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.

Table 1 on the previous page, together with the following, summarize the federal government’s financial position:

• During FY 2025, the budget deficit decreased by $41.4 billion (2.3 percent) to $1.8 trillion. Net operating cost also decreased by $292.0 billion (12.2 percent) to $2.1 trillion. The primary contributor to the difference between the deficit and net operating cost is an increase in the liability for federal employee and veteran benefits payable that affects the government’s current-year costs but does not affect the current-year budget deficit.
• The government’s gross costs of $8.1 trillion, less $752.2 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 $18.6 billion in net losses from changes in assumptions (e.g., interest rates, inflation, disability claims rates) yields the government’s net cost of $7.3 trillion, a decrease of $25.3 billion or 0.3 percent compared to FY 2024.
• Net cost decreased but is subject to both cost increases and decreases across the government. For example:
  • The largest decreases were due to: 1) a $269.3 billion net cost decrease at Education mostly from changes in student loan program subsidy estimates; and 2) a net loss (and a corresponding net cost) decrease of $265.0 billion stemming from changes in assumptions affecting cost and liability estimates for the government’s employee and veteran benefits.
  • HHS and SSA posted the largest increases of $148.1 billion and $125.2 billion, respectively due to increases in benefit expenses.
• Total tax and other unearned revenues increased $266.7 billion to $5.2 trillion. Deducting these revenues from net cost results in a “bottom line” net operating cost of $2.1 trillion for FY 2025, a decrease of $292.0 billion or 12.2 percent compared to FY 2024.
• Comparing total FY 2025 government assets of $6.1 trillion (including $2.0 trillion of loans receivable, net and $1.4 trillion of PP&E) to total liabilities of $47.8 trillion (including $30.3 trillion in federal debt and interest payable³, and $15.5 trillion of federal employee and veteran benefits payable) yields a negative net position of $41.7 trillion.
• The government’s net costs, assets, and liabilities were also impacted by changes in accounting principle at DOD⁴ and correction of prior period errors at DOD and SAA.
• The budget deficit is primarily financed through borrowing from the public. As of September 30, 2025, debt held by the public, excluding accrued interest, was $30.2 trillion. This amount, plus intra-governmental debt ($7.3 trillion) equals gross federal debt, which, with some adjustments, is subject to the statutory debt limit. As of September 30, 2025, the government’s total debt subject to the debt limit was $37.5 trillion. On June 3, 2023, P.L. 118-5 was enacted, suspending the debt limit through January 1, 2025. Following Treasury’s use of extraordinary measures to avoid exceeding the debt limit, on July 4, 2025, Congress and the President enacted P.L. 119-21, which includes the WFTC⁵, and which raised the debt limit from $36,104.0 billion to $41,104.0 billion.

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 PV⁶ of total non-interest spending, including Social Security, Medicare, Medicaid, defense, and education, etc., over the next 75 years, under current policy, is projected to exceed the PV of total receipts by $79.6 trillion (total federal non-interest net expenditures from Table 1).
• The SOSI shows that the PV of the government’s expenditures for Social Security and Medicare Parts A, B and D, and other social insurance programs over 75 years is projected to exceed social insurance revenues⁷ by about $88.4 trillion, increasing by approximately $10.1 trillion compared to the social insurance projections presented in the 2024 Financial Report.
• The Social Insurance and Total Federal Non-Interest Net Expenditures measures in Table 1 differ primarily because total non-interest net expenditures from the SLTFP include the effects of general revenues and non-social insurance spending, neither of which is included in the SOSI.

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

• The budget deficit decreased from $1,816.8 billion in FY 2024 to $1,775.4 billion in FY 2025. The deficit-to-GDP ratio also decreased from 6.4 percent in FY 2024 to 5.9 percent in 2025.

• The budget deficit is primarily financed through borrowing from the public. As of September 30, 2025, the $30.2 trillion in debt held by the public, excluding accrued interest, was 99 percent of GDP.

• The 2025 SOSI projection of $88.4 trillion net PV excess of expenditures over receipts over 75 years represents about 4.6 percent of the PV of GDP over 75 years. The excess of total projected non-interest spending over receipts of $79.6 trillion from the SLTFP represents 3.9 percent of GDP over 75 years. As discussed in this Financial Report, changes in policy can, in turn, have a significant impact on projected debt as a percent of GDP.
• The debt-to-GDP ratio was 99 percent at the end of FY 2025. Under current policy and based on this report’s assumptions, it is projected to reach 576 percent by 2100. The projected continuous rise of the debt-to-GDP ratio indicates that current policy is unsustainable. To prevent the debt-to-GDP ratio from rising over the next 75 years, a combination of non-interest spending reductions and receipts increases that amounts to 4.7 percent of GDP on average is needed (4.3 percent of GDP on average in the 2024 projections).

Restatements of FY 2024 amounts were made to correct errors at DOD and SAA. DOD’s corrections of errors relate to PP&E and inventory that were identified as part of a department-wide effort to improve financial reporting. SAA corrections of errors related to the recognition of inventory and revenue (see Note 1.V —Corrections of Errors).

FY 2025 Financial Statement Audit Results

For FY 2025, GAO issued a disclaimer of audit opinion on the accrual-based, government-wide financial statements, as it has for the past 28 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 208 of this Financial Report, discusses GAO’s findings.

In FY 2025, 16 of the 24 entities required to issue audited financial statements under the Chief Financial Officers Act of 1990 (CFO Act) received unmodified audit opinions, as did 14 of 14 additional significant consolidation entities (see Table 10 and Appendix A).⁸

The Government-wide Reporting Entity

This Financial Report includes the financial status and activities of the executive, legislative, and judicial branches of the federal government. Statement of Federal Financial Accounting Standards (SFFAS) 47, Reporting Entity, provides criteria for identifying organizations that are consolidation entities, disclosure entities, and related parties. Such criteria are summarized in Note 1.A—Significant Accounting Policies, Reporting Entity, and in Appendix A, which lists the entities included in this Financial Report by these categories. The assets, liabilities, results of operations, and related activity for consolidation entities are consolidated in the financial statements.

Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (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 Federal Reserve System (FR System) and the Special Purpose Vehicles (SPVs) are disclosure entities and are not consolidated into the government’s financial statements. See Note 1.A and Note 27—Disclosure Entities and Related Parties for additional information. In addition, per SFFAS 31, Accounting for Fiduciary Activities, fiduciary funds are not consolidated in the government financial statements.⁹

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

The following pages contain a more detailed discussion of the government’s financial results for FY 2025, 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.¹⁰  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 the Financial Report.

Budget Deficit vs. Net Operating Cost

Three key components of the Budget process are: 1) appropriations; 2) obligations; and 3) outlays. An appropriation is a provision of law authorizing the expenditure of funds for a given purpose. Rescissions and cancellations are reductions in law of budgetary resources. They are considered permanent reductions unless legislation clearly indicates that the reduction is temporary. Once funds are appropriated by Congress, Treasury issues warrants that officially establish the amounts available to be obligated and spent (i.e., expended or outlaid) by each agency. An agency’s obligation of funds is a binding agreement to outlay funds for a particular purpose immediately or in the future. The budget deficit is measured as the excess of outlays, or payments made by the government, over receipts, or cash received by the government.

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

The Government’s 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 reduced by the government’s taxes and other unearned revenue reported in the Statement of Operations and Changes in Net Position to calculate the “bottom line” or net operating cost.

Table 3 shows that the government’s “bottom line” net operating cost decreased $292.0 billion (12.2 percent) during 2025 from $2.4 trillion to $2.1 trillion. This decrease is due mostly to a $25.3 billion (0.3 percent) decrease in net costs, combined with a $266.7 billion (5.4 percent) increase in tax and other revenues over the past fiscal year as discussed in the following.

Gross Cost and Net Cost

The FY 2025 Statement of Net Cost starts with the government’s total gross costs of $8.1 trillion, subtracts $752.2 billion in 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 ($18.6 billion loss), including federal employee and veteran benefits to derive its net cost of $7.3 trillion, a $25.3 billion (0.3 percent) decrease compared to FY 2024.

Typically, the annual change in the government’s net cost is the result of a variety of offsetting increases and decreases across entities. Offsetting changes in federal entity net cost during FY 2025 included:

• A $269.3 billion net cost decrease at Education, due primarily to significant changes in loan program subsidy cost estimates. Gross costs for the direct loan program decreased by $183.4 billion due to loan modifications related primarily to changes in types of loans and repayment plans offered, as a result of P.L. 119-21. Gross costs for the Federal Family Education Loan (FFEL) program decreased by $19.0 billion due to net downward subsidy reestimates.

• Entities administering federal employee and veteran benefits programs employ a complex series of assumptions, including but not limited to interest rates, beneficiary eligibility, life expectancy, and medical cost levels, to make actuarial projections of their long-term benefits liabilities. Changes in these assumptions can result in either losses (net cost increases) or gains (net cost decreases). Across the government, these net losses from changes in assumptions amounted to $18.6 billion in FY 2025, a net loss (and a corresponding net cost) decrease of $265.0 billion compared to FY 2024. The primary entities that administer programs impacted by these assumptions – typically federal employee pension and benefit programs – are the VA, DOD, and OPM. For FY 2025, DOD recorded a loss from changes in assumptions of $241.9 billion, and VA and OPM recorded gains in the amounts of $44.2 billion and $180.4 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:

  Download the chart's data source here in CSV format

  • A $275.1 billion net cost decrease at OPM was attributed primarily to a $180.4 billion gain as compared to a $83.8 billion loss from assumptions changes in FY 2024 for both OPM’s retirement and health programs. Retirement program gains in FY 2025 stemmed from changes to the assumed long-term rates of future mortality and an increase in assumed long term interest, partly offset by an increase in the assumed long-term rate of inflation and salary increase. The OPM health program experienced a gain mostly due to updated mortality assumptions.
  • A $50.2 billion increase in VA’s net cost to $522.2 billion included the offsetting effect of a slight increase of $6.5 billion in VA’s gain from changes in assumptions from $37.7 billion in FY 2024 to $44.2 billion in FY 2025. VA net costs increased overall due in large part to an increase of more than four million veterans’ compensation payments during FY 2025 and the expansion of medical services pursuant to implementation of the Sergeant First Class Heath Robinson Honoring our Promise to Address Comprehensive Toxins (PACT) Act under the Toxic Exposures Fund.
  • The $18.9 billion increase in DOD net cost includes the effect of a $5.2 billion increase in losses from changes in assumptions referenced above. The majority (nearly 90 percent) of DOD costs are attributable to a wide range of functions, including military operations, readiness, and support; procurement; military personnel; and R&D.
• A $148.1 billion net cost increase at HHS was primarily due to increases in Medicare benefit expenses, which include increases in SMI and HI and in Medicaid benefit expenses. Medicare expenses increased due to an increase in the number of beneficiaries, an increase in the rate of benefits paid, and increase in prescription drug spending. Medicaid enrollees slightly decreased but the costs increased.
• A $125.2 billion net cost increase at SSA, due to a 2.1 million person increase in the number of OASI beneficiaries, and a 2.5 percent COLA provided to beneficiaries in 2025. The OASI, and Supplemental Security Income net cost increased by 9.3 percent and 7.0 percent, respectively, and Disability Insurance (DI) net cost decreased by 0.4 percent. Total benefit expenses increased by $125.4 billion or 8.3 percent.
• The $74.5 billion increase in Treasury net costs is largely attributable to a $20.6 billion increase in the liquidation of advances associated with Treasury’s pandemic relief programs. Treasury issued advance payments to cover anticipated qualified incurred costs; these advances are subsequently recognized as expenses as the recipients incur the qualified costs.
• A $78.0 billion increase in interest on debt held by the public to $987.1 billion for FY 2025 primarily attributable to an increase in the outstanding debt held by the public.

Download the chart's data source here in CSV format

Chart 2 shows the composition of the government’s net cost for FY 2025, and Chart 3 shows the five-year trend in the largest agency cost components. In FY 2025, approximately 93 percent of the federal government’s total net cost came from only six agencies (HHS, SSA, DOD, VA, Treasury, U.S. Department of Agriculture (USDA)), and interest on the debt. The other 150-plus entities included in the government’s FY 2025 Statement of Net Cost accounted for a combined 7 percent of the government’s total net cost for FY 2025. HHS and SSA net costs for FY 2025 ($1.9 trillion and $1.7 trillion, respectively) are largely attributable to major social insurance programs administered by these entities. VA net costs of $522.2 billion support health, education and other benefits programs for our nation’s veterans. DOD net costs of $1.2 trillion relate primarily to operations, readiness, and support; personnel; research; procurement; and retirement and health benefits. Treasury net costs of $296.8 billion support a broad array of programs that promote conditions for sustaining economic growth and stability, protecting the integrity of our nation’s financial system, and effectively managing the U.S. government’s finances and resources. USDA net costs of $223.9 billion support a wide range of programs that provide leadership on food, agriculture, natural resources, rural development, nutrition, and related issues based on public policy, the best available science, and effective management.

Tax and Other Unearned Revenues

As noted earlier, tax and other unearned 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 unearned revenue increased by $266.7 billion or 5.4 percent to $5.2 trillion for FY 2025. This increase is attributable mainly to an increase in individual income tax collections, partially offset by a decrease in corporate tax collections. Individual income tax and tax withholdings of $4.3 trillion and corporate income taxes of $478.4 billion accounted for about 82.3 percent and 9.1 percent of total tax and other unearned revenue, respectively in FY 2025; other unearned revenues from Chart 4 include Federal Reserve earnings, excise taxes, unemployment taxes, and customs duties. Notably, customs duties increased $133.9 billion (275.3 percent) to $210.3 billion mostly due to multiple tariffs implemented during FY 2025. Earned revenues from Table 3 are not considered “taxes and other unearned revenue” and, thus, are not shown in Chart 4.

As previously shown in Table 3, the increase in tax and other unearned revenue combined with the net decrease in net cost, yields a $292.0 billion decrease to the government’s bottom line net operating cost of $2.1 trillion for FY 2025.

Tax Expenditures

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

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

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

Assets and Liabilities

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

Assets

From Table 4, as of September 30, 2025, 84.1 percent of the government’s $6.1 trillion in reported assets is comprised of: 1) cash and other monetary assets ($1.2 trillion); 2) inventory and related property, net ($504.2 billion); 3) loans receivable, net ($2.0 trillion); and 4) net PP&E ($1.4 trillion).¹³  Chart 5 compares the balances of these and other Balance Sheet amounts as of September 30, 2025, and 2024.

Cash and other monetary assets ($1.2 trillion) is comprised largely of the operating cash of the U.S. government. Operating cash held by Treasury, which represents balances from tax collections, federal debt receipts, and other various receipts net of cash outflows for federal debt repayments and other payments, increased $1.1 billion (0.1 percent) to $871.9 billion (see Note 2—Cash and Other Monetary Assets).

Inventory and related property ($504.2 billion) is comprised of inventory; OM&S; stockpile materials; commodities; and seized, forfeited, and foreclosed property. Inventory is tangible personal property that is either held for sale, in the process of production for sale, or to be consumed in the production of goods for sale or in the provision of services for a fee (e.g., raw materials, finished goods, spare and repair parts, clothing and textiles, and fuels). OM&S consists of tangible personal property to be consumed in normal operations (e.g., spare and repair parts, ammunition, and tactical missiles). Stockpile materials are strategic and critical materials held due to statutory requirements for use in national defense, conservation, or local/national emergencies. Contributing agencies include DOD and DOE (see Note 5—Inventory and Related Property, Net).

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. Department of Housing and Urban Development (HUD) loan programs support affordable homeownership, as well as the construction and rehabilitation of housing projects for the elderly and persons with disabilities. SBA loan programs enable the establishment and vitality of small businesses and assist in the economic recovery of communities after disasters. Loans receivable consists primarily of direct loans disbursed by the government, receivables related to guaranteed loans that have defaulted, and certain receivables for guaranteed loans that the government has purchased from lenders. The federal government’s loan receivable, net increased by $251.5 billion (14.4 percent) to $2.0 trillion during FY 2025, with Education and SBA together accounting for nearly three-fourths of the total.

Loan guarantee programs are another form of federal lending. 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. Significant changes to the federal government’s loans receivable, net, and loan guarantees. Some of these changes are discussed below and in greater detail in Note 4.

Download the chart's data source here in CSV format

• Education has loan programs that are authorized by Title IV of the Higher Education Act of 1965. The William D. Ford Federal Direct Loan Program (referred to as the Direct Loan Program), was established in FY 1994 and offers four types of educational loans: Stafford, Unsubsidized Stafford, Parent Loan for Undergraduate Students, and consolidation loans. Education’s net loans receivable for its Direct Loan Program totaled $1.3 trillion, 62.6 percent of total loans receivable, net. Credit program receivables for the Direct Loan Program increased by $212.3 billion due largely to FY 2025 loan disbursements and changes in the subsidy cost allowance. In FY 2025, the allowance for subsidy decreased by $152.5 billion due to loan modifications in types of loans and repayment plans offered, as a result of P.L. 119-21 which increased the net credit program receivable.
• SBA employs a variety of methods to support America’s small businesses. These methods include promoting equitable access to capital, federal contracting, counseling, and disaster assistance. SBA’s Disaster Assistance Loan Program makes direct loans to disaster survivors under four categories: 1) physical disaster loans to repair or replace damaged homes and personal property; 2) physical disaster loans to businesses of any size; 3) Economic Injury Disaster Loans (EIDL) to eligible small business and nonprofit organizations without credit available elsewhere; and 4) economic injury loans to eligible small businesses affected by essential employees called up to active duty in the military reserves. In FY 2025, SBA's direct disaster loans receivable, gross increased by $37.9 billion from FY 2024 primarily due to previously charged off loans being placed back into service. However, SBA's direct disaster loans receivable, net decreased by $24.3 billion from FY 2024 primarily due to an upward reestimate because of lower than projected cash collections on COVID-19 EIDL loans.
• Loans Receivable also includes Treasury’s $96.4 billion in notes issued by trusts created by FDIC in its receivership capacity and backed by a guarantee from the FDIC in its corporate capacity.

Federal government PP&E consists predominantly of tangible assets, including land. Internal use software, land rights that do not meet the definition of a lease, assets acquired through financing leases, right-to-use (RTU) lease assets, and leasehold improvements are also included in PP&E. DOD comprises approximately 70.2 percent of the government’s reported PP&E of $1.4 trillion as of September 30, 2025. The FY 2024 PP&E net balance was restated by a decrease of $10.9 billion. DOD made corrections of errors for assets that were not properly capitalized upon acquisition and depreciation reevaluation. (see Note 6—Property, Plant, and Equipment, Net).

“Other” assets of $1.0 trillion in Table 4 and Chart 5 includes:

• $252.9 billion in Accounts Receivable, Net. Taxes Receivable, which comprises approximately 58.1 percent of the government’s reported accounts receivable, net, consist of uncollected tax assessments, penalties, and interest when taxpayers have agreed, or a court has determined the assessments are owed and unpaid taxes related to Internal Revenue Code (IRC) section 965. Taxes receivable, net, decreased by $30.0 billion during FY 2025, mainly due to payments from taxpayers resulting in a $48.8 billion decrease in unpaid transition taxes on foreign earnings pursuant to IRC section 965(h). The decrease is primarily offset by a $17.4 billion increase in taxes receivable, net attributable to other entities (see Note 3—Accounts Receivable, Net).
• $504.2 billion in Inventory and Related Property, Net includes OM&S, inventory, stockpile materials, and other related property. DOD comprises approximately 76.6 percent of the government’s inventory and related property, net as of September 30, 2025. OM&S consists of tangible personal property to be consumed in normal operations (e.g., spare and repair parts, ammunition, tactical missiles, aircraft configuration pods, and centrally managed aircraft engines held for consumption). Inventory is tangible personal property that is either held for sale, in the process of production for sale, or to be consumed in the production of goods for sale or in the provision of services for a fee. Stockpile materials are strategic and critical materials held due to statutory requirements for use in national defense, conservation, or local/national emergencies. Inventory and Related Property increased $24.3 billion during FY 2025. The FY 2024 inventory balance was restated by an increase of $32.6 billion due to corrections of errors related to SAA assets that were previously classified as expense and revenue transactions (see Note 5—Inventory and Related Property, Net).
• $70.0 billion in Advances and Prepayments, which represent funds disbursed in contemplation of the future performance of services, receipt of goods, the incurrence of expenditures, or the receipt of other assets. The $76.4 billion decrease in this amount is largely attributable to a large decrease at Treasury due to advance liquidations based on recipient reported expenditures in the Coronavirus Relief Fund and Emergency Rental Assistance. As these programs mature, the participants’ increasing expenditures result in the liquidation of the advances with no offsetting additions to advance balance from new disbursements (see Note 9—Advances and Prepayments).
• $374.5 billion in Investments in GSEs. The asset value of the Investments in GSEs was $374.5 billion as of September 30, 2025, and grew by $68.7 billion during FY 2025, reflecting a net fair value (FV) valuation gain in senior preferred stock and warrants of $41.9 billion, coupled with a $26.8 billion growth in the liquidation preference of the senior preferred stock. Investments in GSEs refers to actions taken by Treasury in the wake of the 2008 financial crisis to maintain the solvency of the GSEs (Fannie Mae and Freddie Mac) so they can continue to fulfill their vital roles in the mortgage market while the administration and Congress determine what structural changes should be made to the housing finance system (see Note 7—Investments in Government-Sponsored Enterprises).
• $142.9 billion in Investments. While investments in the GSEs were among those intended to stabilize the economy during a time of national crisis, the federal government has also made investments in support of other goals, including insuring pension benefits, promoting national security and industrial policy. For example, to those ends, Pension Benefit Guaranty Corporation (PBGC) investments insure private sector defined benefit plans, protecting workers' retirement income if their employer's plan fails; National Railroad Retirement Investment Trust (NRRIT) on behalf of the Railroad Retirement Board (RRB), manages and invests railroad retirement assets that are to be used to pay retirement benefits to the nation’s railroad workers; and Department of Commerce’s (DOC’s) investments consist of Intel Corporation (Intel) common stock acquired through a Warrant and Common Stock Agreement dated August 22, 2025. DOC received a five-year warrant to purchase up to 240.5 million shares of Intel common stock exercisable under certain conditions at $20.00/share which is subject to adjustment. Due to the uncertainty of certain conditions being met, the warrant was not recorded as of September 30, 2025 (see Note 8—Investments).

Liabilities

As indicated in Table 4 and Chart 6, of the government’s $47.8 trillion in total liabilities, the largest liability is federal debt and interest payable, the balance of which increased by $2.0 trillion (7.0 percent) to $30.3 trillion as of September 30, 2025.

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 $0.4 trillion (2.9 percent) during FY 2025, to about $15.5 trillion. This total amount is comprised of $3.4 trillion in benefits payable for the current and retired civilian workforce, and $12.1 trillion for the military and veterans. OPM administers the largest civilian pension plan, covering nearly 2.8 million active employees, including the Postal Service, and more than 2.7 million annuitants, including survivors. The DOD military pension plan covers about 2.1 million current military personnel (including active service, reserve, and National Guard) and approximately 2.3 million retirees and survivors.

The federal workforce experienced significant change during 2025, including from Reductions in Force (RIF) and implementation of the “Deferred Resignation Program” (DRP). The DRP allowed eligible employees to resign voluntarily while receiving paid administrative leave (salary and benefits) from employees’ DRP effective date through fiscal or calendar-year end 2025. According to OPM’s website, during calendar-year 2025, “the government hired roughly 68,000 people this year, while approximately 317,000 employees left the government.”¹⁴

Federal Debt

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

The government’s federal debt and interest payable (Balance Sheet liability), which is comprised of publicly held debt and accrued interest payable, increased $2.0 trillion (7.0 percent) to $30.3 trillion as of September 30, 2025. It is comprised of Treasury securities, such as bills, notes, and bonds, net of unamortized discounts and premiums issued or sold to the public; and accrued interest payable. The “public” consists of individuals, corporations, state and local governments, FRB, foreign governments, and other entities outside the federal government. As indicated above, budget surpluses have typically resulted in borrowing reductions, and budget deficits have conversely yielded borrowing increases. However, the government’s debt operations are generally much more complex. Each year, trillions of dollars of debt matures and new debt is issued to take its place. In FY 2025, new borrowings were $30.7 trillion, and repayments of maturing debt held by the public were $28.8 trillion, both increases over FY 2024. The $2.0 trillion increase in publicly held debt and accrued interest payable is largely attributable to the need to finance the government’s operations.

In addition to debt held by the public, the government has about $7.3 trillion in intra-governmental debt outstanding, which arises when one part of the government borrows from another. It represents debt issued by Treasury and held by government accounts, including the Social Security ($2.6 trillion) and Medicare ($406.7 billion) Trust Funds. Intra-governmental debt is primarily held in government trust funds in the form of special nonmarketable securities by various parts of the government. Laws establishing government trust funds generally require excess trust fund receipts (including interest earnings) over disbursements to be invested in these special securities. Because these amounts are both liabilities of Treasury and assets of the government trust funds, they are eliminated as part of the consolidation process for the government-wide financial statements (see Financial Statement Note 12—Federal Debt and Interest Payable). When those securities are redeemed, e.g., to pay Social Security benefits, the government must obtain the resources necessary to reimburse the trust funds. The sum of debt held by the public and intra-governmental debt equals gross federal debt, which (with some adjustments), is subject to a statutory ceiling (i.e., the debt limit). Note that when intra-governmental debt decreases, debt held by the public will increase by an equal amount (if the general account of the U.S. government is in deficit), so that there is no net effect on gross federal debt. At the end of FY 2025, debt subject to the statutory limit was $37.5 trillion.¹⁵

The federal debt held by the public measured as a percent of GDP (debt-to-GDP ratio) (Chart 7) compares the country’s debt to the size of its economy, making this measure sensitive to changes in both. Over time, the debt-to-GDP ratio has varied widely:

• For most of the nation’s history, through the first half of the 20th century, the debt-to-GDP ratio has tended to increase during wartime and decline during peacetime.
• Chart 7 shows that wartime spending and borrowing pushed the debt-to-GDP ratio to an all-time high of 106 percent in 1946, soon after the end of World War II, but it decreased rapidly in the post-war years.
• The ratio grew rapidly from the mid-1970s until the early 1990s. Strong economic growth and fundamental fiscal decisions, including measures to reduce the federal deficit and implementation of binding Pay-As-You-Go (PAYGO) rules (which require that new tax or spending laws not add to the deficit), generated a significant decline in the debt-to-GDP ratio, from a peak of 48 percent in FYs 1993-1995, to 31 percent in 2001.
• The debt-to-GDP ratio rose significantly in 2008-2009 during the financial crisis and again in 2020-2021 during the pandemic reflecting the government’s responses to both events and the resulting significant spending and deficit increases, as well as the economic challenges experienced during both periods.
• During the first decade of the 21st century, PAYGO rules were allowed to lapse, significant tax cuts were implemented, entitlements were expanded, and spending related to defense and homeland security increased. By September 2008, the debt-to-GDP ratio was 39 percent of GDP.
• PAYGO rules were reinstated in 2010, but the extraordinary demands of the 2008 economic and financial crisis and the consequent actions taken by the federal government, combined with slower economic growth in the wake of the crisis, pushed the debt-to-GDP ratio up to 74 percent by the end of FY 2014.
• The extraordinary demands of the pandemic, the government’s response, and pressures on the economy contributed to a rise in the debt-to-GDP ratio to approximately 100 percent during FY 2020 and FY 2021.
• The debt was 99 percent of GDP at the end of FY 2025. This ratio increased during FY 2025 because debt grew faster than GDP.^{16, 17} From Chart 7, since 1940, the average debt-to-GDP ratio is 51 percent.

See Note 29—Subsequent Events – for information about events that occurred after the end of the fiscal year that may affect the government’s financial position and condition.

The Economy in FY 2025

A consideration of U.S. macroeconomic performance provides useful context for several aspects of the government’s financial statements. In FY 2025, the economy’s growth slowed, the pace of payroll job creation tapered while headline inflation remained above the Federal Reserve’s 2 percent target. While production and nonsupervisory workers continued to see positive growth in real earnings, the pace of growth slowed in FY 2025 relative to the previous fiscal year. Nonetheless, private sector forces continue to sustain the economy’s expansion, job growth likely remains adequate to keep the unemployment rate stable, and important drivers of inflation have eased over the past 12 months.

As summarized in Table 5, the real GDP grew by 2.3 percent over the four quarters of FY 2025, driven mainly by personal consumption expenditures (PCE). Over the four quarters of FY 2025, real PCE rose by 2.6 percent—accounting for an average 1.8 percentage points of total GDP growth—but slowed by a half percentage point compared with PCE growth in the previous fiscal year. Business fixed investment added 0.5 percentage points to growth, matching the share in the previous fiscal year. Residential investment was roughly neutral for growth, as in FY 2024. Government spending added 0.2 percentage points to growth, pulling back from a 0.7 percentage point contribution in the previous fiscal year. Finally, the net change in inventories slowed from FY 2024, which appeared as an 0.5 percentage point drag on GDP growth in FY 2025, after having an essentially neutral impact on GDP growth the previous fiscal year.

Labor markets largely remained in balance in FY 2025, although the economy generated jobs at a slower pace. On average during FY 2025, employers added 53,000 payroll jobs per month, slower than the 125,000 monthly average pace during FY 2024. Meanwhile, the unemployment rate hovered in a low and narrow range of 4.1-4.2 percent through most of the fiscal year, and only ticked up in August and September 2025, ending the fiscal year at 4.4 percent, or 0.3 percentage points higher than at the end of the previous fiscal year and only 0.1 percentage points above the Congressional Budget Office’s (CBO’s) estimate of the noncyclical unemployment rate for 2025. Labor force participation has remained relatively stable over the past three fiscal years, although the composition of the labor force continues to diverge. The overall labor force participation rate was down 0.3 percentage points over the course of FY 2025, but the participation rate among prime age (ages 25 to 54) workers has been stable at a high level. After reaching a 23-year high of 84.0 percent in July 2024, the prime-age labor force participation rate finished FY 2025 at 83.7 percent, still 0.6 percentage points above the pre-pandemic peak. However, consistent with demographic trends, the labor force participation rate among older workers declined more steeply during the latest fiscal year, dropping 0.6 percentage points to 38.3 percent from the end of FY 2024. This participation rate was 1.9 percentage points below the rate at the end of FY 2019, just before the COVID-19 pandemic. After easing in previous fiscal years, headline inflation picked up moderately in FY 2025, although core inflation (which excludes the volatile components of food and energy) continued to ease. As measured by the Consumer Price Index (CPI), inflation was 3.0 percent over the 12 months of FY 2025, up from 2.4 percent over FY 2024 but considerably below the peak fiscal year pace of 8.2 percent over FY 2022. Faster energy price and food price inflation helped drive up headline inflation. By contrast, core inflation eased as price growth for shelter services and non-housing core services began to recede more durably. Core inflation was 3.0 percent over the fiscal year ending September 2025, down from 3.3 percent at the end of FY 2024 and less than half of the 6.6 percent peak rate at the end of FY 2022. Meanwhile, the Federal Reserve’s preferred measure of inflation, the PCE price index, moved up to 0.8 percentage points above its target 2-percent rate at the end of FY 2025.

Gains in nominal wages and Disposable Personal Income (DPI) slowed moderately in FY 2025. Nominal hourly wages for production and supervisory workers grew by 3.8 percent over FY 2025, a bit slower than the 4.2 percent pace over the previous fiscal year. However, with the pick-up in inflation, (real) wages increased just 0.7 percent in FY 2025, following a 2.0 percent gain in FY 2024. Meanwhile, nominal DPI growth was 4.4 percent in FY 2025, below the previous fiscal year’s pace of 5.1 percent. After adjusting for inflation, real DPI growth was 1.5 percent, compared with a 2.8 percent advance over FY 2024.

Footnotes

³ On the government’s Balance Sheet, federal debt and interest payable consists of Treasury securities, net of unamortized discounts and premiums, and accrued interest payable. The “public” consists of individuals, corporations, state and local governments, Federal Reserve Banks (FRB), foreign governments, and other entities outside the federal government.(Back to Content)

⁴ As referenced in the FY 2025 DOD AFR, this report refers to the Department of Defense (DOD) in accordance with statutory requirements. While mindful of Executive Order 14347 and ongoing legal determinations regarding the Department’s name, this report utilizes the designation “Department of Defense” because the DOD AFR and this Financial Report are statutorily mandated reports, all relevant legislation designates the Department as the “Department of Defense,” and the funding for programs discussed in the DOD AFR was issued to the Department of Defense. (Back to Content)

⁵ P.L. 119-21 commonly referred to as the OBBBA. Prominent components of P.L. 119-21 are WFTC, which provide federal income tax deductions for certain income from Social Security benefits, overtime, and tips (P.L. 119-21). (Back to Content)

⁶ PVs recognize that a dollar paid or collected in the future is worth less than a dollar today because a dollar today could be invested and earn interest. To calculate a PV, future amounts are thus reduced using an assumed interest rate, and those reduced amounts are summed. (Back to Content)

⁷ 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 of the U.S. Government (General Fund), which are presented, and by accounting convention, eliminated in the SOSI. For the FYs 2025 and 2024 SOSI, the amounts eliminated totaled $57.1 trillion and $50.2 trillion, respectively. In addition, the SOSI programs include Department of Labor’s (DOL) Black Lung Program, the projection period for which is 25 years. (Back to Content)

⁸ The 16 entities include HHS, which received disclaimers of opinions on its 2025, 2024, 2023, 2022, and 2021 SOSI and its 2025 and 2024 SCSIA. The 16 also includes Education, which received an unmodified opinion on only its Balance Sheet with the remaining statements being unaudited. The 16 does not include DOL, which as of issuance of this Financial Report, had not issued its AFR. The 14 additional significant entities include FDIC, the National Credit Union Administration (NCUA), and the Farm Credit System Insurance Corporation (FCSIC), which report their audited financial statements on a calendar year basis (December 31 year-end). Statistic reflects 2024 audit results for these organizations if 2025 results are not available. (Back to Content)

⁹ See Note 23—Fiduciary Activities. (Back to Content)

¹⁰ Under GAAP, most U.S. government revenues are recognized on a ‘modified cash’ basis, (see Financial Statement Note 1.B). The SOSI presents the PV of the estimated future revenues and expenditures for scheduled benefits over the next 75 years for the Social Security, Medicare, Railroad Retirement Program (RRP); and 25 years for the Black Lung program. The SLTFP presents the 75-year PV of the projected future receipts and non-interest spending for the federal government. (Back to Content)

¹¹ Interest outlays on Treasury debt held by the public are recorded in the Budget when interest accrues, not when the interest payment is made. For federal credit programs, outlays are recorded when loans are disbursed, in an amount representing the PV cost to the government, commonly referred to as credit subsidy cost. Credit subsidy cost excludes administrative costs. (Back to Content)

¹² Final MTS for FY 2025 through September 30, 2025 and Other Periods. (Back to Content)

¹³ For financial reporting purposes, other than multi-use heritage assets, stewardship assets of the government are not recorded as part of PP&E. Stewardship assets are comprised of stewardship land and heritage assets. Stewardship land primarily consists of public domain land (e.g., national parks, wildlife refuges). Heritage assets include national monuments and historical sites that among other characteristics are of historical, natural, cultural, educational, or artistic significance (see Note 26—Stewardship Property Plant, and Equipment). (Back to Content)

¹⁴ https://www.opm.gov/news/secrets-of-opm/everyone-has-a-plan-until-you-step-into-the-ring/ (Back to Content)

¹⁵ On June 3, 2023, P.L. 118-5 was enacted suspending the debt limit through January 1, 2025. On January 21, 2025, a delay in raising the debt limit commenced at which time Treasury departed from its normal debt management operations and undertook extraordinary measures to avoid exceeding the statutory debt limit. On July 4, 2025, Congress and the President enacted P.L. 119-21 which raised the debt limit from $36,104.0 billion to $41,104.0 billion. On July 7, 2025, Treasury discontinued the use of extraordinary measures and resumed normal debt management operations (see Note 12—Federal Debt and Interest Payable). (Back to Content)

¹⁶ GDP, in this context, refers to nominal GDP. (Back to Content)

¹⁷ The increase in debt of $2.0 trillion was greater than the FY 2025 deficit of $1.8 trillion primarily because of an increase in federal direct loan financing activity. (Back to Content)