... (15.9) (15.9) (21.7) (21.5) (37.6) (37.4)

Actuarial accrued post-retirement health 

benefits liability, end of fiscal year.............. 403.3 375.7 787.0 781.6 1,190.3 1,157.3

The government offers its employees retirement and other benefits, as well as health and life insurance. The liabilities

for these benefits, which include both actuarial amounts and amounts due and payable to beneficiaries and health care

carriers, apply to current and former civilian and military employees. Large fluctuations in actuarial amounts can result from

changes in estimates to future outflows for benefits based on complex assumptions and cost models.

OPM administers the largest civilian plan. DOD and VA administer the largest military plans. Other significant pension

plans with more than $10 billion in actuarial accrued liability include those of the Coast Guard (DHS), Foreign Service

(State), TVA, and HHS’s Public Health Service Commissioned Corps Retirement System. Please refer to the financial

statements of the entities listed for further details regarding their pension plans and other benefits.

Change in Civilian Life Insurance and Accrued Benefits

(In billions of dollars) 2018 2017

Actuarial accrued life insurance benefits liability, beginning of fiscal year .... 53.1 50.9

Life insurance benefits expense:

New entrant expense ............................................................................ 0.6 0.4

Interest on liability ................................................................................. 1.9 1.9

Actuarial (gains)/losses (from experience) .............................................. (0.6) (0.4)

Actuarial (gains)/losses (from assumption changes)................................ 0.5 0.9

Total life insurance benefits expense ................................................... 2.4 2.8

Less costs paid ....................................................................................... (0.6) (0.6)

Actuarial accrued life insurance benefits liability, end of fiscal year ............. 54.9 53.1
101 NOTES TO THE FINANCIAL STATEMENTS

Significant Long-Term Economic Assumptions Used in Determining Pension 

Liability and the Related Expense

Civilian Military

2018 2017 2018 2017

FERS CSRS FERS CSRS

Rate of interest .............................. 3.60% 3.00% 3.80% 3.20% 3.50% 3.70%

Rate of inflation.............................. 1.60% 1.60% 1.80% 1.80% 1.50% 1.70%

Projected salary increases.............. 1.30% 1.30% 1.50% 1.50% 2.00% 2.10%

Cost of living adjustment ............... 1.40% 1.60% 1.40% 1.80% N/A N/A

Significant Long-Term Economic Assumptions Used in Determining 

Post-Retirement Health Benefits and the Related Expense

Civilian Military

2018 2017 2018 2017

Rate of interest ............................................. 3.60% 3.80% 3.60% 3.80%

Single equivalent medical trend rate............... 4.50% 4.80% 4.16% 4.12%

Ultimate medical trend rate............................ 3.20% 3.40% 4.00% 4.20%

Significant Long-Term Economic Assumptions Used in Determining Life Insurance 

Benefits and the Related Expense

Civilian

2018 2017

Rate of interest ............................................. 3.40% 3.60%

Rate of increase in salary .............................. 1.30% 1.50%

In accordance with SFFAS No. 33, Pension, Other Retirement Benefits, and Other Postemployment Benefits: Reporting 

the Gains and Losses from Changes in Assumptions and Selecting Discount Rates and Valuation Dates, entities are required 

to separately present gains and losses from changes in long-term assumptions used to estimate liabilities associated with

pensions, ORB, and OPEB on the Statement of Net Cost. SFFAS No. 33 also provides a standard for selecting the discount 

rate assumption for present value estimates of federal employee pension, ORB, and OPEB liabilities. The SFFAS No. 33

standard for selecting the discount rate assumption requires it be based on a historical average of interest rates on marketable

Treasury securities consistent with the cash flows being discounted. Additionally, SFFAS No. 33 provides a standard for 

selecting the valuation date for estimates of federal employee pension, ORB, and OPEB liabilities that establishes a 

consistent method for such measurements. 

To provide a sustainable, justifiable data resource for the affected entities, Treasury developed a new model and 

methodology for developing these interest rates in fiscal year 2014. The new method that was developed is based on 

methodology used to produce the High Quality Market (HQM) Yield Curve pursuant to the Pension Protection Act of 

2006.

2 As of July 2014, Treasury began releasing interest rate yield curve data using this new U.S. Department of the 

Treasury’s Yield Curve for Treasury Nominal Coupon Issues (TNC yield curve), which is derived from Treasury notes

2 Treasury’s HQM resource is available at: https://www.treasury.gov/resource-center/economic-policy/corp-bond-yield/Pages/Corp-Yield-Bond-CurvePapers.aspx.
NOTES TO THE FINANCIAL STATEMENTS 102

and bonds. The TNC yield curve provides information on Treasury nominal coupon issues and the methodology extrapolates 

yields beyond 30 years through 100 years maturity. The TNC yield curve is used to produce a Treasury spot yield curve (a 

zero coupon curve), which provides the basis for discounting future cash flows.

Civilian Employees

Pensions

OPM administers the largest civilian pension plan, which covers substantially all full-time, permanent civilian federal 

employees. This plan includes two components of defined benefits, the Civil Service Retirement System (CSRS) and the 

Federal Employees’ Retirement System (FERS). The basic benefit components of the CSRS and the FERS are financed and 

operated through the Civil Service Retirement and Disability Fund (CSRDF), a trust fund. CSRDF monies are generated 

primarily from employees’ contributions, federal entity contributions, payments from the General Fund, and interest on 

investments in Treasury securities. As of September 30, 2018, USPS has accrued, but not paid OPM, $5.6 billion in CSRS 

and FERS retirement benefit expenses since 2014.

The Federal Retirement Thrift Investment Board (FRTIB) administers the Thrift Savings Plan (TSP). The TSP 

investment options include two fixed income funds (the G and F Funds), three stock funds (the C, S, and I Funds) and five 

lifecycle funds (L 2050, L 2040, L 2030, L 2020, and L Income). The L Funds diversify participant accounts among the G, F, 

C, S, and I Funds, using professionally determined investment mixes (allocations) that are tailored to different time horizons. 

Treasury securities held in the G Fund are included in federal debt securities held by the public and accrued interest on the 

Balance Sheet. The G Fund held $245.5 billion and $217.9 billion in nonmarketable Treasury securities as of September 30, 

2018, and 2017, respectively. 

The liability for civilian pension and accrued benefits payable increased $35.1 billion. This increase is partly 

attributable to changes in actuarial assumptions. The assumption loss results primarily from decreases to the assumed rates of

interest, which was partly offset by a modest gain from changes in demographic assumptions. 

Post-Retirement Health Benefits

The post-retirement civilian health benefit liability is an estimate of the government’s future cost of providing postretirement health benefits to current employees and retirees. Although active and retired employees pay insurance premiums 

under the Federal Employees Health Benefits Program, these premiums cover only a portion of the costs. The OPM actuary 

applies economic and demographic assumptions to historical cost information to estimate the liability. 

The Postal Accountability and Enhancement Act of 2006 (Postal Act of 2006) (P.L. No 109-435, Title VIII), made 

significant changes in the funding of future retiree health benefits for employees of the USPS, including the requirement for 

the USPS to make scheduled payments to the Postal Service Retiree Health Benefits (PSRHB) Fund. Various legislation 

required the USPS to make scheduled payments to the PSRHB Fund ranging from $5.4 billion to $5.8 billion per year from 

fiscal year 2007 through fiscal year 2016. Thereafter, the law required USPS to make annual payments in the amount of the 

normal cost plus or minus an amount to amortize the unfunded liability or surplus. USPS currently owes the PSRHB Fund a 

total of $42.6 billion consisting of $38.2 billion for fiscal years 2011 through 2017 and $4.4 billion for fiscal year 2018. As of 

September 30, 2018, USPS has indicated payment of the total $42.6 billion due will remain open. At this time, Congress has 

not taken further action on these payments due to the PSRHB Fund from USPS. The cost for each year’s payment, including 

any defaulted payment, along with all other benefit program costs, are included in USPS’ net cost for that year in the 

consolidated Statements of Net Cost. The liability is not included on the governmentwide balance sheet due to the USPS 

liability being eliminated with the OPM receivable.

The post-retirement civilian health benefit liability increased $27.6 billion. This increase is due to the accruing cost of 

benefits, interest on the existing liability and an actuarial loss primarily attributable to updated demographic assumptions 

used in the fiscal year 2018 calculation. 

Life Insurance Benefits

One of the other significant employee benefits is the Federal Employees’ Group Life Insurance (FEGLI) Program. 

Employee and annuitant contributions and interest on investments fund a portion of this liability. The actuarial life insurance

liability is the expected present value of future benefits to pay to, or on behalf of, existing FEGLI participants, less the 

expected present value of future contributions to be collected from those participants. The OPM actuary uses salary increase 

and interest rate yield curve assumptions that are generally consistent with the pension liability.
103 NOTES TO THE FINANCIAL STATEMENTS

Workers’ Compensation Benefits

The DOL determines both civilian and military entities’ liabilities for future workers’ compensation benefits for civilian 

federal employees, as mandated by the FECA, for death, disability, medical, and miscellaneous costs for approved 

compensation cases, and a component for incurred, but not reported, claims. The FECA liability is determined annually using 

historical benefit payment patterns related to injury years to predict the future payments. 

The actuarial methodology provides for the effects of inflation and adjusts historical payments to constant dollars by 

applying wage inflation factors (cost-of-living adjustments or COLA) and medical inflation factors (consumer price indexmedical or CPIM) to the calculation of projected benefits. 

DOL selects the COLA factors, CPIM factors, and discount rate by averaging the COLA rates, CPIM rates, and interest 

rates for the current and prior four years. Using averaging renders estimates that reflect historical trends over five years 

instead of conditions that exist in one year. 

The COLAs and CPIMs used in the projections for fiscal year 2018 are listed below in the table. 

DOL selected the interest rate assumptions whereby projected annual payments were discounted to present value based

on interest rate assumptions on the TNC Yield Curve to reflect the average duration of income payments and medical

payments. The average durations for income payments and medical payments were 14.7 years and 9.6 years, respectively.

Based on averaging the TNC Yield Curves for the current and prior four years, the interest rate assumptions for income

payments and medical payments were 2.72% and 2.38%, respectively.

For the COLAs, CPIMs, average durations, and interest rate assumptions used in the projections for fiscal year 2017,

refer to the fiscal year 2017 Financial Report.

Military Employees (Including Veterans)

Pensions

The Military Retirement System consists of a funded, noncontributory, defined benefit plan for military personnel

(Services of Army, Navy, Air Force, and the Marine Corps) with an entry date prior to January 1, 2018 and the Blended

Retirement System (BRS), generally for military personnel with an entry date on or after January 1, 2018. The defined

benefit plan includes non-disability retired pay, disability retired pay, survivor annuity programs, and Combat-Related

Special Compensation. The Service Secretaries may approve immediate non-disability retired pay at any age with credit of at

least 20 years of active duty service. Reserve retirees must be at least 60 years old and have at least 20 qualifying years of

service before retired pay commences; however, in some cases, the age can be less than 60 if the reservist performs certain

types of active service. P.L. 110-181 provides for a 90-day reduction in the reserve retirement age from age 60 for every 3

months of certain active duty service served within a fiscal year for service after January 28, 2008 (not below age 50). There

is no vesting of defined benefits before non-disabled retirement. There are distinct non-disability benefit formulas related to

four populations within the Military Retirement System: Final Pay, High-3, Career Status Bonus/Redux, and the BRS enacted

in the National Defense Authorization Act for Fiscal Year 2016, effective January 1, 2018. The BRS is a new retirement

benefit merging aspects of both a defined benefit annuity with a defined contribution account, through the TSP. The date an

individual enters the military generally determines which retirement system they would fall under and if they have the option

to select, via a one-time irrevocable election, their retirement system. Military personnel with a start date on or after January

1, 2018 are automatically enrolled in BRS. Although all members serving as of December 31, 2017 were grandfathered under

the prior retirement system, Active Duty, National Guard and Reserve personnel meeting established criteria may opt into

BRS during calendar year 2018. Under the BRS, retiring members are given the option to receive a portion of their retired
NOTES TO THE FINANCIAL STATEMENTS 104

pay annuity in the form of a lump sum distribution. For more information on these benefits, see DOD’s Office of Military

Compensation website https://militarypay.defense.gov.

The DOD Military Retirement Fund was established by P.L. 98-94 (currently Chapter 74 of Title 10, U.S.C.) and

accumulates funds to finance, on an accrual basis, the liabilities of DOD military retirement and survivor benefit programs.

This Fund receives income from three sources: monthly normal cost payments from the Services to pay for DOD’s portion of

the current year’s service cost; annual payments from the Treasury to amortize the unfunded liability and pay for the increase

in the normal cost attributable to Concurrent Receipt (certain beneficiaries with combat-related injuries who are receiving

payments from the VA) per P.L. 108-136; and investment income.

The $53.3 billion increase in the Military Retirement Pension liability is attributable to the increase from expected

normal and interest costs offset by benefit payments, with additional impacts due to assumption and benefit changes and

actuarial experience. Liabilities in the future will depend on interest costs and benefit accruals, future benefit changes,

assumption changes, and actuarial experience.

Post-Retirement Health Benefits

Military retirees who are not yet eligible for Medicare (and their eligible non-Medicare eligible dependents) are eligible

for post-retirement medical coverage provided by DOD. Depending on the benefit plan selected, retirees and their eligible

dependents may receive care from military treatment facilities (MTFs) on a space-available basis or from civilian providers.

This TRICARE coverage is available as Select ( a preferred provider organization – a health plan that contracts with medical

providers to create a network of participating providers; member cost-shares are typically higher for services received out-ofnetwork) and PRIME (a health maintenance organization- a health plan that limits services to a specific network of medical

personnel and facilities and usually by requiring referral by a primary-care physician for specialty care; coverage is also

available for non-referred and out-of-network care, subject to higher cost-sharing). These postretirement medical benefits are

paid by the Defense Health Agency on a pay-as-you-go basis.

Since fiscal year 2002, DOD has provided medical coverage to Medicare-eligible retirees (and their eligible Medicareeligible dependents). This coverage, called TRICARE for Life (TFL), is a Medicare Supplement plan which includes

inpatient, outpatient and pharmacy coverage. Enrollment in Medicare Part B is required to maintain eligibility in TFL.

Retirees with TFL coverage can obtain care from MTFs on a space-available basis or from civilian providers.

10 U.S.C., Chapter 56 created the DOD Medicare-Eligible Retiree Health Care Fund (MERHCF), which became

operative on October 1, 2002. The purpose of this fund is to account for and accumulate funds for the health benefit costs of

Medicare-eligible military retirees, and their dependents and survivors who are Medicare eligible. The Fund receives

revenues from three sources: interest earnings on MERHCF assets, Uniformed Services normal cost contributions, and

Treasury contributions. The DOD Medicare-Eligible Retiree Health Care Board of Actuaries (the MERHCF Board) approves

the methods and assumptions used in actuarial valuations of the MERHCF for the purpose of calculating the per capita

normal cost rates (to fund the annual accrued benefits) and determining the unfunded liability amortization payment (the U.S.

Treasury contribution). The Secretary of Defense directs the Secretary of Treasury to make DOD’s normal cost payments.

The MERHCF pays for medical costs incurred by Medicare-eligible beneficiaries at MTFs and civilian providers (including

payments to U.S. Family Health Plans for grandfathered beneficiaries), plus the costs associated with claims administration.

DOD’s actuaries calculate the actuarial liabilities annually using assumptions and experience (e.g., mortality and

retirement rates, health care costs, medical trend rates, and the discount rate). Actuarial liabilities are calculated for all DOD

retiree medical benefits, including both the benefits funded through the MERHCF as well as the benefits for pre-Medicare

retirees who are paid on a pay-as-you-go basis. Military post-retirement health and accrued benefits payable increased $5.4

billion. This increase is due primarily to changes in actuarial assumptions and expected normal and interest costs, offset by

changes due to plan amendments and favorable recent claims experience. The $20.9 billion reduction in the liability due to

plan amendments reflects the estimated savings resulting from change to pharmacy copays enacted in the National Defense

Authorization Act for Fiscal Year 2018, effective February 1, 2018.

In addition to the health care benefits the federal government provides for civilian and military retirees and their

dependents, the VA also provides medical care to veterans on an “as available” basis, subject to the limits of the annual

appropriations. In accordance with 38 CFR 17.36 (c), VA’s Secretary makes an annual enrollment decision that defines the

veterans, by priority, who will be treated for that fiscal year subject to change based on funds appropriated, estimated

collections, usage, the severity index of enrolled veterans, and changes in cost. While VA expects to continue to provide

medical care to veterans in future years, an estimate of such future benefits cannot be reasonably made. Accordingly, medical

care expenses are recognized in the period the medical care services are provided and included on the Statement of Net Cost.

For the fiscal years 2014 through 2018, the average medical care cost per year was $63.2 billion.
105 NOTES TO THE FINANCIAL STATEMENTS

Veterans Compensation and Burial Benefits

The government compensates disabled veterans and their survivors. Veterans’ compensation is payable as a disability

benefit or a survivor’s benefit. Entitlement to compensation depends on the veteran’s disabilities having been incurred in, or

aggravated during, active military service; death while on duty; or death resulting from service-connected disabilities, if not

on active duty.

Eligible veterans who die or are disabled during active military service-related causes, as well as their dependents, and

dependents of service members who died during active military service, receive compensation benefits. In addition, service

members who die during active military service and veterans who separated under other than dishonorable conditions are

provided with a burial flag, headstone/marker, and grave liner for burial in a VA national cemetery or are provided a burial

flag, headstone/marker and a plot allowance for burial in a private cemetery. These benefits are provided under 38 U.S.C.,

Part 2, Chapter 23 in recognition of a veteran’s military service and are recorded as a liability in the period the requirements

are met.

The liability for veterans’ compensation and burial benefits payable is based on an actuarial estimate of future

compensation and burial payments. It increased by $146.3 billion in fiscal year 2018. The $146.3 billion increase is primarily

attributable to assumption changes and experience. The major impact from experience changes was from veterans who first

became eligible for benefits during fiscal year 2018. The major impact from assumption changes was from a decrease in the

discount rate. Several significant actuarial assumptions were used in the valuation of compensation and burial benefits to

calculate the present value of the liability. A liability was recognized for the projected benefit payments to: 1) those

beneficiaries, including veterans and survivors, currently receiving benefit payments; 2) current veterans who will in the

future become beneficiaries of the compensation program; and 3) a proportional share of those in active military service as of

the valuation date who are expected to be future veterans. Future benefit payments to survivors of those veterans in classes 1,

2, and 3 above are also incorporated into the projection. The projected liability does not include any administrative costs.

The veterans’ compensation and burial benefits liability is developed on an actuarial basis. It is impacted by interest on

the liability balance, experience gains or losses, changes in actuarial assumptions, prior service costs, and amounts paid for

costs included in the liability balance.

Change in Veterans Compensation and Burial Benefits

Compensation Burial Total

(In billions of dollars) 2018 2017 2018 2017 2018 2017

Actuarial accrued liability, beginning of

fiscal year ............................................... 2,805.1 2,491.4 4.9 4.9 2,810.0 2,496.3

Current year expense:

Interest on the liability balance................ 102.7 97.9 0.2 0.2 102.9 98.1

Prior (and past) service costs from 

program amendments or new programs 

during the period.................................... 14.3 - - - 14.3 -

Actuarial (gains)/losses (from 

experience) .......................................... 45.5 50.7 (0.1) (0.2) 45.4 50.5

Actuarial (gains)/losses (from 

assumption changes)............................. 66.8 244.3 2.4 0.2 69.2 244.5

Total current year expense................... 229.3 392.9 2.5 0.2 231.8 393.1

Less benefits paid ................................... (85.3) (79.2) (0.2) (0.2) (85.5) (79.4)

Actuarial accrued liability, end of fiscal 

year ....................................................... 2,949.1 2,805.1 7.2 4.9 2,956.3 2,810.0
NOTES TO THE FINANCIAL STATEMENTS 106

Significant Economic Assumptions Used in Determining Veterans Compensation and 

Burial Benefits as of September 30, 2018, and 2017

2018 2017

Rate of interest.................................................................... 3.52% 3.66%

Rate of inflation ................................................................... 2.28% 2.28%

Veterans Education Benefits

For eligible Veterans and their dependents, the VA provides four education/retraining type programs: 

x Post 9/11 GI Bill

x Montgomery GI Bill-Active Duty 

x Vocational Rehabilitation and Employment 

x Dependent Education Assistance 

The total liability for the four education/training programs is based on actuarial estimates of future payments and 

increased by $15.0 billion in fiscal year 2018. The $15.0 billion increase is primarily attributable to assumption changes and

experience. The major impact from experiences changes was from veterans who first became eligible for benefits during 

fiscal year 2018. The major impact from assumption changes was from a $12.0 billion adjustment made outside of the model 

to account for potential new enrollees in the next year. This adjustment was based on the number of new enrollees who began 

to use their Post-9/11 GI Bill benefits in 2018. The actuarial modeling estimates are based on beneficiaries who have already 

started to use those benefits. Currently, these models do not include assumptions for expected future new beneficiaries as an 

input to calculate the estimated liability. However, based on experience, it is probable that new beneficiaries will enroll in

these programs in the future. As of September 30, 2018, VA has not developed a practical way to estimate the future number 

of new beneficiaries in its models, in accordance to SFFAS No. 5. Since these models have only been placed in operation for 

the past two years, enhancements and studies such as assumption revisions and possibility of inclusion of multiple years of 

future enrollees in the models will be examined. Results of these enhancements and studies may lead to significant changes in

the future liabilities.

In fiscal year 2016, VA reported an estimated liability for the Post 9/11 GI Bill of $59.6 billion. This was the first time 

VA had reported this estimated liability and the models and assumptions used were conservative with limited experience 

studies or assumptions. At that time, VA had not developed models or estimates for the other three programs listed; however, 

it was management’s assertion that the amount recorded for the Post 9/11 GI Bill was large enough to include any liability for

the other three programs. In fiscal year 2017, VA broke out each program and developed individual estimates based on 

actuarial standards. While not reported in 2016, VA developed an estimate for fiscal year 2016 for each of the new programs 

to be used for comparisons only in 2017. This estimate reflected an increase in the liability of $8.7 billion. This amount is 

presented as "Other" for fiscal year 2017 in the schedule of "Changes in Veterans Education Benefits" provided below. 

The fiscal year 2017 Actuarial (gains)/losses from assumption changes included the impacts of refinements to the 

modeling of the Post 9/11 GI Bill program (liability decrease of $29.3 billion); prior service costs associated with the 

“Forever GI Bill of 2017,” which eliminated the 15-year limitation for using the benefit (liability increase of $8.2 billion);

and other assumption changes (liability increase of $6.3 billion).

For details regarding actuarial assumptions and the four education/retraining type programs, please refer to VA’s 

financial statements.
107 NOTES TO THE FINANCIAL STATEMENTS

Change in Veterans Education Benefits

(In billions of dollars) 2018 2017

Actuarial accrued liability, beginning of fiscal year...................................... 50.7 59.6

Current year expense:

Interest on liability ................................................................................. 1.3 0.7

Actuarial (gains)/losses (from experience) .............................................. 14.6 9.3

Actuarial (gains)/losses (from assumption changes)................................ 10.0 (14.8)

Other ................................................................................................... - 8.7

Total current year expense.................................................................. 25.9 3.9

Less benefits paid ................................................................................... (10.9) (12.8)

Actuarial accrued liability, end of fiscal year .............................................. 65.7 50.7

Life Insurance Benefits

The largest veterans’ life insurance programs consist of the following:

x National Service Life Insurance (NSLI) covers policyholders who served during World War II.

x Veterans’ Special Life Insurance (VSLI) was established in 1951 to meet the insurance needs of veterans who 

served during the Korean Conflict and through the period ending January 1, 1957.

x Service-Disabled Veterans Insurance (S-DVI) program was established in 1951 to meet the insurance needs of 

veterans who received a service-connected disability rating.

 The components of veteran life insurance liability for future policy benefits are presented below:

 

Veterans Life Insurance Liability as of September 30, 2018, and 2017

(In billions of dollars) 2018 2017

Insurance death benefits:

NSLI....................................................................................................... 2.3 2.8

VSLI....................................................................................................... 1.1 1.2

S-DVI ..................................................................................................... 0.7 0.7

Other...................................................................................................... 0.3 0.3

Total death benefits .............................................................................. 4.4 5.0

Death benefit annuities .............................................................................. - -

Disability income & waiver.......................................................................... 0.8 0.8

Insurance dividends payable ...................................................................... 0.9 1.1

Unpaid policy claims .................................................................................. 0.2 -

Total veterans life insurance liability ......................................................... 6.3 6.9

Insurance dividends payable consists of dividends left on deposit with VA, related interest payable, and dividends

payable to policyholders. Unpaid policy claims consists of insurance claims that are pending at the end of the reporting

period, an estimate of claims that have been incurred but not yet reported, and disbursements in transit.

The VA supervises Service members Group Life Insurance (SGLI) and Veterans Group Life Insurance programs that

provide life insurance coverage to members of the uniformed armed services, reservists, and post-Vietnam Veterans as well

as their families. VA has entered into a group policy with the Prudential Insurance Company of America to administer and

provide the insurance payments under these programs. All SGLI insureds are automatically covered under the Traumatic
NOTES TO THE FINANCIAL STATEMENTS 108

Injury Protection program, which provides for insurance payments to veterans who suffer a serious traumatic injury in

service.

Pension Benefits

The VA also provides certain veterans and/or their dependents with pension benefits, based on annual eligibility

reviews. The pension program for veterans is not accounted for as a “federal employee pension plan” under SFFAS No. 5 due

to differences between its eligibility conditions and those of federal employee pensions. Therefore, a future liability for

pension benefits is not recorded. VA pension liabilities are recognized when due and payable. The projected amounts of

future payments for pension benefits (presented for informational purposes only) as of September 30, 2018, and 2017, was

$104.8 billion and $87.6 billion, respectively.
109 NOTES TO THE FINANCIAL STATEMENTS

Note 13. Environmental and Disposal Liabilities

Environmental and Disposal Liabilities as of September 30, 2018, and 2017

(In billions of dollars) 2018 2017

Department of Energy........................................................................................ 494.0 383.8

Department of Defense...................................................................................... 70.4 68.3

All other entities ................................................................................................ 12.9 12.4

Total environmental and disposal liabilities ....................................................... 577.3 464.5

During World War II and the Cold War, DOE (or predecessor entities) developed a massive industrial complex to

research, produce, and test nuclear weapons. This included nuclear reactors, chemical-processing buildings, metal machining

plants, laboratories, and maintenance facilities that manufactured tens of thousands of nuclear warheads and conducted more

than 1,000 nuclear tests.

At all sites where these activities took place, some environmental contamination occurred. This contamination was

caused by the production, storage, and use of radioactive materials and hazardous chemicals, which resulted in contamination

of soil, surface water, and groundwater. The environmental legacy of nuclear weapons production also includes thousands of

contaminated buildings and large volumes of waste and special nuclear materials requiring treatment, stabilization, and

disposal.

Estimated cleanup costs at sites for which there are no current feasible remediation approaches, such as the Nevada

nuclear test site, are excluded from the estimates, although applicable stewardship and monitoring costs for these sites are

included. DOE has not been required through regulation to establish remediation activities for these sites.

Estimating DOE’s environmental cleanup liability requires making assumptions about future activities and is inherently

uncertain. The future course of DOE’s environmental cleanup and disposal will depend on a number of fundamental technical

and policy choices, many of which have not been made. The sites and facilities could be restored to a condition suitable for

any desirable use, or could be restored to a point where they pose no near-term health risks. Achieving the former conditions

would have a higher cost but may (or may not) warrant the costs, or be legally required. The environmental and disposal

liability estimates include contingency estimates intended to account for the uncertainties associated with the technical

cleanup scope of the program. Congressional appropriations at lower than anticipated levels or unplanned delays in project

completion would cause increases in life-cycle costs.

DOE’s environmental and disposal liabilities also include the estimated cleanup and post-closure responsibilities,

including surveillance and monitoring activities, soil and groundwater remediation, and disposition of excess material for

sites. The Department is responsible for the post-closure activities at many of the closure sites as well as other sites. The costs

for these post-closure activities are estimated for a period of 75 years after the balance sheet date, i.e., through 2093 in fiscal

year 2018 and through 2092 in fiscal year 2017. While some post-cleanup monitoring and other long-term stewardship

activities post-2093 are included in the liability, there are others DOE expects to continue beyond 2093 for which the costs

cannot reasonably be estimated.

A portion of DOE’s environmental and disposal liabilities at various field sites includes anticipated costs for facilities

managed by DOE’s ongoing program operations which will ultimately require stabilization, deactivation, and

decommissioning. The estimate is largely based upon a cost-estimating model. Site specific estimates are used in lieu of the

cost-estimating model, when available. Cost estimates for ongoing program facilities are updated each year. For facilities

newly contaminated since fiscal year 1997, cleanup costs allocated to future periods and not included in environmental and

disposal liabilities amounted to $0.9 billion for both fiscal years 2018 and 2017.

The predominant change in the DOE's environmental liabilities estimates in fiscal year 2018 resulted from Waste

Treatment and Immobilization Plant (WTP) construction and operating costs, and the updated tank farm retrieval and closure

cost. Other changes resulted from inflation adjustments to reflect constant dollars for the current year; improved and updated

estimates for the same scope of work, including changes resulting from deferral or acceleration of work; revisions in

technical approach or scope, including additional contamination; updated estimates of projected waste volumes; changes in

the DOE's allocable percentage share of future costs; legal and regulatory changes; and cleanup activities performed.
NOTES TO THE FINANCIAL STATEMENTS 110

On October 9, 2018, the U.S. Court of Appeals for the Fourth Circuit lifted the Preliminary Injunction, allowing DOE to

move forward with termination of construction of the Mixed Oxide (MOX) facility. With termination of the MOX facility,

which was the fiscal year 2018 approach for plutonium disposition, DOE will pursue a Dilute and Dispose approach in fiscal

year 2019. The lower cost of the Dilute and Dispose approach is expected to reduce the program liability. DOE remains

committed to disposing of 34 metric tons of plutonium.

Please refer to the financial statements of DOE for detailed information regarding DOE’s environmental and disposal

liabilities, including cleanup costs.

Beginning in fiscal year 2018, DOD’s individual amounts are reported together as a single line total for its portion of

Environmental and Disposal Liabilities. DOD must restore active installations, installations affected by base realignment and

closure, and other areas formerly used as DOD sites. DOD also bears responsibility for disposal of chemical weapons and

environmental costs associated with the disposal of weapons systems (primarily nuclear powered aircraft carriers and

submarines).

DOD follows the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), Superfund

Amendments and Reauthorization Act, Resource Conservation and Recovery Act (RCRA) and other applicable federal or

state laws to clean up contamination. The CERCLA and RCRA require the DOD to clean up contamination in coordination

with regulatory entities, current owners of property damaged by the Department, and third parties that have a partial

responsibility for the environmental restoration. Failure to comply with agreements and legal mandates puts the DOD at risk

of incurring fines and penalties.

DOD uses engineering estimates and independently validated models to estimate environmental costs. The engineering

estimates are used after obtaining extensive data during the remedial investigation/feasibility phase of the environmental

project.

For general PP&E placed into service after September 30, 1997, DOD expenses associated environmental costs

systematically over the life of the asset using two methods: physical capacity for operating landfills and life expectancy in

years for all other assets. DOD expenses the full cost to clean up contamination for stewardship PP&E at the time the asset is

placed into service. DOD has expensed the costs for cleanup associated with general PP&E placed into service before

October 1, 1997, except for costs intended to be recovered through user charges; for those costs, DOD has expensed cleanup

costs associated with that portion of the asset life that has passed since it was placed into service. DOD systematically

recognizes the remaining cost over the remaining life of the asset. The unrecognized portion of the estimated total cleanup

costs associated with disposal of general PP&E as of September 30, 2018 was $4.8 billion; this amount was unknown as of

September 30, 2017.

DOD is unable to estimate and report a liability for environmental restoration and corrective action for buried chemical

munitions and agents, because the extent of the buried chemical munitions and agents is unknown at this time. DOD is also

unable to provide a complete estimate for the Formerly Utilized Sites Remedial Action Program. DOD has ongoing studies

and will update its estimate as additional liabilities are identified. DOD has the potential to incur costs for restoration

initiatives in conjunction with returning overseas DOD facilities to host nations. However, DOD is unable to provide a

reasonable estimate at this time because the extent of required restoration is unknown.

Please refer to the financial statements of DOD for further information regarding DOD’s environmental and disposal

liabilities, including cleanup costs.
111 NOTES TO THE FINANCIAL STATEMENTS

Note 14. Benefits Due and Payable

Benefits Due and Payable as of September 30, 2018, and 2017

(In billions of dollars) 2018 2017

Federal Old-Age and Survivors Insurance.................................................. 75.1 71.3

Grants to States for Medicaid.................................................................... 35.6 34.1

Federal Supplementary Medical Insurance (Medicare Parts B and D).......... 30.7 30.6

Federal Hospital Insurance (Medicare Part A) ............................................ 31.5 30.0

Federal Disability Insurance...................................................................... 24.6 26.9

All other benefits programs ....................................................................... 13.6 25.9

Total benefits due and payable............................................................... 211.1 218.8

Benefits due and payable are amounts owed to program recipients or medical service providers as of September 30 that

have not been paid. Most of the benefits due and payable relate to programs administered by HHS and SSA. For a description

of the programs, see Note 22—Social Insurance and the unaudited RSI—Social Insurance section.
NOTES TO THE FINANCIAL STATEMENTS 112

Note 15. Insurance and Guarantee Program Liabilities

Insurance and Guarantee Program Liabilities as of September 30, 2018, and 2017

(In billions of dollars) 2018 2017

Insurance and Guarantee Program Liabilities:

Pension Benefit Guaranty Corporation - Benefit Pension Plans ................... 158.0 178.6

Department of Agriculture - Federal Crop Insurance ................................... 10.3 11.3

Department of Homeland Security - National Flood Insurance Programs ..... 1.7 12.3

National Credit Union Administration - Share Insurance Fund ..................... 0.2 0.3

Total insurance and guarantee program liabilities .................................... 170.2 202.5

Insurance and guarantee program liabilities are recognized for known losses and contingent losses to the extent that the

underlying contingency is deemed probable and a loss amount is reasonably measurable. Please see Note 18—Contingencies

for discussion on the meaning of “probable” depending on the accounting framework used by each significant consolidation

entity.

As of September 30, 2018, and 2017, $158.0 billion and $178.6 billion, respectively, pertain to the PBGC singleemployer and multiemployer pension plans. PBGC insures pension benefits for participants in covered defined benefit

pension plans. The total decrease of $20.6 billion in PBGC’s liability for insured pension plans includes decreases of $9.5

billion and $11.1 billion for single-employer and multiemployer plans, respectively. For both single-employer and

multiemployer plans, the decreases were primarily driven by changes in actuarial assumptions related to changes in interest

factors. As of September 30, 2018, and 2017, PBGC had total liabilities of $163.7 billion and $184.4 billion, and its total

liabilities exceeded its total assets by $51.4 billion and $76.0 billion, respectively. Refer to PBGC’s financial statements for

more information.

As of September 30, 2018, and 2017, $10.3 billion and $11.3 billion, respectively, pertain to the USDA’s Federal Crop

Insurance Program. The Federal Crop Insurance Program is administered by the Federal Crop Insurance Corporation, whose

mission is to provide an actuarially sound risk management program to reduce agricultural producers’ economic losses due to

natural disasters.

As of September 30, 2018, and 2017, $1.7 billion and $12.3 billion, respectively, pertain to the DHS National Flood

Insurance Program (NFIP). The NFIP insurance liability represents an estimate based on the loss and loss adjustment expense

factors inherent to the NFIP Insurance Underwriting Operations, including trends in claim severity and frequency. The

estimate is driven primarily by flooding activity in the U.S. and can vary significantly year over year depending on the timing

and severity of flooding activity. A reduced estimated insurance liability for disaster relief efforts for the significant

hurricanes in fiscal year 2018 is the primary driver of the $10.6 billion decrease from fiscal year 2017.

As of September 30, 2018, and 2017, $0.2 billion and $0.3 billion, respectively, pertain to NCUA’s National Credit

Union Share Insurance Fund (NCUSIF). The NCUSIF is administered by the NCUA, and protects members’ accounts in

insured credit unions in the event of a credit union failure.

Certain significant consolidation entities apply FASB standards, and such entities, as permitted by SFFAS No. 47, are

consolidated into the U.S. government’s consolidated financial statements without conversion to FASAB standards.
113 NOTES TO THE FINANCIAL STATEMENTS

Note 16. Other Liabilities

Other Liabilities as of September 30, 2018, and 2017 Restated

(In billions of dollars) 2018 2017

Unearned revenue and assets held for others:

Unearned fees for nuclear waste disposal (DOE) and other unearned 

revenue .................................................................................................... 59.5 60.0

Assets held on behalf of others ................................................................... 117.3 111.4

Subtotal .................................................................................................. 176.8 171.4

Employee-related liabilities:

Accrued federal employees' wages and benefits........................................... 42.1 37.4

Selected DOE contractors' and D.C. employees' pension benefits ................. 53.7 51.5

Subtotal .................................................................................................. 95.8 88.9

International monetary liabilities and gold certificates:

Exchange Stabilization Fund....................................................................... 54.5 55.1

Gold certificates ........................................................................................ 11.0 11.0

Subtotal .................................................................................................. 65.5 66.1

Subsidies and grants:

Farm and other subsidies............................................................................ 9.4 13.2

Grant payments due to state and local governments and others .................... 21.3 22.1

Subtotal .................................................................................................. 30.7 35.3

Miscellaneous liabilities:

Legal and other contingencies..................................................................... 52.4 56.5

Non-federal power projects and capital lease liabilities, and disposal 

liabilities .................................................................................................... 11.4 12.1

Other miscellaneous................................................................................... 46.4 42.8

Subtotal .................................................................................................. 110.2 111.4

Total..................................................................................................... 479.0 473.1

 

Other liabilities represent liabilities that are not separately identified on the Balance Sheet and are presented on a

comparative basis by major category.
NOTES TO THE FINANCIAL STATEMENTS 114

Unearned Revenue and Assets Held for Others

The government recognizes a liability when it receives money in advance of providing goods and services or assumes

custody of money belonging to others. Advances and prepayments include USPS customer deposits used for future mailings.

The government’s unearned revenue from fees DOE has collected from utility companies for the future cost of managing the

disposal of nuclear waste and interest income received is about $41.9 billion and $40.3 billion as of September 30, 2018, and

2017, respectively. Other unearned revenue includes USPS income for prepaid postage and prepaid P.O. Box rentals. Assets

held on behalf of others include funds collected in advance for such things as outstanding postal money orders and

undelivered Defense articles. SAA holds $89.1 billion and $85.6 billion as of September 30, 2018, and 2017, respectively for

articles and services for future delivery to foreign governments.

Employee-Related Liabilities

This category includes amounts owed to employees at year-end and actuarial liabilities for certain non-federal

employees. Actuarial liabilities for federal employees and veteran benefits are included in Note 12–Federal Employee and

Veteran Benefits Payable. The largest liability in the employee-related liabilities category is the amount owed at the end of

the fiscal year to federal employees for wages and benefits (including accrued annual leave). In addition, DOE is liable to

certain contractors for contractor employee pension and postretirement benefits, which is about $21.3 billion and $23.1

billion as of September 30, 2018 and 2017, respectively. Also, the government owed about $8.4 billion and $8.7 billion as of

September 30, 2018, and 2017 respectively, for estimated future pension benefits of the District of Columbia’s judges, police,

firefighters, and teachers.

International Monetary Liabilities and Gold Certificates

Consistent with U.S. obligations in the IMF on orderly exchange arrangements and a stable system of exchange rates,

the Secretary of the Treasury, with the approval of the President, may use the ESF to deal in gold, foreign exchange, and

other instruments of credit and securities. As of September 30, 2018, and 2017, other liabilities includes $49.3 billion and

$49.9 billion, respectively, of interest-bearing liability to the IMF for SDR allocations.

Gold certificates are issued in nondefinitive or book-entry form to the Federal Reserve Bank of New York (FRBNY).

The government’s liability incurred by issuing the gold certificates, as reported on the Balance Sheet, is limited to the gold

being held by Treasury at the standard value established by law. Upon issuance of gold certificates to the FRBNY, the

proceeds from the certificates are deposited into the operating cash of the U.S. government. All of the Treasury certificates

issued are payable to the FRBNY. Gold certificates were valued at $11.0 billion as of September 30, 2018, and 2017,

respectively.

See Note 2—Cash and Other Monetary Assets for additional information.

Subsidies and Grants

The government supports the public good through a wide variety of subsidy and grant programs in such areas as

agriculture, medical and scientific research, education, and transportation. USDA programs such as Conservation Reserve,

and Agricultural Risk Coverage and Price Loss Coverage account for the majority of the subsidies due, about $4.8 billion and

$8.9 billion as of September 30, 2018 and 2017, respectively.

The government awards hundreds of billions of dollars in grants annually. These include project grants that are

competitively awarded for entity-specific projects, such as HHS grants to fund projects to “enhance the independence,

productivity, integration, and inclusion into the community of people with developmental disabilities.” Other grants are

formula grants, such as matching grants. Formula grants go to state governments for such things as education and

transportation programs. These grants are paid in accordance with distribution formulas that have been provided by law or

administrative regulations. Of the total liability reported for grants as of September 30, 2018, and 2017, DOT, Education,

HHS and USDA collectively owed their grantees about $20.4 billion and $20.6 billion, respectively. Refer to the financial

statements of the respective entities for additional information.

Miscellaneous Liabilities

Some of the more significant liabilities included in this category are for (1) legal and other contingencies (see Note 18—

Contingencies), (2) Bonneville Power Administration liability to pay annual budgets of several power projects for its

electrical generating capacity, (3) payables upon return of securities loaned and (4) September 11th Victim Compensation

Fund. Certain HUD amounts have been restated. Refer to Note 1.U—Restatements for more information.

In addition, many federal entities reported relatively small amounts of miscellaneous liabilities that are not otherwise

classified.
115 NOTES TO THE FINANCIAL STATEMENTS

Note 17. Collections and Refunds of Federal Revenue

Collections of Federal Tax Revenue for the Year Ended September 30, 2018

Federal Tax Year to Which Collections Relate

Tax

Revenue Prior

(In billions of dollars) Collections 2018 2017 2016 Years

Individual income tax and tax 

withholdings ................................. 3,089.8 1,932.6 1,096.7 33.5 27.0

Corporate income taxes ................. 262.7 150.3 99.7 1.7 11.0

Excise taxes .................................. 98.5 73.3 24.9 0.1 0.2

Unemployment taxes ..................... 43.4 34.1 9.1 0.1 0.1

Customs duties .............................. 43.4 43.4 - - -

Estate and gift taxes ....................... 23.9 0.1 20.9 1.1 1.8

Railroad retirement taxes ................ 6.3 4.9 1.4 - -

Fines, penalties, interest, and other 

revenue ......................................... 7.2 7.1 0.1 - -

Subtotal 3,575.2 2,245.8 1,252.8 36.5 40.1

Less: amounts collected for nonfederal entities ............................... (0.5)

Total............................................ 3,574.7

Treasury is the government’s principal revenue-collecting entity. Collections of individual income and tax withholdings

include FICA/SECA and individual income taxes. These taxes are characterized as non-exchange revenue.

Excise taxes, also characterized as non-exchange revenue, consist of taxes collected for various items, such as airline

tickets, gasoline products, distilled spirits and imported liquor, tobacco, firearms, and others.

Tax and other revenues reported reflect the effects of tax expenditures which are special exclusions, exemptions,

deductions, tax credits, preferential tax rates, and tax deferrals that allow individuals and businesses to reduce taxes they may

otherwise owe. The Congressional Budget Act of 1974 (P.L. 93-344 or Budget Act) requires that a list of tax expenditures be

included in the annual Budget. Tax expenditures may be viewed as alternatives to other policy instruments, such as spending

or regulatory programs. For example, the government supports college attendance through both spending programs and tax

expenditures. The government uses Pell Grants to help low- and moderate-income students afford college and allows certain

funds used to meet college expenses to grow tax free in special college savings accounts.

Tax expenditures include deductions and exclusions which reduce the amount of income subject to tax. Examples are

the deduction for mortgage interest on personal residences and the exclusion of interest on state and local bonds. Tax

expenditures also include tax credits, which reduce tax liability dollar for dollar for the amount of credit. For example, the

child tax credit reduces liability by $2,000 per child for taxpayers eligible to use it fully. Other credits are targeted at business

activity, such as credits for producing electricity from renewable energy or the research and experimentation credit, which

encourages businesses in the U.S. to increase investment in research activities. In addition, tax expenditures include some

provisions that allow taxpayers to defer tax liability. Examples include provisions that allow immediate expensing or

accelerated depreciation of certain capital investments, and others that allow taxpayers to defer their tax liability, such as the

deferral of recognition of income on contributions to and income accrued within qualified retirement plans.

The Total Revenues reported in the Statement of Operations and Changes in Net Position and the related information

reported in this note, do not include explicit line items for tax expenditures, but the total revenue amounts and budget results

reflect the effect of these expenditures. Tax expenditures are discussed in this note, the unaudited MD&A, and in the

unaudited Other Information section of the Financial Report.

 
NOTES TO THE FINANCIAL STATEMENTS 116

Federal Tax Refunds Disbursed for the Year Ended September 30, 2018

Tax Year to Which Refunds Relate

Refunds Prior

(In billions of dollars) Disbursed 2018 2017 2016 Years

Individual income tax and tax 

withholdings .......................................... 401.4 54.4 307.9 29.8 9.3

Corporate income taxes.......................... 60.1 4.8 25.9 9.2 20.2

Excise taxes .......................................... 1.6 0.5 0.6 0.1 0.4

Unemployment taxes .............................. 0.1 - 0.1 - -

Customs duties ...................................... 1.9 1.1 0.3 0.2 0.3

Estate and gift taxes ............................... 1.0 - 0.3 0.4 0.3

Total ................................................... 466.1 60.8 335.1 39.7 30.5

Reconciliation of Revenue to Tax Collections for the Year

Ended September 30, 2018, and 2017

(In billions of dollars) 2018 2017

Consolidated revenue per the Statement of Operations and Changes in Net 

Position ............................................................................................................ 3,384.3 3,374.6

Tax refunds ....................................................................................................... 466.1 439.1

Earned income tax and child tax credit imputed revenue ...................................... (77.2) (79.1)

Other tax credits and accrual adjustments ........................................................... (56.8) (49.0)

Federal Insurance Contributions Act - Tax ........................................................... 22.7 21.9

Federal Reserve earnings .................................................................................. (70.8) (81.3)

Nontax-related fines and penalties reported by entities......................................... (79.8) (78.4)

Nontax-related earned revenue........................................................................... (13.8) (28.4)

Collections of federal tax revenue ....................................................................... 3,574.7 3,519.4

Consolidated revenue in the Statement of Operations and Changes in Net Position is presented on a modified cash basis,

net of tax refunds, and includes other non-tax related revenue. Earned Income Tax Credit, Child Tax Credit, and other tax

credits amounts (unaudited) are included in gross cost in the Statements of Net Cost. The FICA – Tax paid by federal

agencies is included in the Individual income and tax withholdings line in the Collections of federal tax revenue; however, it

is not reported on the Statement of Operations and Changes in Net Position as these collections are intragovernmental

revenue and eliminated in consolidation. The table above reconciles total revenue to federal tax collections.
117 NOTES TO THE FINANCIAL STATEMENTS

Collections of Federal Revenue for the Year Ended September 30, 2017

Federal Tax Year to Which Collections Relate

Tax

Revenue Prior

(In billions of dollars) Collections 2017 2016 2015 Years

Individual income tax and tax 

withholdings ..................................... 2,976.3 1,930.0 988.6 32.3 25.4

Corporate income taxes ...................... 338.6 218.6 108.9 1.8 9.3

Excise taxes ....................................... 89.4 66.7 22.5 - 0.2

Unemployment taxes .......................... 44.2 31.4 12.7 - 0.1

Customs duties................................... 34.9 34.9 - - -

Estate and gift taxes ........................... 23.8 0.2 20.9 1.0 1.7

Railroad retirement taxes .................... 6.0 4.6 1.4 - -

Fines, penalties, interest and other 

revenue ............................................. 6.6 6.5 0.1 - -

Subtotal........................................... 3,519.8 2,292.9 1,155.1 35.1 36.7

Less: amounts collected for nonfederal entities .................................... (0.4)

Total................................................ 3,519.4

Federal Tax Refunds Disbursed for the Year Ended September 30, 2017

Tax Year to Which Refunds Relate

Refunds Prior

(In billions of dollars) Disbursed 2017 2016 2015 Years

Individual income tax and tax 

withholdings ....................................... 389.2 46.3 306.4 27.8 8.7

Corporate income taxes ........................ 44.9 5.2 14.4 7.8 17.5

Excise taxes ......................................... 2.1 0.4 1.0 0.2 0.5

Unemployment taxes ............................ 0.1 - 0.1 - -

Customs duties..................................... 1.7 1.1 0.3 0.1 0.2

Estate and gift taxes ............................. 1.1 - 0.2 0.4 0.5

Total.................................................. 439.1 53.0 322.4 36.3 27.4
NOTES TO THE FINANCIAL STATEMENTS 118

Note 18. Contingencies

Financial Treatment of Loss Contingencies

Loss contingencies are existing conditions, situations, or set of circumstances involving uncertainty as to possible loss 

to an entity. The uncertainty will ultimately be resolved when one or more future events occur or fail to occur. The reporting

of loss contingencies depends on the likelihood that a future event or events will confirm the loss or impairment of an asset or 

the incurrence of a liability. When a loss contingency exists, the likelihood that the future event or events will confirm the 

loss or the incurrence of a liability can range from probable to remote. SFFAS No. 5, Accounting for Liabilities of the 

Federal Government, identifies the probability classifications used to assess the range for the likelihood of loss as probable, 

reasonably possible, and remote. Loss contingencies where a past event or exchange transaction has occurred, and where a 

future outflow or other sacrifice of resources is assessed as probable and measurable are accrued in the financial statements.

Loss contingencies that are assessed to be at least reasonably possible are disclosed in this note and loss contingencies that

are assessed as remote are not reported in the financial statements, nor disclosed in the notes. The following table provides 

criteria for how federal entities are to account for loss contingencies, based on the likelihood of the loss and measurability.

3

Likelihood of future 

outflow or other 

sacrifice of resources

Loss amount can be 

reasonably measured

Loss range can be

reasonably measured

Loss amount or range 

cannot be reasonably 

measured

Probable

Future confirming 

event(s) are more likely 

to occur than not.4

Accrue the liability. 

Report on Balance Sheet 

and Statement of Net 

Cost.

Accrue liability of best 

estimate or minimum 

amount in loss range if 

there is no best estimate, 

and disclose nature of 

contingency and range of 

estimated liability.

Disclose nature of 

contingency and include 

a statement that an 

estimate cannot be 

made.

Reasonably possible

Possibility of future

confirming event(s) 

occurring is more than 

remote and less than likely.

Disclose nature of 

contingency and 

estimated amount.

Disclose nature of 

contingency and 

estimated loss range.

Disclose nature of 

contingency and include 

a statement that an 

estimate cannot be 

made.

Remote

Possibility of future 

event(s) occurring is 

slight.

No action is required. No action is required. No action is required.

3 In addition, a third condition must be met to be a loss contingency: a past event or an exchange transaction must occur. 4 For pending or threatened litigation and unasserted claims, the future confirming event or events are considered “probable” if such events are likely to 

occur.
119 NOTES TO THE FINANCIAL STATEMENTS

The government is subject to loss contingencies that include insurance and litigation cases. These loss contingencies 

arise in the normal course of operations and their ultimate disposition is unknown. Based on information currently available,

however, it is management’s opinion that the expected outcome of these matters, individually or in the aggregate, will not 

have a material adverse effect on the financial statements, except for the insurance and litigation described in the following

section, which could have a material adverse effect on the financial statements.

Certain significant consolidation entities apply financial accounting and reporting standards issued by FASB, and such 

entities, as permitted by SFFAS No. 47, are consolidated into the U.S. government’s consolidated financial statements 

without conversion to financial and reporting standards issued by FASAB.5 Generally, under FASAB standards, a 

contingency is considered “probable” if the future event or events are more likely than not to occur. Under FASB standards, a

contingency is considered “probable” if the future event or events are likely to occur. “Likely to occur” is considered to be 

more certain than “more likely than not to occur.” Under both accounting frameworks, a contingency is considered 

“reasonably possible” if occurrence of the future event or events is more likely than remote, but less likely than “probable” 

(“probable” as defined within each corresponding accounting framework).

Insurance Contingencies

At the time an insurance policy is issued, a contingency arises. The contingency is the risk of loss assumed by the 

insurer, that is, the risk of loss from events that may occur during the term of the policy. The government has insurance 

contingencies that are reasonably possible in the amount of $185.4 billion as of September 30, 2018, and $253.1 billion as of

September 30, 2017. The major programs are identified below:

x PBGC reported $184.8 billion and $252.2 billion as of September 30, 2018, and 2017, respectively, for the estimated 

aggregate unfunded vested benefits exposure to the PBGC for private-sector single-employer and multiemployer 

defined benefit pension plans that are classified as a reasonably possible exposure to loss. The decrease in single 

employer program contingencies is primarily due to the decline in the number of companies with lower than 

investment grade bond ratings and/or credit scores, while the primary reason for the decrease in multiemployer 

program contingencies is due to 14 plans that are no longer classified as reasonably possible. Of these 14 plans, 12 

were removed due to improvements in the plans’ financial conditions, and the 2 remaining plans were reclassified to 

other categories. Please refer to the PBGC financial statements for further details.

x FDIC reported $0.3 billion and $0.6 billion as of September 30, 2018, and 2017, respectively, for identified 

additional risk in the financial services industry that could result in additional loss to the DIF should potentially 

vulnerable insured institutions ultimately fail. Actual losses, if any, will largely depend on future economic and 

market conditions.

Deposit Insurance

Deposit insurance covers all types of deposits received at insured financial institutions, including deposits in checking 

accounts, negotiable order of withdrawal accounts, savings accounts, money market deposit accounts, time deposits such as 

certificates of deposit, and official items issued by banks, such as cashier’s checks or money orders. The insurance covers the

balance of depositors’ accounts, dollar-for-dollar, including principal and any accrued interest through the date of the insured 

financial institution’s closing, up to the insurance limit. As a result, the government has the following exposure from 

federally-insured financial institutions:

x FDIC has estimated insured deposits of $7,376.6 billion as of September 30, 2018, and $7,092.0 billion as of 

September 30, 2017, for the DIF.

x NCUA has estimated insured shares of $1,132.5 billion as of September 30, 2018, and $1,080.9 billion as of 

September 30, 2017, for the NCUSIF.

5 Significant consolidation entities that apply FASB standards without conversion to FASAB standards are FDIC, NCUA, PBGC, FCSIC, TVA, Smithsonian 

Institution, NRRIT, and USPS.
NOTES TO THE FINANCIAL STATEMENTS 120

Legal Contingencies

 Legal contingencies as of September 30, 2018, and 2017, are summarized in the table below:

 

2018 2017

Estimated Range of Loss Estimated Range of Loss

for Certain Cases 2 for Certain Cases 2

Accrued Accrued

(In billions of dollars) Liabilities 1 Lower End Upper End Liabilities 1 Lower End Upper End

Legal contingencies:

Probable ............................ 11.0 10.5 12.4 7.4 6.8 8.6

Reasonably possible............ - 7.0 26.3 - 3.1 12.6

1 Accrued liabilities are recorded and presented in other liabilities on the Balance Sheet.

2 Does not reflect the total range of loss; many cases assessed as reasonably possible of an unfavorable outcome did not include

estimated losses that could be determined.

The government is party in various administrative proceedings, legal actions, and tort claims which may ultimately 

result in settlements or decisions adverse to the government.

Management and legal counsel have determined that it is “probable” that some of these actions will result in a loss to 

the government and the loss amounts are reasonably measurable. The estimated liabilities for “probable” cases against the 

government are $11.0 billion and $7.4 billion as of September 30, 2018, and 2017, respectively, and are included in “Other 

Liabilities” on the Balance Sheet. For example, the U.S. Supreme Court decision in Salazar v. Ramah Navajo Chapter, dated 

June 18, 2012, and subsequent cases related to contract support costs have resulted in increased claims against the Indian 

Health Service, which is a component within HHS. As a result of this decision, many tribes have filed claims. Some claims 

have been paid and others have been asserted but not yet settled. It is expected that some tribes will file additional claims for 

prior years.

There are also administrative claims and legal actions pending where adverse decisions are considered by management 

and legal counsel as “reasonably possible” with an estimate of potential loss or a range of potential loss. The estimated 

potential losses reported for such claims and actions range from $7.0 billion to $26.3 billion as of September 30, 2018, and 

from $3.1 billion to $12.6 billion as of September 30, 2017. For example, as of September 30, 2018, EPA has received 

approximately 403 total claims under the Federal Tort Claims Act from individuals and businesses situated on or near 

waterways affected by acid mine water released by Colorado’s Gold King Mine in August of 2015. The claims allege lost 

wages, loss of business income, agricultural and livestock losses, property damage, diminished property value, and personal 

injury. In addition, EPA has received claims from individuals under the Federal Tort Claims Act for alleged injuries and 

property damages caused by EPA’s alleged negligence related to the water health crisis in Flint, Michigan. The estimated 

losses related to the Gold King Mine and the water health crisis are $2.1 billion and $2.8 billion, respectively. EPA has 

determined there is a reasonably possible likelihood of unfavorable outcome for these cases. 

Numerous litigation cases are pending where the outcome is uncertain or it is reasonably possible that a loss has been 

incurred and where estimates cannot be made. There are other litigation cases where the plaintiffs have not made claims for 

specific dollar amounts, but the settlement may be significant. The ultimate resolution of these legal actions for which the 

potential loss could not be determined may materially affect the U.S. government’s financial position or operating results. An

example of a specific case is summarized below:

x A number of plaintiffs filed claims in the U.S. Court of Federal Claims requesting that Treasury redeem matured 

savings bonds not possessed by the applicable states, but which have registered owners with last known addresses in 

those states. Treasury informed the applicable states it would not redeem these savings bonds since those states are 

not registered owners of the bonds. On August 20, 2015, the U.S. Court of Federal Claims partially dismissed one 

claim and denied the U.S. government’s motion to dismiss with respect to other claims. On August 8, 2017, the 

court ruled in favor of two states, and the U.S. government has appealed. At this time, the government is unable to 

determine the likelihood of an unfavorable outcome or make an estimate of potential loss.
121 NOTES TO THE FINANCIAL STATEMENTS

Environmental and Disposal Contingencies

Environmental and disposal contingencies as of September 30, 2018, and 2017, are summarized in the table below:

2018 2017

Estimated Range of Loss Estimated Range of Loss

for Certain Cases 2 for Certain Cases 2

Accrued Accrued

(In billions of dollars) Liabilities 1 Lower End Upper End Liabilities 1 Lower End Upper End

Environmental and 

disposal contingencies:

Probable ............................ 30.2 29.5 31.4 28.4 27.7 29.5

Reasonably possible............ - 0.6 0.8 - 0.7 1.5

1 Accrued liabilities are recorded and presented in other liabilities on the Balance Sheet.

2 Does not reflect the total range of loss; many cases assessed as reasonably possible of an unfavorable outcome did not include

estimated losses that could be determined.

The government is subject to loss contingencies for a variety of environmental cleanup costs for the storage and 

disposal of hazardous material as well as the operations and closures of facilities at which environmental contamination may 

be present.

Management and legal counsel have determined that it is “probable” that some of these actions will result in a loss to 

the government and the loss amounts are reasonably measurable. The estimated liabilities for these cases are $30.2 billion 

and $28.4 billion as of September 30, 2018, and 2017, respectively, and are included in “Other Liabilities” on the Balance 

Sheet.

In accordance with the Nuclear Waste Policy Act of 1982 (NWPA), DOE entered into more than 68 standard contracts 

with utilities in which, in return for payment of fees into the Nuclear Waste Fund, DOE agreed to begin disposal of spent 

nuclear fuel (SNF) by January 31, 1998. Because DOE has no facility available to receive SNF under the NWPA, it has been 

unable to begin disposal of the utilities’ SNF as required by the contracts. Therefore, DOE is subject to significant SNF 

litigation claiming damages for partial breach of contract as a result of this delay. Based on settlement estimates, the total

liability estimate as of September 30, 2018 is $35.5 billion. After deducting the cumulative amount paid of $7.4 billion as of 

September 30, 2018 under settlements, and as a result of final judgments, the remaining liability is estimated to be 

approximately $28.1 billion, compared to approximately $27.2 billion as of September 30, 2017. In addition to its SNF 

litigation, a number of class action and/or multiple plaintiff tort suits have been filed against current and former DOE 

contractors in which the plaintiffs seek damages for alleged exposures to radioactive and/or toxic substances as a result of the 

historic operations of DOE’s nuclear facilities. Collectively, damages in excess of $1.1 billion are currently being sought in

these cases. 

Other Contingencies

DOT, HHS, and Treasury reported the following other contingencies:

x The Federal Highway Administration (FHWA) preauthorizes states to establish construction budgets without having 

received appropriations from Congress for such projects. FHWA has authority to approve projects using advance 

construction under 23 U.S.C. 115(a). FHWA does not guarantee the ultimate funding to the states for these “advance 

construction” projects and, accordingly, does not obligate any funds for these projects. When funding becomes 

available to FHWA, the states can then apply for reimbursement of costs that they have incurred on such projects, at 

which time FHWA can accept or reject such requests. As of September 30, 2018, and 2017, FHWA has preauthorized $60.8 billion and $55.2 billion, respectively, under these arrangements. Congress has not provided 

appropriations for these projects and no liability is accrued in the DOT consolidated financial statements.

x Contingent liabilities have been established as a result of Medicaid audit and program disallowances that are 

currently being appealed by the states. The Medicaid amounts are $6.3 billion and $12.2 billion for fiscal years 

ending September 30, 2018, and 2017, respectively. The states could return the funds through payments to HHS, or 
NOTES TO THE FINANCIAL STATEMENTS 122

HHS could recoup the funds by reducing future grant awards to the states. Conversely, if the appeals are decided in 

favor of the states, HHS will be required to pay these amounts. In addition, certain amounts for payment have been 

deferred under the Medicaid program when there is reasonable doubt as to the legitimacy of expenditures claimed by 

a state. There are also outstanding reviews of the state expenditures in which a final determination has not been 

made.

x As part of an annual process, Treasury assesses the need to estimate and accrue a contingent liability to the GSEs to 

reflect the forecasted equity deficits of the GSEs. Based on this assessment, it was estimated there were no probable 

future funding draws as of September 30, 2018, and 2017, and therefore, no contingent liability was accrued. 

However, as of September 30, 2018, it is reasonably possible that market volatility or non-recurring events—for 

instance, changes to accounting policies that impact credit loss provisions—could potentially cause the GSEs to 

generate quarterly losses and, therefore, result in future funding draws against Treasury’s funding commitment. Due 

to challenges quantifying future market volatility or the timing, magnitude, and likelihood of non-recurring events, 

an estimate of the total amount of this reasonably possible future funding liability could not be made as of 

September 30, 2018. See Note 8—Investments in Government-Sponsored Enterprises for further information.

Treaties and Other International Agreements

The government is a party to treaties and other international agreements. These treaties and other international 

agreements address various issues including, but not limited to, trade, commerce, security, and law enforcement that may 

involve financial obligations or give rise to possible exposure to losses. When a contingency originates from the U.S. 

government’s involvement in a treaty or other international agreement, the responsible reporting entity must establish a 

contingent liability, include a required note disclosure to its financial statements, or both, in accordance with guidance in

SFFAS No. 5, as amended. A review of potential contingent liabilities arising from litigation related to treaties and other 

international agreements has been conducted by U.S. government entities. This entity-level review, along with any resulting 

relevant information, is captured and reported in the annual legal representation letter process and, if applicable, disclosed in 

the Legal Contingencies section of this note. 
123 NOTES TO THE FINANCIAL STATEMENTS

Note 19. Commitments

Long-Term Operating Leases as of September 30, 2018, and 2017

(In billions of dollars) 2018 2017

General Services Administration ................................................................. 21.6 22.4

U.S. Postal Service .................................................................................... 3.5 7.6

Department of State................................................................................... 1.4 1.6

Department of Defense .............................................................................. 0.9 1.0

Department of Health and Human Services ................................................. 0.8 1.0

Other operating leases ............................................................................... 3.9 3.5

Total long-term operating leases ............................................................. 32.1 37.1

The government has entered into contractual commitments that require future use of financial resources. It has

significant amounts of long-term lease obligations.

Undelivered Orders and Other Commitments as of September 30, 2018, and 2017

Restated

(In billions of dollars) 2018 2017

Undelivered Orders:

Department of Defense .............................................................................. 319.8 263.8

Security Assistance Accounts..................................................................... 168.4 140.8

Department of Education............................................................................ 132.7 128.1

Department of Health and Human Services ................................................. 122.7 114.2

Department of Transportation..................................................................... 110.5 103.7

Department of Agriculture .......................................................................... 58.3 62.0

Department of Housing and Urban Development ......................................... 48.9 39.1

Department of Homeland Security .............................................................. 42.3 37.9

Department of Energy................................................................................ 27.0 22.8

Department of State................................................................................... 24.0 21.8

U.S. Agency for International Development ................................................. 17.4 17.9

All other entities......................................................................................... 126.6 126.0

Total undelivered orders .......................................................................... 1,198.6 1,078.1

Other Commitments:

GSE Senior Preferred Stock Purchase Agreements..................................... 254.1 258.1

U.S. Participation in the International Monetary Fund ................................... 154.9 157.0

Callable Capital Subscriptions for Multilateral Development Banks................ 121.1 120.6

All other commitments ............................................................................... 22.4 30.0

Total other commitments ......................................................................... 552.5 565.7
NOTES TO THE FINANCIAL STATEMENTS 124

Undelivered Orders and Other Commitments 

Undelivered Orders

Undelivered orders represent the value of goods and services ordered that have not yet been received. As of September 

30, 2018, and 2017, DOD reported undelivered orders of $319.8 billion and $263.8 billion, respectively. The $56.0 billion 

increase primarily resulted from an increase in activity (available budgetary resources) and continued refinement of 

estimation methods used in the classification of non-federal undelivered orders. 

Certain amounts related to DOJ have been restated. Refer to Note 1.U—Restatements for more information.

GSE Senior Preferred Stock Purchase Agreements

At September 30, 2018 and 2017, the maximum remaining potential commitment to the GSEs for the remaining life of 

the SPSPAs was $254.1 billion and $258.1 billion, respectively, which was established on December 31, 2012. Refer to Note 

8—Investments in Government-Sponsored Enterprises for a full description of the SPSPAs related commitments and 

contingent liability, if any, as well as additional information.

U.S. Participation in the International Monetary Fund

The government participates in the IMF through a quota subscription and certain borrowing arrangements that 

supplement IMF resources. As of September 30, 2018, and 2017, the financial commitment under the U.S. quota and 

borrowing arrangements was $154.9 billion and $157.0 billion, respectively. Refer to Note 2—Cash and Other Monetary 

Assets for more information regarding the U.S. participation in the IMF.

Callable Capital Subscriptions for Multilateral Development Banks

The government has callable subscriptions in certain MDBs, which are international financial institutions that finance 

economic and social development projects in developing countries. Callable capital in the MDBs serves as a supplemental 

pool of resources that may be redeemed and converted into ordinary paid in shares, if the MDB cannot otherwise meet certain 

obligations through its other available resources. MDBs are able to use callable capital as backing to obtain favorable 

financing terms when borrowing from international capital markets. To date, there has never been a call on this capital at any

MDBs and none is anticipated. As of September 30, 2018, and 2017, the capital commitment to MDBs was $121.1 billion 

and $120.6 billion, respectively. 

All Other Commitments

Certain amounts related to Treasury have been restated. Refer to Note 1.U—Restatements for more information.

Other Risks

Terrorism Risk Insurance Program

Congress originally enacted the Terrorism Risk Insurance Act in November 2002 to address market disruptions 

resulting from terrorist attacks on September 11, 2001. Most recently, the Terrorism Risk Insurance Program 

Reauthorization Act of 2015 extended the Terrorism Risk Insurance Program (TRIP) until December 31, 2020. The TRIP 

helps to ensure available and affordable commercial property and casualty insurance for terrorism risk, and simultaneously 

allows private markets to stabilize. The authority to pay claims under the TRIP Program is activated when the Secretary of 

the Treasury (in consultation with the Secretary of the Department of Homeland Security and the U.S. Attorney General) 

certifies an “act of terrorism.” In the event of certification of an “act of terrorism” insurers may be eligible to receive 

reimbursement from the U.S. government for associated insured losses assuming an aggregate insured loss threshold 

(“program trigger”) has been reached once a particular insurer has satisfied its designated deductible amount. For calendar 

years 2018 and 2017, the program trigger amount was $160.0 million and $140.0 million, respectively. This amount will 

increase by $20.0 million annually through calendar year 2020. Insured losses above insurer deductibles will be shared 

between insurance companies and the U.S. government. The TRIP includes both mandatory and discretionary authority for 

Treasury to recoup federal payments made under the TRIP through policyholder surcharges under certain circumstances, and 

contains provisions designed to manage litigation arising from or relating to a certified act of terrorism. There were no claims 

under the TRIP as of September 30, 2018 or 2017.
125 NOTES TO THE FINANCIAL STATEMENTS

U.S. Contributions to International Organizations

The U.S. government enters into agreements to pay future contributions to international organizations in which it 

participates as a member. These contributions may include financial and in-kind support, including assessed contributions, 

voluntary contributions, grants, and other assistance to international organizations. Following are examples of international

organizations and their underlying missions which are supported by U.S. contributions:

x Office of the United Nations High Commissioner for Refugees, which supports annual and supplementary appeals 

for Africa, East Asia, Europe, Near East, South Asia, and the Western Hemisphere, as well as protection activities, 

refugee resettlement, and the global HIV/AIDS initiative;

x International Committee of the Red Cross, which aids in annual emergency and budget extension appeals for Africa, 

East Asia, Europe, Near East, South Asia, and the Western Hemisphere to support protection and assistance for 

conflict-affected populations;

x International Organization for Migration, which supports migration programs and the U.S. Refugee Assistance 

Program;

x North Atlantic Treaty Organization, which promotes conflict prevention and peaceful resolution of disputes;

x United Nations, which enables the world’s nations to work together toward freedom, democracy, peace, and human

rights;

x World Food Program, which provides emergency nutrition programming;

x Global Environment Facility, which is a multilateral trust fund that provides grants for global environmental 

projects;

x Green Climate Fund, established to support the efforts of developing countries to respond to the challenge of climate 

change;

x United Nations Children’s Fund, which promotes humanitarian and developmental assistance to children and 

mothers in developing countries; and

x World Health Organization, which provides support for collaborative efforts in a wide range of health-related 

activities, including infectious diseases, maternal and child health, family planning, safe motherhood, newborn 

health, reproductive health, environmental health, and HIV/AIDS.
NOTES TO THE FINANCIAL STATEMENTS 126

Note 20. Funds from Dedicated Collections

Funds from Dedicated Collections as of September 30, 20181

Federal Federal

Hospital Supplementary

Federal Insurance Federal Medical All Other Total 

Old-Age and Trust Disability Insurance Funds Funds from 

Survivors Fund Insurance Trust Fund from Dedicated

Insurance (Medicare Trust (Medicare Dedicated Collections 

(In billions of dollars) Trust Fund Part A) Fund Parts B and D) Collections (Combined)

Assets:

Cash and other monetary assets........ - - - - 65.9 65.9

Fund balance with Treasury ............. (0.2) 1.6 (0.3) 25.8 149.9 176.8

Investments in U.S. Treasury 

securities, net of unamortized 

premiums/discounts ...................... 2,801.3 202.8 93.4 98.2 272.1 3,467.8

Other federal assets ..................... 19.9 38.7 0.7 35.9 24.6 119.8

Non-federal assets ....................... 2.6 1.2 5.1 17.4 110.9 137.2

Total assets ............................. 2,823.6 244.3 98.9 177.3 623.4 3,967.5

Liabilities and net position:

Due and payable to beneficiaries ....... 75.3 31.5 25.1 30.7 2.1 164.7

Other federal liabilities ................... 5.6 39.6 0.9 42.6 66.5 155.2

Other non-federal liabilities .............. - 1.1 - 0.8 183.7 185.6

Total liabilities ........................... 80.9 72.2 26.0 74.1 252.3 505.5

Total net position ....................... 2,742.7 172.1 72.9 103.2 371.1 3,462.0

Total liabilities and net position .... 2,823.6 244.3 98.9 177.3 623.4 3,967.5

Change in net position:

Beginning net position ................... 2,766.6 178.4 46.3 98.6 329.6 3,419.5

Adjustments to beginning net position . - - - - 2.6 2.6

Beginning net position, adjusted ..... 2,766.6 178.4 46.3 98.6 332.2 3,422.1

Investment revenue....................... 81.1 7.2 2.4 2.4 5.4 98.5

Individual income taxes .................. 706.1 264.6 167.0 - - 1,137.7

Other taxes and miscellaneous earned 

revenue..................................... - 0.6 - 4.1 138.5 143.2

Other changes in fund balance (e.g., 

appropriations, transfers) ................ 26.3 23.5 (1.6) 312.8 11.8 372.8

Total financing sources ................ 813.5 295.9 167.8 319.3 155.7 1,752.2

Program gross costs and non-program 

expenses................................... 837.4 306.2 141.2 411.0 171.5 1,867.3

Less: program revenue................... - (4.0) - (96.3) (54.7) (155.0)

Net cost.................................. 837.4 302.2 141.2 314.7 116.8 1,712.3

Ending net position ................. 2,742.7 172.1 72.9 103.2 371.1 3,462.0

1By law, certain expenses (costs), revenues, and other financing sources related to the administration of the above funds are not charged

to the funds and are therefore financed and/or credited to other sources.
127 NOTES TO THE FINANCIAL STATEMENTS

Funds from Dedicated Collections as of September 30, 2017 (Restated)1

Federal Federal

Hospital Supplementary

Federal Insurance Federal Medical All Other Total

Old-Age and Trust Disability Insurance Funds Funds from

Survivors Fund Insurance Trust Fund from Dedicated

Insurance (Medicare Trust (Medicare Dedicated Collections

(In billions of dollars) Trust Fund Part A) Fund Parts B and D) Collections (Combined)

Assets:

Cash and other monetary assets........ - - - - 65.0 65.0

Fund balance with Treasury ............. (0.1) 0.8 (0.2) 27.5 139.2 167.2

Investments in U.S. Treasury 

securities, net of unamortized 

premiums/discounts ...................... 2,820.2 197.8 69.7 70.6 271.6 3,429.9

Other federal assets ...................... 20.4 37.9 0.5 36.0 18.5 113.3

Non-federal assets........................ 2.5 11.7 4.8 39.0 112.1 170.1

Total assets ............................. 2,843.0 248.2 74.8 173.1 606.4 3,945.5

Liabilities and net position: 

Due and payable to beneficiaries ....... 71.3 30.1 27.4 30.6 14.8 174.2

Other federal liabilities.................... 5.1 38.6 1.1 43.2 72.6 160.6

Other non-federal liabilities .............. - 1.1 - 0.7 189.4 191.2

Total liabilities ........................... 76.4 69.8 28.5 74.5 276.8 526.0

Total net position ....................... 2,766.6 178.4 46.3 98.6 329.6 3,419.5

Total liabilities and net position..... 2,843.0 248.2 74.8 173.1 606.4 3,945.5

ok

Change in net position: 

Beginning net position .................... 2,746.4 174.1 20.8 94.5 338.5 3,374.3

Adjustments to beginning net position.. - - - - 0.2 0.2

Beginning net position, adjusted...... 2,746.4 174.1 20.8 94.5 338.7 3,374.5

Investment revenue....................... 84.1 7.4 1.7 2.4 4.0 99.6

Individual income taxes .................. 702.1 259.7 166.0 - - 1,127.8

Other taxes and miscellaneous earned 

revenue..................................... - 0.5 - 4.2 142.3 147.0

Other changes in fund balance (e.g., 

appropriations, transfers)................. 27.7 23.4 (0.8) 278.0 (1.1) 327.2

Total financing sources ................ 813.9 291.0 166.9 284.6 145.2 1,701.6

Program gross cost and non-program 

expenses................................... 793.7 290.8 141.4 366.1 205.4 1,797.4

Less: program revenue .................. - (4.1) - (85.6) (51.1) (140.8)

Net cost.................................. 793.7 286.7 141.4 280.5 154.3 1,656.6

Ending net position................... 2,766.6 178.4 46.3 98.6 329.6 3,419.5

1By law, certain expenses (costs), revenues, and other financing sources related to the administration of the above funds are not charged

to the funds and are therefore financed and/or credited to other sources. 

Generally, funds from dedicated collections are financed by specifically identified revenues, often supplemented by 

other financing sources, provided to the government by non-federal sources, which remain available over time. These 

specifically identified revenues and other financing sources are required by statute to be used for designated activities, 

benefits, or purposes and must be accounted for separately from the government’s general revenues. Funds from dedicated 

collections generally include trust funds, public enterprise revolving funds (not including credit reform financing funds), and 
NOTES TO THE FINANCIAL STATEMENTS 128

special funds. Funds from dedicated collections specifically exclude any fund established to account for pensions, ORB, 

OPEB, or other benefits provided for federal employees (civilian and military). In the federal budget, the term “trust fund” 

means only that the law requires a particular fund be accounted for separately, used only for a specified purpose, and 

designated as a trust fund. A change in law may change the future receipts and the terms under which the fund’s resources are

spent. In the private sector, trust fund refers to funds of one party held and managed by a second party (the trustee) in a 

fiduciary capacity. The activity of funds from dedicated collections differs from fiduciary activities primarily in that assets 

within funds from dedicated collections are government-owned. For further information related to fiduciary activities, see 

Note 21—Fiduciary Activities.

Public enterprise revolving funds include expenditure accounts authorized by law to be credited with offsetting 

collections, mostly from the public, that are generated by and dedicated to finance a continuing cycle of business-type 

operations. Some of the financing for these funds may be from appropriations.

Special funds are federal funds dedicated by law for a specific purpose. Special funds include the special fund receipt

account and the special fund expenditure account.

The tables above depict major funds from dedicated collections chosen based on their significant financial activity and 

importance to taxpayers. All other government funds from dedicated collections not shown separately are aggregated as “all 

other.”

Total assets represent the unexpended balance from all sources of receipts and amounts due to the funds from dedicated 

collections, regardless of source, including related governmental transactions. These are transactions between two different 

entities within the government (for example, monies received by one entity of the government from another entity of the 

government).

The intragovernmental assets are comprised of fund balances with Treasury, investments in Treasury securities—

including unamortized amounts, and other assets that include the related accrued interest receivable on federal investments. 

These amounts were eliminated in preparing the principal financial statements. The non-federal assets represent only the 

activity with individuals and organizations outside of the government.

Most of the assets within funds from dedicated collections are invested in intragovernmental debt holdings. The 

government does not set aside assets to pay future benefits or other expenditures associated with funds from dedicated 

collections. The cash receipts collected from the public for funds from dedicated collections are deposited in the General 

Fund, which uses the cash for general government purposes. Treasury securities are issued to federal entities as evidence of 

its receipts. Treasury securities are an asset to the federal entities and a liability to the U.S. Treasury and, therefore, they do 

not represent an asset or a liability in the Financial Report. These securities require redemption if a fund’s disbursements

exceeds its receipts. Redeeming these securities will increase the government’s financing needs and require more borrowing 

from the public (or less repayment of debt), or will result in higher taxes than otherwise would have been needed, or less 

spending on other programs than otherwise would have occurred, or some combination thereof. See Note 11—Federal Debt 

Securities Held by the Public and Accrued Interest for further information related to the investments in federal debt securities.

Depicted below is a description of the major funds from dedicated collections shown in the above tables, which also 

identifies the government entities that administer each particular fund. For detailed information regarding these funds from 

dedicated collections, please refer to the financial statements of the corresponding administering entities. For information on 

the benefits due and payable liability associated with certain funds from dedicated collections, see Note 14—Benefits Due 

and Payable.

Federal Old-Age and Survivors Insurance Trust Fund

The Federal Old-Age and Survivors Insurance (OASI) Trust Fund, administered by the SSA, provides retirement and 

survivors benefits to qualified workers and their families.

Payroll and self-employment taxes primarily fund the OASI Trust Fund. Interest earnings on Treasury securities, federal 

entities’ payments for the Social Security benefits earned by military and federal civilian employees, and Treasury payments for 

a portion of income taxes collected on Social Security benefits provide the fund with additional income. The law establishing the 

OASI Trust Fund and authorizing the depositing of amounts to the credit of the fund is set forth in 42 U.S.C. § 401.
129 NOTES TO THE FINANCIAL STATEMENTS

Federal Hospital Insurance Trust Fund

(Medicare Part A)

The Federal Hospital Insurance (HI) Trust Fund, administered by HHS, finances the HI (Medicare Part A). This 

program funds the cost of inpatient hospital and related care for individuals age 65 or older who meet certain insured status 

requirements and individuals younger than age 65 with certain disabilities. 

The HI Trust Fund is financed primarily by payroll taxes, including those paid by federal entities. It also receives 

income from interest earnings on Treasury securities, a portion of income taxes collected on Social Security benefits, 

premiums paid by, or on behalf of, aged uninsured beneficiaries, and receipts from fraud and abuse control activities. Section

1817 of the Social Security Act established the Medicare Hospital Trust Fund.

Federal Disability Insurance Trust Fund

The Federal Disability Insurance (DI) Trust Fund, administered by SSA, provides assistance and protection against the 

loss of earnings due to a wage earner’s disability in form of monetary payments. 

Like the OASI Trust Fund, payroll taxes primarily fund the DI Trust Fund. The fund also receives income from interest 

earnings on Treasury securities, federal entities’ payments for the Social Security benefits earned by military and federal 

civilian employees, and Treasury payments for a portion of income taxes collected on Social Security benefits. The law 

establishing the DI Trust Fund and authorizing the depositing of amounts to the credit of the fund is set forth in 42 U.S.C. §

401.

Federal Supplementary Medical Insurance Trust Fund

(Medicare Parts B and D)

The Federal SMI Trust Fund, administered by HHS, finances the SMI Program (Medicare Part B) and the Medicare 

Prescription Drug Benefit Program (Medicare Part D). These programs provide supplementary medical insurance for enrolled 

eligible participants to cover physician and outpatient services not covered by Medicare Part A and to obtain qualified 

prescription drug coverage, respectively. Medicare Part B financing is not based on payroll taxes; it is primarily based on 

monthly premiums, income from the General Fund, and interest earnings on Treasury securities. The Medicare SMI Trust 

Fund was established by Section 1841 of the Social Security Act.

Medicare Part D was created by the Medicare Modernization Act of 2003 (P.L. No. 108-173). Medicare Part D 

financing is similar to Part B; it is primarily based on monthly premiums and income from the General Fund, not on payroll 

taxes. The fund also receives transfers from states. 

All Other Funds from Dedicated Collections

The government is responsible for the management of numerous funds from dedicated collections that serve a wide 

variety of purposes. The funds from dedicated collections presented on an individual basis in the above tables represent the 

majority of the government’s net position attributable to funds from dedicated collections. All other activity attributable to

funds from dedicated collections is aggregated in accordance with SFFAS No. 27, Identifying and Reporting Funds from 

Dedicated Collections, as amended by SFFAS No. 43, Funds from Dedicated Collections: Amending Statement of Federal 

Financial Accounting Standards 27, Identifying and Reporting Earmarked Funds. The funds from dedicated collections 

within the “all other” aggregate, along with the entities that administer them, include the following:

x Highway Trust Fund and Airport and Airway Trust Fund—administered by DOT.

x Unemployment Trust Fund (UTF) and Black Lung Disability Trust Fund (BLDTF)—administered by DOL.

x Land and Water Conservation Fund, Reclamation Fund, and Water and Related Resources Fund—administered by 

DOI.

x ESF—administered by Treasury.

x NFIP—administered by DHS. 
NOTES TO THE FINANCIAL STATEMENTS 130

x Railroad Retirement Trust Fund—administered by RRB. 

x Uranium Enrichment Decontamination and Decommissioning Fund—administered by DOE.

x Government National Mortgage Association—administered by HUD.

x Crime Victims Fund—administered by DOJ.

x Harbor Maintenance Trust Fund—administered by DOD.

In accordance with SFFAS No. 43, any funds established to account for pension, other retirement, or other postemployment benefits to civilian or military personnel are excluded from the reporting requirements related to funds from 

dedicated collections. 

Smithsonian Institution comprised the $2.6 billion adjustment to beginning net position for fiscal year 2018. Gulf Coast 

Ecosystem Restoration Council and HUD contributed to the $0.2 billion in adjustments to beginning net position for fiscal 

year 2017. Refer to Note 1.S—Adjustments to Beginning Net Position for more information. Certain amounts related to HUD 

have been restated. Refer to Note 1.U—Restatements for more information.

Other Taxes and Miscellaneous Earned Income

Unemployment Taxes

The UTF, within the “all other” aggregate, represents all the unemployment tax revenues attributable to funds from 

dedicated collections shown on the consolidated Statement of Operations and Changes in Net Position.

The UTF provides temporary assistance to workers who lose their jobs. The program is administered through a unique 

system of federal and state partnerships, established in federal law, but executed through conforming state laws by state 

officials. DOL administers the federal operations of the program. 

Employer taxes provide the primary funding source for the UTF and constitute the largest portion of unemployment tax 

revenues attributable to funds from dedicated collections as shown on the consolidated Statement of Operations and Changes 

in Net Position. However, interest earnings on Treasury securities also provide income to the fund. For the years ending 

September 30, 2018, and 2017, UTF unemployment tax revenues were $43.2 billion and $44.1 billion, respectively. 

Appropriations have supplemented the fund’s income during periods of high and extended unemployment. The UTF was 

established under the authority of Section 904 of the Social Security Act of 1935.

Excise Taxes

There are 9 funds from dedicated collections within the “all other” aggregate that represent 94 percent of the dedicated 

excise tax revenue attributable to funds from dedicated collections shown on the consolidated Statement of Operations and 

Changes in Net Position. The Highway Trust Fund and the Airport and Airway Trust Fund, combined, represent 96 percent 

of the “all other” dedicated excise tax revenues. Both of these funds are administered by the DOT. For more information, 

please refer to DOT’s financial statements.

The Highway Trust Fund was established to promote domestic interstate transportation and to move people and goods. 

The fund provides federal grants to states for highway construction, certain transit programs, and related transportation 

purposes. The Highway Trust Fund was created by the Highway Revenue Act of 1956. Funding sources include designated 

excise taxes on gasoline and other fuels, the initial sale of heavy trucks, and highway use by commercial motor vehicles. For 

the years ending September 30, 2018, and 2017, Highway Trust Fund excise tax revenues were $42.6 billion and $41.0 

billion, respectively. As funds are needed for payments, the Highway Trust Fund corpus investments are liquidated and funds 

are transferred to the FHWA, the Federal Transit Administration, or other DOT entities, for payment of obligations.

The Airport and Airway Trust Fund provides for airport improvement and airport facilities maintenance. It also funds 

airport equipment, research, and a portion of the Federal Aviation Administration’s administrative operational support. The 

Airport and Airway Trust Fund was authorized by the Airport and Airway Revenue Act of 1970. Funding sources include 

aviation-related excise tax collections from:

x Passenger tickets,

x Passenger flight segments,

x International arrival/departures,

x Cargo waybills, and 

x Aviation fuels. 

For the years ending September 30, 2018, and 2017, Airport and Airway Trust Fund excise tax revenues were $15.8 billion 

and $15.1 billion, respectively.
131 NOTES TO THE FINANCIAL STATEMENTS

Miscellaneous Earned Revenues

Miscellaneous earned revenues due to activity attributable to funds from dedicated collections primarily related to 

royalties retained by various funds within DOI.
NOTES TO THE FINANCIAL STATEMENTS 132

Note 21. Fiduciary Activities

Fiduciary activities are the collection or receipt, and the management, protection, accounting, investment and

disposition by the government of cash or other assets in which non-federal individuals or entities have an ownership interest

that the government must uphold. Fiduciary cash and other assets are not assets of the government and are not recognized on

the consolidated Balance Sheet. Examples of the government’s fiduciary activities include the TSP, which is administered by

the FRTIB, and the Indian Tribal and individual Indian Trust Funds, which are administered by the DOI.

Schedule of Fiduciary Net Assets as of September 30, 2018, and 2017

(In billions of dollars) 2018 2017

Thrift Savings Plan ..................................................................................... 589.0 531.5

Department of the Interior ........................................................................... 5.4 5.2

All other ..................................................................................................... 5.2 6.6

Total fiduciary net assets .......................................................................... 599.6 543.3

In accordance with the requirements of SFFAS No. 31, Accounting for Fiduciary Activities, fiduciary investments in

Treasury securities and fund balance with Treasury held by fiduciary funds are to be recognized on the Balance Sheet as debt

held by the public and a liability for fiduciary fund balance with Treasury, respectively.

As of September 30, 2018, total fiduciary investments in Treasury securities and in non-Treasury securities are $250.3

billion and $363.0 billion, respectively. As of September 30, 2017, total fiduciary investments in Treasury securities and in

non-Treasury securities were $223.7 billion and $317.9 billion, respectively. Refer to Note 11—Federal Debt Securities Held

by the Public and Accrued Interest for more information on the Treasury securities.

As of September 30, 2018, and 2017, the total fiduciary fund balance with Treasury is $1.8 billion and $1.2 billion,

respectively. A liability for this fiduciary fund balance with Treasury is reflected as other miscellaneous liabilities in Note

16—Other Liabilities.

As of September 30, 2018, and 2017, collectively, the fiduciary investments in Treasury securities and fiduciary fund

balance with Treasury held by all government entities represent $6.6 billion and $7.0 billion, respectively, of unrestricted

cash included within cash held by Treasury for governmentwide operations shown in Note 2—Cash and Other Monetary

Assets.

Thrift Savings Plan

The Thrift Savings Fund (TSF) maintains and holds in trust the assets of the TSP. The TSP is administered by an

independent government entity, the FRTIB, which is charged with operating the TSP prudently and solely in the interest of

the participants and their beneficiaries.

The TSP is a retirement savings and investment plan for federal employees and members of the uniformed services. It

was authorized by the U.S. Congress in the Federal Employees’ Retirement System Act of 1986. The Plan provides federal

employees and members of the uniformed services with a savings and tax benefit similar to what many private sector

employers offer their employees under 401(k) plans. The Plan was primarily designed to be a key part of the retirement

package (along with a basic annuity benefit and Social Security) for employees who are covered by FERS.

As of September 30, 2018, and 2017, the TSP held $589.0 billion and $531.5 billion, respectively, in net assets, which

included $245.5 billion and $217.9 billion, respectively, of Treasury securities. The TSF combines the net assets of the TSP

and the FRTIB in its financial statements. Only the TSP net assets of the TSF financial statements are disclosed in this note.

The most recent audited financial statements for the TSF are as of December 31, 2017, and 2016. For further information

about FRTIB and the TSP, please refer to the FRTIB website at https://www.frtib.gov.
133 NOTES TO THE FINANCIAL STATEMENTS

DOI–Indian Trust Funds

As stated above, DOI has responsibility for the assets held in trust on behalf of American Indian Tribes and individuals.

DOI maintains accounts for Tribal and Other Trust Funds (including the Alaska Native Escrow Fund) and Individual Indian

Monies (IIM) Trust Funds in accordance with the American Indian Trust Fund Management Reform Act of 1994. The

fiduciary balances that have accumulated in these funds have resulted from land use agreements, royalties on natural resource

depletion, other proceeds derived directly from trust resources, judgment awards, settlements of claims, and investment

income. These funds are maintained for the benefit of individual Native Americans as well as for designated Indian tribes.

DOI maintains separate financial statements for these trust funds, which are prepared using a cash or modified cash basis of

accounting, a comprehensive basis of accounting other than GAAP. The independent auditors’ reports on the Tribal and

Other Trust Funds were qualified as it was not practical to extend audit procedures sufficiently to satisfy themselves as to the

fairness of the trust fund balances. The IIM Trust Funds received an unmodified opinion from the auditors. As of September

30, 2018, and 2017, the DOI held $5.4 billion and $5.2 billion, respectively, in net assets. For further information related to

these assets, please refer to the DOI website at https://www.doi.gov.

All Other Entities with Fiduciary Activities

The government is responsible for the management of other fiduciary net assets on behalf of various non-federal

entities. The component entities presented individually in the table on the previous page represent the vast majority of the

government’s fiduciary net assets. All other component entities with fiduciary net assets are aggregated in accordance with

SFFAS No. 31. As of September 30, 2018, and 2017, including TSP and DOI, there are a total of 19 and 20 federal entities,

respectively, with fiduciary activities at a grand total of 65 and 67 fiduciary funds, respectively. SBA and Library of

Congress (LOC) are the significant entities relating to the fiduciary activities of the remaining component entities within the

“all other” aggregate balance. As of September 30, 2018, “all other” fiduciary net assets were $5.2 billion, compared to $6.6

billion as of September 30, 2017.
NOTES TO THE FINANCIAL STATEMENTS 134

Note 22. Social Insurance

SOSI presents the projected actuarial present value of the estimated future revenue and estimated future expenditures of

the Social Security, Medicare, Railroad Retirement, and Black Lung social insurance programs which are administered by the

SSA, HHS, RRB, and DOL, respectively. These estimates are based on the intermediate economic and demographic

assumptions presented later in this note as set forth in the relevant Social Security and Medicare trustees’ reports and in the

agency financial reports of HHS, SSA, and DOL, as well as in the relevant entity performance and accountability report for

RRB. Due to a change in the presentation of the consolidated SOSI and this note from billions of dollars to trillions of dollars

beginning in fiscal year 2016, some amounts in the narrative will not be traceable to the corresponding entity financial

statements. The SOSI projections, with one exception related to Medicare Part A and OASDI, are based on current law; that

is, they assume that scheduled social insurance benefit payments would continue after related trust funds are projected to be

depleted, contrary to current law. By law, once assets are depleted, expenditures cannot be made except to the extent covered

by ongoing tax receipts and other trust fund income. The estimates in the consolidated SOSI of the open group measures are

for persons who are participants or eventually will participate in the programs as contributors (workers) or beneficiaries

(retired workers, survivors, dependents, and disabled) during the 75-year projection period. To enhance comparability of the

BLDTF social insurance information and continue to illustrate the fund’s long-term condition and sustainability, DOL

revised its projection period from a fixed terminus of September 30, 2040 to a rolling 25-year projection period that begins

on the September 30 valuation date each year. The revised projection period became effective for the September 30, 2017

valuation date and continued for fiscal year 2018.

Contributions consist of: payroll taxes from employers, employees, and self-employed persons; revenue from federal

income taxation of OASDI and railroad retirement benefits; excise tax on the domestic sale of coal (Black Lung); premiums

from, and state transfers on behalf of, participants in Medicare; and reimbursements from the General Fund to the OASDI

Trust Funds to make up for reductions in payroll tax revenue due to temporary payroll tax rate reductions. Income for all

programs is presented from a consolidated perspective. Future interest payments and other future intragovernmental transfers

have been excluded upon consolidation. By accounting convention, intragovernmental transactions are eliminated in the

consolidation process, and accordingly, the Statements of Social Insurance do not include projected general revenues that,

under current law, would be used to finance the remainder of the expenditures in excess of revenues for Medicare Parts B and

D that is reported in the Statements of Social Insurance. Expenditures include benefit payments scheduled under current law

and administrative expenses. Current Social Security and Medicare law provides for full benefit payments only to the extent

that there are sufficient balances in the trust funds. Expenditures reflect full benefit payments even after the point at which

assets are projected to be depleted.

Actuarial present values of estimated future income (excluding interest) and estimated future expenditures for the Social

Security and Medicare social insurance programs are presented for three different groups of participants: (1) current

participants who have not yet attained eligibility age; (2) current participants who have attained eligibility age; and (3) new

entrants, who are expected to become participants in the future. Current participants in the Social Security and Medicare

programs are the “closed group” of taxpayers and/or beneficiaries who are at least age 15 years at the start of the projection

period. Since the projection period for the Social Security, Medicare, and Railroad Retirement social insurance programs

consists of 75 years, the period covers virtually all of the current participants’ working and retirement years, a period that

could be greater than 75 years in a relatively small number of instances. Future participants for Social Security and Medicare

include births during the projection period and individuals below age 15 as of January 1 of the valuation year. Railroad

Retirement’s future participants are the projected new entrants as of October 1 of the valuation year. For fiscal year 2015 and

years prior, future participants for Railroad Retirement were the projected new entrants as of January 1 of the valuation year6

.

The present values of estimated future expenditures in excess of estimated future revenue are calculated by subtracting

the actuarial present values of future scheduled contributions as well as dedicated tax income by and on behalf of current and

future participants from the actuarial present value of the future scheduled benefit payments to them or on their behalf. To

determine a program’s funding shortfall over any given period of time, the starting trust fund balance is subtracted from the

present value of expenditures in excess of revenues over the period.

The trust fund balances as of the valuation date for the respective programs, including interest earned, are shown in the

table below7

. Substantially all of the OASDI, HI, and SMI Trust Fund balances consist of investments in special

nonmarketable Treasury securities that are backed by the full faith and credit of the U.S. government. For more information,

see Note 20—Funds from Dedicated Collections.

6 Beginning with the fiscal year 2016 reporting period, the valuation date for the Railroad Retirement program was changed from calendar year to fiscal year. 7 Trust fund balances for the Railroad Retirement and Black Lung programs are not included, as these balances are less than $50 billion.
135 NOTES TO THE FINANCIAL STATEMENTS

Social Insurance Programs Trust Fund Balances 1

(In trillions of dollars) 2018 2017 2016 2015 2014

Social Security .................................... 2.9 2.8 2.8 2.8 2.8

Medicare ............................................ 0.3 0.3 0.3 0.3 0.3

1 As of the valuation date of the respective programs.

Social Security

The OASI Trust Fund, established on January 1, 1940, and the DI Trust Fund, established on August 1, 1956,

collectively referred to as OASDI or “Social Security,” provides cash benefits for eligible U.S. citizens and residents.

Eligibility and benefit amounts are determined under the laws applicable for the period. Current law provides that the amount

of the monthly benefit payments for workers and their eligible dependents or survivors is based on the workers’ lifetime

earnings histories.

The primary financing of the OASDI Trust Funds are taxes paid by workers, their employers, and individuals with selfemployment income, based on work covered by the OASDI Program. Refer to the Unaudited RSI—Social Insurance section

for additional information on Social Security program financing.

That portion of each trust fund not required to pay benefits and administrative costs is invested, on a daily basis, in interestbearing obligations of the U.S. government. The Social Security Act authorizes the issuance by the Treasury of special

nonmarketable, intragovernmental debt obligations for purchase exclusively by the trust funds. Although the special issues

cannot be bought or sold in the open market, they are redeemable at any time at face value and thus bear no risk of fluctuation in

principal value due to changes in market yield rates. Interest on the bonds is credited to the trust funds and becomes an asset to

the funds and a liability to the General Fund. These Treasury securities and related interest are eliminated in consolidation at the

governmentwide level.

Medicare

The Medicare Program, created in 1965, has two separate trust funds: the HI (Medicare Part A) and SMI (Medicare

Parts B and D) Trust Funds. HI helps pay for inpatient hospital stays, home health care following a hospital stay, and skilled

nursing facility and hospice care. SMI helps pay for hospital outpatient services, physician services, and assorted other

services and products through Part B and for prescription drugs through Part D. Though the events that trigger benefit

payments are similar, HI and SMI have different dedicated financing structures. Similar to OASDI, HI is financed primarily

by payroll contributions. Other income to the HI Trust Fund includes a small amount of premium income from voluntary

enrollees, receipts from fraud and abuse control activities, a portion of the federal income taxes that beneficiaries pay on

Social Security benefits and interest credited on Treasury securities held in the HI Trust Fund. These Treasury securities and

related interest are eliminated in the consolidation at the governmentwide level.

For SMI, transfers from the General Fund represent the largest source of income for both Parts B and D. Generally,

beneficiaries finance the remainder of Parts B and D costs via monthly premiums to these programs. With the introduction of

Part D drug coverage, Medicaid is no longer the primary payer of drug costs for full-benefit dually eligible beneficiaries of

Medicare and Medicaid. For those beneficiaries, states are subject to a contribution requirement and must pay a portion of

their estimated foregone drug costs into the Part D account (referred to as state transfers). The estimated foregone drug costs

is the estimated difference between the drug costs that used to be fully covered by Medicaid for full-benefit dually eligible

beneficiaries (i.e., for Medicare and Medicaid) prior to the introduction of Part D, and the drug cost that is now covered for

such dually eligible beneficiaries by Medicare Part D. Fees related to brand-name prescription drugs, required by the ACA,

are included as income for Part B of SMI. As with HI, interest received on Treasury securities held in the SMI Trust Fund is

credited to the fund and these Treasury securities as well as related interest are eliminated in consolidation at the

governmentwide level. By accounting convention, the transfers of general revenues are eliminated in the consolidation of the

SOSI at the governmentwide level and as such, the general revenues that are used to finance Medicare Parts B and D are not

included in these calculations. For the fiscal years 2018 and 2017 SOSI, the amounts eliminated totaled $33.0 trillion and

$30.0 trillion, respectively. Refer to Unaudited RSI—Social Insurance section for additional information on Medicare

program financing.
NOTES TO THE FINANCIAL STATEMENTS 136

The financial projections for the Medicare program reflect substantial, but very uncertain, cost savings deriving from

provisions of the ACA and the MACRA that lowered increases in Medicare payment rates to most categories of health care

providers.

The ACA became law in fiscal year 2010 and provided funding for the establishment by the Centers for Medicare and

Medicaid Services (CMS) of a Center for Medicare and Medicaid Innovation to test innovative payment and service delivery

models to reduce program expenditures while preserving or enhancing the quality of care furnished to individuals. It also

allowed for the establishment of a Center for Consumer Information and Insurance Oversight (CCIIO). One of the main

programs under CCIIO is the Affordable Insurance Exchanges (the “Exchanges”). A brief description of these programs is

presented below.

Health Insurance Exchanges. Grants have been provided to the states to establish Health Insurance Exchanges. The

initial grants were made by HHS to the states “not later than one year after the date of enactment.” Thus, HHS made the

initial grants by March 23, 2011. Subsequent grants were issued by CMS through December 31, 2014, after which time no

further grants could be made. All Exchanges were launched on October 1, 2013.

Risk Adjustment Program. The Risk Adjustment Program is a permanent program. It applies to non-grandfathered

individuals and small group plans inside and outside the Exchanges. It provides payments to health insurance issuers that

disproportionately attract higher-risk populations (such as individuals with chronic conditions) and transfers funds from plans

with relatively lower risk enrollees to plans with relatively higher risk enrollees to protect against adverse selection. States

that operate a state-based Exchange are eligible to establish a risk adjustment program. States operating a risk adjustment

program may have an entity other than the Exchange perform this function. CMS operates a risk adjustment program for each

state that does not operate its own.

It is important to note that the Medicare projections depend in part on the long-range feasibility of the various costsaving measures in the ACA–most importantly, the reductions in the annual payment rate updates for most categories of

Medicare providers by the growth in economy-wide private nonfarm business multifactor productivity and the specified

physician updates put in place by MACRA. Without fundamental changes in the current delivery system, these productivityrelated adjustments to Medicare payment rates would probably not be viable indefinitely. However, this outcome is

achievable if health care providers are able to realize productivity improvements at a faster rate than experienced historically.

On the other hand, if the health sector cannot transition to more efficient models of care delivery and achieve productivity

increases commensurate with economy-wide productivity, and if the provider reimbursement rates paid by commercial

insurers continue to be based on the same negotiated process used to date, then the availability and quality of health care

received by Medicare beneficiaries would, under current law, fall over time compared to that received by those with private

health insurance.

A transformation of health care in the U.S., affecting both the means of delivery and the method of paying for care, is

also a possibility. Private health insurance and Medicare take important steps in this direction by initiating programs of

research into innovative payment and service delivery models, such as accountable care organizations, patient-centered

medical homes, improvement in care coordination for individuals with multiple chronic health conditions, better coordination

of post-acute care, payment bundling, pay for performance, and assistance for individuals in making informed health choices.

Such changes have the potential to reduce health care costs as well as cost growth rates and could, as a result, help lower

health care spending to levels compatible with the lower price updates payable under current law.

The ability of new delivery and payment methods to lower cost growth rates is uncertain at this time. Preliminary

indications are that some of these delivery reforms have had modest levels of success in lowering costs, but at this time it is

too early to tell if these reductions in spending will continue, or if they will grow to the magnitude needed to align with the

statutory Medicare price updates. For those providers affected by the productivity adjustments and the specified updates to

physician payments, sustaining the price reductions will be challenging, as the best available evidence indicates that most

providers cannot improve their productivity to this degree for a prolonged period given the labor-intensive nature of these

services and that physician costs will grow at a faster rate than the specified updates. As a result, actual Medicare

expenditures are highly uncertain for reasons apart from the inherent difficulty in projecting health care cost growth over

time.

The specified rate updates could be an issue in years when levels of inflation are high and would be problematic when

the cumulative gap between the price updates and physician costs becomes large. The gap will continue to widen throughout

the projection, and it is estimated that physician payment rates under current law will be lower than they would have been

under the SGR formula by 2048. Absent a change in the delivery system or level of update by subsequent legislation, access

to Medicare-participating physicians may become a significant issue in the long term under current law. Overriding the price

updates in current law, as lawmakers repeatedly did in the case of physician payment rates, would lead to substantially higher

costs for Medicare in the long range than those projected in this report.

To help illustrate and quantify the potential magnitude of the cost understatement, the Trustees asked the Office of

the Actuary at CMS to prepare an illustrative Medicare Trust Fund projection under a hypothetical alternative. This
137 NOTES TO THE FINANCIAL STATEMENTS

scenario illustrates the impact that would occur if the payment updates that are affected by the productivity adjustments

transition from current law to the payment updates assumed for private health plans over the period 2028 to 2042. It also

reflects physician payment updates that transition from current law to the increase in the Medicare Economic Index over

the same period. Finally, the scenario assumes the continuation of the 5 percent bonuses for physicians in advanced

alternative payment models (APMs) and of the $500-million payments for physicians in the merit-based incentive

payment system, which are set to expire in 2025. This alternative was developed for illustrative purposes only; the

calculations have not been audited; no endorsement of the policies underlying the illustrative alternative by the Trustees,

CMS, or the Office of the Actuary should be inferred; and the examples do not attempt to portray likely or recommended

future outcomes. Thus, the illustrations are useful only as general indicators of the substantial impacts that could result

from future legislation affecting the productivity adjustments and physician updates under Medicare and of the broad

range of uncertainty associated with such impacts. The table on the following page contains a comparison of the Medicare

75-year present values of estimated future income and estimated future expenditures under current law with those under

the illustrative alternative scenario.
NOTES TO THE FINANCIAL STATEMENTS 138

Medicare Present Values (in trillions) (Unaudited)

2018 Consolidated Illustrative

SOSI Alternative

Current Law Scenario 1, 2

Income:

Part A .................................................. $22.8 $22.9

Part B 3 ................................................ $9.4 $11.1

Part D 4 ................................................ $3.2 $3.2

Total income ..................................... $35.4 $37.2

Expenditures: 

Part A ................................................. $27.5 $32.6

Part B ................................................. $34.4 $40.9

Part D ................................................. $11.1 $11.1

Total expenditures ............................. $73.0 $84.6

Income less expenditures:

Part A ................................................. $4.7 $9.7

Part B .................................................. $25.0 $29.8

Part D ................................................. $7.9 $7.9

Excess of expenditures over income $37.6 $47.4

1These amounts are not presented in the 2018 Trustees' Report.

2At the request of the Trustees, the Office of the Actuary at CMS has prepared an illustrative set of Medicare Trust Fund projections 

that differ from current law. No endorsement of the illustrative alternative to current law by the Trustees, CMS, or the Office of the 

Actuary should be inferred.

3Excludes $25.0 trillion and $29.8 trillion of General Revenue Contributions from the 2018 Consolidated SOSI Current Law projection 

and the Illustrative Alternative Scenario's projection, respectively; i.e., to reflect Part B income on a consolidated governmentwide 

basis.

4Excludes $7.9 trillion of General Revenue Contributions from both the 2018 Consolidated SOSI Current Law projection and the 

Illustrative Alternative projection; i.e., to reflect Part D income on a consolidated governmentwide basis.

Note: Totals may not equal the sum of components due to rounding.
139 NOTES TO THE FINANCIAL STATEMENTS

The difference between the current-law and illustrative alternative projections is substantial for Parts A and B. All Part

A fee-for-service providers and roughly half of Part B fee-for-service providers are affected by the productivity adjustments,

so the current-law projections reflect an estimated 1.1 percent reduction in annual cost growth each year for these providers.

If the payment updates that are affected by the productivity adjustments were to gradually transition from current law to the

payment updates assumed for private health plans, the physician updates transitioned to the Medicare Economic Index, and

the 5 percent bonuses paid to physicians in advanced APMs did not expire, as illustrated under the alternative scenario, the

estimated present values of Part A and Part B expenditures would each be higher than the current-law projections by roughly

18 and 19 percent, respectively. As indicated above, the present value of Part A income is basically unaffected under the

alternative scenario.

The Part D values are the same under each projection because the services are not affected by the productivity

adjustments or the physician updates. The extent to which actual future Part A and Part B costs exceed the projected amounts

due to changes to the productivity adjustments and physician updates depends on what specific changes might be legislated

and whether Congress would pass further provisions to help offset such costs. As noted, these examples reflect only

hypothetical changes to provider payment rates.

Social Security and Medicare–Demographic and Economic Assumptions

The Boards of Trustees8 of the OASDI and Medicare Trust Funds provide in their annual reports to Congress shortrange (10-year) and long-range (75-year) actuarial estimates of each trust fund. Significant uncertainty surrounds the

estimates, especially for a period as long as 75 years. To illustrate the range of uncertainty, the Trustees use three alternative

scenarios (low-cost, intermediate, and high-cost) that use specific assumptions. These assumptions include fertility rates,

rates of change in mortality, LPR and other-than-LPR immigration levels, emigration levels, changes in real GDP, changes in

the CPI, changes in average real wages, unemployment rates, trust fund real yield rates, and disability incidence and recovery

rates. The assumptions used for the most recent set of projections shown in Table 1A (Social Security) and Table 1B

(Medicare) are generally referred to as the “intermediate assumptions,” and reflect the trustees’ reasonable estimate of

expected future experience. For further information on Social Security and Medicare demographic and economic

assumptions, refer to SSA’s and HHS’s Agency Financial Reports.

8 The boards are composed of six members. Four members serve by virtue of their positions in the federal government: the Secretary of the Treasury, who is

the Managing Trustee; the Secretary of Labor; the Secretary of Health and Human Services; and the Commissioner of Social Security. The President

appoints and the Senate confirms the other two members to serve as public representatives. These two positions are currently vacant.
NOTES TO THE FINANCIAL STATEMENTS 140

Table 1A

Social Security – Demographic and Economic Assumptions

Demographic Assumptions

Age-Sex

Adjusted

Death

Rate

(per 100,000)2

Net Annual

Immigration

(persons per 

year)3

Period Life

Expectancy

at Birth4 Total 

Fertility 

Rate Year 1 Male Female

2018 1.81 776.4 1,678,000 76.9 81.5

2020 1.84 762.4 1,498,000 77.2 81.7

2030 2.00 697.7 1,321,000 78.4 82.7

2040 2.00 641.1 1,272,000 79.5 83.6

2050 2.00 591.5 1,247,000 80.5 84.5

2060 2.00 547.9 1,233,000 81.5 85.3

2070 2.00 509.4 1,225,000 82.4 86.0

2080 2.00 475.2 1,221,000 83.2 86.7

2090 2.00 444.7 1,218,000 84.0 87.3

Economic Assumptions

Real

Wage

Differential

(percent 

change)5

Average

Annual Wage

In Covered

Employment

(percent

change)6

Total

Employment

(percent

change)9

Average

Annual

Interest

Rate

(percent)10 

Real

GDP

(percent

change)8

CPI

(percent

change) Year 7

2018 1.59 3.82 2.23 2.7 1.1 2.7

2020 1.95 4.55 2.60 2.6 0.8 3.9

2030 1.28 3.88 2.60 2.1 0.5 5.3

2040 1.22 3.82 2.60 2.1 0.5 5.3

2050 1.23 3.83 2.60 2.1 0.5 5.3

2060 1.22 3.82 2.60 2.1 0.4 5.3

2070 1.15 3.75 2.60 2.1 0.4 5.3

2080 1.13 3.73 2.60 2.1 0.5 5.3

2090 1.15 3.75 2.60 2.1 0.4 5.3

1

The total fertility rate for any year is the average number of children that would be born to a woman in her lifetime if she were to experience, at each age of 

her life, the birth rate observed in, or assumed for, the selected year, and if she were to survive the entire childbearing period. 2

The age-sex-adjusted death rate is based on the enumerated total population as of April 1, 2010, if that population were to experience the death rates by age 

and sex observed in, or assumed for, the selected year. It is a summary measure and not a basic assumption; it summarizes the basic assumptions from 

which it is derived.

3

Net annual immigration is the number of persons who enter during the year (both as lawful permanent residents and otherwise) minus the number of persons 

who leave during the year. It is a summary measure and not a basic assumption; it summarizes the effects of the basic assumptions from which it is derived. 4

The period life expectancy at birth for a given year is the average number of years expected prior to death for a person born on January 1 in that year, using 

the mortality rates for that year over the course of his or her remaining life. It is a summary measure and not a basic assumption; it summarizes the effects of 

the basic assumptions from which it is derived.

5

The real-wage differential is the annual percentage change in the average annual wage in covered employment less the annual percentage change in the 

CPI for Urban Wage Earners and Clerical Workers (CPI-W). Values are rounded after all computations. 6

The average annual wage in covered employment is the total amount of wages and salaries for all employment covered by the OASDI program in a year, 

divided by the number of employees with any such earnings during the year. It is a summary measure and not a basic assumption; it summarizes the basic 

assumptions from which it is derived.

7

The CPI is the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).

8

The real GDP is the value of total output of goods and services in 2009 dollars. It is a summary measure and not a basic assumption; it summarizes the 

effects of the basic assumptions from which it is derived. 

9

Total employment is total U.S. military and civilian employment. It is a summary measure and not a basic assumption; it summarizes the basic 

assumptions from which it is derived.

10The average annual interest rate is the average of the nominal interest rates, which compound semiannually, for special public-debt obligations issuable 

to the OASI and DI Trust Funds in each of the 12 months of the year. It is a summary measure and not a basic assumption; it summarizes the basic 

assumptions from which it is derived.
141 NOTES TO THE FINANCIAL STATEMENTS

Table 1B

Medicare – Demographic and Economic Assumptions

Demographic Assumptions

Age-Sex

Adjusted

Death

Rate

(per 100,000)2

Net Annual

Immigration

(persons per 

year)3

Total

Fertility

Rate1 Year

2018 1.81 776.4 1,678,000

2020 1.84 762.4 1,498,000

2030 2.00 697.7 1,321,000

2040 2.00 641.1 1,272,000

2050 2.00 591.5 1,247,000

2060 2.00 547.9 1,233,000

2070 2.00 509.4 1,225,000

2080 2.00 475.2 1,221,000

2090 2.00 444.7 1,218,000

Economic Assumptions

Average

Annual Wage

In Covered

Employment

(percent

change) 5

Per Beneficiary Cost8

Real

Wage

Differential

(percent 

change)4

(percent change)

Real

GDP

(percent

change)7

Real

Interest

Rate

(percent)9

CPI

(percent

change)6

SMI

Year HI Part B Part D

2018 1.59 3.82 2.23 2.7 1.4 5.3 0.5 0.1 

2020 1.95 4.55 2.60 2.6 3.3 4.7 6.0 0.8 

2030 1.28 3.88 2.60 2.1 4.4 5.3 5.3 2.7 

2040 1.22 3.82 2.60 2.1 4.6 4.2 4.7 2.7 

2050 1.23 3.83 2.60 2.1 3.8 3.8 4.7 2.7 

2060 1.22 3.82 2.60 2.1 3.6 3.7 4.5 2.7 

2070 1.15 3.75 2.60 2.1 3.8 3.6 4.4 2.7 

2080 1.13 3.73 2.60 2.1 3.9 3.7 4.4 2.7 

2090 1.15 3.75 2.60 2.1 3.4 3.5 4.3 2.7 

1

Average number of children per woman.

2

The age-sex-adjusted death rate per 100,000 that would occur in the enumerated population as of April 1, 2010, if that population were to experience the 

death rates by age and sex observed in, or assumed for, the selected year. 

3

Includes legal immigration, net of emigration, as well as other, non-legal, immigration.

4

Difference between percentage increases in wages and the CPI.

5

Average annual wage in covered employment.

6

Consumer price index represents a measure of the average change in prices over time in a fixed group of goods and services.

7

Total dollar value of all goods and services produced in the United States, adjusted to remove the impact of assumed inflation growth.

8

These increases reflect the overall impact of more detailed assumptions that are made for each of the different types of service provided by the Medicare 

program (for example, hospital care, physician services, and pharmaceutical costs). These assumptions include changes in the payment rates, utilization, and 

intensity of each type of service.

9

Average rate of interest earned on new trust fund securities, above and beyond rate of inflation.
NOTES TO THE FINANCIAL STATEMENTS 142

Railroad Retirement

The Railroad Retirement and Survivor Benefit program pays full retirement annuities at age 60 to railroad workers with

30 years of service. The program pays disability annuities based on total or occupational disability. It also pays annuities to

spouses and divorced spouses of retired workers and to widow(er)s, surviving divorced spouses, remarried widow(er)s,

children, and parents of deceased railroad workers. Medicare covers qualified railroad retirement beneficiaries in the same

way as it does Social Security beneficiaries.

The RRB and the SSA share jurisdiction over the payment of retirement and survivor benefits. The RRB has

jurisdiction over the payment of retirement benefits if the employee has at least 10 years of railroad service, or five years if

performed after 1995. For survivor benefits, RRB requires that the employee’s last regular employment before retirement or

death be in the railroad industry. If a railroad employee or his or her survivors do not qualify for railroad retirement benefits,

the RRB transfers the employee’s railroad retirement credits to SSA, where they are treated as social security credits.

Payroll taxes paid by railroad employers and their employees are a primary source of funding for the Railroad

Retirement and Survivor Benefit Program. By law, railroad retirement taxes are coordinated with Social Security taxes.

Employees and employers pay Tier I taxes at the same rate as Social Security taxes and Tier II taxes to finance railroad

retirement benefit payments that are higher than Social Security levels.

Revenues in excess of benefit payments are invested to provide additional trust fund income. Legislation enacted in

2001 allowed for Railroad Retirement Account funds transferred to the NRRIT to be invested in non-governmental assets, as

well as in governmental securities. Funds transferred from the Social Security Equivalent Benefit (SSEB) Account to the

NRRIT are allowed to be invested only in governmental securities. Under the financial interchange provisions, the Railroad

Retirement program’s SSEB Account and the trust funds interchange amounts on an annual basis so that each trust fund is in

the same position it would have been had railroad retirement always been covered under Social Security.

Since its inception, NRRIT has received $21.3 billion from RRB (including $19.2 billion in fiscal year 2003, pursuant

to the Railroad Retirement and Survivors’ Improvement Act of 2001) and returned $22.9 billion. During fiscal year 2018, the

NRRIT made net transfers of $1.8 billion to the RRB to pay retirement benefits. Administrative expenses of the trust are paid

out of trust assets. The balance as of September 30, 2018, and 2017, of non-federal securities and investments of the NRRIT

are disclosed in Note 7—Debt and Equity Securities.

Another major source of income to the Railroad Retirement and Survivor Benefit program consists of financial

transactions with the Social Security and Medicare Trust Funds. The RRB, SSA, and CMS are parties to a financing

arrangement, the “financial interchange”, which is intended to put the OASDI and Medicare HI Trust Funds in the same

positions they would have been had railroad employment been covered under the Social Security and FICAs.

Other sources of program income include revenue resulting from federal income taxes on railroad retirement benefits, and

appropriations provided after 1974 as part of a phase out of certain vested dual benefits. From a governmentwide perspective,

these future financial interchanges and transactions are intragovernmental transfers and are eliminated in consolidation.

The estimated future revenues and expenditures reflected in the SOSI are based on various economic, employment, and

other actuarial assumptions, and assume that the Railroad Retirement program will continue as presently constructed. The

calculations assume that all future transfers required by current law under the financial interchange will be made. For further

details on actuarial assumptions related to the Railroad Retirement program and how these assumptions affect amounts

presented on the SOSI and SCSIA, consult the Technical Supplement to the 27th Actuarial Valuation of the Assets and

Liabilities Under the Railroad Retirement Acts as of December 31, 2016 and RRB’s financial statements.

Black Lung–Disability Benefit Program

The Black Lung Disability Benefit Program provides for compensation, medical, and survivor benefits for eligible coal 

miners who are totally disabled due to pneumoconiosis (black lung disease) arising out of their coal mine employment, and 

the BLDTF provides benefit payments when no responsible mine operator (RMO) can be assigned the liability or when the 

liability is adjudicated to the BLDTF, which may occur as a result of, among other things, bankruptcy of the RMO. DOL 

operates the Black Lung Disability Benefit Program. 

Black lung disability benefit payments are funded by excise taxes from coal mine operators based on the domestic sale 

of coal, as are the fund’s administrative costs. These taxes are collected by the Internal Revenue Service (IRS) and transferred 

to the BLDTF, which was established under the authority of the Black Lung Benefits Revenue Act, and administered by the 

Treasury. 

P.L. 110-343, Division B-Energy Improvement and Extension Act of 2008, enacted on October 3, 2008, among other

things, restructured the BLDTF debt by refinancing the outstanding high interest rate repayable advances with low interest 

rate discounted debt instruments similar in form to zero-coupon bonds, plus a one-time appropriation. This Act also allowed 

that any subsequent debt issued by the BLDTF may be used to make benefit payments, other authorized expenditures, or to 

repay debt and interest from the initial refinancing.
143 NOTES TO THE FINANCIAL STATEMENTS

The significant assumptions used in the projections for the SOSI are the coal excise tax revenue estimates, the tax rate 

structure, number of beneficiaries, life expectancy, federal civilian pay raises, medical cost inflation, and interest rates used to 

discount future cash flows. These assumptions affect the amounts reported on the SOSI and the SCSIA. The program’s 

valuation date is September 30 for each year of information presented in the SOSI and the SCSIA. Refer to DOL’s financial 

statements for further details on significant assumptions related to the Black Lung Disability Benefit Program, and how these 

assumptions affect amounts presented on the SOSI and SCSIA.

Statement of Changes in Social Insurance Amounts

The SCSIA reconciles the change (between the current valuation and the prior valuation) in the present value of 

estimated future revenue less estimated future expenditures for current and future participants (the open group measure) over 

the next 75 years (except Black Lung which has a rolling 25-year projection period through September 30, 2043). The 

reconciliation identifies several components of the changes that are significant and provides reasons for the changes. The 

following disclosures relate to the SCSIA including the reasons for the components of the changes in the open group measure 

during the reporting period from the end of the previous reporting period for the government’s social insurance programs.

Social Security

The SCSIA shows two reconciliations for Social Security: (1) changes from the period beginning on January 1, 2017, to 

the period beginning on January 1, 2018, and (2) changes from the period beginning on January 1, 2016, to the period 

beginning on January 1, 2017. All estimates relating to the Social Security Program in the SCSIA represent values that are 

incremental to the prior change. As an example, the present values shown for economic data, assumptions, and methods 

represent the additional effect of these new data, assumptions, and methods after considering the effects from demography 

and the change in the valuation period. In general, an increase in the present value of net cash flows represents a positive 

change (improving financing), while a decrease in the present value of net cash flows represents a negative change 

(worsening financing).

Assumptions Used for the Components of the Changes for the Social Security Program

The present values included in the SCSIA are for the current and prior years and are based on various economic as well 

as demographic assumptions used for the intermediate assumptions in the Social Security Trustees Reports for these years. 

Table 1A summarizes these assumptions for the current year.

From the period beginning on January 1, 2017 to the period beginning on January 1, 2018

Present values as of January 1, 2017 are calculated using interest rates from the intermediate assumptions of the 2017 

Social Security Trustees Report. All other present values in this part of the SCSIA are calculated as a present value as of 

January 1, 2018. Estimates of the present value of changes in social insurance amounts due to changing the valuation period

and changing demographic data, assumptions, and methods are presented using the interest rates under the intermediate 

assumptions of the 2017 Social Security Trustees Report. Because interest rates are an economic estimate and all estimates in

the table are incremental to the prior change, all other present values in this part of the SCSIA are calculated using the interest 

rates under the intermediate assumptions of the 2018 Social Security Trustees Report.

From the period beginning on January 1, 2016 to the period beginning on January 1, 2017

Present values as of January 1, 2016 are calculated using interest rates from the intermediate assumptions of the 2016 

Social Security Trustees Report. All other present values in this part of the SCSIA are calculated as a present value as of 

January 1, 2017. Estimates of the present value of changes in social insurance amounts due to changing the valuation period 

and changing demographic data, assumptions, and methods are presented using the interest rates under the intermediate 

assumptions of the 2016 Social Security Trustees Report. Because interest rates are an economic estimate and all estimates in

the table are incremental to the prior change, all other present values in this part of the SCSIA are calculated using the interest 

rates under the intermediate assumptions of the 2017 Social Security Trustees Report.
NOTES TO THE FINANCIAL STATEMENTS 144

Changes in Valuation Period

From the period beginning on January 1, 2017 to the period beginning on January 1, 2018

The effect on the 75-year present values of changing the valuation period from the prior valuation period (2017-2091) to 

the current valuation period (2018-2092) is measured by using the assumptions for the prior valuation and extending them to 

cover the current valuation. Changing the valuation period removes a small negative net cash flow for 2017, replaces it with a

much larger negative net cash flow for 2092, and measures the present values as of January 1, 2018, one year later. Thus, the

present value of estimated future net cash flows (excluding the combined OASI and DI Trust Fund asset reserves at the start 

of the period) decreased (became more negative) when the 75-year valuation period changed from 2017-2091 to 2018-2092. 

In addition, the effect on the level of asset reserves in the combined OASI and DI Trust Funds of changing the valuation 

period is measured by assuming all values projected in the prior valuation for the year 2017 are realized. The change in 

valuation period increased the starting level of asset reserves in the combined OASI and DI Trust Funds. As a result, the 

present value of the estimated future net cash flows decreased by $0.6 trillion.

From the period beginning on January 1, 2016 to the period beginning on January 1, 2017

The effect on the 75-year present values of changing the valuation period from the prior valuation period (2016-2090) to 

the current valuation period (2017-2091) is measured by using the assumptions for the prior valuation and extending them to 

cover the current valuation. Changing the valuation period removes a small negative net cash flow for 2016, replaces it with a

much larger negative net cash flow for 2091, and measures the present values as of January 1, 2017, one year later. Thus, the

present value of estimated future net cash flows (excluding the combined OASI and DI Trust Fund asset reserves at the start 

of the period) decreased (became more negative) when the 75-year valuation period changed from 2016-2090 to 2017-2091. 

In addition, the effect on the level of asset reserves in the combined OASI and DI Trust Funds of changing the valuation 

period is measured by assuming all values projected in the prior valuation for the year 2016 are realized. The change in 

valuation period increased the starting level of asset reserves in the combined OASI and DI Trust Funds. As a result, the 

present value of the estimated net cash flows decreased by $0.6 trillion.

Changes in Demographic Data, Assumptions, and Methods

From the period beginning on January 1, 2017 to the period beginning on January 1, 2018

The ultimate demographic assumptions for the current valuation (beginning on January 1, 2018), with the exception of a 

small decrease of 10,000 LPR immigrants per annum in the future, are the same as those for the prior valuation. However, the 

starting demographic values and the way these values transition to the ultimate assumptions were changed.

x Final birth rate data for 2016 indicated slightly lower birth rates than were assumed in the prior valuation.

x Recent fertility data suggests that the short-term increase in the total fertility rate used in the prior valuation to 

account for an assumed deferral in childbearing (resulting from the recent economic downturn) was no longer 

warranted. The observed persistent drop in the total fertility rate in recent years is now assumed to be a loss of 

potential births rather than just a deferral for this period.

x Incorporating 2015 mortality data obtained from the National Center for Health Statistics (NCHS) for ages 

under 65 and preliminary 2015 mortality data from Medicare experience for ages 65 and older resulted in higher 

death rates for all future years than were projected in the prior valuation.

x More recent LPR and other-than-LPR immigration data and historical population data were included.

Inclusion of the recent birth rate data, eliminating the short-term increase in fertility, and immigration data decreased the 

present value of estimated future net cash flows, while the inclusion of the recent mortality data and historical population data 

increased the present value of estimated future net cash flows.

There was one notable change in demographic methodology:

x Improved the method for projecting mortality rates by marital status by utilizing recent data from NCHS and the 

American Community Survey.

Inclusion of this new method increased the present value of estimated future net cash flows. Overall, changes to these 

assumptions caused the present value of the estimated future net cash flows to increase by $0.1 trillion.

From the period beginning on January 1, 2016 to the period beginning on January 1, 2017

The ultimate demographic assumptions for the current valuation (beginning on January 1, 2017) are the same as those 

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

assumptions were changed.

x Final birth rate data for 2015 indicated slightly lower birth rates than were assumed in the prior valuation. 
145 NOTES TO THE FINANCIAL STATEMENTS

x Incorporating 2014 mortality data obtained from NCHS at ages under 65 and preliminary 2014 mortality data from 

Medicare experience at ages 65 and older resulted in higher death rates for all future years than were projected in the 

prior valuation.

x More recent legal and other-than-legal immigration data and historical population data were included.

Inclusion of the recent birth rate data and immigration data decreased the present value of estimated future net cash 

flows, while the inclusion of the recent mortality data increased the present value of estimated future net cash flows.

There were no notable changes in demographic methodology. Overall, changes to these assumptions caused the present 

value of the estimated net cash flows to decrease by $0.1 trillion.

Changes in Economic Data, Assumptions, and Methods

From the period beginning on January 1, 2017 to the period beginning on January 1, 2018

The ultimate economic assumptions for the current valuation (beginning on January 1, 2018), are the same as those for 

the prior valuation. However, the starting economic values and the way these values transition to the ultimate assumptions 

were changed.

x The estimated level of potential GDP was reduced by about 1 percent in 2017 and throughout the projection period, 

primarily due to the slow growth in labor productivity for 2010 through 2017 and low unemployment rates in 2017. 

This lower estimated level of potential GDP means that cumulative growth in actual GDP is 1 percent less over the 

remainder of the projected recovery than was assumed in the prior valuation.

x Near-term interest rates were decreased, reflecting a more gradual path for the rise to the ultimate real interest rate 

than was assumed in the prior valuation.

x New data from the Bureau of Economic Analysis (BEA) indicated lower-than-expected ratios of labor compensation 

to GDP for 2016 and 2017, while new data from the IRS indicated lower-than-expected ratios of taxable payroll to 

GDP for 2016 and 2017. This new data led to assumed extended recoveries in these ratios to the unchanged ultimate 

ratios.

The changes in near-term interest rates and GDP decreased the present value of estimated future net cash flows. The 

new data from BEA and IRS and the resulting extended recovery in the ratios of labor compensation to GDP and taxable 

payroll to GDP increased the present value of estimated future net cash flows.

There was one notable change in economic methodology:

x Improved the method for projecting educational attainment among women in age groups 45-49 and 50-54 in the 

labor force participation model.

Inclusion of this new method increased the present value of estimated future net cash flows. Overall, changes to these 

assumptions caused the present value of the estimated future net cash flows to decrease by $0.5 trillion.

From the period beginning on January 1, 2016 to the period beginning on January 1, 2017

For the current valuation (beginning on January 1, 2017), there was one change to the ultimate economic assumptions.

x The ultimate average real-wage differential is assumed to be 1.20 percent in the current valuation, which is close to a 

0.01 percent decrease relative to the previous valuation (even though both ultimate average real-wage differentials 

are 1.20 when rounded to two decimal places).

In addition to this change in ultimate assumption, the assumed path of the real-wage differential in the first 10 years of 

the projection period was also lower than in the previous valuation. This led to 0.05 percent lower annual growth in the 

average annual wage in covered employment in the first 10 years. The lower long-term and near-term real-wage differential 

assumptions are based on new projections by the CMS of faster growth in employer sponsored group health insurance 

premiums. Because these premiums are not subject to the payroll tax, faster growth in these premiums means that a smaller 

share of employee compensation will be in the form of wages that are subject to the payroll tax. The lower real-wage 

differential decreased the present value of estimated future net cash flows.

Otherwise, the ultimate economic assumptions for the current valuation are the same as those for the prior valuation. 

However, the starting economic values and the way these values transition to the ultimate assumptions were changed. The 

most notable change was updating the near-term interest rates. Also notable was an assumed weaker recovery from the recent 

recession than previously expected, which led to a reduction in the ultimate level of actual and potential GDP of about 1.0 

percent for all years after the short-range period. The changes in near-term interest rates and GDP decreased the present value 

of estimated future net cash flows. Other, smaller changes in starting values and near-term growth assumptions combined to 

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

of the estimated future net cash flows to decrease by $0.6 trillion.
NOTES TO THE FINANCIAL STATEMENTS 146

Changes in Law or Policy

From the period beginning on January 1, 2017 to the period beginning on January 1, 2018

The monetary effect of the changes in law or policy on the present value of estimated future net cash flows of the 

OASDI program was not significant at the consolidated level. Please refer to SSA’s financial statements for further 

information related to the impact of the changes in law or policy on the present value of estimated future net cash flows of the 

OASDI program.

From the period beginning on January 1, 2016 to the period beginning on January 1, 2017

The monetary effect of the changes in law or policy on the present value of estimated future net cash flows of the 

OASDI program was not significant at the consolidated level. Please refer to SSA’s financial statements for further 

information related to the impact of the changes in law or policy on the present value of estimated future net cash flows of the 

OASDI program.

Changes in Methodology and Programmatic Data

From the period beginning on January 1, 2017 to the period beginning on January 1, 2018

Several methodological improvements and updates of program-specific data are included in the current valuation 

(beginning on January 1, 2018). The most significant are identified below.

x The prior valuation assumed 99.0 percent of fully insured women (excluding those who are receiving a disability or 

widow benefit) were in receipt of a retired-worker benefit at age 70. The current valuation increases this percentage 

to 99.5 which is equivalent to the assumption for men.

x For the current valuation, a 10 percent sample of newly-entitled worker beneficiaries in 2015 was used to project 

average benefit levels of retired-worker and disabled-worker beneficiaries. This sample was updated from the 2013 

sample used for the prior valuation. In addition, the method used to estimate earnings histories for retired-worker 

beneficiaries becoming newly entitled in each year after 2017 has been expanded to better match targeted average 

taxable earnings levels for each of nine birth cohorts (those becoming entitled at ages 62 through 70 in a year).

x Recent data and estimates provided by the Office of Tax Analysis (OTA) at the Treasury were incorporated, which 

indicate higher ultimate levels of revenue from taxation of OASDI benefits than assumed in the prior valuation. 

These higher levels are primarily due to changes OTA made in their modeling, resulting in a larger share of benefits 

being subject to income tax.

x The current valuation incorporates both a better data source for determining the total number of months of 

retroactive benefits for newly awarded disabled-worker beneficiaries and a new adjustment factor which better 

aligns projected months of disabled-worker retroactive benefit entitlement with observed historical experience.

Increasing the percentage of fully insured women who are in receipt of a retired-worker benefit at age 70 decreased the 

present value of estimated cash flows. Updating the sample year for average benefit level calculations, increasing the ultimate 

taxation of benefits ratios, and the changes to estimates of retroactive benefit payments increased the present value of 

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

cash flows to increase by $0.2 trillion.

From the period beginning on January 1, 2016 to the period beginning on January 1, 2017

The monetary effect of the changes in methodology and programmatic data on the present value of estimated future net 

cash flows was not significant at the consolidated level. Please refer to SSA’s financial statements for further information 

related to the impact of changes in methodology and programmatic data on the present value of estimated future net cash 

flows of the OASDI program.

Medicare

The SCSIA shows two reconciliations for Medicare: (1) changes from the period beginning on January 1, 2017, to the 

period beginning on January 1, 2018, and (2) changes from the period beginning on January 1, 2016, to the period beginning 

on January 1, 2017. All estimates relating to the Medicare program in the SCSIA represent values that are incremental to the 

prior change. As an example, the present values shown for demographic data, assumptions, and methods represent the 

additional effect that these assumptions have, once the effects from the change in the valuation period and projection base 

have been considered. In general, an increase in the present value of net cash flows represents a positive change (improving 

financing), while a decrease in the present value of net cash flows represents a negative change (worsening financing).
147 NOTES TO THE FINANCIAL STATEMENTS

Assumptions Used for the Components of the Changes for the Medicare Program

The present values included in the SCSIA are for the current and prior years and are based on various economic and 

demographic assumptions used for the intermediate assumptions in the Medicare Trustees Reports for these years. Table 1B 

summarizes these assumptions for the current year.

From the period beginning on January 1, 2017 to the period beginning on January 1, 2018

Present values as of January 1, 2017 are calculated using interest rates from the intermediate assumptions of the 2017 

Medicare Trustees Report. All other present values in this part of the SCSIA are calculated as a present value as of January 1, 

2018. Estimates of the present value of changes in social insurance amounts due to changing the valuation period, projection 

base, demographic assumptions, and law are presented using the interest rates under the intermediate assumptions of the 2017 

Medicare Trustees Report. Since interest rates are an economic estimate and all estimates in the table are incremental to the

prior change, the estimates of the present values of changes in economic and health care assumptions are calculated using the 

interest rates under the intermediate assumptions of the 2018 Medicare Trustees Report.

From the period beginning on January 1, 2016 to the period beginning on January 1, 2017

Present values as of January 1, 2016 are calculated using interest rates from the intermediate assumptions of the 2016 

Medicare Trustees Report. All other present values in this part of the SCSIA are calculated as a present value as of January 1, 

2017. Estimates of the present value of changes in social insurance amounts due to changing the valuation period, projection 

base, demographic assumptions, and law are presented using the interest rates under the intermediate assumptions of the 2016 

Medicare Trustees Report. Since interest rates are an economic estimate and all estimates in the table are incremental to the 

prior change, the estimates of the present values of changes in economic and health care assumptions are calculated using the

interest rates under the intermediate assumptions of the 2017 Medicare Trustees Report.

Changes in Valuation Period

From the period beginning on January 1, 2017 to the period beginning on January 1, 2018

The effect on the 75-year present values of changing the valuation period from the prior valuation period (2017-2091) to 

the current valuation period (2018-2092) is measured by using the assumptions for the prior valuation period and extending 

them, in the absence of any other changes, to cover the current valuation period. Changing the valuation period removes a 

small negative net cash flow for 2017, replaces it with a much larger negative net cash flow for 2092, and measures the 

present values as of January 1, 2018, one year later. Thus, the present value of estimated future net cash flow (including or 

excluding the combined Medicare Trust Fund assets at the start of the period) decreased (became more negative) when the 

75-year valuation period changed from 2017-2091 to 2018-2092. In addition, the effect on the level of assets in the combined 

Medicare Trust Funds of changing the valuation period is measured by assuming all values projected in the prior valuation 

for the year 2017 are realized. The change in valuation period resulted in a very slight increase in the starting level of assets 

in the combined Medicare Trust Funds. As a result, the present value of the estimated future net cash flows decreased by $1.3

trillion.

From the period beginning on January 1, 2016 to the period beginning on January 1, 2017

The effect on the 75-year present values of changing the valuation period from the prior valuation period (2016-2090) to 

the current valuation period (2017-2091) is measured by using the assumptions for the prior valuation period and extending 

them, in the absence of any other changes, to cover the current valuation period. Changing the valuation period removes a 

small negative net cash flow for 2016, replaces it with a much larger negative net cash flow for 2091, and measures the 

present values as of January 1, 2017, one year later. Thus, the present value of estimated future net cash flow (including or 

excluding the combined Medicare Trust Fund assets at the start of the period) decreased (became more negative) when the 

75-year valuation period changed from 2016-2090 to 2017-2091. In addition, the effect on the level of assets in the combined 

Medicare Trust Funds of changing the valuation period is measured by assuming all values projected in the prior valuation 

for the year 2016 are realized. The change in valuation period increased the starting level of assets in the combined Medicare

Trust Funds. As a result, the present value of the estimated net cash flows decreased by $1.4 trillion.

Changes in the Demographic Data, Assumptions, and Methods

From the period beginning on January 1, 2017 to the period beginning on January 1, 2018

The demographic assumptions used in the Medicare projections are the same as those used for OASDI and are prepared 

by the Office of the Chief Actuary at SSA.
NOTES TO THE FINANCIAL STATEMENTS 148

The ultimate demographic assumptions for the current valuation (beginning on January 1, 2018), with the exception of a 

small decrease of 10,000 LPR immigrants per annum in the future, are the same as those for the prior valuation. However, the 

starting demographic values and the way these values transition to the ultimate assumptions were changed.

x Final birth rate data for 2016 indicated slightly lower birth rates than were assumed in the prior valuation.

x Recent fertility data suggests that the short-term increase in the total fertility rate used in the prior valuation to 

account for an assumed deferral in childbearing (resulting from the recent economic downturn) was no longer 

warranted. The observed persistent drop in the total fertility rate in recent years is now assumed to be a loss of 

potential births rather than just a deferral for this period.

x Incorporating 2015 mortality data obtained from the NCHS at ages under 65 and preliminary 2015 mortality data 

from Medicare experience at ages 65 and older resulted in higher death rates for all future years than were projected 

in the prior valuation.

x More recent LPR and other-than-LPR immigration data and historical population data were included.

There was one notable change in demographic methodology:

x Improved the method for projecting mortality rates by marital status by utilizing recent data from NCHS and the 

American Community Survey.

These changes lowered overall Medicare enrollment for the current valuation period and resulted in an increase in the 

estimated future net cash flow. The present value of estimated income and expenditures are both lower for Part A and Part B 

but higher for Part D. Overall, changes to these assumptions caused the present value of the estimated future net cash flows to 

increase by $0.6 trillion.

From the period beginning on January 1, 2016 to the period beginning on January 1, 2017 

The demographic assumptions used in the Medicare projections are the same as those used for the OASDI and are 

prepared by the Office of the Chief Actuary at SSA.

The ultimate demographic assumptions for the current valuation (beginning on January 1, 2017 are the same as those for 

the prior valuation. However, the starting demographic values and the way these values transition to the ultimate assumptions

were changed.

x Final birth rate data for 2015 indicated slightly lower birth rates than were assumed in the prior valuation. 

x Incorporating 2014 mortality data obtained from the NCHS at ages under 65 and preliminary 2014 mortality data 

from Medicare experience at ages 65 and older resulted in higher death rates for all future years than were projected 

in the prior valuation.

x More recent legal and other-than-legal immigration data and historical population data were included.

There were no consequential changes in demographic methodology.

These changes slightly lowered overall Medicare enrollment for the current valuation period and resulted in a decrease 

in the estimated future net cash flow. The present value of estimated expenditures is lower for Part A but slightly higher for

Parts B and D; and the present value of estimated income is also higher for Parts B and D but lower for Part A. Overall, 

changes to these assumptions caused the present value of the estimated future net cash flows to decrease by $0.1 trillion.

Changes in Economic and Other Health Care Assumptions

From the period beginning on January 1, 2017 to the period beginning on January 1, 2018

The economic assumptions used in the Medicare projections are the same as those used for the OASDI and are prepared 

by the Office of the Chief Actuary at SSA.

The ultimate economic assumptions for the current valuation (beginning on January 1, 2018) are the same as those for 

the prior valuation. However, the starting economic values and the way these values transition to the ultimate assumptions 

were changed.

x The estimated level of potential GDP was reduced by about 1 percent in 2017 and throughout the projection period, 

primarily due to the slow growth in labor productivity for 2010 through 2017 and low unemployment rates in 2017. 

This lower estimated level of potential GDP means that cumulative growth in actual GDP is 1 percent less over the 

remainder of the projected recovery than was assumed in the prior valuation. 

x Near-term interest rates were decreased, reflecting a more gradual path for the rise to the ultimate real interest rate 

than was assumed in the prior valuation.

x New data from the BEA indicated lower-than-expected ratios of labor compensation to GDP for 2016 and 2017, 

while new data from the IRS indicated lower-than-expected ratios of taxable payroll to GDP for 2016 and 2017.

x This new data led to assumed extended recoveries in these ratios to the unchanged ultimate ratios.

There was one notable change in economic methodology:
149 NOTES TO THE FINANCIAL STATEMENTS

x Improved the method for projecting educational attainment among women in age groups 45-49 and 50-54 in the 

labor force participation model.

The health care assumptions are specific to the Medicare projections. The following health care assumptions were 

changed in the current valuation.

x Utilization rate assumptions for inpatient hospital services were decreased.

x Utilization rate and case mix for skilled nursing facilities services were decreased. Payment rates to private health 

plans are higher than projected in last year’s report primarily due to higher risk scores and increased coding by 

plans. 

x Higher projected drug manufacturer rebates.

The net impact of these changes resulted in a decrease in the estimated future net cash flow for total Medicare. For Part 

A, these changes resulted in an overall decrease in the estimated future net cash flow. For Part B, these changes increased the 

present value of estimated future expenditures (and also income). For Part D, these changes decreased the present value of 

estimated expenditures (and also income). Overall, the net impact of these changes caused the present value of estimated 

future net cash flows to decrease by $1.5 trillion.

From the period beginning on January 1, 2016 to the period beginning on January 1, 2017

The economic assumptions used in the Medicare projections are the same as those used for the OASDI and are prepared 

by the Office of the Chief Actuary at SSA.

For the current valuation (beginning on January 1, 2017), there was one change to the ultimate economic assumptions.

x The ultimate average real-wage differential is assumed to be 1.20 percent in the current valuation period, which is 

close to a 0.01 percent decrease relative to the previous valuation (even though both ultimate average real-wage 

differentials are 1.20 when rounded to two decimal places).

In addition to this change in assumption, the assumed real-wage differential for the first ten years of the projection 

period averaged 0.05 percent lower than in the previous valuation. The lower long-term and near-term real-wage differential 

assumptions are based on new projections of faster growth in employer sponsored group health insurance premiums. Because 

these premiums are not subject to the payroll tax, faster growth in these premiums means that a smaller share of employee 

compensation will be in the form of wages that are subject to the payroll tax.

Otherwise, the ultimate economic assumptions for the current valuation are the same as those for the prior valuation. 

However, the starting economic values and the way these values transition to the ultimate assumptions were changed. Most 

significantly, an assumed weaker recovery from the recent recession than previously expected led to a reduction in the 

ultimate level of actual and potential GDP of about 1.0 percent for all years after the short-range period.

The health care assumptions are specific to the Medicare projections. The following health care assumptions were 

changed in the current valuation.

x Utilization rate assumptions for inpatient hospital and skilled nursing facilities services were decreased.

x The number of beneficiaries enrolled in Medicare Advantage plans and their relative costs are slightly different from 

last year’s assumptions.

x Lower productivity increases through 2025, resulting in higher provider payment updates.

x Higher projected drug rebates.

x Change in projection methodology of drug spending for Part B patients with end-stage renal disease.

The net impact of these changes resulted in an increase in the estimated future net cash flow for total Medicare. For Part 

A, these changes resulted in an increase to the present value of estimated future expenditures and income, with an overall 

increase in the estimated future net cash flow. For Part B, these changes increased the present value of estimated future 

expenditures (and also income). For Part D, these changes decreased the present value of estimated expenditures (and also 

income). Overall, the net impact of these changes caused the present value of the estimated future net cash flows to decrease

by $0.3 trillion. 

Changes in Law

From the period beginning on January 1, 2017 to the period beginning on January 1, 2018

Most of the provisions enacted as part of Medicare legislation since the prior valuation date had little or no impact on 

the program. The following provisions did have a financial impact on the present value of the 75-year estimated future 

income, expenditures, and net cash flow.

x The Disaster Tax Relief and Airport and Airway Extension Act of 2017 (P.L. 115-63, enacted on September 29, 

2017) included one provision that affects the HI and SMI Part B programs.
NOTES TO THE FINANCIAL STATEMENTS 150

x An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for 

Fiscal Year 2018 (P.L. 115-97, enacted on December 22, 2017, and also referred to as the Tax Cuts and Jobs Act of 

2017) included three provisions that affect the HI program.

x An Act Making Further Continuing Appropriations for the Fiscal Year Ending September 30, 2018, and for Other 

Purposes (P.L. 115-120, enacted on January 22, 2018) included one provision that affects the HI and SMI programs.

x The BBA of 2018 (P.L. 115-123, enacted on February 9, 2018) included provisions that affect the HI and SMI 

programs.

Overall, these provisions resulted in a decrease in the estimated future net cash flow for total Medicare. For Part A,

these changes resulted in an increase to the present value of estimated future expenditures and a slight decrease to the present 

value of estimated future income, with an overall net decrease in the estimated future net cash flow. For Part B and Part D,

these changes increased the present value of estimated future expenditures (and also income). Overall, these changes to these 

assumptions caused the present value of the estimated future net cash flows to decrease by $1.0 trillion.

From the period beginning on January 1, 2016 to the period beginning on January 1, 2017

The monetary effect of the changes in law or policy on the present value of estimated future net cash flows of the 

Medicare programs was not significant at the consolidated level. Please refer to HHS’s financial statements for further 

information related to the impact of the changes in law or policy on the present value of estimated future net cash flows of the 

Medicare programs.

Change in Projection Base

From the period beginning on January 1, 2017 to the period beginning on January 1, 2018

Actual income and expenditures in 2017 were different than what was anticipated when the 2017 Medicare Trustees 

Report projections were prepared. Part A payroll tax income in 2017 was lower attributable to lowered wages and 

expenditures were higher than anticipated based on actual experience. Part B total income and expenditures were higher than 

estimated based on actual experience. For Part D, actual income and expenditures were both lower than prior estimates. The 

net impact of the Part A, B, and D projection base changes is a decrease in the estimated future net cash flow. Actual 

experience of the Medicare Trust Funds between January 1, 2017 and January 1, 2018 is incorporated in the current valuation 

and is less than projected in the prior valuation. Overall, the net impact of the Part A, B, and D projection base changes is a 

decrease in the estimated future net cash flows by $0.9 trillion.

From the period beginning on January 1, 2016 to the period beginning on January 1, 2017 

Actual income and expenditures in 2016 were different than what was anticipated when the 2016 Medicare Trustees 

Report projections were prepared. Part A payroll tax income in 2017 was lower attributable to lowered wages, and 

expenditures were higher than anticipated based on actual experience. Part B total income and expenditures were higher than 

estimated based on actual experience. For Part D, actual income and expenditures were both lower than prior estimates. The 

net impact of the Part A, B, and D projection base changes is an increase in the estimated future net cash flow. Actual 

experience of the Medicare Trust Funds between January 1, 2016 and January 1, 2017 is incorporated in the current valuation 

and is slightly more than projected in the prior valuation. Overall, the net impact of the Part A, B, and D projection base 

changes is an increase in the estimated future net cash flows by $0.7 trillion.

Other

The present values included in the SCSIA for the Railroad Retirement program are for the current and prior valuation 

and are based on various employment, demographic, and economic assumptions that reflect the RRB’s reasonable estimate of 

expected future financial and actuarial status of the trust funds. For a more detailed description of the primary reasons for the 

changes in the 2018 and 2017 SCSIA, refer to RRB’s financial statements.

The significant assumptions used in the projections of the Black Lung social insurance program, referenced earlier in 

this note, affect the amounts reported on the SCSIA, which presents the net change in the open group measure of the BLDTF 

for the years ended September 30, 2018 and 2017, and provide information about the change. For a more detailed description 

of the primary reasons for the changes in the 2018 and 2017 SCSIA, refer to DOL’s financial statements.
151 NOTES TO THE FINANCIAL STATEMENTS

Note 23. Long-Term Fiscal Projections

The SLTFP are prepared pursuant to SFFAS No. 36, Comprehensive Long-Term Projections for the U.S. Government,

as amended. The basic financial statement, Note 23, and related unaudited required supplementary information (RSI) provide 

information to aid readers of the Financial Report in assessing whether current policies for federal spending and taxation can 

be sustained and the extent to which the cost of public services received by current taxpayers will be shifted to future 

taxpayers. This assessment requires prospective information about receipts and spending, the resulting debt, and how these 

amounts relate to the size of the economy. A sustainable policy is defined as one where the ratio of federal debt held by the 

public to GDP (the debt-to-GDP ratio) is ultimately stable or declining. The Financial Report does not address the 

sustainability of State and local government fiscal policy.

The projections and analysis presented here are extrapolations based on an array of assumptions described in detail 

below. A fundamental assumption is that current federal policy will not change. This assumption is made so as to inform the 

question of whether current fiscal policy is sustainable and, if it is not sustainable, the magnitude of needed reforms to make 

fiscal policy sustainable. The projections are therefore neither forecasts nor predictions. If policy changes are implemented,

perhaps in response to projections like those presented here, then actual financial outcomes will be different than those 

projected. The methods and assumptions underlying the projections are subject to continuing refinement.

The projections focus on future cash flows, and do not reflect either the accrual basis or the modified-cash basis of 

accounting. These cash-based projections reflect receipts or spending at the time cash is received or when a payment is made 

by the government. In contrast, accrual-based projections would reflect amounts in the time period in which income is earned 

or when an expense or obligation is incurred. The cash basis accounting underlying the long-term fiscal projections is 

consistent with methods used to prepare the SOSI and the generally cash-based federal budget. 

The basic financial statement, Long-Term Fiscal Projections for the U.S. Government, displays the present value of 75-

year projections for various categories of the federal government’s receipts and non-interest spending.9 The projections for 

fiscal years 2018 and 2017 are expressed in present value dollars and as a percent of the present value of GDP10 as of 

September 30, 2018 and September 30, 2017, respectively. The present value of a future amount, for example $1 billion in 

October 2093, is the amount of money that if invested on September 30, 2018 in an account earning the government 

borrowing rate would have a value of $1 billion in October 2093.

11

The present value of a receipt or spending category over 75 years is the sum of the annual present value amounts. When 

expressing a receipt or spending category over 75 years as a percent of GDP, the present value dollar amount is divided by 

the present value of GDP over 75 years. Measuring receipts and spending as a percent of GDP is a useful indicator of the 

economy’s capacity to sustain federal government programs. 

Fiscal Projections

Receipt categories in the long-term fiscal projections include individual and corporate income taxes, Social Security and 

Medicare payroll taxes, and a residual remaining category of “other receipts.” Non-interest spending categories include 

discretionary spending that is funded through annual appropriations, such as spending for national security; and mandatory 

(entitlement) spending that is generally funded with permanent or multi-year appropriations, such as spending for Social 

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

demographic assumptions that underlie the 2018 Social Security and Medicare trustees’ reports and the 2018 SOSI, while 

comparative information presented from last year’s report is based on the 2017 Social Security and Medicare trustees’ reports

and the 2017 SOSI12. Projections for the other categories of receipts and spending are consistent with the economic and 

demographic assumptions in the trustees’ reports. The projections assume the continuance of current policy which, as is 

explained below, can be different than current law in cases where lawmakers have in the past periodically changed the law in 

a consistent way. 

The projections shown in the basic statement are made over a 75-year time frame, consistent with the time frame 

featured in the Social Security and Medicare trustees’ reports. However, these projections are for fiscal years starting on 

9 For the purposes of this analysis, spending is defined in terms of outlays. In the context of federal budgeting, spending can either refer to budget authority –

the authority to commit the government to make a payment; to obligations – binding agreements that will result in payments, either immediately or in the 

future; or to outlays – actual payments made.

10 GDP is a standard measure of the overall size of the economy and represents the total market value of all final goods and services produced domestically

during a given period of time. The components of GDP are: private sector consumption and investment, government consumption and investment, and net 

exports (exports less imports). Equivalently, GDP is a measure of the gross income generated from domestic production over the same time period. 11 Present values recognize that a dollar paid or collected in the future is worth less than a dollar today because a dollar today could be invested and earn 

interest. To calculate a present value, future amounts are thus reduced using an assumed interest rate, and those reduced amounts are summed. 12 Social Security and Medicare Trustees’ Reports can be found at https://www.ssa.gov/OACT/TR/.
NOTES TO THE FINANCIAL STATEMENTS 152

October 1, whereas the trustees’ reports feature calendar-year projections. Using fiscal years allows the projections to start

from the actual budget results from fiscal years 2018 and 2017.

This year’s estimate of the 75-year present value imbalance of receipts less non-interest spending is 3.3 percent of the 

75-year present value of GDP, compared to 1.2 percent as was projected in last year’s Financial Report.

13 The above table 

reports the effects of various factors on the updated projections.

x The largest factor, increasing the imbalance by 1.1 percent of the 75-year present value of GDP ($15.4 trillion), is 

attributable to actual budget results for fiscal year 2018 and the budgetary estimates published in the 2019 

Midsession Review. This includes lower corporate and individual income tax receipts resulting from the TCJA of 

2017, and higher non-defense discretionary outlays as a result of the increased discretionary spending caps in the 

BBA.

x The second largest factor is the effect of adjustments to the model’s technical assumptions, which increases the 

imbalance by 0.8 percent of the 75-year present value of GDP ($11.5 trillion). As discussed below in the section on 

assumptions used in the projections, corporate income tax receipts are held to their proportion of the budget’s share 

of GDP to reflect enactment of the TCJA of 2017. Discretionary spending is assumed to grow from the 2019 cap 

levels established in the BBA, subject to Joint Select Committee on Deficit Reduction (Joint Committee) 

sequestration enforcement14.

x The third largest factor, increasing the imbalance by 0.3 percent of the 75-year present value of GDP ($3.8 trillion) 

is due to changes in Social Security, Medicare and Medicaid actuarial assumptions15.

x The next largest change in the table – decreasing the imbalance by 0.1 percent of GDP ($1.2 trillion) – is attributable 

to changes in economic and demographic assumptions. Higher near-term wage and GDP projections increased 

individual income tax and social insurance receipts.

The penultimate row in the basic financial statement shows that this year’s estimate of the overall 75-year present value 

of receipts less non-interest spending is -3.3 percent of the 75-year present value of GDP (negative $46.2 trillion, as 

compared to GDP of $1,406.3 trillion). This imbalance can be broken down by funding source. Spending exceeded receipts 

by 1.7 percent of GDP ($24.2 trillion) among programs funded by the government’s general revenues, and there is an 

imbalance of 1.6 percent of GDP ($22.1 trillion16) for the combination of Social Security (OASDI) and Medicare Part A, 

13 More information on the projections in last year’s Financial Report can be found in Note 23 to the Financial Statements here: 

https://fiscal.treasury.gov/reports-statements/# 

14 For further discussion of spending assumptions, see the section “Assumptions Used and Relationship to Other Financial Statements” below. 15 For more information on Social Security, Medicare and Medicaid actuarial estimates, refer to Note 22—Social Insurance. 16 The 75-year present value imbalance for Social Security and Medicare Part A of $22.1 trillion is comprised of several line items from the SLTFP – Social 

Security outlays net of Social Security payroll taxes ($22.0 trillion) and Medicare Part A outlays net of Medicare payroll taxes ($8.8 trillion) – as well as 

subcomponents of these programs not presented separately in the statement. These subcomponents include Social Security and Medicare Part A 

administrative costs that are classified as non-defense discretionary spending ($0.7 trillion) and Social Security and Medicare Part A income other than 

payroll taxes: taxation of benefits (-$4.4 trillion), federal employer share (-$1.3 trillion), and other income (-$3.7 trillion). 
153 NOTES TO THE FINANCIAL STATEMENTS

which under current law are funded with payroll taxes and not in any material respect with general revenues.17, 18 By 

comparison, the fiscal year 2017 projections showed that programs funded by the government’s general revenues had an 

excess of receipts over spending of 0.2 percent of GDP ($3.3 trillion) while the payroll tax-funded programs had an 

imbalance of spending over receipts of 1.5 percent of GDP ($19.6 trillion).

Sustainability and the Fiscal Gap

As discussed further in the unaudited RSI, the projections in this report indicate that current policy is not sustainable. If 

current policy is left unchanged, the projections show the debt-to-GDP ratio will rise about 6 percentage points to a level of 

84 percent by 2022, exceed 100 percent by 2030, and reach 530 percent in 2093. Moreover, if the trends that underlie the 75-

year projections were to continue, the debt-to-GDP ratio would continue to rise beyond the 75-year window.

The fiscal gap measures how much the primary surplus (receipts less non-interest spending) must increase in order for 

fiscal policy to achieve a target debt-to-GDP ratio in a particular future year. In these projections, the fiscal gap is estimated 

over a 75-year period, from 2019 to 2093, and the target debt-to-GDP ratio is equal to the ratio at the beginning of the 

projection period, in this case the debt-to-GDP ratio at the end of fiscal year 2018. 

The 75-year fiscal gap under current policy is estimated at 4.1 percent of GDP, which is 21.9 percent of the 75-year 

present value of projected receipts and 18.6 percent of the 75-year present value of non-interest spending. This estimate of the 

fiscal gap is 2.1 percentage points larger than was estimated in 2017 (2.0 percent of GDP).

The projections show that projected primary deficits average 3.2 percent of GDP over the next 75 years under current 

policy. If policies were put in place that would result in a zero fiscal gap, the average primary surplus over the next 75 years 

would be 0.8 percent of GDP, 4.1 percentage points higher than the projected present value of receipts less non-interest 

spending shown in the basic financial statement. In these projections, closing the fiscal gap requires running a substantially

positive level of primary surplus, rather than simply eliminating the primary deficit. The primary reason is that the 

projections assume future interest rates will exceed the growth rate of GDP. Achieving primary balance (that is, running a 

primary surplus of zero) implies that the debt held by the public grows each year by the amount of interest spending, which 

under these assumptions would result in debt growing faster than GDP.

Assumptions Used and Relationship to Other Financial Statements

A fundamental assumption underlying the projections is that current federal policy (defined below) does not change. 

The projections are therefore neither forecasts nor predictions, and do not consider large infrequent events such as natural 

disasters, military engagements, or economic crises. By definition, they do not build in future changes to policy, such as 

recent proposals to repeal the ACA or increase border infrastructure and security. If policy changes are enacted, perhaps in 

response to projections like those presented here, then actual fiscal outcomes will be different than those projected.

Even if policy does not change, actual spending and receipts could differ materially from those projected here. Longrange projections are inherently uncertain and are necessarily based on simplifying assumptions. For example, one key 

simplifying assumption is that interest rates paid on debt held by the public remain unchanged, regardless of the amount of 

debt outstanding. To the contrary, it is likely that future interest rates would increase if the debt-to-GDP ratio rises as shown 

in these projections. To help illustrate this uncertainty, projections that assume higher and lower interest rates are presented in 

the “Alternative Scenarios” discussion in the unaudited RSI section of this Financial Report.

As is true for prior long-term fiscal projections for the Financial Report, the assumptions for GDP, interest rates, and 

other economic and demographic variables underlying this year’s projections are the same assumptions that underlie the most 

recent Social Security and Medicare trustees’ report projections, adjusted for historical revisions that occur annually. The use 

17 Social Security and Medicare Part A expenditures can exceed payroll tax revenues in any given year to the extent that there are sufficient balances in the 

respective trust funds; these balances derive from past excesses of payroll tax revenues over expenditures and interest earned on those balances and represent 

the amount the General Fund owes the respective trust fund programs. When spending does exceed payroll tax revenues, as has occurred each year since 

2008 for Medicare Part A and 2010 for Social Security, the excess spending is financed first with interest due from the General Fund and secondly with a 

drawdown of the trust fund balance; in either case, the spending is ultimately supported by general revenues or borrowing. Under current law, benefits for 

Social Security and Medicare Part A can be paid only to the extent that there are sufficient balances in the respective trust funds. In order for the long-term 

fiscal projections to reflect the full size of these program’s commitments to pay future benefits, the projections assume that all scheduled benefits will be 

financed with borrowing to the extent necessary after the trust funds are depleted. 18 The fiscal imbalances reported in the long-term fiscal projections are limited to future outlays and receipts. They do not include the initial level of 

publicly-held debt, which was $15.8 trillion in 2018 and $14.7 trillion in 2017, and therefore they do not by themselves answer the question of how large 

fiscal reforms must be to make fiscal policy sustainable, or how those reforms divide between reforms to Social Security and Medicare Part A and to other 

programs. Other things equal, past cash flows (primarily surpluses) for Social Security and Medicare Part A reduced federal debt at the end of 2018 by $3.1 

trillion (the trust fund balances at that time); the contribution of other programs to federal debt at the end of 2018 was therefore $18.9 trillion. Because the 

$22.1 trillion imbalance between outlays and receipts over the next 75 years for Social Security and Medicare Part A does not take account of the Social 

Security and Medicare Part A trust fund balances, it overstates the magnitude of reforms necessary to make Social Security and Medicare Part A solvent 

over 75 years by $3.1 trillion. The $3.1 trillion combined Social Security and Medicare Part A trust fund balance represents a claim on future general 

revenues.
NOTES TO THE FINANCIAL STATEMENTS 154

of discount factors consistent with the Social Security trustees’ rate allows for consistent present value calculations over 75 

years between the SLTFP and the SOSI. 

The following bullets summarize the key assumptions used for the categories of receipts and spending presented in the 

basic financial statement and the disclosures:

x Social Security: Projected Social Security (OASDI) spending excludes administrative expenses, which are 

classified as discretionary spending, and is based on the projected expenditures in the 2018 Social Security trustees’ 

report for benefits and for the Railroad Retirement interchange. The projections of Social Security payroll taxes and 

Social Security spending are based on future spending and payroll taxes projected in the 2018 Social Security 

trustees’ report, adjusted for presentational differences and converted to a fiscal year basis. More information about 

the assumptions for Social Security cost growth can be found in Note 22 and the unaudited RSI discussion of Social 

Insurance.

x Medicare: Projected Medicare spending also excludes administrative expenses, which are classified as other 

mandatory spending, and is based on projected incurred expenditures from the 2018 Medicare trustees’ report. The 

projections here make some adjustments to the trustees’ report projections. Medicare Part B and D premiums, as 

well as State contributions to Part D, are subtracted from gross spending in measuring Part B and Part D spending, 

just as they are subtracted from gross cost to yield net cost in the financial statements.19 Here, as in the federal 

budget, premiums are treated as “negative spending” rather than receipts since they represent payment for a service 

rather than payments obtained through the government’s sovereign power to tax. This is similar to the financial 

statement treatment of premiums as “earned” revenue as distinct from all other sources of revenue, such as taxes. 

The projections are based on Medicare spending in the Medicare trustees’ report, adjusted for presentational 

differences and converted to a fiscal year basis. Medicare Part A payroll taxes are projected similarly. More 

information about the assumptions for Medicare cost growth can be found in Note 22 and the unaudited RSI 

discussion of Social Insurance. As discussed in Note 22, there is uncertainty about whether the reductions in health 

care cost growth projected in the Medicare trustees’ report will be fully achieved. Note 22 illustrates this uncertainty 

by considering Medicare cost growth assumptions under varying policy assumptions. 

x Medicaid: The Medicaid spending projections start with the projections from the 2017 Medicaid Actuarial Report

prepared by CMS’s Office of the Actuary20. These projections are based on recent trends in Medicaid spending; the 

demographic, economic, and health cost growth assumptions in the 2017 Medicare Trustees’ Report; and projections 

of the effect of the ACA on Medicaid enrollment. The projections, which end in 2026, are adjusted to accord with 

the actual Medicaid expenditures in fiscal year 2018. After 2026, the projections assume no further change in State 

Medicaid coverage under the ACA, and the numbers of old-age beneficiaries (65-plus years) and non-old-age 

beneficiaries (less than 65 years) are expected to grow at the same rates as the old-age and non-old-age populations, 

respectively. Medicaid costs per beneficiary are assumed to grow at the same rate as Medicare benefits per 

beneficiary, as is generally consistent with the experience since 1987. Between 1987 and 2017, the average annual 

growth rate of spending per beneficiary for Medicaid and Medicare were within 0.3 percentage point of each other. 

Projections of Medicaid spending are subject to added uncertainty related to: (1) assumed reductions in health care 

cost growth discussed above in the context of Medicare, (2) the projected size of the Medicaid enrolled population,

which depends on a variety of factors, including future State actions regarding the ACA Medicaid expansion, and 

(3) certain limitations relating to the data used to generate the projected per enrollee expenditures in the 2017 

Medicaid actuarial report. 

x Other Mandatory Spending: Other mandatory spending, which includes federal employee retirement, veterans’ 

disability benefits, and means-tested entitlements other than Medicaid, is projected in two steps. First, spending prior 

to the automatic spending cuts called for by the enforcement provisions of the BCA is projected and, second, the 

effect of the BCA enforcement is projected through its statutory expiration in 2027. With regard to pre-BCA 

spending: (1) current mandatory spending components that are judged permanent under current policy are assumed 

to increase by the rate of growth in nominal GDP starting in 2019, implying that such spending will remain constant 

as a percent of GDP21; and (2) projected spending for insurance exchange subsidies starting in 2019 grows with 

growth in the non-elderly population and with the National Health Expenditure (NHE) projected per enrollee cost 

growth for other private health insurance for the NHE projection period (through 2026 for the fiscal year 2018 

projections), and with growth in per enrollee health care costs as projected for the Medicare program after that 

period. As discussed in Note 22, there is uncertainty about whether the reductions in health care cost growth 

19 Medicare Part B and D premiums and State contributions to Part D are subtracted from the Part B and D spending displayed in the SLTFP. The total 75-

year present value of these subtractions is $13.6 trillion, or 1.0 percent of GDP. 20 Christopher J. Truffer, Christian J. Wolfe, and Kathryn E. Rennie, 2017 Actuarial Report on the Financial Condition for Medicaid, Office of the Actuary, 

Centers for Medicare and Medicaid Services, United States Department of Health and Human Services, September 2017. 21 This assumed growth rate for other mandatory programs exceeds the growth rate in the most recent OMB and CBO 10-year budget baselines.
155 NOTES TO THE FINANCIAL STATEMENTS

projected in the Medicare trustees’ report will be fully achieved. Projected exchange subsidy spending as a percent 

of GDP remains below the failsafe provision in the ACA that limits this spending to 0.504 percent of GDP. 

x Defense and Non-defense Discretionary Spending: Prior to 2018, the projections assumed discretionary spending 

followed the caps established by the BCA of 2011, as later amended, and then grew with nominal GDP in the years 

after the caps expired. However, discretionary spending has not been limited to the caps established in the BCA. 

Instead, budget deals in 2013, 2015, and 2018 raised the caps in each of the years 2014 through 2019. Therefore, as 

a reasonable representation of current policy, the 2018 projections assume discretionary spending is grown at the 

same rate as nominal GDP beginning after 2019, rather than being limited to the statutory caps, subject to Joint 

Committee spending controls22. Projected OCO spending, which is not subject to the caps, is assumed to grow from 

the level in the most recent year at the same rate as nominal GDP. To illustrate sensitivity to different assumptions, 

present value calculations under alternative discretionary growth scenarios are presented in the unaudited 

“Alternative Scenarios” RSI section.

x Receipts (Other than Social Security and Medicare Payroll Taxes): Individual income taxes equal the same 

share of wages and salaries as in the current law baseline projection in the President’s fiscal year 2019 Budget. That 

baseline accords with current policy as defined above, including the continuation of the individual income, estate, 

and gift tax provisions of the TCJA of 201723 and the tendency of effective tax rates to increase as growth in income 

per capita outpaces inflation (also known as “bracket creep”). After reaching about 20 percent of wages and salaries 

in 2024, individual income taxes increase gradually to 27 percent of wages and salaries in 2093 as real taxable 

incomes rise over time and an increasing share of total income is taxed in the higher tax brackets. Through the first 

10 years of the projections, corporate tax receipts as a percent of GDP reflect the economic and budget assumptions 

used in developing the 2019 Midsession Review’s ten-year advance budgetary estimates24. After this time, corporate 

tax receipts grow at the same rate as nominal GDP. All other receipts also reflect 2019 Midsession Review levels as 

a share of GDP throughout the budget window and grow with GDP outside of the budget window. Corporate tax 

receipts peak at 1.6 percent of GDP in 2025 before falling to 1.3 percent of GDP in 2028, where they stay for the 

remainder of the projection period. The ratio of all other receipts combined, excluding corporate tax receipts, to 

GDP is estimated to be 1.5 percent in 2019, after which it gradually declines to 1.3 percent of GDP, where it remains 

through the projection period. To illustrate uncertainty, present value calculations under higher and lower receipts 

growth scenarios are presented in the “Alternative Scenarios” section.

x Debt and Interest Spending: Interest spending is determined by projected interest rates and the level of outstanding 

debt held by the public. The long-run interest rate assumptions accord with those in the 2018 Social Security 

trustees’ report.25 The average interest rate over the projection period is 5.0 percent. These rates are also used to 

convert future cash flows to present values as of the start of fiscal year 2019. Debt at the end of each year is 

projected by adding that year’s deficit and other financing requirements to the debt at the end of the previous year.

The methods described above include two significant revisions from those used to produce the fiscal year 2017 

projections. Corporate tax receipts are now projected separately from all other receipts to incorporate the effects of the TCJA

of 2017. In prior years, corporate income tax receipts were not modeled independently, they were included in “Other 

Receipts26.” To project corporate income tax receipts, the model uses their implied share of GDP over the years 2019 through 

2028 from the 2019 Midsession Review to determine receipts in those years, and then grows receipts with nominal GDP 

thereafter. “Other Receipts” are now projected similarly; instead of using their 30-year historical average share of GDP, the 

receipts’ implied share of GDP over the years 2019 to 2028, as presented in the 2019 Midsession Review, are used to 

determine receipts over this period. Afterward, receipts grow with GDP. The second significant revision is that discretionary

spending no longer follows the caps established under the BCA through 2021. Instead, discretionary spending starts from the 

outlays implied by BBA 2018’s cap level for 2019, and grows with GDP thereafter (subject to Joint Committee enforcement).

22 The BCA of 2011 established statutory caps on discretionary spending for fiscal years 2012 through 2021, and established a Joint Committee tasked with 

identifying $1.2 trillion in deficit reduction. The failure of the Joint Committee to propose, and Congress to enact, legislation sufficient to reduce the deficit 

triggers automatic spending reductions through adjustments to the discretionary spending limits and sequestration of mandatory spending. Mandatory 

sequestration has been extended in various statutes and currently extends through 2027. After 2027, the projections assume the automatic reductions 

continue as a constant share of projected GDP.

23 The expiring individual income and estate and gift tax provisions of the TCJA are assumed to continue past their legal expiration on December 31, 2025 

because of the recent historical pattern of such tax rates being extended; additional discussion may be found in the last section of this note. 24 The Midsession Review is an annual report to the Congress, delivered on or before July 15th, that contains revised budget estimates resulting from changes 

in economic assumptions, Presidential initiatives, and enacted legislation that have occurred since transmittal of the President’s Budget. 25 As indicated in the more detailed discussion of Social Insurance in Note 22 to the financial statements. 26 “Other receipts”, which included corporate income tax receipts prior to 2018, were modeled by assuming they maintain their 30-year historical average 

share of GDP throughout the modeling period.
NOTES TO THE FINANCIAL STATEMENTS 156

Departures of Current Policy from Current Law 

The long-term fiscal projections are made on the basis of current policy, which in some cases is different from current 

law. The notable differences between current policy that underlies the projections and current law are: (1) discretionary 

spending is assumed to not be limited by caps established by the BCA; (2) projected spending, receipts, and borrowing levels 

assume raising or suspending the current statutory limit on federal debt; (3) continued discretionary appropriations are 

assumed throughout the projection period; (4) scheduled Social Security and Medicare benefit payments are assumed to 

occur beyond the projected point of trust fund depletion; (5) many mandatory programs with expiration dates prior to the end 

of the 75-year projection period are assumed to be reauthorized; and (6) tax changes under the TCJA are assumed to continue 

beyond 2025. The last difference aligns with the historical pattern of such legislation being routinely extended or made 

permanent. As is true in the Medicare trustees’ report and in the SOSI, the projections incorporate programmatic changes 

already scheduled in law, such as the ACA productivity adjustment for non-physician Medicare services and the expiration of 

certain physician bonus payments in 2025.
157 NOTES TO THE FINANCIAL STATEMENTS

Note 24. Stewardship Land and Heritage Assets

Stewardship PP&E consists of items whose physical properties resemble those of general PP&E traditionally capitalized 

in financial statements. However, stewardship PP&E differs from general PP&E in that their values may be indeterminable or 

may have little meaning (for example, museum collections, monuments, assets acquired in the formation of the nation) or that 

allocating the cost of such assets to accounting periods that benefit from the ownership of such assets is meaningless. 

Stewardship PP&E includes stewardship land (land not acquired for or in connection with general property, plant, and 

equipment) and heritage assets (for example, federal monuments and memorials and historically or culturally significant 

property). The majority of stewardship land was acquired by the government during the first century of the nation’s 

existence.

Investments in stewardship land are reported on a non-financial basis. For example, measurement may be based on 

physical units, such as acres of land. National forests, parks, and historic sites are examples of stewardship land. 

Additional detailed information concerning stewardship land, such as entity stewardship policies, physical units by 

major categories, and the condition of stewardship land, can be obtained from the financial statements of DOI, DOD, TVA, 

and USDA.

Heritage assets are government-owned assets that have one or more of the following characteristics:

x Historical or natural significance;

x Cultural, educational, or artistic importance; or

x Significant architectural characteristics.

Like stewardship land, heritage assets are also reported on a non-financial basis. Measurement may be reported by the 

total units, such as the total number of National Parks reported by DOI. The public entrusts the government with these assets 

and holds it accountable for their preservation. Examples of heritage assets include the Declaration of Independence, the U.S.

Constitution, and the Bill of Rights preserved by the National Archives. Also included are national monuments/structures 

such as the Washington Monument, the Lincoln Memorial and the LOC. Many other sites such as battlefields, historic 

structures, and national historic landmarks are placed in this category, as well.

Heritage assets are classified into two categories: collection and non-collection. Collection type heritage assets include 

objects gathered and maintained for exhibition, for example, museum collections, art collections, and library collections. 

Non-collection type heritage assets include parks, memorials, monuments, and buildings. In some cases, heritage assets may 

serve two purposes: a heritage function and general government operations. In those cases, the heritage asset should be 

considered a multi-use heritage asset if the predominant use of the asset is in general government operations (e.g., the main 

Treasury building used as an office building). The cost of acquisition, improvement, reconstruction, or renovation of multiuse heritage assets should be capitalized as general PP&E and depreciated over its estimated useful life. 

This discussion of the government’s heritage assets is not exhaustive. Rather, it highlights significant heritage assets 

reported by federal entities. Please refer to the individual financial statements of the DOC, VA, DOT, State, DOD, as well as 

websites for the LOC (https://loc.gov), the Smithsonian Institution (https://si.edu), and the Architect of the Capitol 

(https://aoc.gov) for additional information on multi-use heritage assets, entity stewardship policies, and physical units by 

major categories. 
NOTES TO THE FINANCIAL STATEMENTS 158

Note 25. Disclosure Entities and Related Parties

SFFAS No. 47, Reporting Entity provides criteria for identifying organizations that are consolidation entities, disclosure 

entities and related parties, and how such organizations are reported within the Financial Report. For consolidation entities, 

the assets, liabilities, results of operations, and related activity are consolidated into the government’s financial statements. 

For disclosure entities and related parties, balances and transactions with such entities are included in the financial statements 

and certain information about their relationship with the federal government is disclosed in the notes to the consolidated 

financial statements. Disclosure entities and related parties are important to the Financial Report but are not consolidated into 

the government’s financial statements. 

Disclosure Entities 

Disclosure entities are organizations similar to consolidation entities in that they are either (a) in the budget, (b) majority 

owned by the government, (c) controlled by the government, or (d) would be misleading to exclude. Disclosure entities have 

a greater degree of autonomy with the government than consolidation entities. In addition, organizations may be owned or 

controlled by the government as a result of (a) regulatory actions (such as organizations in receivership or conservatorship) or 

(b) other government intervention actions. Under such regulatory or other intervention actions, if the relationship with the 

government is not expected to be permanent, such entities generally would be classified as disclosure entities based on their

characteristics taken as a whole. 

Based on the criteria in GAAP for federal entities, the disclosure entities in the Financial Report are FR System, Fannie 

Mae, Freddie Mac, and National Railroad Passenger Corporation (more commonly referred to as Amtrak). In addition, there 

are additional disclosure entities reported by component reporting entities that do not meet the qualitative or quantitative 

criteria in SFFAS No. 47 to be reported in the Financial Report.

Federal Reserve System

Congress, under the Federal Reserve Act of 1913 (Federal Reserve Act), created the FR System. The FR System 

includes the Federal Reserve Board of Governors (Board), the FRBs, and Federal Open Market Committee (FOMC). 

Collectively, the FR System serves as the nation’s central bank and is responsible for formulating and conducting monetary 

policy, issuing and distributing currency (Federal Reserve Notes), supervising and regulating financial institutions, providing 

nationwide payment systems (including large-dollar transfers of funds, Automated Clearing House (ACH) operations, and 

check collections), providing certain financial services to federal entities and fiscal principals, and serving as the U.S. 

government’s bank. Monetary policy includes actions undertaken by the FR System that influence the availability and cost of 

money and credit as a means of helping to promote national economic goals. The FR System also conducts operations in 

foreign markets in order to counter disorderly conditions in exchange markets or to meet other needs specified by the FOMC 

to carry out its central bank responsibilities. The FR System is considered an independent central bank, and the executive 

branch of the government does not ratify its decisions. 

The 12 FRBs are chartered under the Federal Reserve Act, which requires each member bank to own the capital stock of 

its FRB. Each FRB has a board of directors that exercises supervision and control of each FRB, with three members 

appointed by the Board, and six board members elected by their member banks. The FRBs participate in formulating and 

conducting monetary policy, distributing currency and coin, and serving as the government’s fiscal agent, as well as the fiscal

agent for other federal entities and fiscal principals. Fiscal principals, generally speaking, relate to banks, credit unions,

savings and loans institutions. Additionally, the FRBs provide short-term loans to depository institutions and loans to 

participants in programs or facilities with broad-based eligibility in unusual and crucial circumstances when approved by the 

Board and the Secretary of the Treasury. 

The government interacts with FRBs in a variety of ways, including the following:

x The FRBs serve as the government’s fiscal agent and depositary, executing banking and other financial transactions 

on the government’s behalf. The government reimburses the FRBs for these services, the cost of which is included 

on the Statements of Net Cost;

x The FRBs hold Treasury and other federal securities in the FRBs’ System Open Market Account (SOMA) for the 

purpose of conducting monetary policy (see Note 11—Federal Debt Securities Held by the Public and Accrued 

Interest);

x The FRBs hold gold certificates issued by the government in which the certificates are collateralized by gold (see 

Note 2—Cash and Other Monetary Assets);

x The FRBs hold SDR certificates issued by the government which are collateralized by SDRs (see Note 2—Cash and 

Other Monetary Assets); and,
159 NOTES TO THE FINANCIAL STATEMENTS

x The FRBs are required by Board policy to transfer their excess earnings to the government, which are included in

Other Taxes and Receipts on the Statements of Operations and Changes in Net Position.

x Federal Reserve System Structure

The Board is an independent organization governed by seven members who are appointed by the President and 

confirmed by the Senate. The full term of a Board member is 14 years, and the appointments are staggered so that one 

term expires on January 31 of each even-numbered year. The Board has a number of supervisory and regulatory 

responsibilities for institutions including, among others, state-chartered banks that are members of the FR System, bank 

holding companies, and savings and loan holding companies. In addition, the Board has general supervisory 

responsibilities for the 12 FRBs, and issues currency (Federal Reserve Notes) to the FRBs for distribution.

The FOMC is comprised of the seven Board members and five of the 12 FRB presidents, and is charged with 

formulating and conducting monetary policy primarily through open market operations (the purchase and sale of certain 

securities in the open market), the principal tool of national monetary policy. These operations affect the amount of 

reserve balances available to depository institutions, thereby influencing overall monetary and credit conditions. 

The 12 FRBs are chartered under the Federal Reserve Act, which requires each member bank to own the capital 

stock of its FRB. Supervision and control of each FRB is exercised by a board of directors, of which three are appointed 

by the Board of the FR System, and six are elected by their member banks. The FRBs participate in formulating and 

conducting monetary policy, distribute currency and coin, and serve as fiscal agents for the government, and other 

federal entities. Additionally, the FRBs provide short-term loans to depository institutions and loans to participants in 

programs or facilities with broad-based eligibility in unusual and exigent circumstances when approved by the Board 

and the Secretary of the Treasury.

x Federal Reserve Monetary Policy Action

During fiscal year 2018, the Federal Reserve FOMC gradually raised its target range for the federal funds rate and 

gradually reduced its securities in the SOMA. The Federal Reserve raised its target range for the federal funds rate from 

1.0 – 1.25 percent in September 2017, to 2.0 – 2.25 percent in September 2018. The Federal Reserve reduced its U.S. 

Treasury and federal agency and government-sponsored enterprise mortgage-backed securities in the SOMA on its 

balance sheet from approximately $4.4 trillion as of September 30, 2017, to approximately $4.1 trillion as of September 

30, 2018.

x Federal Reserve System Assets, Liabilities, Revenues, Expenses, Gains, and Losses

The FRBs hold Treasury and other securities in the SOMA for the purpose of conducting monetary policy. As of 

September 30, 2018, Treasury securities held by the FRBs totaled $1,782.5 billion, which excludes $531.8 billion in 

Treasury Securities used in overnight reverse repurchase transactions. As of September 30, 2017, Treasury securities 

held by the FRBs totaled $1,964.7 billion, which excludes $502.0 billion in Treasury securities used in overnight 

reverse repurchase transactions. Such securities are included in federal debt securities held by the public and accrued 

interest (see Note 11—Federal Debt Securities Held by the Public and Accrued Interest). For fiscal years ended 

September 30, 2018, and 2017, Treasury incurred interest cost relating to the FRB’s U.S. Treasury holdings amounting 

to $64.1 billion and $63.8 billion, respectively, which is included in interest on Treasury securities held by the public on 

the Statement of Net Cost. Unrestricted Cash held on deposit at the FRBs as of September 30, 2018, and 2017, was 

$378.5 billion and $153.3 billion, respectively, and are included in cash and other monetary assets. In addition, 

restricted cash as of September 30, 2018, and 2017, was $31.6 billion and $26.1 billion, respectively; a significant 

portion is held on deposit at the FRBs (see Note 2—Cash and Other Monetary Assets). 

Treasury securities are generally subject to the same market (principally interest-rate) and credit risks as other 

financial instruments. In the open market, the FRBs purchase and sell Treasury securities as a mechanism for 

controlling the money supply.

Financial and other information concerning the FR System, including financial statements for the Board and the 

FRBs, may be obtained at https://federalreserve.gov.

x FRB Residual Earnings Transferred to the Government

FRBs generate income from interest earned on securities, reimbursable services provided to federal entities, and 

the provision of priced services to depository institutions, as specified by the Monetary Control Act of 1980. Although 

the FRBs generate earnings from carrying out open market operations (via the earnings on securities held in the SOMA 

account), their execution of these operations is for the purpose of accomplishing monetary policy rather than generating 

earnings. Each FRB is required by Board policy to transfer to the government its residual (or excess) earnings, after 

providing for the cost of operations, payment of dividends, and surplus funds not to exceed an FRB’s allocated portion 
NOTES TO THE FINANCIAL STATEMENTS 160

of an aggregate of $7.5 billion for all FRBs. These residual earnings may vary due to, among other things, changes in 

the SOMA balance levels that may occur in conducting monetary policy. If an FRB’s earnings for the year are not 

sufficient to provide for the cost of operations, payment of dividends, or allocated portion of $7.5 billion aggregate 

surplus funds limitation, an FRB will suspend its payments to the government until such earnings become sufficient.

These funds are part of restricted cash at the Federal Reserve (see Note 2—Cash and Other Monetary Assets). The FRB 

residual earnings of $70.8 billion and $81.3 billion for fiscal years ended September 30, 2018, and 2017, respectively, 

are reported as other taxes and receipts on the Statements of Operations and Changes in Net Position. Accounts and 

taxes receivables, net, includes a receivable for FRB’s residual earnings which represents the earnings due to the 

General Fund as of September 30, but not collected by the General Fund until after the end of the month. As of 

September 30, 2018, and 2017, accounts receivable on FRB’s residual earnings are $0.4 billion and $0.3 billion, 

respectively (see Note 3—Accounts and Taxes Receivables, Net).

Fannie Mae and Freddie Mac

In 2008, during the financial crisis, the government placed Fannie Mae and Freddie Mac under conservatorship to help 

ensure their financial stability. For fiscal year 2018, these entities meet the criteria in SFFAS No. 47, for disclosure entities as 

both (a) “receiverships and conservatorships,” and, (b) as entities wherein “federal government intervention actions resulted

in control or ownership” with intervention actions not expected to be permanent. Accordingly, these entities are not 

consolidated into the Financial Report. This treatment is consistent with the reporting for these entities in fiscal year 2017 

under SFFAC No. 2, Entity and Display (see Note 8—Investments in Government-Sponsored Enterprises for additional 

information).

Amtrak

Amtrak was incorporated in 1971 pursuant to the Rail Passenger Service Act of 1970 and is authorized to operate a 

nationwide system of passenger rail transportation. Amtrak is a private, for-profit corporation under 49 U.S.C. § 24301 and 

District of Columbia law. It is not a department, entity, or instrumentality of the federal government. Amtrak’s classification 

as a disclosure entity is attributed to (a) being listed in the budget, (b) is financed mostly by sources other than taxes, and (c) 

governed by an independent Board of Directors comprised of 10 directors. The Secretary of Transportation (Secretary), who 

is a director by statute, and eight of the other Amtrak directors, are appointed by the President with the advice and consent of 

the U.S. Senate. The 10th board member, appointed by the board, is the President and Chief Executive Officer of Amtrak. 

Amtrak does not take actions on behalf of the government but benefits the national economy by providing a transportation 

option in 46 states and the District of Columbia.

The government (through the DOT) owns 100% of Amtrak’s preferred stock (109,396,994 shares of $100 par value). 

Each share of preferred stock is convertible into ten shares of common stock. The common stockholders have voting rights 

for “amendments to Amtrak’s Articles of Incorporation proposed by the Board of Directors and for certain other 

extraordinary events.” Although Section 4.02(g) of the Amtrak Articles of Incorporation allow for the conversion of preferred 

stock to common stock, the government would not convert its holdings without Congressional authorization. The government 

does not recognize the Amtrak preferred stock in its financial statements because, under the corporation’s current financial 

structure, the preferred shares do not have a liquidation preference over the common shares, the preferred shares do not have

any voting rights, and dividends are neither declared nor in arrears.

In addition to the purchase/ownership of the Amtrak preferred stock, the government has provided funding to Amtrak, 

since 1972, primarily through grants and loans. Amtrak receives grants from the government that cover a portion of the 

corporation’s annual operating expenses and capital investments. Funding provided to Amtrak through grant agreements are 

included in the government’s annual budget. Amtrak has a history of recurring operating losses and is dependent on subsidies 

from the government to operate. Amtrak’s ability to continue operating in its current form is dependent upon the continued 

receipt of subsidies from the government. 

The government has possession of two long-term notes with Amtrak. The first note is for $4.0 billion and matures in 

2975 and, the second note is for $1.1 billion and matures in 2082 with renewable 99-year terms. Interest is not accruing on 

these notes as long as the current financial structure of Amtrak remains unchanged. If the financial structure of Amtrak 

changes, both principal and accrued interest are due and payable. The government does not recognize the long-term notes in 

its financial statements since the notes, with maturity dates of 2975 and 2082, are considered fully uncollectible due to the

lengthy terms, Amtrak’s history of operating losses, and ability to generate funds for repayment.

Financial and other information concerning Amtrak including financial statements may be obtained at 

https://www.amtrak.com/reports-documents.
161 NOTES TO THE FINANCIAL STATEMENTS

Related Parties

Related parties exist if the existing relationship, or one party to the existing relationship, has the ability to exercise 

significant influence over the party’s policy decisions. Related parties do not meet the principles for inclusion, but are 

reported in the Financial Report if they maintain relationships of such significance that it would be misleading to exclude.

Based on the criteria in SFFAS No. 47, the related parties reported in the Financial Report are Federal Home Loan 

Banks (FHLBanks), IMF, Multilateral Banks, and Private Export Funding Corporation (PEFCO). In addition, there are 

additional related parties reported by component reporting entities that do not meet the criteria to be reported in the Financial

Report.

Federal Home Loan Banks

The government is empowered with supervisory and regulatory oversight of the 11 FHLBanks. The government is 

responsible for ensuring that each regulated entity operates in a safe and sound manner, including maintenance of adequate 

capital and internal control, and carries out its housing and community development finance missions. Each FHLBank 

operates as a separate federally chartered corporation with its own board of directors, management, and employees. The 

FHLBanks were organized under the Federal Home Loan Bank Act of 1932 and are GSEs. The FHLBanks are not 

government entities and do not receive financial support from taxpayers. The government does not guarantee, directly or 

indirectly, the debt securities or other obligations of FHLBanks. The FHLBanks are regulated by the FHFA, an independent 

federal entity.

By law, in the event of certain adverse circumstances, Treasury is authorized to purchase up to $4.0 billion of 

obligations of the FHLBanks. Treasury has not used such authority. Also, in accordance with the Government Corporations 

Control Act, Treasury prescribes certain terms concerning the FHLBanks issuance of obligation to the public. Financial and 

other information concerning FHLBanks including financial statements may be obtained at http://www.fhlbanks.com/.

International Monetary Fund and Multilateral Development Banks

The government currently maintains related party relationships with the IMF and the MDBs. The IMF is an 

international organization of 189 member countries that works to foster global monetary cooperation, secure financial 

stability, sustain economic growth, and reduce poverty around the world. The government holds the largest quota 

subscription of any member. The government’s quota subscription serves as the key determinant for the government’s 16.5 

percent share of voting rights in various IMF decisions for which the government has a substantial voice. Since certain key 

IMF determinations require approval by at least 85 percent of the total voting power, the government (represented by the 

Secretary of the Treasury) exercises significant influence via its 16.5 percent voting share. The government’s holdings in the

IMF are in the form of highly liquid and interest-bearing instruments. The government has a liability due to the IMF, as well 

as an additional commitment (see Note 16—Other Liabilities and Note 19—Commitments for additional information). 

Historically, the government has not experienced a loss of value on its IMF holdings and management does not believe it is 

likely that the government will experience future losses on its holdings or as a result of its additional commitments. 

Additionally, the government invests in and provides funding to the MDBs to support poverty reduction and promote 

sustainable economic growth in developing countries. The MDBs provide financial and technical support to foster economic 

growth and entrepreneurship, strengthen institutions, address the root causes of instability in fragile and conflict-affected 

countries, and respond to global crisis. The government’s participation in the MDBs is in the form of financial contributions

used to ensure the effectiveness and impact of the MDBs’ global development agenda. The U.S. has voting power in each of 

the MDBs to which it contributes, ranging from approximately 6 percent to 50 percent (see Note 19—Commitments for 

additional information).

Private Export Funding Corporation 

The financial statements reflect the results of agreements with PEFCO. PEFCO, which is owned by a consortium of 

private-sector banks, industrial companies and financial services institutions, makes and purchases from private sector 

lenders, medium-term and long-term fixed-rate and variable-rate loans guaranteed by EXIM Bank to foreign borrowers to 

purchase U.S. made equipment “export loans.”

EXIM Bank’s credit and guarantee agreement with PEFCO provides that EXIM Bank will guarantee the due and 

punctual payment of interest on PEFCO’s secured debt obligations which EXIM Bank has approved, and grants to EXIM 

Bank a broad measure of supervision over PEFCO's major financial management decisions, including the right to have 

representatives be present in all meetings of PEFCO’s board of directors, advisory board, and exporters’ council, and to 

review PEFCO’s financials and other records. However, EXIM Bank does not have voting rights and does not influence 

normal operations. This agreement extends through December 31, 2020.

In addition, PEFCO has an agreement with EXIM Bank which provides that EXIM Bank will generally provide PEFCO 

with an unconditional guarantee covering the due and punctual payment of principal and interest on export loans PEFCO 
NOTES TO THE FINANCIAL STATEMENTS 162

makes and purchases. PEFCO’s guarantees on the export loans plus the guarantees on the secured debt obligations 

aggregating to $5,196.6 million at September 30, 2018 and $6,120.0 million at September 30, 2017, are included by EXIM 

Bank in the total for guarantee, insurance and undisbursed loans and the allowance related to these transactions.

EXIM Bank received fees totaling $40.8 million in fiscal year 2018 and $60.7 million in fiscal year 2017 for the 

agreements.
163 NOTES TO THE FINANCIAL STATEMENTS

Note 26. Subsequent Events

Disaster Relief

In September and October 2018, Hurricanes Florence and Michael struck the continental United States. While the full

future effect of these disasters is still unknown, there will be an impact on some federal government entities as a result of

assisting these areas as they strive to recover. The fiscal year 2018 Financial Report did not reflect any liabilities for

additional disaster relief amounts that may be authorized by legislation enacted after September 30, 2018. The SBA has

begun to increase its rate of administrative spending as it conducts its disaster response. This spending is consistent with

SBA’s experience in responding to prior disasters. The SBA could experience future variations in the performance of existing

disaster and business loan portfolios as businesses in the affected areas strive to recover.

Statutory Debt Limit

As of September 30, 2018, debt subject to the statutory debt limit was $21,474.8 billion. However, per P.L. 115-56, the

statutory debt limit was temporarily suspended through March 1, 2019. Effective March 2, 2019, the statutory debt limit was

set at $21,987.7 billion and on March 4, 2019, the Secretary of the Treasury notified the Congress that the statutory debt limit

would be reached on or after that day. When delays in raising the debt limit occur, Treasury often must deviate from its

normal cash and debt management operations and take a number of what it calls “extraordinary measures” to meet the

government’s obligations as they come due without exceeding the debt limit. Treasury began taking these extraordinary

actions on March 4, 2019.