- Bureau of the Fiscal Service
- Financial Report of the United States Government
- Management's Discussion & Analysis

# Management's Discussion & Analysis

## The Government's Financial Position and Condition

This *Financial  Report* presents the government’s financial position at the end of the  fiscal year, explains how and why the financial position changed during the  year, and discusses the government’s financial condition and how it may change  in the future.

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*Restated (See Financial Statement Note 1.U)1 To prevent the debt-to-GDP ratio from rising over the next 75 years, a combination of non-interest spending reductions and receipts increases that amounts to 3.8 percent of GDP on average is needed (4.1 percent of GDP on average in 2018). See Financial Statement Note 23.

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

- During fiscal year 2019, the  budget deficit  increased by $205.4 billion (26.4 percent) to $984.4 billion and net operating cost increased by $286.1 billion (24.7 percent) to $1.4 trillion. 
- The government’s  gross costs  of $5.3 trillion, less $418.4 billion in revenues earned for goods and services provided to the public (e.g., Medicare premiums, national park entry fees, and postal service fees), plus $198.9 billion in  net  losses from changes in assumptions  (e.g., interest rates, inflation, disability claims rates) yields the government’s  net cost  of $5.1 trillion, an increase of $526.8 billion or 11.6 percent over fiscal year 2018.
- Deducting $3.6 trillion in  tax and other revenues , with some adjustment for unmatched  transactions and balances, results in a “bottom line”  net operating cost  of $1.4 trillion for fiscal year 2019, an increase of $286.1 billion or 24.7 percent over fiscal year 2018.
- Comparing  total 2019 government assets of $4.0 trillion to total liabilities of $26.9 trillion (comprised mostly of $16.9 trillion in federal debt held by the public and accrued interest payable 3 ,  and $8.4 trillion of federal employee and veterans benefits payable) yields a negative net position of $23.0 trillion. 
- The budget deficit is primarily financed through borrowing from the public. As of September 30, 2019,  debt held by the public , excluding accrued interest, was $16.8 trillion. This amount, plus intragovernmental debt ($6.0 trillion) equals gross federal debt, which, with some adjustments, is subject to the statutory debt limit. As of September 30, 2019, the government’s total debt subject to the debt limit was $22.7 trillion. The statutory debt limit was most recently suspended through July 31, 2021.

This *Financial**Report* also contains information about  projected impacts on the government’s future financial condition. Under federal  accounting rules, social insurance amounts as reported in both the SLTFP and in the SOSI are not considered liabilities of the  government. From Table 1:

- The SLTFP shows that the PV 4  of total non-interest spending, including Social Security, Medicare, Medicaid, defense, and education, etc., over the next 75 years, under current policy, is projected to exceed the PV of total receipts by $49.0 trillion (total federal non-interest net expenditures from Table 1). 
- The SOSI shows that the PV of the government’s expenditures for Social Security and Medicare Parts A, B and D, and other social insurance programs over 75 years is projected to exceed social insurance revenues 5  by about $59.1 trillion, a $5.1 trillion increase over 2018 social insurance projections. 
- The two sustainability measures in Table 1 differ primarily because total non-interest net expenditures from the SLTFP include the effects of general revenues and non-social insurance spending, neither of which is included in the SOSI. 

The government’s current financial position and long-term  financial condition can be evaluated both in dollar terms and in relation to  the economy as a whole. GDP is a measure of the size of the nation’s economy in  terms of the total value of all final goods and services that are produced in a  year. Considering financial results relative to GDP is a useful indicator of  the economy’s capacity to sustain the government’s many programs. For example:

- The budget deficit (i.e., including the consolidated receipts and outlays from federal funds and the Social Security Trust Fund) increased from $779.0 billion in fiscal year 2018 to $984.4 billion in fiscal year 2019. The deficit-to-GDP ratio in 2019 was 4.6 percent, an increase from 3.8 percent in fiscal year 2018 and above the 3.2 percent average over the past 40 years.  6 
- The budget deficit is primarily financed through borrowing from the public. As of September 30, 2019, the $16.8 trillion in debt held by the public, excluding accrued interest, equates to approximately 79 percent of GDP.
- The 2019 SOSI projection of $59.1 trillion net PV excess of expenditures over receipts over 75 years represents about 4.1 percent of the PV of GDP over 75 years. The excess of total projected non-interest spending over receipts of $49.0 trillion from the SLTFP represents 3.2 percent of GDP over 75 years. As discussed in this  Financial Report , changes in these projections can, in turn, have a significant impact on projected debt as a percent of GDP. 
- To prevent the debt-to-GDP ratio from rising over the next 75 years, a combination of non-interest spending reductions and receipts increases that amounts to 3.8 percent of GDP on average is needed (4.1 percent of GDP on average in the 2018 projections). The fiscal gap represents 20.3 percent of 75-year present value receipts and 17.4 percent of 75-year present value non-interest spending. 

### Fiscal Year 2019 Financial Statement Audit Results

For fiscal year 2019, GAO issued a disclaimer of audit opinion on the accrual-based, governmentwide financial statements, as it has for the past 22 years, due to certain material weaknesses in internal control over financial reporting and other limitations on the scope of its work. In addition, GAO issued a disclaimer of opinion on the sustainability financial statements due to significant uncertainties primarily related to the achievement of projected reductions in Medicare cost growth and certain other limitations. GAO’s audit report on page 232 of this *Financial  Report*, discusses GAO’s findings.

Twenty-two of the 24 entities required to issue audited financial statements under the CFO Act received unmodified audit opinions, as did 13 of 16 additional significant consolidation entities (see Table 10 and Appendix A).7

### The Governmentwide Reporting Entity

This *Financial Report* includes the financial status and activities of the executive, legislative, and  judicial branches of the federal government. SFFAS No. 47, *Reporting  Entity*, provides criteria for identifying organizations that are consolidation entities, disclosure entities, and related parties. Such criteria are summarized in Note 1A and in Appendix A, which lists  the entities included in this *Financial  Report* by these categories. The assets, liabilities, results of operations,  and related activity for consolidation entities are consolidated in the  financial statements. 

Fannie Mae and Freddie Mac meet the criteria for disclosure entities  and, consequently, are not consolidated into the government’s financial  statements. However, the values of the investments in such entities, changes in  value, and related activity with these entities are included in the  consolidated financial statements. The FR System is a disclosure entity and is  not consolidated into the government’s financial statements. See Note  1A—Significant Accounting Policies, Reporting Entity and Note 25—Disclosure Entities and Related  Parties for additional information. In addition, per SFFAS No. 31, *Accounting for Fiduciary Activities*,fiduciary funds are not consolidated in the government financial statements.8

Most significant consolidation entities prepare financial reports that include financial and performance related information, as well as Annual Performance Reports. More information may be obtained from entities’ websites indicated in Appendix A and at www.performance.gov.

The following pages contain a more detailed discussion of the government’s financial results for fiscal year 2019, the budget, the economy, the debt, and a long-term perspective about fiscal sustainability, including the government’s ability to meet its social insurance benefits obligations. The information in this *Financial Report*, when combined with the *Budget*, collectively presents information on the  government’s financial position and condition.

### Accounting Differences Between the Budget and the Financial Report

Each year, the Administration issues two reports that detail  the government’s financial results: the *Budget* and this *Financial  Report*. The exhibit on the following page provides  the key characteristics and differences between the two documents.

Treasury  generally prepares the financial statements in this *Financial Report*on an accrual basis of accounting as prescribed by GAAP for  federal entities.9 These principles are tailored to the government’s unique  characteristics and circumstances. For example, entities prepare a uniquely structured  “Statement of Net Cost,” which is intended to present net government resources  used in its operations. Also, unique to government is the preparation of  separate statements to reconcile differences and articulate the relationship  between the budget and financial accounting results.

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| Prepared primarily on a "*cash basis*";                                                                              | Prepared on an "*accrual and modified cash basis*"                                                                                                                                        |
|--------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Initiative-based and prospective: focus on current and future initiatives planned and how resources will be used to fund them. | Agency-based and retrospective – prior and present resources used to implement initiatives.                                                                                                   |
| Receipts ("cash in"), taxes and other collections recorded when received.                                            | Revenue: Tax revenue (more than 90 percent of total revenue) recognized on modified cash basis (see Financial Statement Note 1.B).  Remainder recognized when earned, but not necessarily received. |
| Outlays ("cash out"), largely recorded when payment is made.                                                         | Costs: recognized when owed, but not necessarily paid.                                                                                                                                              |

### Budget Deficit vs. Net Operating Cost

The  budget deficit is measured as the excess of outlays, or payments made by the  government, over receipts, or cash received by the government. Net operating  cost, on an accrual basis, is the excess of costs (what the government has  incurred, but has not necessarily paid) over revenues (what the government has  collected and expects to collect, but has not necessarily received). As shown  in Chart 1, net operating cost typically exceeds the budget deficit due  largely to the inclusion of cost accruals associated with increases in  estimated liabilities for the government’s postemployment benefit programs for  its military and civilian employees and veterans as well as environmental  liabilities. 

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The government’s primarily cash-based10 budget  deficit increased by $205.4 billion (about 26.4 percent) from approximately  $779.0 billion in fiscal year 2018 to about $984.4 billion in fiscal year 2019  due to lower growth in receipts compared to the increase in outlays in fiscal  year 2019. The $133.5 billion (4.0 percent) increase in receipts can be  attributed primarily to higher social insurance and retirement receipts, net  individual income tax receipts, customs duties, net corporation income tax  receipts, and excise taxes, partially offset by lower deposits of earnings by  the Federal Reserve, and other miscellaneous receipts. Outlays increased $338.9  billion (8.3 percent). Contributing to the dollar increase over fiscal year 2018  were higher outlays for Medicare, Defense, Medicaid, Social Security, and  interest on the Treasury debt held by the public (public debt).11

The Treasury Department’s September 2019 MTS is  the source of receipts, spending, and deficit information for this Report. The  MTS presents primarily cash-based spending, or outlays, for the fiscal year in  a number of ways, including by month, by entity, and by budget function  classification. The federal budget is divided into approximately 20 categories,  or budget  functions, as a means of organizing federal spending by primary purpose (e.g.,  National Defense, Transportation, and Health). Multiple entities may contribute  to one or more budget functions, and a single budget function may be associated  with only one entity. For example, DOD, DHS, DOE, and multiple other entities  administer programs that are critical to the broader functional classification  of National Defense. DOD, OPM, and many other entities also administer Income  Security programs (e.g., retirement benefits, housing, financial assistance).  By comparison, the Medicare program is a budget function category unto itself  and is administered exclusively at the federal level by HHS. Federal spending  information by budget function and other categorizations may be found in the September 2019 MTS.12

The government’s largely accrual-based net operating cost  increased by $286.1 billion (24.7 percent) to $1.4 trillion during fiscal year  2019. As explained below, net operating costs are affected by both changes in  revenues and costs. 

Table  2 provides a summary of the items reported in the *Reconciliation of Net Operating Cost and  Budget Deficit*, which articulates the relationship between the government’s accrual-based net  operating cost and the primarily cash-based budget deficit. From Table 2, the  $460.7 billion net difference between the government’s budget deficit and net  operating cost for fiscal year 2019, is mostly attributable to: (1) a $458.0  billion net increase in liabilities for federal employee and veteran benefits payable; (2) a $24.3 billion increase in insurance  and guarantee program liabilities; (3) an $18.1 billion increase in environmental  and disposal liabilities; (4) an $89.1 billion increase in taxes  receivable; and (5) a $45.3 billion timing difference  between when credit  reform costs are recorded in the budget versus net  operating cost. 

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**Table 2: Net Operating Cost vs. Budget Deficit**

*Restated (See Financial Statement Note 1.U)

### The Government’s Net  Position:  "Where We Are"

The  government’s financial position and condition have traditionally been expressed  through the *Budget*, focusing on  surpluses, deficits, and debt. However, this primarily cash-based discussion of  the government’s net outlays (deficit) or net receipts (surplus) tells only  part of the story. The government’s accrual-based net position, (the difference  between its assets and liabilities), and its “bottom line” net operating cost  (the difference between its revenues and costs) are also key financial  indicators.

### Costs and Revenues

The  government’s Statement of Operations and Changes in Net Position, much  like a corporation’s income statement, shows the government’s “bottom line” and  its impact on net position (i.e., assets net of liabilities). To derive the government’s  “bottom line” net operating cost, the  Statement of Net  Cost first  shows how much it costs to operate the federal government, recognizing expenses  when incurred, regardless of when payment is made (accrual basis). It shows the  derivation of the government’s net cost or the net of: (1) gross costs, or the costs of goods produced and services  rendered by the government, (2) the earned revenues generated by those goods  and services during the fiscal year, and (3) gains or losses from changes in  actuarial assumptions used to estimate certain liabilities. This amount, in  turn, is offset against the government’s taxes and other revenue reported in the Statement of Operations and Changes in Net Position to calculate  the “bottom line” or net operating cost.13

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**Table 3:  Gross Cost, Revenues,  Net Cost, and Net Operating Cost**

*Restated (See Financial Statement Notes 1.U)

Table 3 shows that the government’s “bottom line” net operating cost  increased $286.1 billion (24.7 percent) during 2019 from $1.2 trillion to $1.4  trillion. This increase is due mostly to a $526.8 billion (11.6 percent)  increase in entity net costs, which more than offset a $236.7 billion (7.0  percent) increase in tax and other revenues over the past fiscal year as  discussed in the following.

### Gross Cost and Net Cost 

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The Statement of Net Cost starts  with the government’s total gross costs of $5.3 trillion, subtracts revenues  earned for goods and services provided (e.g., Medicare premiums, national park  entry fees, and postal service fees), and adjusts the balance for gains or  losses from changes in actuarial assumptions used to estimate certain  liabilities, including federal employee and veterans benefits to derive its net  cost of $5.1 trillion (See Chart 2), a $526.8 billion (11.6 percent) increase  over fiscal year 2018.

Typically, the annual change in the government’s net cost is impacted by a variety of offsetting increases and decreases across entities. For example, offsetting changes in net cost during fiscal year 2019 included: 

- Entities administering federal employee and veterans benefits programs employ a complex series of assumptions, including but not limited to interest rates, beneficiary eligibility, life expectancy, and medical cost levels, to make actuarial projections of their long-term benefits liabilities. Changes in these assumptions can result in either losses (net cost increases) or gains (net cost decreases). Across the government, these net losses from changes in assumptions amounted to $198.9 billion in fiscal year 2019, a loss increase (and a corresponding net cost increase) of $73.7 billion compared to fiscal year 2018. The primary entities that administer programs impacted by                these assumptions – typically federal employee pension and benefit programs – are the  OPM ,  VA , and  DOD . These entities recorded losses from changes in assumptions in the amounts of $0.3 billion, $58.0 billion, and $139.0 billion, respectively.                   -  These actuarial estimates and the resulting gains or losses from changes in assumptions can sometimes cause significant swings in total entity costs from year to year. For example, for fiscal year 2019, changes in net cost at OPM ($9.4 billion decrease), VA ($70.7 billion increase), and DOD ($210.0 billion increase), were impacted by the corresponding changes in gains or losses from assumption changes at these entities. 
- A $210.0 billion increase at  DOD  primarily due to a $122.2 billion loss increase from changes in assumptions as referenced above as well as increases in net costs across DOD’s major programs, including military operations, readiness, support; procurement; military personnel; and R&D; 
- $79.8  billion and $62.6 billion increases at  HHS  and  SSA , respectively, were primarily due to cost increases of the benefit programs that these entities administer (HHS – Medicare and Medicaid programs, SSA – OASDI programs);
- A $70.7 billion net increase at  VA  due largely to actuarial losses from experience.
- An $87.3 billion decrease at   DOE  largely due to refined environmental liability estimates, including  comparatively lower estimate increases as well as estimates related to dilution  and disposal strategies for surplus plutonium; 
- A $74.2 billion increase at  Education  stemming mostly from reestimates of  subsidy expenses associated with its direct loan programs, including changes in  estimation methods and comparative cost increases for Education’s  Income-Driven  Repayment (IDR) plans 14  as well as enhancements in estimation methodology with respect to deferment and  forbearance actions; and
- A $46.3 billion increase in  interest on debt held by the public  due largely to  an increase in the debt. Interest costs  increased by 13.0 percent from 2018 to 2019 and by 60.9 percent over  the past five years. 
- Chart 2  shows  the composition of the government’s net cost. In fiscal year 2019, nearly three  fourths of total net cost came from HHS, SSA, DOD, and VA. Interest on Treasury  securities (i.e., debt) held by the public contributed an additional 8 percent,  and the other entities included in the government’s fiscal year 2019 Statement  of Net Cost accounted for a combined 20 percent of the government’s total net  cost for fiscal year 2019.  Chart 3  shows the five-year trend in these costs.  These entities have consistently incurred the largest entity shares of the government’s  total net cost in recent years. As indicated above, HHS and SSA net costs for fiscal  year 2019 ($1.2 trillion and $1.1 trillion, respectively) are attributable to  major social insurance programs administered by these entities. DOD net costs  of $908.4 billion relate primarily to operations, readiness, and support;  personnel; research; procurement; and retirement and health benefits. VA costs  of $417.6 billion support health, education and other benefits programs for our  nation’s veterans. From  Chart 3 , over the past five years, HHS, SSA, DOD,  VA, and Interest costs have increased 18.7 percent, 16.5 percent, 61.7 percent,  138.2 percent, and 60.9 percent, respectively.

### Tax and Other Revenues

As noted earlier, tax and other revenues from the Statement of  Operations and Changes in Net Position are deducted from total net cost to derive the government’s  “bottom line” net operating cost. Chart 4 shows that total tax and other revenue  increased by $236.7 billion or 7.0 percent to $3.6 trillion for fiscal year  2019. This increase is attributable mainly to an overall growth in individual  income tax collections and withholdings, partially offset by reduced deposit of  earnings from the FR System.15 Tax revenues and receivables also increased as a result of a provision of the TCJA, which provided a one-time tax on  previously unrepatriated foreign earnings at lower rates that taxpayers may  elect to pay over several years. In particular, these provisions contributed  $83.5 billion of a total $113.6 billion increase in corporate income tax  revenue for fiscal year 2019. Earned revenues from Table 3 are not considered “taxes and other  revenue” and, thus, are not shown in Chart 4. Individual income tax and tax  withholdings and corporate income taxes accounted for about 80.3 percent and  8.9 percent of total revenue, respectively in fiscal year 2019; other revenues  from Chart 4 include Federal Reserve earnings, excise  taxes, unemployment taxes, and customs duties.

As previously shown in Table 3, the increase in tax and other revenue  only partially offset the increase in net cost, resulting in a $286.1 billion  increase in the government’s bottom line net operating cost to $1.4 trillion  for fiscal year 2019.

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### Tax Expenditures

Tax  and other revenues reported reflect the effects of tax expenditures, which are  special exclusions, exemptions, deductions, tax credits, preferential tax  rates, and tax deferrals that allow individuals and businesses to reduce taxes  they may otherwise owe. Tax expenditures may be viewed as alternatives to other  policy instruments, such as spending or regulatory programs. For example, the  government supports college attendance through both spending programs and tax  expenditures. The government uses Pell Grants to help low- and moderate-income  students afford college and allows certain funds used to meet college expenses  to grow tax free in special college savings accounts. Tax expenditures may  include deductions and exclusions which reduce the amount of income  subject to tax (e.g., deductions for personal residence mortgage interest). Tax  credits, which reduce tax liability dollar for dollar for the amount of credit  (e.g., child tax credit), are also considered tax expenditures. Tax  expenditures may also allow taxpayers to defer tax liability.

Receipts in the calculation of surplus or deficit, and tax  revenues in the calculation of net position, reflect the effect of tax  expenditures. As discussed in more detail in the Other Information section of this *Financial Report*, tax expenditures will generally lower federal  government receipts although tax expenditure estimates do not necessarily equal  the increase in federal revenues (or the change in the budget balance) that  would result from repealing these special provisions. 

Tax expenditures are reported annually in the Analytical  Perspectives of the *Budget*. In addition, current and past tax  expenditure estimates and descriptions can be found at the following location  from the U.S. Treasury’s Office of Tax Policy:  https://home.treasury.gov/policy-issues/tax-policy/tax-expenditures. 

### Assets and Liabilities

The government’s net position at the end of the year is derived by netting the government’s assets against its liabilities, as presented in the Balance Sheet (summarized in Table 4). The Balance Sheet does not include the financial value of the government’s sovereign powers to tax, regulate commerce, or set monetary policy or value of nonoperational resources of the government, such as national and natural resources, for which the government is a steward. In addition, as is the case with the Statement of Operations and Changes in Net  Position, the Balance Sheet includes a separate presentation of the portion of net position related to funds from dedicated collections. Moreover, the government’s exposures are broader than the liabilities presented on the Balance Sheet. The government’s future social insurance exposures (e.g., Medicare and Social Security) as well as other fiscal projections, commitments and contingencies, are reported in separate statements and disclosures. This information is discussed later in this MD&A section, the financial  statements, and RSI sections of this *Financial Report*.

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**Table 4: Assets and Liabilities**

*Restated (See Financial Statement Note 1.U) 

### Assets

As of September 30, 2019, the government’s $4.0 trillion in  assets are comprised mostly of net loans receivable ($1.4 trillion) and net PP&E ($1.1 trillion).16

The federal government’s direct loans and loan guarantee programs  are used to promote the nation’s welfare by making financing available to  segments of the population not served adequately by non-federal institutions,  or otherwise providing for certain activities or investments. For those unable  to afford credit at the market rate, federal credit programs provide subsidies  in the form of direct loans offered at an interest rate lower than the market  rate. For those to whom non-federal financial institutions are reluctant to  grant credit because of the high risk involved, federal credit programs  guarantee the payment of these non-federal loans and absorb the cost of  defaults. For example, Education supports individuals engaged in education  programs through a variety of student loan, grant and other assistance  programs. USDA administers loan programs to support the nation’s  farming and agriculture community. Also, HUD loan programs support affordable homeownership,  as well as the construction and rehabilitation of housing projects for the  elderly and persons with disabilities. From Financial Statement Note 4, Education’s Federal Direct  Student Loan Program accounted for $1.1 trillion (78.8 percent) of total net  loans receivable. Education’s direct student loan program receivables  balances have grown by more than 190 percent since fiscal year 2011 largely due  to increased direct loan disbursements, attributable to the continued effect of  2010 legislation requiring a transition for new loans from guaranteed student  loans to full direct lending by Education.17

Federal government PP&E includes many of the physical  resources that are vital to the federal government’s ongoing operations,  including buildings, structures, facilities, equipment, internal use software,  and general purpose land. DOD comprises approximately 69.4 percent of the  government’s reported PP&E of $1.1 trillion as of September 30, 2019. 

### Liabilities

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As indicated in Table 4 and Chart 5, of the government’s $26.9 trillion in  total liabilities, the largest liability is federal debt securities held by the  public and accrued interest, the balance of which increased by $1.0  trillion (6.6 percent) to $16.9 trillion as of September 30, 2019.

The other major component of the government’s liabilities is federal  employee and veteran benefits payable (i.e., the government’s pension and other  benefit plans for its military and civilian employees), which increased $458.0  billion (5.7 percent) during fiscal year 2019, to about $8.4 trillion. This  total amount is comprised of $2.6 trillion in benefits payable for the current  and retired civilian workforce, and $5.8 trillion for the military and  veterans. OPM administers the largest civilian pension  plan, covering about 3.1 million current employees and 2.6 million annuitants  and survivors. The military pension plan covers about 2.1 million current  military personnel (including active service, reserve, and National Guard) and  approximately 2.3 million retirees and survivors.

### Federal Debt

The budget surplus or deficit is the difference between  total federal spending and receipts (e.g., taxes) in a given year. The  government borrows from the public (increases federal debt levels) to finance  deficits. During a budget surplus (i.e., when receipts exceed spending), the  government typically uses those excess funds to reduce the debt held by the  public. The Statement of Changes in Cash Balance from Budget and Other Activities reports how the annual budget surplus or  deficit relates to the federal government’s borrowing and changes in cash and  other monetary assets. It also explains how a budget surplus or deficit  normally affects changes in debt balances. 

The government’s publicly-held debt, or federal debt held by the public, and  accrued interest (Balance Sheet liability) totaled $16.9  trillion as of September 30, 2019. It is comprised of Treasury securities, such  as bills, notes, and bonds, net of unamortized discounts and premiums; and  accrued interest payable. The “public” consists of individuals, corporations,  state and local governments, FRBs, foreign governments, and other entities  outside the federal government. As indicated above, budget surpluses have  typically resulted in borrowing reductions, and budget deficits have conversely  yielded borrowing increases. However, the government’s debt operations are  generally much more complex. Each year, trillions of dollars of debt mature and  new debt is issued to take its place. In fiscal year 2019, new borrowings were  $11.8 trillion, and repayments of maturing debt held by the public were $10.7  trillion, both increases from fiscal year 2018.

In addition to debt held by the public, the government has about $6.0 trillion in intragovernmental  debt outstanding, which arises when one part of the government borrows from another. It  represents debt issued by the Treasury and held by government accounts,  including the Social Security ($2.9 trillion) and Medicare ($303.3 billion)  trust funds. Intragovernmental debt is primarily held in government trust funds  in the form of special nonmarketable securities by various parts of the  government. Laws establishing government trust funds generally require excess  trust fund receipts (including interest earnings) over disbursements to be  invested in these special securities. Because these amounts are both  liabilities of the Treasury and assets of the government trust funds, they are  eliminated as part of the consolidation process for the governmentwide  financial statements (see Note 11). When those securities are redeemed, e.g., to pay Social Security  benefits, the government must obtain the resources necessary to reimburse the  trust funds. The sum of debt held by the public and intragovernmental debt  equals gross federal debt, which (with some adjustments), is subject to a  statutory ceiling (i.e., the debt limit). At the end of fiscal year 2019, debt  subject to the statutory limit was $22.7 trillion 18 (see sidebar). 

***Sidebar:** Prior to 1917, Congress approved each debt issuance. In 1917, to facilitate planning in World War I, Congress and the President established a dollar ceiling for federal borrowing. With the Public Debt Act of 1941 (P.L. 77-7), Congress and the President set an overall limit of $65 billion on Treasury debt obligations that could be outstanding at any one time. Since then, Congress and the President have enacted a number of measures affecting the debt limit, including several in recent years. Congress and the President most recently suspended the debt limit from August 2, 2019 through July 31, 2021. It is important to note that increasing or suspending the debt limit does not increase spending or authorize new spending; rather, it permits the U.S. to continue to honor pre-existing commitments to its citizens, businesses, and investors domestically and around the world.*

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The federal debt held by the public measured as a percent of GDP (debt-to-GDP ratio) (Chart 6) compares the country’s debt to the size of its economy, making this measure sensitive to changes in both. Over time, the debt-to-GDP ratio has varied widely:

- For most of the nation’s history, through the  first half of the 20th century, the debt-to-GDP ratio has tended to  increase during wartime and decline during peacetime.
- Chart 6  shows that wartime spending and borrowing  pushed the debt-to-GDP ratio to an all-time high of 106 percent in 1946, soon  after the end of World War II, but it decreased rapidly in the post-war years. 
- The ratio grew rapidly from the mid-1970s until  the early 1990s. Strong economic growth and fundamental fiscal decisions,  including measures to reduce the federal deficit and implementation of binding  PAYGO rules (which require that new tax or spending laws not add to the  deficit), generated a significant decline in the debt-to-GDP ratio, from a peak  of 48 percent in 1993-1995, to 31 percent in 2001.
- During the first decade of the 21st  century, PAYGO rules were allowed to lapse, significant tax cuts were  implemented, entitlements were expanded, and spending related to defense and  homeland security increased. By September 2008, the debt-to-GDP ratio was 39  percent of GDP. 
- PAYGO rules were reinstated in 2010, but the  extraordinary demands of the last economic and fiscal crisis and the consequent  actions taken by the federal government, combined with slower economic growth  in the wake of the crisis, pushed the debt-to-GDP ratio up to 74 percent by the  end of fiscal year 2014.
- The debt was 79 percent of GDP at the end of  fiscal year 2019 (compared to 78 percent at the end of fiscal year 2018 and as  reported in the fiscal year 2018  Financial  Report ). 19  From Chart 6, since 1940, the average debt-to-GDP ratio is 47.8 percent.

### The Economy in  Fiscal Year 2019

A review of U.S. economic performance places the discussion of the government’s financial results in a broader context. As summarized in Table 5, the U.S. economy grew at a more moderate pace during fiscal year 2019, and payroll job creation slowed modestly. Even so, the economy generated jobs at a pace more than sufficient to account for new entrants to the labor force, which pushed the unemployment rate to a 49-year low by Fall 2019, even as the labor force participation rate (LFPR) increased to a 6-year high. The fiscal year was also noteworthy for a deceleration in the pace of headline inflation – despite consistently strong wage gains, tight labor markets, and rising labor force participation - although core inflation (which excludes food and energy) accelerated modestly. Growth in real disposable (after-tax) personal income (DPI) slowed somewhat in fiscal year 2019, but non-farm labor productivity growth accelerated and business and consumer sentiment remained at elevated levels.

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**Table 5: National Economic Indicators***

During fiscal year 2019, the U.S. economic recovery became  the longest in U.S. history. Real (i.e., inflation-adjusted) GDP grew by 2.1  percent over the four quarters of fiscal year 2019, following growth of 3.1  percent during the previous fiscal year. Personal consumption expenditures  continued to lead growth, while government spending and business fixed  investment also made solid contributions. Over the four quarters of fiscal year  2019, growth of consumer spending moderated to 2.6 percent from 3.4 percent in  the previous fiscal year, and the pace of government spending grew 2.2 percent,  matching its growth rate in fiscal year 2018. However, the pace of business  fixed investment slowed to 1.4 percent, after rising by 6.8 percent in fiscal  year 2018. Business investment was constrained in fiscal year 2019 by a number  of international headwinds – such as slowing global growth, policy uncertainty,  and low oil prices – as well as temporary domestic disruptions, including  reduced equipment investment in connection with the grounding of the Boeing 737  MAX airplane. Although residential investment declined 1.1 percent during  fiscal year 2019, matching the decline during fiscal year 2018, the housing  sector found a firmer footing during the latter part of the latest fiscal year,  aided by improved affordability, strong labor markets, and elevated consumer  and homebuilder sentiment. Net exports posed a smaller drag on growth in fiscal  year 2019 than in fiscal year 2018, while inventory investment posed a small  drag on growth in fiscal year 2019 after making a small positive contribution the  previous fiscal year.

Labor market strength continued in fiscal year 2019,  exhibited by solid employment growth, low unemployment, and plentiful job  opportunities. After the economy created 2.6 million jobs during fiscal year  2018, an additional 2.3 million jobs were added during fiscal year 2019. The  unemployment rate ended the fiscal year at 3.5 percent in September 2019, its  lowest level since December 1969 and down 0.2 percentage point from September  2018. By the end of fiscal year 2019, the number of unemployed persons in the  economy had decreased by 292,000 to 5.75 million – the smallest number in  nearly 19 years. Moreover, by the end of fiscal year 2019 job openings had  exceeded the number of unemployed for 19 consecutive months. Starting in March  2018 and for the first time since the job openings survey was first conducted  in 2000, the number of job openings exceeded the number of potential workers  seeking employment, despite rising labor force participation.

During fiscal year 2019, headline inflation slowed, pulled  down by lower energy prices, but core inflation accelerated modestly. The CPI  rose 1.7 percent over the twelve months of fiscal year 2019, decelerating from  the 2.3 percent pace during the previous fiscal year. Core inflation was 2.4  percent over the fiscal year ending September 2019, ticking up from the 2.2  percent pace during fiscal year 2018.

Relatively low inflation and moderate nominal DPI growth  helped to maintain purchasing power in real terms in fiscal year 2019. Real DPI  grew 3.3 percent over the twelve months of fiscal year 2019, after growing by  4.0 percent during the previous fiscal year. Nominal average hourly earnings  grew at a consistently stronger pace during fiscal year 2019, which helped  boost wages in real terms. Real average hourly earnings increased 2.2 percent  during fiscal year 2019, after rising 0.8 percent during the previous fiscal  year. Growth of non-farm labor productivity also accelerated during fiscal year  2019, rising by 1.5 percent after growing 1.2 percent during fiscal year 2018.

### Footnotes

3 On the government’s Balance Sheet, debt held by the public and accrued interest payable consists of Treasury securities, net of unamortized discounts and premiums, and accrued interest payable. The “public” consists of individuals, corporations, state and local governments, FRB, foreign governments, and other entities outside the federal government. Back to Content)4 Present values recognize that a dollar paid or collected in the future is worth less than a dollar today because a dollar today could be invested and earn interest. To calculate a present value, future amounts are thus reduced using an assumed interest rate, and those reduced amounts are summed. (Back to Content)5 Social Security is funded by the payroll taxes and revenue from taxation of benefits. Medicare Part A is funded by the payroll taxes, revenue from taxation of benefits, and premiums that support those programs. Medicare Parts B and D are primarily financed by transfers from the General Fund, which are presented, and by accounting convention, eliminated in the SOSI. For the fiscal year 2019 and 2018 SOSI, the amounts eliminated totaled $36.8 trillion and $32.9 trillion, respectively.  (Back to Content)6Final  Monthly Treasury Statement (as of September 30, 2019 and 2018), Joint  Statement of Treasury Secretary Steven T. Mnuchin and Acting OMB Director  Russel Vought on Budget Results for Fiscal Year 2019 (Back to Content)7 The 22 entities include the Department of Health and Human Services, which received disclaimers of opinions on its 2019, 2018, 2017, 2016, and 2015 SOSI and its 2019 and 2018 SCSIA. The 13 entities include the FDIC, the NCUA, and the FCSIC, which operate on a calendar year basis (December 31 year-end). Statistic reflects 2018 audit results for these organizations if 2019 results are not available.    (Back to Content)8 See Note 21—Fiduciary Activities (Back to Content)9 Under GAAP, most U.S. government revenues are recognized on a ‘modified cash’ basis, (see Financial Statement Note 1.B). The Statement of Social Insurance presents the present value of the estimated future revenues and expenditures for scheduled benefits over the next 75 years for the Social Security, Medicare, RRP; and 25 years for the Black Lung program. The Statement of Long-Term Fiscal Projections presents the 75-year present value of the projected future receipts and non-interest spending for the federal government.  (Back to Content)10 Interest outlays on Treasury debt held by the public are recorded in the budget when interest accrues, not when the interest payment is made. For federal credit programs, outlays are recorded when loans are disbursed, in an amount representing the present value cost to the government, commonly referred to as credit subsidy cost. Credit subsidy cost excludes administrative costs. (Back to Content)11 10/25/19  press release -- Joint Statement of Treasury  Secretary Steven T. Mnuchin and OMB Director Mick Mulvaney on Budget Results  for Fiscal Year 2019. (Back to Content)12Final Monthly Treasury Statement  for Fiscal Year 2019 through September 30, 2019 and Other Periods.  (Back to Content)13 As shown in Table 3, net operating cost includes an adjustment for unmatched transactions and balances, which represent unreconciled differences in intragovernmental activity and balances between federal entities. These amounts are described in greater detail in the Other Information section of this *Financial Report*. (Back to Content)14 Traditionally, federal student loans have had flat,  10-year repayment schedules, making it difficult for borrowers to pay at the  start of their careers when their salaries are lower. The recent expansion of  IDR plans provides flexible repayment schedules based on the borrower’s monthly  income. Education’s Agency Financial  Report, p. 23-24. (Back to Content)15 Fiscal year  2019 Department  of the Treasury AFR,  p. 36 (Back to Content)16 For financial reporting purposes, other than multi-use heritage assets,  stewardship assets of the government are not recorded as part of PPE.  Stewardship assets are comprised of stewardship land and heritage assets.  Stewardship land consists of public domain land (e.g., national parks, wildlife  refuges). Heritage assets include national monuments and historical sites that  among other characteristics are of historical, natural, cultural, educational,  or artistic significance. See Note 24 – Stewardship Land and Heritage Assets. (Back to Content)17 With  the enactment of the SAFRA Act, which was included as part of the HCERA (P. L.  111-152), no new loans were originated under the FFEL Program (guaranteed loan  program) since July 1, 2010. See Department of  Education fiscal year 2019 AFR p. 52.  (Back to Content)18 During fiscal years 2019 and 2018, Treasury faced two delays in raising the statutory debt limit that required it to depart from its normal debt management procedures and to invoke legal authorities to avoid exceeding the statutory debt limit. During these periods, extraordinary actions taken by Treasury have resulted in federal debt securities not being issued to certain federal government accounts with the securities being restored including lost interest to the affected federal government accounts subsequent to the end of the delay period. The first delay occurred beginning on December 9, 2017 and ending on February 9, 2018, with the enactment of the BBA of 2018 (P. L. 115-123) which suspended the statutory debt limit through March 1, 2019. The second delay in raising the statutory debt limit occurred beginning on March 2, 2019 and ending on August 2, 2019, with the enactment of the BBA of 2019 (P. L. 116-37) which suspended the statutory debt limit through July 31, 2021.  (Back to Content)19 10/15/2019 press release: Joint  Statement of Treasury Secretary Steven T. Mnuchin and Acting OMB Director  Russel Vought on Budget Results for Fiscal Year 2019 (Back to Content)

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            - A Message from the Secretary of the Treasury -  PDF version
            - Table of Contents -  PDF version
            - Results in Brief  -  PDF version
            - The Nation By The Numbers
            - Executive Summary  -  PDF version                - Where We Are Now
              - An Unsustainable Fiscal Path
              - Find Out More 
            - Management's Discussion & Analysis  -  PDF version                - The Government ́s Financial Position and Condition
              - An Unsustainable Fiscal Path
              - Financial Management
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            - Statement of the Comptroller General of the United States -  PDF version
            - Financial Statements -  PDF version                - Statements of Net Cost
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            - Notes to the Financial Statements -  PDF version                - Note 1. Summary of Significant Accounting Policies -  PDF version
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            - Required Supplementary Information (Unaudited) -  PDF version                - The Sustainability of Fiscal Policy -  PDF version
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