Executive Summary to the 2017 Financial Report of U.S. Government

Where We Are Now

Comparing the Budget and the Financial Report

The Budget of the United States Government (Budget) and the Financial Report of the U.S. Government present complementary perspectives on the Government’s financial position and condition.

• The Budget is the Government’s primary financial planning and control tool. It accounts for past Government receipts and spending, and includes the President’s proposed receipts and spending plan. Receipts are cash received by the U.S. Government (Government) and spending is measured as outlays, or payments made by the Government to the public. Receipts greater than outlays creates a budget surplus; and outlays greater than receipts creates a budget deficit.
• The Financial Report includes the Government’s costs and revenues, assets and liabilities, and other important financial information. It compares the Government’s revenues (amounts earned, but not necessarily collected), with costs (amounts incurred, but not necessarily paid) to derive net operating cost.

Chart 1 compares the Government’s budget deficit (receipts vs. outlays) and net operating cost (revenues vs. costs) for Fiscal Years (FY) 2013 - 2017.

During FY 2017:

• A $126.5 billion increase in outlays was offset in part by a $48.2 billion increase in receipts to increase the budget deficit by $78.3 billion (about 13.3 percent) to $665.7 billion.
• Net operating cost increased by $105.0 billion or 10.0 percent to $1.2 trillion, due largely to a $128.8 billion (2.9 percent) increase in net cost, offset by a slight $29.3 billion (0.9 percent) increase in tax and other revenues.
• The $491.0 billion difference between the budget deficit and net operating cost is primarily  due  to  accrued  costs  (incurred but not necessarily paid) related to increases in estimated federal employee and veteran benefits liabilities and certain other liabilities that are included in net operating cost, but not the budget deficit.

Costs and Revenues

The Government’s “bottom line” net operating cost increased $105.0 billion (10.0 percent) during FY 2017 to $1.2 trillion. It is calculated as follows:

• Starting with total gross costs of $4.6 trillion, the government subtracts earned program revenues (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 future federal employee and veterans benefits payments to derive its net cost before taxes and other revenues of $4.5 trillion (see Chart 2), an increase of $128.8 billion (2.9 percent) from FY 2016. This net increase is the combined effect of many offsetting increases and decreases across the Government. For example:
  • Agencies administering federal employee and veterans benefits programs, including the Office of Personnel Management (OPM), Department of Veterans Affairs (VA), and Department of Defense (DOD) 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 actuarial losses amounted to $356.5 billion in FY 2017, an increase of $83.2 billion over FY 2016.
  • Agencies that extend credit to the public, including student and housing loans, estimate and re-estimate long-term program cost employing multiple loan performance and economic assumptions. For example, these estimates and re-estimates contributed to a $19.4 billion net cost decrease at the Department of Education and a $39.7 billion net cost increase at the Department of Housing and Urban Development.
  • Department of Health and Human Services (HHS) and Social Security Administration (SSA) net costs increased $11.8 billion and $17.0 billion, respectively, largely due to increases in benefit expenses from the social insurance programs administered by those agencies (e.g., Medicare, Social Security). DOD net costs increased by $56.2 billion due largely to the aforementioned changes in assumptions. Interest costs on the debt held by the public increased $23.3 billion due largely to an increase in the debt.
  • Department of Energy (DOE) net costs decreased $23.0 billion predominantly due to changes in estimated environmental remediation costs compared to FY 2016 and Department of Homeland Security (DHS) net costs increased $10.9 billion primarily for hurricane response and recovery.

• The Government deducts tax and other revenues from net cost (with some adjustments) to derive its FY 2017 “bottom line” net operating cost of $1.2 trillion.
  • From Chart 3, total Government tax and other revenues grew by $29.3 billion (0.9 percent) to about $3.4 trillion for FY 2017.
  • Together, individual income tax and tax withholdings, and corporation taxes accounted for about 88.5 percent of total tax and other revenues in FY 2017. Other revenues include Federal Reserve earnings, excise taxes, and customs duties.

Assets and Liabilities

Chart 4 summarizes the assets and liabilities that the Government reports on its balance sheet. As of September 30, 2017:

• Total assets ($3.5 trillion) consist mostly of $1.3 trillion in net loans receivable (primarily student loans) and $1.0 trillion in net property, plant, and equipment).
  • Other significant Government resources not reported on the balance sheet include stewardship assets, natural resources, and the Government’s power to tax and  set monetary policy.
• Total liabilities ($23.9 trillion) consist mostly of: (1) $14.7 trillion in federal debt securities held by the public and accrued interest and (2) $7.7 trillion in federal employee and veteran benefits payable.
  • The “public” consists of individuals, corporations, state and local governments, Federal Reserve Banks, foreign governments, and other entities outside the federal government.
• The Government also reports about $5.6 trillion of intragovernmental debt outstanding, which arises when one part of the Government borrows from another.
  • For example, Government funds (e.g., Social Security and Medicare trust funds) typically must invest excess annual receipts, including interest earnings, in Treasury-issued federal debt securities. Although not reflected in Chart 4, these securities are included in the calculation of federal debt subject to the debt limit.
• Debt held by the public plus intragovernmental debt equals gross federal debt, which, with some adjustments, is subject to a statutory debt ceiling (“debt limit”).
  • At the end of FY 2017, debt subject to the statutory limit (DSL) was $20.2 trillion. Increasing or suspending the debt limit does not increase spending or authorize new spending; rather, it permits the Government to continue to honor pre-existing commitments.
  • Legislation most recently suspended the debt limit from November 2, 2015 through March 15, 2017, and from September 8, 2017 through December 8, 2017. See Note 25, Subsequent Events, of the Financial Report for developments since the end of the fiscal year.

Considering key macroeconomic indicators can help place the discussion of the Government’s financial results in a broader context. During FY 2017, the economy continued to grow, job growth decelerated, and the unemployment rate declined. These and other economic and financial developments are discussed in greater detail in the Financial Report.