Financial Reporting Review of the Federal Government

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DEPARTMENT OF THE TREASURY WASHINGTON, D.C

SECRETARY OF THE TREASURY

February 17, 2022

A Message from the Secretary

During fiscal year 2021, the American economy continued to recover from the COVID-19

pandemic and its adjacent economic crisis. The unemployment rate saw its sharpest one-year

decline on record, while GDP rose to exceed its pre-pandemic levels. The strong recovery is due

in large part to rapid vaccine deployment and robust support provided by the

American Rescue Plan (ARP).

That support included funding for vaccination efforts, support for households through Economic

Impact Payments and the expanded Child Tax Credit, assistance to workers and small businesses

recovering from the economic crisis, efforts to expand access to affordable health care coverage

and childcare, and help for state, local and tribal governments.

In these pages, you will find information about the critical programs launched by the ARP, as

well as related legislative measures like the Coronavirus Aid, Relief, and Economic Security Act

(CARES Act). That support included direct payments to citizens and families; forgivable loans

for small businesses to encourage employee retention; assistance to especially hard-hit

industries; expanded unemployment insurance; help for state, local, and tribal governments; and

funding for the development and purchase of vaccines, therapeutic treatment, testing, and

medical supplies.

This Financial Report discusses current financial results, including federal debt, which increased

during the past year, and interest costs, which as a percent of GDP, remain below historical

levels; and also, importantly, long-term trends affecting our critical social insurance programs

and fiscal health.

It is my duty and pleasure to present this Financial Report to the American people. This

document is a testament to the importance of accountability and transparency in how the nation

handles its finances and economic policymaking.

Janet L. Yellen

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Contents A Message from the Secretary of the Treasury

Executive Summary............................................................................................................ 1

Management’s Discussion and Analysis ........................................................................... 12

Statement of the Comptroller General of the United States ........................................... 42

Financial Statements

Introduction .................................................................................................................. 52

Statement of Net Cost ................................................................................................... 59 Statement of Operations and Changes in Net Position ................................................. 61

Reconciliations of Net Operating Cost and Budget Deficit .......................................... 63

Statements of Changes in Cash Balance from Budget and Other Activities ...................................................................................................................... 64

Balance Sheets .............................................................................................................. 65 Statements of Long-Term Fiscal Projections................................................................ .............................. 57 66

Statements of Social Insurance ..................................................................................... 67

Statement of Changes in Social Insurance Amounts .................................................... 70

Notes to the Financial Statements

Note 1. Summary of Significant Accounting Policies .................................................. 72

Note 2. Cash and Other Monetary Assets ..................................................................... 85 Note 3. Accounts Receivable, Net ................................................................................ 86

Note 4. Loans Receivable, Net and Loan Guarantee Liabilities ................................... 87 Note 5. Inventory and Related Property, Net ............................................................... 91 Note 6. General Property, Plant, and Equipment, Net .................................................. 93 Note 7. Investments ...................................................................................................... 94

Note 8. Investments in Special Purpose Vehicles ......................................................... 97

Note 9. Investments in Government-Sponsored Enterprises ........................................ 100 Note 10. Advances and Prepayments ........................................................................... 103

Note 11. Other Assets ................................................................................................... 104

Note 12. Accounts Payable ........................................................................................... 105 Note 13. Federal Debt and Interest Payable ................................................................. 106 Note 14. Federal Employee and Veteran Benefits Payable .......................................... 110

Note 15. Environmental and Disposal Liabilities ......................................................... 120

Note 16. Benefits Due and Payable .............................................................................. 122 Note 17. Insurance and Guarantee Program Liabilities ................................................ 123

Note 18. Advances from Others and Deferred Revenue............................................... 125

Note 19. Other Liabilities ............................................................................................. 126

Note 20. Collections and Refunds of Federal Revenue ................................................ 128 Note 21. Commitments ................................................................................................. 131

Note 22. Contingencies ................................................................................................ 134

Note 23. Funds from Dedicated Collections ................................................................. 141 Note 24. Fiduciary Activities........................................................................................ 148 Note 25. Social Insurance ............................................................................................. 150

Note 26. Long-Term Fiscal Projections............................................................. 159

Note 27. Stewardship Property, Plant, and Equipment ................................................. 165 Note 28. Disclosure Entities and Related Parties ......................................................... 166

Note 29. Public-Private Partnerships ............................................................................ 172

Note 30. COVID-19 Activity ....................................................................................... 174 Note 31. Subsequent Events ........................................................................................ 178

Required Supplementary Information (Unaudited)

The Sustainability of Fiscal Policy ............................................................................... 180 Social Insurance ........................................................................................................... 191

Social Security and Medicare ..................................................................................... 191

Railroad Retirement, Black Lung, and Unemployment Insurance ............................. 205

Deferred Maintenance and Repairs .............................................................................. 207 Other Claims for Refunds ............................................................................................. 207

Tax Assessments .......................................................................................................... 208

Federal Oil and Gas Resources ..................................................................................... 208 Federal Natural Resources Other than Oil and Gas ........................................... 210

Other Information (Unaudited)

Tax Burden ........................................................................................................ 212 Tax Gap ........................................................................................................................ 213

Tax Expenditures .......................................................................................................... 214

Unmatched Transactions and Balances ........................................................................ 215

Appendices

Appendix A: Reporting Entity ...................................................................................... 218

Appendix B: Glossary of Acronyms............................................................................. 222 U.S. Government Accountability Office Independent Auditor’s Report................. 228

For a complete listing of frequently used acronyms found throughout the Financial Report, please refer to the Glossary of Acronyms located in Appendix B.

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1 EXECUTIVE SUMMARY TO THE 2021 FINANCIAL REPORT OF THE U.S. GOVERNMENT

EXECUTIVE SUMMARY TO THE 2021 FINANCIAL REPORT OF THE U.S. GOVERNMENT 2

Executive Summary to the FY 2021

Financial Report of the United States Government

The FY 2021 Financial Report presents the U.S. government’s current financial position and condition, and

discusses key financial topics and trends. The Financial Report is produced by Treasury in coordination with

OMB, which is part of the Executive Office of the President. The table on the preceding page presents several key

indicators of the government’s financial position and condition, which are discussed in this Executive Summary

and, in greater detail, in the Financial Report. The Secretary of the Treasury, the Director of OMB, and the

Comptroller General of the U.S. at the GAO believe that the information discussed in this Financial Report is

important to all Americans. The first audited Financial Report covered FY 1997, making the FY 2021 Financial

Report the 25th edition of this important vehicle for federal accountability and transparency.

This Financial Report addresses the government’s financial activity and results as of and for the fiscal years

ended September 30, 2021 and 2020. Note 31—Subsequent Events discusses events that occurred after the end of

the fiscal year that may affect the government’s financial position and condition.

Where We Are Now

Results in Brief

The “Nation by the Numbers” table on the preceding page and the following summarize key metrics about

the federal government’s financial position for and during FY 2021:

• The budget deficit decreased by $356.3 billion (11.4 percent) to $2.8 trillion and net operating cost decreased by $746.5 billion (19.4 percent) to $3.1 trillion.

• The government’s gross costs of $7.3 trillion, less $462.3 billion in revenues earned for goods and services provided to the public, plus $518.4 billion in net losses from changes in assumptions yields the

government’s net cost of $7.4 trillion.

• Tax and other revenues increased by $684.3 billion to $4.3 trillion. Deducting these revenues from net cost yields the federal government’s “bottom line” net operating cost of $3.1 trillion referenced above.

• Comparing total government assets of $4.9 trillion to total liabilities of $34.8 trillion (comprised mostly of $22.3 trillion in federal debt and interest payable, and $10.2 trillion of federal employee and veteran

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

• The Statement of Long-Term Fiscal Projections (SLTFP) shows that the present value (PV) of total non- interest spending, over the next 75 years, under current policy, is projected to exceed the PV of total

receipts by $97.6 trillion (total federal non-interest net expenditures from Table 1).

• The debt-to-GDP ratio was about 100 percent at the end of FY 2021. Under current policy and based on this report’s assumptions, it is projected to reach 701 percent by 2096. The projected continuous rise of

the debt-to-GDP ratio indicates that current policy is unsustainable.

• The Statement of Social Insurance (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 by about $71.0 trillion, a $5.5 trillion increase over 2020 social

insurance projections.

• This Financial Report includes discussion and analysis of the significant impact that the federal government’s response to the COVID-19 pandemic had on the government’s financial position during FY

2021.

3 EXECUTIVE SUMMARY TO THE 2021 FINANCIAL REPORT OF THE U.S. GOVERNMENT

The Federal Government’s Response to the Pandemic

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

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

continued through FY 2021, resulted in a severe global health and economic crisis. During FY 2020 and FY 2021,

the federal government took broad action to protect public health from the effects of the unprecedented pandemic,

enacting several major pieces of legislation, including:

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

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

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

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

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

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

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

and families, small businesses, and state, local, and tribal governments, and preserving jobs for American

industry. As indicated here and in the Financial Report, these essential programs had significant effects on the

federal government’s budgetary and financial results.

*Net of rescissions, transfers, and other adjustments. Does not include indirect appropriations related to COVID-19 activity.

Source: Appropriation Warrants. See Note 30—COVID-19 Activity and Agency Financial Reports for additional information.

Chart 1 summarizes the more than $4.8 trillion in appropriations (net of rescissions) enacted through

September 30, 2021 (i.e., during FY 2020 and FY 2021) for several key agencies, which include, but are not

limited to:

• Treasury appropriations support multiple efforts. IRS provided a refundable tax credit, the recovery rebate or EIP, and Treasury provides for payments to state, local, and tribal governments for pandemic-related

spending. ($1.6 trillion)

• SBA administers the PPP, a loan guarantee program designed to provide a direct incentive for small businesses to retain employees by providing loan forgiveness for amounts used for eligible expenses for

EXECUTIVE SUMMARY TO THE 2021 FINANCIAL REPORT OF THE U.S. GOVERNMENT 4

payroll and benefit costs, interest on mortgages, rent, and utilities. SBA also provides loans to small

business owners through the EIDL program. ($994.6 billion)

• Through multiple UI Programs, DOL expands the states’ ability to provide unemployment insurance for many workers impacted by the pandemic, including for workers who are not eligible for

regular/traditional unemployment benefits. ($845.8 billion)

• Through the PHSSEF and other efforts, HHS provides broad support, including, but not limited to: reimbursements to health care providers for expenses or lost revenues attributable to the pandemic, and

support for the development and purchase of vaccines, therapeutic treatment, testing, and medical

supplies. ($484.1 billion)

• Education COVID-19 appropriations funded a variety of programs administered primarily through grant programs. COVID-19 relief legislation and administrative actions also provided support for student loan

borrowers primarily by temporarily suspending nearly all federal loan payments. ($282.1 billion)

• Funding for USDA extended modifications to federal nutrition assistance programs; funded programs to support agricultural producers, growers, and processors; and provided additional relief to address the

continued impact of COVID-19 on the economy, public health, state and local governments, individuals,

and businesses. ($164.5 billion)

• DHS funding supports a wide range of efforts, including FEMA’s Disaster Relief Fund. FEMA is authorized to provide many types of assistance including, but not limited to Public Assistance for

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

protective equipment, and state and local Emergency Operations Center operations. ($115.9 billion)

• DOT funding supports the maintaining and continuing of operations and business needs of various transportation systems in response to COVID-19. ($106.2 billion)

• Many other agencies and programs comprise the “Other” amount in Chart 1. See Note 30—COVID-19 Activity and agency financial statements for additional details concerning federal agency pandemic

response efforts.

The financial effects of the government’s response to the COVID-19 pandemic were broad, impacting many

agencies in a variety of ways and to varying degrees. The Financial Report includes discussion and analysis of the

significant impact that the federal government’s response to the COVID-19 pandemic had on the government’s

financial statements for FY 2021. Additional information can be obtained from individual agency financial

statements.

Comparing the Budget and the Financial Report

The Budget and the Financial Report 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 and spending is measured as outlays, or payments

made by the federal government to the public or entities outside the government. In simple terms, when

total receipts are greater than outlays, then there is a budget surplus; and when total outlays exceed total

receipts, then there is 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.

5 EXECUTIVE SUMMARY TO THE 2021 FINANCIAL REPORT OF THE U.S. GOVERNMENT

Chart 2 compares the government’s budget deficit (receipts vs. outlays) and net operating cost (revenues vs.

costs) for FYs 2017 - 2021. During FY 2021:

• A $269.7 billion increase in outlays was more than offset by a $626.0

billion increase in receipts resulting in

a $356.3 billion decrease in the budget

deficit from $3.1 trillion to $2.8

trillion.

• Net operating cost decreased $746.5 billion or 19.4 percent from $3.8

trillion to $3.1 trillion, due mostly to a

$62.2 billion or 0.8 percent decrease

in net cost combined with a $684.3

billion or 19.2 percent increase in tax

and other revenues.

The $319.3 billion difference between the

budget deficit and net operating cost is

primarily due to accrued costs (incurred but

not necessarily paid) that are included in net operating cost, but not the budget deficit, primarily costs related to

increases in estimated federal employee and veteran benefits liabilities. Other sources of differences include, but

are not limited to increases in taxes receivable and the value of investments in GSE, as well as increases in

advances largely associated with the government’s pandemic response and timing differences related to the

recording of credit reform costs.

Costs and Revenues

The government’s “bottom line” net operating cost decreased $746.5 billion (19.4 percent) during FY 2021

to $3.1 trillion. It is calculated as follows:

• Starting with total gross costs of $7.3 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 veteran benefits

payments to derive its net cost before

taxes and other revenues of $7.4

trillion (see Chart 3), a slight decrease

of $62.2 billion (0.8 percent) from FY

2020. This net decrease is the

combined effect of many offsetting

increases and decreases across the

government, including the ongoing effects of the federal government’s response to the pandemic. For

example:

o A $211.6 billion decrease in net costs at the SBA, driven primarily by a $230.0 billion decrease in loan subsidy costs, including reestimates, attributable to the PPP and Debt Relief programs under the

CARES Act.

EXECUTIVE SUMMARY TO THE 2021 FINANCIAL REPORT OF THE U.S. GOVERNMENT 6

o A $270.1 billion increase in Treasury net costs largely due to increased disbursement of refundable tax credits or EIPs ($569.5 billion in FY 2021 compared to $274.7 billion in FY 2020), to eligible

recipients in every state and territory and at foreign addresses.

o A $96.4 billion decrease at DOL, much of which is attributable to a $100.7 billion decrease in Income Maintenance programs costs, primarily due to decreases in unemployment benefits as less jobless

claims are filed.

o A $100.8 billion net cost increase at HHS primarily due to a $115.4 billion increase across the Medicare and Medicaid benefits programs, including an increase in Medicaid grants to states to

continue COVID-19 relief efforts. These cost increases were offset by cost decreases due to the

PHSSEF receiving less funding during FY 2021 for COVID-19.

o Entities administering federal employee and veteran benefits programs, including the OPM, VA, and DOD employ a complex series of assumptions to make actuarial projections of their long-term benefits

liabilities. These assumptions include but are not limited to interest rates, beneficiary eligibility, life

expectancy, and medical cost levels. Changes in these assumptions can result in either losses (net cost

increases) or gains (net cost decreases). Across the government, these net losses from changes in

assumptions amounted to $518.4 billion in FY 2021, a loss decrease (and a corresponding net cost

decrease) of $161.1 billion compared to FY 2020.

o VA net costs decreased $291.8 billion due largely to changes in benefits program experience and assumptions as referenced above, including, but not limited to a lower than anticipated number of

veterans.

o DOD net costs increased $144.8 billion due to a $100.2 billion loss increase from changes in assumptions referenced above, as well as slight increases in net costs across DOD’s major programs,

including military operations, readiness, support, procurement, personnel, and R&D.

o SSA net costs increased $36.5 billion due largely to a cost of living increase in benefits expenses for the OASI program, partially offset by a decrease in the number of beneficiaries and, consequently,

expenses for the DI program.

o Interest costs related to federal debt securities held by the public increased by $20.9 billion due largely to an increase in inflation adjustments and an increase in outstanding debt held by the public.

• The government deducts tax and other revenues from net cost (with some adjustments) to derive its FY 2021 “bottom line” net operating cost

of $3.1 trillion.

o From Chart 4, total government tax and other revenues increased by

$684.3 billion (19.2 percent) to

about $4.3 trillion for FY 2021 due

primarily to overall growth in

income taxes collections, partially

offset by increased refunds.

o Together, individual income tax

and tax withholdings, and

corporate taxes accounted for about

87.7 percent of total tax and other

revenues in FY 2021. Other

revenues include Federal Reserve

earnings, excise taxes, and customs

duties.

7 EXECUTIVE SUMMARY TO THE 2021 FINANCIAL REPORT OF THE U.S. GOVERNMENT

Assets and Liabilities

Chart 5 summarizes the assets and liabilities that the government reports on its Balance Sheet. As of

September 30, 2021:

• More than three-fourths of the federal government’s total assets ($4.9

trillion) consist of: 1) $475.0 billion in

cash and monetary assets; 2) $401.0

billion in net accounts receivable; 3)

$1.7 trillion in net loans receivable

(primarily student loans); and 4) $1.2

trillion in net PP&E.

o Cash and monetary assets ($475.0 billion) is comprised largely of the

operating cash of the U.S.

government. Operating cash held

by Treasury decreased $1.6 trillion

(88.8 percent) to $198.4 billion

during FY 2021 due to Treasury

maintaining an elevated cash

balance in FY 2020 to maintain prudent liquidity in light of the size and relative uncertainty of

COVID-19 related outflows, combined with needing to reduce the cash balance to well under

Treasury’s prudent policy level at the end of FY 2021 due to debt ceiling constraints.

o Treasury comprises approximately 76.0 percent of the government’s reported accounts receivable, net, mostly in the form of reported taxes receivable, which consist of unpaid assessments due from

taxpayers, unpaid taxes related to IRC section 965, and deferred payments for employer’s share of

FICA taxes, resulting from the CARES Act. Other accounts receivable, gross increased significantly

year to year, primarily as a result of DOL’s $18.6 billion increase in benefit overpayments from

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

Medicare.

o Loans receivable, net increased by $73.6 billion (4.7 percent) during FY 2021. This increase was primarily attributable to an increase in direct disaster COVID-19 EIDL-funded loans and direct

student loans, offset by an increase in the estimated subsidy cost of direct student loans largely due to

administrative action to temporarily suspend payments during FY 2021.

o Federal government general PP&E includes many of the physical resources that are vital to the federal government’s ongoing operations, including buildings, structures, facilities, equipment, internal use

software, and general purpose land. DOD comprises approximately 68.8 percent of the government’s

reported general PP&E of $1.2 trillion as of September 30, 2021.

o 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 ($34.8 trillion) consist mostly of: 1) $22.3 trillion in federal debt and interest payable; and 2) $10.2 trillion in federal employee and veteran benefits payable.

o Federal debt held by the public is debt held outside of the government by individuals, corporations, state and local governments, FRB, foreign governments, and other non-federal entities.

o The government borrows from the public (increases federal debt levels) to finance deficits. During FY 2021, federal debt held by the public increased $1.3 trillion (6.0 percent) to $22.3 trillion.

o The government also reports about $6.2 trillion of intra-governmental 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

EXECUTIVE SUMMARY TO THE 2021 FINANCIAL REPORT OF THE U.S. GOVERNMENT 8

earnings, in Treasury-issued federal debt securities. Although not reflected in Chart 5, these securities

are included in the calculation of federal debt subject to the debt limit.

o Federal debt held by the public plus intra-governmental debt equals gross federal debt, which, with some adjustments, is subject to a statutory debt ceiling (“debt limit”). At the end of FY 2021, debt

subject to the statutory limit was $28.4 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. On August 2, 2019, the BBA of 2019 (P.L. 116-37) was enacted

suspending the statutory debt limit through July 31, 2021. A delay in raising the statutory debt limit

occurred from August 1, 2021 through September 30, 2021. During the period of August 2, 2021

through September 30, 2021, Treasury departed from their normal debt management operations and

undertook extraordinary measures to avoid exceeding the statutory debt limit. On October 14, 2021,

P.L. 117-50 was enacted which raised the statutory debt limit by $480.0 billion, to $28.9 trillion.

Congress and the President most recently increased the debt limit by $2.5 trillion in December 2021

with the enactment of P.L. 117-73 (see Note 31—Subsequent Events).

o Federal Employee and Veteran Benefits Payable ($10.2 trillion) represents the amounts of benefits payable by agencies which administer the government’s pension and other benefit plans for its military

and civilian employees.

See Note 30—COVID-19 Activity, as well as the referenced agencies’ FY 2021 financial statements for

additional information. See Note 31—Subsequent Events for information about events that occurred after the end

of the fiscal year that may affect the government’s financial results.

Key Economic Trends

An analysis of U.S. economic performance provides useful background when evaluating the government’s

financial statements. During the last two fiscal years, the economy’s performance has been deeply affected by the

COVID-19 global pandemic as well as the U.S. government’s extensive measures to provide fiscal support. Over

the course of FY 2021, the economy grew briskly, continuing the recovery begun during the previous fiscal year.

These and other economic and financial developments are discussed in greater detail in the Financial Report.

An Unsustainable Fiscal Path

An important purpose of this Financial Report is to help citizens understand current fiscal policy and the

importance and magnitude of policy reforms necessary to make it sustainable. A sustainable fiscal policy is

defined as one where the ratio of debt held by the public to GDP (the debt-to-GDP ratio) is stable or declining

over the long term. GDP measures 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. This report presents data, including debt, as a

percent of GDP to help readers assess whether current fiscal policy is sustainable. The debt-to-GDP ratio reached

approximately 100 percent at the end of FY 2021 which is similar to (but slightly below) the debt-to-GDP ratio at

the end of FY 2020. The long-term fiscal projections in this report are based on the same economic and

demographic assumptions that underlie the SOSI.

The current fiscal path is unsustainable. To determine if current fiscal policy is sustainable, the projections

based on the assumptions discussed in the Financial Report assume current policy will continue indefinitely.1 The

projections are therefore neither forecasts nor predictions. Nevertheless, the projections demonstrate that policy

changes need to be enacted for the actual financial outcomes to differ from those projected.

1 Current policy in the projections is based on current law, but includes extension of certain policies that expire under current law but are routinely extended or otherwise expected to continue.

9 EXECUTIVE SUMMARY TO THE 2021 FINANCIAL REPORT OF THE U.S. GOVERNMENT

Receipts, Spending, and the Debt

Chart 6 shows historical and current policy projections for receipts, non-interest spending by major category,

net interest, and total spending expressed

as a percent of GDP.

• The primary deficit is the difference between non-interest

spending and receipts. The ratio

of the primary deficit to GDP is

useful for gauging long-term

fiscal sustainability.

• The primary deficit-to-GDP ratio spiked during 2009 through 2012

due to the financial crisis of

2008-09 and the ensuing severe

recession, as well as the effects

of the government’s response

thereto. As an economic

recovery took hold, the primary

deficit-to-GDP ratio fell,

averaging 2.1 percent from 2013 through 2019. The ratio spiked again in 2020 rising to 13.3 percent of

GDP due to increased spending to address the COVID-19 pandemic and lessen the economic impacts of

stay-at-home and social distancing orders on individuals, hard-hit industries, and small businesses.

Spending remained elevated in 2021 due to additional funding to support economic recovery, but

increased receipts reduced the primary deficit-to-GDP ratio to 10.8 percent. The ratio is projected to fall

to 4.7 percent in 2022 and then decreases to 4.3 percent in 2027. After 2027, however, increased spending

for Social Security and health programs2 due to the continued retirement of the baby boom generation and

increases in health care costs is projected to result in increasing primary deficits that reach 5.0 percent of

GDP in 2030. The primary deficit peaks at 6.3 percent of GDP in 2043, then gradually decreases beyond

that point as the aging of the population continues at a slower pace, and reaches 4.9 percent in 2096, the

last year of the projection period.

• GDP, interest, and other economic and demographic assumptions are the same as those that underlie the most recent Social Security and Medicare Trustees’ Report projections, adjusted for historical revisions

that occur annually. The most recent Social Security and Medicare Trustees’ Reports were released in

August 2021, reflecting the effects of the COVID-19 pandemic and including the projected depletion

dates in Table 1. Projections for the other categories of receipts and spending are consistent with the

economic and demographic assumptions in the Trustees’ Reports and include updates for actual budget

results for FY 2021 or budgetary estimates from the President’s FY 2022 Budget. Where possible, those

budget totals are adjusted before spending is projected to remove outlays for programs or activities that

are judged to be temporary, such as spending related to the COVID-19 pandemic and economic recovery.

Where not possible, budget totals were not adjusted resulting in higher projections of future spending,

increasing the uncertainty surrounding this year’s projections.

• The persistent long-term gap between projected receipts and total spending shown in Chart 6 occurs despite the projected effects of the PPACA3 on long-term deficits.

o Enactment of the PPACA in 2010 and the MACRA in 2015 established cost controls for Medicare hospital and physician payments whose long-term effectiveness is still to be demonstrated fully.

2 See the 2021 Trustees Report for Medicare and Social Security and the most recent Medicaid Actuarial Report. 3 The PPACA refers to P.L. 111-148, as amended by P.L. 111-152. The PPACA expands health insurance coverage, provides health insurance subsidies for

low-income individuals and families, includes many measures designed to reduce health care cost growth, and significantly reduces Medicare payment rates

relative to the rates that would have occurred in the absence of the PPACA. (See Note 25 and the RSI section of the Financial Report, and the 2021 Medicare Trustees’ Report for additional information).

https://www.cms.gov/files/document/2021-medicare-trustees-report.pdf

https://www.ssa.gov/OACT/TR/2021

https://www.cms.gov/Research-Statistics-Data-and-Systems/Research/ActuarialStudies/MedicaidReport.html

https://www.gpo.gov/fdsys/pkg/PLAW-111publ148/pdf/PLAW-111publ148.pdf

https://www.gpo.gov/fdsys/pkg/PLAW-111publ152/pdf/PLAW-111publ152.pdf

EXECUTIVE SUMMARY TO THE 2021 FINANCIAL REPORT OF THE U.S. GOVERNMENT 10

o There is uncertainty about the extent to which these projections can be achieved and whether the PPACA’s provisions intended to reduce Medicare cost growth will be overridden by new legislation.

Table 1 summarizes the status and projected trends of the government’s Social Security and Medicare Trust

Funds.

The primary deficit projections in Chart 6, along with those for interest rates and GDP, determine the debt-

to-GDP ratio projections in Chart 7.

• The debt-to-GDP ratio was approximately 100 percent at the

end of FY 2021, and under

current policy and based on this

report’s assumptions is projected

to reach 701 percent in 2096.

• The debt-to-GDP ratio rises continuously in great part because

primary deficits lead to higher

levels of debt. The continuous

rise of the debt-to-GDP ratio

indicates that current fiscal policy

is unsustainable.

• These debt-to-GDP projections are higher than both the 2020 and

2019 Financial Report

projections.

The Fiscal Gap and the Cost of Delaying Fiscal Policy Reform

• The 75-year fiscal gap is a measure of how much primary deficits must be reduced over the next 75 years in order to make fiscal policy sustainable. That estimated fiscal gap for 2021 is 6.2 percent of GDP

(compared to 5.4 percent for 2020).

• This estimate implies that making fiscal policy sustainable over the next 75 years would require some combination of spending reductions and receipt increases that equals 6.2 percent of GDP on average over

the next 75 years. The fiscal gap represents 32.4 percent of 75-year PV receipts and 25.0 percent of 75-

year PV non-interest spending.

• The timing of policy changes to make fiscal policy sustainable has important implications for the well- being of future generations as is shown in Table 2.

11 EXECUTIVE SUMMARY TO THE 2021 FINANCIAL REPORT OF THE U.S. GOVERNMENT

o Table 2 shows that, if action is delayed by 10 years, the estimated magnitude of primary surplus increases necessary to close the 75-year fiscal gap increases by 17.7 percent from 6.2 percent of GDP

on average over 75 years to 7.3 percent on average over 65 years; if action is delayed by 20 years, the

magnitude of reforms necessary increases by an additional 23.3 percent.

o The longer policy action to close the fiscal gap is delayed, the larger the post-reform primary surpluses must be to achieve the target debt-to-GDP ratio at the end of the 75-year period. Future generations are

harmed by a policy delay because the higher the primary surpluses are during their lifetimes, the

greater is the difference between the taxes they pay and the programmatic spending from which they

benefit.

Conclusion

• Projections in the Financial Report indicate that the government’s debt-to-GDP ratio is projected to rise over the 75-year projection period and beyond if current policy is kept in place. The projections in this

Financial Report show that current policy is not sustainable.

• If changes in fiscal policy are not so abrupt as to slow economic growth and those policy changes are adopted earlier, then the required changes to revenue and/or spending will be smaller to return the

government to a sustainable fiscal path.

Find Out More

The FY 2021 Financial Report and other information about the nation’s finances are available at:

• Treasury, https://www.fiscal.treasury.gov/fsreports/rpt/finrep/fr/fr_index.htm;

• OMB’s Office of Federal Financial Management, https://www.whitehouse.gov/omb/management/office- federal-financial-management/ ; and

• GAO, https://www.gao.gov/federal-financial-accountability.

The GAO audit report on the U.S. government’s consolidated financial statements can be found beginning on page 228

of the full Financial Report. GAO was unable to express an opinion (disclaimed) on these consolidated financial

statements for the reasons discussed in the audit report.

https://www.fiscal.treasury.gov/fsreports/rpt/finrep/fr/fr_index.htm

https://www.whitehouse.gov/omb/management/office-federal-financial-management/

https://www.gao.gov/federal-financial-accountability

MANAGEMENT’S DISCUSSION AND ANALYSIS 12

MANAGEMENT’S DISCUSSION AND ANALYSIS

Introduction

The FY 2021 Financial Report provides the President, Congress, and the American people with a comprehensive view

of the federal government’s financial position and condition, and discusses important financial issues and significant

conditions that may affect future operations, including the need to achieve fiscal sustainability over the long term.

Pursuant to 31 U.S.C. § 331(e)(1), Treasury, in cooperation with OMB, must submit an audited (by GAO) financial

statement for the preceding fiscal year, covering all accounts and associated activities of the executive branch of the U.S.

government1 to the President and Congress no later than six months after the September 30 fiscal year-end. The first audited

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

federal accountability and transparency.

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

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

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

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

2021, 2020, 2019, 2018, and 2017 SOSI; and the 2021 and 2020 SCSIA. A disclaimer of opinion indicates that sufficient

information was not available for the auditors to determine whether the reported financial statements were fairly presented in

accordance with GAAP. In FY 2021, 342 of the 40 most significant entities earned unmodified (“clean”) opinions on their

financial statements.

The FY 2021 Financial Report consists of:

• MD&A, which provides management’s perspectives on and analysis of information presented in the Financial Report, such as financial and performance trends;

• Financial statements and the related notes to the financial statements;

• RSI and Other Information; and

• GAO’s audit report. This Financial Report addresses the government’s financial activity and results as of and for the fiscal years ended

September 30, 2021 and 2020. Note 31—Subsequent Events discusses events that occurred after the end of the fiscal year

that may affect the government’s financial position and condition.

In addition, the Executive Summary to this Financial Report provides a quick reference to the key issues in the

Financial Report and an overview of the government's financial position and condition.

Mission & Organization

The government’s fundamental mission is derived from the Constitution: “…to form a more perfect union, establish

justice, insure domestic tranquility, provide for the common defense, promote the general welfare and secure the blessings of

liberty to ourselves and our posterity.” The government’s functions have evolved over time to include health care, income

security, veterans benefits and services, housing and transportation, security, and education. Exhibit 1 provides an overview

of how the U.S. government is organized.

1 The Government Management Reform Act of 1994 has required such reporting, covering the executive branch of the government, beginning with financial

statements prepared for FY 1997. The consolidated financial statements include the legislative and judicial branches. 2 The 34 entities include the HHS, which received disclaimers of opinion on its 2021, 2020, 2019, 2018, and 2017 SOSI and on its 2021 and 2020 SCSIA.

13 MANAGEMENT’S DISCUSSION AND ANALYSIS

Exhibit 1

EXECUTIVE BRANCH

THE PRESIDENT THE VICE PRESIDENT

EXECUTIVE OFFICE OF THE PRESIDENT

White House Office Office of the Vice President

Council of Economic Advisers Council on Environmental Quality

National Security Council Office of Administration

Office of Management and Budget Office of National Drug Control Policy

Office of Policy Development Office of Science and Technology Policy Office of the U.S. Trade Representative

LEGISLATIVE BRANCH

THE CONGRESS SENATE HOUSE

Architect of the Capitol U.S. Botanic Garden

Government Accountability Office Government Publishing Office

Library of Congress Congressional Budget Office

U.S. Capitol Police

JUDICIAL BRANCH

THE SUPREME COURT

OF THE U.S.

U.S. Courts of Appeals U.S. District Courts Territorial Courts

U.S. Court of International Trade U.S. Court of Federal Claims

Administrative Office of the U.S. Courts Federal Judicial Center

U.S. Sentencing Commission

CHIEF FINANCIAL OFFICERS ACT AGENCIES (24)

DEPARTMENT OF AGRICULTURE DEPARTMENT OF TRANSPORTATION

DEPARTMENT OF COMMERCE DEPARTMENT OF THE TREASURY

DEPARTMENT OF DEFENSE DEPARTMENT OF VETERANS AFFAIRS

DEPARTMENT OF EDUCATION ENVIRONMENTAL PROTECTION AGENCY

DEPARTMENT OF ENERGY GENERAL SERVICES ADMINISTRATION

DEPARTMENT OF HEALTH AND HUMAN SERVICES NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

DEPARTMENT OF HOMELAND SECURITY NATIONAL SCIENCE FOUNDATION

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT OFFICE OF PERSONNEL MANAGEMENT

DEPARTMENT OF THE INTERIOR SMALL BUSINESS ADMINISTRATION

DEPARTMENT OF JUSTICE SOCIAL SECURITY ADMINISTRATION

DEPARTMENT OF LABOR U.S. AGENCY FOR INTERNATIONAL DEVELOPMENT

DEPARTMENT OF STATE U.S. NUCLEAR REGULATORY COMMISSION

SIGNIFICANT CONSOLIDATION ENTITIES (16)

EXPORT-IMPORT BANK OF THE U.S. PENSION BENEFIT GUARANTY CORPORATION

FARM CREDIT SYSTEM INSURANCE CORPORATION RAILROAD RETIREMENT BOARD

FEDERAL COMMUNICATIONS COMMISSION SECURITIES AND EXCHANGE COMMISSION

FEDERAL DEPOSIT INSURANCE CORPORATION SECURITY ASSISTANCE ACCOUNTS

GENERAL FUND OF THE U.S. GOVERNMENT SMITHSONIAN INSTITUTION

MILLENNIUM CHALLENGE CORPORATION TENNESSEE VALLEY AUTHORITY

NATIONAL CREDIT UNION ADMINISTRATION U.S. INTERNATIONAL DEVELOPMENT FINANCE CORP

NATIONAL RAILROAD RETIREMENT INVESTMENT TRUST U.S. POSTAL SERVICE

OTHER CONSOLIDATION ENTITIES LISTED IN APPENDIX A OF THIS FINANCIAL REPORT (122)

THE UNITED STATES GOVERNMENT

THE CONSTITUTION

MANAGEMENT’S DISCUSSION AND ANALYSIS 14

The Government’s Financial Position and Condition

This Financial Report presents the government’s financial position at the end of the fiscal year, explains how and why

the financial position changed during the year, and discusses the government’s financial condition and how it may change in

the future.

15 MANAGEMENT’S DISCUSSION AND ANALYSIS

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

• During FY 2021, the budget deficit decreased by $356.3 billion (11.4 percent) to $2.8 trillion and net operating cost decreased by $746.5 billion (19.4 percent) to $3.1 trillion.

• The government’s gross costs of $7.3 trillion, less $462.3 billion in revenues earned for goods and services provided to the public (e.g., Medicare premiums, national park entry fees, and postal service fees), plus $518.4 billion in net

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

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

• Deducting $4.3 trillion in tax and other revenues results in a “bottom line” net operating cost of $3.1 trillion for FY 2021, a decrease of $746.5 billion or 19.4 percent compared to FY 2020.

• Comparing total FY 2021 government assets of $4.9 trillion to total liabilities of $34.8 trillion (comprised mostly of $22.3 trillion in federal debt and interest payable3, and $10.2 trillion of federal employee and veteran benefits

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

• The budget deficit is primarily financed through borrowing from the public. As of September 30, 2021, debt held by the public, excluding accrued interest, was $22.3 trillion. This amount, plus intra-governmental debt ($6.2 trillion)

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

2021, the government’s total debt subject to the debt limit was $28.4 trillion. Congress and the President most

recently increased the debt limit by $480.0 billion in October 2021 and by $2.5 trillion in December 2021.

This Financial Report also contains information about projected impacts on the government’s future financial condition.

Under federal accounting rules, social insurance amounts as reported in both the SLTFP and in the SOSI are not considered

liabilities of the government. From Table 1:

• The SLTFP shows that the PV4 of total non-interest spending, including Social Security, Medicare, Medicaid, defense, and education, etc., over the next 75 years, under current policy, is projected to exceed the PV of total

receipts by $97.6 trillion (total federal non-interest net expenditures from Table 1).

• The SOSI shows that the PV of the government’s expenditures for Social Security and Medicare Parts A, B and D, and other social insurance programs over 75 years is projected to exceed social insurance revenues5 by about $71.0

trillion, a $5.5 trillion increase over 2020 social insurance projections.

• The Social Insurance and Total Federal Non-Interest Net Expenditures measures in Table 1 differ primarily because total non-interest net expenditures from the SLTFP include the effects of general revenues and non-social insurance

spending, neither of which is included in the SOSI. The government’s current financial position and long-term financial condition can be evaluated both in dollar terms and

in relation to the economy as a whole. GDP is a measure of the size of the nation’s economy in terms of the total value of all

final goods and services that are produced in a year. Considering financial results relative to GDP is a useful indicator of the

economy’s capacity to sustain the government’s many programs. For example:

• The budget deficit decreased from $3.1 trillion in FY 2020 to $2.8 trillion in FY 2021. The deficit-to-GDP ratio similarly decreased from 15.0 percent in FY 2020 to 12.4 percent in 2021.

• The budget deficit is primarily financed through borrowing from the public. As of September 30, 2021, the $22.3 trillion in debt held by the public, excluding accrued interest, equates to just under 100 percent of GDP.

• The 2021 SOSI projection of $71.0 trillion net PV excess of expenditures over receipts over 75 years represents about 4.4 percent of the PV of GDP over 75 years. The excess of total projected non-interest spending over receipts

of $97.6 trillion from the SLTFP represents 5.7 percent of GDP over 75 years. As discussed in this Financial

Report, changes in these projections can, in turn, have a significant impact on projected debt as a percent of GDP.

• To prevent the debt-to-GDP ratio from rising over the next 75 years, a combination of non-interest spending reductions and receipts increases that amounts to 6.2 percent of GDP on average is needed (5.4 percent of GDP on

average in the 2020 projections). The fiscal gap represents 32.4 percent of 75-year PV receipts and 25.0 percent of

75-year PV non-interest spending.

3 On the government’s Balance Sheet, federal debt and interest payable consists of Treasury securities, net of unamortized discounts and premiums, and

accrued interest payable. The “public” consists of individuals, corporations, state and local governments, FRB, foreign governments, and other entities outside the federal government. 4 PVs recognize that a dollar paid or collected in the future is worth less than a dollar today because a dollar today could be invested and earn interest. To

calculate a PV, future amounts are thus reduced using an assumed interest rate, and those reduced amounts are summed. 5 Social Security is funded by the payroll taxes and revenue from taxation of benefits. Medicare Part A is funded by the payroll taxes, revenue from taxation

of benefits, and premiums that support those programs. Medicare Parts B and D are primarily financed by transfers from the General Fund, which are

presented, and by accounting convention, eliminated in the SOSI. For the FYs 2021 and 2020 SOSI, the amounts eliminated totaled $43.2 trillion and $40.9 trillion, respectively.

MANAGEMENT’S DISCUSSION AND ANALYSIS 16

FY 2021 Financial Statement Audit Results

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

it has for the past 24 years, due to certain material weaknesses in internal control over financial reporting and other

limitations on the scope of its work. In addition, GAO issued a disclaimer of opinion on the sustainability financial

statements due to significant uncertainties primarily related to the achievement of projected reductions in Medicare cost

growth and certain other limitations. GAO’s audit report on page 228 of this Financial Report, discusses GAO’s findings.

In FY 2021, 21 of the 24 entities required to issue audited financial statements under the CFO Act received unmodified

audit opinions, as did 13 of 16 additional significant consolidation entities (see Table 11 and Appendix A).6

The Government-wide Reporting Entity

This Financial Report includes the financial status and activities of the executive, legislative, and judicial branches of

the federal government. SFFAS No. 47, Reporting Entity, provides criteria for identifying organizations that are

consolidation entities, disclosure entities, and related parties. Such criteria are summarized in Note 1.A, Significant

Accounting Policies, Reporting Entity, and in Appendix A, which lists the entities included in this Financial Report by these

categories. The assets, liabilities, results of operations, and related activity for consolidation entities are consolidated in the

financial statements.

Fannie Mae and Freddie Mac meet the criteria for disclosure entities and, consequently, are not consolidated into the

government’s financial statements. However, the values of the investments in such entities, changes in value, and related

activity with these entities are included in the consolidated financial statements. The FR System and the SPVs are disclosure

entities and are not consolidated into the government’s financial statements. See Note 1.A and Note 28—Disclosure Entities

and Related Parties for additional information. In addition, per SFFAS No. 31, Accounting for Fiduciary Activities, fiduciary

funds are not consolidated in the government financial statements.7 Most significant consolidation entities prepare financial statements that include financial and performance related

information, as well as Annual Performance Reports. More information may be obtained from entities’ websites indicated in

Appendix A and at https://www.performance.gov/.

The following pages contain a more detailed discussion of the government’s financial results for FY 2021, the budget,

the economy, the debt, and a long-term perspective about fiscal sustainability, including the government’s ability to meet its

social insurance benefits obligations. The information in this Financial Report, when combined with the Budget, collectively

presents information on the government’s financial position and condition.

Accounting Differences Between the Budget and the Financial Report

Each year, the Administration issues two reports that detail the government’s financial results: the Budget and this

Financial Report. The exhibit on the following page provides the key characteristics and differences between the two

documents.

Treasury generally prepares the financial statements in this Financial Report on an accrual basis of accounting as

prescribed by GAAP for federal entities.8 These principles are tailored to the government’s unique characteristics and

circumstances. For example, entities prepare a uniquely structured “Statement of Net Cost,” which is intended to present net

government resources used in its operations. Also, unique to government is the preparation of separate statements to

reconcile differences and articulate the relationship between the budget and financial accounting results.

6 The 21 entities include the HHS, which received disclaimers of opinions on its 2021, 2020, 2019, 2018, and 2017 SOSI and its 2021 and 2020 SCSIA. The

13 entities include the FDIC, the NCUA, and the FCSIC, which operate on a calendar year basis (December 31 year-end). Statistic reflects 2020 audit results

for these organizations, if 2021 results are not available. 7 See Note 24—Fiduciary Activities. 8 Under GAAP, most U.S. government revenues are recognized on a ‘modified cash’ basis, (see Financial Statement Note 1.B). The SOSI presents the PV of

the estimated future revenues and expenditures for scheduled benefits over the next 75 years for the Social Security, Medicare, RRP; and 25 years for the Black Lung program. The SLTFP presents the 75-year PV of the projected future receipts and non-interest spending for the federal government.

https://www.performance.gov/

17 MANAGEMENT’S DISCUSSION AND ANALYSIS

Budget of the U.S. Government Financial Report of the U.S. Government

Prepared primarily on a “cash basis”

• Initiative-based and prospective: focus on current and future initiatives planned and

how resources will be used to fund them.

• Receipts (“cash in”), taxes and other collections recorded when received.

• Outlays (“cash out”), largely recorded when payment is made.

Prepared on an “accrual basis” and “modified cash basis”

• Entity-based and retrospective – prior and present resources used to implement initiatives.

• Revenue: Tax revenue (more than 90.0 percent of total revenue) recognized on modified cash basis (see Financial

Statement Note 1.B). Remainder recognized when earned,

but not necessarily received.

• Costs: recognized when incurred, but not necessarily paid.

Budget Deficit vs. Net Operating Cost

Three key components of the U.S. budget process are: 1) appropriations; 2) obligations; and 3) outlays. An

appropriation is a provision of law authorizing the expenditure of funds for a given purpose. Rescissions and cancellations

are reductions in law of budgetary resources. They are considered to be permanent reductions unless legislation clearly

indicates that the reduction is temporary. Once funds are appropriated by Congress, Treasury issues warrants that officially

establish the amounts available to be obligated and spent (i.e., expended or outlayed) by each agency. An agency’s obligation

of funds is a binding agreement to outlay funds for a particular purpose immediately or in the future. The budget deficit is

measured as the excess of outlays, or payments made by the government, over receipts, or cash received by the government.

Net operating cost, calculated on an accrual basis, is the excess of costs (what the government has incurred but has not

necessarily paid) over revenues (what the government has collected and expects to collect but has not necessarily received).

As shown in Chart 1, net operating cost typically exceeds the budget deficit due largely to the inclusion of cost accruals

associated with increases in estimated liabilities for the government’s postemployment benefit programs for its military and

civilian employees and veterans as well as environmental liabilities.

The government’s

primarily cash-based9 budget

deficit decreased by $356.3

billion (about 11.4 percent)

from approximately $3.1

trillion in FY 2020 to about

$2.8 trillion in FY 2021 due to

an increase in receipts that

exceeded an increase in outlays

in FY 2021. The $626.0 billion

(18.3 percent) increase in

receipts can be attributed

primarily to higher net

individual and corporation

income taxes from the

improved economy. Outlays

increased $269.7 billion (4.1

percent). The increase reflects

continued spending from laws

enacted during the previous

administration, such as the

CARES Act and the CAA, and

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

With some adjustments, Treasury’s September 2021 MTS provides fiscal year-end receipts, spending, and deficit

information for this Report. The MTS presents primarily cash-based spending, or outlays, for the fiscal year in a number of

ways, including by month, by entity, and by budget function classification. The federal budget is divided into approximately

20 categories, or budget functions, as a means of organizing federal spending by primary purpose (e.g., National Defense,

Transportation, and Health). Multiple entities may contribute to one or more budget functions, and a single budget function

may be associated with only one entity. For example, DOD, DHS, DOE, and multiple other entities administer programs that

9 Interest outlays on Treasury debt held by the public are recorded in the budget when interest accrues, not when the interest payment is made. For federal

credit programs, outlays are recorded when loans are disbursed, in an amount representing the PV cost to the government, commonly referred to as credit subsidy cost. Credit subsidy cost excludes administrative costs. 10 10/22/21 press release – Joint Statement by Secretary of the Treasury Janet L. Yellen and Acting Director of the Office of Management and Budget

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

https://fiscal.treasury.gov/files/reports-statements/mts/mts0921.pdf

https://home.treasury.gov/news/press-releases/jy0428

MANAGEMENT’S DISCUSSION AND ANALYSIS 18

are critical to the broader functional classification of National Defense. DOD, OPM, and many other entities also administer

Income Security programs (e.g., retirement benefits, housing, financial assistance). By comparison, the Medicare program is

a budget function category unto itself and is administered exclusively at the federal level by HHS. Federal spending

information by budget function and other categorizations may be found in the September 2021 MTS.11

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

during FY 2021. As explained below, net operating costs are affected by changes in both revenues and costs.

The Reconciliation of Net Operating Cost and Budget Deficit statement articulates the relationship between the

government’s accrual-based net operating cost and the primarily cash-based budget deficit. The difference between the

government’s budget deficit and net operating cost is typically impacted by many variables. For example, from Table 2, the

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

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

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

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

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

receivable (see Note 3—Accounts Receivable, Net); and 5) a $75.1 billion timing difference between when credit reform

costs are recorded in the budget versus net operating cost (see Note 4—Loans Receivable, Net and Loan Guarantee

Liabilities).

The Federal Government’s Response to the Pandemic

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

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

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

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

including:

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

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

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

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

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

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

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

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

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

federal government’s budgetary and financial results.

11 Final MTS for FY 2021 through September 30, 2021 and Other Periods.

https://www.fiscal.treasury.gov/files/reports-statements/mts/mts0921.pdf

19 MANAGEMENT’S DISCUSSION AND ANALYSIS

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

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

efforts are summarized below.

• Treasury received COVID-19 appropriations of $1.2 trillion under the CAA and ARP in FY 2021 and $975.0 billion under the CARES Act in FY 2020. In FY 2021, the CAA eliminated Treasury’s ability to make new loans and

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

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

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

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

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

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

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

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

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

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

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

U.S. financial system.

• SBA received appropriations of $389.3 billion in FY 2021 and $751.8 billion in FY 2020. FY 2021 appropriation totals were reduced by a $146.5 billion rescission under the CAA of amounts appropriated under the CARES Act,

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

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

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

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

owners through the EIDL program.

• DOL received $451.5 billion in funding in FY 2021 under ARP and $394.3 billion in FY 2020 under the CARES Act. Through multiple UI programs, DOL expands states’ ability to provide UI for many workers impacted by the

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

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

program.

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

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

support testing, contact tracing, surveillance, containment, mitigation to monitor and suppress the spread of COVID-

19, as well as support for COVID-19 vaccination programs; and ARP funding provided supplemental relief funding

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

disparities in obtaining quality healthcare.

https://home.treasury.gov/about/budget-financial-reporting-planning-and-performance/agency-financial-report

https://www.sba.gov/document/report-agency-financial-report

https://www.dol.gov/agencies/ocfo/resources

https://www.hhs.gov/about/agencies/asfr/finance/financial-policy-library/agency-financial-reports/index.html

MANAGEMENT’S DISCUSSION AND ANALYSIS 20

by temporarily suspending nearly all federal loan payments. • USDA received CAA, ARP, and supplemental CARES Act appropriations in the amount of $91.3 billion in FY

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

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

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

governments, individuals, and businesses.

• DHS received supplemental appropriations of $70.0 billion under CAA and ARP in FY 2021, and $45.9 billion under the CARES Act in FY 2020. DHS funding supports a wide range of efforts including FEMA’s Disaster Relief

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

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

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

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

• DOT received $70.2 billion ($27.0 billion CAA and $43.2 billion ARP) of supplemental COVID-19 appropriations in FY 2021 and $36.0 billion of supplemental appropriations under the CARES Act in FY 2020. DOT funding

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

response to COVID-19.

• Many other agencies and programs comprise the “Other” amount shown in Table 3. Note 30—COVID-19 Activity and agency financial statements provide additional details concerning federal agency pandemic response efforts.

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

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

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

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

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

following section.

The Government’s Net Position: “Where We Are”

The government’s financial position and condition have traditionally been expressed through the Budget, focusing on

surpluses, deficits, and debt. However, this primarily cash-based discussion of the government’s net outlays (deficit) or net

receipts (surplus) tells only part of the story. The government’s accrual-based net position, (the difference between its assets

and liabilities, adjusted for unmatched transactions and balances), and its “bottom line” net operating cost (the difference

between its revenues and costs) are also key financial indicators.

Financial Effects of the Federal Government’s Pandemic Response

The financial effects of the government’s response to the COVID-19 pandemic have been broad, impacting many

agencies in a variety of ways and to varying degrees. The following include brief discussions of some of the more significant

effects of the pandemic on the government’s financial results for FY 2021. Please refer to Note 30—COVID-19 Activity and

other disclosures in this Financial Report, as well as in the individual entities’ financial statements for more information.

Costs and Revenues

The government’s Statement of Operations and Changes in Net Position, much like a corporation’s income statement,

shows the government’s “bottom line” and its impact on net position (i.e., assets net of liabilities, adjusted for unmatched

transactions and balances). To derive the government’s “bottom line” net operating cost, the Statement of Net Cost first

shows how much it costs to operate the federal government, recognizing expenses when incurred, regardless of when

payment is made (accrual basis). It shows the derivation of the government’s net cost or the net of: 1) gross costs, or the costs

of goods produced and services rendered by the government; 2) the earned revenues generated by those goods and services

during the fiscal year; and 3) gains or losses from changes in actuarial assumptions used to estimate certain liabilities. This

amount, in turn, is offset against the government’s taxes and other revenue reported in the Statement of Operations and

Changes in Net Position to calculate the “bottom line” or net operating cost.

https://www2.ed.gov/about/reports/annual/index.html

https://www.usda.gov/sites/default/files/documents/usda-fy21-agency-financial-report.pdf

https://www.dhs.gov/performance-financial-reports

https://www.transportation.gov/sites/dot.gov/files/2021-12/FY%202021%20DOT%20AFR_508-Compliant_updated.pdf

21 MANAGEMENT’S DISCUSSION AND ANALYSIS

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

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

costs, offset by a $684.3 billion (19.2 percent) increase in tax and other revenues over the past fiscal year as discussed in the

following.

Gross Cost and Net Cost

The Statement of Net Cost starts with the government’s total gross costs of $7.3 trillion, subtracts revenues earned for

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

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

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

FY 2020.

Typically, the annual change in the government’s net cost is the result of a variety of offsetting increases and decreases

across entities. As referenced earlier, these amounts continue to be impacted by the ongoing federal government’s response to

the COVID-19 pandemic and the related economic recovery. Including these amounts, offsetting changes in federal entity net

cost during FY 2021 included:

• A $211.6 billion decrease in SBA net costs largely driven by a $230.0 billion decrease in loan subsidy costs, including reestimates, attributable to the PPP and Debt Relief programs under the CARES Act. As noted earlier, the

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

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

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

Microloans disbursed prior to September 27, 2020.

• The $270.1 billion increase in Treasury net costs is largely due to disbursement during FY 2021 of $569.5 billion in refundable tax credits (also referred to as EIP) to eligible recipients in every state and territory and at foreign

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

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

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

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

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

• A $100.8 billion net cost increase at HHS was driven largely by $115.4 billion total cost increases across Medicare and Medicaid. Of note, a $63.2 billion increase in Medicaid net cost was largely attributable to a $57.0 billion

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

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

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

• A significant portion of the $96.4 billion decrease at DOL is attributable to a $100.7 billion decrease in Income Maintenance programs costs, primarily due to decreases in unemployment benefits as less jobless claims are filed.

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

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

2021.

https://www.sba.gov/document/report-agency-financial-report

https://home.treasury.gov/about/budget-financial-reporting-planning-and-performance/agency-financial-report

https://www.hhs.gov/about/agencies/asfr/finance/financial-policy-library/agency-financial-reports/index.html

https://www.dol.gov/agencies/ocfo/resources

MANAGEMENT’S DISCUSSION AND ANALYSIS 22

• Entities administering federal employee and veteran benefits programs employ a complex series of assumptions, including but not limited to interest rates,

beneficiary eligibility, life expectancy, and

medical cost levels, to make actuarial

projections of their long-term benefits

liabilities. Changes in these assumptions

can result in either losses (net cost

increases) or gains (net cost decreases).

Across the government, these net losses

from changes in assumptions amounted to

$518.4 billion in FY 2021, a loss decrease

(and a corresponding net cost decrease) of

$161.1 billion compared to FY 2020. The

primary entities that administer programs

impacted by these assumptions – typically

federal employee pension and benefit

programs – are the OPM, DOD, and VA.

All three of these entities recorded losses

from changes in assumptions in the

amounts of $84.9 billion, $346.3 billion,

and $82.8 billion, respectively. These actuarial estimates and the resulting gains or losses from changes in

assumptions can sometimes cause significant swings in total entity costs from year to year. For example, for FY

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

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

• While most of the $144.8 billion increase in DOD net costs is primarily due to a $100.2 billion loss increase from changes in assumptions as referenced above, the majority of DOD’s net costs included military operations,

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

• A $36.5 billion increase at SSA, due to a 1.4 percent increase in the number of

OASI beneficiaries, combined with a

1.3 percent COLA provided to

beneficiaries in 2021. These increases

were offset by cost decreases for the

DI and Supplemental Security Income

benefits programs primarily due to a

decrease in the number of

beneficiaries.

• A $291.8 billion decrease in VA net cost was impacted largely by a

decrease in losses from changes in

assumptions underlying VA’s

compensation, burial, education, and

VR&E benefits programs. These

assumption changes included, but were

not limited to a lower than anticipated

numbers of veterans, offset by changes

in discount rate and COLA

assumptions.

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

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

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

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

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

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

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

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

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

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

of $830.8 billion support a broad array of programs that promote conditions for sustaining economic growth and stability,

https://www.opm.gov/about-us/budget-performance/performance/

https://comptroller.defense.gov/odcfo/afr2021.aspx

https://www.va.gov/finance/afr/index.asp

https://comptroller.defense.gov/odcfo/afr2021.aspx

https://www.ssa.gov/finance/

https://www.va.gov/finance/afr/index.asp

https://home.treasury.gov/about/budget-financial-reporting-planning-and-performance/agency-financial-report

23 MANAGEMENT’S DISCUSSION AND ANALYSIS

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

resources. SBA net costs of $347.4 billion support agency programs and services that enable the establishment and vitality of

small businesses and by providing assistance in the economic recovery of communities after disasters.

Tax and Other Revenues

As noted earlier, tax and other revenues from the Statement of Operations and Changes in Net Position are deducted

from total net cost to derive the government’s

“bottom line” net operating cost. Chart 4 shows that

total tax and other revenue increased by $684.3

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

This increase is attributable mainly to an overall

growth in income taxes collections, partially offset

by increased refunds. Taxes receivable, which

consist of unpaid assessments due from taxpayers,

unpaid taxes related to IRC section 965, and

deferred payments for employer’s share of FICA

Social Security resulting from the CARES Act,

increased $68.0 billion during FY 2021. This

increase was principally due to the two-year

deferral of FICA Social Security taxes. Earned

revenues from Table 4 are not considered “taxes

and other revenue” and, thus, are not shown in

Chart 4. Individual income tax and tax

withholdings and corporate income taxes accounted

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

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

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

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

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

information about the pandemic’s effects on the federal government’s costs and revenues.

Tax Expenditures

Tax and other revenues reported reflect the effects of tax expenditures, which are special exclusions, exemptions,

deductions, tax credits, preferential tax rates, and tax deferrals that allow individuals and businesses to reduce taxes they may

otherwise owe. Tax expenditures may be viewed as alternatives to other policy instruments, such as spending or regulatory

programs. For example, the government supports college attendance through both spending programs and tax expenditures.

The government uses Pell Grants to help low- and moderate-income students afford college and allows certain funds used to

meet college expenses to grow tax free in special college savings accounts. Tax expenditures may include deductions and

exclusions which reduce the amount of income subject to tax (e.g., deductions for personal residence mortgage interest). Tax

credits, which reduce tax liability dollar for dollar for the amount of credit (e.g., child tax credit), are also considered tax

expenditures. Tax expenditures may also allow taxpayers to defer tax liability.

Receipts in the calculation of surplus or deficit, and tax revenues in the calculation of net position, reflect the effect of

tax expenditures. As discussed in more detail in the Other Information section of this Financial Report, tax expenditures will

generally lower federal government receipts although tax expenditure estimates do not necessarily equal the increase in

federal revenues (or the change in the budget balance) that would result from repealing these special provisions.

Tax expenditures are reported annually in the Analytical Perspectives of the Budget. In addition, current and past tax

expenditure estimates and descriptions can be found at the following location from Treasury’s Office of Tax Policy:

https://home.treasury.gov/policy-issues/tax-policy/tax-expenditures.

Assets and Liabilities

The government’s net position at the end of the fiscal year is derived by netting the government’s assets against its

liabilities, as presented in the Balance Sheet (summarized in Table 5).12 The Balance Sheet does not include the financial

value of the government’s sovereign powers to tax, regulate commerce, or set monetary policy or value of nonoperational

resources of the government, such as national and natural resources, for which the government is a steward. In addition, as is

the case with the Statement of Operations and Changes in Net Position, the Balance Sheet includes a separate presentation of

the portion of net position related to funds from dedicated collections. Moreover, the government’s exposures are broader

than the liabilities presented on the Balance Sheet. The government’s future social insurance exposures (e.g., Medicare and

12 As shown in Table 5, the government’s Balance Sheet includes an adjustment for unmatched transactions and balances, which represent unresolved

differences in intra-governmental activity and balances between federal entities. These amounts are described in greater detail in the Other Information section of this Financial Report.

https://home.treasury.gov/policy-issues/tax-policy/tax-expenditures

MANAGEMENT’S DISCUSSION AND ANALYSIS 24

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

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

Financial Report.

Assets

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

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

receivable ($1.7 trillion); and 4) net PP&E ($1.2 trillion).13 Chart 5 compares the balances of these and other Balance Sheet

amounts as of September 30, 2021 and 2020, some of which were substantially impacted by the pandemic response.

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

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

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

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

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

Treasury comprises approximately 76.0 percent of the government’s reported accounts receivable, net, mostly in the

form of reported taxes receivable, which consist of unpaid assessments due from taxpayers, unpaid taxes related to IRC

section 965, and deferred payments for employer’s share of FICA taxes pursuant to the CARES Act. Other accounts

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

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

Medicare (see Note 3—Accounts Receivable, Net).

13 For financial reporting purposes, other than multi-use heritage assets, stewardship assets of the government are not recorded as part of PP&E. Stewardship

assets are comprised of stewardship land and heritage assets. Stewardship land consists of public domain land (e.g., national parks, wildlife refuges).

Heritage assets include national monuments and historical sites that among other characteristics are of historical, natural, cultural, educational, or artistic significance. See Note 27—Stewardship PP&E.

25 MANAGEMENT’S DISCUSSION AND ANALYSIS

The federal government’s direct loans and loan guarantee programs are used to promote the nation’s welfare by making

financing available to segments of the

population not served adequately by

non-federal institutions, or otherwise

providing for certain activities or

investments. For those unable to afford

credit at the market rate, federal credit

programs provide subsidies in the form

of direct loans offered at an interest

rate lower than the market rate. For

those to whom non-federal financial

institutions are reluctant to grant credit

because of the high risk involved,

federal credit programs guarantee the

payment of these non-federal loans and

absorb the cost of defaults. For

example, Education supports

individuals engaged in education

programs through a variety of student

loan, grant and other assistance programs. USDA administers loan programs to support the nation’s farming and agriculture

community. HUD loan programs support affordable homeownership, as well as the construction and rehabilitation of housing

projects for the elderly and persons with disabilities. SBA loan programs enable the establishment and vitality of small

businesses and assist in the economic recovery of communities after disasters. Significant changes to the federal

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

• Education’s Federal Direct Student Loan Program accounted for $1.1 trillion (66.9 percent) of total loans receivable, net. Education has loan programs that are authorized by Title IV of the Higher Education Act of 1965. The William

D. Ford Federal Direct Loan Program (referred to as the Direct Loan Program), was established in FY 1994 and

offered four types of educational loans: Stafford, Unsubsidized Stafford, Parent Loan for Undergraduate Students,

and consolidation loans. During FY 2021, Education direct loan disbursements to eligible borrowers decreased by

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

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

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

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

• SBA’s credit program receivables comprise business and disaster direct loans and defaulted business loans purchased per the terms of SBA’s loan guaranty programs, offset by an allowance for related program subsidy costs.

The CARES Act provides funding for SBA to offer low-interest EIDL for working capital to small businesses

suffering substantial economic injury as a result of COVID-19 that can be used to pay fixed debts, payroll, accounts

payable and other bills that cannot be paid because of the disaster’s impact. These receivables increased to $244.1

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

primarily funded from the CARES Act. The loan guarantee PPP provides loan forgiveness for amounts used for

eligible expenses for payroll and benefit costs, interest on mortgages, and rent, and utilities, worker protection costs

related to COVID-19, uninsured property damage costs caused by looting or vandalism during 2020, and certain

supplier costs and expenses for operations. The loan guarantee liability for Small Business Loan Programs which

includes the PPP decreased by $284.9 billion primarily due to SBA forgiveness payments to PPP lenders. For

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

Federal government general PP&E includes many of the physical resources that are vital to the federal government’s

ongoing operations, including buildings, structures, facilities, equipment, internal use software, and general purpose land.

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

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

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

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

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

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

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

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

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

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

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

Federal Reserve in connection with interim and final distributions made pursuant to the amended SPV LLC Agreements. See

https://www2.ed.gov/about/reports/annual/index.html?src=ln

https://www.sba.gov/document/report-agency-financial-report

MANAGEMENT’S DISCUSSION AND ANALYSIS 26

Prior to 1917, Congress approved each debt issuance. In

1917, to facilitate planning in World War I, Congress and

the President established a dollar ceiling for federal

borrowing. With the Public Debt Act of 1941 (P.L. 77-7),

Congress and the President set an overall limit of $65

billion on Treasury debt obligations that could be

outstanding at any one time. Since then, Congress and the

President have enacted a number of measures affecting the

debt limit, including several in recent years. Congress and

the President most recently increased the debt limit by

$2.5 trillion in December 2021 with the enactment of P.L.

117-73. It is important to note that increasing or

suspending the debt limit does not increase spending or

authorize new spending; rather, it permits the U.S. to

continue to honor pre-existing commitments to its citizens,

businesses, and investors domestically and around the

world.

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

financial statements for additional information.

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

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

In addition, as indicated earlier, Note 31—Subsequent Events, discusses the financial effects of significant events that

occurred following the end of the fiscal year, but prior to issuance of this Financial Report. These and other subsequent

events and their effects are discussed in Note 31.

Liabilities

As indicated in Table 5 and Chart 6, of the

government’s $34.8 trillion in total liabilities, the

largest liability is federal debt and interest payable,

the balance of which increased by $1.3 trillion (6.0

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

The other major component of the

government’s liabilities is federal employee and

veteran benefits payable (i.e., the government’s

pension and other benefit plans for its military and

civilian employees), which increased $767.5 billion

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

trillion. This total amount is comprised of $2.9

trillion in benefits payable for the current and

retired civilian workforce, and $7.3 trillion for the

military and veterans. OPM administers the largest

civilian pension plan, covering more than 2.8

million active employees, including the Postal

Service, and more than 2.7 million annuitants,

including survivors. The DOD military pension

plan covers about 2.1 million current military personnel (including active service, reserve, and National Guard) and

approximately 2.3 million retirees and survivors.

Federal Debt

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

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

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

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

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

surplus or deficit normally affects changes in debt balances.

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

and accrued interest payable, increased $1.3 trillion (6.0 percent) to $22.3 trillion as of September 30, 2021. It is comprised

of Treasury securities, such as bills, notes, and bonds, net

of unamortized discounts and premiums issued or sold to

the public; and accrued interest payable. The “public”

consists of individuals, corporations, state and local

governments, FRB, foreign governments, and other

entities outside the federal government. As indicated

above, budget surpluses have typically resulted in

borrowing reductions, and budget deficits have conversely

yielded borrowing increases. However, the government’s

debt operations are generally much more complex. Each

year, trillions of dollars of debt matures and new debt is

issued to take its place. In FY 2021, new borrowings were

$20.4 trillion, and repayments of maturing debt held by

the public were $19.2 trillion, both increases from FY

2020.

In addition to debt held by the public, the

government has about $6.2 trillion in intra-governmental

debt outstanding, which arises when one part of the

government borrows from another. It represents debt

issued by Treasury and held by government accounts, including the Social Security ($2.9 trillion) and Medicare ($306.9

billion) trust funds. Intra-governmental debt is primarily held in government trust funds in the form of special nonmarketable

https://www.congress.gov/bill/117th-congress/senate-joint-resolution/33/text

27 MANAGEMENT’S DISCUSSION AND ANALYSIS

securities by various parts of the government. Laws establishing government trust funds generally require excess trust fund

receipts (including interest earnings) over disbursements to be invested in these special securities. Because these amounts are

both liabilities of Treasury and assets of the government trust funds, they are eliminated as part of the consolidation process

for the government-wide financial statements (see Financial Statement Note 13). When those securities are redeemed, e.g., to

pay Social Security benefits, the government must obtain the resources necessary to reimburse the trust funds. The sum of

debt held by the public and intra-governmental debt equals gross federal debt, which (with some adjustments), is subject to a

statutory ceiling (i.e., the debt limit). Note that when intra-government debt decreases, debt held by the public will increase

by an equal amount (if the general account of the U.S. government is in deficit), so that there is no net effect on gross federal

debt. At the end of FY 2021, debt subject to the statutory limit was $28.4 trillion14 (see sidebar).

The federal debt held by the public measured as a percent of GDP (debt-to-GDP ratio) (Chart 7) compares the country’s

debt to the size of its economy, making this

measure sensitive to changes in both. Over time,

the debt-to-GDP ratio has varied widely:

• For most of the nation’s history, through the first half of the 20th century,

the debt-to-GDP ratio has tended to

increase during wartime and decline

during peacetime.

• Chart 7 shows that wartime spending and borrowing pushed the debt-to-GDP

ratio to an all-time high of 106 percent

in 1946, soon after the end of World

War II, but it decreased rapidly in the

post-war years.

• The ratio grew rapidly from the 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 FYs 1993-1995, to 31 percent in 2001.

• During the first decade of the 21st century, PAYGO rules were allowed to lapse, significant tax cuts were implemented, entitlements were expanded, and spending related to defense and homeland security increased. By

September 2008, the debt-to-GDP ratio was 39 percent of GDP.

• PAYGO rules were reinstated in 2010, but the extraordinary demands of the last economic and fiscal crisis and the consequent actions taken by the federal government, combined with slower economic growth in the wake of the

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

• The debt was approximately 100 percent of GDP at the end of FY 2021 similar, but slightly below the debt-to-GDP ratio at the end of FY 2020 This ratio decreased slightly during FY 2021, because GDP, which increased as the

economy continued to recover from the effects of the pandemic, grew faster than the debt.15 From Chart 7, since

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

14During FY 2021, Treasury faced a delay in raising the statutory debt limit that required it to depart from its normal debt management procedures and to

invoke legal authorities to avoid exceeding the statutory debt limit. During these periods, extraordinary measures taken by Treasury have resulted in federal debt securities not being issued to certain federal government accounts with the securities being restored including lost interest to the affected federal

government accounts subsequent to the end of the delay period. On August 2, 2019, the BBA of 2019 (P.L. 116-37) was enacted suspending the statutory

debt limit through July 31, 2021. A delay in raising the statutory debt limit occurred from August 1, 2021 through September 30, 2021. During the period of August 2, 2021 through September 30, 2021, Treasury departed from their normal debt management operations and undertook extraordinary measures to

avoid exceeding the statutory debt limit. On October 14, 2021, P.L. 117-50 was enacted which raised the statutory debt limit by $480.0 billion, from

$28,401.5 billion to $28,881.5 billion. Even with this increase, extraordinary measures continued in order for Treasury to manage below the debt limit. On December 16, 2021, Congress and the President increased the debt limit by $2.5 trillion to $31.4 trillion with the enactment of P.L. 117-73. See Note 13—

Federal Debt and Interest Payable and Note 31—Subsequent Events for additional information. 15The increase in debt of $1.3 trillion was less than the FY 2021 deficit of $2.8 trillion primarily because of a $1.6 trillion decrease in the government’s cash balance.

MANAGEMENT’S DISCUSSION AND ANALYSIS 28

The Economy in FY 2021

An analysis of U.S. economic

performance provides useful background

when evaluating the government’s

financial statements. During the last two

fiscal years, the economy’s performance

has been deeply affected by the COVID-

19 global pandemic as well as the U.S.

government’s extensive measures to

prevent infection, support consumers and

businesses, and restore growth.

Reflecting the brunt of restrictions

implemented after the pandemic’s onset

in early 2020, the economy contracted by

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

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

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

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

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

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

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

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

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

wage growth.

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

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

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

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

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

economically vulnerable. It also assisted state and local governments, provided additional funding for addressing COVID-19

infections and vaccinating the population, created new loans and grants for small businesses, and extended the deadline for

PPP applications.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

percent of the jobs lost during March and April 2020 had been recovered.

29 MANAGEMENT’S DISCUSSION AND ANALYSIS

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

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

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

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

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

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

from the 1.7 percent pace during FY 2020.

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

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

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

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

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

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

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

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

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

workers were rehired.

An Unsustainable Fiscal Path

An important purpose of the Financial Report is to help citizens understand current fiscal policy and the importance and

magnitude of policy reforms necessary to make it sustainable. This Financial Report includes the SLTFP and a related Note

Disclosure (Note 26). The Statements display the PV of 75-year projections of the federal government’s receipts and non-

interest spending16 for FY 2021 and FY 2020.

Fiscal Sustainability

A sustainable fiscal policy is defined as one where the debt-to-GDP ratio is stable or declining over the long term. The

projections based on the assumptions in this Financial Report indicate that current policy is not sustainable. This report

presents data, including debt, as a percent of GDP to help readers assess whether current fiscal policy is sustainable. The

debt-to-GDP ratio was approximately 100 percent at the end of FY 2021, similar to (but slightly below) the ratio at the end of

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

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

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

not reflected in last year’s reports. As discussed below, if current policy is left unchanged and based on this report’s

assumptions, the debt-to-GDP ratio is projected to exceed 200 percent by 2041 and reach 701 percent in 2096. Preventing the

debt-to-GDP ratio from rising over the next 75 years is estimated to require some combination of spending reductions and

revenue increases that amount to 6.2 percent of GDP over the period. While this estimate of the “75-year fiscal gap” is highly

uncertain, it is nevertheless nearly certain that current fiscal policies cannot be sustained indefinitely.

Delaying action to reduce the fiscal gap increases the magnitude of spending and/or revenue changes necessary to

stabilize the debt-to-GDP ratio as shown in Table 7 below.

The estimates of the cost of policy delay assume policy does not affect GDP or other economic variables. Delaying

fiscal adjustments for too long raises the risk that growing federal debt would increase interest rates, which would, in turn,

reduce investment and ultimately economic growth.

The projections discussed here assume current policy17 remains unchanged, and hence, are neither forecasts nor

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

sustainability.

The Primary Deficit, Interest, and Debt

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

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

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

16 For the purposes of the SLTFP and this analysis, spending is defined in terms of outlays. In the context of federal budgeting, spending can either refer to: 1) budget authority – the authority to commit the government to make a payment; 2) obligations – binding agreements that will result in either immediate or

future payment; or 3) outlays, or actual payments made. 17 Current policy in the projections is based on current law, but includes certain adjustments, such as extension of certain policies that expire under current law but are routinely extended or otherwise expected to continue (e.g., reauthorization of the Supplemental Nutrition Assistance Program).

MANAGEMENT’S DISCUSSION AND ANALYSIS 30

primary deficit-to-GDP ratio spiked during 2009 through 2012 due to the 2008-09 financial crisis and the ensuing severe

recession, as well as the effects of the government’s response thereto. These elevated primary deficits resulted in a sharp

increase in the ratio of debt to GDP, which rose from 39 percent at the end of 2008 to 70 percent at the end of 2012. As an

economic recovery took hold, the primary deficit ratio fell, averaging 2.1 percent of GDP over 2013 through 2019, The

primary deficit-to-GDP ratio again spiked in 2020, rising to 13.3 percent of GDP in 2020, due to increased spending to

address the COVID-19 pandemic and lessen the economic impacts of stay-at-home and social distancing orders on

individuals, hard-hit industries, and small businesses. Spending remained elevated in 2021 due to additional funding to

support economic recovery, but increased receipts reduced the primary deficit-to-GDP to 10.8 percent.

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

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

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

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

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

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

period.

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

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

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

of the TCJA.

Receipts were 18.1 percent of GDP in

2021. After 2025, receipts grow slightly

more rapidly than GDP over the projection

period as increases in real incomes cause

more taxpayers and a larger share of

income to fall into the higher individual

income tax brackets.

On the spending side, the non-interest

spending share of GDP, was 28.9 percent in

2021, slightly less than the share of GDP in

2020. The ratio of non-interest spending to

GDP is projected to fall to 22.0 percent in

2022 and remain near that level through

2024. After 2024, the non-interest spending

share of GDP is projected to rise gradually,

reaching 25.7 percent in 2078, before

declining to 25.3 percent in 2096, the end

of the projection period. Beginning in 2025,

these increases are principally due to faster

growth in Medicare and Social Security

spending (see Chart 8). The aging of the

baby boom generation, among other

factors, is projected to increase the spending shares of GDP of Social Security and Medicare are projected to increase by

about 0.9 and 1.5 percentage points, respectively, from 2022 to 2041. After 2041, the Social Security and Medicare spending

shares of GDP continue to increase in most years, albeit at a slower rate, due to projected increases in health care costs and

population aging, before declining toward the end of the projection period.

On a PV basis, deficit projections reported in the FY 2021 Financial Report increased in both present-value terms and

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

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

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

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

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

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

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

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

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

spending by $1.4 trillion.

One of the most important assumptions underlying the projections is the future growth of health care costs. As

discussed in Note 25, these future growth rates – both for health care costs in the economy generally and for federal health

care programs such as Medicare, Medicaid, and PPACA exchange subsidies – are highly uncertain. In particular, enactment

of the PPACA in 2010 and the MACRA in 2015 established cost controls for Medicare hospital and physician payments

31 MANAGEMENT’S DISCUSSION AND ANALYSIS

whose long-term effectiveness of which is not yet clear. The Medicare spending projections in the long-term fiscal

projections are based on the projections in the 2021 Medicare Trustees’ Report, which assume the PPACA and MACRA cost

control measures will be effective in producing a substantial slowdown in Medicare cost growth. As discussed in Note 25, the

Medicare projections are subject to much uncertainty about the ultimate effects of these provisions to reduce health care cost

growth. For the long-term fiscal projections, that uncertainty also affects the projections for Medicaid and exchange

subsidies, because the cost per beneficiary in these programs is assumed to grow at the same reduced rate as Medicare cost

growth per beneficiary. The projections in the Medicaid Actuarial Report, which end in 2027, are adjusted to accord with the

actual Medicaid spending in FY 2021. Actual Medicaid spending includes temporary spending increases due to changes in

enrollment and other temporary measures related to the pandemic. The amounts related to these temporary spending increases

cannot be identified, which adds uncertainty to the projections. After 2027, the projections assume no further change in State

Medicaid coverage under the PPACA, and the numbers of aged beneficiaries (65-plus years) and non-aged beneficiaries (less

than 65 years) are expected to grow at the same rates as the aged and non-aged populations, respectively. The most recent

Social Security and Medicare Trustees’ Reports were released in August 2021. See Note 26—Long-Term Fiscal Projections

for additional information.

As discussed in Note 26 for the FY 2021 report, other key assumptions include, but are not limited to the following. For

receipts, individual income taxes are based on the share of individual income taxes of salaries and wages in the current law

baseline projection in the FY 2022 President’s Budget, and the salaries and wages projections in the Social Security 2021

Trustees’ Report. That baseline accords with the tendency of effective tax rates to increase as growth in income per capita

outpaces inflation (also known as “bracket creep”) and the expiration dates of individual income and estate and gift tax

provisions of the TCJA.18 Projections for the other categories of receipts and spending are consistent with the economic and

demographic assumptions in the Trustees’ Reports and include updates for actual budget results for FY 2021 or budgetary

estimates from the FY 2022 President’s Budget. Where possible, those budget totals are adjusted before spending is projected

to remove outlays for programs or activities that are judged to be temporary, such as spending related to the COVID-19

pandemic and economic recovery. Where not possible, budget totals were not adjusted, resulting in higher projections of

future spending, increasing the uncertainty surrounding this year’s projections. See Note 26—Long-Term Fiscal Projections

for additional information about the assumptions used in this analysis.

The primary deficit-to-GDP projections in Chart 8, projections for interest rates, and projections for GDP together

determine the debt-to-GDP ratio projections shown in Chart 9. That ratio was approximately 100 percent at the end of FY

2021 and under current policy is

projected to exceed the historic high of

106 percent in 2024, rise to 200 percent

by 2041 and reach 701 percent by 2096.

The change in debt held by the public

from one year to the next generally

represents the budget deficit, the

difference between total spending and

total receipts. The debt-to-GDP ratio

rises continually in great part because

primary deficits lead to higher levels of

debt, which lead to higher net interest

expenditures, and higher net interest

expenditures lead to higher debt.19 The

continuous rise of the debt-to-GDP ratio

indicates that current policy is

unsustainable.

These debt-to-GDP projections are

higher than the corresponding

projections in both the 2020 and 2019

Financial Reports. For example, the last

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

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

year in the FY 2020 Financial Report and the FY 2019 Financial Report, respectively.20

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

December 31, 2025. See the FY 2020 Financial Report. 19 The change in debt each year is also affected by certain transactions not included in the budget deficit, such as changes in Treasury’s cash balances and the nonbudgetary activity of federal credit financing accounts. These transactions are assumed to hold constant at about 0.3 percent of GDP each year, with the

same effect on debt as if the primary deficit was higher by that amount. 20 See the Note 24 of the FY 2020 Financial Report of the U.S. Government for more information about changes in the long term fiscal projections between FYs 2019 and 2020.

https://fiscal.treasury.gov/files/reports-statements/financial-report/2020/notes-to-the-financial-statements24.pdf

MANAGEMENT’S DISCUSSION AND ANALYSIS 32

The Fiscal Gap and the Cost of Delaying Policy Reform

The 75-year fiscal gap is one measure of the degree to which current policy is unsustainable. It is the amount by which

primary surpluses over the next 75 years must, on average, rise above current-policy levels in order for the debt-to-GDP ratio

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

the next 75 years under current policy. If policies were adopted to eliminate the fiscal gap, the average primary surplus over

the next 75 years would be 0.6 percent of GDP, 6.2 percentage points higher than the projected PV of receipts less non-

interest spending shown in the basic financial statements. Hence, the 75-year fiscal gap is estimated to equal 6.2 percent of

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

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

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

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

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

the amount of interest

spending, which under

these assumptions would

result in debt growing

faster than GDP.

Table 7 shows the

cost of delaying policy

reform to close the fiscal

gap by comparing policy

reforms that begin in three

different years. Immediate

reform would require

increasing primary surpluses by 6.2 percent of GDP on average between 2022 and 2096 (i.e., some combination of reducing

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

shows that delaying policy reform forces larger and more abrupt policy reforms over shorter periods. For example, if policy

reform is delayed by 10 years, closing the fiscal gap requires increasing the primary surpluses by 7.3 percent of GDP on

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

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

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

additional burden that delay would impose on future generations. Future generations are harmed by policy reform delay,

because the higher the primary surplus is during their lifetimes the greater the difference is between the taxes they pay and

the programmatic spending from which they benefit.

Conclusion

The debt-to-GDP ratio is projected to rise over the 75-year projection period and beyond if current policy is unchanged,

based on this report’s assumptions, which implies that current policy is not sustainable and must ultimately change. If policy

changes are not so abrupt as to slow economic growth, then the sooner policy changes are adopted to avert these trends, the

smaller the changes to revenue and/or spending that would be required to achieve sustainability over the long term. While the

estimated magnitude of the fiscal gap is subject to a substantial amount of uncertainty, it is nevertheless nearly certain that

current fiscal policies cannot be sustained indefinitely.

These long-term fiscal projections and the topic of fiscal sustainability are discussed in further detail in Note 26 and the

RSI section of this Financial Report.

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33 MANAGEMENT’S DISCUSSION AND ANALYSIS

Social Insurance

The long-term fiscal projections reflect government receipts and spending as a whole. The SOSI focuses on the

government’s “social insurance” programs: Social Security, Medicare, Railroad Retirement, and Black Lung.21 For these

programs, the SOSI reports: 1) the actuarial PV of all future program revenue (mainly taxes and premiums) - excluding

interest - to be received from or on behalf of current and future participants; 2) the estimated future scheduled expenditures to

be paid to or on behalf of current and future participants; and 3) the difference between 1) and 2). Amounts reported in the

SOSI and in the RSI section in this Financial Report are based on each program’s official actuarial calculations.

This year’s projections for Social Security and Medicare are based on the same economic and demographic assumptions

that underlie the 2021 Social Security and Medicare Trustees’ Reports and the 2021 SOSI, while comparative information

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

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

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

trillion projected in the FY 2020 Financial Report.22 The current-law 2021 amounts reported for Medicare reflect the

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

payment rates, but not the payment reductions and/or delays that would result from trust fund depletion.23 Similarly, current-

law projections for Social Security do not reflect benefit payment reductions and/or delays that would result from fund

depletion. By accounting convention, the transfers from the General Fund to Medicare Parts B and D are eliminated in the

consolidation of the SOSI at the government-wide level and as such, the General Fund transfers that are used to finance

Medicare Parts B and D are not included in Table 8. For the FYs 2021 and 2020 SOSI, the amounts eliminated totaled $43.2

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

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

The amounts reported in the SOSI provide perspective on the government’s long-term estimated exposures for social

insurance programs. These amounts are not considered liabilities in an accounting context. Future benefit payments will be

recognized as expenses and liabilities as they are incurred based on the continuation of the social insurance programs'

provisions contained in current law. The social insurance trust funds account for all related program income and expenses.

Medicare and Social Security taxes, premiums, and other income are credited to the funds; fund disbursements may only be

made for benefit payments and program administrative costs. Any excess revenues are invested in special nonmarketable

U.S. government securities at a market rate of interest. The trust funds represent the accumulated value, including interest, of

all prior program surpluses, and provide automatic funding authority to pay cover future benefits.

21 The Black Lung Benefits Act provides for monthly payments and medical benefits to coal miners totally disabled from pneumoconiosis (black lung disease) arising from their employment in or around the nation's coal mines. See https://www.dol.gov/owcp/regs/compliance/ca_main.htm. Railroad

Retirement Board’s projections are based on economic assumptions that underlie the 28th Actuarial Valuation of the Assets and Liabilities Under the

Railroad Retirement Acts as of December 31, 2019 with Technical Supplement. 22'Closed' Group and 'Open' Group differ by the population included in each calculation. From the SOSI, the 'Closed' Group includes: 1) participants who

have attained eligibility; and 2) participants who have not attained eligibility. The 'Open' Group adds future participants to the 'Closed' Group. See ‘Social

Insurance’ in the RSI section in this Financial Report for more information. 23 MACRA permanently replaces the Sustainable Growth Rate formula, which was used to determine payment updates under the Medicare physician fee

schedule with specified payment updates through 2025. The changes specified in MACRA also establish differential payment updates starting in 2026 based

on practitioners’ participation in eligible APM; payments are also subject to adjustments based on the quality of care provided, resource use, use of certified electronic health records, and clinical practice improvement.

https://www.dol.gov/owcp/regs/compliance/ca_main.htm

MANAGEMENT’S DISCUSSION AND ANALYSIS 34

Table 9 identifies the principal

reasons for the changes in projected

social insurance amounts during 2021

and 2020.

The following briefly

summarizes the significant changes for

the current valuation (as of January 1,

2021) as disclosed in Note 25—Social

Insurance. Note 25 is compiled from

disclosures included in the financial

statements of those entities

administering these programs,

including SSA and HHS. See Note 25

for additional information.

• Change in valuation period (affects both Social Security

and Medicare): This change

replaces a small negative net

cash flow for 2020 with a

much larger negative net cash

flow for 2095. As a result, the

PV of the estimated future net

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

• Changes in demographic data, assumptions, and methods (affects both Social Security and Medicare): There were two changes to ultimate demographic assumptions compared to prior valuation: the ultimate total fertility rate was

increased; and an additional cause of death category was added, by separating dementia out from the all-other-

causes category, and ultimate mortality improvement rates were updated for cardiovascular disease. In addition to

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

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

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

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

• Changes in economic data and assumptions (affects Social Security only): Several changes were made to the ultimate economic assumptions since the last valuation period. The ultimate average real wage differential

35 MANAGEMENT’S DISCUSSION AND ANALYSIS

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

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

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

estimated future net cash flows. In addition to these changes in ultimate economic assumptions, the starting

economic values and the way these values transition to the ultimate assumptions were changed. Near-term interest

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

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

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

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

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

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

• Changes in law or policy (affects both Social Security and Medicare): For Social Security, between the prior valuation and the current valuation, one change in policy is expected to have significant effect on the long-range

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

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

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

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

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

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

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

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

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

• Changes in methodology and programmatic data (affects Social Security only). Several methodological improvements and updates of program-specific data are included in the current valuation (beginning on January 1,

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

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

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

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

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

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

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

trillion for Social Security.

• Changes in economic and other healthcare assumptions (affects Medicare only): The economic assumptions used in the Medicare projections are the same as those used for the OASDI (described above) and are prepared by the Office

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

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

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

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

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

trillion.

• Change in Projection Base (affects Medicare only): Actual income and expenditures in 2020 were different than what was anticipated when the 2020 Medicare Trustees’ Report projections were prepared. For Part A and Part B

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

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

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

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

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

less negative) in the estimated future net cash flows by $1.6 trillion for Medicare.

As reported in Note 25, uncertainty remains about whether the projected cost savings and productivity improvements

will be sustained in a manner consistent with the projected cost growth over time. Note 25 includes an alternative projection

to illustrate the uncertainty of projected Medicare costs. As indicated earlier, GAO disclaimed opinions on the 2021, 2020,

2019, 2018 and 2017 SOSI because of these significant uncertainties.

Costs as a percent of GDP of both Medicare and Social Security, which are analyzed annually in the Medicare and

Social Security Trustees’ Reports, are projected to increase substantially through the mid-2030s because: 1) the number of

beneficiaries rises rapidly as the baby-boom generation retires; and 2) the lower birth rates that have persisted since the baby

boom cause slower growth in the labor force and GDP.24 According to the Medicare Trustees’ Report, spending on Medicare

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

24A Summary of the 2021 Annual Social Security and Medicare Trust Fund Reports, page 12. 25 Percent of GDP amounts are expressed in gross terms (including amounts financed by premiums and state transfers).

https://www.ssa.gov/oact/TRSUM/

MANAGEMENT’S DISCUSSION AND ANALYSIS 36

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

of 6.2 percent for 2077, and then decline to 5.9 percent by 2095. The government collects and maintains funds supporting the

Social Security and Medicare programs in trust funds. A scenario in which projected funds expended exceed projected funds

received, as reported in the SOSI, will cause the balances in those trust funds to deplete over time. Table 10 summarizes

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

Insurance and Social Security Trust Funds.

As previously discussed and as noted in the Trustees’ Reports, these programs are on a fiscally unsustainable path.

Additional information from the Trustees’ Reports may be found in the RSI section of this Financial Report.

Reporting on Climate Change

As stated in EO 14008, Tackling the Climate Crisis at Home and Abroad “the United States and the world face a

profound climate crisis…Domestic action must go hand in hand with United States international leadership, aimed at

significantly enhancing global action.” Among other things, the EO “directs each federal agency to develop a plan to increase

the resilience of its facilities and operations to the impacts of climate change and directs relevant agencies to report on ways

to expand and improve climate forecast capabilities – helping facilitate public access to climate related information and

assisting governments, communities, and businesses in preparing for and adapting to the impacts of climate change.” As a

corollary to EO 14008, EO 14030, Climate-Related Financial Risk, is intended to help the American people understand how

climate change could impact their financial security, to strengthen the U.S. financial system so that climate change does not

affect the system’s stability, and to inform federal government decision-making to mitigate the risks of climate change.

Section 5(a) of EO 14030 specifically tasks OMB and the National Economic Council, in consultation with Treasury, to

develop recommendations to integrate climate-related financial risk into financial management and reporting, with a focus on

the climate-related financial risk of lending programs. Section 5(a) directs the recommendations to include an evaluation of

changes to accounting standards where appropriate for federal financial reporting.

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

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

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

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

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

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

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

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

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

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

health equity; it is seeking to protect vulnerable communities who disproportionately bear the brunt of pollution and climate-

driven disasters (such as drought and wildfires) at the expense of public health. Treasury has initiated work related to: climate

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

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

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

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

elements of the Administration’s foreign policy-making process. DOI’s 2022-2026 Strategic Plan will, among other things,

https://www.whitehouse.gov/briefing-room/presidential-actions/2021/01/27/executive-order-on-tackling-the-climate-crisis-at-home-and-abroad/

https://www.whitehouse.gov/briefing-room/presidential-actions/2021/05/20/executive-order-on-climate-related-financial-risk/

37 MANAGEMENT’S DISCUSSION AND ANALYSIS

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

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

sector by 2035.

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

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

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

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

role in providing leadership on this issue.

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

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

stated that NASA contributes significantly to what is known about Earth’s changing climate and cited recent agency efforts

related to climate change, disaster mitigation, fighting forest fires, and improving real-time agricultural processes. The

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

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

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

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

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

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

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

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

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

guidance. Lastly, on December 8, 2021, after the end of FY 2021, EO 14057, Catalyzing Clean Energy Industries and Jobs

Through Federal Sustainability, was issued. Among other things, this EO directs agencies to develop plans, processes, and

analytic tools that will allow federal agencies and programs to adapt to climate change.

Financial Management

Grants

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

accounting for other types of financial assistance, such as loans and direct appropriations. A large portion of grant funding

went to support the nation’s response to the pandemic through the ARP, the CARES Act, and other COVID-19 funding.

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

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

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

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

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

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

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

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

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

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

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

existing provider.

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

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

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

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

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

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

under the Federal Funding Accountability and Transparency Act. Improving access to key financial assistance data continues

to be a priority for OMB and was highlighted in OMB memorandum M-22-02, New Financial Assistance Transparency

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

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

efforts to improve transparency.

26 The report can be found here: A ROADMAP TO BUILD A CLIMATE-RESILIENT ECONOMY (whitehouse.gov).

https://www.whitehouse.gov/briefing-room/presidential-actions/2021/12/08/executive-order-on-catalyzing-clean-energy-industries-and-jobs-through-federal-sustainability/

https://www.cfo.gov/wp-content/uploads/2021/Managing-for-Results-Performance-Management-Playbook-for-Federal-Awarding-Agencies.pdf

https://www.whitehouse.gov/wp-content/uploads/2021/10/Climate-Finance-Report.pdf

MANAGEMENT’S DISCUSSION AND ANALYSIS 38

Payment Integrity

Preventing improper payments in the federal government is a management priority. To be successful in preventing

improper payments, there must be a focus on systemic enhancements intended to make payments correctly the first time with

an emphasis on minimizing monetary loss. The federal government, through the CFO community, continues to develop

strategies to better analyze and prevent monetary loss. In FY 2021, OMB published Memorandum M-21-19, Appendix C to

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

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

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

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

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

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

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

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

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

available in a consistent format across all programs.

OMB will continue to work with agencies, the Chief Financial Officers Council, and other stakeholders to improve the

identification of the root causes of improper payments that result in monetary loss and to promote data analytic methods that

take a comprehensive view of an agency’s payment lifecycle.

Agency Financial Report Audits

Since the passage of the CFO Act, the federal financial community has made significant progress in financial

accounting and reporting. As shown in Table 11, for FY 2021, 21 of the 24 CFO Act agencies obtained an unmodified

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

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

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

Although virtually all federal agencies have adopted and maintained disciplined financial reporting operations, implemented

effective internal controls over financial reporting, and integrated transaction processing with accounting records, weaknesses

in financial management practices continue to prevent the government as a whole from achieving an audit opinion.

27 The 22 entities include HHS, which received an unmodified (“clean”) opinion on all statements except the SOSI and the SCSIA.

https://www.cfo.gov/

https://paymentaccuracy.gov/

39 MANAGEMENT’S DISCUSSION AND ANALYSIS

Financial Management Systems

Federal agencies improved, but continue to face challenges, in implementing financial management systems that meet

federal requirements. The number of CFO Act agencies reporting lack of substantial compliance with one or more of the

three Section 803(a) requirements of the FFMIA increased to eight in FY 2021, and the number of auditors reporting lack of

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

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

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

with agencies to manage systems for collecting and disbursing the government’s cash and financing disbursements when

necessary, recording and reporting on those collections and disbursements, and reporting on all government revenues,

expenses, assets, and liabilities.

In 2020, Treasury was designated as the Financial Management Systems QSMO and is pursuing financial management

improvement strategies that have government-wide implications. These strategies include standing up a financial

management systems marketplace and developing system standards, standardized processes, system requirements, and

system interfaces. These efforts provide a path to the decommissioning of legacy systems and migration to updated systems,

leveraging modernized technologies. In addition, agencies are coordinating with the Treasury QSMO to improve their

financial management and financial reporting systems as described in their financial reports, Congressional budget

justifications, and performance plans. DOD continues to address its material weaknesses in financial reporting, and is

bringing its financial systems into compliance with federal financial management systems requirements, including the

FFMIA.

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

working to modernize and streamline the government’s vast and aging legacy grants management systems. The goal of this

effort is to allow agencies to successfully manage grants through the entire award cycle and allow grants management

systems to interface with agency financial management systems.

MANAGEMENT’S DISCUSSION AND ANALYSIS 40

Internal Controls

Federal managers are responsible for developing and maintaining effective internal controls. Internal controls help to

ensure effective and efficient operations, reliable financial reporting, and compliance with applicable laws and regulations.

Safeguarding assets is a goal of each of these three objectives.

OMB Circular No. A-123 implements the requirements of 31 U.S.C. 3512 (c) and (d) (commonly known as the Federal

Managers’ Financial Integrity Act) by providing agencies a framework for assessing and managing risks strategically and

tactically. The Circular reflects GAO’s Standards for Internal Control in the Federal Government and contains multiple

appendices that address one or more of the objectives of effective internal control.

• Appendix A provides for agencies to use a risk-based approach to assess, document, test, and report on internal controls over reporting and data integrity;

• Appendix B requires agencies to maintain internal controls that reduce the risk of fraud, waste, and error in government charge card programs;

• Appendix C implements the requirements for effective estimation and remediation of improper payments; and

• Appendix D defines requirements for determining compliance with the FFMIA that are intended to reduce the cost, risk, and complexity of financial system modernizations.

As noted above, the total number of reported material weaknesses for CFO Act agencies was 47 for FY 2021, the same

as for FY 2020. Effective internal controls are a challenge at the agency level and at the government-wide level, with GAO

reporting that at the government-wide level, material weaknesses resulted in ineffective internal control over financial

reporting. While progress is being made at many agencies and across the government in identifying and resolving internal

control deficiencies, additional work is needed.

Legal Compliance

Federal agencies are required to comply with a wide range of laws and regulations, including appropriations,

employment, and health and safety, among others. Responsibility for compliance rests with agency management and

compliance is addressed as part of agency financial statement audits. Agency auditors test for compliance with selected laws

and regulations related to financial reporting and certain individual agency audit reports contain instances of noncompliance.

None of these instances were material to the government-wide financial statements; however, GAO reported that its work on

compliance with laws and regulations was limited by the material weaknesses and scope limitations discussed in its report.

Conclusion

The federal government has seen significant progress in financial management since the passage of the CFO Act more

than 30 years ago, but significant challenges remain to realizing the intended financial management reforms of the act. The

issues that the federal government faces today require financial managers to improve both the efficiency and effectiveness of

financial management activities, which includes moving toward integrated government operations with standardized business

processes, systems, and data. Together with Treasury and OMB, agencies are building on tools and capabilities to improve

financial accountability and transparency.

Additional Information

This Financial Report’s Appendix contains the names and websites of the significant government agencies included in

the U.S. government’s consolidated financial statements. Details about the information in this Financial Report can be found

in these agencies financial statements. This Financial Report, as well as those from previous years, is also available at

Treasury, OMB, and GAO websites at:

https://www.fiscal.treasury.gov/reports-statements/; https://www.whitehouse.gov/omb/management/office-federal-financial-

management/; and https://www.gao.gov/federal-financial-accountability respectively. Other related government publications

include, but are not limited to the:

• Budget of the United States Government,

• Treasury Bulletin,

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

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

• Economic Report of the President, and

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

https://www.fiscal.treasury.gov/reports-statements/

https://www.whitehouse.gov/omb/management/office-federal-financial-management/

https://www.gao.gov/federal-financial-accountability

https://www.whitehouse.gov/omb/budget/

https://www.fiscal.treasury.gov/reports-statements/treasury-bulletin/

https://www.fiscal.treasury.gov/reports-statements/mts/

https://www.treasurydirect.gov/govt/reports/pd/mspd/mspd.htm

https://www.govinfo.gov/app/collection/ERP/

https://www.ssa.gov/oact/TR/

https://www.cms.gov/files/document/2021-medicare-trustees-report.pdf

41 MANAGEMENT’S DISCUSSION AND ANALYSIS

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STATEMENT OF THE COMPTROLLER GENERAL OF THE UNITED STATES 42

February 17, 2022

The President The President of the Senate The Speaker of the House of Representatives

To operate as effectively and efficiently as possible, Congress, the administration, and federal managers must have ready access to reliable and complete financial and performance information— both for individual federal entities and for the federal government as a whole. Our report on the U.S. government’s consolidated financial statements for fiscal years 2021 and 2020 discusses progress that has been made but also underscores that much work remains to improve federal financial management and that the federal government continues to face an unsustainable long-term fiscal path.1

The federal government took unprecedented actions in response to the COVID-19 pandemic to protect public health and reduce economic impacts on individuals and businesses during fiscal years 2021 and 2020. These ongoing efforts are reflected in the net cost, assets, liabilities, and budget deficit reported in the U.S. government’s consolidated financial statements for fiscal years 2021 and 2020. The ultimate cost of these actions and any future actions in response to the pandemic and their impact on the federal government’s financial condition will not be fully known for some time.

The federal government’s response to the COVID-19 pandemic includes net costs for fiscal years 2021 and 2020 related to small business loan guarantees of $297 billion (2021) and $527 billion (2020), primarily for the Paycheck Protection Program (PPP); economic impact payments and recovery rebate credits of $570 billion (2021) and economic impact payments of $275 billion (2020); and Department of Labor program costs of $313 billion (2021) and $352 billion (2020), primarily related to unemployment benefits.

Significant assets and liabilities as of September 30, 2021, and 2020, resulting from the federal government’s response to the COVID-19 pandemic include

• advances of $254 billion (2021) and $173 billion (2020), primarily as a result of aid to state, local, territorial, and tribal governments and Medicare providers;

• loans under the Economic Injury Disaster Loan (EIDL) program, representing almost all of the $244 billion (2021) and $181 billion (2020) in net disaster loans;

• equity investments in special purpose vehicles of $26 billion (2021) and $108 billion (2020), which the Federal Reserve established during fiscal year 2020 to enhance the liquidity of the U.S. financial system;2

1As discussed later in this report, an unsustainable long-term fiscal path is a situation where federal debt held by the public grows faster than gross domestic product (GDP) over the long term.

2As discussed in Note 8, Investments in Special Purpose Securities, to the consolidated financial statements, equity investments in special purpose vehicles decreased to $26 billion in fiscal year 2021 from $108 billion in fiscal year 2020 primarily because the Department of the Treasury and the Federal Reserve amended several of the special purpose vehicle agreements and the Federal Reserve returned equity investments to Treasury.

43 STATEMENT OF THE COMPTROLLER GENERAL OF THE UNITED STATES

• cash and other monetary assets of $1,927 billion (2020) resulting from the Department of the Treasury maintaining an elevated cash balance to maintain prudent liquidity in light of the size and relative uncertainty of COVID-19 pandemic–related outflow;3 and

• loan guarantee liabilities of $231 billion (2021) and $520 billion (2020), primarily related to the PPP.4

COVID-19 pandemic–related budget expenditures totaled $1.8 trillion in fiscal year 2021 and $1.6 trillion in fiscal year 2020, increasing the budget deficit. During fiscal year 2020, primarily due to a budget deficit of $3.1 trillion and an increase in cash and other monetary assets, debt held by the public increased by $4.2 trillion to $21.0 trillion. During fiscal year 2021, primarily due to a budget deficit of $2.8 trillion, offset by decreases in cash and other monetary assets, debt held by the public increased by $1.3 trillion to $22.3 trillion.

Our audit report on the U.S. government’s consolidated financial statements is enclosed. In summary, we found the following:

• Certain material weaknesses5 in internal control over financial reporting and other limitations

resulted in conditions that prevented us from expressing an opinion on the accrual-based consolidated financial statements as of and for the fiscal years ended September 30, 2021, and 2020.6 About 30 percent of the federal government’s reported total assets as of September 30,

2021, and approximately 18 percent of the federal government’s reported net cost for fiscal year 2021 relate to significant federal entities that received a disclaimer of opinion7 or qualified opinion8

3As discussed in Note 2, Cash and Other Monetary Assets, to the consolidated financial statements, cash and other monetary assets decreased in fiscal year 2021 because Treasury reduced the cash balance in fiscal year 2021 to well under its prudent policy level because of debt limit constraints.

4The change from fiscal year 2020 to fiscal year 2021 is primarily due to new guarantees of $304 billion, offset by loan forgiveness payments to lenders of $558 billion.

5A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected, on a timely basis. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis.

6The accrual-based consolidated financial statements as of and for the fiscal years ended September 30, 2021, and 2020, consist of the (1) Statements of Net Cost, (2) Statements of Operations and Changes in Net Position, (3) Reconciliations of Net Operating Cost and Budget Deficit, (4) Statements of Changes in Cash Balance from Budget and Other Activities, and (5) Balance Sheets, including the related notes to these financial statements. Most revenues are recorded on a modified cash basis.

7A disclaimer of opinion arises when the auditor is unable to obtain sufficient, appropriate audit evidence to provide a basis for an audit opinion, and the auditor concludes that the possible effects on the financial statements of undetected misstatements, if any, could be both material and pervasive and accordingly does not express an opinion on the financial statements.

8A qualified opinion arises when the auditor is able to express an opinion on the financial statements except for specific areas where the auditor was unable to obtain sufficient and appropriate evidence, and the auditor concludes that the possible effects on the financial statements of undetected misstatements, if any, could be material but not pervasive.

STATEMENT OF THE COMPTROLLER GENERAL OF THE UNITED STATES 44

on their fiscal year 2021 financial statements or whose fiscal year 2021 financial information was unaudited.9

• Significant uncertainties (discussed in Note 25, Social Insurance, to the consolidated financial statements), primarily related to the achievement of projected reductions in Medicare cost growth, prevented us from expressing an opinion on the sustainability financial statements, which consist of the 2021 and 2020 Statements of Long-Term Fiscal Projections;10 the 2021, 2020, 2019, 2018, and

2017 Statements of Social Insurance;11 and the 2021 and 2020 Statements of Changes in Social

Insurance Amounts. About $48.2 trillion, or 68 percent, of the reported total present value of future expenditures in excess of future revenue presented in the 2021 Statement of Social Insurance relates to Medicare programs reported in the Department of Health and Human Services’ (HHS) 2021 Statement of Social Insurance, which received a disclaimer of opinion. A material weakness in internal control also prevented us from expressing an opinion on the 2021 and 2020 Statements of Long-Term Fiscal Projections.

• Material weaknesses resulted in ineffective internal control over financial reporting for fiscal year 2021.

• Material weaknesses and other scope limitations, discussed above, limited tests of compliance with

selected provisions of applicable laws, regulations, contracts, and grant agreements for fiscal year

2021.

Overall, the federal government has made significant strides in improving financial management since key federal financial management reforms were enacted in the 1990s. Twenty-one of the 24 Chief Financial Officers Act of 1990 (CFO Act) agencies received unmodified (“clean”) opinions on their respective entities’ fiscal year 2021 financial statements, up from six CFO Act agencies that received clean audit opinions for fiscal year 1996.12 In addition, accounting and financial reporting standards

have continued to evolve to provide greater transparency and accountability over the federal government’s operations and financial condition, including long-term sustainability. We have reported

9The Department of Defense received a disclaimer of opinion on its fiscal years 2021 and 2020 financial statements. The Small Business Administration (SBA) received a disclaimer of opinion on its fiscal year 2021 balance sheet and its remaining statements were unaudited; SBA received a disclaimer of opinion on its fiscal year 2020 financial statements. The Department of Labor received a qualified opinion on its fiscal year 2021 financial statements but received an unmodified opinion on its fiscal year 2020 financial statements. The 2021 Schedules of the General Fund of the U.S. Government were not audited to allow Treasury sufficient time to continue to implement a remediation plan to address the issues we reported as part of our disclaimer of opinion on the fiscal year 2020 Schedules of the General Fund. Also, for fiscal years 2021 and 2020, the financial information for Security Assistance Accounts was unaudited.

10The 2021 and 2020 Statements of Long-Term Fiscal Projections present, for all the activities of the federal government, the present value of projected receipts and noninterest spending under current policy without change, the relationship of these amounts to projected GDP, and changes in the present value of projected receipts and noninterest spending from the prior year. These statements also present the fiscal gap, which shows the combination of noninterest spending reductions and receipts increases necessary to hold debt held by the public as a share of GDP at the end of the projection period to its value at the beginning of the period. The valuation date for the Statements of Long-Term Fiscal Projections is September 30.

11The Statements of Social Insurance present the present value of revenue and expenditures for social benefit programs, primarily Social Security and Medicare. These statements are presented for the current year and each of the 4 preceding years as required by U.S. generally accepted accounting principles. For the Statements of Social Insurance, the valuation date is January 1 for the Social Security and Medicare programs, October 1 for the Railroad Retirement program, and September 30 for the Black Lung program.

12The 21 agencies include the Department of Health and Human Services, which received an unmodified (“clean”) opinion on all statements except the Statements of Social Insurance and the Statements of Changes in Social Insurance Amounts.

45 STATEMENT OF THE COMPTROLLER GENERAL OF THE UNITED STATES

areas where financial management can be improved, including standardizing the responsibilities of chief financial officers, preparing government-wide and agency-level financial management plans, and better linking performance and cost information for decision-making.13

While the U.S. government's consolidated financial statements provide a high-level summary of the financial position, financial condition, and operating results for the federal government as a whole, substantial benefits have been achieved as a result of agencies’ preparation and audit of financial statements, including

• useful and necessary insight into government operations, including the agencies’ financial conditions;

• increased federal agency accountability to Congress and citizens, including independent assurance about the reliability of reported financial information;

• greater confidence to stakeholders (governance officials, taxpayers, consumers, or regulated entities) that federal funds are being properly accounted for and assets are properly safeguarded;

• an assessment of the reliability and effectiveness of systems and related internal controls, including identifying control deficiencies that could lead to fraud, waste, or abuse;

• a focus on information security;

• early warnings of financial management issues; and

• identification of noncompliance with laws and regulations, which can present challenges to agency operations.

The preparation and audit of individual federal entities’ financial statements have also identified numerous deficiencies, leading to corrective actions to strengthen federal entities’ internal controls, processes, and systems. For instance, the Department of Veterans Affairs took corrective actions to address auditor-identified deficiencies, resulting in improvements in internal controls over obligations, undelivered orders, accrued expenses, and entity-level controls, including the Chief Financial Officer’s organizational structure, that reduced two material weaknesses to significant deficiencies.14

However, since the federal government began preparing consolidated financial statements, for fiscal year 1997, three major impediments have continued to prevent us from rendering an opinion on the federal government’s accrual-based consolidated financial statements: (1) serious financial management problems at the Department of Defense (DOD), (2) the federal government’s inability to adequately account for intragovernmental activity and balances between federal entities, and (3) weaknesses in the federal government’s process for preparing the consolidated financial statements. In addition, the Small Business Administration (SBA), which had substantial activity related to the COVID- 19 pandemic response, was unable to obtain an opinion on its fiscal year 2021 and 2020 financial statements, after years of receiving clean opinions.

DOD continues to take positive steps to improve its financial management but faces long-standing issues. After many years of working toward financial statement audit readiness, DOD underwent full financial statement audits for fiscal years 2018 through 2021. These audits resulted in disclaimers of opinion, material weaknesses in internal control over financial reporting (28 in fiscal year 2021 and 26 in fiscal year 2020), and thousands of audit findings. Some of the material weaknesses—such as an inability to account for its property and equipment and ineffective information system controls—are examples of long-standing weaknesses at DOD.

13GAO, Federal Financial Management: Substantial Progress Made since Enactment of the 1990 CFO Act; Refinements Would Yield Added Benefits, GAO-20-566 (Washington, D.C.: Aug. 6, 2020).

14A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness yet important enough to merit attention by those charged with governance.

https://www.gao.gov/products/GAO-20-566

STATEMENT OF THE COMPTROLLER GENERAL OF THE UNITED STATES 46

DOD leadership identified a number of financial management–related benefits from these department- wide audits, as well as operational improvements. Specifically, DOD stated that some of the benefits of the audit process included the following:

• Inventories of real property resulted in improved accuracy of real property records.

• Initiatives to locate untracked or excess material identified more than $3 billion of material that was made available for redeployment.

• The identification of approximately $50 million of available funding that was subsequently used for a command’s mission support.

DOD has acknowledged that achieving a clean audit opinion will take time. In fiscal years 2021 and 2020, DOD management prioritized certain critical areas (e.g., information technology, real property, and inventory) for improvement. DOD reported that it uses the number of audit findings closed and material weaknesses downgraded from year to year to measure progress toward that goal. DOD also tracks progress by the number of components moving from disclaimers of opinion to clean audit opinions. While DOD’s fiscal year 2021 audit resulted in a net increase of two material weaknesses, one previously reported material weakness was downgraded to a significant deficiency and DOD reported that over 13 percent of findings from prior year financial statement audits were closed.

Various efforts are also under way to address the other two major impediments to rendering an opinion on the accrual-based consolidated financial statements. Regarding the government’s inability to adequately account for intragovernmental activity and balances between federal entities, during fiscal year 2021, Treasury continued to provide information and assistance to significant component entities to aid in resolving their intragovernmental differences.15 Treasury also issued additional guidance to

federal entities related to accounting for intragovernmental transactions. Regarding weaknesses in the federal government’s process for preparing the consolidated financial statements, in recent years, Treasury’s corrective actions have included improving systems and implementing new processes for preparing the consolidated financial statements, enhancing guidance for federal entity financial reporting, and implementing procedures to address certain internal control deficiencies detailed in our August 2021 management report.16 In addition to Treasury’s and the Office of Management and

Budget’s (OMB) continued leadership, federal entities’ strong and sustained commitment is critical to fully addressing these issues.

SBA’s auditor reported that the urgent need for SBA to implement COVID-19 pandemic–related programs as quickly and efficiently as possible led to deficiencies in internal control processes.17 SBA’s

auditor reported several material weaknesses in internal control, including control deficiencies in (1) approvals, reporting, review, forgiveness, and service provider oversight related to PPP and (2) eligibility, recording, and service provider oversight related to the EIDL program. We, along with SBA’s Office of Inspector General, have also reported concerns with SBA’s internal controls over PPP and the EIDL program and have made several recommendations to SBA related to its COVID-19 programs. These weaknesses limit the reliability of SBA’s financial reporting and increase the risk of fraud and improper payments.

15OMB and Treasury have identified 40 federal entities that are significant to the U.S. government’s fiscal year 2021 consolidated financial statements, including the 24 CFO Act agencies. See app. A of the Fiscal Year 2021 Financial Report of the United States Government for a list of the 40 entities.

16GAO, Management Report: Continued Improvements Needed in the Processes Used to Prepare the U.S. Consolidated Financial Statements, GAO-21-587 (Washington, D.C.: Aug. 12, 2021).

17Small Business Administration, Agency Financial Report for Fiscal Year 2021 (Washington, D.C.: Nov. 15, 2021).

https://www.gao.gov/products/gao-21-587

47 STATEMENT OF THE COMPTROLLER GENERAL OF THE UNITED STATES

The material weaknesses underlying these three major impediments, as well as the weaknesses identified at SBA, (1) hamper the federal government’s ability to reliably report a significant portion of its assets, liabilities, costs, and other related information; (2) affect the federal government’s ability to reliably measure the full cost, as well as the financial and nonfinancial performance, of certain programs and activities; (3) impair the federal government’s ability to adequately safeguard significant assets and properly record various transactions; and (4) hinder the federal government from having reliable, useful, and timely financial information to operate effectively and efficiently. We have made a number of recommendations to OMB, Treasury, DOD, and SBA to address these issues.18 These

entities have taken or plan to take actions to address these recommendations.

In addition to the material weaknesses referred to above, we identified two other continuing material weaknesses. These are the federal government’s inability to (1) determine the full extent to which improper payments occur and reasonably assure that appropriate actions are taken to reduce them and (2) identify and resolve information security control deficiencies and manage information security risks on an ongoing basis. The fiscal year 2021 government-wide total of reported estimated improper payments was $281 billion. However, this amount does not include improper payment estimates for certain programs. For example, improper payment estimates were not reported for PPP, HHS’s Temporary Assistance for Needy Families, HHS’s Advance Premium Tax Credit, and the Department of Agriculture’s Supplemental Nutrition Assistance Program.

Our audit report presents additional details concerning these material weaknesses and their effect on the accrual-based consolidated financial statements and managing federal government operations. Until the problems outlined in our audit report are adequately addressed, they will continue to have adverse implications for the federal government and the American people.

The 2021 Statement of Long-Term Fiscal Projections and related information in Note 26, Long-Term Fiscal Projections, to the consolidated financial statements and in the unaudited Required Supplementary Information section of the 2021 Financial Report show that, based on current revenue and spending policies, the federal government continues to face an unsustainable long-term fiscal path. GAO and the Congressional Budget Office (CBO) also prepare long-term federal fiscal simulations, which continue to show federal debt held by the public rising as a share of gross domestic product (GDP) in the long term.19 This situation—in which debt held by the public grows faster than GDP—

means the federal government’s long-term fiscal path is unsustainable.

GAO, CBO, and the 2021 Financial Report, although using somewhat different assumptions, all project that debt held by the public as a share of GDP (debt-to-GDP) will surpass its historical high (106 percent in 1946) in the next 10 years. Health care and Social Security remain key drivers of federal noninterest spending in the long-term projections. In addition, while interest rates are historically low, GAO, CBO, and the 2021 Financial Report project that growing debt held by the public will lead to higher spending on net interest (primarily interest on debt held by the public).

18See GAO-21-587. In addition, see GAO, DOD Financial Management, accessed Feb. 9, 2022, https://www.gao.gov/highrisk/dod_financial_management. Further, other auditors have made recommendations to DOD and SBA for improving their financial management. See GAO, High Risk Area: Emergency Loans for Small Businesses, accessed Feb. 9, 2022, https://www.gao.gov/highrisk/emergency-loans-small-businesses.

19For more information on GAO’s simulations, see GAO, America’s Fiscal Future, accessed on Feb. 9, 2022, https://www.gao.gov/americas_fiscal_future. For more information on CBO’s simulations, see Congressional Budget Office, The 2021 Long-Term Budget Outlook (Washington, D.C.: Mar. 4, 2021).

https://www.gao.gov/products/gao-21-587

https://www.gao.gov/highrisk/dod_financial_management/why_did_study

https://www.gao.gov/highrisk/emergency-loans-small-businesses

https://www.gao.gov/americas_fiscal_future

STATEMENT OF THE COMPTROLLER GENERAL OF THE UNITED STATES 48

The 2021 Financial Report also discusses the fiscal gap, which is a measure of how much primary deficits must be reduced through policy changes (some combination of revenue increases or spending cuts) over the next 75 years in order to make fiscal policy sustainable.20 For example, based on

projections in the 2021 Financial Report, if policymakers choose to achieve a debt-to-GDP target of 100 percent—the level the federal government reached at the end of fiscal years 2020 and 2021—they would need to make policy changes over a 75-year period (fiscal years 2022 to 2096) that increase projected revenues by 32 percent, reduce projected noninterest spending by 25 percent, or a combination of the two. The projections show that the longer such policy changes are delayed, the more significant the changes will need to be.

Congress and the administration have responded in an unprecedented manner to the COVID-19 pandemic and the resulting severe economic repercussions. Once the pandemic recedes and as the economy continues to recover, Congress and the administration should quickly pivot to developing a plan to place the federal government on a sustainable long-term fiscal path.

Since 2017, we have stated that a fiscal plan is needed to ensure that the United States remains in a strong economic position to meet its social and security needs, as well as to preserve flexibility to address unforeseen events like public health emergencies. In developing a fiscal plan at the appropriate time, policymakers will need to consider the entire range of federal activities, both revenue (including tax expenditures) and spending (entitlement programs, other mandatory spending, and discretionary spending) that affect the debt. In September 2020, we raised a matter to Congress, suggesting that it establish a long-term fiscal plan that includes fiscal rules and targets, such as a debt- to-GDP target.21

Well-designed fiscal rules and targets can help manage debt by controlling factors like spending and revenue as part of a long-term fiscal plan. In September 2020, we identified key considerations for the design, implementation, and enforcement of fiscal rules and targets.22 For example, the design should

provide flexibility to address emerging issues, such as public health emergencies. GAO issues an annual report on the fiscal health of the federal government, which provides more information on the federal government’s unsustainable long-term fiscal path.

Further, we have recommended that Congress consider alternative approaches to the current debt limit as part of any long-term fiscal plan. The debt limit is a legal limit on the total amount of federal debt that can be outstanding at one time.23 However, it does not restrict Congress’s ability to pass spending and

revenue legislation that affects the level of debt in the future, nor does it otherwise constrain fiscal policy. As currently structured, the debt limit is not a fiscal rule; it is a limit only on Treasury’s authority to borrow in order to finance the decisions already enacted by Congress and the President.

Further, there are other risks—such as public health emergencies, natural disasters, military engagements, and economic crises—that could affect the federal government’s financial condition in the future. These risks are not fully accounted for in the government’s long-term fiscal projections. Some of the specific risks that could affect the federal government’s financial condition include the following:

20The primary deficit is the difference between noninterest spending and receipts.

21GAO, The Nation’s Fiscal Health: Effective Use of Fiscal Rules and Targets, GAO-20-561 (Washington, D.C.: Sept. 23, 2020).

22For more information on the design of fiscal rules and targets, see GAO-20-561.

23The debt limit is codified at 31 U.S.C. § 3101(b), as amended, and applies to federal debt issued pursuant to authority under 31 U.S.C. chapter 31. A very small amount of total federal debt is not subject to the debt limit. This amount primarily comprises unamortized discounts on Treasury bills and Zero Coupon Treasury bonds; debt securities issued by agencies other than Treasury, such as the Tennessee Valley Authority; and debt securities issued by the Federal Financing Bank.

https://www.gao.gov/products/gao-20-561

49 STATEMENT OF THE COMPTROLLER GENERAL OF THE UNITED STATES

• Federal support of the housing finance market remains significant even though the market has largely recovered since the 2007 to 2009 financial crisis. In 2008, the federal government placed the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) under conservatorship and entered into preferred stock purchase agreements with these government-sponsored enterprises (GSE) to help ensure their financial stability. These agreements could affect the federal government’s financial condition. At the end of fiscal year 2021, the federal government reported about $221 billion of investments in the GSEs, which is net of about $38 billion in valuation losses. The GSEs paid Treasury no cash dividends during fiscal years 2021 and 2020. The reported maximum remaining contractual commitment to the GSEs, if needed, is about $254 billion.

The ultimate role of the GSEs could affect the federal government’s financial condition and the financial condition of certain federal entities, including the Federal Housing Administration (FHA), which in the past expanded its lending role in distressed housing and mortgage markets. Federal actions and strong housing market conditions have strengthened the financial condition of FHA and the GSEs, and they have not required Treasury assistance during the COVID-19 pandemic. However, risks remain that could affect their ability to absorb unexpected losses under severely adverse conditions.24 For example, the extent of mortgage losses for the large number of borrowers

who fell behind on mortgage payments during the COVID-19 pandemic is not yet known.

• Disaster costs are expected to increase as extreme weather events become more frequent and intense because of climate change, as the U.S. Global Change Research Program and the National Academies of Sciences, Engineering, and Medicine have observed and projected. Federal insurance programs are likely to be affected by the increasing costs of weather and climate disasters. For example, as currently structured, the National Flood Insurance Program’s premiums and dedicated resources are not, over the long term, sufficient to cover expected costs without borrowing from Treasury.25 As of September 30, 2021, the Federal Emergency Management

Agency (FEMA), which administers the National Flood Insurance Program, owed about $21 billion to Treasury for money borrowed to pay claims and other expenses. We have reported that FEMA is unlikely to collect enough in premiums in the future to repay this debt.26

• The U.S. Postal Service (USPS) continues to be in poor financial condition. USPS cannot fund its current level of services and meet its financial obligations from its current level of revenues. The fiscal year 2021 net loss of about $5 billion marked its 15th consecutive year of net losses—totaling about $92 billion. In addition, USPS has missed about $72 billion in required payments for funding postal retiree health and pension benefits through fiscal year 2021, including about $57 billion in missed payments to fund retiree health benefits and about $15 billion in missed payments to fund pension benefits. USPS stated that it missed these payments to minimize the risk of running out of cash. USPS has also used $10 billion in COVID-19 pandemic–related funding. However, if USPS’s expenses continue to exceed its revenue, its ability to continue operating and providing universal postal service will be at risk and may affect the government’s future financial condition.

24GAO, Housing Finance System: Future Reforms Should Consider Past Plans and Vulnerabilities Highlighted by Pandemic, GAO-22-104284 (Washington, D.C.: Jan. 13, 2022).

25We have suggested an alternative way to record insurance commitments in the budget such that the federal government’s commitment would be more fully recognized. See GAO, Fiscal Exposures: Federal Insurance and Other Activities That Transfer Risk or Losses to the Government, GAO-19-353 (Washington, D.C.: Mar. 27, 2019).

26GAO, Flood Insurance: Comprehensive Reform Could Improve Solvency and Enhance Resilience, GAO-17-425 (Washington, D.C.: Apr. 27, 2017).

https://www.gao.gov/products/gao-22-104284

http://www.gao.gov/products/GAO-19-353

https://www.gao.gov/products/GAO-17-425

STATEMENT OF THE COMPTROLLER GENERAL OF THE UNITED STATES 50

• The Pension Benefit Guaranty Corporation’s (PBGC) financial future is uncertain because of long- term challenges related to its pension guarantee liabilities and exposure. PBGC faces fundamental financial risks that expose the federal government to immediate and future spending. The American Rescue Plan Act of 2021 (ARPA) provided special financial assistance for certain struggling multiemployer plans.27 PBGC estimated that the total cost to the federal government for this

assistance could be from $66 billion to $147 billion.28 While ARPA significantly extends the solvency

of the multiemployer program, PBGC’s current projections show a median projected insolvency in 2055. In addition, PBGC estimates that its exposure to potential further losses for the single- employer program is $105 billion. We have reported that PBGC’s single and multiemployer programs are at risk in part because of funding requirements that do not guarantee adequate plan funding and premiums that do not completely reflect the plans’ risks.

_________________________

Our audit report on the U.S. government’s consolidated financial statements would not be possible without the commitment and professionalism of inspectors general throughout the federal government who are responsible for annually auditing the financial statements of individual federal entities. We also appreciate the cooperation and assistance of Treasury and OMB officials as well as the federal entities’ chief financial officers’ flexibility, adaptability, and ability to issue their financial statements on a timely basis. We look forward to continuing to work with these individuals, the administration, and Congress to achieve the goals and objectives of federal financial management reform.

Our audit report begins on page 228. Our guide, Understanding the Financial Report of the United States Government, is intended to help those who seek to obtain a better understanding of the financial report and is available on GAO’s website at https://www.gao.gov.29

27ARPA, Pub. L. No. 117-2, § 9704, 135 Stat. 4, 190-99 (Mar. 11, 2021), classified at 29 U.S.C. §§ 1305(i), 1432.

28See Pension Benefit Guaranty Corporation, FY 2020 Projections Report (Sept. 2021), accessed on Feb. 9, 2022, https://www.pbgc.gov/documents/fy-2020-projections-report. As discussed therein, these estimates are based on provisions of PBGC’s interim final rule (86 Fed. Reg. 36,598) published in July 2021, and may change once the final rule is issued.

29GAO, Understanding the Financial Report of the United States Government, GAO-18-239SP (Washington, D.C.: Feb. 2018).

https://www.gao.gov/

https://www.pbgc.gov/documents/fy-2020-projections-report

https://www.gao.gov/products/GAO-18-239SP

51 STATEMENT OF THE COMPTROLLER GENERAL OF THE UNITED STATES

Our audit report was prepared under the direction of Robert F. Dacey, Chief Accountant, and Dawn B. Simpson, Director, Financial Management and Assurance. If you have any questions, please contact me on (202) 512-5500 or them on (202) 512-3406. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report.

Gene L. Dodaro Comptroller General of the United States

cc: The Majority Leader of the Senate The Minority Leader of the Senate The Majority Leader of the House of Representatives The Minority Leader of the House of Representatives

FINANCIAL STATEMENTS 52

Financial Statements of the United States Government for the Fiscal Years Ended September 30, 2021, and 2020

The consolidated financial statements of the U.S. government were prepared using GAAP. These statements include the

accrual-based financial statements and the sustainability financial statements, which are discussed in more detail below, and

the related notes to the consolidated financial statements. Collectively, the accrual-based financial statements, the

sustainability financial statements, and the notes represent basic information that is deemed essential for the consolidated

financial statements to be presented in conformity with GAAP.

ACCRUAL-BASED FINANCIAL STATEMENTS

The accrual-based financial statements present historical information on what the federal government owns (assets) and

owes (liabilities) at the end of the year, what came in (revenues) and what went out (net costs) during the year, and how

accrual-based net operating costs of the federal government reconcile to the budget deficit and changes in its cash balance

during the year. The following sections discuss each of the accrual-based financial statements.

Statements of Net Cost

These statements present the net cost of the government operations for FYs 2021 and 2020. Costs and earned revenues

are categorized on the Statement of Net Cost by significant entity, providing greater accountability by showing the

relationship of the entities’ net cost to the government-wide net cost. Costs and earned revenues are presented in this

Financial Report on an accrual basis, while the budget presents outlays and receipts, generally on a cash basis. The focus of

the Budget of the U.S. is by entity. In reporting the Statement of Net Cost by entity, we are assisting the external users in

assessing the operating performance, budget integrity, stewardship, and systems and controls of the government. The Statements of Net Cost contain the following four components:

• Gross cost—is the full cost of all the departments and entities excluding (gain)/loss from changes in assumptions. These costs are assigned on a cause-and-effect basis, or reasonably allocated to the corresponding entities.

• Earned revenue—is exchange revenue resulting from the government providing goods and services to the public at a price.

• (Gain)/loss from changes in assumptions—is the gain or loss from changes in long-term assumptions used to measure the liabilities reported for federal civilian and military employee pensions, OPEB, and ORB, including

veterans’ compensation.

• Net cost—is computed by subtracting earned revenue from gross cost, adjusted by the (gain)/loss from changes in assumptions.

Individual entity net cost amounts will differ from the entity’s financial statements primarily because of reallocations

completed at the government-wide level which are listed below.

• Employee benefit costs.

• Intra-governmental eliminations, as adjusted for buy/sell costs and related revenues.

• Imputed costs. Because of its specific function, most of the employee benefit costs originally associated with the OPM have been

reallocated to the user entities for government-wide reporting purposes. The remaining costs for OPM on the Statements of

Net Cost are the administrative operating costs, the expenses from prior costs from health and pension plan amendments, and

the actuarial gains and losses, if applicable.

With regard to intra-governmental buy/sell costs and related revenues, the amounts recognized by each entity are added

to, and subtracted from, respectively, the individual entity non-federal net cost amounts in order to allocate the costs to the

53 FINANCIAL STATEMENTS

entities that incurred the costs. GSA is the primary provider of goods and services to federal entities. GSA’s net cost is

adjusted for its intra-governmental buy/sell costs and related revenues. The remaining costs for GSA on the Statements of

Net Cost are administrative operating costs.

In addition, the intra-governmental imputed costs recognized for the receipt of goods and services, financed in whole or

part by the providing entities, are added to the individual entity non-federal net cost amounts. The most significant types of

imputed costs that are recorded relate to post-retirement and health benefits, FECA, and Treasury’s Judgment Fund. The

consolidated Statements of Net Cost is intended to show the full cost for each entity, therefore, the amount of these imputed

costs are added back to the reporting entities’ gross cost line item and subtracted from the applicable administering entities’

gross cost line item. These imputed costs have a net effect of zero on the Statements of Net Cost in the Financial Report.

The interest on securities issued by Treasury and held by the public is reported on Treasury’s financial statements, but

because of its importance and the dollar amounts involved, it is reported separately in these statements.

Statements of Operations and Changes in Net Position

These statements report the results of government operations (net operating costs). They include non-exchange

revenues, which are generated from transactions that do not require a government entity to give value directly in exchange for

the inflow of resources. The government does not “earn” the non-exchange revenue. These are generated principally by the

government’s sovereign power to tax, levy duties, and assess fines and penalties. These statements also include the net cost

reported in the Statements of Net Cost. They further include certain adjustments and unmatched transactions and balances

that affect the net position. These statements present information for funds from dedicated collections and funds other than

those from dedicated collections. Each of these types are presented on a consolidated basis whereby transactions within each

fund type are eliminated. In order to present the activity on a government-wide basis, transactions between funds from

dedicated collections and funds other than those from dedicated collections are eliminated.

Revenue

Inflows of resources to the government that the government demands or that it receives by donations are identified as

non-exchange revenue. The inflows that it demands include individual income tax and tax withholdings, corporate income

taxes, excise taxes, unemployment taxes, custom duties, and estate and gift taxes. The non-exchange revenue is recognized

when collected and adjusted for the change in amounts receivable.

Individual income tax and tax withholdings include FICA/SECA taxes and other taxes.

Individual income tax and tax withholding and Corporate income tax include the TCJA, which imposed a one-time tax

on previously unrepatriated foreign earnings at a reduced rate that taxpayers may elect to pay over an eight-year installment

schedule.

Excise taxes consist of taxes collected for various items, such as airline tickets, gasoline products, distilled spirits and

imported liquor, tobacco, firearms, and other items.

Other taxes and receipts include FRBs earnings, tax related fines, penalties and interest, and railroad retirement taxes.

Miscellaneous earned revenues consist of earned revenues received from the public with virtually no associated cost.

These revenues include rents and royalties on the Outer Continental Shelf Lands resulting from the leasing and development

of mineral resources on public lands.

Intra-governmental revenue represents interest earned from the investment of surplus dedicated collections, which

finance the deficit spending of all other fund’s non-dedicated operations. These investments are recorded as intra-

governmental debt holdings and are included in Note 13—Federal Debt and Interest Payable, in the table titled Intra-

governmental Debt Holdings: Federal Debt Securities Held as Investments by Government Accounts. These interest earnings

and the associated investments are eliminated in the consolidation process.

Net Cost of Government Operations

The net cost of government operations—gross cost (including gains/losses from changes in assumptions) less earned

revenue—flows through from the Statements of Net Cost.

FINANCIAL STATEMENTS 54

Intra-governmental Transfers

Intra-governmental transfers are transfers between funds other than those from dedicated collections and funds from

dedicated collections, such as intra-governmental interest and amounts required by statute to be transferred from the General

Fund to funds from dedicated collections. These intra-governmental transfers include appropriations, transfers, and other

financing sources. These amounts are labeled as “other changes in fund balance” in Note 23—Funds from Dedicated

Collections.

Net Operating Cost

The net operating cost equals revenue less net cost of government operations (that flows from the Statement of Net

Cost).

Net Position, Beginning of Period

The net position, beginning of period, reflects the amount reported on the prior year’s Balance Sheet as of the end of

that fiscal year. The net position, beginning of period, is shown at the combined level by fund type for FY 2020 and adjusted

through changes in accounting principle to report at a consolidated level by fund type. See Note 23—Funds from Dedicated

Collections for additional information.

Adjustments to beginning net position may include corrections of material errors or changes in accounting principles.

See Note 1.V—Changes in Accounting Principle and Note 1.W—Correction of Errors for additional information.

Unmatched transactions and balances are adjustments needed to bring the change in net position into balance due

primarily to unresolved intra-governmental differences. See Note 1.U—Unmatched Transactions and Balances for additional

information.

The unmatched transactions are to make the sum of net operating costs and adjustments to beginning net position for the

year equal to the change in net position balance. The unmatched balances are included in the net position, funds other than

those from dedicated collections on the Balance Sheet.

Net Position, End of Period

The net position, end of period, reflects the amount as of the end of the fiscal year. The net position for funds from

dedicated collections is separately shown.

Reconciliations of Net Operating Cost and Budget Deficit

These statements reconcile the results of operations (net operating cost) on the Statements of Operations and Changes in

Net Position to the budget deficit (result of outlays exceeding receipts during a particular fiscal year). The premise of the

reconciliation is that accrual accounting and budgetary accounting often share much of the same transactional data. However,

some transactions differ between the two bases of accounting and are presented as reconciling items from the net operating

cost to the budget deficit.

Receipts and outlays in the budget are measured primarily on a cash basis and differ from the accrual basis of

accounting used in the Financial Report. Refer to Note 1.B—Basis of Accounting and Revenue Recognition for additional

information on the accrual basis of accounting. These statements begin with the net results of operations (net operating cost)

and report activities where the basis of accounting for the components of net operating cost and the budget deficit differ.

Some presentations of the budget deficit make the distinction between on-budget and off-budget totals. On-budget totals

reflect the transactions of all government entities, except those excluded from the budget by law. Off-budget totals reflect the

transactions of government entities that are excluded from the on-budget totals by law. Under current law, the off-budget

totals include the Social Security trust funds and USPS. The budget deficit, as presented in the Financial Report, combines

the on-budget and off-budget totals to derive consolidated totals for federal activity.

55 FINANCIAL STATEMENTS

Components of Net Operating Cost Not Part of the Budget Deficit

This information includes the operating components, such as the changes in benefits payable for veterans, military and

civilian employees, environmental and disposal liabilities, and depreciation expense, not included in the budget results.

Components of the Budget Deficit Not Part of Net Operating Cost

This information includes the budget components, such as the acquisition of capital assets (that are recorded as outlays

in the budget when cash is disbursed and reflected in net operating cost through depreciation expense over the useful life of

the asset) and increases in other assets that are not included in the operating results.

Statements of Changes in Cash Balance from Budget and Other Activities

The primary purpose of these financial statements is to report how the annual budget deficit relates to the change in the

government’s cash and other monetary assets, as well as federal debt. It explains why the budget deficit normally would not

result in an equivalent change in the government’s cash and other monetary assets.

These statements reconcile the budget deficit to the change in cash and other monetary assets during the fiscal year.

They also serve to explain how the budget deficits were financed. These statements show the adjustments for non-cash

outlays included in the budget, and items affecting the cash balance not included in the budget, to explain the change in cash

and other monetary assets.

The budget deficit is primarily financed through borrowings from the public. When receipts exceed outlays, the

difference is a surplus. The budget treats borrowing and debt repayment as a means of financing, not as receipts and

outlays. The budget records outlays for the interest on the public issues of Treasury debt securities as the interest accrues,

not when the cash is paid.

Non-cash flow amounts in the budget related to loan financing account activity also reflect intra-governmental

transactions such as interest expense paid or interest revenue received from Treasury, entity year-end credit reform

subsidy reestimates, and the receipt of subsidy expense from program accounts. Cash flow from non-budget activities

related to loan financing account activity includes all cash flows to and from the public, including direct loan

disbursements/default payments to lenders, fees collected, principal and interest repayments, collections on defaulted

guarantee loans, and sale proceeds of foreclosed property. The budget totals exclude the transactions of the financing

accounts because they are not a cost to the government. However, since loan financing accounts record all credit cash

flows to and from the public, they affect the means of financing a budget deficit.

Balance Sheets

The Balance Sheets show the government’s assets, liabilities, and net position. When combined with stewardship

information, this information presents a more comprehensive understanding of the government’s financial position. The net

position for funds from dedicated collections is shown separately.

Assets

Assets included on the Balance Sheets are resources of the government that remain available to meet future needs. The

most significant assets that are reported on the Balance Sheets are loans receivable, net, general PP&E, net; accounts

receivable, net; and cash and other monetary assets. There are, however, other significant resources available to the

government that extend beyond the assets presented in these Balance Sheets. Those resources include stewardship PP&E in

addition to the government’s sovereign powers to tax and set monetary policy.

FINANCIAL STATEMENTS 56

Liabilities and Net Position

Liabilities are obligations of the government resulting from prior actions that will require financial resources. The most

significant liabilities reported on the Balance Sheets are federal debt and interest payable and federal employee and veteran

benefits payable. Liabilities also include environmental and disposal liabilities, benefits due and payable, loan guarantee

liabilities, as well as insurance and guarantee program liabilities.

As with reported assets, the government’s responsibilities, policy commitments, and contingencies are much broader

than these reported Balance Sheet liabilities. They include the social insurance programs reported in the SOSI and disclosed

in the unaudited RSI—Social Insurance section, fiscal long-term projections of non-interest spending reported in the SLTFP,

and a wide range of other programs under which the government provides benefits and services to the people of this nation,

as well as certain future loss contingencies.

The government has entered into contractual commitments requiring the future use of financial resources and has

unresolved contingencies where existing conditions, situations, or circumstances create uncertainty about future losses.

Commitments and contingencies that do not meet the criteria for recognition as liabilities on the Balance Sheets, but for

which there is at least a reasonable possibility that losses have been incurred, are disclosed in Note 21—Commitments and

Note 22—Contingencies.

Unmatched transactions and balances are adjustments needed to reconcile differences between assets and liabilities, that

are primarily due to unresolved intra-governmental differences. See Note 1.U—Unmatched Transactions and Balances for

additional information.

The collection of certain taxes and other revenue is credited to the corresponding funds from dedicated collections that

will use these funds to meet a particular government purpose. If the collections from taxes and other sources exceed the

payments to the beneficiaries, the excess revenue is invested in Treasury securities or deposited in the General Fund;

therefore, the trust fund balances do not represent cash. An explanation of the trust funds for social insurance is included in

Note 23—Funds from Dedicated Collections. That note also contains information about trust fund receipts, disbursements,

and assets.

Due to its sovereign power to tax and borrow, and the country’s wide economic base, the government has unique access

to financial resources through generating tax revenues and issuing federal debt securities. This provides the government with

the ability to meet present obligations and those that are anticipated from future operations and are not reflected in net

position.

The net position is the residual difference between assets and liabilities, adjusted for unmatched transactions and

balances reported in the Balance Sheet, and is the cumulative results of operations since inception. For detailed components

that comprise the net position, refer to the section “Statement of Operations and Changes in Net Position.”

SUSTAINABILITY FINANCIAL STATEMENTS

The sustainability financial statements are comprised of the SLTFP, covering all federal government programs, and the

SOSI and the SCSIA, covering social insurance programs (Social Security, Medicare, Railroad Retirement, and Black Lung

programs). The sustainability financial statements are designed to illustrate the relationship between projected receipts and

expenditures if current policy is continued over a 75-year time horizon.1 In preparing the sustainability financial statements,

management selects assumptions and data that it believes provide a reasonable basis to illustrate whether current policy is

sustainable. Current policy is based on current law but includes several adjustments. In the SLTFP, notable adjustments to

current law are: 1) projected spending, receipts, and borrowing levels assume raising or suspending the current statutory limit

on federal debt; 2) continued discretionary appropriations are assumed throughout the projections period; 3) scheduled Social

Security and Medicare Part A benefit payments are assumed to occur beyond the projected point of trust fund depletion; and

4) many mandatory programs with expiration dates prior to the end of the 75-year projection period are assumed to be

reauthorized. In the Statement of Social Insurance, the one adjustment to current law is that scheduled Social Security and

Medicare Part A benefit payments are assumed to occur beyond the projected point of trust fund depletions. Assumptions

underlying such sustainability information do not consider changes in policy or all potential future events that could affect

future income, future expenditures, and, hence, sustainability. The projections do not reflect any adverse economic

consequences resulting from continuously rising debt levels. A large number of factors affect the sustainability financial

statements and future events and circumstances cannot be estimated with certainty. Therefore, even if current policy is

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

57 FINANCIAL STATEMENTS

continued, there will be differences between the estimates in the sustainability financial statements and actual results, and

those differences may be material. The unaudited RSI section of this report includes PV projections using different

assumptions to illustrate the sensitivity of the sustainability financial statements to changes in certain assumptions. The

sustainability financial statements are intended to help citizens understand current policy and the importance and magnitude

of policy reforms necessary to make it sustainable.

By accounting convention, General Fund transfers to Medicare Parts B and D reported in the SOSI are eliminated when

preparing the government-wide consolidated financial statements. The SOSI shows the projected General Fund transfers as

eliminations that, under current law, would be used to finance the remainder of the expenditures in excess of revenues for

Medicare Parts B and D reported in the SOSI. The SLTFP include all revenues (including general revenues) of the federal

government.

Statements of Long-Term Fiscal Projections

The SLTFP, including the corresponding Note and RSI, are intended to help readers of the government’s financial

statements assess the federal government’s financial condition and how it has changed during the year and may change in the

future. The statements and corresponding analysis are specifically designed to help readers assess whether future budgetary

resources will be sufficient to sustain public services and to meet obligations as they come due, assuming that current policy

for federal government services and taxation continues without change.

The SLTFP display the PV of 75-year projections by major category of receipts and non-interest spending. The

projections show the extent to which future receipts of the government exceed or fall short of the government’s non-interest

spending and are presented both in terms of PV dollars and in terms of PV dollars as a percent of PV GDP. The projections

reflect policies currently in place and are neither forecasts nor predictions. The projections are consistent with the projections

for Social Security and Medicare presented in the SOSI and are based on the same economic and demographic assumptions

that underlie the SOSI. The SLTFP display the fiscal gap, which is a summary measure of the change in receipts or non-

interest spending that is necessary to reach a target ratio of debt held by the public to GDP at the end of the projection period.

Note 26—Long-Term Fiscal Projections, explains the methods used to prepare the projections. Unaudited RSI further

assesses the sustainability of current fiscal policy and provides results that are based on alternative assumptions to those used

in the SLTFP.

As discussed further in Note 26, a sustainable policy is one where the debt-to-GDP ratio is stable or declining over the

long term. Because GDP measures 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, the debt-to-GDP ratio is a useful indicator of the economy’s capacity to support federal

government’s services.

Statements of Social Insurance and Changes in Social Insurance Amounts

SOSI provides estimates of the status of the most significant social insurance programs: Social Security, Medicare,

Railroad Retirement, and Black Lung.2 They are administered by SSA, HHS, RRB, and DOL, respectively. The SSA and

HHS projections are based on the intermediate economic and demographic assumptions representing the Trustees’ reasonable

estimates of likely future economic and demographic conditions, as set forth in the applicable Social Security and Medicare

Trustees’ Reports as well as in the financial statements of HHS and SSA. RRB’s projections are based on assumptions from

the 28th Actuarial Valuation on the Assets and Liabilities Under the Railroad Retirement Acts of December 31, 2019, as well

as in RRB’s financial statements and DOL’s projections are based on assumptions disclosed in its financial statements.

The SCSIA show two reconciliations: 1) change from the period beginning on January 1, 2020 to the period beginning

on January 1, 2021; and 2) change from the period beginning on January 1, 2019 to the period beginning on January 1, 2020.

It reconciles the changes (between the current valuation and the prior valuation) in the PV of estimated future revenue less

estimated future expenditures for current and future participants (the open group measure) over the next 75 years (except

Black Lung which has a rolling 25-year projection period through September 30, 2046). The reconciliation identifies several

components of the changes that are significant and provides reasons for the changes in Note 25—Social Insurance.

2 In relation to the amounts presented in the SOSI and SCSIA, because the combined Railroad Retirement and Black Lung programs account for less than

one-quarter of 1.0 percent of the statement totals, they are not material from the government-wide perspective.

FINANCIAL STATEMENTS 58

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59 FINANCIAL STATEMENTS

United States Government Statement of Net Cost for the Year Ended September 30, 2021 (Gain)/Loss from

Gross Earned Changes in Net

(In billions of dollars) Cost Revenue Subtotal Assumption s

Cost Department of Health and Human Services ............................................................................................................................................. 1,644.9 137.7 1,507.2 0.7 1,507.9 Social Security Administration ............................................................................................................................................................... 1,194.1 0.3 1,193.8 - 1,193.8 Department of Defense ........................................................................................................................................................................ 851.8 44.0 807.8 82.8 890.6 Department of the Treasury .................................................................................................................................................................. 854.6 23.8 830.8 - 830.8 Department of Veterans Affairs ............................................................................................................................................................. 351.0 3.9 347.1 346.3 693.4 Department of Labor ........................................................................................................................................................................... 396.8 - 396.8 - 396.8 Interest on Treasury Securities Held by the Public ..................................................................................................................................... 392.0 - 392.0 - 392.0 Small Business Administration .............................................................................................................................................................. 350.5 3.1 347.4 - 347.4 Department of Agriculture .................................................................................................................................................................... 239.4 8.8 230.6 - 230.6 Department of Education ..................................................................................................................................................................... 243.0 34.4 208.6 - 208.6 Office of Personnel Management ........................................................................................................................................................... 134.0 26.3 107.7 84.9 192.6 Department of Transportation ............................................................................................................................................................... 102.9 1.0 101.9 - 101.9 Department of Homeland Security ......................................................................................................................................................... 101.0 12.9 88.1 1.6 89.7 Security Assistance Accounts ............................................................................................................................................................... 92.9 14.4 78.5 - 78.5 Department of Justice ......................................................................................................................................................................... 41.4 2.6 38.8 - 38.8 Department of State ............................................................................................................................................................................ 40.2 3.5 36.7 1.9 38.6 Department of Energy ......................................................................................................................................................................... 43.2 6.2 37.0 - 37.0 Department of Housing and Urban Development ...................................................................................................................................... 35.3 1.9 33.4 - 33.4 National Aeronautics and Space Administration ........................................................................................................................................ 22.1 0.3 21.8 - 21.8 Department of the Interior .................................................................................................................................................................... 23.8 2.3 21.5 - 21.5 Railroad Retirement Board ................................................................................................................................................................... 17.3 - 17.3 - 17.3 U.S. Agency for International Development .............................................................................................................................................. 16.0 - 16.0 - 16.0 Department of Commerce .................................................................................................................................................................... 15.5 3.6 11.9 0.1 12.0 Federal Communications Commission .................................................................................................................................................... 11.7 0.4 11.3 - 11.3 Environmental Protection Agency .......................................................................................................................................................... 8.9 0.4 8.5 - 8.5 National Science Foundation ................................................................................................................................................................ 7.4 - 7.4 - 7.4 U.S. Postal Service ............................................................................................................................................................................. 77.9 75.7 2.2 - 2.2 Smithsonian Institution ........................................................................................................................................................................ 1.5 0.8 0.7 - 0.7 Millennium Challenge Corporation ......................................................................................................................................................... 0.7 - 0.7 - 0.7 U.S. Nuclear Regulatory Commission ..................................................................................................................................................... 0.9 0.7 0.2 - 0.2 National Credit Union Administration ...................................................................................................................................................... 0.2 0.1 0.1 - 0.1 Securities and Exchange Commission .................................................................................................................................................... 2.4 2.5 (0.1) - (0.1) Export-Import Bank of the U.S. .............................................................................................................................................................. 0.5 0.7 (0.2) - (0.2) U.S. International Development Finance Corporation ................................................................................................................................. - 0.2 (0.2) - (0.2) Farm Credit System Insurance Corporation ............................................................................................................................................. - 0.4 (0.4) - (0.4) General Services Administration ............................................................................................................................................................ (0.1) 0.9 (1.0) - (1.0) Tennessee Valley Authority .................................................................................................................................................................. 8.8 10.4 (1.6) - (1.6) Federal Deposit Insurance Corporation ................................................................................................................................................... 1.7 7.1 (5.4) - (5.4) National Railroad Retirement Investment Trust ......................................................................................................................................... 0.1 6.6 (6.5) - (6.5) Pension Benefit Guaranty Corporation .................................................................................................................................................... (56.5) 22.6 (79.1) - (79.1) All other entities ................................................................................................................................................................................. 24.9 1.8 23.1 0.1 23.2 Total ................................................................................................................................................................................................ 7,294.7 462.3 6,832.4 518.4 7,350.8

The accompanying notes are an integral part of these financial statements.

FINANCIAL STATEMENTS 60

United States Government Statement of Net Cost for the Year Ended September 30, 2020 (Restated) (Gain)/Loss from

Gross Earned Changes in Net

(In billions of dollars) Cost Revenue Subtotal Assumptions Cost Department of Health and Human Services .............................................................................................................................................. 1,537.0 130.0 1,407.0 0.1 1,407.1 Social Security Administration ................................................................................................................................................................ 1,157.6 0.3 1,157.3 - 1,157.3 Department of Defense ........................................................................................................................................................................ 803.0 39.8 763.2 (17.4) 745.8 Department of the Treasury ................................................................................................................................................................... 581.3 20.6 560.7 - 560.7 Department of Veterans Affairs .............................................................................................................................................................. 386.5 4.0 382.5 602.7 985.2 Department of Labor ............................................................................................................................................................................ 493.2 - 493.2 - 493.2 Interest on Treasury Securities Held by the Public ..................................................................................................................................... 371.1 - 371.1 - 371.1 Small Business Administration ............................................................................................................................................................... 562.1 3.1 559.0 - 559.0 Department of Agriculture ..................................................................................................................................................................... 198.0 10.1 187.9 - 187.9 Department of Education ...................................................................................................................................................................... 190.2 33.3 156.9 - 156.9 Office of Personnel Management ........................................................................................................................................................... 97.3 25.2 72.1 89.9 162.0 Department of Transportation ................................................................................................................................................................ 108.8 1.1 107.7 - 107.7 Department of Homeland Security .......................................................................................................................................................... 122.3 11.8 110.5 3.1 113.6 Security Assistance Accounts ................................................................................................................................................................ 154.8 42.8 112.0 - 112.0

Department of Justice .......................................................................................................................................................................... 39.1 1.8 37.3 - 37.3 Department of State ............................................................................................................................................................................ 34.6 2.8 31.8 1.1 32.9 Department of Energy .......................................................................................................................................................................... 60.9 5.4 55.5 - 55.5 Department of Housing and Urban Development ....................................................................................................................................... 36.3 2.2 34.1 - 34.1 National Aeronautics and Space Administration ......................................................................................................................................... 22.3 0.2 22.1 - 22.1 Department of the Interior ..................................................................................................................................................................... 23.0 2.4 20.6 - 20.6 Railroad Retirement Board .................................................................................................................................................................... 13.1 - 13.1 - 13.1 U.S. Agency for International Development .............................................................................................................................................. 13.8 - 13.8 - 13.8 Department of Commerce ..................................................................................................................................................................... 19.4 3.9 15.5 - 15.5 Federal Communications Commission ..................................................................................................................................................... 13.9 0.4 13.5 - 13.5 Environmental Protection Agency ........................................................................................................................................................... 9.1 0.4 8.7 - 8.7 National Science Foundation ................................................................................................................................................................. 7.3 - 7.3 - 7.3 U.S. Postal Service ............................................................................................................................................................................. 79.2 71.7 7.5 - 7.5 Smithsonian Institution ......................................................................................................................................................................... 1.5 0.5 1.0 - 1.0 Millennium Challenge Corporation .......................................................................................................................................................... 0.6 - 0.6 - 0.6 U.S. Nuclear Regulatory Commission ...................................................................................................................................................... 0.9 0.7 0.2 - 0.2 National Credit Union Administration ....................................................................................................................................................... 0.3 0.2 0.1 - 0.1 Securities and Exchange Commission ..................................................................................................................................................... 2.2 3.3 (1.1) - (1.1) Export-Import Bank of the U.S. .............................................................................................................................................................. 0.8 0.4 0.4 - 0.4 U.S. International Development Finance Corporation .................................................................................................................................. - 0.1 (0.1) - (0.1) Farm Credit System Insurance Corporation .............................................................................................................................................. 0.1 0.2 (0.1) - (0.1) General Services Administration ............................................................................................................................................................ 0.3 0.8 (0.5) - (0.5) Tennessee Valley Authority ................................................................................................................................................................... 8.8 10.1 (1.3) - (1.3) Federal Deposit Insurance Corporation .................................................................................................................................................... 1.7 6.5 (4.8) - (4.8) National Railroad Retirement Investment Trust .......................................................................................................................................... 0.1 1.8 (1.7) - (1.7) Pension Benefit Guaranty Corporation ..................................................................................................................................................... 19.2 22.0 (2.8) - (2.8)

All other entities .................................................................................................................................................................................. 23.4 1.7 21.7 - 21.7 Total ................................................................................................................................................................................................. 7,195.1 461.6 6,733.5 679.5 7,413.0

The accompanying notes are an integral part of these financial statements.

61 FINANCIAL STATEMENTS

United States Government

Statement of Operations and Changes in Net Position

for the Year Ended September 30, 2021 (Consolidated)

Funds other than Funds from

those from Dedicated

Dedicated Collections

Collections (Note 23) Eliminations Total (In billions of dollars) 2021

Revenue (Note 20):

Individual income tax and tax withholdings ............................................................................................................................................... 2,002.0 1,274.3 - 3,276.3 Corporate income taxes ....................................................................................................................................................................... 456.2 - - 456.2 Excise taxes ...................................................................................................................................................................................... 28.6 52.0 - 80.6 Unemployment taxes ........................................................................................................................................................................... 6.1 44.2 - 50.3 Customs duties .................................................................................................................................................................................. 80.0 0.1 - 80.1 Estate and gift taxes ............................................................................................................................................................................ 27.1 - - 27.1 Other taxes and receipts ...................................................................................................................................................................... 163.4 27.3 - 190.7 Miscellaneous earned revenues ............................................................................................................................................................. 94.4 0.2 - 94.6 Intra-governmental revenue .................................................................................................................................................................. - 106.1 (106.1) - Total revenue ..................................................................................................................................................................................... 2,857.8 1,504.2 (106.1) 4,255.9

Net Cost of Government Operations:

Net cost ............................................................................................................................................................................................ 5,165.3 2,185.5 - 7,350.8 Intra-governmental cost ....................................................................................................................................................................... 106.1 - (106.1) - Total net cost ..................................................................................................................................................................................... 5,271.4 2,185.5 (106.1) 7,350.8

Intra-governmental transfers ............................................................................................................................................................... (693.7) 693.7 - -

Net operating (cost)/revenue ............................................................................................................................................................... (3,107.3) 12.4 - (3,094.9)

Net position, beginning of period......................................................................................................................................................... (30,265.8) 3,474.4 - (26,791.4) Adjustments to beginning net position

(Note 1.U) .......................................................................................................................................................................................... (0.2) - - (0.2) Net position, end of period ................................................................................................................................................................. (33,372.6) 3,486.8 - (29,885.8)

The accompanying notes are an integral part of these financial statements.

FINANCIAL STATEMENTS 62

United States Government

Statement of Operations and Changes in Net Position

for the Year Ended September 30, 2020 (Consolidated) (Restated)

Funds other than Funds from

those from Dedicated

Dedicated Collections

Collections (Note 23) Eliminations Total (In billions of dollars) 2020

Revenue (Note 20):

Individual income tax and tax withholdings ............................................................................................................................................... 1,570.8 1,283.8 - 2,854.6 Corporate income taxes ....................................................................................................................................................................... 317.1 - - 317.1 Excise taxes ...................................................................................................................................................................................... 40.8 52.2 - 93.0 Unemployment taxes ........................................................................................................................................................................... 6.2 34.5 - 40.7 Customs duties .................................................................................................................................................................................. 66.2 0.1 - 66.3 Estate and gift taxes ............................................................................................................................................................................ 17.6 - - 17.6 Other taxes and receipts ...................................................................................................................................................................... 147.0 18.9 - 165.9 Miscellaneous earned revenues ............................................................................................................................................................. 16.3 0.1 - 16.4 Intra-governmental revenue .................................................................................................................................................................. - 107.7 (107.7) - Total revenue ..................................................................................................................................................................................... 2,182.0 1,497.3 (107.7) 3,571.6

Net Cost of Government Operations:

Net cost ............................................................................................................................................................................................ 5,329.9 2,083.1 - 7,413.0 Intra-governmental cost ....................................................................................................................................................................... 107.7 - (107.7) - Total net cost ..................................................................................................................................................................................... 5,437.6 2,083.1 (107.7) 7,413.0

Net position, beginning of period* ....................................................................................................................................................... (26,484.6) 3,517.1 - (22,967.5) Adjustments to beginning net position

Changes in accounting principle (Note 1.V) .............................................................................................................................................. 12.5 (12.5) - - Correction of errors (Note 1.W) ............................................................................................................................................................. 6.0 - - 6.0 Net operating (cost)/revenue ................................................................................................................................................................. (3,811.2) (30.2) - (3,841.4) Unmatched transactions and balances

(Note 1.U) ......................................................................................................................................................................................... 11.5 - - 11.5 Net position, end of period.................................................................................................................................................................. (30,265.8) 3,474.4 - (26,791.4)

*Net position, beginning of period is presented above as combined.

The accompanying notes are an integral part of these financial statements.

63 FINANCIAL STATEMENTS

United States Government Reconciliations of Net Operating Cost and Budget Deficit for the Years Ended September 30, 2021, and 2020 Restated (In billions of dollars) 2021 2020 Net operating cost ............................................................................................................................................................................. (3,094.9) (3,841.4) Components of net operating cost not part of the budget deficit

Excess of accrual-basis expenses over budget outlays

* Federal employee and veteran benefits payable

Pension and accrued benefits ............................................................................................................................................................... 282.0 160.1 Veterans compensation and burial benefits .............................................................................................................................................. 439.2 733.3 Post-retirement health and accrued benefits ............................................................................................................................................. 28.7 22.0 Other benefits .................................................................................................................................................................................... 17.6 59.8 Subtotal - federal employee and veteran benefits payable ........................................................................................................................... 767.5 975.2 * Insurance and guarantee program liabilities ............................................................................................................................................. (69.5) 4.8 * Environmental and disposal liabilities....................................................................................................................................................... 10.6 7.3 * Accounts payable ............................................................................................................................................................................... 24.1 1.0 * Benefits due and payable ..................................................................................................................................................................... 17.6 32.7 * Advances from others and deferred revenue ............................................................................................................................................ 27.8 (0.8) * Other liabilities ................................................................................................................................................................................... 283.1 58.7 Subtotal - excess of accrual-basis expenses over budget outlays .................................................................................................................. 1,061.2 1,078.9 Amortized expenses not included in budget outlays Property, plant, and equipment depreciation expense ................................................................................................................................ 91.2 77.2 Other expenses that are not reported as budget outlays Property, plant, and equipment disposals and revaluations ......................................................................................................................... (9.8) (50.2) Excess of accrual-basis revenue over budget receipts Accounts receivable, net ...................................................................................................................................................................... (11.8) 7.9 Taxes receivable, net ........................................................................................................................................................................... (68.0) (91.1) Other losses/(gains) and cost/(revenue) that are not budget receipts

* Investments in government-sponsored enterprises .................................................................................................................................... (112.0) 3.2 Subtotal - components of net operating cost not part of budget deficit ............................................................................................................ 950.8 1,025.9 Components of the budget deficit that are not part of net operating cost Budget receipts not included in net operating cost Credit reform and other loan activities ..................................................................................................................................................... (75.1) 44.9 Budget outlays not included in net operating cost Acquisition of capital assets ................................................................................................................................................................... (118.4) (60.0) * Investments ....................................................................................................................................................................................... (5.4) (11.5) * Inventory and related property, net ......................................................................................................................................................... (17.3) (26.2) * Advances and prepayments ................................................................................................................................................................. (150.7) (150.6) * Other assets ...................................................................................................................................................................................... 4.0 (0.1)

Subtotal - components of the budget deficit that are not part of net operating cost ............................................................................................ (362.9) (203.5) Adjustments to beginning net position 0.7 6.0 Other Allocations of special drawing rights ........................................................................................................................................................ (112.1) (1.5) Effect of uninvested principal from the Thrift Savings Plan's G Fund .............................................................................................................. (156.7) - All other reconciling items ..................................................................................................................................................................... (0.5) (117.4) Total other ......................................................................................................................................................................................... (269.3) (118.9) Budget deficit1 ................................................................................................................................................................................... (2,775.6) (3,131.9) ........................................................................................................................................................................................................ ....................................................................................................................................................................................................... ........................................................................................................................................................................................................ ....................................................................................................................................................................................................... ........................................................................................................................................................................................................ 1The FY 2021 budget deficit differs from the FY 2021 budget deficit reported in the MTS because of approximately $3.4 billion of outlays that were not recorded in the MTS until FY 2022.

*The amounts represent the year over year net change in the Balance Sheet line items. The accompanying notes are an integral part of these financial statements.

FINANCIAL STATEMENTS 64

United States Government Statements of Changes in Cash Balance from Budget and Other Activities for the Years Ended September 30, 2021, and 2020 (In billions of dollars) 2021 2020 Cash flow from budget activities

Total budget receipts ........................................................................................................................................................................... 4,046.0 3,420.0 Total budget outlays1 ........................................................................................................................................................................... (6,821.6) (6,551.9) Budget deficit1 .................................................................................................................................................................................... (2,775.6) (3,131.9) ....................................................................................................................................................................................................... Adjustments for non-cash outlays included in the budget Non-cash flow amounts in the budget related to federal debt

Accrued interest ................................................................................................................................................................................. 293.4 312.1 Net amortization ................................................................................................................................................................................. 12.1 40.9 Other ............................................................................................................................................................................................... 82.3 63.1 Subtotal - adjustments for non-cash flow amounts in the budget related to federal debt ..................................................................................... 387.8 416.1 Non-cash flow amounts in the budget related to loan financing account activity

Interest revenue on uninvested funds ..................................................................................................................................................... 12.8 23.3 Interest expense on entity borrowings ..................................................................................................................................................... (47.4) (57.6) Downward reestimates /negative subsidy payments .................................................................................................................................. (58.1) (28.9) Subsidy expense/upward reestimates ..................................................................................................................................................... 456.4 713.6 Subtotal - adjustments for non-cash flow amounts in the budget related to loan

financing account activity ..................................................................................................................................................................... 363.7 650.4 Total of adjustments for non-cash outlays included in the budget .................................................................................................................. 751.5 1,066.5 Cash flow from activities not included in the budget

Cash flow from non-budget activities related to federal debt

Interest paid ..................................................................................................................................................................................... (294.8) (314.7) Subtotal - cash flow from non-budget activities related to federal debt ........................................................................................................... (294.8) (314.7) Cash flow from non-budget activities related to loan financing account activity

Loan disbursements/default payments .................................................................................................................................................... (823.0) (387.0) Fees ................................................................................................................................................................................................ 27.5 26.6 Principal & interest repayments ............................................................................................................................................................. 78.1 112.0 Other collections on defaulted loans receivable and sale of foreclosed property............................................................................................... 2.2 4.3 Special purpose vehicle disbursements ................................................................................................................................................... (14.9) (105.5) Repayments of special purpose vehicle investments .................................................................................................................................. 77.7 - Subtotal - cash flow from non-budget activities related to loan financing account activity ................................................................................... (652.4) (349.6) Cash flow from financing federal debt

Borrowings ........................................................................................................................................................................................ 20,375.7 18,969.1 Repayments ...................................................................................................................................................................................... (19,194.0) (14,822.4) Discount/premium ............................................................................................................................................................................... (11.7) (32.5) Effect of uninvested principal from the Thrift Saving Plan's G Fund ............................................................................................................... 156.7 - Subtotal - cash flow from financing federal debt ........................................................................................................................................ 1,326.7 4,114.2 Total cash flow from activities not included in the budget ............................................................................................................................. 379.5 3,449.9 ........................................................................................................................................................................................................ ....................................................................................................................................................................................................... Other Allocations of special drawing rights ........................................................................................................................................................ 112.1 1.5 All other reconciling items ..................................................................................................................................................................... 80.6 16.3 Total other ......................................................................................................................................................................................... 192.7 17.8 Change in cash and other monetary assets balance .................................................................................................................................. (1,451.9) 1,402.3 Beginning cash and other monetary assets balance ................................................................................................................................... 1,926.9 524.6 Ending cash and other monetary assets balance ....................................................................................................................................... 475.0 1,926.9 1The FY 2021 budget deficit differs from the FY 2021 budget deficit reported in the MTS because of approximately $3.4 billion of outlays that

were not recorded in the MTS until FY 2022.

The accompanying notes are an integral part of these financial statements.

65 FINANCIAL STATEMENTS

United States Government Balance Sheets as of September 30, 2021, and 2020 Restated (In billions of dollars) 2021 2020

Assets:

Cash and other monetary assets (Note 2) ................................................................................................................................................ 475.0 1,926.9 Accounts receivable, net (Note 3) ........................................................................................................................................................... 401.0 321.2 Loans receivable, net (Note 4) ............................................................................................................................................................... 1,651.0 1,577.4 Inventory and related property, net (Note 5) ............................................................................................................................................. 399.2 381.9 General property, plant and equipment, net (Note 6) .................................................................................................................................. 1,176.9 1,139.9 Investments (Note 7) ........................................................................................................................................................................... 135.2 129.8 Investments in special purpose vehicles (Note 8) ...................................................................................................................................... 26.4 108.4 Investments in government-sponsored enterprises (Note 9)......................................................................................................................... 220.9 108.9 Advances and prepayments (Note 10) .................................................................................................................................................... 369.3 218.6 Other assets (Note 11) ......................................................................................................................................................................... 38.7 42.7 Total assets ....................................................................................................................................................................................... 4,893.6 5,955.7 Stewardship property, plant, and equipment (Note 27)

Liabilities:

Accounts payable (Note 12) .................................................................................................................................................................. 123.1 99.0 Federal debt and interest payable (Note 13) ............................................................................................................................................. 22,344.8 21,082.9 Federal employee and veteran benefits payable (Note 14) .......................................................................................................................... 10,183.0 9,415.5 Environmental and disposal liabilities (Note 15) ......................................................................................................................................... 613.3 602.7 Benefits due and payable (Note 16) ........................................................................................................................................................ 273.9 256.3 Loan guarantee liabilities (Note 4) .......................................................................................................................................................... 230.7 520.1 Insurance and guarantee program liabilities (Note 17) ................................................................................................................................ 129.8 199.3 Advances from others and deferred revenues (Note 18) ............................................................................................................................. 202.0 174.2 Other liabilities (Note 19) ...................................................................................................................................................................... 677.1 394.0 Total liabilities ..................................................................................................................................................................................... 34,777.7 32,744.0 Commitments (Note 21) and Contingencies (Note 22)

Unmatched transactions and balances (Note 1.U) .................................................................................................................................. 1.7 3.1

Net Position:

Funds from Dedicated Collections (Note 23) ............................................................................................................................................. 3,486.8 3,474.4 Funds other than those from Dedicated Collections ................................................................................................................................... (33,372.6) (30,265.8)

Total net position ................................................................................................................................................................................ (29,885.8) (26,791.4) Total liabilities and net position* ............................................................................................................................................................. 4,893.6 5,955.7

*Total liabilities and net position equals Total liabilities, Total net position and Unmatched transactions and balances.

The accompanying notes are an integral part of these financial statements.

FINANCIAL STATEMENTS 66

United States Government Statements of Long-Term Fiscal Projections (Note 26) Present Value of 75-Year Projections as of September 30, 2021 and 20201

In trillions of dollars Percent of GDP2 2021 2020 Change 2021 2020 Change

Receipts:

Social Security payroll taxes .................................................................................................................................................................. 72.9 68.5 4.4 4.2 4.2 0.1 Medicare payroll taxes.......................................................................................................................................................................... 24.5 22.9 1.5 1.4 1.4 - Individual income taxes ........................................................................................................................................................................ 190.9 164.4 26.5 11.1 10.0 1.1 Corporation income taxes ..................................................................................................................................................................... 23.0 21.0 2.0 1.3 1.3 0.1 Other receipts ..................................................................................................................................................................................... 21.6 18.6 3.0 1.3 1.1 0.1 Total receipts...................................................................................................................................................................................... 332.8 295.4 37.3 19.3 18.0 1.3

Non-interest spending:

Social Security .................................................................................................................................................................................... 102.9 95.2 7.7 6.0 5.8 0.2 Medicare Part A3 ................................................................................................................................................................................. 34.9 32.6 2.3 2.0 2.0 - Medicare Parts B & D4 .......................................................................................................................................................................... 48.6 45.2 3.4 2.8 2.7 0.1 Medicaid............................................................................................................................................................................................ 51.7 37.4 14.2 3.0 2.3 0.7 Other mandatory ................................................................................................................................................................................. 70.6 58.5 12.1 4.1 3.6 0.5 Defense discretionary........................................................................................................................................................................... 54.4 53.6 0.8 3.2 3.3 (0.1) Non-defense discretionary .................................................................................................................................................................... 67.3 52.4 14.9 3.9 3.2 0.7 Total non-interest spending ................................................................................................................................................................... 430.4 374.9 55.4 25.0 22.8 2.2

Receipts less non-interest spending .................................................................................................................................................... (97.6) (79.5) (18.1) (5.7) (4.8) (0.8)

Fiscal gap5 ........................................................................................................................................................................................ (6.2) (5.4) (0.8)

175-year present value projections for 2021 are as of 9/30/2021 for FYs 2022-2096; projections for 2020 are as of 9/30/2020 for FYs 2021- 2095. 2The 75-year present value of nominal GDP, which drives the calculations above is $1,724.4 trillion starting in FY 2022, and was $1,645.1 trillion starting in FY 2021. 3Represents portions of Medicare supported by payroll taxes. 4Represents portions of Medicare supported by general revenues. Consistent with the President's Budget, outlays for Parts B & D are presented net of premiums. 5To prevent the debt-to-GDP ratio from rising over the next 75 years, a combination of non-interest spending reductions and receipt increases that amounts to 6.2 percent of GDP on average is needed (5.4 percent of GDP on average in 2020). See Note 26—Long-Term Fiscal Projections.

Totals may not equal the sum of components due to rounding.

The accompanying notes are an integral part of these financial statements.

67 FINANCIAL STATEMENTS

United States Government Statements of Social Insurance (Note 25) Present Value of Long-Range (75 Years, except Black Lung) Actuarial Projections

(In trillions of dollars) 2021 2020 2019 2018 2017

Federal Old-Age, Survivors and Disability Insurance (Social Security):11 Revenue (Contributions and Dedicated Taxes) from:

Participants who have attained eligibility age (age 62 and over) .................................................................................................................... 1.8 1.7 1.5 1.5 1.4 Participants who have not attained eligibility age ........................................................................................................................................ 37.5 35.2 33.6 31.6 30.2 Future participants ............................................................................................................................................................................... 39.3 37.0 35.3 31.8 30.5 All current and future participants ........................................................................................................................................................... 78.6 73.9 70.4 64.9 62.1 Expenditures for Scheduled Future Benefits for: Participants who have attained eligibility age (age 62 and over) .................................................................................................................... (19.8) (18.3) (16.9) (15.9) (14.7) Participants who have not attained eligibility age ........................................................................................................................................ (64.9) (59.8) (55.8) (52.2) (50.2) Future participants ............................................................................................................................................................................... (16.6) (15.5) (14.5) (13.0) (12.6) All current and future participants ........................................................................................................................................................... (101.3) (93.6) (87.2) (81.1) (77.5) Present value of future expenditures in excess of future revenue ............................................................................................................................................................................................ (22.7)1 (19.7)2 (16.8)3 (16.2)4 (15.4)5 Federal Hospital Insurance (Medicare Part A):11

Revenue (Contributions and Dedicated Taxes) from:

Participants who have attained eligibility age (age 65 and over) .................................................................................................................... 0.7 0.6 0.6 0.5 0.5 Participants who have not attained eligibility age ........................................................................................................................................ 13.0 12.5 12.0 11.3 10.6 Future participants ............................................................................................................................................................................... 13.0 12.5 11.8 11.0 10.6 All current and future participants ........................................................................................................................................................... 26.7 25.6 24.4 22.8 21.7 Expenditures for Scheduled Future Benefits for:

Participants who have attained eligibility age (age 65 and over) .................................................................................................................... (6.2) (6.1) (5.3) (5.0) (4.5) Participants who have not attained eligibility age ........................................................................................................................................ (20.9) (20.1) (20.0) (18.6) (17.2) Future participants ............................................................................................................................................................................... (4.6) (4.2) (4.5) (3.9) (3.5) All current and future participants ........................................................................................................................................................... (31.7) (30.4) (29.8) (27.5) (25.2) Present value of future expenditures in excess of future revenue ............................................................................................................................................................................................ (5.0)1 (4.8)2 (5.4)3 (4.7)4 (3.5)5 Federal Supplementary Medical Insurance (Medicare Part B):11

Revenue (Premiums) from:

Participants who have attained eligibility age (age 65 and over) .................................................................................................................... 1.9 1.7 1.5 1.3 1.1 Participants who have not attained eligibility age ........................................................................................................................................ 10.0 9.3 7.5 6.6 5.9 Future participants ............................................................................................................................................................................... 2.6 2.5 1.9 1.5 1.4 General Fund transfers ......................................................................................................................................................................... 35.5 33.1 28.8 25.1 22.4 All current and future participants ........................................................................................................................................................... 50.0 46.6 39.7 34.5 30.8 Expenditures for Scheduled Future Benefits for:

Participants who have attained eligibility age (age 65 and over) .................................................................................................................... (6.9) (6.2) (5.8) (5.2) (4.5) Participants who have not attained eligibility age ........................................................................................................................................ (34.1) (31.8) (27.3) (23.9) (21.4) Future participants ............................................................................................................................................................................... (9.0) (8.6) (6.6) (5.4) (4.9) All current and future participants ........................................................................................................................................................... (50.0) (46.6) (39.7) (34.5) (30.8) Eliminations ....................................................................................................................................................................................... (35.5) (33.1) (28.8) (25.1) (22.4) Present value of future expenditures in excess of future

revenue (after eliminations)6 .................................................................................................................................................................. (35.5)1 (33.1)2 (28.8)3 (25.1)4 (22.4)5 The accompanying notes are an integral part of these financial statements.

FINANCIAL STATEMENTS 68

United States Government Statements of Social Insurance (Note 25), continued Present Value of Long-Range (75 Years, except Black Lung) Actuarial Projections

(In trillions of dollars) 2021 2020 2019 2018 2017

Federal Supplementary Medical Insurance (Medicare Part D):11

Revenue (Premiums and State Transfers) from: Participants who have attained eligibility age (age 65 and over) .................................................................................................................... 0.3 0.3 0.2 0.3 0.3 Participants who have not attained eligibility age ........................................................................................................................................ 2.0 2.0 2.1 2.1 2.1 Future participants ............................................................................................................................................................................... 0.9 0.9 0.9 0.8 0.8 General Fund transfers ......................................................................................................................................................................... 7.7 7.8 8.0 7.9 7.6 All current and future participants ........................................................................................................................................................... 10.9 11.0 11.2 11.1 10.8 Expenditures for Scheduled Future Benefits for: Participants who have attained eligibility age (age 65 and over) .................................................................................................................... (1.1) (1.0) (1.0) (1.0) (1.0) Participants who have not attained eligibility age ........................................................................................................................................ (6.9) (7.0) (7.2) (7.2) (6.9) Future participants ............................................................................................................................................................................... (2.9) (3.0) (3.0) (2.9) (2.9) All current and future participants ........................................................................................................................................................... (10.9) (11.0) (11.2) (11.1) (10.8) Eliminations ....................................................................................................................................................................................... (7.7) (7.8) (8.0) (7.9) (7.6) Present value of future expenditures in excess of future revenue (after eliminations)6 .................................................................................................................................................................. (7.7)1 (7.8)2 (8.0)3 (7.9)4 (7.6)5

Other:

Present value of future expenditures in excess of future revenue 7 ........................................................................................................................................................................................... (0.1) (0.1) (0.1) (0.1) (0.1) Total present value of future expenditures in excess of future

revenue8, 9, 10 ....................................................................................................................................................................................... (71.0) (65.5) (59.1) (54.0) (49.0)

The accompanying notes are an integral part of these financial statements.

69 FINANCIAL STATEMENTS

United States Government Statements of Social Insurance (Note 25), continued Present Value of Long-Range (75 Years, except Black Lung) Actuarial Projections

(In trillions of dollars) 2021 2020 2019 2018 2017

Social Insurance Summary11 Participants who have attained eligibility age: Revenue (e.g., contributions and dedicated taxes) ..................................................................................................................................... 4.7 4.3 3.8 3.6 3.3 Expenditures for scheduled future benefits ............................................................................................................................................... (34.0) (31.6) (29.1) (27.2) (24.8) Present value of future expenditures in excess of future revenue .................................................................................................................................................................................... (29.3) (27.3) (25.3) (23.6) (21.5) Participants who have not attained eligibility age: Revenue (e.g., contributions and dedicated taxes) ..................................................................................................................................... 62.5 59.0 55.2 51.6 48.8 Expenditures for scheduled future benefits ............................................................................................................................................... (126.8) (118.7) (110.3) (101.9) (95.7) Present value of future expenditures in excess of future revenue .................................................................................................................................................................................... (64.3) (59.7) (55.1) (50.3) (46.9) Closed-group - Total present value of future expenditures

in excess of future revenue ................................................................................................................................................................ (93.6) (87.0) (80.4) (73.9) (68.4) Future participants: Revenue (e.g., contributions and dedicated taxes) ..................................................................................................................................... 55.8 52.9 49.9 45.1 43.3 Expenditures for scheduled future benefits ............................................................................................................................................... (33.2) (31.4) (28.6) (25.2) (23.9) Present value of future revenue in excess of future expenditure ....................................................................................................................................................................................... 22.6 21.5 21.3 19.9 19.4 Open-group - Total present value of future expenditures in

excess of future revenue .................................................................................................................................................................... (71.0) (65.5) (59.1) (54.0) (49.0) 1 The projection period for Social Security and Medicare is 1/1/2021 - 12/31/2095 and the valuation date is 1/1/2021. 2 The projection period for Social Security and Medicare is 1/1/2020 - 12/31/2094 and the valuation date is 1/1/2020. 3 The projection period for Social Security and Medicare is 1/1/2019 - 12/31/2093 and the valuation date is 1/1/2019. 4 The projection period for Social Security and Medicare is 1/1/2018 - 12/31/2092 and the valuation date is 1/1/2018. 5 The projection period for Social Security and Medicare is 1/1/2017 - 12/31/2091 and the valuation date is 1/1/2017. 6 These amounts represent the PV of the future transfers from the General Fund to the SMI Trust Funds. These future intra-governmental

transfers are included as income in both HHS’s and the CMS’s financial statements but, by accounting convention, are not income from the government-wide perspective of this report. 7 Includes Railroad Retirement and Black Lung. 8 These amounts do not include the PV of the financial interchange between the railroad retirement and social security systems, which is included as income in the Railroad Retirement Financial Report, but is not included from the government-wide perspective of this

report (See discussion of RRB in the unaudited RSI section of this report). 9 Does not include interest expense accruing on the outstanding debt of the BLDTF. 10 For information on the projection periods and valuation dates for the Railroad Retirement and Black Lung programs, refer to the financial statements of RRB and DOL, respectively. 11 Current participants for the Social Security and Medicare programs are assumed to be the “closed-group” of individuals who are at least 15 years of age at the start of the projection period, and are participating as either taxpayers, beneficiaries, or both. Amounts shown exclude

the General Fund transfers for Medicare's Parts B and D.

The accompanying notes are an integral part of these financial statements.

FINANCIAL STATEMENTS 70

United States Government Statement of Changes in Social Insurance Amounts for the Year Ended September 30, 2021 (Note 25)

Social Medicare Medicare (In trillions of dollars) Security1 HI1 SMI1 Other2 Total

NPV of future revenue less future expenditures

for current and future participants (the "open group")

over the next 75 years, beginning of the year ............................................................................................................................................ (19.7) (4.8) (40.9) (0.1) (65.5) Reasons for changes in the NPV during the year:

Changes in valuation period .................................................................................................................................................................. (0.7) (0.1) (1.4) - (2.2) Changes in demographic data, assumptions, and

methods ........................................................................................................................................................................................... (1.2) - - - (1.2) Changes in law or policy ...................................................................................................................................................................... (0.1) - (0.1) - (0.2) Changes in methodology and programmatic data ...................................................................................................................................... (1.2) - - - (1.2) Changes in economic and other health care

assumptions ..................................................................................................................................................................................... - (1.0) (2.8) - (3.8) Change in projection base .................................................................................................................................................................... - 0.2 1.4 - 1.6 Net change in open group measure ........................................................................................................................................................ (3.0) (0.2) (2.3) - (5.5) Open group measure, end of year........................................................................................................................................................... (22.7) (5.0) (43.2) (0.1) (71.0)

1 Amounts represent changes between valuation dates 1/1/2020 and 1/1/2021. 2 Includes Railroad Retirement changes between valuation dates 10/1/2019 and 10/1/2020 and Black Lung changes between 9/30/2020 and

9/30/2021.

The accompanying notes are an integral part of these financial statements.

71 FINANCIAL STATEMENTS

United States Government Statement of Changes in Social Insurance Amounts for the Year Ended September 30, 2020 (Note 25)

Social Medicare Medicare (In trillions of dollars) Security1 HI1 SMI1 Other2 Total

NPV of future revenue less future expenditures

for current and future participants (the "open group")

over the next 75 years, beginning of the year ............................................................................................................................................ (16.8) (5.4) (36.8) (0.1) (59.1) Reasons for changes in the NPV during the year:

Changes in valuation period .................................................................................................................................................................. (0.6) (0.2) (1.4) - (2.2) Changes in demographic data, assumptions, and

methods ........................................................................................................................................................................................... (1.8) - - - (1.8) Changes in law or policy ...................................................................................................................................................................... (0.3) (0.5) 0.2 - (0.6) Changes in methodology and programmatic data ...................................................................................................................................... 0.2 - - - 0.2 Changes in economic and other health care

assumptions ...................................................................................................................................................................................... - (1.7) (3.7) - (5.4) Change in projection base .................................................................................................................................................................... - 0.4 (0.3) - 0.1 Net change in open group measure ........................................................................................................................................................ (2.9) 0.6 (4.1) - (6.4) Open group measure, end of year........................................................................................................................................................... (19.7) (4.8) (40.9) (0.1) (65.5)

1 Amounts represent changes between valuation dates 1/1/2019 and 1/1/2020. 2 Includes Railroad Retirement changes between valuation dates 10/1/2018 and 10/1/2019 and Black Lung changes between 9/30/2019 and

9/30/2020.

The accompanying notes are an integral part of these financial statements.

NOTES TO THE FINANCIAL STATEMENTS 72

United States Government Notes to the Financial Statements for the Fiscal Years Ended September 30, 2021, and 2020

Note 1. Summary of Significant Accounting Policies

A. Reporting Entity

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

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

provides criteria for identifying organizations that are included in the Financial Report as consolidation entities or disclosure

entities. The determination as to whether an organization is a consolidation entity or disclosure entity is based on the

assessment of the following characteristics as a whole, the organization: a) is financed through taxes and other non-exchange

revenues; b) is governed by the Congress or the President; c) imposes or may impose risks and rewards to the government;

and d) provides goods and services on a non-market basis.

Consolidation entities are organizations that are consolidated in the financial statements. For disclosure entities, data is

not consolidated in the financial statements, instead information is disclosed in the notes to the financial statements

concerning: a) the nature of the federal government’s relationship with the disclosure entities; b) the nature and magnitude of

relevant activity with the disclosure entities during the period and balances at the end of the period; and c) a description of

financial and non-financial risks, potential benefits and, if possible, the amount of the federal government’s exposure to gains

and losses from the past or future operations of the disclosure entity or entities.

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

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

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

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

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

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

do not meet the GAAP criteria for consolidation entities.

Under SFFAS No. 47 criteria, Fannie Mae and Freddie Mac were owned or controlled by the federal government as a

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

intervention actions. Under the regulatory or other intervention actions, the relationship with the federal government is not

expected to be permanent. These entities are classified as disclosure entities based on their characteristics as a whole (see

Note 28—Disclosure Entities and Related Parties for additional information on these disclosure entities).

Also, under GAAP criteria, the FR System and SPVs are not consolidated into the government's consolidated financial

statements (see Note 8—Investments in Special Purpose Vehicles for additional information on SPVs and Note 28—

Disclosure Entities and Related Parties for additional information concerning the FR System).

For additional information regarding Reporting Entity, see Appendix A—Reporting Entity.

B. Basis of Accounting and Revenue Recognition

Consolidated Financial Statements

The consolidated financial statements of the government are prepared in accordance with the standards established by

FASAB. As permitted by FASAB standards, certain components of the federal government prepare their financial statements

following the standards established by FASB. Information from those components is included within the government's

consolidated financial statements without conversion to FASAB standards. Intra-governmental transactions are eliminated in

73 NOTES TO THE FINANCIAL STATEMENTS

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

Unmatched Transactions and Balances for additional information. The consolidated financial statements include accrual-

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

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

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

presented in conformity with GAAP.

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

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

Accrual-Based Financial Statements

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

• Expenses are generally recognized when incurred.

• Non-exchange revenue, including taxes, duties, fines, and penalties, are recognized when collected and adjusted for the change in amounts receivable (modified cash basis). Related refunds and other offsets, including those that are

measurable and legally payable, are netted against non-exchange revenue.

• Exchange (earned) revenue is recognized when the government provides goods and services to the public for a price. Exchange revenue includes user charges such as admission to federal parks and premiums for certain federal

insurance.

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

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

See the Reconciliations of Net Operating Cost and Budget Deficit in the Financial Statements section and Note 30—COVID-

19 Activity in the notes to the financial statements.

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

In FY 2016, the government began implementing the requirements of new standards related to the reporting for

inventory and related property, net and general PP&E. These standards are available to each reporting entity once per line

item addressed in the standard. The standards being implemented are:

• FASAB issued SFFAS No. 48, Opening Balances for Inventory, Operating Materials and Supplies, and Stockpile Materials. SFFAS No. 48 permits a reporting entity to apply an alternative valuation method in establishing opening

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

by this statement. SFFAS No. 48 was effective beginning in FY 2017. Early implementation was permitted. DOD

did partially implement in 2016 and select component entities have continued to implement in 2017, 2018, 2019,

2020 and 2021. DOD has not declared full implementation yet; therefore, this standard continues to be partially

implemented each year.

• FASAB issued SFFAS No. 50, Establishing Opening Balances for General Property, Plant and Equipment. SFFAS No. 50 permits a reporting entity to apply an alternative valuation method in establishing opening balances and

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

statement. SFFAS No. 50 was effective beginning in FY 2017. Early implementation was permitted. DOD did

partially implement in 2016 and select component entities have continued to implement in 2017, 2018, 2019, 2020

and 2021. DOD has not declared full implementation yet; therefore, this standard continues to be partially

implemented each year.

New Standards Issued and Not Yet Implemented

As of September 2021, FASAB has issued the following new standards that are applicable to the Financial Report, but

are not yet implemented at the government-wide level for FY 2021:

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

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

reporting standards for federal lease accounting. It provides a comprehensive set of lease accounting standards to recognize

federal lease activities in the reporting entity’s financial statements and includes appropriate disclosures. This statement

requires that federal lessees (for other than intra-governmental leases) recognize a lease liability and a right-to-use lease asset

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

leases, or contracts or agreements that transfer ownership, or intra-governmental leases. A federal lessor would recognize a

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

leases, contracts or agreements that transfer ownership, or intra-governmental leases. SFFAS No. 58, Deferral of the Effective

Date of SFFAS No. 54, Leases, issued in June 2020, defers the effective date of SFFAS No. 54 to FY 2024 and early

implementation is not permitted.

NOTES TO THE FINANCIAL STATEMENTS 74

In July 2021, FASAB issued SFFAS No. 59, Accounting and Reporting Government Land. Per SFFAS No. 59, starting

in FY 2026, land and permanent land rights will no longer be capitalized, and the previously capitalized amounts will be

removed from the Balance Sheet. Also, starting in FY 2026, SFFAS No. 59 requires certain disclosures in the notes to the

financial statements, including estimated acreage of land and permanent land rights and its predominant use. For FY 2022

through FY 2025, such disclosures are required to be presented as RSI. These include:

• Estimated acres of general PP&E land and stewardship land using three predominant use sub-categories: o Conservation and preservation land; o Operational land; and o Commercial use land.

• Estimated acres of land held for disposal or exchange.

C. Accounts Receivable, Net

Accounts receivable includes the amount of taxes receivable that consist primarily of uncollected tax assessments,

penalties, and interest when taxpayers have agreed, or a court has determined, the assessments are owed. Taxes receivable do

not include unpaid assessments when taxpayers or a court have not agreed that the amounts are owed (compliance

assessments) or the government does not expect further collections due to factors such as the taxpayer’s death, bankruptcy, or

insolvency (write-offs). Taxes receivable are reported net of an allowance for the estimated portion deemed to be

uncollectible. The allowance for uncollectible amounts represents the difference between gross taxes receivable and the

amounts estimated to be collectible.

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

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

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

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

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

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

receivables based on historical collection. See Note 3—Accounts Receivable, Net for additional information.

D. Loans Receivable, Net

Direct loans committed after FY 1991 are recognized as assets at the PV of their estimated net cash inflows. The

difference between the outstanding principal of the direct loans and the PV of their net cash inflows is recognized as a

subsidy cost allowance.

For direct loans disbursed during a fiscal year, a subsidy expense is recognized. The amount of the subsidy expense

equals the PV of estimated cash outflows over the life of the loans minus the PV of estimated cash inflows. For the fiscal year

during which new direct loans are disbursed, the components of the subsidy expense of those new direct loans are recognized

separately among interest subsidy costs, default costs, fees and other collections, and other subsidy costs. Credit programs

reestimate the subsidy cost allowance for outstanding direct loans by taking into account all factors that may have affected

the estimated cash flows. Any adjustment resulting from the reestimates is recognized as a subsidy expense (or a reduction in

subsidy expense).

Direct loans obligated before FY 1992 are valued under two different methodologies within the government: the

allowance-for-loss method and the PV method. Under the allowance-for-loss method, the outstanding principal of direct

loans is reduced by an allowance for uncollectible amounts. Under the PV method, the outstanding principal of direct loans is

reduced by an allowance equal to the difference between the outstanding principal and the PV of the expected net cash flows.

See Note 4—Loans Receivable, Net and Loan Guarantee Liabilities for additional information.

E. Loan Guarantee Liabilities

Loan guarantees committed after FY 1991 are recognized as liabilities at the PV of their estimated net cash outflows.

Disclosure is made of the face value of guaranteed loans outstanding, and the amount guaranteed.

For guaranteed loans disbursed during a fiscal year, a subsidy expense is recognized. The amount of the subsidy

expense equals the PV of estimated cash outflows over the life of the loans minus the PV of estimated cash inflows. The

75 NOTES TO THE FINANCIAL STATEMENTS

subsidy cost is reestimated each year taking into account all factors that may have affected the estimated cash flows. Any

adjustment resulting from the reestimates is recognized as a subsidy expense (or a reduction in subsidy expense).

Loan guarantees committed before FY 1992 are valued under two different methodologies within the government: the

allowance-for-loss method and the PV method. Under the allowance-for-loss method the liability for loan guarantees is the

amount the entity estimates would more likely than not require future cash outflow to pay default claims. Under the PV

method, the liability for loan guarantees is the PV of expected net cash outflows due to the loan guarantees. See Note 4—

Loans Receivable, Net and Loan Guarantee Liabilities for additional information.

F. Inventory and Related Property, Net

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

production for sale; or 3) to be consumed in the production of goods for sale or in the provision of services for a fee. OM&S

is tangible personal property to be consumed in normal operations and stockpile materials are strategic and critical materials

being held due to statutory requirements for use in national defense, conservation, or national emergencies.

SFFAS No. 3, Accounting for Inventory and Related Property, requires that inventories, OM&S, and stockpile materials

are valued using either historical cost or a method that reasonably approximates historical cost. Historical cost methods

include first-in-first-out, weighted average, and MAC. Historical cost includes all appropriate purchase and production costs

incurred to bring the items to their current condition and location. Any abnormal costs, such as excessive handling or rework

costs, are charged to operations of the period. Donated inventory and operating materials and supplies are valued at their FV

at the time of donation. Inventory as well as operating materials and supplies acquired through exchange of nonmonetary

assets (e.g., barter) are valued at the FV of the asset received at the time of the exchange. Any difference between the

recorded amount of the asset surrendered and the FV of the asset received is recognized as a gain or a loss.

Any other valuation method may be used if the results reasonably approximate one of the historical cost methods.

FASAB issued additional guidance SFFAS No. 48, Opening Balances for Inventory, Operating Materials and Supplies, and

Stockpile Materials, which permits a reporting entity to apply an alternative valuation method in establishing opening

balances for inventory, OM&S, and stockpile materials and is intended to provide an alternative valuation method when

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

As the largest contributor of inventory and related property, net; DOD values substantially all of its inventory available

and purchased for resale using the MAC method as of September 30, 2021. OM&S are valued using various methods

including MAC, standard price, historical cost, replacement price, and direct method. DOD uses both the consumption

method (expensed when issued to an end user for consumption in normal operations) and the purchase method (expensed

when purchased) of accounting for OM&S. See Note 5—Inventory and Related Property, Net, for additional information.

G. General Property, Plant, and Equipment, Net

General PP&E consists of tangible assets (e.g., buildings and structures, furniture and fixtures, equipment, and land)

that have an estimated useful life of two or more years, are not intended for sale in the ordinary course of business and are

intended to be used or available for use by the entity. General PP&E also includes software, land rights, and assets acquired

through capital leases.

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

includes all costs incurred to bring the general PP&E to a form and location suitable for its intended use. General PP&E used

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

additional guidance, SFFAS No. 50, Establishing Opening Balances for General Property, Plant, and Equipment, which

states that a reporting entity may choose one of three alternative methods for establishing an opening balance for general

PP&E. The alternative methods include using deemed cost to establish opening balances of general PP&E, selecting between

deemed cost and prospective capitalization of internal use software, and allowing an exclusion of land and land rights from

opening balances with disclosure of acreage information and expensing of future acquisitions. DOD has partially

implemented SFFAS No. 50 by electing to exclude certain land and land rights. For certain DOD components that have

implemented SFFAS No. 50, with respect to land and land rights, acreage information is disclosed, and such land and land

rights are not included on the Balance Sheet.

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

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

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

NOTES TO THE FINANCIAL STATEMENTS 76

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

applicable DOD will continue to adopt SFFAS No. 50.

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

exceed federal entities’ capitalization thresholds are capitalized and depreciated or amortized. Depreciation and amortization

expense is recognized on all capitalized general PP&E, except land and land rights of unlimited duration. In the case of

constructed general PP&E, this is recorded as construction work in process until it is placed in service, at which time the

balance is transferred to general PP&E. See Note 6—General Property, Plant, and Equipment, Net, for additional

information.

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

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

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

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

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

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

in that much of the government’s land is held for the general welfare of the nation and is intended to be preserved and

protected. Stewardship land is land owned by the government but not acquired for or in connection with general PP&E.

Because most federal land is not directly related to general PP&E, it is deemed to be stewardship land and accordingly, it is

not reported on the Balance Sheet. Examples of stewardship land include national parks and forests. For additional

information on stewardship assets, see Note 27—Stewardship Property, Plant, and Equipment.

H. Investments

Most investments are held by component entities that apply FASB standards and are not converted to FASAB standards

in consolidation as permitted by SFFAS No. 47, Reporting Entity. These investments are reported at FV. FV is the estimate

of the price at which an orderly transaction to sell the asset would take place between market participants at the measurement

date under current market conditions. Market or observable inputs are used as the preferred source of values, followed by

assumptions based on hypothetical transactions in absence of market inputs. Certain investments are measured at FV using

NAV per share. NAV is the amount of net assets attributable to each share of capital stock (other than senior equity

securities, that is, preferred stock) outstanding at the close of the period. See Note 7—Investments for additional information.

I. Investments in Special Purpose Vehicles

Treasury invested in common stock warrants and equity investments in SPVs for the purpose of enhancing the liquidity

of the U.S. financial system. These equity investments are reported at FV. In addition to SPV investments, warrants are held

for the purchase of common stock received as compensation from recipients of financial assistance to support ongoing

employment of aviation workers during the pandemic under the CARES Act, coupled with the CAA and ARP enacted in FY

2021. The warrants are assets of the U.S. government and Treasury is precluded from using the cash proceeds realized from

the financial instruments received. These investment holdings are also reported at FV.

The valuation to estimate the investment’s FV incorporates forecasts, projections, and cash flow analyses. Changes in

valuation, including impairments, are deemed usual and recurring and thus are recorded as exchange transactions on the

Statement of Net Cost and investments in SPVs on the Balance Sheet. See Note 8—Investments in Special Purpose Vehicles

for additional information.

J. Investments in Government-Sponsored Enterprises

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

Freddie Mac) are presented at their FV. SPSPAs, which Treasury entered into with each GSE when they were placed under

conservatorship, can result in payments to the GSEs when, at the end of any quarter, the FHFA, acting as the conservator,

determines that the liabilities of either GSE exceed its respective assets. Such payments result in an increase to the liquidation

preference of investment in the GSEs’ senior preferred stock, with a corresponding decrease to cash held by Treasury for

government-wide operations. In addition, the liquidation preference of investments in the GSEs will increase, based on the

quarterly earnings of the GSEs, up to the adjusted capital reserve amounts set for each GSE.

77 NOTES TO THE FINANCIAL STATEMENTS

The valuation to estimate the investment’s FV incorporates forecasts, projections, and cash flow analyses. Changes in

valuation, including impairments, are deemed usual and recurring and thus are recorded as exchange transactions on the

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

investments as exchange transactions which are accrued when declared.

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

additional information on investments in GSEs, refer to Note 9—Investments in Government-Sponsored Enterprises.

K. Federal Debt and Interest Payable

Federal debt is primarily comprised of Treasury securities, which are debt instruments issued to the public to raise

money needed to operate the federal government and pay off maturing obligations. Treasury issues these debt instruments to

the public in the form of marketable bills, notes, bonds, TIPS and FRNs, and in the form of nonmarketable securities

including Government Account Series securities, U.S. Savings Securities, and State and Local Government Series securities.

The amount of the debt, or principal, is also called the security’s face value or par value. To accurately reflect the federal

debt, Treasury records principal transactions with the public at par value at the time of the transaction. Certain Treasury

securities are issued at a discount or premium. These discounts and premiums are amortized over the term of the security

using an interest method for all long-term securities (term greater than one year) and the straight-line method for short-term

securities (term of one year or less). In addition, the principal for TIPS is adjusted daily based on the Consumer Price Index

for all Urban Consumers. Certain Treasury securities also pay interest. For marketable securities, Treasury issues notes and

bonds that pay semi-annual interest based on the security’s stated interest rate, while FRNs, which have interest rates that are

indexed to the highest accepted discount rate of the most recent Treasury 13-week bill auction, pay interest quarterly based

on the interest rate at the time of payment. TIPS, on the other hand, pay a semi-annual fixed rate of interest applied to the

inflation-adjusted principal. However, for all security types accrued interest is recorded as an expense when incurred, instead

of when paid. See Note 13—Federal Debt and Interest Payable for additional information.

L. Federal Employee and Veteran Benefits Payable

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

The related liabilities for defined benefit pension plans, veterans’ compensation, burial, education and training benefits, post-

retirement health benefits, and life insurance benefits, are recorded at estimated PV of future benefits, less any estimated PV

of future normal cost contributions. Normal cost is the portion of the actuarial PV of projected benefits allocated as an

expense for employee services rendered in the current year. Actuarial gains and losses (as well as prior service cost, if any)

are recognized immediately in the year they occur without amortization.

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

the veteran died or was disabled for nonservice-related causes. The pension program for veterans is not accounted for as a

“federal employee pension plan” under SFFAS No. 5, Accounting for Liabilities of the Federal Government, due to

differences between its eligibility conditions and those of federal employee pensions. Therefore, a future liability for pension

benefits is not recorded. These benefits are recognized as expenses when benefits are paid rather than when employee

services are rendered.

In accordance with 38 CFR § 17.36(c), the VA makes an annual enrollment decision that identifies which veterans, by

priority, will be treated for that fiscal year based on funds appropriated, estimated collections, usage, the severity index of

enrolled veterans, and changes in cost. While VA expects to continue to provide medical care to veterans in future years, an

estimate of this amount cannot be reasonably made. These medical care expenses are recognized in the period the medical

care services are provided.

The actuarial liability for FECA benefits is recorded at estimated PV of future benefits for injuries and deaths that have

already been incurred.

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

liabilities are reflected separately on the Statement of Net Cost and the components of the expense related to federal

employee pension, ORB, and OPEB liabilities are disclosed in Note 14—Federal Employee and Veteran Benefits Payable as

prescribed by SFFAS No. 33, Pensions, Other Retirement Benefits, and Other Postemployment Benefits: Reporting the Gains

and Losses from Changes in Assumptions and Selecting Discount Rates and Valuation Dates. In addition, SFFAS No. 33 also

provides a standard for selecting the discount rate assumption for PV estimates of federal employee pension, ORB, and

OPEB liabilities. See Note 14—Federal Employee and Veteran Benefits Payable for additional information.

NOTES TO THE FINANCIAL STATEMENTS 78

M. Environmental and Disposal Liabilities

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

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

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

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

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

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

(typically monitoring and safe containment) is recorded. See Note 15—Environmental and Disposal Liabilities for additional

information.

N. Benefits Due and Payable

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

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

the reporting date. No liability is recognized for future benefit payments not yet due. See Note 16—Benefits Due and Payable

for additional information.

O. Insurance and Guarantee Program Liabilities

Insurance programs are authorized by law to financially compensate a designated population of beneficiaries by

accepting all or part of the risk for losses incurred as a result of an adverse event. Certain consolidation entities with

significant insurance and guarantee programs (i.e., PBGC, FDIC and FCSIC) apply FASB standards, and are not converted to

FASAB standards in consolidation, as permitted by SFFAS No. 47.

PBGC recognizes a single-employer program liability for trusteed, terminated and probable plan terminations. The

liability is PBGC's best estimate of the losses, net of plan assets, and the PV of expected recoveries (from sponsors and

members of their controlled group) for plans that are likely to terminate in the future. PBGC recognizes a multiemployer

program liability for future financial assistance to insolvent plans and to plans deemed probable to becoming insolvent.

FDIC records a liability for FDIC-insured institutions that are likely to fail when the liability is probable and reasonably

estimable, absent some favorable event such as obtaining additional capital or merging. The FDIC liability is derived by

applying expected failure rates and loss rates to the institutions based on supervisory ratings, Balance Sheet characteristics,

and projected capital levels.

PBGC's exposure to losses from plan terminations and FDIC's exposure to losses from insured institutions that are

classified as reasonably possible are disclosed in Note 22—Contingencies.

All other insurance and guarantee programs are accounted for in the consolidated financial statements in accordance

with SFFAS No. 51, Insurance Programs.

Programs that administer direct loans and loan guarantees, qualify as social insurance, are authorized to engage in

disaster relief activities, provide grants, provide benefits or assistance based on an individual’s or a household income and/or

assets, assume the risk of loss arising from federal government operations, pay claims through an administrative or judicial

role for individuals or organizations who claim they have been harmed by a federal entity, indemnify contractors, agreement

partners, and other third parties for loss or damage incurred while or caused by work performed for a federal entity, or are

workers’ or occupational illness compensation programs that compensate current or former employees (or survivors) and

certain third parties for injuries and occupational diseases obtained while working for a federal entity are excluded from

insurance programs.

There are three categories of insurance programs: 1) exchange transaction insurance programs other than life insurance;

2) non-exchange transaction insurance programs; and 3) life insurance programs.

For exchange transaction insurance programs other than life insurance, revenues are recognized when earned over the

insurance arrangement period and liabilities are recognized for unearned premiums, unpaid insurance claims, and for losses

on remaining coverage. Losses on remaining coverage represent estimated amounts to be paid to settle claims for the period

after year-end through the end of insurance coverage in excess of the summation of unearned premiums and premiums due

after the end of the reporting period.

79 NOTES TO THE FINANCIAL STATEMENTS

For non-exchange transaction insurance programs, revenue is recognized the same as other non-exchange transaction

revenue, no unearned premium liability is recorded and a liability is only recognized for unpaid insurance claims. For life insurance programs, revenue is recognized when due and liabilities are recognized for unpaid insurance claims

and future policy benefits. The liability for future policy benefits represents the expected PV of future claims to be paid to, or

on behalf of, existing policyholders, less the expected PV of future net premiums to be collected from those policyholders.

Life insurance programs are disclosed in Note 14—Federal Employee and Veteran Benefits Payable. See Note 17—Insurance

and Guarantee Program Liabilities for additional information.

P. Deferred Maintenance and Repairs

DM&R are maintenance and repairs that were not performed when they should have been or scheduled maintenance

and repairs that were delayed or postponed. Maintenance is the act of keeping fixed assets in acceptable condition, including

preventative maintenance, normal repairs, and other activities needed to preserve the assets, so they continue to provide

acceptable service and achieve their expected life. Maintenance and repairs exclude activities aimed at expanding the

capacity of assets or otherwise upgrading them to serve needs different from those originally intended. DM&R are not

expensed in the Statements of Net Cost or accrued as liabilities on the Balance Sheet. However, DM&R information is

disclosed in the unaudited RSI section of this report. Please see unaudited RSI—Deferred Maintenance and Repairs for

additional information including measurement methods.

Q. Commitments

Commitments reflect binding agreements that may result in the future expenditure of financial resources that are not

recognized or not fully recognized on the Balance Sheet and should be disclosed. Commitments may include, for example,

certain long-term leases, undelivered orders, P3s, international or other agreements in support of international economic

development, or agreements in support of financial market stability. See Note 21—Commitments for additional information.

R. Contingencies

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

• A past transaction or event has occurred, and

• A future outflow or other sacrifice of resources is probable and measurable. The estimated contingent liability may be a specific amount or a range of amounts. If some amount within the range is a

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

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

of the nature of the contingency is disclosed.

A contingent liability is disclosed if any of the conditions for liability recognition do not meet the above criteria and

there is at least a reasonable possibility that a loss may be incurred. See Note 22—Contingencies for additional information.

S. Funds from Dedicated Collections

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

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

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

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

criteria for a fund from dedicated collections are:

• A statute committing the government to use specifically identified revenues and/or other financing sources that are originally provided to the government by a non-federal source only for designated activities, benefits, or purposes;

• Explicit authority for the fund to retain revenues and/or other financing sources not used in the current period for future use to finance the designated activities, benefits, or purposes; and

NOTES TO THE FINANCIAL STATEMENTS 80

• A requirement to account for and report on the receipt, use, and retention of the revenues and/or other financing sources that distinguishes the fund from the government’s general revenues.

Funds from dedicated collections on the Statement of Operations and Changes in Net Position are presented on the

consolidated basis. The consolidated dedicated collections presentation eliminates balances and transactions between funds

from dedicated collections held by the entity. For additional information on funds from dedicated collections, see Note 23—

Funds from Dedicated Collections.

T. Sustainability Financial Statements

The sustainability financial statements were prepared based on the projected PV of the estimated future revenue and

estimated future expenditures, primarily on a cash basis, for a 75-year period.1 They include the SLTFP, covering all federal

government programs, and the SOSI and the SCSIA, covering social insurance programs (Social Security, Medicare,

Railroad Retirement, and Black Lung programs). These estimates are based on economic as well as demographic

assumptions presented in Notes 25—Social Insurance and 26—Long-Term Fiscal Projections. The sustainability financial

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

between receipts and expenditures, if current policy is continued. For this purpose, the projections assume, among other

things, that scheduled social insurance benefit payments would continue after related trust funds are projected to be depleted,

contrary to current law, and that debt could continue to rise indefinitely without severe economic consequences. SOSI and SCSIA are based on the selection of accounting policies and the application of significant accounting

estimates, some of which require management to make significant assumptions. Further, the estimates are based on current

conditions and expectations of future conditions. Actual results could differ materially from the estimated amounts. Each

statement includes information to assist in understanding the effect of changes in assumptions to the related information.

By accounting convention, General Fund transfers to Medicare Parts B and D reported in the SOSI are eliminated when

preparing the government-wide consolidated financial statements. The SOSI shows the projected General Fund transfer(s) as

eliminations that, under current law, would be used to finance the remainder of the expenditures in excess of revenues for

Medicare Parts B and D that is reported in the SOSI. The SLTFP include all revenues (including general revenues) of the

federal government.

U. Unmatched Transactions and Balances

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

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

balances includes unmatched intra-governmental balances on the Balance Sheet and includes unmatched intra-governmental

current year transactions on the Statement of Operations and Changes in Net Position to reconcile the change in net position

to ensure beginning and ending net position equals the difference between revenue and cost, plus or minus prior-period

adjustments. Unresolved intra-governmental differences (i.e., unmatched transactions and balances) result in errors in the

consolidated financial statements. The ultimate effect on the accrual-based financial statements of resolving and correcting

these differences has not been fully determined and could be material.

The unmatched transactions and balances are needed to balance the accrual-based financial statements. The Statement

of Operations and Changes in Net Position and the Balance Sheet include specific lines for the unmatched transactions and

balances, while the unmatched transactions and balances are recorded in existing lines in the Statement of Net Cost. The

primary factors affecting this out of balance situation are:

• Unmatched intra-governmental transactions and balances between federal entities; and

• Errors and restatements in federal entities’ reporting. As intra-governmental transactions and balances reduce to immaterial amounts, the corresponding individual lines in the

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

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

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

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

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

81 NOTES TO THE FINANCIAL STATEMENTS

V. Changes in Accounting Principle

A change in accounting principle results from either adopting a new accounting pronouncement or an entity adopting an

allowable alternative accounting principle on the basis that is preferable. Generally, as applicable, changes in accounting

principle are shown as an adjustment to beginning net position in the Statement of Operations and Changes in Net Position of

the period in which the change is implemented.

Adjustments to beginning net position in FY 2021 for changes in accounting principle was $0.7 billion, mostly due to

DOD’s continued implementation of SFFAS No. 48, Opening Balances for Inventory, Operating Materials and Supplies, and

Stockpile Materials and SFFAS No. 50, Establishing Opening Balances for General Property, Plant, and Equipment.

Also, in FY 2021 CAA required VA to record obligations for hospital care or medical services furnished at non-VA

facilities at the time of approval. VA accounted for this new authority as a retrospective change that is analogous to a change

in accounting principle by adjusting FY 2020 amounts on the Balance Sheet and other financial statements. These

restatements impacted the liabilities, costs, and net position of the government and are reflected on the following statements:

1) on the Balance Sheet, accounts payable, federal employee and veteran benefits payable, and net position for funds other

than those from dedicated collections; 2) on the Statement of Net Cost, gross cost; 3) on the Statement of Operations and

Changes in Net Position, funds other than those from dedicated collections and the total columns, net cost, and net position

end of period; and 4) on the Reconciliation of Net Operating Cost and Budget Deficit, net operating cost, federal employee

and veteran benefits payable, and accounts payable. In total, the government’s reported FY 2020 net cost increased by $0.2

billion and FY 2020 net position decreased by $0.1 billion as a result of VA’s retrospective changes. Refer also to the Note

12—Accounts Payable and Note 14—Federal Employee and Veteran Benefits Payable.

Adjustments to beginning net position in FY 2020 for changes in accounting principle was $12.5 billion between the

funds from dedicated collections and funds other than those from dedicated collections due to Note 23—Funds from

Dedicated Collections applying SFFAS No. 43, Funds from Dedicated Collections: Amending Statement of Federal

Financial Accounting Standards 27, Identifying and Reporting Earmarked Funds. SFFAS No. 43 is not a new standard but

does allow a reporting methodology change between combined (excluding eliminations between funds from dedicated

collections) and consolidated (including eliminations between funds from dedicated collections) when deemed necessary.

The reporting methodology was changed from combined in FY 2019 to consolidated in FY 2020. See Note 23—Funds from

Dedicated Collections for additional information.

W. Correction of Errors

Correction of errors in financial statements result from mathematical mistakes, mistakes in the application of accounting

principles, or oversight or misuse of facts that existed at the time financial statements were prepared. When preparing

comparative financial statements, if the material error occurred in the prior period presented and the effect is known, then the

affected line items of the prior period are restated.

DOD followed SFFAS No. 21, Reporting Corrections of Errors and Changes in Accounting Principle and corrected FY

2020 errors identified as part of a department-wide effort to improve financial reporting. These corrections resulted in

restatements of amounts in the consolidated financial statements, including a correction of error of $6.0 billion on the FY

2020 Statement of Operations and Changes in Net Position. These restatements are reflected on the following statements: 1)

on the Balance Sheet; 2) on the Statement of Net Cost, gross cost; 3) on the Statement of Operations and Changes in Net

Position, funds other than those from dedicated collections and the total columns, net cost, unmatched transactions and

balances, correction of errors, and net position end of period; and 4) on the Reconciliation of Net Operating Cost and Budget

Deficit, net operating cost acquisition of capital assets, investments, inventory and related property, net, adjustment to

beginning net position, and all other reconciling items. In total, the government’s reported FY 2020 net cost increased by

$0.8 billion and FY 2020 net position increased by $4.9 billion. Refer also to Note 5—Inventory and Related Property, Net,

Note 6—General Property, Plant, and Equipment, Net, Note 7—Investments, and Unmatched Transactions and Balances in

Other Information (unaudited).

For FY 2020, a restatement was made that decreased the other commitments for U.S. participation in the IMF reported

in Note 21—Commitments. Refer to the individual note for additional information.

NOTES TO THE FINANCIAL STATEMENTS 82

X. Changes in Presentation

Changes in presentation are done to improve clarity of the presentation of the Financial Report and include changes

since the prior year that are not the result of correction of errors or changes in accounting principles. In FY 2021, the

Statement of Operations and Changes in Net Position broke out the Unmatched transactions and balances from Net operating

(cost)/revenue line and is presented as a standalone line in the net position section. Also, in FY 2021 the Balance Sheet was

modified to present additional items separately including advances and prepayments, other deferred revenue, and liability for

advances and prepayments, which were previously reported in Note 11—Other Assets and Note 19—Other Liabilities.

Advances and prepayments is now reported in Note 10—Advances and Prepayments, other deferred revenue and liability for

advances and prepayments are reported in Note 18—Advances from Others and Deferred Revenue, and the corresponding

changes to Reconciliation of Net Operating Cost and Budget Deficit Statement. Further breakout of the all other reconciling

items for allocations of special drawing rights was included in the Reconciliation of Net Operating Cost and Budget Deficit

Statement. Statements of Changes in Cash Balance and Budget and Other Activities enhanced the presentation by breaking

out special purpose vehicle disbursements, repayments of special purpose vehicle investments, and allocations of special

drawing rights. In addition, refer to the following individual notes and other information for separate changes in presentation;

Note 5—Inventory and Related Property, Net, Note 7—Investments, Note 20—Collections and Refunds of Federal Revenue,

and Unmatched Transactions and Balances in Other Information (unaudited). The FY 2020 presentation was modified to

conform to the FY 2021 presentation. Refer to the individual notes and Other Information (unaudited) for additional

information.

Y. Fiduciary Activities

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

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

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

recognized on the Balance Sheet. See Note 24—Fiduciary Activities, for additional information.

Z. Use of Estimates

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

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

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

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

estimates and such differences may be material.

Significant transactions subject to estimates are included in the balance of loans receivable, net, federal employee and

veteran benefits payable, investments, investments in SPVs, investments in GSEs, tax receivables, loan guarantee liabilities,

depreciation, other actuarial liabilities, cost and earned revenue allocations, as well as contingencies and any related

recognized liabilities.

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

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

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

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

Estimates are also used to determine the FV of investments in SPVs and GSEs. The FV of the SPV preferred equity

investments is estimated based on a discounted cash flow valuation methodology, whereby the primary input is the PV of the

projected annual cash flows associated with these investments. The value of the GSEs senior preferred stock is estimated by

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

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

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

cash flows to equity holders. The FV of the GSEs’ other equity instruments are then deducted from its total equity, with the

remainder representing the FV of the senior preferred stock.

Factors impacting the FV of the GSE warrants include the nominal exercise price and the large number of potential

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

83 NOTES TO THE FINANCIAL STATEMENTS

and the market participants. Other factors impacting the FV include, the holding period risk related directly to the assumption

of the amount of time that it will take to sell the exercised shares without depressing the market. For additional information

on investments in SPVs and GSEs, see Note 8—Investments in Special Purpose Vehicles and Note 9—Investments in

Government-Sponsored Enterprises.

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

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

commitment to the GSEs under the SPSPAs. For additional information on investments in GSEs and the amended SPSPAs,

see Note 9—Investments in Government-Sponsored Enterprises.

AA. Credit Risk

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

perform in accordance with underlying contractual obligations. The government takes on credit risk when it makes direct

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

in financial transactions with foreign countries.

The government also takes on credit risk related to committed, but undisbursed direct loans, CARES Act Section 4003

COVID-19 credit program receivables, funding commitments to GSEs, CARES Act Section 4003 Section 13(3) funding

provided to CCF, MSF, MLF, TALF, and other activities. Many of these programs were developed or provided credit support

to the pandemic emergency relief programs of the Federal Reserve Board, to provide credit where borrowers are not able to

get access to credit with reasonable terms and conditions. These programs expose the government to potential costs and

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

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

AB. Treaties and Other International Agreements

For financial reporting purposes, treaties and other international agreements may be understood as falling into three

broad categories:

• No present or contingent obligation to provide goods, services, or financial support;

• Present obligation to provide goods, services, or financial support; or

• Contingent obligation to provide goods, services, or financial support. The proper financial reporting of treaties and other international agreements depends on the probable future outflow or

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

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

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

agreements may contemplate specific cooperative activities, but create no present or contingent obligations to engage in

them. Cooperative activities relevant to these treaties and other international agreements fall under the first category, which

does not result in the U.S. government incurring any financial liability. Since these treaties and other international agreements

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

Some treaties and other international agreements fall under the second category, and involve a present obligation, and

therefore result in liability recognition. Such present obligation may relate to the U.S. government providing financial and in-

kind support, including assessed contributions, voluntary contributions, grants, and other assistance to international

organizations in which it participates as a member. Examples of such agreements include those that establish international

organizations under which the U.S. government undertakes obligations to pay assessed dues to the organization; grant

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

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

information related to treaties and other international agreements that fall under the second category, refer to Note 21—

Commitments.

The last category encompasses those treaties or other international agreements which result in contingencies that may

require recognition or disclosure in the financial statements. Such contingencies may stem from commitments in a treaty or

other international agreement to provide goods, services, or financial support when a future event occurs, or from litigation,

claims, or assessments forged by other parties to the agreement. For additional information related to treaties and other

international agreements that fall under the last category, refer to Note 22—Contingencies.

NOTES TO THE FINANCIAL STATEMENTS 84

AC. Public-Private Partnerships

Federal P3s are risk-sharing arrangements or transactions with expected lives greater than five years between public and

private sector entities. Such arrangements or transactions provide a service or an asset for government and/or general public

use where in addition to the sharing of resources, each party shares in the risks and rewards of said arrangements or

transactions. The P3s that are deemed material to the consolidated financial statements and have met the criteria of SFFAS

No. 49, Public-Private Partnerships, are disclosed. See Note 29—Public-Private Partnerships for additional information.

85 NOTES TO THE FINANCIAL STATEMENTS

Note 2. Cash and Other Monetary Assets

Cash and Other Monetary Assets as of September 30, 2021, and 2020

(In billions of dollars) 2021 2020

Unrestricted cash:

Cash held by Treasury for government-wide operations ...................................................................................................................... 198.4 1,769.8 Other ............................................................................................................................................................................................... 5.7 5.0 Restricted ........................................................................................................................................................................................ 46.0 40.8 Total cash ....................................................................................................................................................................................... 250.1 1,815.6

International monetary assets ........................................................................................................................................................... 197.0 83.3 Gold and silver ................................................................................................................................................................................ 11.1 11.1 Foreign currency .............................................................................................................................................................................. 16.8 16.9 Total cash and other monetary assets ............................................................................................................................................... 475.0 1,926.9

Unrestricted cash includes cash held by Treasury for government-wide operations (Operating Cash) and all other

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

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

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

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

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

by Treasury decreased by $1,571.4 billion (a decrease of approximately 88.8 percent) in FY 2021 due to Treasury

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

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

at the end of FY 2021 due to debt ceiling constraints.

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

primarily composed of cash held by the SAA, which executes Foreign Military Sales. The SAA included $38.6 billion and

$34.1 billion as of September 30, 2021, and 2020, respectively.

International monetary assets include the U.S. reserve position in the IMF and U.S. holdings of SDR. The U.S. reserve

position in the IMF had a U.S. dollar equivalent of $32.7 billion and $31.2 billion as of September 30, 2021, and 2020,

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

is provided in the form of a letter of credit. The balance available under the letter of credit totaled $83.0 billion and $85.0

billion as of September 30, 2021, and 2020 respectively. The total amount of SDR holdings of the U.S. was the equivalent of

$163.9 billion and $51.7 billion as of September 30, 2021, and 2020, respectively. This increase was due to Treasury

receiving an additional 79.5 billion SDR valued at $112.8 billion in response to the global economic stress caused by the

COVID-19 pandemic. For more information regarding the U.S. participation in the IMF and SDR, see Treasury’s financial

statements and Note 28—Disclosure Entities and Related Parties.

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

261,498,927 as of September 30, 2021, and 2020. The market value of gold on the London Fixing was $1,743 and $1,887 per

fine troy ounce as of September 30, 2021, and 2020, respectively. In addition, silver is valued at the statutory price of

$1.2929 per fine troy ounce. The number of fine troy ounces of silver was 16,000,000 as of September 30, 2021, and 2020.

The market value of silver on the London Fixing was $21.53 and $23.73 per fine troy ounce as of September 30, 2021, and

2020, respectively. Gold totaling $11.0 billion as of September 30, 2021, and 2020, was pledged as collateral for gold

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

as of September 30, 2021, and 2020. Treasury may redeem the gold certificates at any time. Please refer to the financial

statements of Treasury for additional information regarding gold reserves and Treasury’s liability for gold.

The foreign currency is maintained by Treasury’s ESF and various U.S. federal entities as well as foreign banks.

Foreign currency is translated into U.S. dollars at the exchange rate at fiscal year-end.

NOTES TO THE FINANCIAL STATEMENTS 86

Note 3. Accounts Receivable, Net

Accounts Receivable, Net as of September 30, 2021, and 2020

(In billions of dollars) 2021 2020

Taxes receivable:

Taxes receivable, gross .................................................................................................................................................................... 507.8 441.9 Allowance for uncollectible amounts .................................................................................................................................................. (196.6) (198.7) Taxes receivable, net........................................................................................................................................................................ 311.2 243.2

Other accounts receivable:

Other accounts receivable, gross ...................................................................................................................................................... 140.7 113.0 Allowance for uncollectible amounts .................................................................................................................................................. (50.9) (35.0) Other accounts receivable, net .......................................................................................................................................................... 89.8 78.0 Total accounts receivable, net .......................................................................................................................................................... 401.0 321.2

Taxes receivable is listed first above due to being the significant portion of total accounts receivable, and the rest are

referred to as other accounts receivable. Other accounts receivable, gross includes related interest receivable of $3.0 billion

and $2.8 billion as of September 30, 2021, and 2020, respectively.

Treasury comprises approximately 76.0 percent of the government’s reported accounts receivable, net, as of September

30, 2021. Treasury accounts for nearly all the reported taxes receivable, which consist of unpaid assessments due from

taxpayers, unpaid taxes related to IRC section 965, and deferred payments resulting from the CARES Act. Examples of

unpaid assessments are the filing of a tax return without sufficient payment or a court ruling in favor of the IRS. Section

965(h) of the IRC requires taxpayers who are shareholders of certain specified foreign corporations to pay a transition tax on

foreign earnings as if those earnings had been repatriated to the U.S. IRC 965(h) allows taxpayers to elect to pay their tax on

an eight-year installment schedule. Pursuant to the CARES Act, employers can defer payment, without penalty, of their

portions of the Social Security segment of FICA and the employer’s and employee representative’s share of the Railroad

Retirement Tax. Treasury experienced a year to year increase of $67.0 billion principally due to the two-year payment

deferral of FICA Social Security taxes.

Other accounts receivable, gross increased significantly year to year, primarily as a result of DOL’s $18.6 billion

increase in benefit overpayments from programs related to COVID-19. Another substantial factor in the overall change was a

$7.0 billion increase in HHS receivables primarily due to Medicare.

The following entities are the main contributors to the government’s reported accounts receivable, net as of September

30, 2021. Refer to each entity’s financial statements for additional information:

• Treasury • DOD • TVA

• HHS • USDA • FDIC

• DHS • VA • HUD

• SSA • PBGC • USPS

• DOL • DOE • NCUA

• DOI • OPM • FCC

87 NOTES TO THE FINANCIAL STATEMENTS

Note 4. Loans Receivable, Net and Loan Guarantee Liabilities

Loans Receivable, Net as of September 30, 2021

(In billions of dollars)

Loans Receivable,

Gross Interest

Receivable Foreclosed

Property

Subsidy Cost

Allowance

Loans Receivable,

Net

Subsidy Expense (Income) for the

Fiscal Year

Federal Direct Student Loans - Education ........................................................................................................................................................................................ 1,292.2 86.5 - (273.9) 1,104.8 93.9

Disaster Assistance Loans - SBA................................................................................................................................................................................................. 249.2 7.5 - (12.6) 244.1 2.9

Federal Family Education Loans - Education ...................................................................................................................................................................................... 82.0 23.9 - (47.7) 58.2 0.6

Electric Loans - USDA ...................................................................................................................................................................... 51.0 - - (2.6) 48.4 (0.8) Rural Housing Services - USDA ........................................................................................................................................................ 23.0 1.1 0.1 (2.5) 21.7 (0.1)

Federal Housing Admin Loans - HUD ................................................................................................................................................................................................ 46.2 19.9 0.6 (17.6) 49.1 -

All other programs ............................................................................................................................................................................ 136.4 2.1 0.8 (14.6) 124.7 1.4 Total loans receivable ...................................................................................................................................................................... 1,880.0 141.0 1.5 (371.5) 1,651.0 97.9

Loans Receivable, Net as of September 30, 2020

(In billions of dollars)

Loans Receivable,

Gross Interest

Receivable Foreclosed

Property

Subsidy Cost

Allowance

Loans Receivable,

Net

Subsidy Expense (Income) for the

Fiscal Year

Electric Loans - USDA ...................................................................................................................................................................... 48.9 - - (2.9) 46.0 0.9 Rural Housing Services - USDA ........................................................................................................................................................ 23.6 1.2 - (3.0) 21.8 -

All other programs ............................................................................................................................................................................ 130.9 2.3 0.7 (17.1) 116.8 0.1 Total loans receivable ...................................................................................................................................................................... 1,740.2 139.3 1.5 (303.6) 1,577.4 109.5

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. Direct

loans 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

NOTES TO THE FINANCIAL STATEMENTS 88

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.

The amount of the long-term cost of post-1991 direct loans equals the subsidy cost allowance for direct loans as of

September 30. The amount of the long-term cost of pre-1992 direct loans equals the allowance for subsidy amounts (or PV

allowance) for direct loans. The long-term cost is based on all direct loans disbursed in this fiscal year and previous years that

are outstanding as of September 30. It includes the subsidy cost of these direct loans estimated as of the time of loan

disbursement and subsequent adjustments such as modifications, reestimates, amortizations, and write-offs.

Loans receivable, net includes related interest and foreclosed property. Foreclosed property is property that is

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

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

refer to the financial statements of HUD, USDA, and VA for additional information regarding foreclosed property.

The total subsidy expense/(income) is the cost recognized during the fiscal year. It consists of the subsidy

expense/(income) incurred for direct loans disbursed during the fiscal year, for modifications made during the fiscal year of

direct loans outstanding, and for upward or downward reestimates as of the end of the fiscal year. This expense/(income) is

included in the Statements of Net Cost.

Loans Receivable Programs

The majority of loans receivable programs are provided by Education, SBA, USDA, and HUD. For additional

information regarding the direct loan programs listed in the tables above, please refer to the financial statements of the

entities.

Education has loan programs that are authorized by Title IV of the Higher Education Act of 1965. The William D. Ford

Federal Direct Loan Program (referred to as the Direct Loan Program), was established in FY 1994 and offered four types of

educational loans: Stafford, Unsubsidized Stafford, Parent Loan for Undergraduate Students, and consolidation loans. With

this program, the government makes loans directly to students and parents through participating institutions of higher

education. Education disbursed approximately $104.8 billion in direct loans to eligible borrowers in FY 2021 and

approximately $117.4 billion in FY 2020. The COVID-19 relief legislation and administrative actions provided support for

student loan borrowers by temporarily suspending nearly all federal student loan payments interest free. In addition, all

federal wage garnishments and collections actions for borrowers with federally held loan in default were halted.

The SBA makes loans to microloan intermediaries and provides a direct loan program that assists homeowners, renters

and businesses recover from disasters. The CARES Act provides funding for SBA to offer low-interest EIDLs for working

capital to small businesses suffering substantial economic injury as a result of COVID-19 that can be used to pay fixed debts,

payroll, accounts payable and other bills that cannot be paid because of the disaster’s impact. These receivables increased to

$245.4 billion during FY 2021, stemming from a $62.7 billion increase in COVID-19 EIDLs.

USDA’s Rural Development offers direct loans with unique missions to bring prosperity and opportunity to rural areas.

The Rural Housing programs provide affordable, safe, and sanitary housing and essential community facilities to rural

communities. Rural Utility programs help improve the quality of life in rural areas through a variety of loan programs for

electric energy, telecommunications, and water and environmental projects.

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

through its nationally administered programs. It includes FHA who administers active mortgage insurance programs which

are designed to make mortgage financing more accessible to the home-buying public and developers/owners of rental

housing and healthcare facilities. FHA insures private lenders against loss on mortgages which finance single family homes,

multifamily projects, healthcare facilities, property improvements, and manufactured homes. Prior to 1990, the Office of

Housing also provided direct loans for construction and rehabilitation of housing projects for the elderly and persons with

disabilities. Due to COVID-19 the CARES Act provided borrowers with federally backed mortgage loans a 60-day

foreclosure and eviction moratorium and a right to forbearance of loan payments for up to one year for homeowners

experiencing financial hardship. HUD and other federal entities extended the foreclosure and eviction moratorium

administratively through September 30, 2021, and extended the forbearance period for some borrowers to a maximum of 18

months.

89 NOTES TO THE FINANCIAL STATEMENTS

Loan Guarantee Liabilities as of September 30, 2021, and 2020

Loan Guarantee Liabilities

Principal Amount of Loans Under

Guarantee

Principal Amount

Guaranteed by the U.S.

Subsidy Expense (Income) for the

Fiscal Year

(In billions of dollars) 2021 2020 2021 2020 2021 2020 2021 2020

Federal Housing Administration Loans - HUD .................................................................................................................................................................................... (17.9) (6.3) 1,503.6 1,544.4 1,344.4 1,379.7 (25.2) (20.6)

Veterans Housing Benefit Programs - VA ................................................................................................................................................................................. 10.9 7.3 862.2 816.0 218.3 206.3 0.6 (2.3)

Small Business Loans ...................................................................................................................................................................... 227.8 512.7 459.6 646.0 435.3 621.7 296.8 526.8

Rural Housing Services - USDA ........................................................................................................................................................ (1.1) 0.7 123.4 127.9 111.1 115.0 (2.3) 0.7

All other guaranteed loan programs ......................................................................................................................................................................................... 3.7 4.8 85.2 93.9 79.8 88.8 (0.9) (0.2)

Total loan guarantee liabilities ........................................................................................................................................................... 230.7 520.1 3,150.9 3,357.1 2,305.8 2,540.4 279.1 500.9

Loan guarantee programs are also 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 to whom non-federal financial institutions are reluctant to grant credit because of the high risk involved, federal

credit programs guarantee the payment of these non-federal loans and absorb the cost of defaults.

The amount of the long-term cost of post-1991 loan guarantees outstanding equals the liability for loan guarantees as of

September 30. The amount of the long-term cost of pre-1992 loan guarantees equals the allowance for subsidy amounts (or

PV allowance) and the liability for loan guarantees. The long-term cost is based on all guaranteed loans disbursed in this

fiscal year and previous years that are outstanding as of September 30. It includes the subsidy cost of the loan guarantees

estimated as of the time of loan disbursement and subsequent adjustments such as modifications, reestimates, amortizations,

and write-offs.

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

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

fiscal year of loan guarantees outstanding, and for upward or downward reestimates as of the end of the fiscal year of the cost

of loan guarantees outstanding. This expense/(income) is included in the Statements of Net Cost.

Loan Guarantee Liability Programs

The majority of the loan guarantee programs are provided by HUD, VA, SBA, Education and USDA. For additional

information regarding the guaranteed loan programs listed in the tables above, please refer to the financial statements of the

entities.

HUD’s Office of Housing promotes equal housing opportunities. It includes FHA who provides mortgage insurance on

mortgages for single family mortgage loans made by FHA-approved lenders and strives to meet the needs of many first-time

and minority homebuyers who, without the FHA guarantee, may find mortgage credit to be unaffordable or simply

unavailable.

VA operates the following loan guarantee programs: Housing Guaranteed Loans and Loan Sale Guarantees. The Home

Loans program provides loan guarantees to veterans, service members, qualifying dependents, and limited non-veterans to

purchase homes and retain homeownership with favorable market terms. During FY 2021, the face value of outstanding

principal on loans guaranteed by the VA increased by $46.2 billion. This increase was primarily due to $394.5 billion in new

loans guaranteed by the VA, partially offset by $225.3 billion in guaranteed loan terminations.

NOTES TO THE FINANCIAL STATEMENTS 90

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

in qualifying small businesses. The loan guarantee PPP provides loan forgiveness for amounts used for eligible expenses for

payroll and benefit costs, interest on mortgages, and rent, utilities, worker protection costs related to COVID-19, uninsured

property damage costs caused by looting or vandalism during 2020, and certain supplier costs and expenses for operations.

The loan guarantee liability for Small Business Loan Programs which includes the PPP decreased by $284.9 billion due to

PPP loan forgiveness that started taking place in FY 2021.

Education has loan programs that are authorized by Title IV of the Higher Education Act of 1965. The FFEL Program

was established in FY 1965 and operates through state and private, nonprofit guaranty agencies that provided loan guarantees

on loans made by private lenders to eligible students. The Student Aid and Fiscal Responsibility Act, which was enacted as

part of the Health Care Education and Reconciliation Act of 2010 (P.L. 111-152), eliminated the authority to guarantee new

FFEL after June 30, 2010. The COVID-19 relief legislation and administrative actions provided support for student loan

borrowers by temporarily suspending nearly all federal student loan payments interest-free. In addition, all federal wage

garnishments and collections actions for borrowers with federally held loan in default were halted.

USDA’s Rural Development offers guaranteed loans with unique missions to bring prosperity and opportunity to rural

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

communities.

For additional information regarding the CARES Act refer to the financial statements of SBA, Education, HUD and

Note 30—COVID-19 Activity.

91 NOTES TO THE FINANCIAL STATEMENTS

Note 5. Inventory and Related Property, Net

Inventory and Related Property, Net as of September 30, 2021, and 2020

Restated

(In billions of dollars) 2021 2020

Inventory held for current sale .......................................................................................................................................................... 72.1 69.6

Inventory held in reserve for future sale ............................................................................................................................................ 0.9 1.0

Inventory and operating material and supplies held for repair .............................................................................................................. 77.1 57.8

Inventory—excess, obsolete, and unserviceable ............................................................................................................................... 0.7 0.6

Operating materials and supplies held for use ................................................................................................................................... 158.2 149.0

Operating materials and supplies held in reserve for future use .......................................................................................................... 28.6 43.0

Operating materials and supplies-excess, obsolete, and unserviceable ............................................................................................... 0.7 3.1

Stockpile materials held in reserve for future use ................................................................................................................................ 58.6 55.1

Stockpile materials held for sale ....................................................................................................................................................... 7.0 7.5

Other related property ...................................................................................................................................................................... 4.5 5.3

Allowance for loss ........................................................................................................................................................................... (9.2) (10.1)

Total inventory and related property, net ............................................................................................................................................ 399.2 381.9

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. For FY 2021, a change in presentation

was identified. For FY 2021, inventory held in reserve for future sale is included as a separate amount in the table.

Inventory is categorized as one of the following:

• Held for current sale – includes items currently for sale or transfer to either entities outside the federal government, or other federal entities.

• Held in reserve for future sale – includes items being held for sale or transfer to either entities outside the federal government or other federal entities in the future.

• Held for repair – items that require servicing to make them suitable for sale or use. Inventory held for repair may be treated in one of two ways: the allowance method or the direct method. Under the allowance method, inventory held

for repair is valued at the same value as a serviceable item. Under the direct method, inventory held for repair is

valued at the same value as a serviceable item less the estimated repair costs.

• Excess – stock that exceeds the demand expected in the normal course of operations because the amount on hand is more than can be sold in the foreseeable future and that does not meet management’s criteria to be held in reserve

for future sale or use.

• Obsolete – items that are no longer needed due to changes in technology, laws, customs, or operations.

• Unserviceable – damaged items that are more economical to dispose of than to repair. OM&S consists of tangible personal property to be consumed in normal operations and is categorized as one of the

above categories or in the additional listed category below:

• Held in reserve for future sale or use – items maintained because they are not readily available in the market or because there is more than a remote chance that they will eventually be needed.

Stockpile materials are strategic and critical materials held due to statutory requirements for use in national defense,

conservation, or local/national emergencies. Refer to the financial statements of DOD, DOE and HHS for additional

information regarding stockpile materials.

Before selling any stockpile material, Congress must enact specific enabling legislation. When stockpile material is

authorized to be sold federal entities reclassify the material from held in reserve to held for sale and disclose as stockpile

NOTES TO THE FINANCIAL STATEMENTS 92

material held for sale. Stockpile material held for sale includes ores, metals, alloys, and medical supplies authorized for sale.

Other related property consists of the following:

• Forfeited property consists of monetary instruments, intangible property, real property, and tangible personal property acquired through forfeiture proceedings; property acquired by the government to satisfy a tax liability; and

unclaimed and abandoned merchandise. Please refer to the financial statements of DOJ and Treasury for additional

information regarding forfeited property.

• Goods acquired under price support and stabilization programs are referred to as commodities. Commodities are items of commerce or trade having an exchange value. Please refer to the financial statements of USDA for

additional information regarding commodities.

• Seized property includes monetary instruments, real property and tangible personal property of others in the actual or constructive possession of the custodial entity. For additional information on seized property, refer to the

financial statements of DOJ and Treasury.

• Foreclosed property consists of any asset received in satisfaction of a loan receivable or as a result of payment of a claim under a guaranteed or insured loan (excluding commodities acquired under price support programs). For

additional information on foreclosed property, see Note 4—Loans Receivable, Net and Loan Guarantee Liabilities.

Also refer to the financial statements of USDA, VA, and HUD for additional information regarding foreclosed

property.

DOD comprises approximately 81.9 percent of the government’s inventory and related property, net, as of September

30, 2021. DOD followed SFFAS No. 21, Reporting Corrections of Errors and Changes in Accounting Principles and

corrected FY 2020 errors identified during the standalone audits of twenty-six component entities. As a result, FY 2020

OM&S has been restated to reflect the increase of $2.2 billion reported by DOD.

The following entities are the main contributors to the government’s reported inventory and related property, net of

$399.2 billion as of September 30, 2021. Refer to each entity’s financial statements for additional information.

• DOD

• DOE

• Treasury

• HHS

• DHS

93 NOTES TO THE FINANCIAL STATEMENTS

Note 6. General Property, Plant, and Equipment, Net

General Property, Plant, and Equipment, net as of September 30, 2021, and 2020

Cost

Accumulated Depreciation/ Amortization Net Cost

Accumulated Depreciation/ Amortization Net

Restated

(In billions of dollars) 2021 2020

Buildings, structures, and facilities ..................................................................................................................................................... 674.1 381.3 292.8 791.5 487.9 303.6

Furniture, fixtures, and equipment ..................................................................................................................................................... 1,424.3 846.1 578.2 1,390.7 809.6 581.1

Construction in progress ................................................................................................................................................................... 243.5 N/A 243.5 201.2 N/A 201.2

Internal use software ........................................................................................................................................................................ 61.3 38.3 23.0 56.8 35.4 21.4

Land................................................................................................................................................................................................ 22.3 N/A 22.3 22.1 N/A 22.1

Other general property, plant, and equipment .................................................................................................................................... 33.1 16.0 17.1 30.5 20.0 10.5

Total general property, plant, and equipment, net ...................................................................................................................................................................................................

2,458.6 1,281.7 1,176.9 2,492.8 1,352.9 1,139.9

Note: "N/A" indicates not applicable.

DOD comprises approximately 68.8 percent of the government’s reported general PP&E, as of September 30, 2021.

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

which permits alternative methods in establishing opening balances for general PP&E and has elected to exclude land and

land rights. The total acreage excluded was 23,566,363 as of September 30, 2021 and 23,521,368 as of September 30, 2020.

DOD followed SFFAS No. 21, Reporting Corrections of Errors and Changes in Accounting Principles and corrected FY

2020 errors identified during the standalone audits of 26 component entities. As a result, FY 2020 total PP&E is restated to

reflect the decrease of $5.1 billion reported by DOD for the net book value of buildings, structures, facilities, construction-in-

progress, and other general PP&E.

The following entities are the main contributors to the government’s reported general PP&E net of $1,176.9 billion as of

September 30, 2021. Please refer to each entity’s financial statements for additional information.

• DOD

• DOE

• GSA

• DOC

• Treasury

• HHS

• DOI

• USPS

• DHS

• SI

• SSA

• NASA

• VA

• TVA

• State

• DOJ

• DOT

Certain PP&E are multi-use heritage assets, see Note 27—Stewardship Property, Plant, and Equipment for additional

information on multi-use heritage assets.

NOTES TO THE FINANCIAL STATEMENTS 94

Note 7. Investments

Investments as of September 30, 2021 (In billions of dollars) Level 1 Level 2 Level 3 Other Total

Pension Benefit Guaranty Corporation:

Asset backed/mortgage backed securities.......................................................................................................................................... - 8.7 - - 8.7

Corporate bonds and other ............................................................................................................................................................... - 24.4 - - 24.4

International fixed maturity securities ................................................................................................................................................. - 7.9 - - 7.9

Equity securities ............................................................................................................................................................................... 2.5 0.1 - 13.2 15.8

Pooled funds .................................................................................................................................................................................... 0.1 - - 5.9 6.0

Real estate and real estate investment trusts ..................................................................................................................................... 1.7 - - 0.5 2.2

Other securities ................................................................................................................................................................................ - 7.3 0.2 2.7 10.2

U.S. equity ....................................................................................................................................................................................... 8.4 - - - 8.4

Non-U.S. equity ................................................................................................................................................................................ 6.8 - - - 6.8

Private equity ................................................................................................................................................................................... - - - 4.0 4.0

Global fixed income .......................................................................................................................................................................... 0.1 2.7 - 0.5 3.3

Global real assets............................................................................................................................................................................. 0.5 - - 2.2 2.7

Absolute return mandates ................................................................................................................................................................. - - - 0.9 0.9

Opportunistic mandates .................................................................................................................................................................... - - - 0.7 0.7

Total National Railroad Retirement Investment Trust .......................................................................................................................... 15.8 2.7 - 8.3 26.8 .......................................................................................................................................................................................................

Tennessee Valley Authority:

Commingled funds measured at net asset value ................................................................................................................................. - - - 3.0 3.0

Corporate debt securities .................................................................................................................................................................. - 1.8 - - 1.8

Private equity measured at net asset value ........................................................................................................................................ - - - 1.7 1.7

Private real assets measured at net asset value ................................................................................................................................. - - - 1.0 1.0

Private credit measured at net asset value ......................................................................................................................................... - - - 0.4 0.4

Total Tennessee Valley Authority ...................................................................................................................................................... 3.1 3.3 0.1 6.6 13.1 ....................................................................................................................................................................................................... Department of the Treasury ............................................................................................................................................................... 5.3 - - - 5.3 Department of Defense ..................................................................................................................................................................... - - - 11.4 11.4 Smithsonian Institution ...................................................................................................................................................................... 0.5 - - 2.4 2.9 All other ........................................................................................................................................................................................... - - 0.1 0.4 0.5

Total investments ............................................................................................................................................................................. 29.0 54.4 0.4 51.4 135.2

.......................................................................................................................................................................................................

95 NOTES TO THE FINANCIAL STATEMENTS

Investments as of September 30, 2020

(In billions of dollars) Level 1 Level 2 Level 3 Other Restated

Total

Pension Benefit Guaranty Corporation:

Asset backed/mortgage backed securities.......................................................................................................................................... - 5.3 - - 5.3

International fixed maturity securities ................................................................................................................................................. - 9.2 - - 9.2

Real estate and real estate investment trusts ..................................................................................................................................... 1.5 - - 1.3 2.8

Total Pension Benefit Guaranty Corporation ...................................................................................................................................... 4.4 46.3 - 24.7 75.4 .......................................................................................................................................................................................................

National Railroad Retirement Investment Trust:

Total National Railroad Retirement Investment Trust .......................................................................................................................... 13.0 3.6 - 7.0 23.6 .......................................................................................................................................................................................................

Tennessee Valley Authority:

Commingled funds measured at net asset value ................................................................................................................................. - - - 2.4 2.4

Private equity measured at net asset value ........................................................................................................................................ - - - 1.2 1.2

Private real assets measured at net asset value ................................................................................................................................. - - - 0.8 0.8

Private credit measured at net asset value ......................................................................................................................................... - - - 0.2 0.2

Total Tennessee Valley Authority ...................................................................................................................................................... 2.8 2.9 0.1 5.2 11.0 Department of the Treasury ............................................................................................................................................................... 5.8 - - - 5.8 Department of Defense ..................................................................................................................................................................... - - - 11.4 11.4 Smithsonian Institution ...................................................................................................................................................................... 0.4 - - 1.8 2.2 All other ........................................................................................................................................................................................... - - - 0.4 0.4

.......................................................................................................................................................................................................

NOTES TO THE FINANCIAL STATEMENTS 96

PBGC, NRRIT, TVA, and Smithsonian Institution apply financial accounting and reporting standards issued by FASB

and such entities, as permitted by SFFAS No. 47, Reporting Entity are consolidated into the U.S. government’s consolidated

financial statements without conversion to accounting and reporting standards issued by the FASAB. PBGC, NRRIT, and

TVA also hold investments in Treasury securities which are not included in the above tables, as such investments are

eliminated in consolidation.

In FY 2021, a change in presentation occurred to provide clarity and traceability. The investment table reports security

level detail using FV measurement by entity and the table reporting securities as held-to-maturity, available-for-sale, and

trading securities was removed.

DOD restated their FY 2020 other investments to $11.4 billion due to the investments being understated by $7.9 billion

previously. The correction was due to recording of the value of real property non-cash assets conveyed under long-standing

MHPI agreements, generally at the beginning of the individual agreement.

PBGC ensures pension benefits of participants in covered single-employer and multiemployer defined benefit pension

plans and values its financial assets at estimated FV consistent with the standards issued by FASB for pension plans. PBGC’s

investments are used to pay future benefits of covered participants.

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

benefits to the nation’s railroad workers under the RRP. As an investment company, NRRIT is subject to accounting

standards for investment companies issued by FASB.

TVA’s investments consist of amounts held in the Nuclear Decommissioning Trust, Asset Retirement Trust,

Supplemental Executive Retirement Plan, and Deferred Compensation Plan. TVA’s qualified benefit pension plan is funded

with qualified plan assets.

Treasury’s investments consist of foreign currency holdings invested in interest bearing securities issued or held through

foreign governments or monetary authorities and include held-to-maturity debt and equity securities that are valued at net

investment.

Certain other investments reported by DOD represent joint ventures with private developers constructing or improving

military housing on behalf of the department.

Please refer to PBGC, NRRIT, TVA, Treasury, DOD, and Smithsonian’s financial statements for additional information

on these investments and FV measurement.

Fair Value Measurement

Investments are recorded at FV and have been categorized based upon a FV hierarchy, in accordance with FASB ASC

Topic 820. FV is a market-based measurement. For some assets, observable market transactions or market information might

be available. For other assets, observable market transactions and market information might not be available. However, the

objective of a FV measurement in both cases is the same--to estimate the price at which an orderly transaction to sell the asset

would take place between market participants at the measurement date under current market conditions.

When a price for an identical asset is not observable, a reporting entity measures FV using another valuation technique

that maximizes the use of relevant observable inputs and minimizes the use of unobservable inputs. Because FV is a market-

based measurement, it is measured using the assumptions that market participants would use when pricing the asset,

including assumptions about risk. As a result, a reporting entity’s intention to hold an asset is not relevant when measuring

FV.

The measurement of FV of an asset is categorized with different levels of FV hierarchy as follows:

• Level 1—Unadjusted quoted prices in active markets for identical assets that the reporting entity can access at the measurement date.

• Level 2—Inputs other than quoted prices included with Level 1 that are observable for the asset, either directly or indirectly.

• Level 3—Unobservable inputs for the asset.

• Other—This category is not part of the FV hierarchy and contains certain investments that are measured at FV using NAV per share useful method, joint ventures, and held to maturity debt securities measured at amortized cost. Please

refer to PBGC, NRRIT, and TVA’s financial statements for additional information on investments priced by NAV

share (or its equivalent) practical expedient and DOD’s financial statements for additional information about joint

ventures.

97 NOTES TO THE FINANCIAL STATEMENTS

Note 8. Investments in Special Purpose Vehicles

Investments in Special Purpose Vehicles as of September 30, 2021

Cumulative Gross Valuation

(In billions of dollars) Investments Gain (Loss) Fair Value

Main Street Lending Programs .......................................................................................................................................................... 16.6 (1.0) 15.6

Municipal Liquidity Facility ................................................................................................................................................................ 6.3 0.2 6.5

Term Assets Lending Facility ............................................................................................................................................................ 3.5 - 3.5

Total investments in Special Purpose Vehicles 26.4 (0.8) 25.6

Common stock warrants1 .................................................................................................................................................................. 0.8

Total................................................................................................................................................................................................ 26.4

1Investments in common stock warrants are included due to the nature of funding and purpose of financial assistance to provide payroll

support to aviation workers during the pandemic. Common stock warrants gross investment cost is $0.9 billion.

Investments in Special Purpose Vehicles as of September 30, 2020

Cumulative Gross Valuation

(In billions of dollars) Investments Gain (Loss) Fair Value

Corporate Credit Facilities ................................................................................................................................................................ 37.5 (0.1) 37.4

Main Street Lending Programs .......................................................................................................................................................... 37.5 (4.3) 33.2

Term Assets Lending Facility ............................................................................................................................................................ 10.0 (0.1) 9.9

Commercial Paper Funding Facility ................................................................................................................................................... 10.0 0.1 10.1

Total investments in Special Purpose Vehicles 112.5 (4.6) 107.9

Common stock warrants1 .................................................................................................................................................................. 0.5

1Investments in common stock warrants are included due to the nature of funding and purpose of financial assistance to provide payroll

support to aviation workers during the pandemic. Common stock warrants gross investment cost is $0.4 billion

Pursuant to the CARES Act enacted in FY 2020, in response to the COVID-19 pandemic, the government invested in

SPVs established by the Federal Reserve Board through the FRBNY and FRBB for the purpose of enhancing the liquidity of

the U.S. financial system. SPV investments are accounted for as equity investments at FV, rather than as direct loans, as these

instruments do not meet the criteria of SFFAS No. 2, Accounting for Direct Loans and Loan Guarantees. Accordingly,

changes in the FV of these investments are recorded as gains or losses. In FY 2021, SPV gross investments decreased by

$86.1 billion partly from the result of Treasury and the Federal Reserve canceling or amending four of the five SPV

NOTES TO THE FINANCIAL STATEMENTS 98

agreements, and the Federal Reserve returning $62.2 billion in equity investments to Treasury. The Federal Reserve also sold

its remaining investment in two of the SPVs and returned an additional $23.9 billion in equity investments to Treasury.

The FV of SPV equity investments is determined by using available market pricing data, risk-free discount rates, market

pricing of floating interest-rate swaps, and contractual instrument terms to estimate scenario-specific, risk-neutral cash flows

for the SPVs. For determining market pricing data, active market prices for the CCF and TALF programs that own publicly

traded securities, Bloomberg estimated prices for the MLF program which owns securities that do not have active market

prices but have estimated prices in Bloomberg, or market prices for baskets of comparable publicly traded bonds for the MSF

program, based on relevant bond attributes such as instrument credit rating, time to maturity, issuer industry, coupon rate, and

call provisions. Contractual instrument terms and market derived, risk-neutral loss rates and, where applicable, market

pricing of floating interest-rate swaps are used to estimate scenario specific, risk-neutral cash flows which are discounted

using risk-free discount rates.

In deriving the FV of SPV investments, Treasury relied upon market observed prices for SPV purchased assets and

collateral, market prices for comparable assets, asset valuations performed by third parties, historical asset data, discussions

with subject matter experts within Treasury, and other information pertinent to the valuation were relied on. Because the

instruments are not publicly traded, there is no comparable trading information available. The fair valuations rely on

significant unobservable inputs that reflect assumptions about the expectations that market participants would use in pricing.

Under SFFAS No. 47, Reporting Entity criteria, SPVs were owned or established by the federal government. The

relationship with the federal government represents non-permanent intervention designed to help mitigate the economic

impacts. These entities are classified as disclosure entities based on their characteristics as a whole. Accordingly, these

entities are not consolidated into the U.S. government’s consolidated financial statements; however, the value of the

investments in these entities, changes in value, and related activity with these entities are included in the U.S. government’s

consolidated financial statements.

The SPVs invest certain funds in Treasury issued nonmarketable SPV securities. As of September 30, 2021, and 2020,

the total amount of SPV securities outstanding was $22.0 and $96.0 billion in Treasury issued SPV securities respectively.

Please see Note 13—Federal Debt and Interest Payable. For additional information regarding COVID-19 relief, CARES Act

funding, and amendments of SPV agreements refer to Treasury’s financial statements and Note 30—COVID-19 Activity.

Corporate Credit Facilities LLC

On April 13, 2020, the FRBNY established the CCF as the SPV to facilitate both the PMCCF and the SMCCF programs

in support of providing the flow of credit to employers through corporate bond and loan issuances. The FRBNY lends to the

SPV on a recourse basis. The PMCCF was intended to purchase qualified bonds from eligible issuers and purchases portions

of syndicated loans or bonds at issuance, giving issuers access to credit so that they are better able to maintain business

operations and capacity during the period of disruption caused by COVID-19. The SMCCF supported the flow of credit to

employers by providing liquidity to the market for outstanding corporate bonds. The FRBNY loans are secured by all the

assets of the SPV. On December 29, 2020, Treasury’s undisbursed investment commitment of $37.5 billion was canceled

pursuant to the amended SPV LLC agreement, and excess funds of $23.6 billion were returned to Treasury on January 5,

2021. As of December 31, 2020, the SPV ceased purchasing of eligible notes. The FRBNY sold the credit holdings in the

SPV and on September 24, 2021, returned to Treasury the remaining outstanding equity contribution of $13.9 billion and

$17.0 million of interest earnings on special nonmarketable Treasury securities invested within the SPV. Final dissolution of

the CCF SPV is expected in early FY 2022, and Treasury will be entitled to an additional amount equal to 90.0 percent of the

cash balance in all of the other accounts of the SPV.

Main Street Lending Program

On May 18, 2020, the FRBB established the MSF to support lending to small and medium-sized businesses that were in

sound financial condition before the onset of the COVID-19 pandemic and have good post-pandemic prospects. Using loans

from the FRBB, the SPV purchases 95.0 percent participations in loans originated by eligible lenders, while the lender retains

5.0 percent. Loans issued under the MSF program have a five-year maturity, principal payments are deferred for two years,

and interest payments are deferred for one year. Treasury had initially committed to contribute up to $75.0 billion in capital

in the single common SPV in connection with the MSF. On June 1, 2020, Treasury acquired an equity interest in the SPV by

transferring a combination of CARES Act appropriated and Treasury borrowed funds for an aggregate total of $37.5 billion

to the MSF to cover potential losses incurred by the FRBB in connection with this program. On December 29, 2020,

Treasury’s undisbursed investment commitment of $37.5 billion was canceled pursuant to the amended SPV LLC agreement,

and excess funds of $20.9 billion were returned on January 8, 2021. The SPV ceased purchasing of loan participations on

January 8, 2021.

99 NOTES TO THE FINANCIAL STATEMENTS

Municipal Liquidity Facility LLC

On May 1, 2020, the FRBNY established the MLF SPV to help state and local governments manage cash flow

pressures while continuing to serve households and businesses in their communities. The FRBNY lends to the MLF SPV, on

a recourse basis, to allow the facility to purchase short-term notes directly from eligible U.S. states (including the D.C.),

counties and cities. On May 26, 2020, Treasury acquired an equity interest in the SPV by transferring a combination of

CARES Act appropriated and Treasury borrowed funds for an aggregate total of $17.5 billion to the MLF LLC to cover

potential losses incurred by FRBNY in connection with this program. On December 29, 2020, Treasury’s undisbursed

investment commitment of $17.5 billion was canceled pursuant to the amended SPV LLC agreement, and excess funds of

$11.2 billion were returned to Treasury on January 5, 2021. The SPV ceased purchasing eligible notes on December 31,

2020.

Term Asset-Backed Securities Loan Facility II LLC

FRBNY established the TALF SPV on March 23, 2020, to support the flow of credit to consumers and businesses for

purposes of stabilizing the U.S. financial system. The TALF facilitates the issuance of Asset Backed Securities backed by

student loans, auto loans, credit card loans, loans guaranteed by the SBA, commercial mortgages, and certain other assets. On

June 16, 2020, Treasury acquired an equity interest in the SPV by committing to and transferring a combination of CARES

Act appropriated and Treasury borrowed funds for an aggregate total of $10.0 billion to the TALF to cover potential losses

incurred by the FRBNY in connection with this program. On January 5, 2021, excess funds of $6.5 billion were returned to

Treasury pursuant to the amended SPV LLC agreement. No new credit extensions were made after December 31, 2020.

Commercial Paper Funding Facility II LLC

On March 30, 2020, the FRBNY established the CPFF to provide liquidity to short-term funding markets by purchasing

three-month unsecured and asset-backed commercial paper directly from eligible issuers. To cover potential losses incurred

by FRBNY in connection with this program, on April 13, 2020, Treasury made a capital contribution in the CPFF SPV by

transferring $10.0 billion of core ESF funds to the SPV in exchange for a preferred equity interest in the SPV. The SPV

ceased purchasing commercial paper on March 31, 2021. Commencing June 29, 2021 and concluding July 7, 2021, the

FRBNY made final distributions to Treasury for $10.0 billion of capital contribution. These investments were provided to

ESF, which reinvested them in overnight, nonmarketable U.S. Treasury securities. The CPFF SPV was terminated as of July

8, 2021.

Common Stock Warrants

Common stock warrants provide Treasury with the right to purchase shares of common stock or receive a cash payment.

The number of warrants required is equal to 10.0 percent of the principal amount of the note issued by the participant,

divided by an exercise price. The warrants are exercisable for a five-year term. In accordance with the warrant agreement

between Treasury and each recipient, Treasury acknowledges the warrants are not registered under the Securities Act of 1933

and may not be sold without such registration or an exemption. Additionally, the warrants received do not entitle Treasury to

any voting rights or other rights of a shareholder before the date of exercise. Common stock warrants are not considered to be

SPVs but are included here due to the nature of their funding and purpose.

NOTES TO THE FINANCIAL STATEMENTS 100

Note 9. Investments in Government-Sponsored Enterprises

Investments in GSEs as of September 30, 2021 Cumulative Gross Valuation Fair (In billions of dollars) Investments Gain/(Loss) Value

Fannie Mae senior preferred stock .................................................................................................................................................... 158.7 (38.2) 120.5

Freddie Mac senior preferred stock ................................................................................................................................................... 94.9 0.1 95.0

Fannie Mae warrants common stock ................................................................................................................................................. 3.1 0.4 3.5

Freddie Mac warrants common stock ................................................................................................................................................ 2.3 (0.4) 1.9

Total investments in GSEs ............................................................................................................................................................... 259.0 (38.1) 220.9

Investments in GSEs as of September 30, 2020 Cumulative Gross Valuation Fair (In billions of dollars) Investments Gain/(Loss) Value

Freddie Mac senior preferred stock ................................................................................................................................................... 83.9 (46.0) 37.9

Fannie Mae warrants common stock ................................................................................................................................................. 3.1 5.2 8.3

Freddie Mac warrants common stock ................................................................................................................................................ 2.3 2.1 4.4

Congress established Fannie Mae and Freddie Mac as GSEs to provide stability and increase liquidity in the secondary

mortgage market and to promote access to mortgage credit throughout the nation. A key function of the GSEs is to purchase

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

payment of principal and interest on these securities.

Congress passed the Housing and Economic Recovery Act of 2008 (P.L. 110-289) in July 2008 in response to the

financial crisis that year and the increasingly difficult conditions in the housing market which challenged the soundness and

profitability of the GSEs and thereby threatened to undermine the entire housing market. This act created FHFA, with

enhanced regulatory authority over the GSEs, and provided the Secretary of the Treasury with certain authorities intended to

ensure the financial stability of the GSEs, if necessary. In September 2008, FHFA placed the GSEs under conservatorship

and Treasury invested in the GSEs by entering into a SPSPA with each GSE. These actions were taken to preserve the GSEs’

assets, ensure a sound and solvent financial condition, and mitigate systemic risks that contributed to market instability.

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

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

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

Under SFFAS No. 47, Reporting Entity criteria, Fannie Mae and Freddie Mac were owned or controlled by the federal

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

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

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

characteristics as a whole. Accordingly, these entities are not consolidated into the U.S. government’s consolidated financial

101 NOTES TO THE FINANCIAL STATEMENTS

statements; however, the value of the investments in these entities, changes in value, and related activity with these entities

are included in the U.S. government’s consolidated financial statements.

Senior Preferred Stock Purchase Agreements

In return for committing to maintain the GSEs’ solvency by making a quarterly advance of funds to each GSE in an

amount equal to any excess of the GSEs’ total liabilities over its total assets as of the end of the previous quarter, Treasury

initially received from each GSE: 1) 1,000,000 shares of non-voting variable liquidation preference senior preferred stock

with a liquidation preference value of $1,000 per share; and 2) a non-transferable warrant for the purchase, at a nominal cost,

of 79.9 percent of common stock on a fully-diluted basis. The warrants expire on September 7, 2028. Treasury was entitled to

distributions on the senior preferred stock equal to 10.0 percent per annum fixed rate dividend on the total liquidation

preference (as discussed below). This dividend structure was changed in the third amendment in August 2012 to a variable

equivalent to the GSEs’ positive net worth above a capital reserve amount. The capital reserve amount was initially set at

$3.0 billion for calendar year 2013 and, upon nearing its scheduled decline to zero, was reset at $3.0 billion in calendar year

2017. On September 27, 2019, Treasury and FHFA amended the SPSPAs to increase the capital reserve amounts of Fannie

Mae and Freddie Mac to $25.0 billion and $20.0 billion, respectively. In exchange, Treasury’s liquidation preference in each

GSE was scheduled to gradually increase up to the adjusted capital reserve amounts based on the quarterly earnings of each

GSE.

On January 14, 2021, Treasury and FHFA further amended the SPSPAs to replace the prior variable dividend with an

alternative compensation plan for Treasury that permits the GSEs to continue their recapitalization efforts, as prescribed by

the GSE capital framework finalized by FHFA in 2020. Under the amended SPSPAs, each GSE is permitted to retain capital

until the GSE has achieved its regulatory minimum capital requirement, including buffers (i.e., the capital reserve end date),

at which point its cash dividend obligations will resume along with the obligation to pay a periodic commitment fee. As

compensation to Treasury for the replacement of the variable dividend, the liquidation preference of Treasury’s senior

preferred stock in each GSE will increase by the amount of retained capital until each GSE has achieved its capital reserve

end date.

Additionally, the January 14 amendment, among other things, imposed restrictions on certain GSE business activities,

including purchases of loans backed by investment properties, second homes, and multifamily properties, and on purchases

of loans with multiple high-risk characteristics or for cash consideration. On September 14, 2021, Treasury and FHFA agreed

to suspend certain business activity restrictions added to the SPSPAs by the January 14 amendment while FHFA undertakes a

review of the extent to which these requirements are redundant or inconsistent with existing FHFA standards, policies, and

directives. The suspension will terminate on the later of one year after September 14, 2021 or six months after Treasury

notifies the GSEs. Upon conclusion of FHFA’s review, Treasury expects FHFA to propose more permanent changes to the

affected covenants, which may include recalibration of the restrictions or outright termination.

As of September 30, 2021, Treasury’s liquidation preference in Fannie Mae and Freddie Mac increased by $20.9 billion

and $11.0 billion, respectively. As of September 30, 2020, Treasury’s liquidation preference in Fannie Mae and Freddie Mac

increased by $10.8 billion and $6.6 billion, respectively. The GSEs will not pay a quarterly dividend until after the capital

reserve end date. Treasury received no cash dividends for the fiscal years ended September 30, 2021 and 2020, as the GSEs

had not achieved their capital reserve end date as of September 30, 2021, and their positive net worth was below the

permitted capital reserve amounts as of September 30, 2020.

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

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

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

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

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

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

draw. The combined cumulative liquidation preference totaled $254.0 billion and $222.0 billion as of September 30, 2021

and 2020, respectively. There were no payments to the GSEs for the fiscal years ended September 30, 2021 and 2020.

Senior Preferred Stock and Warrants for Common Stock

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

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

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

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

FHFA, and other information pertinent to the valuations. Because the senior preferred stock is not publicly traded, there is no

comparable trading information available. The fair valuation of the senior preferred stock relies on significant unobservable

inputs that reflect assumptions about the expectations that market participants would use in pricing.

NOTES TO THE FINANCIAL STATEMENTS 102

The FV of the senior preferred stock considers forecasted cash flows to equity holders and the traded prices of the other

equity securities, including the GSEs’ common stock and junior preferred stock. The FV of the senior preferred stock-as

measured by unobservable and observable inputs-increased as of September 30, 2021 when compared to September 30, 2020.

The increase primarily is due to higher projected cash flows, a decrease in the market value of the GSEs’ other equity

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

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

shares, the market prices and trading volumes of the underlying common stock as of September 30, the principal market, and

the market participants. Other factors impacting the FV include, among other things, the holding period risk related directly

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

the warrants-as measured by observable inputs-decreased at the end of FY 2021, when compared to FY 2020, primarily due

to decreases in the Level 1 FV measurement of the market price of the underlying common stock of each GSE.

Estimation Factors

Treasury’s forecasts concerning the GSEs may differ from actual experience. Estimated senior preferred values and

future draw amounts will depend on numerous factors that are difficult to predict including, but not limited to, changes in

government policy with respect to the GSEs, the business cycle, inflation, home prices, unemployment rates, interest rates,

changes in housing preferences, home financing alternatives, availability of debt financing, market rates of guarantee fees,

outcomes of loan refinancings and modifications, new housing programs, and other applicable factors.

Contingent Liability to GSEs

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

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

forecast time horizon. Treasury used 25-year financial forecasts prepared through years 2046 and 2045 in assessing if a

contingent liability was required as of September 30, 2021 and 2020, respectively. If future payments under the SPSPAs are

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

a contingent liability to the GSEs to reflect the forecasted equity deficits of the GSEs. Treasury does not discount this accrued

contingent liability, nor take into account any of the offsetting dividends that could be received, as the dividends, if any,

would be owed directly to the General Fund. Treasury will adjust such recorded accruals in subsequent years as new

information develops or circumstances change.

Based on Treasury’s annual assessment, there were no probable future funding draws as of September 30, 2021 and

2020, and thereby accrued no contingent liability. However, as of September 30, 2021, it is reasonably possible that a period

of sustained economic and housing market volatility could potentially cause the GSEs to generate quarterly losses of

sufficient magnitude to result in future funding draws against the funding commitment. Due to challenges quantifying future

market volatility or the timing, magnitude, and likelihood of such events, Treasury could not estimate the total amount of this

reasonably possible future funding liability as of September 30, 2021 and 2020. There were no payments to the GSEs for

fiscal years ended September 30, 2021 and 2020. At September 30, 2021 and 2020, the maximum remaining contractual

commitment to the GSEs for the remaining life of the SPSPAs was $254.1 billion. Subsequent funding draws will reduce the

remaining commitments. Refer to Note 21—Commitments for a full description of other commitments and risks.

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

releases, including their financial statements, monthly business summaries, and quarterly credit supplements, as well as non-

public, long-term financial forecasts, the FHFA House Price Index, discussions with each of the GSEs and FHFA, and other

information pertinent to the liability estimates. The forecasts prepared in assessing the need for an estimated contingent

liability as of September 30, 2021 include two potential scenarios, with varying assumptions regarding the continuation of the

GSEs’ new business activities, including purchasing mortgage loans and issuing new guaranteed MBS. The forecasts as of

September 30, 2021, also assumed the maintenance of the GSEs’ retained mortgage portfolios below the maximum permitted

under the amended SPSPAs.

Regulatory Environment

To date, Congress has not passed legislation nor has FHFA taken action to end the GSEs’ conservatorships. The GSEs

continue to operate under the direction of FHFA as conservator.

The Temporary Payroll Tax Cut Continuation Act of 2011 (P.L. 112-78) was funded by an increase of ten basis points

in the GSEs’ guarantee fees (referred to as “the incremental fees”) which began in April 2012, and is effective through

September 30, 2021. The incremental fees are remitted to Treasury and not retained by the GSEs and, thus, do not affect the

profitability of the GSEs. For fiscal years ended 2021 and 2020, the GSEs remitted to Treasury the incremental fees totaling

$4.9 billion and $4.2 billion, respectively.

103 NOTES TO THE FINANCIAL STATEMENTS

Note 10. Advances and Prepayments

Advances and Prepayments as of September 30, 2021, and 2020

(In billions of dollars) 2021 2020

Department of the Treasury .............................................................................................................................................................. 256.1 68.9

Department of Health and Human Services ........................................................................................................................................ 70.1 106.1

Department of Defense ..................................................................................................................................................................... 20.7 20.5

Department of Labor ......................................................................................................................................................................... 13.0 8.2

All other ........................................................................................................................................................................................... 9.4 14.9

Total advances and prepayments ..................................................................................................................................................... 369.3 218.6

In FY 2021, the presentation for advances and prepayments was modified to present the line item separately on the

Balance Sheet. The FY 2020 presentation was modified to conform to the FY 2021 presentation. Advances and prepayments

are assets that represent funds disbursed in contemplation of the future performance of services, receipt of goods, the

incurrence of expenditures, or the receipt of other assets. These include advances to contractors, grantees, Medicare

providers, and state, local, territorial, and tribal governments; travel advances; and prepayments for items such as rents, taxes,

insurance, royalties, commissions, and supplies.

Until such time as the goods or services are received, contract terms are met or progress has been made, or prepaid

expenses expired these should be recorded as assets. Any amounts that are subject to a refund at the time of completion

should be transferred to accounts receivable.

Treasury had the largest increase, $187.2 billion, to advances and prepayments for FY 2021. During FY 2020, Treasury

disbursed $149.5 billion in COVID-19 funds for financial assistance payments to state, local, territorial, and tribal

governments to cover eligible costs incurred as a result of the pandemic. Treasury disbursed an additional $276.7 billion in

FY 2021. The amounts disbursed during FY 2020 and FY 2021 were initially recorded as advances. The advances balance is

subsequently reduced as eligible costs are incurred. Funding for healthcare providers and suppliers under HHS's AAP during

FY 2020 of $103.6 billion were recorded as advances. Pursuant to the Continuing Appropriations Act, 2021 and Other

Extensions Act, CMS delayed repayment of these advances for one year from the date each provider or supplier's AAP was

issued. Collections of these amounts began in April 2021, which reduced the advances balance.

NOTES TO THE FINANCIAL STATEMENTS 104

Note 11. Other Assets

Other Assets as of September 30, 2021, and 2020

(In billions of dollars) 2021 2020

Regulatory assets............................................................................................................................................................................. 17.5 20.0

Investments in Multilateral Development Banks .................................................................................................................................. 8.5 8.2

Buildout/enhancement of nationwide public safety broadband network................................................................................................. 5.3 4.8

DOE's operating non-federal generation ............................................................................................................................................ 3.4 3.5

Other ............................................................................................................................................................................................... 4.0 6.2

Total other assets ............................................................................................................................................................................ 38.7 42.7

In FY 2021, the presentation for other assets was modified to remove advances and prepayments and report that

information in a separate note, Note 10—Advances and Prepayments.

DOE and TVA record regulatory assets in accordance with FASB ASC Topic 980, Regulated Operations. The

provisions of this standard require that regulated enterprises reflect rate actions of the regulator in their financial statements,

when appropriate. These rate actions can provide reasonable assurance of the existence of an asset, reduce or eliminate the

value of an asset, or impose a liability on a regulated enterprise. In order to defer incurred costs under FASB ASC Topic 980,

a regulated entity must have the statutory authority to establish rates that recover all costs, and those rates must be charged to

and collected from customers. If rates should become market-based, FASB ASC Topic 980 would no longer be applicable,

and all the deferred costs under that standard would be expensed. DOE’s BPA is responsible for repaying Treasury for

transmission and power-generating assets owned by other entities based on this deferred cost. Other regulatory assets for

DOE include BPA’s fixed schedule of benefit payments for investor-owned utility customers, repayment of debt for

terminated nuclear projects, and deferred energy conservation measures relating to fish and wildlife. TVA’s regulatory assets

represent incurred costs that have been deferred because such costs are probable of future recovery in customer rates.

On behalf of the U.S., Treasury invests in certain MDB, through subscriptions to capital, which allows the MDB to

issue loans at market-based rates to middle-income developing countries. These paid-in capital investments are

nonmarketable equity investments valued at cost.

DOC’s cost contribution to buildout/continuing enhancement of the Nationwide Public Safety Broadband network

embodies future economic benefits to the National Telecommunications and Information Administration. Achieving this

important mission will ensure the operation and maintenance of the first high-speed, nationwide wireless broadband network

dedicated to public safety. Please refer to Note 29—Public-Private Partnerships for additional information.

DOE’s BPA is party to long-term contracts to acquire all the generating nuclear and hydroelectric capability of Energy

Northwest’s Columbia Generating Station and Lewis County Public Utility District’s Cowlitz Falls Hydroelectric Project.

These contracts require that BPA meet all the facilities’ operating, maintenance, and debt service costs until their license

termination dates.

Items included in Other are derivative assets, FDIC receivables from resolution activity, non-federal nuclear

decommissioning trusts, and the balance of assets held by the experience rated carriers participating in the Health Benefits

and Life Insurance Programs (pending disposition on behalf of OPM).

105 NOTES TO THE FINANCIAL STATEMENTS

Note 12. Accounts Payable

Accounts Payable as of September 30, 2021, and 2020

Adjusted

(In billions of dollars) 2021 2020

Department of Defense .................................................................................................................................................................... 39.4 36.1

Security Assistance Accounts ........................................................................................................................................................... 17.5 1.5

Department of Veterans Affairs ......................................................................................................................................................... 13.7 12.8

Department of the Treasury .............................................................................................................................................................. 7.3 4.4

General Services Administration ....................................................................................................................................................... 5.5 4.0

Department of Education .................................................................................................................................................................. 5.0 3.8

Department of Energy ...................................................................................................................................................................... 4.8 4.3

Department of State ......................................................................................................................................................................... 3.3 2.7

Department of Justice ...................................................................................................................................................................... 2.6 3.7

Department of Homeland Security ..................................................................................................................................................... 2.6 3.1

U.S. Agency for International Development ........................................................................................................................................ 2.6 2.5

Department of Agriculture ................................................................................................................................................................. 2.4 3.7

U.S. Postal Service .......................................................................................................................................................................... 2.3 2.1

All other........................................................................................................................................................................................... 14.1 14.3

Total accounts payable ..................................................................................................................................................................... 123.1 99.0

Accounts payable includes amounts due for goods and property ordered and received, services rendered by other than

federal employees, cancelled appropriations for which the U.S. government has contractual commitments for payment, and

non-debt related interest payable.

For FY 2020, VA reported a retrospective change in accounting regarding obligations for hospital care or medical

services. The accounts payable balance was adjusted from $18.9 billion to $12.8 billion and was previously reported in Note

14—Federal Employee and Veteran Benefits Payable.

NOTES TO THE FINANCIAL STATEMENTS 106

Note 13. Federal Debt and Interest Payable

Federal Debt and Interest Payable as of September 30, 2021, and 2020 (held by the public)

Average Interest Net Rate (In billions of dollars) 2020 Change 2021 2021 2020 Treasury securities:

Marketable securities:

Treasury bills ................................................................................................................................................................................... 5,028.1 (1,315.2) 3,712.9 0.1% 0.2% Treasury notes ................................................................................................................................................................................ 10,655.9 1,914.6 12,570.5 1.4% 1.9% Treasury bonds ............................................................................................................................................................................... 2,668.1 672.7 3,340.8 3.1% 3.5%

Treasury inflation-protected securities (TIPS) ..............................................................................................................................................................................

1,522.4 129.6 1,652.0

0.5% 0.7%

Treasury floating rate notes (FRN) ..............................................................................................................................................................................................

478.3 101.0 579.3

0.4% 0.3%

Total marketable Treasury securities ........................................................................................................................................................................................

20,352.8 1,502.7 21,855.5

Nonmarketable securities .................................................................................................................................................................. 666.0 (238.6) 427.4 1.3% 1.1%

Net unamortized premiums/(discounts) .......................................................................................................................................................................

(26.7) (0.1) (26.8)

Total Treasury securities, net (public) ...........................................................................................................................................................................................

20,992.1 1,264.0 22,256.1

Agency securities:

Tennessee Valley Authority ............................................................................................................................................................... 19.8 (0.5) 19.3 All other agencies ............................................................................................................................................................................. 0.1 (0.1) -

Total agency securities, net of unamortized premiums and discounts ........................................................................................................................................................................................

19.9 (0.6) 19.3

Accrued interest payable .................................................................................................................................................................. 70.9 (1.5) 69.4

Total federal debt and interest payable ..........................................................................................................................................................................................

21,082.9 1,261.9 22,344.8

Types of marketable securities:

Bills–Short-term obligations issued with a term of 1 year or less.

Notes–Medium-term obligations issued with a term of 2-10 years.

Bonds–Long-term obligations of more than 10 years.

TIPS–Term of 5 years or more. FRN–Term of 2 years.

Federal debt held by the public consists of securities outside the government by individuals, corporations, state or local

governments, FRBs, foreign governments, and other non-federal entities. The above table details government borrowing

primarily to finance operations and shows marketable and nonmarketable securities at face value less net unamortized

premiums and discounts including accrued interest.

Securities that represent federal debt held by the public are issued primarily by Treasury and include:

• Interest-bearing marketable securities (bills, notes, bonds, inflation-protected, and FRN).

107 NOTES TO THE FINANCIAL STATEMENTS

• Interest-bearing nonmarketable securities (Government Account Series held by fiduciary and certain deposit funds, foreign series, state and local government series, domestic series, and savings bonds).

• Non-interest-bearing marketable and nonmarketable securities (matured and other). In FY 2020, Treasury expanded its domestic series to include a new special nonmarketable Treasury security, known as

a SPV security. Treasury issued these securities to SPVs, which were established by the Federal Reserve to implement its

emergency lending facilities under Section 13(3) of the Federal Reserve Act to respond to the COVID-19 pandemic. The

total amount of SPV redemptions in FY 2021 was $74.0 billion and there were no issuances. An SPV security is a demand

deposit certificate of indebtedness for which interest accrues daily and is paid at redemption. As of September 30, 2021 and

2020, the total amount of SPV securities outstanding were $22.0 and $96.0 billion, respectively.

Gross federal debt, with some adjustments, is the sum of debt held by the public and intra-governmental debt holdings

(discussed on the next page) and is subject to a statutory ceiling (i.e., the debt limit). Prior to 1917, Congress approved each

debt issuance. In 1917, to facilitate planning in World War I, Congress and the President first enacted a statutory dollar

ceiling for federal borrowing. With the Public Debt Act of 1941 (P.L. 77-7), Congress and the President set an overall limit of

$65.0 billion on Treasury debt obligations that could be outstanding at any one time; since then, Congress and the President

have enacted a number of debt limit increases.

On August 2, 2019, the BBA of 2019 (P.L. 116-37) was enacted suspending the statutory debt limit through July 31,

2021. A delay in raising the statutory debt limit occurred from August 1, 2021 through December 15, 2021. During the period

of August 2, 2021 through December 15, 2021, Treasury departed from their normal debt management operations and

undertook extraordinary measures to avoid exceeding the statutory debt limit. On October 14, 2021, P.L. 117-50 was enacted

which raised the statutory debt limit by $480.0 billion, from $28,401.5 billion to $28,881.5 billion. Even with this increase,

extraordinary measures continued in order for Treasury to manage below the debt limit. On December 16, 2021, P.L. 117-73

was enacted, raising the debt limit by $2.5 trillion from $28,881.5 billion to $31,381.5 billion. On this date, Treasury

discontinued its use of extraordinary measures and resumed normal debt management operations.

As of September 30, 2021, and 2020, debt subject to the statutory debt limit was $28,401.4 billion and $26,920.4

billion, respectively. The debt subject to the limit includes Treasury securities held by the public and government guaranteed

debt of federal entities (shown in the table above) and intra-governmental debt holdings (shown in the following table). As

noted above, a delay in raising the statutory debt limit existed as of September 30, 2021. Many extraordinary measures taken

by Treasury during the period of August 2, 2021, through September 30, 2021, resulted in federal debt securities not being

issued to certain federal government accounts. See Note 19—Other Liabilities, Note 24—Fiduciary Activities and Note 31—

Subsequent Events for additional information.

NOTES TO THE FINANCIAL STATEMENTS 108

Intra-governmental Debt Holdings: Federal Debt Securities

Held as Investments by Government Accounts as of September 30, 2021, and 2020

Net (In billions of dollars) 2020 Change 2021

Social Security Administration, Federal Old-Age and Survivors Insurance Trust Fund........................................................................................................................................................................

2,811.2 (55.4) 2,755.8

Department of Defense, Military Retirement Fund ............................................................................................................................... 916.3 115.7 1,032.0

Office of Personnel Management, Civil Service Retirement and Disability Fund ...........................................................................................................................................................................

962.1 (36.3) 925.8

Department of Defense, Medicare-Eligible Retiree Health Care Fund .......................................................................................................................................................................................

268.9 20.8 289.7

Department of Health and Human Services, Federal Supplementary Medical Insurance Trust Fund ...................................................................................................................................

87.5 83.2 170.7

Department of Health and Human Services, Federal Hospital Insurance Trust Fund........................................................................................................................................................................

133.7 2.5 136.2

Federal Deposit Insurance Corporation, Deposit Insurance Fund ................................................................................................................................................................................................

108.9 6.6 115.5

Social Security Administration, Federal Disability Insurance Trust Fund ......................................................................................................................................................................................

97.2 0.8 98.0

Department of Housing and Urban Development, FHA, Mutual Mortgage Insurance Capital Reserve Account ...................................................................................................................................

67.9 26.2 94.1

Department of Energy, Nuclear Waste Disposal Fund ......................................................................................................................... 54.7 0.6 55.3 Department of Labor, Unemployment Trust Fund .............................................................................................................................. 50.5 2.6 53.1 Pension Benefit Guaranty Corporation .............................................................................................................................................. 45.6 4.7 50.3

Office of Personnel Management, Employees Life Insurance Fund ...............................................................................................................................................................................................

49.1 1.1 50.2

Office of Personnel Management, Postal Service Retiree Health Benefits Fund ........................................................................................................................................................................

41.9 (3.1) 38.8

Office of Personnel Management, Employees Health Benefits Fund ................................................................................................................................................................................................ 28.3 (0.3) 28.0

U.S. Postal Service, Postal Service Fund ........................................................................................................................................... 15.0 9.7 24.7 Department of the Treasury, ESF ..................................................................................................................................................... 11.2 11.6 22.8

Department of State, Foreign Service Retirement and Disability Fund ................................................................................................................................................................................ 20.0 0.3 20.3

National Credit Union Share Insurance Fund ...................................................................................................................................... 16.6 1.9 18.5 Department of Transportation, Airport and Airway Trust Fund.............................................................................................................. 7.9 8.0 15.9 Pension Benefit Guaranty Corporation Deposit Fund .......................................................................................................................... 12.9 2.1 15.0

Department of Housing and Urban Development, Guarantees of Mortgage-Backed Securities Capital Reserve Account .................................................................................................................... 8.4 5.8 14.2

Department of Commerce, Public Safety Trust Fund, NTIA ................................................................................................................. 7.7 4.5 12.2 Department of Transportation, Highway Trust Fund ............................................................................................................................ 12.1 (0.1) 12.0 All other programs and funds ............................................................................................................................................................ 90.9 5.8 96.7 Subtotal .......................................................................................................................................................................................... 5,926.5 219.3 6,145.8

Total net unamortized premiums/(discounts) for intra- governmental ...................................................................................................................................................................................

72.3 13.9 86.2

Total intra-governmental debt holdings, net ........................................................................................................................................ 5,998.8 233.2 6,232.0

109 NOTES TO THE FINANCIAL STATEMENTS

Intra-governmental debt holdings represent the portion of the gross federal debt held as investments by government

entities such as trust funds, revolving funds, and special funds. As noted above, the delay in raising the debt limit still existed

as of September 30, 2021. As such, suspension of certain investments of the Civil Service Retirement and Disability Fund

contributed to the decrease in the intra-governmental debt holdings balance for the fund.

Government entities that held investments in Treasury securities include trust funds that have funds from dedicated

collections. For additional information on funds from dedicated collections, see Note 23─Funds from Dedicated Collections.

These intra-governmental debt holdings are eliminated in the consolidation of these financial statements.

NOTES TO THE FINANCIAL STATEMENTS 110

Note 14. Federal Employee and Veteran Benefits Payable

Federal Employee and Veteran Benefits Payable as of September 30, 2021, and 2020

Adjusted Civilian Military Total Total (In billions of dollars) 2021 2020 2021 2020 2021 2020 Pension benefits ............................................................................................................................................................................... 2,361.8 2,214.1 1,933.6 1,799.3 4,295.4 4,013.4

Veterans compensation and burial benefits............................................................................................................................................................................................

N/A

4,302.3

3,863.1

4,302.3

3,863.1

Post-retirement health benefits .......................................................................................................................................................... 427.3 418.7 868.7 848.6 1,296.0 1,267.3

Veterans education and training benefits............................................................................................................................................ - - 151.2 133.1 151.2 133.1

Life insurance benefits ...................................................................................................................................................................... 60.1 57.6 4.5 5.1 64.6 62.7

FECA benefits .................................................................................................................................................................................. 29.2 30.6 7.7 7.8 36.9 38.4

Unfunded leave ................................................................................................................................................................................ 10.3 10.0 16.8 15.7 27.1 25.7

Liability for other benefits .................................................................................................................................................................. 1.7 1.6 7.8 10.2 9.5 11.8

Total federal employee and veteran benefits payable .............................................................................................................................................................................. 2,890.4 2,732.6 7,292.6 6,682.9 10,183.0 9,415.5

Note: "N/A" indicates not applicable.

The government offers its employees retirement and other benefits, as well as health and life insurance. The liabilities

for these benefits, which include both actuarial amounts and amounts due and payable to beneficiaries and health care

carriers, apply to current and former civilian and military employees. The actuarial accrued liability represents an estimate of

the PV of the cost of benefits that have accrued, determined based on future economic and demographic assumptions.

Actuarial accrued liabilities can vary widely from year to year, due to actuarial gains and losses that result from changes to

the assumptions and from experience that has differed from prior assumptions.

OPM administers the largest civilian pension and post-retirement health benefits plans. DOD and VA administer the

military pension and post-retirement health benefit plans. Other significant pension plans with more than $10.0 billion in

actuarial accrued liability include those of the Coast Guard (DHS), Foreign Service (State), TVA, and HHS’s Public Health

Service Commissioned Corps Retirement System. Please refer to the financial statements of the entities listed for additional

information regarding their pension plans and other benefits.

In accordance with SFFAS No. 33, Pension, Other Retirement Benefits, and Other Postemployment Benefits: Reporting

the Gains and Losses from Changes in Assumptions and Selecting Discount Rates and Valuation Dates, entities are required

to separately present gains and losses from changes in long-term assumptions used to estimate liabilities associated with

pensions, ORB, and OPEB on the Statement of Net Cost. SFFAS No. 33 also provides a standard for selecting the discount

rate assumption for PV estimates of federal employee pension, ORB, and OPEB liabilities. The SFFAS N o . 33 standard for

selecting the discount rate assumption requires it be based on a historical average of interest rates on marketable Treasury

securities consistent with the cash flows being discounted. Additionally, SFFAS No. 33 provides a standard for selecting

the valuation date for estimates of federal employee pension, ORB, and OPEB liabilities that establishes a consistent method

for such measurements. This SFFAS No. 33 does not apply to the FECA program.

To provide a sustainable, justifiable data resource for the affected entities, Treasury developed a model and

methodology for developing these interest rates in FY 2014.2 The model is based on the methodology used to produce the

HQM Yield Curve pursuant to the Pension Protection Act of 2006. As of July 2014, Treasury began releasing interest rate

yield curve data using this new Treasury’s TNC yield curve, which is derived from Treasury notes and bonds. The TNC

yield curve provides information on Treasury nominal coupon issues and the methodology extrapolates yields beyond

30 years through 100 years maturity. The TNC yield curve is used to produce a Treasury spot yield curve (a zero coupon

curve), which provides the basis for discounting future cash flows.

In addition to the benefits presented in this note, federal, civilian, and military employees and federal entities contribute

to the TSP. The TSP is administered by an independent government entity, the FRTIB, which is charged with operating the

2 Treasury’s HQM resource is available at: https://www.treasury.gov/resource-center/economic-policy/corp-bond-yield/Pages/TNC-YC.aspx

https://www.treasury.gov/resource-center/economic-policy/corp-bond-yield/Pages/TNC-YC.aspx

111 NOTES TO THE FINANCIAL STATEMENTS

TSP prudently and solely in the interest of the participants and their beneficiaries. Please refer to Note 24—Fiduciary

Activities for additional information on the TSP.

For FY 2020, VA reported a retrospective change in accounting regarding obligations for hospital care or medical

services. This change in accounting principle increased the prior year liability for other benefits line by $6.2 billion. In FY

2020, the $6.2 billion was previously reported in Note 12—Accounts Payable.

Pension Benefits

Change in Pension Benefits

Civilian Military Total

(In billions of dollars) 2021 2020 2021 2020 2021 2020

Actuarial accrued pension liability, beginning of fiscal year ..................................................................................................................................................................... 2,214.1 2,094.1 1,799.3 1,759.2 4,013.4 3,853.3

Pension expense:

- - - - - -

Interest on liability ............................................................................................................................................................................ 65.6 65.7 57.0 59.2 122.6 124.9

Actuarial (gains)/losses (from experience) .....................................................................................................................................................................................

46.2

16.3

47.4

19.4

93.6

35.7

Actuarial (gains)/losses (from assumption changes) .......................................................................................................................................................................

80.8

88.7

53.9

(15.0)

134.7

73.7

Total pension expense ................................................................................................................................................................... 244.3 215.2 196.7 100.8 441.0 316.0

Less benefits paid ............................................................................................................................................................................ (96.6) (95.2) (62.4) (60.7) (159.0) (155.9)

Actuarial accrued pension liability, end of fiscal year ........................................................................................................................................................................................ 2,361.8 2,214.1 1,933.6 1,799.3 4,295.4 4,013.4

Significant Long-Term Economic Assumptions Used in Determining Pension

Liability and the Related Expense Civilian Military

2021 2020 2021 2020

FERS CSRS FERS CSRS Rate of interest ................................................................................................................................................................................. 3.10% 2.40% 3.30% 2.70% 2.90% 3.20% Rate of inflation ................................................................................................................................................................................ 1.70% 1.70% 1.70% 1.70% 1.60% 1.60% Projected salary increases ................................................................................................................................................................ 1.30% 1.30% 1.20% 1.20% 2.00% 1.80% Cost of living adjustment .................................................................................................................................................................. 1.50% 1.70% 1.50% 1.70% 1.60% 1.60%

NOTES TO THE FINANCIAL STATEMENTS 112

Civilian Employees’ Pension

OPM administers the largest civilian pension plan, which covers substantially all full-time, permanent civilian federal

employees. This plan includes two components of defined benefits, the CSRS and the FERS. The basic benefit components

of the CSRS and the FERS are financed and operated through the CSRDF, a trust fund. CSRDF monies are generated

primarily from employees’ contributions, federal entity contributions, payments from the General Fund, and interest on

investments in Treasury securities. As of September 30, 2021, USPS has accrued, but not paid OPM, $14.6 billion in CSRS

and FERS retirement benefit expenses since 2014. In order for USPS to preserve liquidity and to ensure the ability to fulfill

its primary universal service mission was not placed at undue risk, USPS has not made any of the required payments for

FERS or CSRS amortization. The cost of each year’s payment, including defaulted payments, along with other benefit

program costs, are included in USPS’ net cost for that year in the consolidated Statements of Net Cost. The liability is not

included on the government-wide Balance Sheet due to the USPS liability being eliminated with OPM’s corresponding

receivable due from USPS recording a loss allowance for doubtful accounts for the unpaid balances.

The civilian pension liability increased by $147.7 billion, primarily due to less favorable than assumed plan experience

and the declining interest rate assumption.

Military Employees’ Pensions

The Military Retirement System consists of a funded, noncontributory, defined benefit plan for military personnel

(Services of Army, Navy, Air Force, Marine Corps, and Space Force) with an entry date prior to January 1, 2018 and the

BRS, generally for military personnel with an entry date on or after January 1, 2018. The defined benefit plan includes non-

disability retired pay, disability retired pay, survivor annuity programs, and Combat-Related Special Compensation. The

Service Secretaries may approve immediate non-disability retired pay at any age with credit of at least 20 years of active duty

service. Reserve retirees must be at least 60 years old and have at least 20 qualifying years of service before retired pay

commences; however, in some cases, the age can be less than 60 if the reservist performs certain types of active service. P.L.

110-181 provides for a 90-day reduction in the reserve retirement age from age 60 for every three months of certain active

duty service served within a fiscal year for service after January 28, 2008 (not below age 50). There is no vesting of defined

benefits before non-disabled retirement. There are distinct non-disability benefit formulas related to four populations within

the Military Retirement System: Final Pay, High-3, Career Status Bonus/Redux, and the BRS enacted in the NDAA for FY

2016, effective January 1, 2018. The BRS is a retirement benefit merging aspects of both a defined benefit annuity with a

defined contribution account, through the TSP. The date an individual enters the military generally determines which

retirement system they would fall under and if they have the option to select, via a one-time irrevocable election, their

retirement system. Military personnel with a start date on or after January 1, 2018 are automatically enrolled in BRS.

Although all members serving as of December 31, 2017 were grandfathered under the prior retirement system, Active Duty,

National Guard and Reserve personnel meeting established criteria may have opted into BRS during calendar year 2018.

Under the BRS, retiring members are given the option to receive a portion of their retired pay annuity in the form of a lump

sum distribution. For additional information on these benefits, see DOD’s Office of Military Compensation website

https://militarypay.defense.gov.

The DOD MRF was established by P.L. 98-94 (currently 10 U.S.C. §1461-1467) and accumulates funds to finance, on

an accrual basis, the liabilities of DOD military retirement and survivor benefit programs. This fund receives income from

three sources: monthly normal cost payments from the Services to pay for DOD’s portion of the current year’s service cost;

annual payments from Treasury to amortize the unfunded liability and pay for the increase in the normal cost attributable to

Concurrent Receipt (certain beneficiaries with combat-related injuries who are receiving payments from VA) per P.L. 108-

136; and investment income.

DOD’s Office of the Actuary calculates the actuarial liability annually using economic and demographic assumptions

about the future (e.g., mortality and retirement rates). The $134.3 billion increase in the Military Retirement Pension liability

is primarily attributable to changes in assumptions and less favorable than assumed plan experience.

The NDAA for FY 2021, §§ 8224-8225 requires the USCG be covered by the MRF no later than the beginning of FY

2023. The USCG actuarial liability will be included on DOD’s September 30, 2022 financial statements.

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

reviews. The pension program for veterans is not accounted for as a “federal employee pension plan” under SFFAS No. 5,

Accounting for Liabilities of the Federal Government due to differences between its eligibility conditions and those of federal

employee pensions. Therefore, a future liability for pension benefits is not recorded. VA pension liabilities are recognized

when due and payable. The projected amounts of future payments for pension benefits (presented for informational purposes

only) as of September 30, 2021, and 2020, was $130.1 billion and $110.6 billion, respectively.

https://militarypay.defense.gov/

https://www.govtrack.us/congress/bills/116/hr6395/text

113 NOTES TO THE FINANCIAL STATEMENTS

Veterans Compensation and Burial Benefits

Change in Veterans Compensation and Burial Benefits

Compensation Burial Total (In billions of dollars) 2021 2020 2021 2020 2021 2020

Actuarial accrued liability, beginning of fiscal year ..................................................................................................................................................................... 3,854.3 3,122.7 8.8 7.1 3,863.1 3,129.8

Current year expense:

Interest on the liability balance .......................................................................................................................................................... 124.5 106.8 0.3 0.2 124.8 107.0

Prior (and past) service costs from program amendments or new programs during the period .............................................................................................................................................................................. 26.3 43.3 1.1 - 27.4 43.3

Total current year expense ................................................................................................................................................................ 548.0 832.7 2.1 2.0 550.1 834.7 Less benefits paid ........................................................................................................................................................................... (110.6) (101.1) (0.3) (0.3) (110.9) (101.4)

Actuarial accrued liability, end of fiscal year ................................................................................................................................................................................................. 4,291.7 3,854.3 10.6 8.8 4,302.3 3,863.1

Significant Economic Assumptions Used in Determining Veterans Compensation and

Burial Benefits as of September 30, 2021, and 2020

2021 2020

The government compensates disabled veterans and their survivors. Veterans’ compensation is payable as a disability

benefit or a survivor’s benefit. Entitlement to compensation depends on the veteran’s disabilities incurred in or aggravated

during active military service, death while on duty, or death resulting from service-connected disabilities after active duty.

Eligible veterans who die or are disabled during active military service-related causes, as well as their dependents, and

dependents of service members who died during active military service, receive compensation benefits. In addition, service

members who die during active military service and veterans who separated under other than dishonorable conditions are

provided with a burial flag, headstone/marker, and grave liner for burial in a VA national cemetery or are provided a burial

flag, headstone/marker and a plot allowance for burial in a private cemetery. These benefits are provided under 38 U.S.C.,

Part 2, §2301-2308, in recognition of a veteran’s military service and are recorded as a liability in the period the requirements

are met.

The liability for veterans’ compensation and burial benefits payable is based on an actuarial estimate of future

compensation and burial payments. The liability increased by $439.2 billion in FY 2021 primarily due to assumption changes

and interest on the liability balance. The total loss from assumption changes was mainly impacted by a decrease in the

discount rate assumptions, increase in the COLA rate assumptions, and by changes in other assumptions such as life

expectancy, new case rates, and mortality improvement rate. The interest on liability cost of $124.8 billion is based on the

prior year liability balance multiplied by the single weighted average discount rate used to compute the liability for veterans’

compensation and burial benefits payable in the prior year.

Several significant actuarial assumptions were used in the valuation of compensation and burial benefits to calculate the

PV of the liability. A liability was recognized for the projected benefit payments to: 1) those beneficiaries, including veterans

NOTES TO THE FINANCIAL STATEMENTS 114

and survivors, currently receiving benefit payments; 2) current veterans who are expected in the future to become

beneficiaries of the compensation program; and 3) a proportional share of those in active military service as of the valuation

date who are expected to be future veterans and to become beneficiaries of the compensation program. Future benefit

payments to survivors of those veterans in classes 1, 2, and 3 above are also incorporated into the projection.

In FY 2021, there were several regulatory changes impacting the prior year service cost component of the veterans’

compensation and burial benefits payable liability. During FY 2021, the Johnny Isakson and David P. Roe, M.D. Veterans

Health Care and Benefits Improvement Act of 2020 (P.L. 116-315) contained various provisions for VA to care for homeless

veterans during a covered public health emergency, to carry out a retraining assistance program for unemployed veterans, and

other purposes. Several sections of this law affected the compensation and burial liability model. There were also two

procedural advisory changes that impacted the liability:

• The section that addresses the musculoskeletal system within the VA’s schedule for rating disabilities was revised to ensure the rating schedule uses current medical terminology, thus providing updated criteria for the evaluation of

musculoskeletal disabilities; and

• VA amended its adjudication regulations to establish presumptive service connection for three chronic respiratory health conditions, i.e., asthma, rhinitis, and sinusitis, including rhinosinusitis, based on exposure to fine, particulate

matter.

These regulatory changes resulted in a combined increase of $26.3 billion in the compensation liability and an increase

of $1.1 billion in the burial liability as of September 30, 2021.

The changes in experience related to compensation benefits resulted from an increase in the number of beneficiaries

receiving compensation benefits.

The veterans’ compensation and burial benefits liability is developed on an actuarial basis. It is impacted by interest on the liability balance, experience gains or losses, changes in actuarial assumptions, prior service costs, and amounts paid for

costs included in the liability balance.

Post-Retirement Health Benefits

Change in Post-Retirement Health Benefits

Civilian Military Total

(In billions of dollars) 2021 2020 2021 2020 2021 2020

Actuarial accrued post-retirement health benefits liability, beginning of fiscal year ............................................................................................................................................. 418.7 415.1 848.6 830.2 1,267.3 1,245.3

Post-Retirement health benefits expense:

- - - - -

Normal costs ................................................................................................................................................................................... 19.8 17.7 25.5 23.0 45.3 40.7 Interest on liability ............................................................................................................................................................................ 14.0 14.4 28.4 29.4 42.4 43.8

Total post-retirement health benefits expense ........................................................................................................................................................................................... 25.0 20.0 42.4 40.2 67.4 60.2

Less claims paid ............................................................................................................................................................................... (16.4) (16.4) (22.3) (21.8) (38.7) (38.2)

Actuarial accrued post-retirement health benefits liability, end of fiscal year ...................................................................................................................................................... 427.3 418.7 868.7 848.6 1,296.0 1,267.3

115 NOTES TO THE FINANCIAL STATEMENTS

Significant Long-Term Economic Assumptions Used in Determining

Post-Retirement Health Benefits and the Related Expense

Civilian Military

2021 2020 2021 2020

Rate of interest ................................................................................................................................................................................ 3.20% 3.40% 3.00% 3.30% Single equivalent medical trend rate .................................................................................................................................................. 4.40% 4.40% 4.11% 4.06% Ultimate medical trend rate ............................................................................................................................................................... 3.20% 3.20% 3.60% 3.60%

Civilian Employees’ Post-Retirement Health Benefits

The post-retirement civilian health benefit liability is an estimate of the government’s future cost of providing post-

retirement health benefits to current employees and retirees. Although active and retired employees pay insurance premiums

under the Federal Employee Health Benefits Program, these premiums cover only a portion of the costs. The OPM actuary

applies economic and demographic assumptions to historical cost information to estimate the liability.

As of September 30, 2021, the USPS has accrued but not paid to the Postal Service Retiree Health Benefits Fund $57.0

billion in payments required under the Postal Accountability and Enhancement Act of 2006 (P.L. 109-435, Title VIII). In

order for USPS to preserve liquidity and to ensure the ability to fulfill its primary universal service mission was not placed at

undue risk, USPS has not made these required payments. The cost for each year’s payment, including defaulted payments,

along with all other benefit program costs, are included in USPS’ net cost for that year in the consolidated Statements of Net

Cost. The liability is not included on the government-wide Balance Sheet due to the USPS liability being eliminated with the

OPM’s corresponding receivable due from USPS recording a loss allowance for doubtful accounts for the unpaid balances.

The post-retirement civilian health benefit liability increased $8.6 billion. This increase is due to the accruing cost of

benefits and interest on the existing liability, largely offset by actuarial gains attributable to favorable plan experience.

Military Employees’ Post-Retirement Health Benefits

Military retirees who are not yet eligible for Medicare (and their non-Medicare eligible dependents) are eligible for

post-retirement medical coverage provided by DOD. Depending on the benefit plan selected, retirees and their eligible

dependents may receive care from MTF on a space-available basis or from civilian providers through TRICARE. This

TRICARE coverage is available as Select (a preferred provider organization a health plan that contracts with medical

providers to create a network of participating providers; member cost-shares are typically higher for services received out-of-

network) and Prime (a health maintenance organization a health plan that limits services to a specific network of medical

personnel and facilities and usually by requiring referral by a primary-care physician for specialty care; coverage is also

available for non-referred and out-of-network care, subject to higher cost-sharing). These post-retirement medical benefits are

paid by the DOD Defense Health Program on a pay-as-you-go basis.

Since FY 2002, DOD has provided medical coverage to Medicare-eligible retirees (and their eligible Medicare-eligible

dependents). This coverage, called TFL, is a Medicare Supplement plan which includes inpatient, outpatient and pharmacy

coverage. Enrollment in Medicare Part B is required to maintain eligibility in TFL. Retirees with TFL coverage can obtain

care from MTF on a space-available basis or from civilian providers.

10 U.S.C., Chapter 56 created the DOD MERHCF, which became operative on October 1, 2002. The purpose of this

fund is to account for and accumulate funds for the health benefit costs of Medicare-eligible military retirees, and their

dependents and survivors who are Medicare eligible. The Fund receives revenues from three sources: interest earnings on

MERHCF assets, Uniformed Services normal cost contributions, and Treasury contributions. The DOD Medicare-Eligible

Retiree Health Care Board of Actuaries (the MERHCF Board) approves the methods and assumptions used in actuarial

valuations of the MERHCF for the purpose of calculating the per capita normal cost rates (to fund the annual accrued

benefits) and determining the unfunded liability amortization payment (Treasury contribution). The Secretary of Defense

directs the Secretary of the Treasury to make DOD’s normal cost payments. The MERHCF pays for medical costs incurred

by Medicare-eligible beneficiaries at MTF and civilian providers (including payments to U.S. Family Health Plans for

grandfathered beneficiaries), plus the costs associated with claims administration.

DOD’s Office of the Actuary calculates the actuarial liabilities annually using assumptions and experience (e.g.,

mortality and retirement rates, health care costs, medical trend rates, and the discount rate). Actuarial liabilities are calculated

for all DOD retiree medical benefits, including both the benefits funded through the MERHCF and the benefits for pre-

NOTES TO THE FINANCIAL STATEMENTS 116

Medicare retirees who are paid on a pay-as-you-go basis. Military post-retirement health and accrued benefits payable

increased $20.1 billion. The increase is primarily attributable to the normal operation of the plan – the cost of benefit accruals

and interest on the liability less benefits paid. The actuarial gain from experience of $40.4 billion is primarily due to increases

in Military Retirement Health Benefits and MERHCF.

In addition to the health care benefits the federal government provides for civilian and military retirees and their

dependents, the VA also provides medical care to veterans on an “as available” basis, subject to the limits of the annual

appropriations. For the FYs 2017 through 2021, the average medical care cost per year was $80.9 billion.

Veterans Education and Training Benefits

Change in Veterans Education and Training Benefits (In billions of dollars) 2021 2020

Prior (and past) service costs from plan amendments or new plans ..................................................................................................... 14.3 - Interest on liability ............................................................................................................................................................................ 3.6 3.8 Actuarial (gains)/losses (from experience) ......................................................................................................................................... 17.4 9.4 Actuarial (gains)/losses (from assumption changes) ........................................................................................................................... (4.1) 27.3 Total current year expense ................................................................................................................................................................ 31.2 40.5 Less benefits paid ............................................................................................................................................................................ (13.1) (13.3)

Actuarial accrued liability, end of fiscal year ....................................................................................................................................... 151.2 133.1

For eligible Veterans and their dependents, the VA provides four education/retraining type programs:

• Post 9/11 GI Bill;

• VR&E;

• Survivors’ and Dependents’ Educational Assistance; and

• Montgomery GI Bill-Active Duty. Based on the actuarial estimates of future payments, the total liability for the four education and training programs

increased by $18.1 billion in FY 2021. The $18.1 billion increase is primarily attributable to experience gains and prior

service costs offset by benefits paid.

In FY 2021, VA conducted experience studies for the Post 9/11 GI Bill, Survivors’ and Dependents’ Educational

Assistance and VR&E programs, which made up the decrease of $4.1 billion from assumption changes. The more significant

changes included within this amount consisted of the change in the duration of the Post 9/11 GI Bill model was reduced to 30

years compared to 62 years used in the prior year, which decreased the liability by $13.8 billion, which is offset by an

increase of $8.1 billion due to changes in the initial enrollment assumption.

In addition, P.L. 116-315 § 1025 eliminated the period of eligibility for training and rehabilitation for certain veterans

with service-connected disabilities. Prior to this legislation, all veterans were required to use their benefits within 12 years of

discharge or release from military service. This resulted in an increase of $14.3 billion in the VR&E liability. The change in

legislation increased the current year expenses and is included in the prior (and past) service costs from plan amendments or

new plans.

For additional information regarding actuarial assumptions and the four education and training type programs, please

refer to VA’s financial statements.

117 NOTES TO THE FINANCIAL STATEMENTS

Life Insurance Benefits

Civilian Employees’ Life Insurance Benefits

Change in Civilian Life Insurance Benefits (In billions of dollars) 2021 2020

Actuarial accrued life insurance benefits liability, beginning of fiscal year ............................................................................................. 57.6 54.6 Life insurance benefits expense:

New entrant expense ....................................................................................................................................................................... 0.7 0.5 Interest on liability ............................................................................................................................................................................ 1.6 1.9 Actuarial (gains)/losses (from experience) ......................................................................................................................................... (0.3) 0.1 Actuarial (gains)/losses (from assumption changes) ........................................................................................................................... 1.2 1.0 Total life insurance benefits expense ................................................................................................................................................. 3.2 3.5 Less costs paid ................................................................................................................................................................................ (0.7) (0.5)

Actuarial accrued life insurance benefits liability, end of fiscal year ...................................................................................................... 60.1 57.6

Significant Long-Term Economic Assumptions Used in Determining Life Insurance

Benefits and the Related Expense

Civilian

2021 2020 Rate of interest ................................................................................................................................................................................. 2.90% 3.10% Rate of increase in salary .................................................................................................................................................................. 1.30% 1.20%

One of the other significant employee benefits is the FEGLI Program. Employee and annuitant contributions and

interest on investments fund a portion of this liability. The actuarial life insurance liability is the expected PV of future

benefits to pay to, or on behalf of, existing FEGLI participants, less the expected PV of future contributions to be collected

from those participants. The OPM actuary uses salary increase and interest rate yield curve assumptions that are generally

consistent with the pension liability.

As of September 30, 2021, the total amount of FEGLI insurance in-force is estimated at $770.3 billion ($664.4 billion

for employees and $105.9 billion for annuitants).

Veterans’ Life Insurance Benefits

The largest veterans’ life insurance programs consist of the following:

• National Service Life Insurance covers policyholders who served during World War II.

• Veterans’ Special Life Insurance was established in 1951 to meet the insurance needs of veterans who served during the Korean Conflict and through the period ending January 1, 1957.

• Service-Disabled Veterans Insurance program was established in 1951 to meet the insurance needs of veterans who received a service-connected disability rating.

Death benefit liabilities consist of reserves for permanent plan and term policies as well as policy benefits for Veterans

Mortgage Life Insurance. Disability income and waiver liabilities consist of reserves to fund the monthly payments to

disabled insureds under the Total Disability Income Provision and the policy premiums waived for qualifying disabled

veterans. Insurance dividends payable consists of dividends left on deposit with VA and dividends payable to policyholders.

Unpaid policy claims consist of insurance claims that are pending at the end of the reporting period, an estimate of claims

that have been incurred but not yet reported, and disbursements in transit. The veteran’s life insurance liability for future

NOTES TO THE FINANCIAL STATEMENTS 118

policy benefits as of September 30, 2021, and 2020, was $4.5 billion and $5.1 billion, respectively. For additional

information on veteran’s life insurance liability, please refer to VA’s financial statements.

The VA supervises SGLI and Veterans Group Life Insurance programs that provide life insurance coverage to members

of the uniformed armed services, reservists, and post-Vietnam Veterans as well as their families. VA has entered into a group

policy with the Prudential Insurance Company of America to administer and provide the insurance payments under these

programs. All SGLI insureds are automatically covered under the Traumatic Injury Protection program, which provides for

insurance payments to veterans who suffer a serious traumatic injury in service.

The amount of insurance in-force is the total face amount of life insurance coverage provided by each administered and

supervised program at the end of the fiscal year. It includes any paid-up additional coverage provided under these policies.

The supervised programs’ policies and face values are not reflected in VA’s liabilities because the risk of loss on these

programs is assumed by Prudential and its reinsurers through the terms and conditions of the group policy. As a result, the

information provided for the supervised programs is for informational purposes only and is unaudited. The face value for

supervised programs as of September 30, 2021, and 2020, was $1,219.0 billion and $1,183.7 billion, respectively. The face

value for administered programs as of September 30, 2021, and 2020, was $5.3 billion and $6.0 billion, respectively.

Federal Employees’ Compensation Act Benefits

Workers’ Compensation Benefits

DOL determines both civilian and military entities’ liabilities for future workers’ compensation benefits for civilian

federal employees, as mandated by the FECA, for death, disability, medical, and miscellaneous costs for approved

compensation cases, and a component for incurred, but not reported, claims. Effective March 12, 2021, the ARP, Section

4016, “Eligibility for Workers’ Compensation Benefits for Federal Employees Diagnosed with COVID-19,” mandates that

accepted COVID-19 claims (or other accepted claims resulting from a coronavirus pandemic) be paid by the fund and are not

billable to other federal entities; related administrative costs, including the fair share costs of non-appropriated entities, are to

be paid by the fund and are not billable. Beginning in FY 2021, the actuarial liability includes claims covered by Section

4016 of the ARP.

The FECA liability is determined annually using historical claim data and benefit payment patterns related to injury

years to predict the future payments. The actuarial methodology provides for the effects of inflation and adjusts liability

estimates to constant dollars by applying wage inflation factors (COLA) and medical inflation factors (CPIM) to the

calculation of projected benefits. DOL selects the COLA factors and CPIM factors by averaging over five years the COLA

rates and CPIM rates, respectively. The FY 2021 methodology for averaging the COLA rates used OMB provided rates; the

FY 2021 methodology for averaging the CPIM rates used OMB‐provided rates and information obtained from the Bureau of

Labor Statistics public releases for CPI. Using averaging renders estimates that reflect trends over five years instead of

conditions that exist in one year.

The COLAs and CPIMs used in the projections for FY 2021 are listed below in the table.

DOL selects the discount rates by averaging interest rates for the current and prior four years. Using averaging renders

estimates that reflect historical trends over five years instead of conditions that exist in one year. DOL selected the interest

rate assumptions whereby projected annual payments were discounted to PV based on interest rate assumptions on the TNC

Yield Curve to reflect the average duration of income payments and medical payments. The average durations for income

payments and medical payments were 15 years and 11 years, respectively. Based on averaging the TNC Yield Curves for the

current and prior four years, the interest rate assumptions for income payments and medical payments were 2.2 percent and

2.1 percent, respectively.

For the COLAs, CPIMs, average durations, and interest rate assumptions used in the projections for FY 2020, refer to

the FY 2020 Financial Report.

119 NOTES TO THE FINANCIAL STATEMENTS

Unfunded Leave

Unfunded leave are the amounts recorded by an employer federal entity for unpaid leave earned that an employee is

entitled to upon separation and that will be funded by future years’ budgetary resources. The unfunded leave total as of

September 30, 2021 and 2020, was $27.1 billion and $25.7 billion, respectively.

Liability for Other Benefits

Liability for other benefits includes several programs. The largest program is VA’s Community Care Program, with an

estimated liability of $6.1 billion as of September 30, 2021.

NOTES TO THE FINANCIAL STATEMENTS 120

Note 15. Environmental and Disposal Liabilities

Environmental and Disposal Liabilities as of September 30, 2021, and 2020

(In billions of dollars) 2021 2020

Department of Energy ....................................................................................................................................................................... 515.6 512.3 Department of Defense ..................................................................................................................................................................... 82.0 75.0 All other entities ............................................................................................................................................................................... 15.7 15.4 Total environmental and disposal liabilities ........................................................................................................................................ 613.3 602.7

After World War II, the U.S. developed a massive industrial complex to research, produce, and test nuclear weapons

and commercial nuclear power reactors. The nuclear complex was comprised of nuclear reactors, chemical-processing

buildings, metal machining plants, laboratories, and maintenance facilities.

At all sites where these activities took place, some environmental contamination occurred. This contamination was

caused by the production, storage, and use of radioactive materials and hazardous chemicals, which resulted in contamination

of soil, surface water, or groundwater. The environmental legacy of nuclear weapons production also includes thousands of

contaminated buildings and large volumes of waste and special nuclear materials requiring treatment, stabilization, and

disposal.

Estimated cleanup costs at sites for which there are no current feasible remediation approaches are excluded from the

estimates, although applicable stewardship and monitoring costs for these sites are included. DOE has not been required

through regulation to establish remediation activities for these sites.

Estimating DOE’s environmental cleanup liability requires making assumptions about future activities and is inherently

uncertain. The future course of DOE’s environmental cleanup and disposal will depend on a number of fundamental technical

and policy choices, many of which have not been made. Some contaminated sites and facilities could be restored to a

condition suitable for any desired use or could be restored to a point where they pose no near-term health risks to the

surrounding communities. Achieving the former condition of the sites and facilities would have a higher cost which may or

may not warrant the cost or be legally required. The environmental and disposal liability estimates include contingency

estimates intended to account for the uncertainties associated with the technical cleanup scope of the program. Congressional

appropriations at lower-than anticipated levels or lack of Congressional approval, unplanned delays in project completions

including potential delays due to COVID-19, unforeseen technical issues, obtaining regulatory approval, among other things,

could cause increases in life-cycle costs.

DOE’s environmental and disposal liabilities also include the estimated cleanup and post-closure responsibilities,

including surveillance and monitoring activities, soil and groundwater remediation, and disposition of excess material for

sites. DOE is responsible for the post-closure activities at many of the closure sites as well as other sites. The costs for these

post-closure activities are estimated for a period of 75 years after the Balance Sheet date, i.e., through 2096 in FY 2021 and

through 2095 in FY 2020. While some post-cleanup monitoring and other long-term stewardship activities post-2096 are

included in the liability, there are others DOE expects to continue beyond 2096 for which the costs cannot reasonably be

estimated.

A portion of DOE’s environmental liability at various field sites includes anticipated costs for facilities managed by

DOE’s ongoing program operations, which will ultimately require stabilization, deactivation, and decommissioning. The

estimates are largely based upon a cost-estimating model. Site specific estimates are used in lieu of the cost-estimating

model, when available. Cost estimates for ongoing program facilities are updated each year. For facilities newly

contaminated since FY 1997, cleanup costs allocated to the periods benefiting from the operations of the facilities. Facilities’

cleanup costs allocated to future periods and not included in the environmental and disposal liabilities amounted to $1.1

billion and $0.9 billion for fiscal years ending September 30, 2021, and 2020, respectively.

DOD has cleanup requirements for DERP for active installations, Base Realignment Closure installations, and Formerly

Used Defense Sites. DOD has additional cleanup requirements for active installations not covered by DERP, weapon systems

programs, and chemical weapons disposal programs. The weapons system program consists of chemical weapons disposal,

121 NOTES TO THE FINANCIAL STATEMENTS

nuclear powered aircraft carriers, nuclear powered submarines, and other nuclear ships. All cleanup efforts are performed in

coordination with regulatory entities, other responsible parties, and current property owners, as applicable.

DOD follows the Superfund Amendments and Reauthorization Act, CERCLA, RCRA or other applicable federal or

state laws to clean up contamination. The CERCLA and RCRA require DOD to clean up contamination in coordination with

regulatory entities, current owners of property damaged by DOD, and third parties that have a partial responsibility for the

environmental restoration. Failure to comply with agreements and legal mandates puts the DOD at risk of incurring fines and

penalties.

DOD uses engineering estimates and independently validated models to estimate environmental costs. The engineering

estimates are based upon extensive data obtained during the remedial investigation/feasibility phase of the environmental

project.

For general PP&E placed into service after September 30, 1997, DOD expenses associated environmental costs

systematically over the life of the asset using two methods: physical capacity for operating landfills and life expectancy in

years for all other assets. DOD expenses the full cost to clean up contamination for stewardship PP&E and certain other

general PP&E at the time the asset is placed into service. DOD has expensed cleanup costs for general PP&E placed into

service before October 1, 1997, except for costs intended to be recovered through user charges. As costs are recovered DOD

expenses cleanup costs associated with the asset life that has passed since the general PP&E was placed into service. DOD

systematically recognizes the remaining cost over the remaining life of the asset. The unrecognized portion of the estimated

total cleanup costs associated with disposal of general PP&E was $4.9 billion and $4.3 billion for fiscal years ending

September 30, 2021, and 2020, respectively.

DOD is responsible for environmental restoration and corrective action for buried chemical munitions and agents;

however, a reasonable estimate is indeterminable because the extent of the buried chemical munitions and agents is unknown.

DOD has ongoing studies for the Formerly Utilized Sites Remedial Action Program and will update its estimate as additional

information is identified. DOD has the potential to incur costs for restoration initiatives in conjunction with returning

overseas DOD facilities to host nations. DOD continues its efforts to reasonably estimate required restoration costs.

Environmental liabilities are subject to changes in laws and regulations, agreements with regulatory entities, and

advances in technology. DOD is unaware of pending changes affecting its estimated cleanup costs. DOD revised estimates

resulting from previously unknown contaminants, reestimation based on different assumptions, and other changes in project

scope.

Please refer to the financial statements of the main contributing entities, DOD and DOE, for additional information

regarding environmental and disposal liabilities, including cleanup costs.

NOTES TO THE FINANCIAL STATEMENTS 122

Note 16. Benefits Due and Payable

Benefits Due and Payable as of September 30, 2021, and 2020

(In billions of dollars) 2021 2020

Federal Old-Age and Survivors Insurance - SSA ................................................................................................................................ 87.4 83.7 Grants to states for Medicaid - HHS .................................................................................................................................................. 52.7 45.8 Federal Supplementary Medical Insurance (Medicare Parts B and D) - HHS ........................................................................................ 43.8 39.4 Federal Hospital Insurance (Medicare Part A) - HHS .......................................................................................................................... 35.9 30.8 Federal Disability Insurance - SSA .................................................................................................................................................... 20.5 21.4 Unemployment Insurance - DOL ....................................................................................................................................................... 19.2 16.5 All other benefits programs ............................................................................................................................................................... 14.4 18.7 Total benefits due and payable .......................................................................................................................................................... 273.9 256.3

Benefits due and payable are amounts owed to program recipients or medical service providers as of September 30 that

have not been paid. Please refer to the financial statements of HHS, SSA, and DOL for more information.

123 NOTES TO THE FINANCIAL STATEMENTS

Note 17. Insurance and Guarantee Program Liabilities

Insurance and Guarantee Program Liabilities as of September 30, 2021, and 2020

(In billions of dollars) 2021 2020

Insurance and Guarantee Program Liabilities:

Single-Employer Pension Plan - Pension Benefit Guaranty Corporation ............................................................................................... 108.9 120.4 Federal Crop Insurance - Department of Agriculture ........................................................................................................................... 14.2 7.7 Multiemployer Pension Plan - Pension Benefit Guaranty Corporation .................................................................................................. 3.0 66.9 Other insurance and guarantee programs .......................................................................................................................................... 3.7 4.3 Total insurance and guarantee program liabilities ............................................................................................................................... 129.8 199.3

The federal government incurs liabilities related to various insurance and guarantee programs as detailed in the table

above. Note 22—Contingencies includes a discussion of contingencies and other risks related to significant insurance and

guarantee programs. Insurance information, and related liability, concerning federal employee and veteran benefits is

included in Note 14—Federal Employee and Veteran Benefits Payable. Social insurance and loan guarantees are not

considered insurance programs under SFFAS No. 51, Insurance Programs, and are accounted for under SFFAS No. 17,

Accounting for Social Insurance, and SFFAS No. 2, Accounting for Direct Loans and Loan Guarantees. Loan guarantees are

disclosed in Note 4—Loans Receivable, Net and Loan Guarantee Liabilities, and social insurance information is included

primarily in the sustainability financial statements and in Note 25—Social Insurance.

Insurance and guarantee program liabilities are recognized for known losses and contingent losses to the extent that the

underlying contingency is deemed probable and a loss amount is reasonably measurable. Please see Note 22—Contingencies

for discussion on the meaning of “probable” depending on the accounting framework used by each significant consolidation

entity. As discussed in Note 1.O—Insurance and Guarantee Program Liabilities, certain significant consolidation entities (i.e.,

PBGC, FDIC, and FCSIC) apply FASB standards, and such entities, as permitted by SFFAS No. 47, Reporting Entity, are

consolidated into the U.S. government’s consolidated financial statements without conversion to FASAB standards. PBGC,

which insures defined benefit pensions, applies FASB standards and has the largest insurance and guarantee program

liability.

PBGC insures pension benefits for participants in covered defined benefit pension plans. The FY 2021 decrease of

$75.4 billion in PBGC’s liability for its two separate insurance programs is comprised of: 1) a decrease of $11.5 billion in the

single-employer program liability; and 2) a decrease of $63.9 billion in the multiemployer program liability. As of September

30, 2021, and 2020, PBGC had total liabilities of $122.8 billion and $194.9 billion, respectively. As of September 30, 2021,

PBGC’s total assets exceeded its total liabilities by $31.4 billion, and in FY 2020 its total liabilities exceeded its total assets

by $48.3 billion, respectively. The majority of the change in liability from FY 2020 to FY 2021 occurred in the

multiemployer program and was due to the enactment of the ARP on March 11, 2021. ARP established the SFA program for

distressed multiemployer pension plans that meet specific eligibility criteria therefore, this resulted in the majority of the

$63.9 billion decrease in the liability mentioned above. The SFA program is administered by PBGC and paid in a lump sum

rather than in period payments. An application under ARP must be filed by the eligible plans no later than December 31,

2025. Unlike PBGC’s insolvency insurance program for multiemployer plans, which is funded by insurance premiums, the

SFA program is funded by appropriations from the General Fund. The SFA program is intended to enable eligible plans to

pay benefits and administrative expenses for the next 30 years, and as a result, the vast majority of PBGC’s liability for

traditional financial assistance recognized in previous years for ongoing plans that were previously expected to become

insolvent has been reversed (i.e., unbooked). PBGC intends to publish a final regulation in FY 2022. Refer to PBGC’s

financial statements for additional information and to Note 22—Contingencies for additional information regarding insurance

contingencies and exposure.

As of September 30, 2021, and 2020, $14.2 billion and $7.7 billion, respectively, pertain to USDA’s Federal Crop

Insurance Program. The Federal Crop Insurance Program is administered by the FCIC, which provides insurance to reduce

agricultural producers’ economic losses due to natural disasters. The Federal Crop Insurance increase of $6.5 billion was

NOTES TO THE FINANCIAL STATEMENTS 124

attributed to higher coverage amount as the result of higher crop prices, increased participation in insurance products and

higher level of losses caused by widespread drought.

As of September 30, 2021, and 2020, $3.4 billion and $2.8 billion, respectively, pertain to the DHS NFIP, which are

included in other insurance and guarantee programs. The NFIP insurance program liability represents an estimate based on

the loss and loss adjustment expense factors inherent to the NFIP Insurance Underwriting Operations, including trends in

claim severity and frequency. The estimate is driven primarily by flooding activity in the U.S. and can vary significantly year

over year depending on the timing and severity of flooding activity.

125 NOTES TO THE FINANCIAL STATEMENTS

Note 18. Advances from Others and Deferred Revenue

Advances from Others and Deferred Revenue as of September 30, 2021, and 2020

(In billions of dollars) 2021 2020

Security Assistance Accounts ........................................................................................................................................................... 125.7 100.2

Department of Energy ...................................................................................................................................................................... 48.8 47.1

Total advances from others and deferred revenue .............................................................................................................................. 202.0 174.2

In FY 2021, the presentation for advances from others and deferred revenue was modified to present the line item

separately on the Balance Sheet. The FY 2020 presentation was modified to conform to the FY 2021 presentation. Advances

from others and deferred revenue consists of payments received in advance of performance of activities for which revenue

has not been earned and other deferred revenue or income received but not yet earned not otherwise classified as advances or

repayments. Some examples include deferred project revenue funded in advance, funds received in advance under the terms

of a settlement agreement, prepaid postage, and unearned fees, assessments, and surcharges.

SAA contracts authorize progress payments based on cost and increased to $125.7 billion during FY 2021, compared to

$100.2 billion in FY 2020. This increase was due to improved financial reporting from a large Navy case management

system. In accordance with contract terms, specific rights to the contractors’ work vest when a specific type of contract

financing payment is made. Due to the probability the contractors will complete their efforts and deliver satisfactory

products, and because the amount of potential future payments are estimable, the SAA has recognized a contingent liability

for estimated future payments which are conditional pending delivery and government acceptance.

The DOE’s Nuclear Waste Fund collects revenues from owners or generators of high-level radioactive waste and SNF

to pay their share of disposal costs. These revenues are recognized as a financing source as costs are incurred, and revenues

that exceed the expenses are considered deferred revenue.

NOTES TO THE FINANCIAL STATEMENTS 126

Note 19. Other Liabilities

Other Liabilities as of September 30, 2021, and 2020

(In billions of dollars) 2021 2020

Other liabilities without related budgetary obligations .......................................................................................................................... 258.2 97.5

Allocation of special drawing rights .................................................................................................................................................... 161.8 49.7

Other liabilities with related budgetary obligations ............................................................................................................................... 66.2 67.3

Actuarial liabilities for Treasury-managed benefits program ................................................................................................................. 51.0 45.8

Contingent liabilities ......................................................................................................................................................................... 46.4 46.5

Accrued funded payroll and leave...................................................................................................................................................... 26.4 24.5

Other miscellaneous liabilities ........................................................................................................................................................... 67.1 62.7

Total other liabilities .......................................................................................................................................................................... 677.1 394.0

Other liabilities are the amounts owed to the public and are not reported elsewhere in the Balance Sheet. A change in

presentation was identified to improve clarity of the Financial Report. To conform with the FY 2021 presentation of the

Financial Report, other deferred revenue and liability for advances and prepayments are now reported under Note 18—

Advances from Others and Deferred Revenue.

• Other liabilities without related budgetary obligations represent those unfunded liabilities for which congressional action is needed before budgetary resources can be provided. The largest contributor to this category is Treasury

which incurred a liability in FY 2021 for the restoration of federal debt principal and interest. This resulted from

debt management measures taken during the delay in raising the statutory debt limit, which included suspending

investments in Treasury debt securities by the Government Securities Investment Fund of the FERS TSP. As a result

of Treasury securities not being issued to the TSP’s G Fund, Treasury reported other liabilities, as of September 30,

2021, in the amount of $157 billion that represent uninvested principal and related interest for the TSP’s G Fund that

would have been reported in Note 13—Federal Debt and Interest Payable had there not been a delay in raising the

statutory debt limit as of September 30, 2021 and had the securities been issued. For additional information related

to the impact on the TSP, see Note 24—Fiduciary Activities and Note 31—Subsequent Events. Also contributing to

this category are SAA’s liability to offset non-entity cash and DOE’s contractor-sponsored pension plans and other

post-retirement benefits.

• Allocation of SDR is the amount of corresponding liability representing the value of the reserve assets allocated by the IMF to meet global needs to supplement existing reserve assets. SDR derive their quality as reserve assets from

the undertakings of the members to accept them in exchange for “freely useable” currencies (the U.S. dollar,

European euro, Japanese yen, and British pound sterling). Treasury is the sole contributor. During FY 2021, the

government increased its commitment to hold additional SDR to help provide liquidity to the global economic

system in response to the COVID-19 pandemic, resulting in a $112.1 billion year to year increase. For additional

information, refer to Note 30—COVID-19 Activity and Note 28—Disclosure Entities and Related Parties.

• Other liabilities with related budgetary obligations are amounts of liabilities for which there is a related budgetary obligation. Grant accruals, subsidies, and unpaid obligations related to assistance programs are all part of this

category. The largest contributors are DOT, HHS, and USDA.

• Actuarial liabilities for Treasury-managed benefit programs are the amounts recorded by Treasury for actuarial liabilities of future benefit payments to be paid from programs such as the D.C. Federal Pension Fund and the D.C.

Judicial Retirement Fund. The only contributors are DOL and Treasury.

• Contingent liabilities are amounts that are recognized as a result of a past event where a future outflow or sacrifice of resource is probable and measurable. These consist of a wide variety of administrative proceedings, legal actions,

and tort claims which may ultimately result in settlements or decisions adverse to the federal government. DOE and

HHS are the top contributors.

127 NOTES TO THE FINANCIAL STATEMENTS

• Accrued funded payroll and leave are the estimated amounts of liabilities for salaries, wages and funded annual leave and sick leave that have been earned but are unpaid. The most substantial contribution is from DOD.

• Other miscellaneous liabilities are the liabilities not otherwise classified above. Many entities reported relatively small amounts.

The following entities are the main contributors to the government’s reported other liabilities as of September 30, 2021.

Refer to each entity’s financial statements for additional information:

• Treasury • DOD • PBGC

• DOE • DOT • Education

• DOL • USPS • DOJ

• SAA • USDA • TVA

• HHS • DHS • VA

NOTES TO THE FINANCIAL STATEMENTS 128

Note 20. Collections and Refunds of Federal Revenue

Collections of Federal Tax Revenue for the Year Ended September 30, 2021

Federal Tax Year to Which Collections Relate

Tax

Revenue Prior

(In billions of dollars) Collections 2021 2020 2019 Years

Corporate income taxes ................................................................................................................................................................... 419.0 254.8 130.5 4.3 29.4 Excise taxes .................................................................................................................................................................................... 83.6 63.2 19.9 0.2 0.3 Unemployment taxes ....................................................................................................................................................................... 50.4 41.6 8.7 - 0.1 Customs duties ................................................................................................................................................................................ 85.6 79.3 6.3 - - Estate and gift taxes ........................................................................................................................................................................ 28.1 1.5 21.1 2.7 2.8 Railroad retirement taxes ................................................................................................................................................................. 5.3 4.2 1.1 - - Fines, penalties, interest, and other revenue ...................................................................................................................................... 4.2 4.0 0.2 - - Subtotal ........................................................................................................................................................................................... 4,270.1 2,731.6 1,419.6 51.0 67.9 Less: amounts collected for non-federal entities ................................................................................................................................. (0.5) Total ................................................................................................................................................................................................ 4,269.6

Treasury is the government’s principal revenue-collecting entity. Collections of individual income and tax withholdings

include FICA/SECA and individual income taxes. These taxes are characterized as non-exchange revenue.

Excise taxes, also characterized as non-exchange revenue, consist of taxes collected for various items, such as airline

tickets, gasoline products, distilled spirits and imported liquor, tobacco, firearms, and others.

Tax and other revenues reported reflect the effects of tax expenditures, which are special exclusions, exemptions,

deductions, tax credits, preferential tax rates, and tax deferrals that allow individuals and businesses to reduce taxes they may

otherwise owe. The Budget Act (P.L. 93-344) requires that a list of tax expenditures be included in the annual Budget. Tax

expenditures may be viewed as alternatives to other policy instruments, such as spending or regulatory programs. For

example, the government supports college attendance through both spending programs and tax expenditures. The government

uses Pell Grants to help low- and moderate-income students afford college and allows certain funds used to meet college

expenses to grow tax free in special college savings accounts.

Tax expenditures include deductions and exclusions, which reduce the amount of income subject to tax. Examples are

the deduction for mortgage interest on personal residences and the exclusion of interest on state and local bonds. Tax

expenditures also include tax credits, which reduce tax liability dollar for dollar for the amount of credit. In taxable year

2021, taxpayers may claim a credit for up to $3,600 per child under age six and up to $3,000 per child age six through 17.

Other credits are targeted at business activity, such as credits for producing electricity from renewable energy or the research

and experimentation credit, which encourages businesses in the U.S. to increase investment in research activities. In addition,

tax expenditures include some provisions that allow taxpayers to defer tax liability. Examples include provisions that allow

immediate expensing or accelerated depreciation of certain capital investments, and others that allow taxpayers to defer their

tax liability, such as the deferral of recognition of income on contributions to and income accrued within qualified retirement

plans.

The total revenues reported in the Statement of Operations and Changes in Net Position and the related information

reported in this note, do not include explicit line items for tax expenditures, but the total revenue amounts and budget results

reflect the effect of these expenditures. Tax expenditures are discussed in this note, the unaudited MD&A, and in the

unaudited Other Information section of the Financial Report.

129 NOTES TO THE FINANCIAL STATEMENTS

Federal Tax Refunds Disbursed and Other Payments for the Year Ended September 30, 2021

Tax Year to Which Refunds Relate

Refunds Prior

(In billions of dollars) Disbursed 2021 2020 2019 Years

Reconciliation of Revenue to Tax Collections for the Year

Ended September 30, 2021, and 2020

(In billions of dollars) 2021 2020

Total collections of federal tax revenue .............................................................................................................................................. 4,269.6

3,628.9

Refunds of federal taxes and other payments ..................................................................................................................................... (1,145.6) (744.1) Individual and other tax credits .......................................................................................................................................................... 804.2 436.8 Federal Insurance Contributions Act - Tax .......................................................................................................................................... (16.4) (15.4) Federal Reserve earnings ................................................................................................................................................................. 100.1 81.9 Change in taxes receivable ............................................................................................................................................................... 68.0 91.7 Nontax-related fines and penalties reported by entities ........................................................................................................................ 81.4 75.4 Nontax-related earned revenue ......................................................................................................................................................... 94.6 16.4

Consolidated revenue per the Statement of Operations and Changes

in Net Position ................................................................................................................................................................................. 4,255.9 3,571.6

.......................................................................................................................................................................................................

Consolidated revenue in the Statement of Operations and Changes in Net Position is presented on a modified cash basis,

net of tax refunds, and includes other non-tax related revenue. Refunds of federal taxes and other payments and individual

and other tax credits in FY 2021 and FY 2020 include the CARES Act, CAA and ARP stimulus disbursements of $569.5

billion and $274.7 billion, respectively, to eligible taxpayers. Individual and other tax credits amounts are included in gross

cost in the Statements of Net Cost. Refer to Note 3—Accounts Receivable, Net for further explanation of line changes in taxes receivable. The FICA – tax paid by federal entities is included in the individual income and tax withholdings line in the

Collections of Federal Tax Revenue; however, it is not reported on the Statement of Operations and Changes in Net Position

as these collections are intra-governmental revenue and eliminated in consolidation. The table above reconciles total revenue

to federal tax collections. The above table reflects a change in presentation for FY 2021. The table presentation was

reconfigured to reconcile Collections of Federal Tax Revenue to the Consolidated revenue per the Statement of Operations

and Changes in Net Position.

NOTES TO THE FINANCIAL STATEMENTS 130

Collections of Federal Revenue for the Year Ended September 30, 2020

Federal Tax Year to Which Collections Relate

Tax

Revenue Prior

(In billions of dollars) Collections 2020 2019 2018 Years

Fines, penalties, interest and other revenue ........................................................................................................................................................................................... 3.2 3.1 0.1 - -

Subtotal ........................................................................................................................................................................................... 3,629.4 2,283.3 1,258.1 45.9 42.1

Less: amounts collected for non- federal entities ................................................................................................................................................................................. (0.5)

Total ................................................................................................................................................................................................ 3,628.9

Federal Tax Refunds Disbursed and Other Payments for the Year Ended September 30, 2020

Tax Year to Which Refunds Relate

Refunds Prior

(In billions of dollars) Disbursed 2020 2019 2018 Years

131 NOTES TO THE FINANCIAL STATEMENTS

Note 21. Commitments

Long-Term Operating Leases as of September 30, 2021, and 2020 (In billions of dollars) 2021 2020 General Services Administration ....................................................................................................................................................... 25.8 24.0 Department of Veterans Affairs ......................................................................................................................................................... 4.9 4.3 Department of Health and Human Services ....................................................................................................................................... 2.3 1.2 Department of State ......................................................................................................................................................................... 1.3 1.4 Other operating leases ..................................................................................................................................................................... 3.3 3.8 Total long-term operating leases ....................................................................................................................................................... 37.6 34.7

The government has entered into contractual commitments that require future use of financial resources. It has

significant amounts of long-term lease obligations. Long-Term Operating Leases in this note refer to those leases in which

federal entities do not assume the risks of ownership of the underlying general PP&E, and payments are expensed over the

lease term. The lease liabilities and assets arising from operating leases for FASB-reporting entities who early-implemented

FASB ASC 842, Leases, are recorded on the Balance Sheet in other liabilities and PP&E, respectively, and thus are not

included in this Commitments note.

NOTES TO THE FINANCIAL STATEMENTS 132

Undelivered Orders and Other Commitments as of September 30, 2021, and 2020

Restated (In billions of dollars) 2021 2020

Undelivered Orders - Unpaid:

Department of Defense ..................................................................................................................................................................... 411.5 395.0 Department of Education ................................................................................................................................................................... 321.4 138.6 Department of Health and Human Services ........................................................................................................................................ 288.8 187.2 Department of Transportation ............................................................................................................................................................ 141.1 125.3 Department of Housing and Urban Development ................................................................................................................................ 93.4 59.8 Department of Agriculture ................................................................................................................................................................. 84.5 78.4 Department of Homeland Security ..................................................................................................................................................... 81.0 60.6 Security Assistance Accounts ............................................................................................................................................................ 37.3 55.3 Department of Energy ....................................................................................................................................................................... 33.9 31.7 Department of State .......................................................................................................................................................................... 26.8 28.4 Environmental Protection Agency ...................................................................................................................................................... 20.7 15.0 U.S. Agency for International Development ........................................................................................................................................ 20.5 19.5 Small Business Administration ........................................................................................................................................................... 20.1 21.6 All other entities ................................................................................................................................................................................ 149.9 252.1

Total undelivered orders - unpaid ...................................................................................................................................................... 1,730.9 1,468.5

Other Commitments:

GSE Senior Preferred Stock Purchase Agreements ............................................................................................................................ 254.1 254.1 U.S. participation in the International Monetary Fund .......................................................................................................................... 162.6 123.4 Callable capital subscriptions for Multilateral Development Banks ........................................................................................................ 125.6 123.3 All other commitments ...................................................................................................................................................................... 18.1 19.0

Total other commitments .................................................................................................................................................................. 560.4 519.8

Undelivered Orders and Other Commitments

Undelivered Orders - Unpaid

Undelivered orders, included in this note disclosure, represent the value of goods and services ordered that have not yet

been received and that have not been prepaid. As of September 30, 2021, and 2020, the total reported undelivered orders

were $1,730.9 billion and $1,468.5 billion, respectively. Undelivered orders had a net increase of $262.4 billion from 2020 to

2021. While Treasury, which is included in All other entities in the above table, had a decrease in undelivered orders,

Education, HHS and HUD all experienced increases. Treasury's decrease in undelivered orders from $120.5 billion in FY

2020 to $5.9 billion in FY 2021, was primarily the result of a $114.6 billion de-obligation of undisbursed but previously

committed CARES Act funds. Refer to Note 8—Investments in Special Purpose Vehicles for additional information.

Education had a $182.8 billion increase that resulted primarily from an increase in unpaid, undelivered orders related to

COVID-19. HHS had a $101.6 billion increase primarily due to COVID-19 activity. HUD also had an increase of $33.6

billion primarily the result of COVID-19 activity.

GSE Senior Preferred Stock Purchase Agreements

As of September 30, 2021, and 2020, the maximum remaining potential commitment to the GSEs for the remaining life

of the SPSPAs was $254.1 billion, which was established on December 31, 2012. Refer to Note 9—Investments in

Government-Sponsored Enterprises for a full description of the SPSPAs related commitments and contingent liability, if any,

as well as additional information.

133 NOTES TO THE FINANCIAL STATEMENTS

U.S. Participation in the International Monetary Fund

The government participates in the IMF through a quota subscription and certain borrowing arrangements that

supplement IMF resources. As of September 30, 2021, and 2020, the financial commitment under the U.S. quota and

borrowing arrangements was $162.6 billion and $123.4 billion, respectively. The financial commitment of the U.S.

participation in the IMF for FY 2020 was restated to reduce the amount from $156.3 billion to $123.4 billion. This

restatement was due to erroneously reporting drawn amounts of the U.S. participation versus the undrawn amount remaining.

Refer to Note 2—Cash and Other Monetary Assets and Note 28—Disclosure Entities and Related Parties for additional

information regarding the U.S. participation in the IMF.

Callable Capital Subscriptions for Multilateral Development Banks

The government has callable subscriptions in certain MDB, which are international financial institutions that finance

economic and social development projects in developing countries. Callable capital in the MDB serves as a supplemental

pool of resources that may be redeemed and converted into ordinary paid in shares, if the MDB cannot otherwise meet certain

obligations through its other available resources. MDB are able to use callable capital as backing to obtain favorable

financing terms when borrowing from international capital markets. To date, there has never been a call on this capital at any

MDB and none is anticipated. As of September 30, 2021, and 2020, the capital commitment to MDB was $125.6 billion and

$123.3 billion, respectively.

Other Risks

U.S. Contributions to International Organizations

The U.S. government enters into agreements to pay future contributions to international organizations in which it

participates as a member. These contributions may include financial and in-kind support, including assessed contributions,

voluntary contributions, grants, and other assistance to international organizations. Following are examples of international

organizations and their underlying missions that are supported by U.S. contributions:

• Office of the United Nations High Commissioner for Refugees, which was established to safeguard the rights and well-being of refugees;

• International Committee of the Red Cross, which provides humanitarian protection and assistance for victims of armed conflict and other situations of violence;

• International Organization for Migration, which supports migration programs and the U.S. Refugee Assistance Program;

• North Atlantic Treaty Organization, which promotes conflict prevention and peaceful resolution of disputes;

• United Nations, which enables the world’s nations to work together toward freedom, democracy, peace, and human rights;

• World Food Program, which provides emergency nutrition programming;

• Global Environment Facility, which is a multilateral trust fund that provides grants for global environmental projects;

• Green Climate Fund, which was established to support the efforts of developing countries to respond to the challenge of climate change;

• United Nations Children’s Fund, which promotes humanitarian and developmental assistance to children and mothers in developing countries; and

• WHO, which provides international health activities within the United Nations system and aids in health systems; including activities that address non-communicable and communicable diseases; environmental health; and natural

and man-made emergencies.

NOTES TO THE FINANCIAL STATEMENTS 134

Note 22. Contingencies

Loss contingencies are existing conditions, situations, or sets of circumstances involving uncertainty as to possible loss

to an entity. The uncertainty will ultimately be resolved when one or more future events occur or fail to occur. The

government is subject to loss contingencies related to:

• Legal and environmental and disposal;

• Insurance and guarantees; and

• Other Contingencies. The government is involved in various litigation, including administrative proceedings, legal actions, and tort claims,

which may ultimately result in settlements or decisions adverse to the government. In addition, the government is subject to

loss contingencies for a variety of environmental cleanup costs for the storage and disposal of hazardous material as well as

the operations and closures of facilities at which environmental contamination may be present. Refer to the Legal

Contingencies and Environmental and Disposal Contingencies section of this note for additional information.

The government provides insurance and guarantees via a variety of programs. At the time an insurance policy or

guarantee is issued, a contingency arises. The contingency is the risk of loss assumed by the insurer, that is, the risk of loss

from events that may occur during the term of the policy. For additional information, refer to the Insurance and Guarantees

sections of this note.

Other contingencies include those related to the government’s establishment of construction budgets without receiving

appropriations from Congress for such projects, appeals of Medicaid audit and program disallowances by the states, potential

draws by GSEs, and whistleblower awards. The government is also a party to treaties and other international agreements.

These treaties and other international agreements address various issues including, but not limited to, trade, commerce,

security, and law enforcement that may involve financial obligations or give rise to possible exposure to losses. For

additional information on the government’s other loss contingencies, refer to the Other Contingencies section of this note.

Financial Treatment of Loss Contingencies

The reporting of loss contingencies depends on the likelihood that a future event or events will confirm the loss or

impairment of an asset or the incurrence of a liability and the likelihood of loss can range from probable to remote. SFFAS

No. 5, Accounting for Liabilities of the Federal Government, identifies the probability classifications used to assess the range

for the likelihood of loss as probable, reasonably possible, and remote. Loss contingencies where a past event or exchange

transaction has occurred, and where a future outflow or other sacrifice of resources is assessed as probable and measurable,

are accrued in the financial statements. Loss contingencies that are assessed to be at least reasonably possible are disclosed in

this note, and loss contingencies that are assessed as remote are neither reported in the financial statements, nor disclosed in

the notes. The following table provides criteria for how federal entities are to account for loss contingencies, based on the

likelihood of the loss and measurability.3

3 In addition, a third condition must be met to be a loss contingency: a past event or an exchange transaction must occur.

135 NOTES TO THE FINANCIAL STATEMENTS

Likelihood of future outflow or other

sacrifice of resources

Loss amount can be reasonably measured

Loss range can be reasonably measured

Loss amount or range cannot be reasonably

measured

Probable Future confirming

event(s) are more likely to occur than not.4

Accrue the liability. Report on Balance Sheet

and Statement of Net Cost.

Accrue liability of best estimate or minimum

amount in loss range if there is no best estimate,

and disclose nature of contingency and range of

estimated liability.

Disclose nature of contingency and include

a statement that an estimate cannot be

made.

Reasonably possible Possibility of future confirming event(s)

occurring is more than remote and less than likely.

Disclose nature of contingency and

estimated amount.

Disclose nature of contingency and

estimated loss range.

Disclose nature of contingency and include

a statement that an estimate cannot be

made.

Remote Possibility of future

event(s) occurring is slight.

No action is required. No action is required. No action is required.

Loss contingencies arise in the normal course of operations and their ultimate disposition is unknown. Based on

information currently available, however, it is management’s opinion that the expected outcome of these matters, individually

or in the aggregate, will not have a material adverse effect on the financial statements, except for the litigation and insurance

described in the following sections, which could have a material adverse effect on the financial statements.

Certain significant consolidation entities apply financial accounting and reporting standards issued by FASB, and such

entities, as permitted by SFFAS No. 47, Reporting Entity, are consolidated into the U.S. government’s consolidated financial

statements without conversion to financial and reporting standards issued by FASAB.5 Generally, under FASAB standards, a

contingency is considered “probable” if the future event or events are more likely than not to occur. Under FASB standards, a

contingency is considered “probable” if the future event or events are likely to occur. “Likely to occur” is considered to be

more certain than “more likely than not to occur.” Under both accounting frameworks, a contingency is considered

“reasonably possible” if occurrence of the future event or events is more likely than remote, but less likely than “probable”

(“probable” as defined within each corresponding accounting framework).

4 For pending or threatened litigation and unasserted claims, the future confirming event or events are considered “probable” if such events are likely to

occur.

5 Significant consolidation entities that apply FASB standards without conversion to FASAB standards are FCSIC, FDIC, NRRIT, PBGC, Smithsonian

Institution, TVA, and USPS.

NOTES TO THE FINANCIAL STATEMENTS 136

Legal Contingencies and Environmental and Disposal Contingencies

Legal Contingencies and Environmental and Disposal Contingencies as of

September 30, 2021, and 2020

2021 2020

Estimated Range of Loss Estimated Range of Loss

for Certain Cases 2 for Certain Cases 2

Accrued Accrued

(In billions of dollars) Liabilities 1 Lower End Upper End Liabilities 1 Lower End Upper End

Probable .......................................................................................................................................................................................... 39.7 39.6 42.7 40.1 39.4 41.9 Reasonably possible ......................................................................................................................................................................... N/A 25.9 52.0 N/A 9.7 33.9

1 Accrued liabilities are recorded and presented in other liabilities on the Balance Sheet.

2 Does not reflect the total range of loss; many cases assessed as reasonably possible of an unfavorable outcome did not include

estimated losses that could be determined.

Note: "N/A" indicates not applicable.

Management and legal counsel have determined that it is “probable” that some legal actions, litigation, tort claims, and

environmental and disposal contingencies will result in a loss to the government and the loss amounts are reasonably

measurable. The estimated liabilities for “probable” cases against the government are $39.7 billion and $40.1 billion as of

September 30, 2021, and 2020, respectively, and are included in “Other Liabilities” on the Balance Sheet. For example, the

U.S. Supreme Court 2012 decision in Salazar v. Ramah Navajo Chapter, and subsequent cases related to contract support

costs have resulted in increased claims against the Indian Health Service, which is a component within HHS. As a result of

this decision, many tribes have filed claims. Some claims have been paid and others have been asserted but not yet settled. It

is expected that some tribes will file additional claims for prior years. The estimated amount recorded for contract support

costs is $5.8 billion in FY 2021 and $5.5 billion in FY 2020.

There are also administrative claims and legal actions pending where adverse decisions are considered by management

and legal counsel as “reasonably possible” with an estimate of potential loss or a range of potential loss. The estimated

potential losses reported for such claims and actions range from $25.9 billion to $52.0 billion as of September 30, 2021, and

from $9.7 billion to $33.9 billion as of September 30, 2020. The estimated lower and upper range of potential loss for

reasonably possible claims and actions increased by $16.2 billion and $18.1 billion, respectively, from FY 2020 to FY 2021.

The increase is primarily due to new legal cases, along with the net change between legal cases with a change in the

likelihood of loss, the amount of potential loss, and legal cases that are no longer pending.

In accordance with the NWPA, DOE entered into more than 69 standard contracts with utilities in which, in return for

payment of fees into the Nuclear Waste Fund, DOE agreed to begin disposal of SNF by January 31, 1998. Because DOE has

no facility available to receive SNF under the NWPA, it has been unable to begin disposal of the utilities’ SNF as required by

the contracts. Significant litigation claiming damages for partial breach of contract has ensued as a result of this delay. Based

on settlement estimates, the total liability estimate as of September 30, 2021 is $39.9 billion. After deducting the cumulative

amount paid of $9.0 billion as of September 30, 2021 under settlements, and as a result of final judgments, the remaining

liability is estimated to be approximately $30.9 billion, compared to approximately $30.6 billion as of September 30, 2020.

A number of class action and/or multiple plaintiff tort suits have been filed against current and former DOE contractors

in which the plaintiffs seek damages for alleged exposures to radioactive and/or toxic substances as a result of the historic

operations of DOE’s nuclear facilities. Collectively, in these cases, damages of $1.2 billion are currently sought.

Numerous litigation cases are pending where the outcome is uncertain or it is reasonably possible that a loss has been

incurred and where estimates cannot be made. There are other litigation cases where the plaintiffs have not made claims for

specific dollar amounts, but the settlement may be significant. The ultimate resolution of these legal actions for which the

potential loss could not be determined may materially affect the U.S. government’s financial position or operating results.

137 NOTES TO THE FINANCIAL STATEMENTS

A number of cases were filed in the U.S. Court of Federal Claims and U.S. District Courts in which the plaintiffs allege,

among other things, that the U.S. government took their property, breached contractual rights of preferred and common

stockholders, and breached fiduciary duties when the third amendments to the SPSPAs between Treasury and each GSE were

executed in August 2012 (please refer to Note 9—Investments in Government-Sponsored Enterprises). One case also alleges

that the U.S. government took plaintiffs’ property and contractual rights when the GSEs were placed into conservatorship and

entered into the SPSPAs with Treasury in September 2008. In the U.S. Court of Federal Claims, the plaintiffs seek just

compensation and other damages from the U.S. government. With respect to certain cases pending before the U.S. Court of

Federal Claims, the U.S. government’s motion to dismiss was granted with respect to certain claims and denied with respect

to certain other claims. The parties have appealed, and the appeals are still pending. In the U.S. District Courts, the plaintiffs

seek to set aside the third amendments to the SPSPAs as well as damages, and in some cases a declaration that the FHFA’s

structure violates the separation of powers. A case in the U.S. District Court for the Southern District of Texas was dismissed

by that District Court; and the Fifth Circuit Court of Appeals affirmed dismissal of all claims against Treasury but allowed

one claim against FHFA to proceed. In June 2021, the Supreme Court dismissed the plaintiffs’ claim that FHFA lacked

statutory authority to enter into the Third Amendment, held that the FHFA director could be removed at will by the President,

and held that the statutory limitation that the FHFA director can only be removed for cause is an unconstitutional violation of

separation of powers but does not invalidate the third amendments. The Court also left open the possibility that the plaintiffs

may be entitled to retrospective relief if the unconstitutional provision inflicted “compensable harm”, and further proceedings

are anticipated in the lower court. A case in the U.S. District Court for the District of Minnesota was dismissed, and the

Eighth Circuit Court of Appeals affirmed in part and reversed in part. A case in the U.S. District Court for the Western

District of Michigan was dismissed, and an appeal is pending. A case in the Eastern District of Pennsylvania remains in

litigation, and a motion to dismiss is pending. Treasury is unable to determine the likelihood of an unfavorable outcome or an

estimate of potential loss in these cases at this time.

Insurance and Guarantees

As discussed in Note 1.O—Insurance and Guarantee Program Liabilities, certain consolidation entities with significant

insurance and guarantee programs apply FASB standards, while other insurance programs are accounted for in the

consolidated financial statements pursuant to FASAB standards. Please refer to Note 17—Insurance and Guarantee Program

Liabilities for insurance and guarantee liabilities and Note 14—Federal Employee and Veteran Benefits Payable for insurance

related to federal employee and veteran benefits.

Entities Reporting under FASB

PBGC, FCSIC, and FDIC are the main contributing consolidation entities with significant insurance or guarantee

programs that apply FASB standards. Insurance in-force estimates and a discussion on the PBGC coverage are disclosed to

provide an understanding on the magnitude of the programs. Current conditions indicate it is unlikely that losses equal to the

maximum risk exposure described below would be incurred.

PBGC insures pension benefits for participants in covered defined benefit pension plans. Under current law, PBGC's

liabilities may be paid only from PBGC's assets. Accordingly, PBGC's liabilities are not backed by the full faith of the U.S.

government. As of September 30, 2021, PBGC's single-employer and multiemployer pension insurance programs had $150.7

billion and $3.5 billion in total assets, respectively. In FY 2020, PBGC reported pension insurance program total assets for

single-employer and multiemployer of $143.5 billion and $3.1 billion, respectively.

PBGC operates two separate pension insurance programs: a single-employer program and a multiemployer program.

The single-employer program covered about 22.7 million people (excluding those in plans that PBGC has trusteed) in FY

2021, down from about 23.5 million people in FY 2020, and the maximum guaranteed annual benefit for participants who are

in a plan that terminated in FY 2021 and commence benefits at age 65 is $72,409. The maximum guaranteed benefit for

single-employer plan participants varies with a number of factors such as the date of the sponsoring employer's bankruptcy

and the age at which the participant commences benefits. The number of covered ongoing plans at the end of FY 2021 was

about 23,900.

The multiemployer program covers about 10.9 million participants in about 1,360 insured plans and the maximum

annual benefit is $12,870 to a participant who worked for 30 years in jobs covered by the plan. The maximum benefit for

multiemployer plan participants varies with covered service and would be lower if the participant worked less than 30 years

and higher if the participant worked more than 30 years. On March 11, 2021 the President signed into law the ARP. The ARP

established a new multiemployer SFA program resulting in a new source of financing from the General Fund. PBGC will

receive appropriated SFA funds to disburse to multiemployer plans that meet certain criteria. Unlike traditional financial

assistance where PBGC provided assistance to the multiemployer plans in the form of a loan, the new special financial

assistance will be provided via a transfer (pass through of funds) with no obligation of repayment. Prior to enactment of the

ARP, PBGC’s multiemployer program was projected to become insolvent in FY 2026. By providing special financing

NOTES TO THE FINANCIAL STATEMENTS 138

assistance to the most financially troubled multiemployer plans, ARP significantly extends the solvency of PGBC’s

multiemployer program. New projections show a median projected insolvency in FY 2055. Please refer to PBGC financial

statements for additional information.

FCSIC insures the timely payment of principal and interest on Systemwide Debt Securities. Systemwide Debt Securities

are the general unsecured joint and several obligations of the Farm Credit System Banks. Systemwide Debt Securities are not

obligations of and are not guaranteed by the U.S. government. As stated in the Farm Credit Quarterly Information Statement

of the Farm Credit System, outstanding Systemwide Debt Securities reported by the Farm Credit System Banks totaled

$329.0 billion and $309.1 billion as of September 30, 2021, and 2020 respectively. The insurance provided by FCSIC is also

not an obligation of and is not guaranteed by the U.S. government. Under current law, if FCSIC does not have sufficient

funds to pay unpaid principal and interest on insured Systemwide Debt Securities, the Farm Credit System Banks will be

required to make payments under joint and several liability. As of September 30, 2021, and 2020, FCSIC reported an

Insurance Fund balance of $5.8 billion and $5.4 billion, respectively.

FDIC insures bank and savings association deposits, which exposes FDIC to various risks. FDIC has estimated total

insured deposits of $9,577.1 billion and $8,926.6 billion as of September 30, 2021, and 2020 respectively, for the DIF. The

increase in insured deposits is due in part to the result of actions taken by monetary and fiscal authorities, and individuals,

businesses, and financial market participants in response to the COVID-19 pandemic in FY 2020. Additional rounds of

federal stimulus payments, and elevated personal savings contributed to the increase in insured deposits in FY 2021.

The government has guarantee contingencies that are reasonably possible in the amount of $105.9 billion and $185.6

billion as of September 30, 2021, and 2020, respectively.

PBGC reported $105.7 billion and $185.5 billion as of September 30, 2021, and 2020, respectively, for the estimated

aggregate unfunded vested benefits exposure to PBGC for private-sector single-employer and multiemployer defined benefit

pension plans that are classified with a reasonably possible exposure to loss. As of September 30, 2021, PBGC’s estimate of

its single-employer reasonably possible exposure decreased to $105.4 billion.6 The single-employer program contingencies

decrease of $70.8 billion is largely due to the positive investment results on plan assets during calendar year 2020 and the

decline in the number of companies with lower than investment grade bond ratings and/or credit scores. PBGC’s estimate of

its multiemployer reasonably possible exposure decreased to $0.3 billion in FY 2021. The $9.0 billion decrease in the

multiemployer program contingency exposure is primarily due to the removal of thirteen larger plans that are no longer

classified as reasonably possible and the decline in the reasonably possible small plan bulk reserve due to adjustments made

to account for the new SFA program.

FDIC reported $0.2 billion and $0.1 billion as of September 30, 2021, and 2020, respectively for additional risk

identified in the financial services industry that could result in additional loss to the DIF should potentially vulnerable insured

institutions ultimately fail. Actual losses, if any, will largely depend on future economic and market conditions.

Entities Reporting under FASAB

The total amount of coverage provided by an insurer as of the end of the reporting period is referred to as insurance in-

force. Insurance in-force represents the total amount of unexpired insurance arrangements for the corresponding program as

of a given date. Insurance in-force is presented to provide the reader with a better understanding of the unexpired insurance

arrangements that are not considered a liability. It is extremely unlikely that losses equal to the maximum risk exposure

would be incurred. The table below shows the estimate of insurance in-force for consolidation entities with significant

insurance programs that apply FASAB standards in accordance with SFFAS No. 51, Insurance Programs.

6 The estimate of the reasonably possible exposure to loss for the single-employer plans was measured as of December 31, 2020.

139 NOTES TO THE FINANCIAL STATEMENTS

Insurance In-force as of September 30, 2021, and 2020

(In billions of dollars) 2021 2020

Insurance In-force: Ginnie Mae - HUD ............................................................................................................................................................................ 2,125.6 2,117.7 National Credit Union Share Insurance Fund - NCUA ......................................................................................................................... 1,600.0 1,400.0 National Flood Insurance Program - DHS .......................................................................................................................................... 1,341.3 1,338.9 Federal Crop Insurance - USDA ........................................................................................................................................................ 150.0 127.0

Ginnie Mae insures MBS and commitments, which exposes Ginnie Mae to various risks. Ginnie Mae’s MBS program

guarantees the timely payment of principal and interest on securities backed by pools of mortgage loans insured by FHA,

Public and Indian Housing, Rural Housing Service, and VA. Accordingly, Ginnie Mae’s credit risk related to outstanding

MBS is greatly mitigated by guarantees discussed in Note 4—Loans Receivable, Net and Loan Guarantee Liabilities.

NCUA operates and manages the NCUSIF, insuring the deposits of over 128.6 million account holders in all federal

credit unions and the majority of state-chartered credit unions. The $200.0 billion increase in the NCUSIF as of September

30, 2021 was primarily due to elevated savings rates, declining unemployment, rising wages, federal stimulus payments, and

the continuation of various loan forbearance programs. NCUSIF insures the balance of each members’ accounts, dollar-for-

dollar, up to at least the standard maximum share insurance amount of $250,000.

NFIP, managed by FEMA, is considered an exchange transaction insurance program and pays claims to policy holders

who experience flood damage due to flooding within the NFIP rules and regulations. FEMA is authorized to secure

reinsurance coverage from private reinsurance and capital markets to maintain the financial ability of the program to pay

claims from major flooding events.

FEMA, a component of DHS, is authorized to borrow from Treasury up to $30.4 billion to fund the payment of flood

insurance claims and claims-related expenses of the NFIP. This authority is used only as needed to pay existing obligations

for claims and expenses. Insurance premiums collected are used to pay insurance claims and to repay borrowings. As of

September 30, 2021, and 2020, FEMA had drawn from Treasury $20.5 billion, leaving $9.9 billion available to be borrowed.

Premiums collected by FEMA for the NFIP based on subsidized rates are not sufficient to cover the debt repayments. Given

the current premium rate structure, FEMA will not be able to generate sufficient resources from premiums to repay its debt.

The Federal Crop Insurance Program, administered by USDA’s FCIC, is considered a short-duration exchange

transaction insurance program. The crop insurance policies insure against unexpected declines in yield and/or price due to

natural causes. There were approximately 1.2 million and 1.1 million crop insurance policies in force for crop years 2021,

and 2020, respectively. The insurance policies are structured as a contract between Approved Insurance Providers and

producers, with the FCIC providing reinsurance to Approved Insurance Providers. Crop insurance policies automatically

renew each year unless producers cancel them by a published annual deadline. The insurance protection in force increased

$23.0 billion in crop year 2021 primarily due to higher crop prices, and the widespread drought which had a significant

impact to projected losses for crops in the western states and the northern plains.

FCIC may request the Secretary of Agriculture to provide borrowing authority funds of the Commodity Credit

Corporation if at any time the amounts in the insurance fund are insufficient to allow FCIC to carry out its duties. Even

though the authority exists, FCIC did not request Commodity Credit Corporation funds in the reporting period. USDA has a

permanent indefinite appropriation for the crop insurance program used to cover premium subsidy, delivery expenses, losses

in excess of premiums, and research and delivery costs. FCIC has no outstanding borrowing as of September 30, 2021.

Please refer to the financial statements of the main contributing entities, HUD, NCUA, DHS, and USDA for additional

information.

The Terrorism Risk Insurance Act of 2002, as amended, created TRIP, which requires participating insurers to make

insurance available for losses resulting from certified acts of terrorism and provides a federal government backstop for the

insurers’ resulting financial exposure. This statute was enacted following the terrorist attacks on September 11, 2001 to

address disruptions in the market for terrorism risk insurance, to help ensure the continued availability and affordability of

commercial property and casualty insurance for terrorism risk, and to allow for the private markets to stabilize and build

insurance capacity to absorb any future losses for terrorism events. Most recently, the Terrorism Risk Insurance Program

Reauthorization Act of 2019 authorized TRIP until December 31, 2027. The claims process under TRIP commences once the

Secretary of the Treasury (in consultation with the Secretary of the DHS and the U.S. Attorney General) certifies an event as

NOTES TO THE FINANCIAL STATEMENTS 140

an “act of terrorism.” In the event of certification of an “act of terrorism” insurers may be eligible to receive reimbursement

from the U.S. government for associated insured losses assuming an aggregate insured loss threshold (“Program Trigger”)

has been reached once a particular insurer has satisfied its designated deductible amount. For calendar years 2021 and 2020,

the Program Trigger amount was $200.0 million. The Program Trigger will remain at $200.0 million each year through the

expiration of TRIP in 2027. Insured losses above insurer deductibles will be shared between insurance companies and the

U.S. government. TRIP includes both mandatory and discretionary authority for Treasury to recoup federal payments made

under TRIP through policyholder surcharges under certain circumstances, and contains provisions designed to manage

litigation arising from or relating to a certified “act of terrorism.” There were no claims under TRIP as of September 30, 2021

or 2020.

Other Contingencies

DOT, HHS, Treasury, and SEC reported the following other contingencies:

FHWA has a reasonably possible contingency due to their authority to approve projects using advance construction

under 23 U.S.C. § 115(a) and 23 CFR 630.701-630.709. FHWA does not guarantee the ultimate funding to the states for

these “advance construction” projects and, accordingly, does not obligate any funds for these projects. The state may submit

a written request to FHWA that a project be converted to a regular federal aid project at any time provided that sufficient

federal aid funds and obligation authority are available. As of September 30, 2021, and 2020, FHWA has $68.8 billion and

$68.7 billion, respectively, of advanced construction authorizations that could be converted to federal obligations subject to

the availability of funds. These authorizations have not been recognized in the DOT consolidated financial statements.

Contingent liabilities have been accrued as a result of Medicaid audit and program disallowances that are currently

being appealed by the states. The Medicaid amounts are $3.7 billion for fiscal years ending September 30, 2021, and 2020.

The states could return the funds through payments to HHS, or HHS could recoup the funds by reducing future grant awards

to the states. Conversely, if the appeals are decided in favor of the states, HHS will be required to pay these amounts. In

addition, certain amounts for payment have been deferred under the Medicaid program when there is reasonable doubt as to

the legitimacy of expenditures claimed by a state. There are also outstanding reviews of the state expenditures in which a

final determination has not been made.

Treasury has a contingency for future draws by the GSEs. There were no probable future draws accrued as of

September 30, 2021, and 2020, and the total amount of reasonably possible future draws is not estimable as of September 30,

2021. Refer to Note 9—Investments in Government-Sponsored Enterprises for additional information.

SEC’s Division of Enforcement program, Office of the Whistleblower, rewards individuals who provide the entity with

tips that lead to successful enforcement actions. SEC has accrued contingent liabilities of $131.9 million and $254.8 million

as of September 30, 2021, and 2020 respectively, for whistleblower awards. The Investor Protection Fund provides funding

for the payment of whistleblower awards as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act of

2010. Please refer to the SEC financial statements for additional information regarding whistleblower awards.

When a contingency originates from the U.S. government’s involvement in a treaty or other international agreement, the

responsible reporting entity must establish a contingent liability or include a required note disclosure to its financial

statements in accordance with guidance in SFFAS No. 5. Refer to Note 21—Commitments for additional information

concerning commitments related to treaties and other international agreements.

141 NOTES TO THE FINANCIAL STATEMENTS

Note 23. Funds from Dedicated Collections

Funds from Dedicated Collections as of September 30, 2021

Federal Federal Federal Old-Age and Disability Medicare All Other Total Funds Total Funds

Survivors Insurance Insurance Funds from from Funds from from Insurance Trust Trust Funds Dedicated Dedicated Dedicated Dedicated Trust Fund Fund (Part A, B, D) Collections Collections Collections Collections (In billions of dollars) (Combined) (Combined) (Combined) (Combined) (Combined)2 Eliminations (Consolidated)3

Assets:

Cash and other monetary assets ................................................................................................................................................................................................ - - - 182.2 182.2 - 182.2

Accounts receivable, net .......................................................................................................................................................................... 2.1 3.1 15.6 26.1 46.9 - 46.9

Loans receivable, net .............................................................................................................................................................................. - - - 2.3 2.3 - 2.3

Inventory and related property, net ........................................................................................................................................................................................ - - - 1.5 1.5 - 1.5

General property, plant and equipment, net ................................................................................................................................................................................. - - 0.3 36.8 37.1 - 37.1

Investments ......................................................................................................................................................................................... - - - 35.3 35.3 - 35.3

Other assets4 ....................................................................................................................................................................................... - - 67.0 30.5 97.5 - 97.5

Investments in Treasury securities, net of unamortized premiums/discounts ................................................................................................................................................................................

2,755.9 98.0 306.8 238.7 3,399.4 - 3,399.4

Other federal assets ............................................................................................................................................................................... 16.6 0.7 233.1 290.1 540.5 (175.7) 364.8

Total assets ......................................................................................................................................................................................... 2,774.6 101.8 622.8 843.5 4,342.7 (175.7) 4,167.0

Liabilities and net position:

Accounts payable .................................................................................................................................................................................. - - 0.1 5.0 5.1 - 5.1

Federal employee and veteran benefits payable .......................................................................................................................................................................... - - - 7.0 7.0 - 7.0

Environmental and disposal liabilities ................................................................................................................................................................................... - - - 26.1 26.1 - 26.1

Benefits due and payable ......................................................................................................................................................................... 87.4 20.5 79.8 17.6 205.3 - 205.3

Insurance and guarantee program liabilities ................................................................................................................................................................................... - - - 3.5 3.5 - 3.5

Other liabilities4 ..................................................................................................................................................................................... - - 0.8 266.1 266.9 - 266.9

Federal liabilities .................................................................................................................................................................................... 6.2 0.8 132.2 202.8 342.0 (175.7) 166.3

Total liabilities ....................................................................................................................................................................................... 93.6 21.3 212.9 528.1 855.9 (175.7) 680.2

NOTES TO THE FINANCIAL STATEMENTS 142

Funds from Dedicated Collections as of September 30, 2021, continued¹

Federal Federal Federal Old-Age and Disability Medicare All Other Total Funds Total Funds

Net position:

Total liabilities and net position .............................................................................................................................................................................................. 2,774.6 101.8 622.8 843.5 4,342.7 (175.7) 4,167.0

Change in net position:

Net position, beginning of period ................................................................................................................................................................................................ 2,741.0 78.6 364.9 289.9 3,474.4 - 3,474.4

Adjustments to beginning net position

Beginning net position, adjusted ............................................................................................................................................................................................. 2,741.0 78.6 364.9 289.9 3,474.4 - 3,474.4

Individual income taxes and tax withholdings ............................................................................................................................................................................... 831.1 141.2 302.0 - 1,274.3 - 1,274.3

Other taxes and miscellaneous earned revenue ..............................................................................................................................................................................................

- - (0.8) 124.6 123.8 - 123.8

Other changes in fund balance (e.g., appropriations, transfers) ..........................................................................................................................................................................

26.8 (1.9) 468.5 200.3 693.7 - 693.7

Federal non-exchange revenue .............................................................................................................................................................................................. 69.0 2.7 6.1 28.3 106.1 - 106.1

Total financing sources ............................................................................................................................................................................ 926.9 142.0 775.8 353.2 2,197.9 - 2,197.9

Program gross costs and non-program expenses ............................................................................................................................................................................ 986.9 140.1 853.4 402.9

2,383.3

(1.5) 2,381.8

Less: program revenue ............................................................................................................................................................................ - - (122.6) (75.2) (197.8) 1.5 (196.3)

Ending net position................................................................................................................................................................................. 2,681.0 80.5 409.9 315.4 3,486.8 - 3,486.8

1By law, certain expenses (costs), revenues, and other financing sources related to the administration of the above funds are not charged

to the funds and are therefore financed and/or credited to other sources.

2The combined presentation does not eliminate intra-entity balances or transactions between funds from dedicated collections held by the

entity. 3The consolidated dedicated collections presentation eliminates balances and transactions between funds from dedicated collections

held by the entity, but does not eliminate balances or transactions between funds from dedicated collections and funds from other than

dedicated collections.

4Other assets and other liabilities include multiple line items on the Balance Sheet.

143 NOTES TO THE FINANCIAL STATEMENTS

Funds from Dedicated Collections as of September 30, 2020

Federal Federal Federal Old-Age and Disability Medicare All Other Total Funds Total Funds

Assets:

2,811.2 97.2 221.2 197.9 3,327.5 - 3,327.5

Liabilities and net position:

NOTES TO THE FINANCIAL STATEMENTS 144

Funds from Dedicated Collections as of September 30, 2020, continued¹

Federal Federal Federal Old-Age and Disability Medicare All Other Total Funds Total Funds

Net position:

Change in net position:

Net position, beginning of period ................................................................................................................................................................................................ 2,740.2 78.6 297.9 387.9 3,504.6 12.5 3,517.1

Adjustments to beginning net position

Changes in accounting principle.............................................................................................................................................................................................. - - - - - (12.5) (12.5)

- 0.1 (1.3) 107.0 105.8 - 105.8

29.5 (1.0) 429.6 98.0 556.1 (0.5) 555.6

144.8

779.8 392.5

2,262.1

0.4 2,262.5

1By law, certain expenses (costs), revenues, and other financing sources related to the administration of the above funds are not charged

to the funds and are therefore financed and/or credited to other sources.

2The combined presentation does not eliminate intra-entity balances or transactions between funds from dedicated collections held by the

entity.

3The consolidated dedicated collections presentation eliminates balances and transactions between funds from dedicated collections

held by the entity, but does not eliminate balances or transactions between funds from dedicated collections and funds from other than

dedicated collections.

4Other assets and other liabilities include multiple line items on the Balance Sheet.

145 NOTES TO THE FINANCIAL STATEMENTS

Generally, funds from dedicated collections are financed by specifically identified revenues, often supplemented by

other financing sources, provided to the government by non-federal sources, which remain available over time. These

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

benefits, or purposes and must be accounted for separately from the government’s general revenues. Funds from dedicated

collections generally include trust funds, public enterprise revolving funds (not including credit reform financing funds), and

special funds. Funds from dedicated collections specifically exclude any fund established to account for pensions, ORB,

OPEB, or other benefits provided for federal employees (civilian and military). In the federal budget, the term “trust fund”

means only that the law requires a particular fund to be accounted for separately, used only for a specified purpose, and

designated as a trust fund. A change in law may change the future receipts and the terms under which the fund’s resources are

spent. In the private sector, trust fund refers to funds of one party held and managed by a second party (the trustee) in a

fiduciary capacity. The activity of funds from dedicated collections differs from fiduciary activities primarily in that assets

within funds from dedicated collections are government-owned. For additional information related to fiduciary activities, see

Note 24—Fiduciary Activities.

Public enterprise revolving funds include expenditure accounts authorized by law to be credited with offsetting

collections, mostly from the public, that are generated by and dedicated to finance a continuing cycle of business-type

operations. Some of the financing for these funds may be from appropriations.

Special funds are federal funds dedicated by law for a specific purpose. Special funds include the special fund receipt

account and the special fund expenditure account.

Total assets represent the unexpended balance from all sources of receipts and amounts due to the funds from dedicated

collections, regardless of source, including related governmental transactions. These are transactions between two different

entities within the government or intradepartmental (for example, monies received by one entity of the government from

another entity of the government).

The federal assets are comprised of fund balances with Treasury, investments in Treasury securities—including

unamortized amounts, and other assets that include the related accrued interest receivable on federal investments. These

amounts were excluded in preparing the principal financial statements. The non-federal assets include activity with

individuals and organizations outside of the government.

Most of the assets within funds from dedicated collections are invested in intra-governmental debt holdings. The

government does not set aside assets to pay future benefits or other expenditures associated with funds from dedicated

collections. The cash receipts collected from the public for funds from dedicated collections are deposited in the General

Fund, which uses the cash for general government purposes. Treasury securities are issued to federal entities as evidence of

its receipts. Treasury securities are an asset to the federal entities and a liability to Treasury and, therefore, they do not

represent an asset or a liability in the Financial Report. These securities require redemption if a fund’s disbursements exceeds

its receipts. Redeeming these securities will increase the government’s financing needs and require more borrowing from the

public (or less repayment of debt), or will result in higher taxes than otherwise would have been needed, or less spending on

other programs than otherwise would have occurred, or some combination thereof. See Note 13—Federal Debt and Interest

Payable for additional information related to the investments in federal debt securities.

Below is a description of the major funds from dedicated collections, which also identifies the government entities that

administer each particular fund. For additional information regarding funds from dedicated collections, please refer to the

financial statements of the corresponding administering entities. For additional information on the benefits due and payable

liability associated with certain funds from dedicated collections, see Note 16—Benefits Due and Payable.

Federal Old-Age and Survivors Insurance Trust Fund

The OASI Trust Fund, administered by SSA, provides retirement and survivors benefits to qualified workers and their

families.

Payroll and self-employment taxes primarily fund the OASI Trust Fund. Interest earnings on Treasury securities, federal

entities’ payments for the Social Security benefits earned by military and federal civilian employees, and Treasury payments for

a portion of income taxes collected on Social Security benefits provide the fund with additional income. The law establishing the

OASI Trust Fund and authorizing the depositing of amounts to the credit of the fund is set forth in 42 U.S.C. § 401.

NOTES TO THE FINANCIAL STATEMENTS 146

Federal Disability Insurance Trust Fund

The DI Trust Fund, administered by SSA, provides assistance and protection against the loss of earnings due to a wage

earner’s disability in form of monetary payments.

Like the OASI Trust Fund, payroll taxes primarily fund the DI Trust Fund. The fund also receives income from interest

earnings on Treasury securities, federal entities’ payments for the Social Security benefits earned by military and federal

civilian employees, and Treasury payments for a portion of income taxes collected on Social Security benefits. The law

establishing the DI Trust Fund and authorizing the depositing of amounts to the credit of the fund is set forth in 42 U.S.C. §

401.

Federal Medicare Insurance Trust Funds (Medicare Parts A, B and D)

The HI Trust Fund, administered by HHS, finances Medicare Part A. This program funds the cost of inpatient hospital

and related care for individuals age 65 or older who meet certain insured status requirements and individuals younger than

age 65 with certain disabilities.

The HI Trust Fund is financed primarily by payroll taxes, including those paid by federal entities. It also receives

income from interest earnings on Treasury securities, a portion of income taxes collected on Social Security benefits,

premiums paid by, or on behalf of, aged uninsured beneficiaries, and receipts from fraud and abuse control activities. Section

1817 of the Social Security Act established the Medicare Hospital Trust Fund.

The SMI Trust Fund, administered by HHS, finances the Medicare Part B and the Medicare Prescription Drug Benefit

Program (Medicare Part D). These programs provide SMI benefits for enrolled eligible participants to cover physician and

outpatient services not covered by Medicare Part A and to obtain qualified prescription drug coverage, respectively. Medicare

Part B financing is not based on payroll taxes; it is primarily based on monthly premiums, income from the General Fund,

and interest earnings on Treasury securities. The Medicare SMI Trust Fund was established by Section 1841 of the Social

Security Act.

Medicare Part D was created by the Medicare Modernization Act of 2003 (P.L. 108-173). Medicare Part D financing is

similar to Part B; it is primarily based on monthly premiums and income from the General Fund, not on payroll taxes. The

fund also receives transfers from states.

All Other Funds from Dedicated Collections

The government is responsible for the management of numerous funds from dedicated collections that serve a wide

variety of purposes. The funds from dedicated collections presented on an individual basis in the above tables represent the

majority of the government’s net position attributable to funds from dedicated collections. All other activity attributable to

funds from dedicated collections is aggregated in accordance with SFFAS No. 27, Identifying and Reporting Funds from

Dedicated Collections, as amended by SFFAS No. 43, Funds from Dedicated Collections: Amending Statement of Federal

Financial Accounting Standards 27, Identifying and Reporting Earmarked Funds. The majority entities with funds from

dedicated collections within the “all other” aggregate, include the following:

• DOT • RRB

• DOC • DOE

• DOI • HUD

• Treasury • DOJ

• DOD

In accordance with SFFAS No. 43, any funds established to account for pension, other retirement, or OPEB to civilian

or military personnel are excluded from the reporting requirements related to funds from dedicated collections.

The U.S. government elected to implement a change in accounting principle in FY 2020. SFFAS No. 27 allows

disclosure of funds from dedicated collections amounts to be shown combined or consolidated. In FY 2019 the funds from

dedicated collections disclosure used the combined method. In FY 2020 funds from dedicated collections amounts are

147 NOTES TO THE FINANCIAL STATEMENTS

reported as consolidated as shown in the table above and on Statements of Operations and Changes in Net Position. This

change in accounting principle increased funds from dedicated collections eliminations by $12.5 billion and decreased funds

from dedicated collections beginning net position by $12.5 billion.

NOTES TO THE FINANCIAL STATEMENTS 148

Note 24. Fiduciary Activities

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

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

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

the consolidated Balance Sheet. The government’s fiduciary activities include the TSP, which is administered by the FRTIB,

and the Indian Tribal and individual Indian Trust Funds, which are administered by the DOI.

Schedule of Fiduciary Net Assets as of September 30, 2021, and 2020

(In billions of dollars) 2021 2020

Thrift Savings Plan ........................................................................................................................................................................... 784.2 661.9 Department of the Interior ................................................................................................................................................................. 6.4 5.9 All other .......................................................................................................................................................................................... 6.0 6.2 Total fiduciary net assets .................................................................................................................................................................. 796.6 674.0

In accordance with the requirements of SFFAS No. 31, Accounting for Fiduciary Activities, fiduciary investments in

Treasury securities and fund balance with Treasury held by fiduciary funds are to be recognized on the Balance Sheet as

federal debt and interest payable and a liability for fiduciary fund balance with Treasury, respectively.

As of September 30, 2021, total fiduciary investments in Treasury securities and in non-Treasury securities are $119.8

billion and $507.8 billion, respectively. As of September 30, 2020, total fiduciary investments in Treasury securities and in

non-Treasury securities were $292.1 billion and $394.4 billion, respectively. The decrease in Treasury securities relates to the

delay in raising the statutory debt limit that was ongoing as of September 30, 2021. See the Thrift Savings Plan section

below. Refer to Note 13—Federal Debt and Interest Payable for more information on Treasury securities.

As of September 30, 2021, and 2020, the total fiduciary fund balance with Treasury is $3.4 billion and $2.6 billion,

respectively. A liability for this fiduciary fund balance with Treasury is reflected as other miscellaneous liabilities in Note

19—Other Liabilities.

As of September 30, 2021, and 2020, collectively, the fiduciary investments in Treasury securities and fiduciary fund

balance with Treasury held by all government entities represent $164.2 billion and $7.5 billion, respectively, of unrestricted

cash included within cash held by Treasury for government-wide operations shown in Note 2—Cash and Other Monetary

Assets. This increase relates to the delay in raising the statutory debt limit that was ongoing as of September 30, 2021. See

the Thrift Savings Plan section below.

Thrift Savings Plan

The TSF maintains and holds in trust the assets of the TSP. The TSP is administered by an independent government

entity, the FRTIB, which is charged with operating the TSP prudently and solely in the interest of the participants and their

beneficiaries.

The TSP is a retirement savings and investment plan for federal employees and members of the uniformed services. It

was authorized by the U.S. Congress in the Federal Employees’ Retirement System Act of 1986. The plan provides federal

employees and members of the uniformed services with a savings and tax benefit similar to what many private sector

employers offer their employees under 401(k) plans. This includes two fixed income funds, three stock funds and ten

lifecycle funds. The plan was primarily designed to be a key part of the retirement package (along with a basic annuity

benefit and Social Security) for employees who are covered by FERS.

As of September 30, 2021, and 2020, the TSP held $784.2 billion and $661.9 billion, respectively, in net assets, which

included $116.1 billion and $287.1 billion, respectively, of nonmarketable Treasury securities. The TSF combines the net

assets of the TSP and the FRTIB in its financial statements. Only the TSP net assets of the TSF financial statements are

disclosed in this note. The most recent audited financial statements for the TSF are as of December 31, 2020, and 2019. For

149 NOTES TO THE FINANCIAL STATEMENTS

additional information about FRTIB, the TSP and the investment options of the TSP, please refer to the FRTIB website at

https://www.frtib.gov.

A delay in raising the statutory debt limit existed as of September 30, 2021. When delays in raising the statutory debt

limit occur, Treasury often must deviate from its normal debt management operations and take a number of extraordinary

measures consistent with relevant laws and regulations to meet the government’s obligations as they come due without

exceeding the debt limit. Many extraordinary measures taken by Treasury during the period August 2, 2021 through

September 30, 2021 resulted in federal debt securities not being issued to certain federal government accounts. As reported in

Note 19, as a result of Treasury securities not being issued to the TSP’s G Fund, Treasury reported other liabilities in the

amount of $157.0 billion that represent uninvested principal and related interest for TSP’s G Fund that would have been

reported as federal debt securities had there not been a delay in raising the statutory debt limit as of September 30, 2021, and

had the securities been issued.

On October 14, 2021, P. L. 117-50 was enacted which raised the statutory debt limit by $480.0 billion, from $28,401.5

billion to $28,881.5 billion. Even with this increase, extraordinary measures continued in order for Treasury to manage below

the debt limit. On December 16, 2021, P.L. 117-73 was enacted, raising the debt limit by $2.5 trillion from $28,881.5 billion

to $31,381.5 billion. On this date, Treasury discontinued its use of extraordinary measures and resumed normal debt

management operations.

Department of Interior–Indian Trust Funds

As stated above, DOI has responsibility for the assets held in trust on behalf of American Indian Tribes and individuals.

DOI maintains accounts for Tribal and Other Trust Funds (including the Alaska Native Escrow Fund) and IIM Trust Funds in

accordance with the American Indian Trust Fund Management Reform Act of 1994. The fiduciary balances that have

accumulated in these funds have resulted from land use agreements, royalties on natural resource depletion, other proceeds

derived directly from trust resources, judgment awards, settlements of claims, and investment income. These funds are

maintained by the BTFA (formerly the Office of the Special Trustee for American Indians). Indian trust assets, including

Tribal and Other Trust Funds and IIM Trust Funds, are primarily managed under the delegated authority of BTFA and BIA.

Management of Indian trust assets on behalf of the trust beneficiaries is dependent upon the processing of trust-related

transactions within certain information systems of the department, including but not limited to BTFA, BIA, ONRR, and other

departmental bureaus and offices. BIA and other departmental bureaus and offices are responsible for managing the natural

resources located within the boundaries of Indian reservations and trust lands, as well as the processing of data regarding the

ownership and leasing of Indian lands. The allocation of receipts and disbursements by BTFA to trust beneficiaries are

significantly dependent and reliant upon the receipt of timely and accurate information derived from records maintained by

BIA, ONRR, and other departmental bureaus and offices. DOI maintains separate financial statements for these trust funds,

which are prepared using a cash or modified cash basis of accounting, a comprehensive basis of accounting other than

GAAP. The independent auditors’ reports on the Tribal and Other Trust Funds were qualified as it was not practical to extend

audit procedures sufficiently to satisfy themselves as to the fairness of the trust fund balances. The IIM Trust Funds received

an unmodified opinion from the auditors. As of September 30, 2021, and 2020, the DOI held $6.4 billion and $5.9 billion,

respectively, in net assets. For additional information related to these assets, please refer to the DOI website at

https://www.doi.gov.

All Other Entities with Fiduciary Activities

The government is responsible for the management of other fiduciary net assets on behalf of various non-federal

entities. The entities presented individually in the table on the previous page represent the vast majority of the government’s

fiduciary net assets. All other component entities with fiduciary net assets are aggregated in accordance with SFFAS No. 31.

As of September 30, 2021, and 2020, including TSP and DOI, there are a total of 20 federal entities with fiduciary activities

at a grand total of 67 fiduciary funds. SBA and DOD are the largest entities relating to the fiduciary activities of the

remaining entities within the “all other” aggregate balance. As of September 30, 2021, “all other” fiduciary net assets were

$6.0 billion, compared to $6.2 billion as of September 30, 2020.

https://www.frtib.gov/

https://www.doi.gov/

NOTES TO THE FINANCIAL STATEMENTS 150

Note 25. Social Insurance

SOSI presents the projected actuarial PV of the estimated future revenue and estimated future expenditures of the Social

Security, Medicare, Railroad Retirement, and Black Lung social insurance programs which are administered by the SSA,

HHS, RRB, and DOL, respectively. Social Security and Medicare projections are based on current law and the Social

Security and Medicare trustees’ intermediate set of assumptions, except that the projections assume full Social Security and

Medicare Part A benefits are paid after fund depletion contrary to current law. The projections in the 2021 Trustees’ Report

are the first to include the Trustees best estimates of the effects of the COVID-19 pandemic and ensuing recession on the

Social Security and Medicare Projections. It should be noted that there is an unusually large degree of uncertainty with these

covid-related impacts and that future projections could change significantly as more information becomes available.

Contributions consist of: payroll, income, and excise taxes, premiums from, and state transfers on behalf of,

participants in Medicare, and miscellaneous reimbursements from the General Fund. Generally, beneficiaries finance the

remainder of Parts B and D costs via monthly premiums to these programs. With the introduction of Part D drug coverage,

Medicaid is no longer the primary payer of drug costs for full-benefit dually eligible beneficiaries of Medicare and Medicaid.

For those beneficiaries, states are subject to a contribution requirement and must pay a portion of their estimated foregone

drug costs into the Part D account (referred to as state transfers). By accounting convention, the General Fund transfers are

eliminated in the consolidation of the SOSI at the government-wide level. These General Fund transfers that are used to

finance Medicare Parts B and D are also shown as eliminations on these calculations. For the FYs 2021 and 2020, the

amounts eliminated totaled $43.2 trillion and $40.9 trillion, respectively.

The SOSI also includes projected general revenues that, under current law, would be used to finance the remainder of

the expenditures in excess of revenues for Medicare Parts B and D that is reported in the SOSI. Expenditures include benefit

payments scheduled under current law and administrative expenses. Current Social Security and Medicare Part A law

provides for full benefit payments only to the extent that there are sufficient balances in the trust funds. Social insurance

programs utilize “trust funds” to account for dedicated collections held for later use to accomplish the program’s purpose.

Expenditures reflect full benefit payments even after the point at which trust fund asset reserves are projected to be depleted.

Refer to the unaudited RSI–Social Insurance section for additional information on Social Security, Medicare, Railroad

Retirement, and Black Lung program financing and SSA’s, HHS’s, RRB’s, and DOL’s financial statements.

The estimates in the consolidated SOSI of the open group measures are for persons who are participants or eventually

will participate in the programs as contributors (workers) or beneficiaries (retired workers, survivors, dependents, and

disabled) during the 75-year projection period. The closed group comprises only current participants which are those who

have attained age 15 at the start of the projection period. Actuarial PV of estimated future income (excluding interest) and

estimated future expenditures for the Social Security and Medicare social insurance programs are presented for three different

groups of participants: 1) current participants who have not yet attained eligibility age; 2) current participants who have

attained eligibility age; and 3) new entrants, who are expected to become participants in the future. Current participants in the

Social Security and Medicare programs are the “closed group” of taxpayers and/or beneficiaries who are at least age 15 years

at the start of the projection period. Future participants for Social Security and Medicare include births during the projection

period and individuals below age 15 as of January 1 of the valuation year. Railroad Retirement’s future participants are the

projected new entrants as of October 1 of the valuation year.

The trust fund balances as of the valuation date for the respective programs, including interest earned, are shown in the

table below.7 The PV of estimated future expenditures in excess of estimated future revenue are calculated by subtracting the

actuarial PV of future scheduled contributions as well as dedicated tax income by and on behalf of current and future

participants from the actuarial PV of the future scheduled benefit payments to them or on their behalf. To determine a

program’s funding shortfall over any given period of time, the starting trust fund balance is subtracted from the PV of

expenditures in excess of revenues over the period. The portion of each trust fund not required to pay benefits and

administrative costs is invested, on a daily basis, in interest-bearing obligations of the U.S. government. The Social Security Act

authorizes the issuance by Treasury of special nonmarketable, intra-governmental debt obligations for purchase exclusively by

the trust funds. Although the special issues cannot be bought or sold in the open market, they are redeemable at any time at face

value and thus bear no risk of fluctuation in principal value due to changes in market yield rates. Interest on the bonds is credited

to the trust funds and becomes an asset to the funds and a liability to the General Fund. These Treasury securities and related

interest are eliminated in consolidation at the government-wide level. For additional information, see Note 23—Funds from

Dedicated Collections.

7 Trust fund balances for the Railroad Retirement and Black Lung programs are not included, as these balances are less than $50.0 billion.

151 NOTES TO THE FINANCIAL STATEMENTS

Social Insurance Programs Trust Fund Balances 1

(In trillions of dollars) 2021 2020 2019 2018 2017

Medicare ......................................................................................................................................................................................... 0.3 0.3 0.3 0.3 0.3

1 As of the valuation date of the respective programs.

Medicare – Illustrative Alternative Scenario

The financial projections for the Medicare program reflect substantial, but very uncertain, cost savings deriving from

specific provisions of the PPACA and the MACRA that lowered increases in Medicare payment rates to most categories of

health care providers. Certain features of current law may result in some challenges for the Medicare program including

physician payments, payment rate updates for most non-physician categories, and productivity adjustments. For those

providers affected by the productivity adjustments and the specified updates to physician payments, sustaining the price

reductions will be challenging, as the best available evidence indicates that most providers cannot improve their productivity

to this degree for a prolonged period given the labor-intensive nature of these services and that physician costs will grow at a

faster rate than the specified updates. As a result, actual Medicare expenditures are highly uncertain for reasons apart for the

inherent difficultly in projecting health care cost growth over time. Please refer to the unaudited RSI—Social Insurance and

HHS financial statements for additional information.

To help illustrate and quantify the potential magnitude of the cost understatement, the Trustees asked the Office of the

Actuary at CMS to prepare the following illustrative Medicare Trust Fund projections under a hypothetical alternative. This

scenario illustrates the impact that would occur if the payment updates that are affected by the productivity adjustments were

to gradually transition from current law to the payment updates assumed for private health plans, the physician updates

transition to the Medicare Economic Index, and the 5.0 percent bonuses paid to qualified physicians in advance APM did not

expire. The extent to which actual future Part A and Part B costs exceed the projected amounts due to changes to the

productivity adjustments and physician updates depends on what specific changes might be legislated and whether Congress

would pass further provisions to help offset such costs. This alternative was developed for illustrative purposes only and the

calculations have not been audited.

NOTES TO THE FINANCIAL STATEMENTS 152

Medicare Present Values (In trillions) (Unaudited)

2021 Consolidated Illustrative

SOSI Alternative

Current Law Scenario 1, 2

Income:

Part A ............................................................................................................................................................................................ 26.7 26.8 Part B 3 ........................................................................................................................................................................................... 14.5 16.3 Part D 4........................................................................................................................................................................................... 3.2 3.2 Total income ............................................................................................................................................................................... 44.4 46.3

Expenditures:

Part A ........................................................................................................................................................................................... 31.7 37.3 Part B ........................................................................................................................................................................................... 50.0 56.2 Part D ........................................................................................................................................................................................... 10.9 10.9 Total expenditures ....................................................................................................................................................................... 92.6 104.4

Income less expenditures:

Part A ........................................................................................................................................................................................... (5.0) (10.5) Part B ............................................................................................................................................................................................ (35.5) (39.9) Part D ........................................................................................................................................................................................... (7.7) (7.7) Excess of expenditures over income (48.2) (58.1)

1These amounts are not presented in the 2021 Trustees' Report.

2At the request of the Trustees, the Office of the Actuary at CMS has prepared an illustrative set of Medicare Trust Fund projections that differ from current law. No endorsement of the illustrative alternative to current law by the Trustees, CMS, or the Office of the Actuary should be inferred.

3Excludes $35.5 trillion and $39.9 trillion of General Revenue Contributions from the 2021 Consolidated SOSI Current Law projection and the Illustrative Alternative Scenario's projection, respectively; i.e., to reflect Part B income on a consolidated government-wide basis.

4Excludes $7.7 trillion of General Revenue Contributions from both the 2021 Consolidated SOSI Current Law projection and the Illustrative Alternative projection; i.e., to reflect Part D income on a consolidated government-wide basis.

153 NOTES TO THE FINANCIAL STATEMENTS

Demographic and Economic Assumptions

Social Security and Medicare – Demographic and Economic Assumptions

Demographic Assumptions

2021 2030 2040 2050 2060 2070 2080 2090 210013

Total Fertility Rate1 1.5 1.9 2.0 2.0 2.0 2.0 2.0 2.0 2.0

Age-Sex Adjusted Death Rate2 908.3 741.5 683.0 630.3 583.7 542.3 505.5 472.7 443.3

Net Annual Immigration3 680 1,339 1,288 1,256 1,240 1,229 1,222 1,218 1,216

Period Life Expectancy at Birth - Male4 74.6 77.0 78.1 79.2 80.2 81.1 82.0 82.8 83.6

Period Life Expectancy at Birth- Female4

79.9 82.0 82.9 83.8 84.6 85.4 86.1 86.7 87.4

Economic Assumptions (percent change)

2021 2030 2040 2050 2060 2070 2080 2090 210013

Real Wage Differential5 3.2 1.2 1.2 1.1 1.2 1.2 1.1 1.1 1.2

Wages6 6.2 3.6 3.6 3.5 3.6 3.6 3.5 3.5 3.6

CPI7 3.1 2.4 2.4 2.4 2.4 2.4 2.4 2.4 2.4

Real GDP8 4.4 2.0 1.9 2.0 2.0 1.9 2.0 2.1 2.0

Total Employment9 2.7 0.5 0.3 0.4 0.4 0.3 0.4 0.5 0.4

Avg. Annual Interest Rate (percent)10 1.5 4.7 4.7 4.7 4.7 4.7 4.7 4.7 4.7

Real Interest Rate (percent)11 (2.0) 2.2 2.3 2.3 2.3 2.3 2.3 2.3 -

Per Beneficiary Cost - HI12 8.2 3.6 4.2 3.4 3.3 3.4 3.5 3.4 -

Per Beneficiary Cost - SMI Part B12 13.1 14 5.0 4.5 3.8 3.8 3.5 3.7 3.7 -

Per Beneficiary Cost - SMI Part D12 (0.2) 15 4.3 4.1 4.3 4.2 4.0 4.1 4.2 -

1 Average number of children per woman.

2 The age-sex-adjusted death rate per 100,000 that would occur in the enumerated population as of April 1, 2010, if that population were to experience the death

rates by age and sex observed in, or assumed for, the selected year. 3 Includes lawful immigration, net of immigration, as well as other, non-legal, immigration per thousand of persons.

4 Summary measure of average number of years expected prior to death for a person born on January 1 in that year, using the mortality rates for that year over

the course of his or her remaining life. (Social Security)

5 Difference between percentage increases in wages and the CPI.

6 Average annual wage in covered employment.

7 CPI represents a measure of the average change in prices over time in a fixed group of goods and services.

8 Total dollar value of all goods and services produced in the U.S., adjusted to remove the impact of assumed inflation growth.

9 Summary measure of total U.S. military and civilian employment. (Social Security)

10 The average of the nominal interest rates, compounded semi-annually, for special public-debt obligations issuable monthly.

11 Average rate of interest earned on new trust fund securities, above and beyond rate of inflation. (Medicare)

These increases reflect the overall impact of more detailed assumptions that are made for each of the different types of service provided by the Medicare

program. These assumptions include changes in the payment rates, utilization, and intensity of each type of service. (Medicare) 13

The valuation period used for the 2021 Statement of Social Insurance extends to 2095 (Social Security). Medicare did not report assumptions for 2100.

14 Reflects the assumed return of healthcare services that were reduced or deferred in 2020 due to the COVID-19 pandemic.

15 Part D cost growth is projected to be negative in 2021 mainly due to higher assumed direct and indirect remuneration.

The Boards of Trustees8 of the Social Security and Medicare Trust Funds provide in their annual reports to Congress

short-range (10-year) and long-range (75-year) actuarial estimates of each trust fund. Significant uncertainty surrounds the

8 The boards are composed of six members. Four members serve by virtue of their positions in the federal government: the Secretary of the Treasury, who is the Managing Trustee; the Secretary of Labor; the Secretary of HHS; and the Commissioner of Social Security. The President appoints and the Senate

confirms the other two members to serve as public representatives. These two positions are currently vacant.

NOTES TO THE FINANCIAL STATEMENTS 154

estimates, especially for a period as long as 75 years. To illustrate the range of uncertainty, the Trustees use three alternative

scenarios (low-cost, intermediate, and high-cost) that use specific assumptions. These assumptions include fertility rates,

rates of change in mortality, LPR and other than LPR immigration levels, emigration levels, changes in real GDP, changes in

the CPI, changes in average real wages, unemployment rates, trust fund real yield rates, and disability incidence and recovery

rates. The assumptions used for the most recent set of projections shown above in the Social Security and Medicare

demographic and economic assumption table are generally referred to as the “intermediate assumptions,” and reflect the

Trustees reasonable estimate of expected future experience. For additional information on Social Security and Medicare

demographic and economic assumptions, refer to SSA’s and HHS’s financial statements.

The RRB’s estimated future revenues and expenditures reflected in the SOSI are based on various economic, employment,

and other actuarial assumptions, and assume that the program will continue as presently constructed. For further details on

actuarial assumptions related to the program and how these assumptions affect amounts presented on the SOSI and SCSIA,

consult the Technical Supplement to the 28th Actuarial Valuation of the Assets and Liabilities Under the Railroad Retirement

Acts as of December 31, 2019 and RRB’s financial statements.

The BLDBP significant assumptions used in the projections are the coal excise tax revenue estimates, the tax rate

structure, the number of beneficiaries, life expectancy, federal civilian pay raises, medical cost inflation, and the interest rates

used to discount future cash flows.

Statement of Changes in Social Insurance Amounts

The SCSIA reconciles the change (between the current valuation and the prior valuation) in the PV of estimated future

revenue less estimated future expenditures for current and future participants (the open group measure) over the next 75 years

(except Black Lung which has a rolling 25-year projection period through September 30, 2046). The reconciliation identifies

several components of the changes that are significant and provides reasons for the changes. The following disclosures relate

to the SCSIA including the reasons for the components of the changes in the open group measure during the reporting period

from the end of the previous reporting period for the government’s social insurance programs.

All estimates relating to the Social Security and Medicare Programs in the SCSIA represent values that are incremental

to the prior change. In general, an increase in the PV of net cash flows represents a positive change (improving financing),

while a decrease in the PV of net cash flows represents a negative change (worsening financing). For additional information

regarding the estimates used to prepare the SCSIA, see SSA’s, HHS’S, RRB’s, and DOL’s financial statements.

Assumptions Used for the Components of the Changes

The PV included in the SCSIA are for the current and prior years and are based on various economic as well as

demographic assumptions used for the intermediate assumptions in the Social Security and Medicare Trustees’ Report for

these years. The Social Security and Medicare – Demographic and Economic Assumptions table summarizes these

assumptions for the current year.

PV as of January 1, 2020 and January 1, 2019 are calculated using interest rates from the intermediate assumption of the

2020 and 2019 Trustees’ Reports, respectively. All other PV in this part of the SCSIA are calculated as a PV as of January 1,

2021 and January 1, 2020 respectively.

For the period beginning on January 1, 2020 to the period beginning on January 1, 2021 (current year) and period

beginning on January 1, 2019 to the period beginning on January 1, 2020 (prior year) estimates of the PV of Social Security

and Medicare changes in social insurance amounts due to changing the valuation period, projection base, demographic data

and assumptions, methods, and law are presented using the interest rates under the intermediate assumption of the 2020 and

2019 Trustees’ Report respectively. Since interest rates are an economic estimate and all estimates in the table are

incremental to the prior change, the estimates of the PV of changes in economic and health care assumptions and all other PV

in this part of the SCSIA are calculated using the interest rates under the intermediate assumptions of the 2021 and 2020

Trustees’ Reports, respectively.

Changes in Valuation Period

From the period beginning on January 1, 2020 to the period beginning on January 1, 2021

The effect on the 75-year PV of changing the valuation period from the prior valuation period (2020-2094) to the

current valuation period (2021-2095) is measured by using assumptions for the prior valuation and extending them to cover

the current valuation. Changing the valuation period removes small negative estimated net cash flow for 2020, replaces it

with a much larger negative net cash flow for 2095, and measures the PV as of January 1, 2021, one year later. As a result,

155 NOTES TO THE FINANCIAL STATEMENTS

the PV of estimated future net cash flows to decrease by $0.7 trillion and to decrease by $1.5 trillion for Social Security and

Medicare, respectively.

From the period beginning on January 1, 2019 to the period beginning on January 1, 2020

The effect on the 75-year PV of changing the valuation period from the prior valuation period (2019-2093) to the

current valuation period (2020-2094) is measured by using the assumptions for the prior valuation and extending them to

cover the current valuation. Changing the valuation period removes a small negative net cash flow for 2019, replaces it with a

much larger negative net cash flow for 2094, and measures the PV as of January 1, 2020, one year later. As a result, the PV

of the estimated future net cash flows to decrease by $0.6 trillion and to decrease by $1.6 trillion for Social Security and

Medicare, respectively.

Changes in Demographic Data, Assumptions, and Methods

From the period beginning on January 1, 2020 to the period beginning on January 1, 2021

For the current valuation (beginning on January 1, 2021), there were two changes to the ultimate demographic

assumptions and an associated change in methodology.

• The ultimate total fertility rate was increased in conjunction with switching from a period-based model to a cohort- based model for birth-rates.

• An additional cause of death category was added, by separating dementia out from the all-other-causes category, and ultimate mortality improvement rates were updated for cardiovascular disease.

In addition to this ultimate demographic assumption change, the starting demographic values and the way those values

transition to the ultimate assumptions were changed.

• Birth rate data through the third quarter of 2020 indicated somewhat lower birth rates.

• Death rates increased significantly for 2020 and 2021 to account for elevated deaths during the COVID-19 pandemic.

The PVs of estimated income and expenditures are lower for Part A, Part B, and Part D. Overall, changes to these

assumptions caused the PV of the estimated future net cash flows to increase by $0.2 trillion and $1.3 trillion for Social

Security and Medicare, respectively.

From the period beginning on January 1, 2019 to the period beginning on January 1, 2020

For the current valuation (beginning on January 1, 2020), there were two changes to ultimate demographic assumptions

compared to prior valuation (beginning on January 1, 2019).

• The ultimate total fertility rate was lowered.

• The ultimate disability incidence rate was lowered, and the near‐term assumed disability incidence rates are somewhat lower in the current valuation. (Medicare only)

In addition to this ultimate demographic assumption change, the starting demographic values and the way those values

transition to the ultimate assumptions were changed.

• Final birth rate data for 2018 and the first quarter of 2019 indicated somewhat lower birth rates.

• Incorporating mortality data obtained from the National Center for Health Statistics resulted in higher death rates for all future years.

• The latest valuation included the impact of TTD on Medicare expenditures. These changes especially the TTD assumption lowered Medicare expenditures for the current valuation period,

particularly for Part A, and resulted in a large increase in the estimated future net cash flow. For Social Security there were

no notable changes in demographic methodology. Overall, changes to these assumptions caused the PV of the estimated

future net cash flows to decrease by $0.4 trillion and to increase by $3.7 trillion for Social Security and Medicare,

respectively.

Changes in Economic Data, Assumptions, and Methods (Social Security Only)

From the period beginning on January 1, 2020 to the period beginning on January 1, 2021

For the current valuation (beginning on January 1, 2021), there were two changes to the ultimate economic assumptions

compared to prior valuation (beginning on January 1, 2020).

• The ultimate average real wage differential increased. Additionally, the real wage differential assumptions for the first 10 years of the projection period were also increased.

• The ultimate age-sex-adjusted unemployment rate was reduced. The higher real wage differential and the combined changes to the unemployment assumption and the labor force

methodology both increased the PV of estimated future net cash flows.

NOTES TO THE FINANCIAL STATEMENTS 156

In addition to these changes in ultimate economic assumptions, the starting economic values and the way these values

transition to the ultimate assumptions were changed.

• Near-term interest rates were adjusted downward. Real interest rates are now assumed to be negative for calendar years 2021 through 2024, with a gradual rise to the ultimate real interest rate.

• The level of potential GDP is assumed to be roughly 1.0 percent lower than the level beginning with the second quarter 2020.

The changes to near-term interest rate and the starting values and near-term economic growth assumptions decrease the

PV of the estimated future net cash flows.

There were no additional notable changes in economic methodology. Overall, these changes decreased the PV of the

estimated future net cash flows by $1.2 trillion for Social Security.

From the period beginning on January 1, 2019 to the period beginning on January 1, 2020

For the current valuation (beginning on January 1, 2020), there were four changes to the ultimate economic assumptions

compared to prior valuation (beginning on January 1, 2019).

• The ultimate rate of price inflation (CPI for Urban Wage Earners and Clerical Workers) was lowered.

• The ultimate average real-wage differential was decreased. Most of this decrease is due to the repeal of the PPACA excise tax, the effect of which is accounted for in the “Changes in Law or Policy” section.

• The ultimate age-sex adjusted unemployment rate was reduced, and long-term labor force participation rates were reduced by age and sex such that projected employment rates remained essentially unchanged.

• The ultimate real interest rate was lowered. In addition to these changes in ultimate assumptions, the starting economic values and the way these values transition to

the ultimate assumptions were changed. The most notable change was to include a 0.7 percent decrease in the estimated level

of potential GDP for the fourth quarter of 2019 and thereafter.

There were no notable changes in economic methodology. Overall, changes to these assumptions caused the PV of the

estimated future net cash flows to decrease by $1.8 trillion for Social Security.

Changes in Law or Policy

From the period beginning on January 1, 2020 to the period beginning on January 1, 2021

For Social Security, between prior valuation and the current valuation one change in policy is expected to have

significant effect on the long-range cost.

• The DACA policy extends indefinitely the ability of those qualifying to remain in the country and work lawfully. A memorandum was issued on January 20, 2021.

Most of the provisions enacted as part of Medicare legislation since the prior valuation date have little or no impact on

the program. The following provisions did have financial impact.

• The CARES Act (P.L. 116-136, enacted on March 27, 2020) included provisions that affect the HI and SMI programs.

• The Continuing Appropriations Act, 2021, and Other Extensions Act, (P.L. 116-159, enacted on October 1, 2020) included provisions that affect the HI and SMI programs.

• The CAA, 2021 (P.L. 116-260, enacted on December 27, 2020) included provisions that affect the HI and SMI Programs.

• An Act to Prevent Across-the-Board Direct Spending Cuts and for Other Purposes (P.L. 117-7, enacted on April 14, 2021) included provisions that affect the HI and SMI Programs.

Overall, the changes to these laws, regulations, and policies caused the PV of the estimated future net cash flows to

decrease by $0.1 trillion for Social Security and Medicare.

From the period beginning on January 1, 2019 to the period beginning on January 1, 2020

For Social Security, between prior valuation and the current valuation one new law and one new regulation were

enacted that are expected to have significant effects on the long-range cost.

• The PPACA, which was enacted in 2010, specified an excise tax on employer-sponsored group health insurance premiums above a given level (commonly referred to as the “Cadillac” tax). On December 20, 2019, the PPACA’s

excise tax provision was repealed.

• On February 25, 2020, SSA published a final rule in the Federal Register that eliminates the inability to communicate in English as an educational category in the disability determination and medical review process.

Most of the provisions enacted as part of Medicare legislation since the prior valuation date had little or no impact on

the program. The following provisions did have a financial impact.

157 NOTES TO THE FINANCIAL STATEMENTS

• The BBA of 2019 (P.L. 116-37, enacted on August 2, 2019) included one provision that affects the HI and SMI Programs.

• The Future Consolidated Appropriations Act, 2020 (P.L. 116-94, enacted on December 20, 2019) included provisions that affect HI and SMI programs.

Overall, the changes to these laws, regulations, and policies caused the PV of the estimated future net cash flows to

decrease by $0.3 trillion for Social Security and Medicare.

Changes in Methodology and Programmatic Data (Social Security Only)

From the period beginning on January 1, 2020 to the period beginning on January 1, 2021

Several methodological improvements and updates of program-specific data are included in the current valuation

(beginning on January 1, 2021) compared to the prior valuation (beginning on January 1, 2020). The most significant are

identified below.

• The current valuation uses a 10.0 percent sample of all newly entitled worker beneficiaries in a recent year to project average benefit levels of retired-workers and disabled-workers beneficiaries.

• Recent data and estimates indicated lower near-term and ultimate levels of revenue from taxation of Social Security benefits than projected.

• The methodology for projecting retroactive benefits for retired workers was improved to better capture the different rules for workers who become newly entitled prior to normal retirement age versus those who become entitled at or

after normal retirement age.

Overall, changes to these assumptions and methods caused the PV of the estimated future net cash flows to decrease by

$1.2 trillion for Social Security.

From the period beginning on January 1, 2019 to the period beginning on January 1, 2020

Several methodological improvements and updates of program-specific data are included in the current valuation

(beginning on January 1, 2020) compared to the prior valuation (beginning on January 1, 2019). The most significant are

identified below.

• The ultimate disability incidence rate was lowered and near term assumed disability incidence rates are somewhat lower.

• The current valuation includes an improvement in the long-range model used for projecting the percentage of the population that has fully-insured status.

• The current valuation uses a 10.0 percent sample of all newly entitled worker beneficiaries in a recent year to project average benefit levels of retired-worker and disabled-worker beneficiaries.

Overall, changes to these assumptions and methods caused the PV of the estimated future net cash flows to increase by

$0.2 trillion for Social Security.

Changes in Economic and Other Health Care Assumptions (Medicare Only)

From the period beginning on January 1, 2020 to the period beginning on January 1, 2021

The economic assumptions used in the Medicare projections are the same as those used for the Social Security program

shown above while the health care assumptions are specific to the Medicare projections. The following health care

assumptions were changed in the current valuation.

• Slightly faster projected spending growth for outpatient services and for physician-administered drugs.

• Higher direct and indirect remuneration and shifts to Medicare Advantage offset higher gross drug prices. Overall, these changes decreased the PV of the estimated future net cash flows by $3.8 trillion for Medicare.

From the period beginning on January 1, 2019 to the period beginning on January 1, 2020

The economic assumptions used in the Medicare projections are the same as those used for the Social Security program

shown above while the health care assumptions are specific to the Medicare projections. The following health care

assumptions were changed in the current valuation.

• Higher projected spending growth for Medicare Advantage beneficiaries.

• Faster projected growth for Part B drugs.

• Slower overall drug price increases and higher direct and indirect remuneration. Overall, these changes decreased the PV of the estimated future net cash flows by $5.4 trillion for Medicare.

NOTES TO THE FINANCIAL STATEMENTS 158

Change in Projection Base (Medicare Only)

From the period beginning on January 1, 2020 to period beginning on January 1, 2021

Actual income and expenditures in 2020 were different than what was anticipated when the 2020 Trustees’ Report

projections were prepared. For Part A and Part B income and expenditures in 2020 were lower than anticipated based on

actual experience, mainly due to the impact of the COVID-19 pandemic. Part D was largely unaffected by the pandemic and

total income and expenditures were only slightly higher than the estimated based on actual experience. Actual experience of

the Medicare Trust Funds between January 1, 2020 and January 1, 2021 is incorporated in the current valuation and is more

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

the estimated future net cash flows by $1.6 trillion for Medicare.

From the period beginning on January 1, 2019 to the period beginning on January 1, 2020

Actual income and expenditures in 2019 were different than what was anticipated when the 2019 Trustees’ Report

projections were prepared. Part A income and expenditures in 2019 were lower than anticipated based on actual experience.

For both Part B and Part D, total income and expenditures were higher than estimated based on actual experience. The net

impact of the Part A, B, and D projection base changes is an increase of $401.0 billion in the PV of the estimated future net

cash flows, including combined trust fund assets. Actual experience of the Medicare Trust Funds between January 1, 2019

and January 1, 2020 is incorporated in the current valuation and is more than projected in the prior valuation. Overall, the net

impact of the Part A, B, and D projection base change is an increase in the estimated future net cash flows by $0.1 trillion for

Medicare.

159 NOTES TO THE FINANCIAL STATEMENTS

Note 26. Long-Term Fiscal Projections

The SLTFP is prepared pursuant to SFFAS No. 36, Comprehensive Long-Term Projections for the U.S. Government. The

financial statements, Note 26, and unaudited RSI provide information to aid readers of the Financial Report in assessing

whether current policies for federal spending and taxation can be sustained and the extent to which the cost of public services

received by current taxpayers will be shifted to future taxpayers. This assessment requires prospective information about

receipts and spending, the resulting debt, and how these amounts relate to the size of the economy. A sustainable policy is

defined as one where the ratio of federal debt held by the public to GDP (the debt-to-GDP ratio) is ultimately stable or

declining. The Financial Report does not address the sustainability of state and local government fiscal policy.

The projections and analysis presented here are extrapolations based on an array of assumptions described in detail

below. A fundamental assumption is that current federal policy will not change. This assumption is made so as to inform the

question of whether current fiscal policy is sustainable and, if it is not sustainable, the magnitude of needed reforms to make

fiscal policy sustainable. The projections are therefore neither forecasts nor predictions. If policy changes are implemented,

perhaps in response to projections like those presented here, then actual financial outcomes will be different than those

projected. The methods and assumptions underlying the projections are subject to continuing refinement.

The projections focus on future cash flows, and do not reflect either the accrual basis or the modified-cash basis of

accounting. These cash-based projections reflect receipts or spending at the time cash is received or when a payment is made

by the government. In contrast, accrual-based projections would reflect amounts in the time period in which income is earned

or when an expense or obligation is incurred. The cash basis accounting underlying the long-term fiscal projections is

consistent with methods used to prepare the SOSI and the generally cash-based federal budget.

The SLTFP displays the PV of 75-year projections for various categories of the federal government’s receipts and non-

interest spending.9 The projections for FYs 2021 and 2020 are expressed in PV dollars and as a percent of the PV of GDP10 as

of September 30, 2021 and September 30, 2020, respectively. The PV of a future amount, for example $1.0 billion in October

2096, is the amount of money that if invested on September 30, 2021 in an account earning the government borrowing rate

would have a value of $1.0 billion in October 2096.11

The PV of a receipt or spending category over 75 years is the sum of the annual PV amounts. When expressing a receipt

or spending category over 75 years as a percent of GDP, the PV dollar amount is divided by the PV of GDP over 75 years.

Measuring receipts and spending as a percent of GDP is a useful indicator of the economy’s capacity to sustain federal

government programs.

Fiscal Projections

Receipt categories in the long-term fiscal projections include individual and corporation income taxes, Social Security

and Medicare payroll taxes, and a residual remaining category of “other receipts.” Non-interest spending categories include

discretionary spending that is funded through annual appropriations, such as spending for national security; and mandatory

(entitlement) spending that is generally funded with permanent or multi-year appropriations, such as spending for Social

Security and Medicare. This year’s projections for Social Security and Medicare are based on the same economic and

demographic assumptions that underlie the 2021 Social Security and Medicare Trustees’ Reports and the 2021 SOSI, which

include the estimated effects of the COVID-19 pandemic and ensuing recession, while comparative information presented

from last year’s report is based on the 2020 Social Security and Medicare Trustees’ Reports and the 2020 SOSI.12 Projections

for the other categories of receipts and spending are consistent with the economic and demographic assumptions in the

Trustees’ Reports and include updates for actual budget results for FY 2021 or budgetary estimates from the President’s FY

2022 Budget. Where possible, those budget totals are adjusted before spending is projected to remove outlays for programs or

activities that are judged to be temporary, such as spending related to the COVID-19 pandemic and economic recovery.

Where not possible, budget totals were not adjusted, resulting in higher projections of future spending, increasing the

uncertainty surrounding this year’s projections.

9 For the purposes of this analysis, spending is defined in terms of outlays. In the context of federal budgeting, spending can either refer to budget authority – the authority to commit the government to make a payment; to obligations – binding agreements that will result in payments, either immediately or in the

future; or to outlays – actual payments made. 10 GDP is a standard measure of the overall size of the economy and represents the total market value of all final goods and services produced domestically during a given period of time. The components of GDP are: private sector consumption and investment, government consumption and investment, and net

exports (exports less imports). Equivalently, GDP is a measure of the gross income generated from domestic production over the same time period. 11 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. 12 Social Security and Medicare Trustees’ Reports can be found at https://www.ssa.gov/OACT/TR/.

https://www.ssa.gov/OACT/TR/

NOTES TO THE FINANCIAL STATEMENTS 160

The projections assume the continuance of current policy which, builds off current law, but can be different than current

law in cases where lawmakers have in the past periodically changed the law in a consistent way. The specific assumptions

that depart from current law and are used for the current policy basis of these projections are explained below.

The projections shown in the SLTFP are made over a 75-year time frame, consistent with the time frame featured in the

Social Security and Medicare Trustees’ Reports. However, these projections are for fiscal years starting on October 1,

whereas the Trustees’ Reports feature calendar-year projections. Using fiscal years allows the projections to start from the

actual budget results from FYs 2021 and 2020.

The Infrastructure Investment and Jobs Act (P.L. 117-58) was signed into law on November 15, 2021, and is therefore

not reflected in the projections shown in the Statements of Long-Term Fiscal Projections or this note and cannot be

reasonably estimated. See Note 31—Subsequent Events for additional information.

This year’s estimate of the 75-year PV imbalance of receipts less non-interest spending is 5.7 percent of the current 75-

year PV of GDP, compared to 4.8 percent as was projected in last year’s Financial Report.13 The above table reports the

effects of various factors on the updated projections.

• The largest factor affecting the projections—increasing the imbalance as a share of the 75-year PV of GDP by 0.4 percentage points ($6.8 trillion)—is attributable to actual budget results for FY 2021 and the budgetary estimates

published in the FY 2022 President’s Budget. Actual budget results for FY 2021 lead to higher 75-year PV of

spending for mandatory programs other than Social Security, Medicare, and Medicaid. Budgetary estimates result in

higher 75-year PVs for individual income tax receipts and outlays for non-defense discretionary programs. See

discussion below regarding assumptions used for receipts and spending projections.

• The second largest factor was the update of economic and demographic assumptions which increases the imbalance as a share of the 75-year PV of GDP by 0.2 percentage points ($6.3 trillion). The long-term fiscal projections are

based on the same economic and demographic assumptions that underlie the Trustees’ Reports, and the effects of the

COVID-19 pandemic were first reflected in the assumptions for the 2021 Trustees’ Reports. Higher wage

projections increase the 75-year PV of individual income tax and social insurance receipts and outlays for Social

Security. Higher near-term growth in GDP had the effect of increasing the 75-year PV of discretionary spending and

spending for mandatory programs other than Social Security, Medicare, and Medicaid.

13 The fiscal imbalances reported in the long-term fiscal projections do not include the initial level of publicly held debt, which was $22.3 trillion in 2021 and

$21.0 trillion in 2020, and, therefore, they do not by themselves answer the question of how large fiscal reforms must be to make fiscal policy sustainable. See “Sustainability and the Fiscal Gap” and footnote 17 for additional discussion. More information on the projections in last year’s Financial Report can be

found in Note 24 to the financial statements here: https://fiscal.treasury.gov/reports-statements/#.

https://fiscal.treasury.gov/reports-statements/

161 NOTES TO THE FINANCIAL STATEMENTS

• The third largest factor is the effect of new Social Security, Medicare, and Medicaid program-specific actuarial assumptions, which increase this imbalance as a share of the 75-year PV of GDP by 0.2 percentage points ($3.6

trillion).14

• The last factor in the table, the change in reporting period – the effect of shifting calculations from 2021 through 2095 to 2022 through 2096 – increases the imbalance of the 75-year PV of receipts less non-interest spending by

$1.4 trillion.

The net effect of the changes in the table above, equal to the penultimate row in the SLTFP, shows that this year’s

estimate of the overall 75-year PV of receipts less non-interest spending is negative 5.7 percent of the 75-year PV of GDP

(negative $97.6 trillion, as compared to a GDP of $1,724.4 trillion). This imbalance can be broken down by funding source.

Spending projections exceeded receipts by 4.0 percent of GDP (about $68.6 trillion) among programs funded by the

government’s general revenues, and there is an imbalance of 1.7 percent of GDP (about $29.0 trillion)15 for the combination

of Social Security (OASDI) and Medicare Part A, which under current law are funded with payroll taxes and not in any

material respect with general revenues.16, 17 By comparison, the FY 2020 projections showed that programs funded by the

government’s general revenues had an excess of spending over receipts of 3.3 percent of GDP ($53.9 trillion) while the

payroll tax-funded programs had an imbalance of spending over receipts of 1.6 percent of GDP ($25.6 trillion).

Sustainability and the Fiscal Gap

This report presents data, including debt, as a percent of GDP to help readers assess whether current fiscal policy is

sustainable. The debt-to-GDP ratio was approximately 100 percent at the end of FY 2021. As discussed further in the

unaudited RSI, the projections based on this report’s assumptions indicate that current policy is not sustainable. If current

policy is left unchanged, the projections show the debt-to-GDP ratio will rise to 200 percent by 2041 and reach 701 percent in

2096. Moreover, if the trends that underlie the 75-year projections were to continue, the debt-to-GDP ratio would continue to

rise beyond the 75-year window.

The fiscal gap measures how much the primary surplus (receipts less non-interest spending) must increase in order for

fiscal policy to achieve a target debt-to-GDP ratio in a particular future year. In these projections, the fiscal gap is estimated

over a 75-year period, from 2022 to 2096, and the target debt-to-GDP ratio is equal to the ratio at the beginning of the

projection period, in this case the estimated debt-to-GDP ratio at the end of FY 2021. The target year is the last year of the

75-year period (2096).

The 75-year fiscal gap under current policy is estimated at 6.2 percent of GDP, which is 32.4 percent of the 75-year PV

of projected receipts and 25.0 percent of the 75-year PV of non-interest spending. This estimate of the fiscal gap is 0.8

percentage points larger than was estimated in 2020 (5.4 percent of GDP).

The projections show that projected primary deficits average 5.7 percent of GDP over the next 75 years under current

policy. If policies were put in place that would result in a zero fiscal gap, the average primary surplus over the next 75 years

would be 0.6 percent of GDP, 6.2 percentage points higher than the projected PV of receipts less non-interest spending

shown in the SLTFP. In these projections, closing the fiscal gap requires running a substantially positive level of primary

surplus, rather than simply eliminating the primary deficit. The primary reason is that the projections assume future interest

rates will exceed the growth rate of GDP. Achieving primary balance (that is, running a primary surplus of zero) implies that

14 For more information on Social Security and Medicare actuarial estimates, refer to Note 25, “Social Insurance.” 15 The 75-year PV imbalance for Social Security and Medicare Part A of $29.0 trillion is comprised of several line items from the SLTFP – Social Security outlays net of Social Security payroll taxes ($30.0 trillion) and Medicare Part A outlays net of Medicare payroll taxes ($10.4 trillion) – as well as

subcomponents of these programs not presented separately in the statement. These subcomponents include Social Security and Medicare Part A

administrative costs that are classified as non-defense discretionary spending ($0.6 trillion) and Social Security and Medicare Part A income other than payroll taxes: taxation of benefits (-$5.4 trillion), federal employer share (-$1.5 trillion), and other income (-$5.0 trillion). 16 Social Security and Medicare Part A expenditures can exceed payroll tax revenues in any given year to the extent that there are sufficient balances in the

respective trust funds; these balances derive from past excesses of payroll tax revenues over expenditures and interest earned on those balances and represent the amount the General Fund owes the respective trust fund programs. When spending does exceed payroll tax revenues, as has occurred each year since

2008 for Medicare Part A and 2010 for Social Security, the excess spending is financed first with interest due from the General Fund and secondly with a

drawdown of the trust fund balance; in either case, the spending is ultimately supported by general revenues or borrowing. Under current law, benefits for Social Security and Medicare Part A can be paid only to the extent that there are sufficient balances in the respective trust funds. In order for the long-term

fiscal projections to reflect the full size of these program’s commitments to pay future benefits, the projections assume that all scheduled benefits will be

financed with borrowing to the extent necessary after the trust funds are depleted. 17 The fiscal imbalances reported in the long-term fiscal projections are limited to future outlays and receipts. They do not include the initial level of

publicly-held debt, $22.3 trillion in 2021 and $21.0 trillion in 2020, and therefore they do not by themselves answer the question of how large fiscal reforms

must be to make fiscal policy sustainable, or how those reforms divide between reforms to Social Security and Medicare Part A and to other programs. Other things equal, past cash flows (primarily surpluses) for Social Security and Medicare Part A reduced federal debt at the end of 2021 by $2.9 trillion (the trust

fund balances at that time); the contribution of other programs to federal debt at the end of 2021 was therefore $25.1 trillion. Similarly, because the $29.0

trillion imbalance between outlays and receipts over the next 75 years for Social Security and Medicare Part A does not take account of the Social Security and Medicare Part A trust fund balances, it overstates the magnitude of reforms necessary to make Social Security and Medicare Part A solvent over 75

years by $2.9 trillion. The $2.9 trillion combined Social Security and Medicare Part A trust fund balance represents a claim on future general revenues.

NOTES TO THE FINANCIAL STATEMENTS 162

the debt held by the public grows each year by the amount of interest spending, which under these assumptions would result

in debt growing faster than GDP.

Assumptions Used and Relationship to Other Financial Statements

A fundamental assumption underlying the projections is that current federal policy (defined below) does not change.

The projections are therefore neither forecasts nor predictions, and do not consider large infrequent events such as natural

disasters, military engagements, or economic crises. By definition, they do not build in future changes to policy. If policy

changes are enacted, perhaps in response to projections like those presented here, then actual fiscal outcomes will be different

than those projected.

Even if policy does not change, actual spending and receipts could differ materially from those projected here. Long-

range projections are inherently uncertain and are necessarily based on simplifying assumptions. For example, one key

simplifying assumption is that interest rates paid on debt held by the public remain unchanged, regardless of the amount of

debt outstanding. To the contrary, it is likely that future interest rates would increase if the debt-to-GDP ratio rises as shown

in these projections. To help illustrate this uncertainty, projections that assume higher and lower interest rates are presented in

the “Alternative Scenarios” discussion in the unaudited RSI section of this Financial Report.

As is true for prior long-term fiscal projections for the Financial Report, the assumptions for GDP, interest rates, and

other economic and demographic variables underlying this year’s projections are the same assumptions that underlie the most

recent Social Security and Medicare Trustees’ Report projections, adjusted for historical revisions that occur annually. These

assumptions differ from those in the President’s Budget because they extend for 75 years, rather than 25 years. Additionally,

they assume extension of current policy whereas the economic assumptions in the President’s Budget assume full

implementation of policies reflected in the Budget.18 The use of discount factors consistent with the Social Security Trustees’

rate allows for consistent PV calculations over 75 years between the SLTFP and the SOSI.

The following bullets summarize the key assumptions used for the categories of receipts and spending presented in the

SLTFP and the disclosures:

• Social Security: Projected Social Security (OASDI) spending excludes administrative expenses, which are classified as discretionary spending, and is based on the projected spending in the 2021 Social Security Trustees’

Report for benefits and for the Railroad Retirement interchange. The projections of Social Security payroll taxes and

Social Security spending are based on future spending and payroll taxes projected in the 2021 Social Security

Trustees’ Report, adjusted for presentational differences and converted to a fiscal year basis. More information

about the assumptions for Social Security cost growth can be found in Note 25 and the unaudited RSI discussion of

Social Insurance.

• Medicare: Projected Medicare spending also excludes administrative expenses, which are classified as discretionary spending, and is based on projected spending from the 2021 Medicare Trustees’ Report. The projections here make

some adjustments to the Trustees’ Report projections. Medicare Part B and D premiums, as well as state

contributions to Part D, are subtracted from gross spending in measuring Part B and Part D spending, just as they are

subtracted from gross cost to yield net cost in the financial statements.19 Here, as in the federal budget, premiums are

treated as “negative spending” rather than receipts since they represent payment for a service rather than payments

obtained through the government’s sovereign power to tax. This is similar to the financial statement treatment of

premiums as “earned” revenue as distinct from all other sources of revenue, such as taxes. The projections are based

on Medicare spending in the Medicare Trustees’ Report, adjusted for presentational differences and converted to a

fiscal year basis. Medicare Part A payroll taxes are projected similarly. More information about the assumptions for

Medicare cost growth can be found in Note 25 and the unaudited RSI discussion of Social Insurance. As discussed

in Note 25, there is uncertainty about whether the reductions in health care cost growth assumed in the Medicare

Trustees’ Report will be fully achieved. Note 25 illustrates this uncertainty by considering Medicare cost growth

assumptions under varying policy assumptions.

• Medicaid: The Medicaid spending projections start with the projections from the 2018 Medicaid Actuarial Report prepared by CMS’s Office of the Actuary, which is the most recent report available.20 These projections are based on

recent trends in Medicaid spending; the demographic, economic, and health cost growth assumptions in the 2018

Medicare Trustees’ Report; and projections of the effect of the PPACA on Medicaid enrollment. The projections in

the Medicaid Actuarial Report, which end in 2027, are adjusted to accord with the actual Medicaid spending in FY

2021. Actual Medicaid spending includes temporary spending increases due to changes in enrollment and other

18 See the FY 2022 President’s Budget, Analytical Perspectives Volume, Chapter 3 “Long-Term Budget Outlook.” 19

Medicare Part B and D premiums and state contributions to Part D are subtracted from the Part B and D spending displayed in the SLTFP. The total 75-

year PV of these subtractions is $19.9 trillion, or 1.2 percent of GDP. 20 Christopher J. Truffer, Kathryn E. Rennie, Lindsey Wilson, and Eric T. Eckstein II, 2018 Actuarial Report on the Financial Outlook for Medicaid, Office

of the Actuary, Centers for Medicare and Medicaid Services, U.S. Department of Health and Human Services.

163 NOTES TO THE FINANCIAL STATEMENTS

temporary measures related to the pandemic. The amounts related to these temporary spending increases cannot be

identified, which adds uncertainty to the projections. After 2027, the projections assume no further change in State

Medicaid coverage under the PPACA, and the numbers of aged beneficiaries (65-plus years) and non-aged

beneficiaries (less than 65 years) are expected to grow at the same rates as the aged and non-aged populations,

respectively. Medicaid costs per beneficiary are assumed to grow at the same rate as Medicare benefits per

beneficiary, as is generally consistent with the experience since 1987. Between 1987 and 2017, the average annual

growth rates of spending per beneficiary for Medicaid and Medicare were within 0.3 percentage point of each other.

Projections of Medicaid spending are subject to added uncertainty related to: 1) assumed reductions in health care

cost growth discussed above in the context of Medicare; 2) the projected size of the Medicaid enrolled population,

which depends on a variety of factors, including future state actions regarding the PPACA Medicaid expansion; and

3) certain limitations relating to the data used to generate the projected per enrollee spending in the 2018 Medicaid

actuarial report.

• Other Mandatory Spending: Other mandatory spending includes federal employee retirement, veterans’ disability benefits, and means-tested entitlements other than Medicaid. Current mandatory spending components that are

judged permanent under current policy are assumed to increase by the rate of growth in nominal GDP starting in

2022, implying that such spending will remain constant as a percent of GDP.21,22 Projected spending for insurance exchange subsidies starting in 2022 grows with growth in the non-elderly population and with the NHE projected

per enrollee cost growth for other private health insurance for the NHE projection period (through 2028 for the FY

2021 projections), and with growth in per enrollee health care costs as projected for the Medicare program after that

period. As discussed in Note 25, there is uncertainty about whether the reductions in health care cost growth

projected in the Medicare Trustees’ Report will be fully achieved. Projected exchange subsidy spending as a percent

of GDP remains below the failsafe provision in the PPACA that limits the federal share of spending to 0.504 percent

of GDP.

• Defense and Non-defense Discretionary Spending: These projections assume discretionary spending in 2022 equals the baseline estimate from the President’s Budget then grows at the same rate as nominal GDP. Separate

funding levels for overseas contingency operations are assumed to end after 2021, similar to the presentation in the

President’s FY 2022 Budget. The President’s Budget includes spending related to the pandemic and economic

recovery that is considered temporary. The amounts related to these temporary spending increases cannot be

identified, which adds uncertainty to the projections. To illustrate sensitivity to different assumptions, PV

calculations under alternative discretionary growth scenarios are presented in the unaudited “Alternative Scenarios”

RSI section.

• Receipts (Other than Social Security and Medicare Payroll Taxes): Individual income taxes are based on the share of salaries and wages in the current law baseline projection in the FY 2022 President’s Budget, and the salaries

and wages projections in the Social Security 2021 Trustees’ Report. That baseline accords with the tendency of

effective tax rates to increase as growth in income per capita outpaces inflation (also known as “bracket creep”) and

the expiration dates of individual income and estate and gift tax provisions of TCJA.23 After reaching 23 percent of

wages and salaries in 2028, individual income taxes increase gradually to 29 percent of wages and salaries in 2096

as real taxable incomes rise over time and an increasing share of total income is taxed in the higher tax brackets.

Through the first 10 years of the projections, corporation tax receipts as a percent of GDP reflect the economic and

budget assumptions used in developing the FY 2022 President’s Budget ten-year advance baseline budgetary

estimates. After this time, corporation tax receipts grow at the same rate as nominal GDP. All other receipts also

reflect FY 2022 President’s Budget levels as a share of GDP throughout the budget window and grow with GDP

outside of the budget window. Corporation tax receipts peak at 1.6 percent of GDP in 2025 before falling to 1.3

percent of GDP in 2031, where they stay for the remainder of the projection period. The ratio of all other receipts

combined, excluding corporation tax receipts, to GDP is estimated to be 1.6 percent in 2022, after which it gradually

declines to 1.2 percent by 2031 where it remains through the projection period. To illustrate uncertainty, PV

calculations under higher and lower receipts growth scenarios are presented in the “Alternative Scenarios” section.

21 Other mandatory spending in 2021 from legislation enacted in response to the COVID-19 pandemic is considered temporary and is not assumed to increase with nominal GDP. Such spending is identified using Disaster Emergency Fund Code attributes in budget execution data for the following: the Families First Coronavirus Response Act (P.L. 116-127); the CARES Act (P.L. 116-136); the Paycheck Protection Program and Health Care Enhancement

Act (P.L. 116-139); the CAA (P.L. 116-260, Division N); and the ARP (P.L. 117-2). Spending data for COVID-19 response legislation are available on

USAspending.gov. 22 This assumed growth rate for other mandatory programs after 2022 is slightly higher than the average growth rate in the most recent OMB and

Congressional Budget Office 10-year budget baselines. 23 The 2020 projections assumed the individual income and estate and gift tax provisions of the TCJA would continue past their legal expiration on

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

NOTES TO THE FINANCIAL STATEMENTS 164

• Debt and Interest Spending: Interest spending is determined by projected interest rates and the level of outstanding debt held by the public. The long-run interest rate assumptions accord with those in the 2021 Social Security

Trustees’ Report.24 The average interest rate over this year’s projection period is 4.4 percent, down slightly from the

2020 Financial Report’s 4.5 percent. These rates are also used to convert future cash flows to PVs as of the start of

FY 2022. Debt at the end of each year is projected by adding that year’s deficit and other financing requirements to

the debt at the end of the previous year.

Departures of Current Policy from Current Law

The long-term fiscal projections are made on the basis of current policy, which in some cases is assumed to be different

from current law. The notable differences between current policy that underlies the projections and current law are: 1)

projected spending, receipts, and borrowing levels assume raising or suspending the current statutory limit on federal debt; 2)

continued discretionary appropriations are assumed throughout the projection period; 3) scheduled Social Security and

Medicare Part A benefit payments are assumed to occur beyond the projected point of trust fund depletion; and 4) many

mandatory programs with expiration dates prior to the end of the 75-year projection period are assumed to be reauthorized.

As is true in the Medicare Trustees’ Report and in the SOSI, the projections incorporate programmatic changes already

scheduled in law, such as the PPACA productivity adjustment for non-physician Medicare services and the expiration of

certain physician bonus payments in 2025.

24 As indicated in the more detailed discussion of Social Insurance in Note 25 to the financial statements.

165 NOTES TO THE FINANCIAL STATEMENTS

Note 27. Stewardship Property, Plant, and Equipment

Stewardship PP&E consists of items whose physical properties resemble those of general PP&E traditionally capitalized

in financial statements. However, stewardship PP&E differs from general PP&E in that their values may be indeterminable or

may have little meaning (for example, museum collections, monuments, assets acquired in the formation of the nation) or that

allocating the cost of such assets to accounting periods that benefit from the ownership of such assets is meaningless.

Stewardship PP&E includes stewardship land (land not acquired for or in connection with general PP&E) and heritage assets

(for example, federal monuments and memorials and historically or culturally significant property). The majority of

stewardship land was acquired by the government during the first century of the nation’s existence.

Stewardship land is land and land rights owned by the federal government but not acquired for or in connection with

items of general PP&E. Examples of stewardship land include land used as forests and parks, and land used for wildlife and

grazing. “Land” is defined as the solid part of the surface of the earth. Excluded from the definition are the natural resources

(that is, depletable resources, such as mineral deposits and petroleum; renewable resources, such as timber; and the outer-

continental shelf resources) related to land.

Additional information concerning stewardship land, such as entity stewardship policies, physical units by major

categories, and the condition of stewardship land, can be obtained from the financial statements of DOD, DOI, EPA, HHS,

TVA, and USDA.

Heritage assets are government-owned assets that have one or more of the following characteristics:

• Historical or natural significance;

• Cultural, educational, or artistic importance; or

• Significant architectural characteristics. Heritage assets are classified into two categories: collection and non-collection. Collection type heritage assets include

objects gathered and maintained for exhibition, for example, museum collections, art collections, and library collections.

Non-collection type heritage assets include parks, memorials, monuments, and buildings. In some cases, heritage assets may

serve two purposes: a heritage function and general government operations. In those cases, the heritage asset should be

considered a multi-use heritage asset if the predominant use of the asset is in general government operations (e.g., the main

Treasury building used as an office building). The cost of acquisition, improvement, reconstruction, or renovation of multi-

use heritage assets should be capitalized as general PP&E and depreciated over its estimated useful life.

Entities provide protection and preservation services to maintain all heritage assets in the best possible condition as part

of America’s history. Examples of heritage assets include the Declaration of Independence, the U.S. Constitution, and the

Bill of Rights preserved by the National Archives.

This discussion of the government’s heritage assets is not exhaustive. Rather, it highlights significant heritage assets

reported by federal entities. Please refer to the individual financial statements of DOI, DOC, DHS, VA, DOT, State, DOD,

TVA, GSA, NASA, and USDA for additional information on multi-use heritage assets, entity stewardship policies, and

physical units by major categories.

NOTES TO THE FINANCIAL STATEMENTS 166

Note 28. Disclosure Entities and Related Parties

SFFAS No. 47, Reporting Entity provides criteria for identifying organizations that are consolidation entities, disclosure

entities, and related parties, and how such organizations are reported within the Financial Report. For consolidation entities,

the assets, liabilities, results of operations, and related activity are consolidated into the government’s financial statements.

For disclosure entities and related parties, balances and transactions with such entities are included in the financial statements

and certain information about their relationship with the federal government is disclosed in the notes to the consolidated

financial statements. Disclosure entities and related parties are important to the Financial Report but are not consolidated into

the government’s financial statements.

Disclosure Entities

Disclosure entities are organizations similar to consolidation entities in that they are either: a) in the budget; b) majority

owned by the government; c) controlled by the government; or d) would be misleading to exclude. Disclosure entities have a

greater degree of autonomy with the government than consolidation entities. In addition, organizations may be owned or

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

or b) other government intervention actions. Under such regulatory or other intervention actions, if the relationship with the

government is not expected to be permanent, such entities generally would be classified as disclosure entities based on their

characteristics taken as a whole. Based on the criteria in GAAP for federal entities, the disclosure entities in the Financial Report are FR System, SPVs,

Fannie Mae, Freddie Mac, and National Railroad Passenger Corporation (more commonly referred to as Amtrak). In

addition, there are additional disclosure entities reported by component reporting entities that do not meet the qualitative or

quantitative criteria in SFFAS No. 47 to be reported in the Financial Report.

Federal Reserve System

Congress, under the Federal Reserve Act, created the FR System. The FR System includes the Federal Reserve Board,

the FRB, and FOMC. Collectively, the FR System serves as the nation’s central bank and is responsible for formulating and

conducting monetary policy, issuing and distributing currency (Federal Reserve Notes), supervising and regulating financial

institutions, providing nationwide payment systems (including large-dollar transfers of funds, Automated Clearing House

operations, and check collections), providing certain financial services to federal entities and fiscal principals, and serving as

the U.S. government’s bank. Monetary policy includes actions undertaken by the FR System that influence the availability

and cost of money and credit as a means of helping to promote national economic goals. The FR System also conducts

operations in foreign markets in order to counter disorderly conditions in exchange markets or to meet other needs specified

by the FOMC to carry out its central bank responsibilities. The FR System is considered an independent central bank, and the

executive branch of the government does not ratify its decisions.

The 12 FRB are chartered under the Federal Reserve Act, which requires each member bank to own the capital stock of

its FRB. Each FRB has a board of directors that exercises supervision and control of each FRB, with three members

appointed by the Federal Reserve Board, and six board members elected by their member banks. The FRB participate in

formulating and conducting monetary policy, distributing currency and coin, and serving as the government’s fiscal agent, as

well as the fiscal agent for other fiscal principals. Fiscal principals, generally speaking, relate to banks, credit unions, and

savings and loan institutions. Additionally, the FRB provide short-term loans to depository institutions and loans to

participants in programs or facilities with broad-based eligibility in unusual and crucial circumstances when approved by the

Federal Reserve Board and the Secretary of the Treasury.

The government interacts with FRB in a variety of ways, including the following:

• The FRB serve as the government’s fiscal agent and depositary, executing banking and other financial transactions on the government’s behalf. The government reimburses the FRB for these services, the cost of which is included on

the Statements of Net Cost;

• The FRB hold Treasury and other federal securities in the FRBs’ SOMA for the purpose of conducting monetary policy (see Note 13—Federal Debt and Interest Payable);

• The FRB hold gold certificates issued by the government in which the certificates are collateralized by gold (see Note 2—Cash and Other Monetary Assets);

• The FRB hold SDR certificates issued by the government which are collateralized by SDR (see Note 2—Cash and Other Monetary Assets); and

• The FRB are required by Federal Reserve Board policy to transfer their excess earnings to the government, which are included in Other Taxes and Receipts on the Statements of Operations and Changes in Net Position.

167 NOTES TO THE FINANCIAL STATEMENTS

• Federal Reserve System Structure

The Federal Reserve Board is an independent organization governed by seven members who are appointed by the

President and confirmed by the Senate. The full term of a Federal Reserve Board member is 14 years, and the

appointments are staggered so that one term expires on January 31 of each even-numbered year. The Federal Reserve

Board has a number of supervisory and regulatory responsibilities for institutions including, among others, state-

chartered banks that are members of the FR System, bank holding companies, and savings and loan holding companies.

In addition, the Federal Reserve Board has general supervisory responsibilities for the 12 FRB, and issues currency

(Federal Reserve Notes) to the FRB for distribution.

The FOMC is comprised of the seven Federal Reserve Board members and five of the 12 FRB presidents, and is

charged with formulating and conducting monetary policy primarily through open market operations (the purchase and

sale of certain securities in the open market), the principal tool of national monetary policy. These operations affect the

amount of reserve balances available to depository institutions, thereby influencing overall monetary and credit

conditions.

• Federal Reserve Monetary Policy Action

Monetary policy comprises the Federal Reserve's actions and communications to promote maximum employment,

stable prices, and moderate long-term interest rates; the economic goals the Congress has instructed the Federal Reserve

to pursue. The effects of the COVID-19 pandemic have continued to weigh on the U.S. economy, and employment has

remained well below pre-pandemic levels. Furthermore, shortages of material inputs and difficulties in hiring have held

down activity in a number of industries. In part because of these bottlenecks and other largely transitory factors, PCE

prices rose 3.9 percent over the twelve months ending in May.

During FY 2021, the FOMC held its policy rate near zero and continued to purchase Treasury securities and

agency MBS to support the economic recovery. These measures, along with the FOMC’s guidance on interest rates and

the Federal Reserve’s Balance Sheet, will help ensure that monetary policy continues to deliver powerful support to the

economy until the recovery is complete. As of July 2021, the FOMC expected to maintain the target range for the

federal funds rate until labor market conditions have reached levels consistent with its assessments of maximum

employment and inflation has risen to 2.0 percent and is on track to moderately exceed that rate for some time. In

January 2022, the FOMC indicated that it expects it will soon be appropriate to raise the target range for the federal

funds rate.

Throughout FY 2021, the Federal Reserve continued to undertake asset purchases, increasing its holdings of

Treasury securities by $80.0 billion per month and its holdings of agency MBS by $40.0 billion per month. Subsequent

to September 30, 2021, the FOMC decided to reduce its monthly pace of net asset purchases of Treasury securities and

agency MBS, and intends to bring them to an end in early March 2022. These purchases help foster smooth market

functioning and accommodative financial conditions, thereby supporting the flow of credit to households and

businesses.

• Federal Reserve System Assets, Liabilities, Revenues, Expenses, Gains, and Losses

The FRB hold Treasury and other securities in the SOMA for the purpose of conducting monetary policy. As of

September 30, 2021, Treasury securities held by the FRB totaled $3,803.7 billion, which excludes $1,628.0 billion in

Treasury securities used in overnight reverse repurchase transactions. As of September 30, 2020, Treasury securities

held by the FRB totaled $4,050.1 billion, which excludes $395.1 billion in Treasury securities used in overnight reverse

repurchase transactions. Such securities are included in federal debt and interest payable (see Note 13—Federal Debt

and Interest Payable). For fiscal years ended September 30, 2021, and 2020, Treasury incurred interest cost relating to

the FRB’s Treasury holdings amounting to $87.1 billion and $64.3 billion, respectively, which is included in interest on

Treasury securities held by the public on the Statement of Net Cost. Unrestricted Cash held on deposit at the FRB as of

September 30, 2021, and 2020, was $198.4 billion and $1,769.8 billion, respectively, and are included in cash and other

monetary assets. In addition, restricted cash as of September 30, 2021, and 2020, was $46.0 billion and $40.8 billion,

respectively; a significant portion is held on deposit at the FRB (see Note 2—Cash and Other Monetary Assets). The

outstanding SDR certificates issued by the government to the Federal Reserve, valued at $5.2 billion as of September

30, 2021 and 2020, which are reported under Other Liabilities on the government’s Balance Sheet (see Note 19—Other

Liabilities).

Treasury securities are generally subject to the same market condition as other financial instruments. In the open

market, the FRB purchase and sell Treasury securities as a mechanism for controlling the money supply.

Financial and other information concerning the FR System, including financial statements for the Federal Reserve

Board and the FRB, may be obtained at https://federalreserve.gov.

https://www.federalreserve.gov/

NOTES TO THE FINANCIAL STATEMENTS 168

• FRB Residual Earnings Transferred to the Government

FRB generate income from interest earned on securities, reimbursable services provided to federal entities, and the

provision of priced services to depository institutions, as specified by the Monetary Control Act of 1980. Although the

FRB generate earnings from carrying out open market operations (via the earnings on securities held in the SOMA

account), their execution of these operations is for the purpose of accomplishing monetary policy rather than generating

earnings. Each FRB is required by Federal Reserve Board policy to transfer to the government its residual (or excess)

earnings, after providing for the cost of operations, payment of dividends, and surplus funds not to exceed an FRB’s

allocated portion of an aggregate of $6.8 billion for all FRB. These residual earnings may vary due to, among other

things, changes in the SOMA balance levels that may occur in conducting monetary policy. If an FRB’s earnings for the

year are not sufficient to provide for the cost of operations, payment of dividends, or allocated portion of $6.8 billion

aggregate surplus funds limitation, an FRB will suspend its payments to the government until such earnings become

sufficient. These funds are part of restricted cash at the Federal Reserve (see Note 2—Cash and Other Monetary

Assets). The FRB residual earnings of $100.1 billion and $81.9 billion for fiscal years ended September 30, 2021, and

2020, respectively, are reported as other taxes and receipts on the Statements of Operations and Changes in Net

Position. Accounts receivable, net, includes a receivable for FRB’s residual earnings which represents the earnings due

to the General Fund as of September 30, but not collected by the General Fund until after the end of the month. As of

September 30, 2021, and 2020, accounts receivable on FRB’s residual earnings are $0.3 billion and $0.2 billion,

respectively (see Note 3—Accounts Receivable, Net).

Special Purpose Vehicles

In response to the COVID-19 pandemic, the government holds equity investments in SPVs established by the Federal

Reserve Board for the purpose of enhancing the liquidity of the U.S. financial system. Involvement in these programs

represents non-permanent intervention activities designed to help mitigate the economic impacts of the pandemic.

Accordingly, the government’s equity interests in these SPVs meet the SFFAS No. 47 criteria for classifying our SPV

investments as disclosure entities. These entities are not consolidated as part of the government’s consolidated financial

statements; however, the value of the investments in the SPVs, changes in value, and related activity with the SPVs are

included in the government’s consolidated financial statements (see Note 8—Investments in Special Purpose Vehicles).

Fannie Mae and Freddie Mac

In 2008, during the financial crisis, the government placed Fannie Mae and Freddie Mac under conservatorship to help

ensure their financial stability. These entities meet the criteria in SFFAS No. 47, for disclosure entities as both a)

“receiverships and conservatorships,”; and b) as entities wherein “federal government intervention actions resulted in control

or ownership” with intervention actions not expected to be permanent. Accordingly, these entities are not consolidated into

the government's consolidated financial statements. However, the values of the investments in such entities, changes in value,

and related activity with these entities are included in the government's consolidated financial statements (see Note 9—

Investments in Government-Sponsored Enterprises for additional information).

Amtrak

Amtrak was incorporated in 1971 pursuant to the Rail Passenger Service Act of 1970 and is authorized to operate a

nationwide system of passenger rail transportation. Amtrak is a private, for-profit corporation under 49 U.S.C. § 24301 and

D.C. law. It is not a department, entity, or instrumentality of the government. Amtrak’s classification as a disclosure entity is

attributable to being a) listed in the budget; b) financed mostly by sources other than taxes; and c) governed by an

independent Board of Directors, which is comprised of 10 directors. The Secretary of Transportation, who is a director by

statute, and eight of the other Amtrak directors, are appointed by the President with the advice and consent of the U.S.

Senate. The President of Amtrak also is a board member and is appointed by the board. Amtrak does not take actions on

behalf of the government but benefits the national economy by providing a transportation option in 46 states and the D.C.

The government (through the DOT) owns 100.0 percent of Amtrak’s preferred stock (109,396,994 shares of $100.00

par value). Each share of preferred stock is convertible into ten shares of common stock. The common stockholders have

voting rights for “amendments to Amtrak’s Articles of Incorporation proposed by the Board of Directors and for certain other

extraordinary events.” Although Section 4.02(g) of the Amtrak Articles of Incorporation allow for the conversion of preferred

stock to common stock, current government administrative policy is to not convert its holdings without Congressional

authorization. Section 4.02(g) of the Amtrak Articles of Incorporation does not limit the timing of conversion or require any

preapprovals. Conversion is effective the business day following receipt of written notice of the holder’s election to convert.

The government does not recognize the Amtrak preferred stock in its financial statements because, under the corporation’s

current financial structure, the preferred shares do not have a liquidation preference over the common shares, the preferred

shares do not have any voting rights, and dividends are neither declared nor in arrears.

169 NOTES TO THE FINANCIAL STATEMENTS

In addition to the purchase/ownership of the Amtrak preferred stock, the government has provided funding to Amtrak,

since 1972, primarily through grants and loans. Amtrak receives grants from the government that cover a portion of the

corporation’s annual operating expenses and capital investments. Funding provided to Amtrak through grant agreements are

included in the government’s annual budget and the DOT financial statements. For the fiscal year ended September 30, 2021,

the net cost amount was $3.2 billion, and total budgetary outlays were $4.7 billion. For the fiscal year ended September 30,

2020, the net cost amount was $2.6 billion, and total budgetary outlays were $3.0 billion.

The government has possession of two long-term notes with Amtrak. The first note is for $4.0 billion and matures in

2975 and, the second note is for $1.1 billion and matures in 2082 with renewable 99-year terms. Interest is not accruing on

these notes as long as the current financial structure of Amtrak remains unchanged. If the financial structure of Amtrak

changes, both principal and accrued interest are due and payable. The government does not recognize the long-term notes in

its financial statements since the notes, with maturity dates of 2975 and 2082, are considered fully uncollectible due to the

lengthy terms, Amtrak’s history of operating losses, and ability to generate funds for repayment. Amtrak’s ability to continue

to operate in its current form is dependent upon the continued receipt of subsidies from the government.

Financial and other information concerning Amtrak including financial statements may be obtained at

https://www.amtrak.com/reports-documents.

Related Parties

Related parties exist if the existing relationship, or one party to the existing relationship, has the ability to exercise

significant influence over the party’s policy decisions. Related parties do not meet the principles for inclusion, but are

reported in the Financial Report if they maintain relationships of such significance that it would be misleading to exclude.

Based on the criteria in SFFAS No. 47, the related parties reported in the Financial Report are FHLBanks, IMF,

Multilateral Banks, and PEFCO. In addition, there are additional related parties reported by component reporting entities that

do not meet the criteria to be reported in the Financial Report.

Federal Home Loan Banks

The government is empowered with supervisory and regulatory oversight of the 11 FHLBanks. The government is

responsible for ensuring that each regulated entity operates in a safe and sound manner, including maintenance of adequate

capital and internal control, and carries out its housing and community development finance missions. Each FHLBank

operates as a separate federally chartered corporation with its own board of directors, management, and employees. The

FHLBanks are GSEs that were organized under the Federal Home Loan Bank Act of 1932, to serve the public by enhancing

the availability of credit for residential mortgages and targeted community development. They are financial cooperatives that

provide a readily available, competitively-priced source of funds to their member institutions. The FHLBanks are not

government entities and do not receive financial support from taxpayers. The government does not guarantee, directly or

indirectly, the debt securities or other obligations of FHLBanks.

By law, in the event of certain adverse circumstances, Treasury is authorized to purchase up to $4.0 billion of

obligations of the FHLBanks. This authority may be exercised only if alternative means cannot be effectively employed to

permit the FHLBanks to continue to supply reasonable amounts of funds to the mortgage market, and the ability to supply

such funds is substantially impaired because of monetary stringency and a high level of interest rates. Any funds borrowed

from Treasury shall be repaid by the FHLBanks at the earliest practicable date. Treasury has not used such authority. Also, in

accordance with the Government Corporations Control Act, Treasury prescribes certain terms concerning the FHLBanks

issuance of obligations to the public. Due to the market volatility brought about by the COVID-19 pandemic and the resulting

decline in interest rates, investors preferred short-term obligations. The FHLBanks continued to benefit from strong investor

interest and managed debt issuance to meet the needs of members. Financial and other information concerning FHLBanks

including financial statements may be obtained at http://www.fhlbanks.com/.

International Monetary Fund and Multilateral Development Banks

The IMF’s primary purpose is to ensure the stability of the international monetary system—the system of exchange

rates and international payments that enables countries to transact with each other. Member countries provide resources for

IMF loans through their subscription quotas (quotas). The IMF also has two pools of resources that can be used in the event

of a crisis that requires lending beyond the level available from quota resources: (i) the NAB and (ii) bilateral borrowing

arrangements. Participation in the IMF works like an exchange of monetary assets.

Quotas are the principal component of the IMF’s financial resources and are denominated in SDR. The size of each

member’s quota is based broadly on its relative position in the world economy. The U.S. holds the largest quota of any IMF

member. Since 2016, U.S. quota in the IMF has been about SDR 83 billion. The equivalent dollar value of the quota total

U.S. as of September 30, 2021 and 2020, was approximately $116.7 billion and approximately $116.6 billion, respectively.

The government has funded a portion of U.S. quota to the IMF for lending, represented by U.S. reserve position at the IMF,

https://www.amtrak.com/reports-documents

http://www.fhlbanks.com/

NOTES TO THE FINANCIAL STATEMENTS 170

while the remainder of the U.S. quota is represented by a letter of credit on which the IMF can draw as needed for lending.

The U.S. reserve position was approximately $32.7 billion as of September 30, 2021, and approximately $31.2 billion as of

September 30, 2020, with the remaining undrawn letter of credit representing the balance (see Note 2—Cash and Other

Monetary Assets and Note 21—Commitments). The government’s quota serves as the key determinant for its 16.5 percent

share of voting rights in various IMF decisions. Since certain key IMF decisions require approval by at least 85.0 percent of

the voting power, the government (represented by the Secretary of the Treasury) holds a substantial voice in the IMF and

exercises significant influence over IMF policies, including veto power over major IMF decisions.

Some IMF members also supplement the IMF’s resources through the NAB and bilateral borrowing agreements.

Through the NAB, the U.S. and other participating members make additional resources available to the IMF if required to

cope with or forestall an impairment of the international monetary system. In accordance with the CARES Act, effective

January 1, 2021, U.S. participation in the NAB increased by SDR 28.2 billion. Accordingly, the government's participation in

the NAB as of September 30, 2021 and 2020, was SDR 56.4 billion and SDR 28.2 billion, which is equivalent to $79.5

billion and $39.7 billion, respectively. When the government transfers funds to the IMF under the NAB, it receives a liquid

and interest-bearing claim on the IMF. As of September 30, 2021, and 2020, loans outstanding to the IMF from the

government under the NAB stood at $0.9 billion and $1.7 billion, respectively. These loans were reported under Loans

Receivable, Net on the Balance Sheet. The NAB is not currently activated, and the U.S. has veto power over its activation, as

well as over most changes to its terms or size. The government does not have a bilateral borrowing agreement with the IMF,

though it exercises indirect control over their activation, since NAB activation is a prerequisite for the IMF to draw on its

bilateral borrowing arrangements.

As of September 30, 2021, and 2020, the government's total undrawn financial commitment to the IMF was $162.6

billion and $123.4 billion, respectively, which is composed of the quota related letter of credit and the undrawn portion of the

NAB (see Note 21—Commitments).

Under the IMF Articles of Agreement, the IMF may allocate SDRs to member countries in proportion to their IMF

quotas. SDR allocations are an international reserve asset created by the IMF to supplement its member countries’ official

reserves. In FY 2021, the IMF approved a historic allocation of SDRs of $650.0 billion to further support the COVID-19

recovery. This is the largest allocation in the IMF’s history, which substantially boosted the reserves and liquidity of the

IMF’s member countries, without adding to their debt burdens. The U.S. received an additional 79.5 billion SDRs valued at

$112.8 billion as a part of this historic allocation. The SDR allocation creates an asset and a liability on the Balance Sheet but

does not increase the IMF’s available lending resources. The SDR asset as of September 30, 2021 and 2020, amounted to

$163.9 billion and $51.7 billion, respectively, and includes the SDR allocation as well as purchased SDR (see Note 2—Cash

and Other Monetary Assets). The SDR liability as of September 30, 2021 and 2020, amounted to $161.8 billion and $49.7

billion, respectively (see Note 19—Other Liabilities).

Historically, IMF has never experienced a default by a borrowing country. The government, which is not directly

exposed to borrowers from the IMF, has never experienced a loss of value on its IMF quota or an instance of non-repayment,

and it is not likely that the government will experience future losses as a result of its additional commitments.

Additionally, the government invests in and provides funding to the MDBs to support poverty reduction and promote

sustainable economic growth in developing countries. The MDBs provide financial and technical support by means of

strengthening institutions, providing assistance that addresses the root causes of instability in fragile and conflict-affected

countries, responding to global crisis, and fostering economic growth and entrepreneurship. The government’s participation

in the MDBs is in the form of financial contributions used to ensure the effectiveness and impact of the MDBs’ global

development agenda. The U.S. has voting power in each of the MDBs to which it contributes, ranging from approximately

6.0 percent to 50.0 percent (see Note 11—Other Assets and Note 21—Commitments for additional information).

Private Export Funding Corporation

The financial statements reflect the results of agreements with PEFCO. PEFCO, is owned by a consortium of private-

sector banks, industrial companies, and financial services institutions. It makes and purchases from private sector lenders,

medium-term and long-term fixed-rate, and variable-rate loans guaranteed by EXIM Bank to foreign borrowers to purchase

U.S. made equipment “export loans.”

EXIM Bank’s credit and guarantee agreement with PEFCO provides that EXIM Bank will guarantee the due and

punctual payment of interest on PEFCO’s secured debt obligations which EXIM Bank has approved, and it grants to EXIM

Bank a broad measure of supervision over certain of PEFCO's major financial management decisions, including the right to

have representatives be present in all meetings of PEFCO’s Board of Directors, advisory board, and exporters’ council, and

to review PEFCO’s financials and other records. However, EXIM Bank does not have voting rights and does not influence

normal operations. In September 2020, the EXIM Board of Directors unanimously voted to renew its agreement with PEFCO

for 25 years.

171 NOTES TO THE FINANCIAL STATEMENTS

PEFCO has an agreement with EXIM Bank which provides that EXIM Bank will generally provide PEFCO with an

unconditional guarantee covering the due and punctual payment of principal and interest on export loans PEFCO makes and

purchases. PEFCO’s guarantees on the export loans plus the guarantees on the secured debt obligations aggregating to

$3,418.8 million at September 30, 2021 and $3,198.9 million at September 30, 2020, are included by EXIM Bank in the total

for guarantee, insurance and undisbursed loans and the allowance related to these transactions is included in the Loan

Guarantee Liabilities on the Balance Sheets.

EXIM Bank received fees totaling $47.0 million in FY 2021 and $39.3 million in FY 2020 for the agreements, which

are included in Earned Revenue on the Statements of Net Cost.

NOTES TO THE FINANCIAL STATEMENTS 172

Note 29. Public-Private Partnerships

The government enters into various collaborative relationships with private sector entities in which the goals, structures,

governance, roles and responsibilities are mutually determined to produce a risk-sharing arrangement. These relationships are

referred to as P3s, in accordance with SFFAS No. 49, Public-Private Partnerships: Disclosure Requirements. While many of

the government’s relationships are classified as and may be referred to as a P3, only those meeting the disclosure

requirements outlined in SFFAS No. 49 are disclosed.

The National Energy Conservation Policy Act, as amended, authorizes federal entities to enter into ESPC contracts for

the purpose of achieving energy savings and other related benefits. In consultations with the entity, the contractor designs and

constructs a project that meets the entity’s needs and arranges the necessary funding. The contractor guarantees that the

improvements will generate energy cost savings sufficient to pay for the project over the term of the contract. The cost of the

ESPC project must be covered by the energy, water and related cost savings generated at the project site. GSA and DOE have

entered into contracts with the private sector that meet the criteria for P3s. These contracts allow federal entities to produce

energy savings and facility improvements with no up-front capital costs or special appropriations from Congress. Future

aggregate payments to be made by GSA and DOE are $1.4 billion and $1.2 billion, respectively, over the course of the

agreements. After an ESPC contract ends, all additional cost savings accrue to the entities. The entities are responsible for

contract administration over the term of the contracts and by statute, P3s cannot exceed 25 years.

In addition to the energy contracts, DOC has entered into a P3 contract on another matter. Congress has tasked DOC’s

FirstNet with the responsibility to ensure the deployment and operation of a nationwide interoperable broadband network to

meet the communication needs of public safety. This network must be designed to be reliable, functional, safe, and secure,

and to provide optimal levels of operational capability at all times. The Nationwide Public Safety Broadband Network is

being built out, deployed, operated, and maintained under a 25-year contract awarded by FirstNet to AT&T in March 2017.

The service will cover all 50 U.S. states, five territories, and D.C., including rural communities and tribal nations. Under the

terms of the contract, total receipts for DOC over the life of the contract are $18.0 billion based on annual payments AT&T is

required to make. Payments received from AT&T and that are retained by FirstNet are required to be only used for

constructing, maintaining, operating or improving the Nationwide Public Safety Broadband Network. Additionally, DOC is

required to make payments to AT&T for success-based payment milestones under firm-fixed price buildout and continuing

enhancement Task Orders. The total paid in FY 2021 was $1.5 billion.

DOD identified MHPI agreements as P3s requiring disclosure. The MHPI agreements are private sector/market driven

businesses established as LLCs or LPs single purpose entities. These entities allow DOD to work with the private sector to

build, renovate, and sustain military housing by obtaining private capital to leverage government dollars. By engaging MHPI

agreements, the government benefits through use of private industry expertise and tools, improving the condition of military

housing more expediently and efficiently than the traditional military construction process would allow. The Private Partner

serves as the majority managing member which ensures performance objectives are met over the expected life of the

operating agreement. The Military Department generally serves as the minority member and enters into a long-term ground

lease (generally 50 years), and conveys the associated real property assets (buildings, structures, facilities, and utilities) to the

LLC or LP. The contractual terms and termination clauses vary by agreement. The DOD’s involvement in the operations and

management of the LLC or LP is governed by evaluating the percentage of ownership interest, along with analyzing the

indicators of control, which determines the level of influence over the partnership. The DOD provides funding to the LLC or

LP through:

• Equity Investments - Provision of cash and transfer of real property ownership (land, housing units, and other structures) to a project and, in return, the DOD receives a portion of that project’s profits and losses. In addition, the

DOD also receives compensation if the investment is sold;

• Government Direct Loans - Provision of cash to a project with the expectation of future payment;

• Government Loan Guarantees - Agreement to pay a percentage of the outstanding balance on a non-government loan in the event of nonpayment by the project;

• Differential Lease Payments - Provision of monthly payments to a project above the Basic Allowance for Housing paid by the military personnel.

The military departments are assessing their MHPI agreements and contracts to provide actual and estimated amounts

paid and received by the department for future periods and continues to assess agreements to determine if they have P3s to

disclose. DOD will report these agreements as soon as these assessments are complete.

The consolidated amounts the government received and paid in FY 2021 were $0.2 billion and $1.9 billion,

respectively. The estimated amounts to be received and paid in the aggregate over the expected life of the P3s is $20.5 billion

173 NOTES TO THE FINANCIAL STATEMENTS

and $4.9 billion, respectively. As main contributors of P3 activity please refer to the financial statements of DOC, DOD,

DOE, and GSA for additional information.

NOTES TO THE FINANCIAL STATEMENTS 174

Note 30. COVID-19 Activity

COVID-19 Total Appropriations (net of rescissions, transfers, and other adjustments)

as of September 30, 2021, and 2020

(In billions of dollars) 20211 2020

Department of the Treasury .............................................................................................................................................................. 632.8 975.0

Department of Labor ........................................................................................................................................................................ 451.5 394.3

Department of Education2 ................................................................................................................................................................. 251.1 31.0

Small Business Administration .......................................................................................................................................................... 242.8 751.8

Department of Health and Human Services ....................................................................................................................................... 233.7 250.4

Department of Agriculture ................................................................................................................................................................. 91.3 73.2

Department of Transportation ........................................................................................................................................................... 70.2 36.0

Department of Homeland Security ..................................................................................................................................................... 70.0 45.9

Total COVID-19 activity .................................................................................................................................................................... 2,208.5 2,633.6

1Includes enacted rescissions, returns of unused permanent and indefinite authority, and obligation adjustments that reduced FY 2020 appropriations.

2Does not include student loan deferrals related to COVID-19 that are funded by other appropriations.

On March 11, 2020, a novel strain of the Coronavirus, also known as COVID-19, was declared a pandemic by the

WHO. As a result, a national emergency was declared in the U.S. concerning the COVID-19 outbreak on March 13, 2020.

The global spread of COVID-19, which commenced in early spring of 2020 and continued throughout FY 2021 resulted in a

severe global health and economic crisis. In FY 2021 Congress passed the CAA which was signed into law on December 27,

2020 and the ARP on March 11, 2021. Both acts, along with several bills, provided additional funding to help supplement the

COVID-19 relief efforts that started in FY 2020 with the passage of several bills including the CARES Act on March 27,

2020. The CARES Act was subsequently modified in legislation in April, June, and July of 2020 to add funding and adjust

programs for continued pandemic response.

The COVID-19 related legislation provided supplemental appropriations in the amount of $2,208.5 billion and $2,633.6

billion in FYs 2021 and 2020, respectively, for federal entities to respond to COVID-19. The appropriation amounts listed in

the table above could be different from other public sources reporting COVID-19 activity. These differences may be due to

timing of when the data sources report the information, additional COVID-19 programs included in the table that are not

identified as COVID-19 programs in other data sources, and returns of indefinite authority appropriations included in other

data sources but not in the table. Significant impacts of these programs on the government’s FYs 2021 and 2020 Balance

Sheet and financial results are discussed below. Please also refer to the corresponding entity’s financial statements for

additional information.

In FY 2021, Treasury received COVID-19 appropriations in the amount of $1,182.8 billion under the CAA and ARP. In

FY 2021, the CAA eliminated Treasury’s ability to make new loans and investments and rescinded $478.8 billion of the

$500.0 billion provided to Treasury under the CARES Act to fund the credit subsidy costs of investments and loans in

support of eligible businesses, states, and municipalities that incurred losses as a result of COVID-19 using SPVs. This

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

the net appropriations amount of $632.8 billion. As of September 30, 2021, and 2020, Treasury had $26.4 billion and $107.9

billion, respectively, of equity investments in SPVs established through the FRBNY and FRBB. Treasury’s funds remaining

the SPVs funded under the CARES Act cannot be used for further lending, asset purchase, or extensions of credit. The FYs

2021 and 2020 FV net loss of $0.8 billion and $4.5 billion, respectively, from these investments is included in Treasury’s net

cost.

175 NOTES TO THE FINANCIAL STATEMENTS

Treasury’s COVID-19 appropriations in FY 2021 included $587.0 billion ($166.0 billion CAA and $421.0 billion ARP)

to provide a refundable tax credit (recovery rebate), referred to as an EIP. CAA allowed for a tax credit of $600 per

qualifying adult and $600 per qualifying child, ARP allowed for $1,400 per qualifying adult and $1,400 per qualifying child.

These EIPs were reduced above certain income limitations per individual tax return. In FY 2021, IRS disbursed $569.5

billion of EIPs to eligible recipients in every state and territory and at foreign addresses, which resulted in an increase in

Treasury’s net cost. Treasury also received FY 2021 appropriations of $428.5 billion ($25.0 billion CAA and $403.5 billion

ARP) for Treasury to provide payments to state, local, territorial, and tribal governments to cover eligible costs incurred in

response to the pandemic through several funds including: 1) SLFRF; 2) Coronavirus Capital Projects Funds; 3) ERA; 4)

HAF; 5) State Small Business Credit Initiative; and 6) Local Assistance and Tribal Consistency Fund. During FY 2021,

Treasury disbursed an aggregate of $277.7 billion in appropriated and obligated funds to states, local, territorial, and tribal

governments pursuant to the: 1) SLFRF; 2) ERA; 3) HAF; and 4) CRF programs to cover eligible costs to be incurred in

response to the pandemic. Treasury initially recorded $276.7 billion of the $277.7 billion disbursed in FY 2021 as an advance

on the Balance Sheet. Treasury recognized $89.5 billion as net cost to reflect the estimated amount of eligible costs incurred

by recipients as of September 30, 2021. Treasury recorded the remaining $1.0 billion disbursed in FY 2021 as net cost for the

year ended September 30, 2021. In addition, Treasury was appropriated funding in the amount of $31.0 billion ($16.0 billion

CAA and $15.0 billion ARP) for financial assistance payments to passenger air carriers and contractors to provide payroll

support to aviation workers during the pandemic. Treasury’s net costs included $30.7 billion in FY 2021 related to this

support.

In FY 2020, Treasury received appropriations from the CARES Act in the amount of $975.0 billion. Treasury’s CARES

Act appropriations of $282.0 billion provided a refundable tax credit (EIP). The CARES Act allowed for $1,200 per

qualifying adult and $500 per qualifying child. In FY 2020, IRS disbursed $274.7 billion of EIPs to eligible recipients in

every state and territory and at foreign addresses, which resulted in an increase in Treasury’s net cost. Treasury’s CARES Act

appropriations also included $150.0 billion for Treasury, through CRF efforts, to provide payments to state, local, territorial,

and tribal governments to cover eligible costs incurred in response to the pandemic. During FY 2020, Treasury disbursed

$149.5 billion to states, local, territory, and tribal governments pursuant to the CRF program. Treasury initially recorded all

of the $149.5 billion disbursed in FY 2020 as an advance on the Balance Sheet. Treasury recognized $80.6 billion as net cost

to reflect the estimated amount of eligible costs incurred by recipients as of September 30, 2020. In addition, Treasury

received CARES Act appropriations in the amount of $32.0 billion for financial assistance payments to passenger air carriers

and contractors to provide payroll support to aviation workers during the pandemic. Treasury’s net costs included $28.2

billion in FY 2020 related to this support. The financial statements impact of these and other programs can be found within

Note 8—Investments in Special Purpose Vehicles, Note 10—Advances and Prepayments, Note 20—Collections and Refunds

of Federal Revenue, Note 21—Commitments, and Note 28—Disclosure Entities and Related Parties.

The CAA and ARP appropriations of $451.5 billion provided additional funding in FY 2021 for several unemployment

programs that the CARES Act appropriation of $394.3 billion allowed DOL to create in FY 2020. These programs include:

1) the FPUC program (provides an additional $600 of weekly unemployment benefits); 2) the PUA program (provides

temporary benefits for individuals who are not eligible for regular/traditional unemployment insurance); 3) the Pandemic

Emergency Unemployment Compensation program (provides an additional 53 weeks of benefits to a regular claim for

eligible persons); 4) Federal funding of the Short-term Compensation program (provides alternatives to layoffs for employers

experiencing a reduction in available work); 5) the FUA (provides advances to states whose unemployment insurance

accounts are depleted); and 6) the Mixed Earner Unemployment Compensation program (provides an additional $100 of

weekly unemployment support) and federal funding of the first week of compensable regular unemployment for states with

no waiting week. DOL’s net costs associated with unemployment benefits authorized by the COVID-19 funding totaled

$313.0 billion and $352.2 billion for September 30, 2021 and 2020, respectively.

In FY 2021, Education received COVID-19 appropriations in the amount of $251.5 billion ($82.0 billion CAA and

$169.5 billion ARP) to fund a variety of programs administered primarily through grant programs. The COVID-19 relief

legislation and administrative actions also provided support for student loan borrowers primarily by temporarily suspending

nearly all federal loan payments. In FY 2021 cost impacts of the student loan repayment deferrals were recorded as loan

modifications through indirect appropriations, not included in the table above, in the amount of $53.1 billion. These COVID-

19 loan modifications are a component of subsidy expense, which reduced the overall loan receivable balances.

In FY 2020, the CARES Act provided Education with appropriations totaling $31.0 billion to fund a variety of

programs administered primarily through grant programs. Cost impacts of the student loan repayment deferrals were recorded

as loan modifications in FY 2020 through indirect appropriations, not included in the table above, in the amount of $41.9

billion. These COVID-19 loan modifications are a component of subsidy expense, which reduced the overall loan receivable

balances. The significant financial statements impact of these programs can be found within Note 4—Loans Receivable, Net

and Loan Guarantee Liabilities.

NOTES TO THE FINANCIAL STATEMENTS 176

In FY 2021, SBA received total appropriations of $389.3 billion. The CAA rescinded $146.5 billion that was

appropriated to SBA under the SBA-Business Loans Program Account leaving a net amount of $242.8 billion. The

appropriations included provisions to modify and extend existing programs and created new programs to support small

businesses and other entities that have been affected during the COVID-19 pandemic. The CAA revised the eligibility criteria

for certain loan assistance and appropriated $284.5 billion for loan subsidies, $20.0 billion for the EIDL program, and $15.0

billion to establish the Shuttered Venue Operators Grant program. The ARP modified and provided additional funding of

$7.3 billion to PPP, $15.0 billion EIDL, and $28.6 billion to establish the Restaurant Revitalization Fund. SBA’s liability for

loan guarantees decreased $284.9 billion during FY 2021, primarily from the PPP, with a similar decrease in net costs. SBA

also administered the EIDL program designed to provide loans to small business owners. SBA’s loans receivable increased

$245.4 billion, primarily from a $62.7 billion increase in this program, with net costs of $2.5 billion in FY 2021.

SBA’s appropriation of $751.8 billion in FY 2020, primarily funded two programs. The PPP is a loan guarantee

program designed to provide a direct incentive for small businesses to retain employees by providing loan forgiveness for

amounts used for eligible expenses for payroll and benefit costs and interest on mortgages, rent, and utilities. SBA’s liability

for loan guarantees increased $510.7 billion during FY 2020, primarily from the PPP, with a similar increase in net costs.

SBA also administered the EIDL program designed to provide loans to small business owners. SBA’s loans receivable

increased $182.9 billion during FY 2020, primarily from a $173.2 billion increase in this program, with net costs of $5.4

billion. The financial statements impact of these programs can be found within Note 4—Loans Receivable, Net and Loan

Guarantee Liabilities.

In FY 2021, HHS received appropriations in the amount of $233.7 billion to provide support testing, contact tracing,

containment, mitigation to monitor and suppress the spread of COVID-19, as well as support COVID-19 vaccination

programs as well as addressing disparities in obtaining quality healthcare. Funds provided broad support including payments

to assist eligible health care providers for health care related expenses or lost revenues attributed to the HHS’ net cost for

operations other than CMS decreased by $14.5 billion during FY 2021, respectively, primarily due to the PHSSEF. In

addition, HHS’s advances and prepayments primarily represent payments made for the COVID-19 AAP program which was

recorded as an advance on the Balance Sheet of $67.0 billion as of September 30, 2021.

In FY 2020, the CARES Act, along with three additional supplemental appropriations, provided HHS $250.4 billion for

COVID-19 response and recovery, with the majority for the PHSSEF. Funds provided broad support including payments to

assist eligible health care providers for health care related expenses or lost revenues attributed to the COVID-19 pandemic;

loans, and grants to small business, health care providers, and hospitals; and COVID-19 testing. HHS’ net cost for operations

other than CMS increased by $115.2 billion during FY 2020, primarily due to increases to the PHSSEF. In addition, HHS’s

advances and prepayments primarily represent payments made for the COVID-19 AAP program, which was recorded as an

advance on the Balance Sheet of $103.6 billion as of September 30, 2020. The financial statements impact of the advance can

be found within Note 10—Advances and Prepayments.

USDA received CAA, ARP, and supplemental CARES Act appropriations in the amount of $91.3 billion in FY 2021

and $73.2 billion in CARES Act funding in FY 2020. The appropriation provided funding and extended various programs

and activities. It extended modifications to federal nutrition assistance programs and provided funding for programs to

support agricultural producers, growers, and processors. It provided additional relief to address the continued impact of

COVID-19 on the economy, public health, state and local governments, individuals, and businesses. USDA’s costs related to

COVID-19 activity increased $76.9 billion and $49.9 billion in FY 2021 and FY 2020, respectively.

In FY 2021, DOT received $70.2 billion ($27.0 billion CAA and $43.2 billion ARP) of supplemental COVID-19

appropriations. Several DOT programs received appropriations in support of maintaining and continuing the operations and

business needs of various transportation systems in response to COVID-19. These programs include the Federal Transit

Administration’s Transit Infrastructure Grants, the Federal Aviation Administration’s Grants-In-Aid for Airports and Airport

Relief Grants, FHWA’s Highway Infrastructure programs, Federal Railroad Administration’s Grants to Amtrak, and Office

of the Secretary’s Aviation Manufacturing Jobs Protection program. DOT’s significant financial impacts related to COVID-

19 activity include a $23.5 billion increase to net costs in FY 2021.

In FY 2020, DOT received $36.0 billion of supplemental appropriations under the CARES Act to prevent, prepare for,

or respond to COVID-19. Several DOT programs received appropriations in support of maintaining and continuing the

operations and business needs of various transportation systems in response to COVID-19. These programs include the

Federal Transit Administration’s Transit Infrastructure Grants and the Federal Aviation Administration’s Grants-In-Aid for

Airports. DOT’s net costs increased $22.5 billion in FY 2020, from COVID-19 activity.

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

under the CARES Act in FY 2020, of which $50.0 billion and $45.0 billion in FY 2021 and FY 2020, respectively, was

provided to FEMA’s Disaster Relief Fund. FEMA is authorized to provide many types of assistance including public

assistance for emergency protective measures. In addition, $29.4 billion of FEMA Disaster Relief Fund funding carried over

from FY 2019 and $17.9 billion of FY 2020 appropriations enacted for the Disaster Relief Fund, other than CARES Act,

177 NOTES TO THE FINANCIAL STATEMENTS

provided additional $47.2 billion in funding available to carry out FEMA’s disaster relief activity during FY 2020, including

COVID-19 related activity. These include vaccination activities, direct federal assistance, and administrative expenses,

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

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

administrative expenses.

NOTES TO THE FINANCIAL STATEMENTS 178

Note 31. Subsequent Events

Statutory Debt Limit

A delay in raising the statutory debt limit existed on September 30, 2021. When delays in raising the statutory debt limit

occur, Treasury often must deviate from its normal debt management operations and take extraordinary measures to meet the

government’s obligations as they come due without exceeding the debt limit. Extraordinary measures taken by Treasury

during the period August 2, 2021 through September 30, 2021, resulted in federal debt securities not being issued to certain

federal government funds, as authorized by law. As a result of Treasury securities not being issued to the TSP’s G Fund,

Treasury reported other liabilities in the amount of $157.0 billion in Note 19—Other Liabilities. This amount represented the

uninvested principal and related interest for the TSP’s G Fund that would have been reported in Note 13—Federal Debt and

Interest Payable had there not been a delay in raising the statutory debt limit as of September 30, 2021, and had the securities

been issued. Also, as a result of Treasury securities not being issued, uninvested principal of $60.5 billion for the CSRDF was

not included in intra-governmental debt holding balance as of September 30, 2021. Additionally, the related interest for the

CSRDF and the Postal Service Retiree Health Benefits Fund (Postal Benefits Fund) that would have been accrued during the

period of August 2, 2021 through September 30, 2021 would have been $68 million and $2 million, respectively, on

September 30, 2021.

On October 14, 2021, P.L. 117-50 was enacted which raised the statutory debt limit by $480.0 billion, from $28,401.5

billion to $28,881.5 billion. Even with this increase, extraordinary measures continued in order for Treasury to manage below

the debt limit.

On December 16, 2021, P.L. 117-73 was enacted which increased the statutory debt limit by $2.5 trillion to $31,381.5

billion. On this date, Treasury discontinued its use of extraordinary measures and resumed normal debt management

operations. On December 16, 2021, in accordance with relevant laws, Treasury restored uninvested principal amounts to the

TSP’s G Fund and the CSRDF in the amounts of $262.0 billion and $64.7 billion, respectively. In accordance with relevant

laws, Treasury restored the interest related to the uninvested principal during the period of August 2, 2021 through December

15, 2021, to the TSP’s G Fund on December 17, 2021 in the amount of $812.3 million. Interest related to the uninvested

principal during the period of August 2, 2021 through December 15, 2021 for CSRDF and Postal Benefits Fund was restored

on the next semi-annual interest payment date of December 31, 2021 in the amounts of $318.8 million and $3.6 million,

respectively. Please refer to Note 13—Federal Debt and Interest Payable and Note 19—Other Liabilities for additional

information.

Infrastructure Investment and Jobs Act

On November 15, 2021, the Infrastructure Investment and Jobs Act, P.L. 117-58, was enacted, which includes funding

for roads, bridges, water infrastructure, broadband, and more. The Congressional Budget Office has estimated that the act

will add about $256.1 billion to the projected budget deficits over the next 10 years. Please refer to Note 26—Long-term

Fiscal Projections for additional information.

179 NOTES TO THE FINANCIAL STATEMENTS

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REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) 180

United States Government Required Supplementary Information (Unaudited) For the Fiscal Years Ended September 30, 2021, and 2020

The Sustainability of Fiscal Policy

One of the important purposes of the Financial Report is to help citizens and policymakers assess whether current fiscal

policy is sustainable and, if it is not, the urgency and magnitude of policy reforms necessary to make fiscal policy

sustainable. A sustainable policy is defined as one where the ratio of debt held by the public to GDP (the debt-to-GDP ratio)

is ultimately stable or declining.

As discussed below, the projections based on this report’s assumptions indicate that current policy is not sustainable.

The debt-to-GDP ratio was approximately 100 percent at the end of 2021, similar to (but slightly below) the ratio at the end

of FY 2020. If current policy is left unchanged, the projections show the debt-to-GDP ratio will exceed 200 percent by 2041

and reach 701 percent in 2096. For comparison, under the 2020 projections, the debt-to-GDP ratio exceeded 200 percent in

2042 and reached 623 percent in 2095.

These conclusions are rooted in the projected trends in receipts, spending, and deficits in the context of current law and

policy, although, as described in the following pages, there is considerable uncertainty surrounding these projections. The

projections are on the basis of policies currently in place and are neither forecasts nor predictions. Changes in policy –

including investments in infrastructure efforts to mitigate the impact of climate change and enhancements to caregiving

services to build a more resilient and sustainable economy – could have a significant effect on eventual fiscal outcomes.

181 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)

Current Policy Projections for Primary Deficits

A key determinant of growth in the debt-to-GDP ratio and hence fiscal sustainability is the ratio of the primary deficit-

to-GDP. The primary deficit is the difference between non-interest spending and receipts, and the primary deficit-to-GDP

ratio is the primary deficit expressed as a percent of GDP. As shown in Chart 1, the primary deficit-to-GDP ratio spiked

during 2009 through 2012 due to the 2008-09 financial crisis and the ensuing severe recession, as well as the increased

spending and temporary tax reductions enacted to stimulate the economy and support recovery. These elevated primary

deficits resulted in a sharp increase in the ratio of debt to GDP, which rose from 39 percent at the end of 2008 to 70 percent at

the end of 2012. As an economic recovery took hold, the primary deficit ratio fell, averaging 2.1 percent of GDP over 2013

through 2019. In 2020, the primary deficit-to-GDP ratio rose to 13.3 percent of GDP due to increased spending in response to

the COVID-19 pandemic and economic contraction, and the ratio of debt to GDP reached 100 percent at the end of the year.

Spending remained elevated in 2021 due to additional funding to support economic recovery, but increased receipts reduced

the primary deficit-to-GDP ratio to 10.8 percent.

The primary deficit-to-GDP ratio is projected to fall to 4.7 percent in 2022 and then decreases to 4.3 percent in 2027.

After 2027, however, increased spending for Social Security and health programs due in part to the continued retirement of

the baby boom generation is projected to result in increasing primary deficits that reach 5.0 percent of GDP in 2030. The

primary deficit peaks at 6.3 percent of GDP in 2043, then gradually decreases beyond that point as the aging of the

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

Trends in the primary deficit are heavily influenced by tax receipts. The receipt share of GDP was markedly depressed

in 2009 through 2012 because of the recession and tax reductions enacted as part of the ARRA and the Tax Relief,

Unemployment Insurance Reauthorization, and Job Creation Act of 2010. The share subsequently increased to 18.0 percent

of GDP by 2015 before falling below the 30-year average of 17.1 percent in 2018, after enactment of the TCJA. As a share of

GDP, receipts were 18.1 percent of GDP in 2021, 1.8 percentage points above 2020. Receipts are projected to decrease to

17.3 percent of GDP in 2022 and then reach 18.7 percent of GDP in 2031 when corporation income tax and other receipts

stabilize as a share of GDP. After 2031, receipts grow slightly more rapidly than GDP over the projection period as increases

in real (i.e., inflation-adjusted) incomes cause more taxpayers and a larger share of income to fall into the higher individual

income tax brackets. Other possible paths for the receipts-to-GDP ratio and the implications for projected debt held by the

public are analyzed in the “Alternative Scenarios” section.

On the spending side, the non-interest spending share of GDP was 28.9 percent in 2021, slightly less than the share of

GDP in 2020, which was 29.6 percent. The ratio of non-interest spending to GDP is projected to fall to 22.0 percent in 2022

and remain near that level through 2024. After 2024, the non-interest spending share of GDP is projected to rise gradually,

reaching 25.7 percent of GDP in 2078, before declining to 25.3 percent in 2096, the end of the projection period. Beginning

in 2025, these increases are principally due to faster growth in Medicare and Social Security spending (see Chart 1). The

aging of the baby boom generation, among other factors, is projected to increase the Social Security and Medicare spending

shares of GDP by about 0.9 percentage points and 1.5 percentage points, respectively, from 2022 to 2041. After 2041, the

Social Security and Medicare spending shares of GDP continue to increase in most years, albeit at a slower rate, due to

projected increases in health care costs and population aging, before declining toward the end of the projection period.

Current Policy Projections for Debt and Interest Payments

The primary deficit projections in Chart 1, along with projections for interest rates and GDP, determine the projections

for the debt-to-GDP ratio shown in Chart 2. That ratio was approximately 100 percent at the end of FY 2021, and under

current policy and based on this report’s assumptions is projected to reach 701 percent in 2096. The continuous rise of the

debt-to-GDP ratio indicates that current policy under this report’s assumptions is unsustainable.

REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) 182

As a general approximation, the change in debt held by the public from one year to the next is the budget deficit, the

difference between total receipts and total spending.1 Total spending is non-interest spending plus interest spending. Chart 3

shows that the rapid rise in total spending and the unified deficit (total receipts less total spending) is almost entirely due to

projected net interest, which results from the growing debt. As a percent of GDP, interest spending was 1.6 percent in 2021,

and under current policy is projected to reach 5.0 percent in 2033, 15.2 percent in 2057, and 31.7 percent in 2096.

1 The change in debt each year is also affected by certain transactions not included in the budget deficit, such as changes in Treasury’s cash balances and the non-budgetary activity of federal credit financing accounts. These transactions are assumed to hold constant at about 0.3 percent of GDP each year, with the

same effect on debt as if the primary deficit was higher by that amount.

183 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)

Another way of viewing the change in the financial outlook in this year’s report relative to previous years’ reports is in

terms of the projected debt-to-GDP ratio in 2094, the last year of the 75-year projection period used in the FY 2019 report.

This ratio is projected based on this report’s assumptions to reach 682 percent in the FY 2021 projections, which compares

with 614 percent projected in the FY 2020 projections and 474 percent projected in the FY 2019 projections.2

The Cost of Delay in Closing the 75-Year Fiscal Gap

The longer policy action to close the fiscal gap3 is delayed, the larger the post-reform primary surpluses must be to

achieve the target debt-to-GDP ratio at the end of the 75-year period. This can be illustrated by varying the years in which

reforms closing the fiscal gap are initiated while holding the target ratio of debt to GDP in 2096 equal to the 2021 ratio. Three

timeframes for reforms are considered, each one beginning in a different year, and each one increasing the primary surplus

relative to current policy by a fixed percent of GDP starting in the reform year. The analysis shows that the longer policy

action is delayed, the larger the post-reform primary surplus must be to bring the debt-to-GDP ratio in 2096 equal to its level

in 2021. Future generations are burdened by delays in policy changes because delay necessitates higher primary surpluses

during their lifetimes, and those higher primary surpluses must be achieved through some combination of lower spending and

higher revenue.

As previously shown in Chart 1, under current policy, primary deficits occur throughout the projection period. Table 1

shows primary surplus changes necessary to make the debt-to-GDP ratio in 2096 equal to its level in 2021 under each of the

three timeframes. If reform begins in 2022, then it is sufficient to raise the primary surplus share of GDP by 6.2 percentage

2 For additional information on changes from the 2019 projections, see the unaudited RSI in the 2020 Financial Report. 3 The fiscal gap reflects how much the primary surplus (receipts less non-interest spending) must increase to maintain the debt-to-GDP ratio at the 2021

level. See Note 26 for a more complete discussion of the fiscal gap.

REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) 184

points in every year between 2022 and 2096 in order for the debt-to-GDP ratio in 2096 to equal its level in 2021. This policy

raises the average 2022-2096 primary surplus-to-GDP ratio from -5.7 percent to +0.6 percent.

In contrast to a reform that begins immediately, if reform begins in 2032 or 2042, then the primary surpluses must be

raised by 7.3 percent and 9.0 percent of GDP, respectively, in order for the debt-to-GDP ratio in 2096 to equal its level at the

end of 2021. The difference between the primary surplus increase necessary if reform begins in 2032 or 2042 and the increase

necessary if reform begins in 2022, an additional 1.1 and 2.7 percentage points, respectively, is a measure of the additional

burden policy delay would impose on future generations. The costs of delay are due to the additional debt that accumulates

between the end of 2021 and the year reform is initiated, in comparison to the scenario in which reform begins immediately.

Alternative Scenarios

The long-run projections are highly uncertain. The uncertainty in this year’s projections is further increased by the

COVID-19 pandemic. This section illustrates this inherent uncertainty by presenting alternative scenarios for the growth rate

of health care costs, interest rates, discretionary spending, and receipts. (Not considered here are the effects of alternative

assumptions for long-run trends in birth rates, mortality, and immigration.)

The population is aging rapidly and will continue to do so over the next several decades, which puts pressure on

programs such as Social Security, Medicare, and Medicaid. A shift in projected fertility, mortality, or immigration rates could

have important effects on the long-run projections. Higher-than-projected immigration, fertility, or mortality rates would

improve the long-term fiscal outlook. Conversely, lower-than-projected immigration, fertility, or mortality rates would result

in deterioration in the long-term fiscal outlook.

Effect of Changes in Health Care Cost Growth

One of the most important assumptions underlying the projections is the future growth of health care costs. These future

growth rates – both for health care costs in the economy generally and for federal health care programs such as Medicare,

Medicaid, and PPACA exchange subsidies – are highly uncertain. In particular, PPACA in 2010 and MACRA in 2015

lowered payment rates for Medicare hospital and physician payments. The Medicare spending projections in the long-term

fiscal projections are based on the projections in the 2021 Medicare Trustees’ Report, which assume the PPACA and

MACRA payment rates will be effective in producing a substantial slowdown in Medicare input cost growth. As discussed in

Note 25—Social Insurance, the Medicare projections are subject to much uncertainty about the ultimate effects of these

provisions to reduce health care cost growth. For the long-term fiscal projections, that uncertainty also affects the projections

for Medicaid and exchange subsidies, because the cost per beneficiary in these programs grows at the same reduced rate as

Medicare cost growth per beneficiary.

As an illustration of the dramatic effect of variations in health care cost growth rates, Table 2 shows the effect on the

size of reforms necessary to close the fiscal gap of per capita health care cost growth rates that are one percentage point

higher or two percentage points higher than the growth rates in the base projection, as well as the effect of delaying closure of

the fiscal gap.4 As indicated earlier, if reform is initiated in 2022, eliminating the fiscal gap requires that the 2022-2096

4 The base case health cost growth rates are derived from the projections in the 2021 Medicare Trustees’ Report. These projections are summarized and

discussed in Note 25 and the “Medicare Projections” section of the unaudited RSI for the SOSI.

185 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)

primary surplus increase by an average of 6.2 percent of GDP in the base case. However, that figure increases to 10.1 percent

of GDP if per capita health cost growth is assumed to be 1.0 percentage point higher, and 16.7 percent of GDP if per capita

health cost growth is 2.0 percentage points higher. The cost of delaying reform is also increased if health care cost growth is

higher because debt accumulates more rapidly during the period of inaction. For example, the lower part of Table 2 shows

that delaying reform initiation from 2022 to 2032 requires that 2032-2096 primary surpluses be higher by an average of 1.1

percent of GDP in the base case, 1.7 percent of GDP if per capita health cost growth is 1.0 percentage point higher, and 2.9

percent of GDP if per capita health cost growth is 2.0 percentage points higher. The dramatic deterioration of the long-run

fiscal outlook caused by higher health care cost growth shows the critical importance of managing health care cost growth.

Effects of Changes in Interest Rates

A higher debt-to-GDP ratio is likely to increase the interest rate on government debt, making it costlier for the

government to service its debt than if the debt-to-GDP ratio were lower. Table 3 displays the effect of several alternative

scenarios using different nominal (and real) interest rates than assumed in the base case on the size of reforms to close the

fiscal gap as well as the effect of delaying closure of the fiscal gap. If reform is initiated in 2022, eliminating the fiscal gap

requires that the 2022-2096 primary surplus increase by an average of 6.2 percent of GDP in the base case, 7.8 percent of

GDP if the interest rate is 2.0 percentage points higher in every year, and 7.1 percent of GDP if the interest rate is 1.0

percentage point higher in every year. The required increase in the 2022-2096 primary surplus decreases to an average of 5.4

percent of GDP if the interest rate is 1.0 percentage point lower in every year and 4.5 percent of GDP if the interest rate is 2.0

percentage points lower in every year. The cost of delaying reform is also increased if interest rates are higher, due to the fact

that interest paid on debt accumulates more rapidly during the period of inaction. For example, the lower part of Table 3

shows that delaying reform initiation from 2022 to 2032 requires that 2032-2096 primary surpluses be higher by an average

of 1.1 percent of GDP in the base case, 2.5 percent of GDP if the interest rate is 2.0 percentage points higher in every year,

and 1.7 percent of GDP if the interest rate is 1.0 percentage point higher in every year. The required increase in the 2032-

2096 primary surplus is higher by an average of 0.7 percent of GDP if the interest rate is 1.0 percentage point lower in every

year and 0.4 percent of GDP if the interest rate is 2.0 percentage points lower in every year.

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Effects of Changes in Discretionary Spending Growth

The rate of growth of discretionary spending has a large impact on long-term fiscal sustainability. The current base

projection for discretionary spending assumes that spending in 2022 equals the baseline estimate from the President’s FY

2022 Budget and then grows with nominal GDP. Under the base projection, discretionary spending is approximately 7.1

percent of GDP each year over the projection period. The implications of an alternative scenario are shown in Table 4. In the

alternative scenario, discretionary spending for 2022 is the same as in the base case and then grows with inflation and

population so as to hold discretionary spending constant on a real per capita basis. (This growth rate assumption is slower

than growth with GDP but is still higher than the standard 10-year budget baseline assumption, which assumes that

discretionary spending grows with inflation but not with population.) As shown in Table 4, if discretionary spending grows

with nominal GDP, eliminating the fiscal gap requires that the 2022-2096 primary surplus increase by an average of 6.2

percent of GDP. If discretionary spending grows with inflation and population, the fiscal gap is 3.6 percent of GDP. The cost

of delaying reform is greater when discretionary spending levels are higher. Initiating reforms in 2032 requires that the

primary surplus increase by an average of 1.1 percent of GDP per year in the base case and by an average of 0.6 percent of

GDP if discretionary levels grow with inflation and population after 2022. If delayed until 2042, the primary surplus must

increase by an average of 2.7 percent of GDP in the base case and by an average of 1.6 percent of GDP when spending grows

with inflation and population.

187 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)

Effects of Changes in Individual Income Receipt Growth

The growth rate of receipts, specifically individual income taxes, is another key determinant of long-term sustainability.

The base projections assume growth in individual income taxes over time to account primarily for the slow shift of

individuals into higher tax brackets due to real wage growth (“real bracket creep”). This assumption approximates the long-

term historical growth in individual income taxes relative to wages and salaries and is consistent with current policy without

change, as future legislation would be required to prevent real bracket creep. As an illustration of the effect of variations in

individual income tax growth, Table 5 shows the effect on the size of reforms necessary to close the fiscal gap and the effect

of delaying closure of the fiscal gap if long-term receipt growth as a share of wages and salaries is 0.1 percentage point

higher than the base case, as well as 0.1 percentage point lower than the base case. If reform is initiated in 2022, eliminating

the fiscal gap requires that the 2022-2096 primary surplus increase by an average of 6.2 percent of GDP in the base case, 5.1

percent of GDP if receipt growth is 0.1 percentage point higher, and 7.4 percent of GDP if receipt growth is 0.1 percentage

point lower. The cost of delaying reform is also affected if receipt growth assumptions change, much as was the case in the

previous alternative scenarios.

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Fiscal Projections in Context

In this report, a sustainable fiscal policy has been defined as one where the federal debt-to-GDP ratio is stable or

declining over the projection period. However, this definition does not indicate what a sustainable debt-to-GDP ratio might

be. Any particular debt ratio is not the ultimate goal of fiscal policy. Rather, the goals of fiscal policy are many. They include

financing public goods, such as infrastructure and government services; promoting a strong and growing economy; and

managing the debt so that it is not a burden on future generations. These goals are interrelated, and readers should consider

how policies intended to affect one might depend on or affect another.

This report shows that current policy under this report’s assumptions is not sustainable. In evaluating policies that could

make policy sustainable, note that debt may play roles in both facilitating and hindering a healthy economy. For example,

government deficit spending supports demand and allows economies to emerge from recessions more quickly. Debt may also

be a cost-effective means of financing capital investment that promotes future economic growth, which may in turn make

future debt levels more manageable. However, economic theory also suggests that high levels of debt may contribute to

higher interest rates, leading to lower private investment and a smaller capital stock which the economy can use to grow.

Unfortunately, it is unclear what debt-to-GDP ratio would be sufficiently high to produce these negative outcomes, or

whether the key concern is the level of debt per se, or a trend that shows debt increasing over time.

While several empirical studies have attempted to discern a definite relationship between debt and economic growth

from the past experience of countries, the evidence is mixed. One study suggested that as advanced countries’ debt-to-GDP

ratios exceeded 90 percent it had significant negative consequences for real GDP growth.5 Real GDP growth is generally

lower by about 1 percent when the countries’ debt-to-GDP ratios are above 90 percent relative to the times when they are

5 Reinhart, Carmen M., Vincent R. Reinhart and Kenneth S. Rogoff. 2012. “Public Debt Overhangs: Advanced-Economy Episodes Since 1800.” Journal of

Economic Perspectives, 26(3):69.86.

189 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)

below 90 percent.6 However, after removing sample countries with very high indebtedness – those with debt-to-GDP ratios of

more than 120 percent – and very low indebtedness – those with debt-to-GDP ratios of less than 30 percent – the negative

relationship between growth and debt is difficult to determine. Another study reports that differences in average GDP growth

in countries with debt-to-GDP ratios between 30-60 percent, 60-90 percent, and 90-120 percent cannot be statistically

distinguished.7 Some countries with high debt-to-GDP ratios have been observed to experience lower-than-average growth,

while other countries with similarly high debt ratios have continued to enjoy robust growth. Analogously, low debt-to-GDP

ratios are no guarantee of strong economic growth. Moreover, the direction of causality is unclear. High debt may undermine

growth through increased interest rates and lower business confidence, or low growth may contribute to high debt by

depressed tax revenues and increased deficit spending on social safety net programs.

Nevertheless, to put the current and projected debt-to-GDP ratios in context, it is instructive to examine how the U.S.

experience compares with that of other countries. The U.S. government’s debt as a percent of GDP is relatively large

compared with central government debt of other countries, but far from the largest among developed countries. Based on

historical data as reported by the IMF for 29 advanced economies, the debt-to-GDP ratio in 2019 ranged from 5.8 percent of

GDP to 196.4 percent of GDP.8 The U.S. is not included in this set of statistics, which underscores the difficulty in

calculating debt ratios under consistent definitions, but the 2021 debt-to-GDP ratio for the U.S. government was

approximately 100 percent. Despite using consistent definitions where available, these debt measures are not strictly

comparable due to differences in the share of government debt that is debt of the central government, how government

responsibilities are shared between central and local governments, how current policies compare with the past policies that

determine the current level of debt, and how robustly each economy grows.

The historical experience of the U.S. may also provide some perspective. As Chart 4 shows, the debt-to-GDP ratio was

highest in the 1940s, following the debt buildup during World War II. In the projections in this report, the U.S. would reach

the previous peak debt ratio in 2024. However, the origins of current and future federal debt are quite different from the

wartime debt of the 1940s, which limits the pertinence of past experience.

6 Errata: “Growth in a Time of Debt,” Carmen M. Reinhart and Kenneth S. Rogoff. Harvard University, 2013. 7 Herndon, Thomas, Michael Ash, and Robert Pollard, “Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogoff,”

Cambridge Journal of Economics, 2013. 8 Government Finance Statistics Yearbook, Main Aggregates and Balances, available at https://data.imf.org. Data is for D1 debt liabilities for the central

government, excluding social security funds, for Advanced Economies.

https://data.imf.org/?sk=388dfa60-1d26-4ade-b505-a05a558d9a42

REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) 190

As the cross-country and historical comparisons suggest, there is a very imperfect relationship between the current level

of central government debt and the sustainability of overall government policy. Past accrual of debt is certainly important, but

current policies and their implications for future debt accumulation are as well.

Conclusion

The projections in this Financial Report indicate that if policy remains unchanged, the debt-to-GDP ratio will steadily

increase throughout the projection period and beyond, which implies current policy under this report’s assumptions is not

sustainable and must ultimately change. Subject to the important caveat that policy changes are not so abrupt that they slow

economic growth, the sooner policies are put in place to avert these trends, the smaller are the adjustments necessary to return

the nation to a sustainable fiscal path, and the lower the burden of the debt will be to future generations.

191 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)

Social Insurance

The social insurance programs consisting of Social Security, Medicare, Railroad Retirement, Black Lung, and UI were

developed to provide income security and health care coverage to citizens under specific circumstances as a responsibility of

the government. Because taxpayers rely on these programs in their long-term planning, social insurance program information

should indicate whether the current statutory provisions of the programs can be sustained, and more generally what effect

these provisions likely have on the government’s financial condition. The resources needed to run these programs are raised

through taxes and fees. Eligibility for benefits depends in part on earnings and time worked by the individuals. Social

Security benefits are generally redistributed intentionally toward lower-wage workers (i.e., benefits are progressive). In

addition, each social insurance program has a uniform set of eligibility events and schedules that apply to all participants.

RSI material is generally drawn from the 2021 Annual Reports of the Boards of Trustees, which represents the official

government evaluation of the financial and actuarial status of the Social Security and Medicare Trust Funds. Unless

otherwise noted, all data are for calendar years, all projections are based on current law and the Trustees intermediate set of

assumptions. The one exception is that the projections disregard benefit payment reductions that would result from the

projected depletion of the OASDI and HI Trust Funds. Under current law, benefit payments would be reduced to levels that

could be covered by incoming tax and premium revenues when the trust fund balances have been depleted.

Social Security and Medicare

Social Security

The OASI and DI Trust Funds were established on January 1, 1940 and August 1, 1956 respectively as separate

accounts in Treasury. The OASI fund pays cash retirement benefits to eligible retirees and their eligible dependents and

survivors, and the much smaller DI fund pays cash benefits to eligible individuals who are unable to work because of medical

conditions and certain family members of such eligible individuals. All financial operations of the OASI and DI Programs are

handled through these respective funds. The two funds are often referred to as the combined OASDI Trust Funds or “Social

Security.” At the end of calendar year 2020, Social Security benefits were paid to approximately 65 million beneficiaries.

The events that trigger benefit payments are quite different however, both trust funds have the same dedicated financing

structure: taxes paid by workers, their employers, and individuals with self-employment income, based on work covered by

the Social Security Program. Currently, employers and employees each pay 6.2 percent of taxable earnings, and the self-

employed pay 12.4 percent of taxable earnings. Payroll taxes are levied on wages and net earnings from self-employment up

to a specified maximum annual amount, referred to as maximum taxable earnings ($142,800.00 in 2021), that increases each

year with economy-wide average wages.

Legislation passed in 1984 subjected up to half of Social Security benefits to income tax and allocated the revenue to

the OASDI Trust Funds. In 1993 legislation increased the potentially taxed portion of benefits to 85.0 percent and allocated

the additional revenue to the Medicare’s HI Trust Fund.

Medicare

The Medicare Program, created in 1965, has two separate trust funds: the HI Trust Fund (otherwise known as Medicare

Part A) and the SMI Trust Funds (which consists of the Medicare Part B and Part D9 accounts). HI helps pay for inpatient

hospital skilled nursing facility, home health, and hospice. SMI helps pay for hospital outpatient services, physician services,

and assorted other services and products through Part B and for prescription drugs through Part D.

Though the events that trigger benefit payments are similar, HI and SMI have different dedicated financing structures.

Similar to Social Security, HI is financed primarily by payroll contributions. Currently, employers and employees each pay

1.45 percent of earnings, while self-employed workers pay 2.9 percent of their net earnings. SMI is financed primarily by

direct transfers from the General Fund. Additional financing sources include premiums paid by beneficiaries and, for Part D

state transfers.

9 Medicare legislation in 2003 created the new Part D account in the Medicare Part B and D Trust Fund to track the finances of a new prescription drug

benefit that began in 2006. As is the case for Medicare Part B, a little less than three-quarters of revenues to the Part D account will come from future transfers from the General Fund. Consequently, the nature of the relationship between the Medicare Part B and D Trust Fund and the federal budget

described below is largely unaffected by the presence of the Part D account though the magnitude will be greater.

REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) 192

Surplus Borrowed

Interest Credited

Benefit Taxes

Interest Credited

Surplus Borrowed

E X P E N D I T U R E S

General Government

Expenditures, Net Interest

SMI Trust Fund

Account

Other Government

Accounts

HI, OASDI Trust Fund Accounts

M E A N S O F F I N A N C I N G

SMI Premiums and State Transfers

Income Taxes, Benefit Taxes,

Other Revenues, Borrowing from

the Public

Payroll Taxes and HI

Premiums

HI, OASDI, SMI Benefits

Other Government

Transfers

Social Security, Medicare, and Government-wide Finances

Figure 1—Social Security, Medicare, and Government-wide Finances

• Other Government Transfers: Intra-governmental transfers to the Medicare “Parts B and D” Trust Fund from other government accounts.

• Surplus Borrowed: Program revenue loaned to the General Fund and treated as if it borrowed the money from the public

• Interest Credited: Interest earned when the excess of program revenue over expenses is loaned to the General Fund becoming a future obligation to the General Fund.

The current and future financial status of the separate Social Security and Medicare Trust Funds is the focus of the

Social Security and Medicare Trustees’ Reports, a focus that may appropriately be referred to as the “trust fund perspective.”

In contrast, the government primarily uses the budget concept, appropriately referred to as the “budget perspective” or the

“government-wide perspective” as the framework for budgetary analysis and presentation. It represents a comprehensive

display of all federal activities, regardless of fund type or on- and off-budget status and has a broader focus than the trust

fund perspective. Social Security and Medicare are among the largest expenditure categories of the U.S. federal budget. This

section describes the important relationship between the trust fund perspective and the government-wide perspective.

Figure 1 is a simplified depiction of the interaction of the Social Security and Medicare Trust Funds with the rest of the

federal budget.10 The boxes on the left show sources of funding, those in the middle represent the trust funds and other

government accounts, including the General Fund into which that funding flows, and the boxes on the right show simplified

expenditure categories. The figure is intended to illustrate how the various sources of program revenue flow through the

budget to beneficiaries. The general approach is to group revenues and expenditures that are linked specifically to Social

Security and/or Medicare separately from those for other government programs.

Each of the trust funds has its own sources and types of revenue. With the exception of General Fund transfers to

Medicare Parts B and D, each of these revenue sources represents revenue from the public that is dedicated specifically for

the respective trust fund and cannot be used for other purposes. In contrast, personal and corporate income taxes as well as

other revenue go into General Fund and are drawn down for any government program for which Congress has approved

spending.11 The Medicare SMI Trust Fund is shown separately from the Social Security OASDI Trust Funds and the

Medicare HI Trust Fund to highlight the unique financing of Medicare Parts B and D. Currently, it is the only one of the

programs that is funded through transfers from the General Fund. The transfers are automatic and; their size depends on

10 The federal budget encompasses all government financing and is synonymous with a government-wide perspective. 11 Other programs also have dedicated revenues in the form of taxes and fees (and other forms of receipt) and there are a large number of dedicated trust

funds in the federal budget.

193 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)

program expenses, not on how much revenue comes into Treasury. If General Fund revenues become insufficient to cover

both the mandated transfer to Medicare Parts B and D and expenditures on other general government programs, Treasury

needs to borrow to make up the difference. In the longer run, if transfers to Medicare Parts B and D increase beyond growth

in general revenues is as projected, then Congress must either raise taxes, cut other government spending, reduce Medicare

Parts B and D benefits, or borrow even more.

Intra-governmental transfers (surplus) is a form of “borrowing/lending” between the government accounts. How loans

from the trust funds to the General Fund and later repayments of those loans affect tax income and expenditures of the

General Fund is uncertain. Two extreme cases encompass the possibilities. At one extreme, each dollar the trust funds loan to

the General Fund might reduce borrowing from the public by a dollar at the time the loan is extended, in which case the

General Fund could repay all trust fund loans by borrowing from the public without raising the level of public debt above the

level that would have occurred in the absence of the loans. At the other extreme, the trust fund loans result in additional

largess (i.e., higher spending and/or lower taxes) in General Fund programs at the time the loans are extended, but ultimately

that additional largess is financed with additional austerity (i.e., lower spending and/or higher taxes). The actual impact of

trust fund loans to the General Fund and their repayment on General Fund programs is at one of these two extremes or

somewhere in between.

Actual dollar amounts roughly corresponding to the flows presented in Figure 1 are shown in the following table for FY

2021. From the government-wide perspective, only revenues received from the public and state transfers less expenditures

made to the public are important for the final balance. From the trust fund perspective which is captured in the bottom section

of each of the three trust fund columns, revenue also includes amounts transferred from the General Fund and interest earned

from the lending/borrowing activity between the General Fund and the trust funds. Transfers to the SMI Program from the

General Fund are obligated under current law and therefore, appropriately viewed as revenue from the trust fund perspective.

Revenues and Expenditures for Medicare and Social Security Trust Funds and the Total

Federal Budget for the Fiscal Year ended September 30, 2021

Trust Funds (In billions of dollars) HI SMI OASDI Total All Other Total1

Payroll taxes and other public revenues: Payroll and benefit taxes ................................................................................................................................................................... 324.1 - 1,007.1 1,331.2 - 1,331.2 Premiums......................................................................................................................................................................................... 5.7 129.7 - 135.4 - 135.4 Other taxes and fees ......................................................................................................................................................................... - 14.6 - 14.6 2,564.8 2,579.4 Total ................................................................................................................................................................................................ 329.8 144.3 1,007.1 1,481.2 2,564.8 4,046.0 Total expenditures to the public2 ...................................................................................................................................................... 331.9 510.8 1,134.8 1,977.5 4,840.7 6,818.2 Net results for budget perspective3 ................................................................................................................................................ (2.1) (366.5) (127.7) (496.3) (2,275.9) (2,772.2) Revenues from other government

accounts:

Transfers ......................................................................................................................................................................................... 1.4 448.2 - 449.6 (449.6) Interest credits .................................................................................................................................................................................. 2.4 2.1 73.3 77.8 (77.8) Total ............................................................................................................................................................................................... 3.8 450.3 73.3 527.4 (527.4) Net results for trust fund perspective3 ............................................................................................................................................ 1.7 83.8 (54.4) 31.1 N/A N/A

1 This column is the sum of the preceding two columns and shows data for the total federal budget. The figure $2,772.2 billion was the total federal deficit in FY 2021.

2 The OASDI figure includes $4.9 billion transferred to the RRB for benefit program payments and is therefore an expenditure to the public.

3 Net results are computed as revenues less expenditures. Transfers and interest credits received by the trust funds appear as a negative entry under “all other” and column is offset when summed

for the total budget.

Note: "N/A" indicates not applicable.

REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) 194

Medicare Part A: Government-wide perspective-difference between expenditures made to the public and revenues was

$2.1 billion. Trust fund perspective-after revenues from transfers and interest from the General Fund, revenues exceeded

expenditures by $1.7 billion.

Medicare Parts B and D: Government-wide perspective-difference between expenditures made to the public and

revenues was $366.5 billion resulting in a net draw on the overall budget balance. Trust fund perspective-after revenues from

transfers and interest from the General Fund, revenues exceeded expenditures by $83.8 billion.

Social Security: Government-wide perspective-difference made to the public and revenues was $127.7 billion. Trust

fund perspective-after revenues from transfers and interest from the General Fund, expenditures exceeded revenues by $54.4

billion.

Cash Flow Projections

Economic and Demographic Assumptions. The Boards of Trustees of the OASDI and Medicare Trust Funds provide in

their annual reports to Congress short-range (10-year) and long-range (75-year) actuarial estimates of each trust fund.

Because of their inherent uncertainty in estimating 75 years into the future, the boards use three alternative sets of economic

and demographic assumptions to show a range of possibilities. The economic and demographic assumptions used for the

most recent set of intermediate projections for Social Security and Medicare are shown in the demographic and economic

assumption section of Note 25—Social Insurance.

Worker-to-Beneficiary Ratio. For the most part, current workers’ pay for current benefits. The relatively smaller number

of persons born after the Baby Boom will therefore finance the retirement of the Baby Boom generation. Chart 1 shows the

estimated number of covered workers per OASDI beneficiary using the Trustees intermediate assumptions. Covered workers

are persons having earnings creditable for OASDI purposes based on wages in covered employment or income from covered

self-employment. The estimated number of workers per beneficiary declines from 2.7 in 2020 to 2.1 in 2095. A similar

demographic pattern confronts the Medicare Program. In 2020 every HI beneficiary had about 2.9 workers to pay for his or

her benefit and continues to decline until there are only 2.2 workers per beneficiary by 2095.

Chart 1—Number of Covered Workers per OASDI Beneficiary 2016-2095

Social Security Projections

Income and Expenditures as a Percent of Taxable Payroll. Chart 2 shows annual non-interest income and expenditures

expressed as percentages of taxable payroll. Estimated cost started to exceed income including interest in 2021. Estimated

cost, expressed as a percentage of taxable payroll, increases through about 2078 and then slightly declines through the end of

the 75-year period. The estimated income at the end of the 75-year period is sufficient to cover 74.0 percent of the estimated

cost.

In any year, to meet all OASDI cost on a timely basis, the combined OASI and DI Trust Funds will need to redeem

Treasury securities. This redemption differs from the situation of prior years when the combined OASI and DI Trust Funds

195 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)

had been net lenders to the General Fund. Because the program lacks the authority to borrow to continue paying benefits,

benefit payments would be limited to the available noninterest income. Solvency could be achieved by: 1) increasing revenue equivalent to an immediate and permanent payroll tax rate

increase of 3.36 percent points; or by 2) reducing scheduled benefits by an amount equivalent to an immediate and permanent

reduction of about 21.0 percent applied to all current and future beneficiaries, or about 25.0 percent if the reductions were

applied only to newly entitled beneficiaries. Alternatively, some combination of tax increases and benefit reductions could be

adopted.

Chart 2—OASDI Income (Excluding Interest) and Expenditures as a Percent of Taxable Payroll

2016-2095

Income and Expenditures as a Percent of GDP. Chart 3 shows estimated annual non-interest income and expenditures,

expressed as a percent of GDP. Analyzing these cash flows in terms of percentage of the estimated GDP, which represents

the total value of goods and services produced in the U.S., provides a measure of the cost of the OASDI program in relation

to the size of the national economy that must finance it.

In calendar year 2020, OASDI cost was about $1.1 trillion, which was about 5.3 percent of GDP. The cost of the

program (based on current law) rises to a peak of 6.2 percent of GDP in 2077, then declines to 5.9 percent by 2095. The

increase from 2021 to 2039 is projected to occur as baby boomers continue to become eligible for OASDI benefits, lower

birth rates result in fewer workers per beneficiary, and beneficiaries continue to live longer.

REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) 196

Chart 3—OASDI Income (Excluding Interest) and Expenditures as a Percent of GDP

2016-2095

Medicare Projections

Medicare Legislation. The projections presented here are based on current law, certain features of which may result in

some challenges for the Medicare program. In 2010 the PPACA was signed into law and contains the most significant

changes to health care coverage since the Social Security Act. The PPACA provided funding for the establishment of a Center

for Medicare and Medicaid Innovation to test innovative payment and service delivery models to reduce program

expenditures while preserving or enhancing the quality of care furnished to individuals. If the health sector cannot transition

to more efficient models of care delivery and if the provider reimbursement rates paid by commercial insurers continue to be

based on the same negotiated process used to date, then the availability, particularly with respect to physician services, and

quality of health care received by Medicare beneficiaries would, under current law, fall over time compared to that received

by those with private health insurance.

Incorporated in these projections is the sequestration of non-salary Medicare expenditures as required by the following

laws:

• Budget Control Act of 2011 (P.L. 112-25, enacted on August 2, 2011), as amended by the American Taxpayer Relief Act of 2012 (P.L. 112-240, enacted on January 2, 2013);

• Continuing Appropriations Resolution, 2014 (P.L. 113-67, enacted on December 26, 2013);

• Sections 1 and 3 of P.L. 113-82, enacted on February 15, 2014;

• Protecting Access to Medicare Act of 2014 (P.L. 113-93, enacted on April 1, 2014);

• BBA of 2015 (P.L. 114-74, enacted on November 2, 2015);

• BBA of 2018 (P.L. 115-123, enacted on February 9, 2018);

• BBA of 2019 (P.L. 116-37, enacted on August 2, 2019);

• The CARES Act (P.L. 116-136, enacted on March 27, 2020);

• The CAA, 2021 (P.L. 116-260, enacted on December 27, 2020); and

• An Act to Prevent Across-the-Board Direct Spending Cuts, and for Other Purposes (P.L. 117-7, enacted on April 14, 2021).

The sequestration reduces benefit payments by 2.0 percent from April 1, 2013 through April 30, 2020, by 2.0 percent

from January 1, 2022 through September 15, 2030 and by 4.0 percent from September 16, 2030 through the first half of

March 2031. Due to sequestration, non-salary administrative expenses are reduced by an estimated 5.0 to 7.0 percent from

March 1, 2013 through September 30, 2030.

The financial projections for the Medicare program reflect substantial, but very uncertain, cost savings deriving from

current law provisions that lower increases in Medicare payment rates to most categories of health care providers, but such

adjustments would probably not be viable indefinitely without fundamental change in the current delivery system. In view of

the factors described above, it is important to note that Medicare’s actual future costs are highly uncertain for reasons apart

from the inherent challenges in projecting health care cost growth over time. For additional information refer to the

“Medicare – Illustrative Alternative Scenario” section of Note 25—Social Insurance and HHS’s financial statements.

197 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)

Changes in Projection Methods. The long-range cost growth rates must be modified to reflect demographic impacts. In

the 2020 report, these impacts reflected the changing distribution of Medicare enrollment by age and sex, and the

beneficiary’s proximity to death, which is referred to as a TTD adjustment. The TTD adjustment reflects the fact that the

closer an individual is to death, the higher his or her health care spending is.

Total Medicare. Chart 4 shows expenditures and current-law non-interest revenue sources for HI and SMI combined as

a percent of GDP. Under the PPACA, beginning in 2013 the HI Trust Fund receives an additional 0.9 percent tax on earnings

in excess of $250,000 for joint tax return filers and $200,000 for individual tax return filers. As a result of this provision, it is

projected that payroll taxes will grow slightly faster than GDP. After 2021, HI revenue from income taxes on Social Security

benefits will gradually increase as a share of GDP as the share benefits subject to such taxes increase. Beginning in 2009, as

HI payroll tax receipts declined due to the recession and general revenue increased, the transfers became the largest single

source of income to the Medicare program as a whole. General revenue transfers to the Part B account increased significantly

in 2016, as required by the BBA of 2015 to compensate for premium revenue that was not received in 2016 due to the hold

harmless provision, which limited the Part B premium increase for a majority of beneficiaries. After decreasing from 2016 to

2017, and from 2020 through 2022 general revenues are projected to gradually increase through 2039 to about 50.0 percent

of Medicare financing, stabilizing thereafter. SMI premiums will also grow in proportion to general revenue transfers,

placing a growing burden on beneficiaries. Medicare Part B and D general revenues equal 2.0 percent of GDP in 2020 and

will increase to an estimated 3.1 percent in 2095 under current law.

Chart 4—Total Medicare (HI and SMI) Expenditures and Non-interest Income as a Percent of GDP

2016-2095

Medicare, Part A Income and Expenditures as a Percent of Taxable Payroll. Chart 5 illustrates income (excluding

interest) and expenditures as a percentage of taxable payroll. The standard HI payroll tax rate is not scheduled to change in

the future under current law, most payroll tax income as a percentage of taxable payroll is estimated to remain constant at 2.9

percent. Income from taxation of Social Security benefits will also increase faster than taxable payroll because the income

thresholds determining taxable benefits are not indexed for price inflation. Since these income thresholds are not indexed,

over time an increasing proportion of workers and their earnings will become subject to the additional HI tax rate.

In 2021 and beyond, as indicated in Chart 5, the cost rate is projected to rise, primarily due to the continued retirements

of those in the Baby Boom generation and partly due to an acceleration of health services cost growth. This cost rate increase

is moderated by the accumulating effect of the productivity adjustments to provider price updates, which are estimated to

reduce annual HI per capita cost growth by an average of 0.5 percent through 2030 and 1.0 percent thereafter. The percentage

of expenditures covered by tax revenues is projected to decrease from 91.0 percent in 2026 to 78.0 percent in 2045 and then

to increase to about 91.0 percent by the end of the projection period.

REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) 198

Chart 5—Medicare Part A Income (Excluding Interest) and Expenditures as a Percent of Taxable Payroll

2016-2095

Medicare, Part A Income and Expenditures as a Percent of GDP. Chart 6 shows estimated annual non-interest income

and expenditures, expressed as a percent of GDP, the total value of goods and services produced in the U.S. This measure

provides an idea of the relative financial resources that will be necessary to pay for Medicare services. In 2020, the

expenditures were $402.2 billion, which was 1.9 percent of GDP. This percentage is projected to increase steadily until about

2042 and then remain fairly level throughout the rest of the 75-year period, as the accumulated effects of the price update

reductions are realized.

Chart 6—Medicare Part A Income (Excluding Interest) and Expenditures as a Percent of GDP

2016-2095

Medicare Part B and Part D Premium as well as State Transfer Income and Expenditures as a Percent of GDP. Chart 7

shows expenditures for the Part B and D Program expressed as a percent of GDP. It is important to examine the projected rise

in expenditures and the implications for beneficiary premiums and General Fund transfers.

In 2020, SMI expenditures were $523.6 billion, or about 2.5 percent of GDP. Under current law, they would grow to

about 4.0 percent of GDP within 25 years and to 4.4 percent by the end of the projection period. To match the faster growth

199 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)

rates for SMI expenditures, beneficiary premiums, along with general revenue contributions, would increase more rapidly

than GDP over time but at a slower rate compared to the last 10 years. Average per beneficiary costs for Part B and Part D

benefits are projected to increase after 2020 by about 4.3 percent annually. The associated beneficiary premiums—and

General Fund transfers would increase by approximately the same rate. The special state payments to the Part D account are

set by law at a declining portion of the states’ forgone Medicaid expenditures attributable to the Medicare drug benefit.

Chart 7—Medicare Part B and Part D Premium and State Transfer Income and Expenditures as a Percent of GDP

2016-2095

Social Security and Medicare Sensitivity Analysis

Projections of the future financial status of the Social Insurance programs depend on many demographic and economic

assumptions. The estimates presented here are based on the assumption that the trust funds will continue under current law

except that the full amount of Social Security and Medicare HI scheduled benefits are paid after trust fund depletion contrary

to current law. Income will depend on how these factors affect the size and composition of the working population and the

level and distribution of wages and earnings. Similarly, the cost will depend on how these factors affect the size and

composition of the beneficiary population and the general level of benefits.

Because actual experience is likely to differ from the estimated or assumed values of these factors, this section is

included to illustrate the sensitivity of the long-range projections to changes in assumptions by analyzing key assumptions:

average annual reduction in death rates for Social Security, average annual growth in health costs for Medicare, total fertility

rate, real-wage differential, CPI change, net immigration, and real interest rate.

For this analysis, the intermediate assumptions are used as the reference point, and each selected assumption is varied

individually. The variation used for each individual assumption reflects the levels used for that assumption in the low-cost

and high-cost projections. For example, when analyzing sensitivity with respect to variation in real wages, income, and

expenditure projections using the intermediate assumptions are compared to the outcome when projections are done by

changing only the real wage assumption to either low-cost or high-cost alternatives.

While the COVID-19 pandemic has significantly affected the Medicare short-term financing and spending, it is not

expected to have a large effect on the financial status of the trust funds after 2024. The pandemic is an example of the

inherent uncertainty in projecting healthcare financing and spending over any duration.

The following tables show the PV of the estimated excess of Social Security and Medicare cost over income for the 75-

year period, using various assumptions, which are shown in parentheses. The low-cost alternative is characterized by

assumptions that improve the financial status of the program (relative to the intermediate assumption) such as slower

improvement in mortality (beneficiaries die younger). In contrast, assumptions under the high-cost alternative worsen the

financial outlook. All PV are calculated as of January 1, 2021 and are based on estimates of income and cost during the 75-

year projection period 2021-2095. Refer to SSA’s and HHS’s unaudited RSI—Social Insurance section for additional

information on the Social Insurance programs sensitivity analysis.

REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) 200

Present Values of Estimated OASDI Expenditures in Excess of Income

Under Various Assumptions, 2021-2095

(Dollar values in billions; values of assumptions shown in parentheses) Financing Shortfall Range Assumption Low Intermediate High Average annual reduction in death rates ............................................................................................................................................ 18,723 22,742 27,530 (0.3) (0.7) (1.3) Total fertility rate1 .............................................................................................................................................................................. 20,589 22,742 25,789 (2.2) (2.0) (1.7) Real-wage differential1 ...................................................................................................................................................................... 18,579 22,742 25,390 (1.8) (1.2) (0.5) CPI change ...................................................................................................................................................................................... 22,174 22,742 23,327 (3.0) (2.4) (1.8) Net immigration1 ............................................................................................................................................................................... 21,271 22,742 24,128 (1,688,000) (1,248,000) (830,000) Real interest rate .............................................................................................................................................................................. 19,364 22,742 26,986 (2.8) (2.3) (1.8) 1 The amounts shown represent averages over the last 65 years of the 75-year projection period. Source: 2021 OASDI Trustees Report and SSA.

The increase and decrease discussed below for each projection are relative to the changes shown in the table above over

the 75-year projection period.

• The average annual reduction in death rates: If people die younger Social Security income relative to cost would decrease by $4,019.0 billion; if people live longer shortfall would increase by $4,788.0 billion.

• Total fertility rate: If there are more workers compared to beneficiaries Social Security income relative to cost would decrease by $2,153.0 billion; if there are fewer workers compared to beneficiaries the shortfall would increase by

$3,047.0 billion.

• Real-wage differential: Higher real wage growth results in faster income growth relative to expenditure growth; if real-wage growth is higher Social Security income relative to cost would decrease by $4,163.0 billion; if real-wage

growth is lower the shortfall would increase by $2,648.0 billion.

• CPI change: If the ultimate annual increase in the CPI percentage is higher Social Security income relative to cost would decrease by $568.0 billion; if the ultimate annual increase in the CPI percentage is lower shortfall would

increase by $585.0 billion.

• Net immigration: If there is a larger increase in immigration levels then Social Security income relative to cost would decrease by $1,471.0 billion; if there is a smaller increase in immigration levels the shortfall would increase

by $1,386.0 billion.

• Real interest rate: If the ultimate real interest rate is higher than Social Security income relative to cost when measured in PV terms would decrease by $3,378.0 billion; if the ultimate annual real interest rate is lower, then the

shortfall would increase by $4,244.0 billion.

201 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)

Present Values of Estimated Medicare Part A Expenditures in Excess of Income

Under Various Assumptions, 2021-2095

(Dollar values in billions; values of assumptions shown in parentheses)

Financing Shortfall Range Assumption Low Intermediate High Average annual growth in health costs ............................................................................................................................................... (3,990) 5,057 19,568 (2.7) (3.7) (4.7) Total fertility rate ............................................................................................................................................................................... 4,326 5,057 6,093 (2.2) (2.0) (1.7) Real wage differential ...................................................................................................................................................................... 2,025 5,057 6,718 (1.8) (1.2) (0.5) CPI change ..................................................................................................................................................................................... 3,862 5,057 6,676 (3.0) (2.4) (1.8) Net immigration ................................................................................................................................................................................ 4,783 5,057 5,861 (1,736,000) (1,280,000) (844,000) Real interest rate ............................................................................................................................................................................. 4,446 5,057 5,563 (2.8) (2.3) (1.8) Source: CMS

The increase and decrease discussed below for each projection are relative to the changes shown in the table above over

the 75-year projection period.

• Average annual growth in health care costs: The financial status of the HI Trust Fund is extremely sensitive to the growth rates for health care service costs. Slower growth rates will produce a lower aggregate cost of providing

covered health care services. If a slower growth rate is attained Medicare Part A income relative to cost would

decrease by $9,047.0 billion; if the growth rate is higher the shortfall would increase by $14,511.0 billion.

• Total fertility rate: If there are more workers compared to beneficiaries Medicare Part A income relative to cost would decrease by $731.0 billion; if there are fewer workers compared to beneficiaries, the shortfall would increase

by $1,036.0 billion.

• Real-wage differential: Faster real-wage growth results in smaller HI cash flow deficits. If real-wage growth is higher Medicare Part A income relative to cost would decrease by $3,032.0 billion; if real wage growth is lower, the

shortfall would increase by $1,661.0 billion.

• CPI change: If the ultimate annual increase in the CPI percentage is higher Medicare Part A income relative to cost would decrease by $1,195.0 billion; if the ultimate annual increase in the CPI percentage is lower the shortfall would

increase by $1,619.0 billion.

• Net immigration: If there is a larger increase in immigration levels then Medicare Part A relative to cost would decrease by $274.0 billion; if there is a smaller increase in immigration levels the shortfall would increase by $804.0

billion.

• Real interest rate: If the ultimate real interest rate is higher than Medicare Part A income relative to cost, when measured in PV terms would decrease by $611.0 billion; if the ultimate real interest rate is lower, then the shortfall

would increase by $506.0 billion.

REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) 202

Present Values of Estimated Medicare Parts B and D Future Expenditures

Less Premium Income and State Transfers Under Three Health Care Cost

Growth Assumptions, 2021-2095

(In billions of dollars)

Government-wide Resources Needed

Low Intermediate High

Medicare Program1 (2.7) (3.7) (4.7)

Part B .............................................................................................................................................................................................. 25,282 35,503 51,693

Part D .............................................................................................................................................................................................. 5,402 7,657 11,273

1 Annual growth rate is the aggregate cost of providing covered health care services to beneficiaries. The low and high scenarios assume that costs increase 1.0 percent slower or faster, respectively, than the intermediate assumption. Source: CMS

The table above shows the effects of various assumptions about the growth in health care costs on the PV of estimated

Part B and D expenditures in excess of income in the terms of government-wide resources needed due to the financing

mechanism (General Fund transfers) for Medicare Parts B and D. As with Part A, net Part B and D expenditures are very

sensitive in the health care cost growth assumption. If a slower growth rate is attained government-wide resources needed for

Part B would decrease by $10,221.0 billion and Part D by $2,255.0 billion; if the growth rate is higher, government-wide

resources needed would increase to $16,190.0 billion for Part B and to $3,616.0 billion for Part D.

Sustainability of Social Security and Medicare

75-Year Horizon

According to the 2021 Medicare Trustees’ Report, the HI Trust Fund is projected to remain solvent until 2026 and,

according to the 2021 Social Security Trustees’ Report, the OASI and DI Trust Fund is projected to have sufficient reserves

to pay full benefits on time until 2033 and 2057, respectively. In each case, some general revenues must be used to satisfy the

authorization of full benefit payments until the year of trust fund depletion. This occurs when the trust fund interest income

and balances accumulated during prior years are needed to pay benefits, which leads to a transfer from general revenues to

the trust funds. Moreover, under current law, General Fund transfers to the SMI Trust Fund will occur into the indefinite

future and will continue to grow with the growth in health care expenditures.

The potential magnitude of future financial obligations under these three social insurance programs is, therefore,

important from a budget perspective as well as for understanding generally the growing resource demands of the programs on

the economy. From the 75-year budget perspective, the PV of the additional resources that would be necessary to meet

projected expenditures, for the three programs combined, is $71.0 trillion. To put this figure in perspective, it would represent

4.6 percent of the PV of projected GDP over the same period ($1,545.0 trillion). These resource needs would be in addition

to the payroll taxes, benefit taxes, and premium payments. Asset redemptions and Medicare Part B and D general revenue

transfers represent formal budget commitments, but no provision exists for covering the Medicare Part A and Social Security

Trust Fund deficits once assets are depleted.

The table below shows the magnitudes of the primary expenditures and sources of financing for the three trust funds

computed on an open-group basis for the next 75 years and expressed in PV. The data are consistent with the SOSI included

in the principal financial statements.

From the government-wide perspective, the PV of the total resources needed for the Social Security and Medicare

Programs over and above current-law funding sources (payroll taxes, benefit taxes, and premium payments from the public)

is $70,959.0 billion. From the trust fund perspective, which counts the trust funds ($3,249.0 billion) and the general revenue

transfers to the SMI Program ($43,160.0 billion) as dedicated funding sources, additional resources needed to fund the

programs are $24,550.0 billion.

203 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)

Present Values of Costs Less Revenues of 75-Year Open Group Obligations

HI, SMI, and OASDI as of January 1, 2021

SMI

(In billions of dollars) HI Part B Part D OASDI Total

Revenues from the public: Taxes .............................................................................................................................................................................................. 26,319 - - 78,580 104,899 Premiums and state transfers ............................................................................................................................................................ 391 14,509 3,206 - 18,106 Total ................................................................................................................................................................................................ 26,710 14,509 3,206 78,580 123,005 Total costs to the public .................................................................................................................................................................... 31,767 50,012 10,863 101,322 193,964 Net results - budget perspective1 ....................................................................................................................................................... 5,057 35,503 7,657 22,742 70,959 Revenues from other government accounts ....................................................................................................................................... - 35,503 7,657 - 43,160 Trust fund balances as of 1/1/2021 .................................................................................................................................................... 198 133 10 2,908 3,249 Net results - trust fund perspective1.................................................................................................................................................... 4,859 (133) (10) 19,834 24,550

1Net results are computed as costs less revenues and trust fund balances. Negative values are indicative of surpluses. Source: 2021 OASDI and Medicare Trustees' Reports

Infinite Horizon

The 75-year horizon is consistent with the primary focus of the Social Security and Medicare Trustees’ Reports. Experts

have noted that limiting the projections to 75 years understates the magnitude of the long-range unfunded obligations because

summary measures (such as the actuarial balance and open-group unfunded obligations) reflect the full amount of taxes paid

by the next two or three generations of workers, but not the full amount of their benefits. One approach to addressing the

limitation of 75-year summary measures is to extend the projections horizon indefinitely, so that the overall results reflect the

projected costs and revenues after the first 75 years. The open-group infinite horizon net obligation is the PV of all expected

future program outlays less the PV of all expected future program tax and premium revenues. Such a measure is provided in

the following table for the three trust funds represented above.

From the budget or government-wide perspective, the values in line 1 plus the values in line 4 are summed in the last

line of the table and represent the value of resources needed to finance each of the programs into the infinite future. The total

resources needed for all the programs sums to $166.1 trillion in PV terms. This need can be satisfied only through increased

borrowing, higher taxes, reduced program spending, or some combination.

The second line shows the value of the trust fund at the beginning of 2021. For the HI and OASDI Programs this

represents the extent the programs are funded from the trust fund perspective. From that perspective, when the trust fund is

subtracted, an additional $59.8 trillion is needed to sustain the Social Security program into the infinite future, while the

Medicare Part A program reflects a projected surplus of $10.5 trillion over the infinite horizon. As described above, from the

trust fund perspective, the SMI Program is fully funded; from a government-wide basis, the substantial gap that exists

between premiums, state transfer revenue, and program expenditures in the Part B and D Program ($87.4 trillion and $26.2

trillion, respectively) represents future general revenue obligations of the federal budget.

In comparison to the analogous 75-year number in the table above, extending the calculations beyond 2095, captures the

full lifetime benefits, plus taxes and premiums of all current and future participants. The shorter horizon understates the total

financial needs by capturing relatively more of the revenues from current and future workers and not capturing all the

benefits that are scheduled to be paid to them.

REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) 204

Present Values of Costs Less Tax, Premium and State Transfer Revenue

through the Infinite Horizon, HI, SMI, OASDI as of January 1, 2021

SMI

(In trillions of dollars) HI Part B Part D OASDI Total

Present value of future costs less future taxes,

premiums, and state transfers for current participants ......................................................................................................................... 13.5 29.0 5.6 46.2 94.3 Less current trust fund balance ......................................................................................................................................................... 0.2 0.1 - 2.9 3.2 Equals net obligations for past and current participants ....................................................................................................................... 13.3 28.9 5.6 43.3 91.1 Plus net obligations for future participants .......................................................................................................................................... (23.8) 58.5 20.6 16.5 71.8 Equals net obligations through the infinite future for all participants ..................................................................................................................................................................................

(10.5) 87.4 26.2 59.8 162.9

Present values of future costs less the present values of future income over the infinite horizon .................................................................................................................................

(10.3) 87.5 26.2 62.7 166.1

Source: 2021 OASDI and Medicare Trustees' Reports

205 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)

Railroad Retirement, Black Lung, and Unemployment Insurance

Railroad Retirement

The RRB was created in the 1930s to establish a retirement benefit program for the nation’s railroad workers. The RRB

and the SSA share jurisdiction over the payment of retirement and survivor benefits. Railroad retirement pays full retirement

annuities at age 60 to railroad workers with 30 years of service and disability annuities based on total or occupational

disability. It also pays annuities to certain beneficiaries of deceased railroad workers.

Payroll taxes paid by railroad employers and their employees provide a primary source of income for the Railroad

Retirement and Survivors’ Benefit Program. Other sources of program income include: the RRB-SSA-CMS Financial

Interchanges with the Social Security and Medicare Trust Funds, federal income taxes on railroad retirement benefits,

appropriations, and earnings on investments.

Revenues in excess of benefit payments are invested to provide additional trust fund income. Legislation enacted in

2001 allowed for Railroad Retirement Account funds transferred to the NRRIT to be invested in non-governmental assets, as

well as in governmental securities.

Since its inception, NRRIT has received $21.3 billion from RRB and returned $29.8 billion. During FY 2021, the

NRRIT made net transfers of $2.8 billion to the RRB to pay retirement benefits. Administrative expenses of the trust are paid

out of trust assets. The balance as of September 30, 2021, and 2020, of non-federal securities and investments of the NRRIT

are disclosed in Note 7—Investments.

Black Lung

The Federal Coal Mine Health and Safety Act of 1969 created the BLDBP to provide compensation, medical, and

survivor benefits for eligible coal miners who are totally disabled due to pneumoconiosis (Black Lung Disease) arising out of

their coal mine employment and the BLDTF provides benefit payments when no responsible mine operator can be assigned

the liability.

Black lung disability benefit payments are funded by excise taxes from coal mine operators based on the domestic sale

of coal, as are the program’s administrative costs. These taxes are collected by the IRS and transferred to the BLDTF.

P.L. 110-343, Division B-Energy Improvement and Extension Act of 2008, enacted on October 3, 2008, among other

things, restructured the BLDTF debt by refinancing the outstanding high interest rate repayable advances with low interest

rate discounted debt instruments similar in form to zero-coupon bonds, plus a one-time appropriation. This act also allowed

that any subsequent debt issued by the BLDTF may be used to make benefit payments, other authorized expenditures, or to

repay debt and interest from the initial refinancing.

Unemployment Insurance

The UI Program was created in 1935 to provide income assistance to unemployed workers who lose their jobs generally

through no fault of their own and are unemployed due to a lack of suitable work. The program protects workers during

temporary periods of unemployment through the provision of unemployment compensation benefits. The program is

administered through a unique system of federal and state partnerships established in federal law but executed through

conforming state laws by state officials. The federal government provides broad policy guidance and program direction

through the oversight of DOL, while program details are established through individual state UI statutes, administered

through state UI entities.

The UI Program is financed through the collection of federal and state unemployment taxes levied on subject employers

and deposited in the UTF and federal appropriations. The fund was established to account for the receipt, investment, and

disbursement of unemployment taxes. Federal unemployment taxes are used to pay for the administrative costs of the UI

Program, including grants to each state to cover the costs of state UI operations and the federal share of extended UI benefits.

Federal unemployment taxes are also used to fund an account within the UTF to make advances to state UI accounts when a

state’s UI account balance has been exhausted and the state is unable to make benefit payments.

Cash Flow Projections

Railroad Retirement Income and Expenditures. Railroad retirement cash flow projections are based on the intermediate

set of assumptions used in the RRB’s actuarial valuation of the program. Estimated railroad retirement expenditures are

expected to exceed estimated income (excluding interest) throughout most of the period, except in 2065.

Sensitivity Analysis. The projections of the future financial status of the RRP depend on many economic and

demographic assumptions. For additional information on the sensitivity of the long-range projections of the RRP and how the

projections are impacted by changes in certain key assumptions, refer to RRB’s financial statements.

REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) 206

Black Lung Projected Cash Inflows and Outflows, in Constant Dollars, for the Open Group. The significant

assumptions used in the projections show that cash outflows for benefit payments and administrative expenses will exceed

cash inflows from excise taxes for all years in the projection period.

Sensitivity Analysis. For the projected cash inflows and outflows with sensitivity analysis, in constant dollars for the

open group, the significant assumption for medical cost inflation was increased while other significant assumptions were left

unchanged. For additional information on the sensitivity of the projections of the BLDBP and how the projections are

impacted by changes in assumptions, refer to DOL’s financial statements.

Unemployment Insurance Projected Cash Inflows and Outflows, in Constant Dollars, Under Expected Economic

Conditions. The significant assumptions used in the cash flow projections of the UTF show total cash inflow exceeds total

cash outflow in all years in the projection period.

Sensitivity Analysis. The effect on the accumulated UTF assets of projected total cash inflows and cash outflows of the

UTF, in constant dollars, over the ten-year period ending September 30, 2031, are demonstrated in two sensitivity analyses.

Each sensitivity analysis uses an open group, which includes current and future participants in the UI Program. Sensitivity

Analysis I assumes higher rates of unemployment and Sensitivity Analysis II assumes even higher rates of unemployment. In

Sensitivity Analysis I, there are net cash outflows in FY 2022 through 2024, but there is a net cash inflow in FY 2025 and net

cash inflows continue through 2031. In Sensitivity Analysis II, net cash outflows are projected in FY 2022 through 2025, but

inflows exceed outflows in FY 2026 through 2031; net cash inflows are reestablished in FY 2026 and peak in FY 2030 with a

decrease in unemployment rate in FY 2030 and then lower in 2031. For additional information on the sensitivity of the

projections of the UI Program, refer to DOL’s financial statements.

Sustainability

Sustainability of Railroad Retirement from a trust fund perspective, when the trust fund balance ($26.2 billion) and the

financial interchange and transfers ($87.5 billion) are included, the combined balance of the NRRIT, the Railroad Retirement

Account, and the Social Security Equivalent Benefit Account show a slight surplus ($1.4 billion). For additional information

related to the sustainability of the RRP, refer to RRB’s financial statements.

On September 30, 2021, total liabilities of the BLDTF exceeded assets by nearly $6.1 billion. This net position deficit

represents the accumulated shortfall of excise taxes necessary to meet benefit payments, administrative costs, and interest

expense incurred prior to and subsequent to the debt refinancing pursuant to P.L. 110-343. Prior to the enactment of P.L. 110-

343, this shortfall was funded by repayable advances to the BLDTF, which were repayable with interest. Pursuant to P.L.

110-343, any shortfall will be financed with debt instruments similar in form to zero-coupon bonds, with a maturity date of

one year and bear interest at Treasury’s 1-year rate.

The ability of the UI Program to meet a participant’s future benefit payment needs depends on the availability of

accumulated taxes and earnings within the UTF. The effect of projected benefit payments on the accumulated net assets of

the UTF is measured, under an open group scenario, which includes current and future participants in the UI Program. As of

September 30, 2021, total assets within the UTF exceeded total liabilities by nearly $14.1 billion. At the present time there is

a surplus; any surplus of tax revenues and earnings on these revenues over benefit payment expenses is available to finance

benefit payments in future periods when tax revenues may be insufficient.

For additional information related to the sustainability of the RRP, BLDBP, and UI refer to RRB’s and DOL’s financial

statements.

Unemployment Trust Fund Solvency

Each state’s accumulated UTF net assets or reserve balance should provide a defined level of benefit payments over a

defined period. To be minimally solvent, a state’s reserve balance should provide for one year’s projected benefit payment

needs based on the highest levels of benefit payments experienced by the state over the last 20 years. A ratio of 1.00 or

greater indicates that the state UTF account balance is minimally solvent. States below this level are vulnerable to exhausting

their funds in a recession. States exhausting their reserve balance must borrow funds from either FUA or the private markets

to make benefit payments. During FY 2021, the balances in the FUA and EUCA were depleted and the FUA and EUCA

borrowed from the General Fund as advances from Treasury. FUA and EUCA outstanding advances were $45.0 billion and

$10.0 billion, respectively, as of September 30, 2021. Several Unemployment Programs were created due to the COVID-19

pandemic and funded by the CARES Act. Please refer to Note 30—COVID-19 Activity for additional information.

The results of DOL’s state by state analysis indicate 38 state UTF accounts and the accounts of the D.C., Puerto Rico,

and the Virgin Islands were below the minimal solvency ratio of 1.00 at September 30, 2021.

207 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)

Deferred Maintenance and Repairs

DM&R result from maintenance not being performed on a timely basis and is the estimated cost to bring government-

owned PP&E to an acceptable condition. DM&R exclude the cost of expanding the capacity of assets or upgrading them to

serve needs different from those originally intended. The consequences of not performing regular maintenance and repairs

could include increased safety hazards, poor service to the public, higher costs in the future, and inefficient operations.

Estimated DM&R costs are not accrued in the Statements of Net Cost or recognized as a liability on the Balance Sheets.

The amounts disclosed for DM&R are allowed to be measured using one of the following three methods:

• Condition assessment surveys which are periodic inspections of government-owned property to determine the current condition and estimated cost to bring the property to an acceptable condition.

• Life-cycle cost forecast that is an acquisition or procurement technique that considers operation, maintenance, and other costs in addition to the acquisition cost of assets.

• Any other method of choice that is similar to the condition assessment survey or life-cycle costing methods. The table below of DM&R is presented as a single estimate in accordance with SFFAS No. 42, Deferred Maintenance

and Repairs: Amending Statements of Federal Financial Accounting Standards 6, 14, 29, and 32. These amounts were all

measured using the condition assessment survey method. Please refer to the individual financial statements of DOD, DOI,

VA, DOE, USDA, NASA, HHS, GSA, DHS, State, DOC, and DOT for additional information on DM&R.

Deferred Maintenance and Repairs as of September 30, 2021, and 2020 (In billions of dollars) 2021 2020

Asset category:

General property, plant, and equipment ............................................................................................................................................. 174.8 182.1 Heritage assets ................................................................................................................................................................................ 24.8 25.6 Stewardship land .............................................................................................................................................................................. 0.7 0.6 Total deferred maintenance and repairs ............................................................................................................................................ 200.3 208.3

Other Claims for Refunds

Other claims for refunds are claims filed for which specific administrative actions such as review by the courts are

required before payments can be made and unasserted claims for refund by taxpayers or importers that may or may not

become payable depending upon the resolution of subsequent events. As stated in SFFAS No. 7, Accounting for Revenue and

Other Financing Sources and Concepts for Reconciling Budgetary and Financial Accounting, unasserted claims for refund

such as unfiled claims for refunds or drawbacks for which no claim has been filed, are not known, therefore estimates are not

able to be determined, and are not recognized on the Balance Sheet. Claims filed for refunds where required administrative

actions are not yet complete as of the close of the reporting period may not be known however, the refunds, may be

reasonably estimable.

Management has estimated amounts that may be paid out as other claims for tax refunds. This estimate represents an

amount (principal and interest) that may be paid for claims pending judicial review by the federal courts or, internally, by

appeals. The total estimated payout (including principal and interest) for claims pending judicial review by the federal courts

is $1.5 billion and $1.6 billion for FYs 2021 and 2020, respectively. For those under appeal, the estimated payout is $1.0

billion and $1.7 billion for FYs 2021 and 2020, respectively. To the extent judgments against the government for these claims

prompt other similarly situated taxpayers to file similar refund claims, these amounts could become significantly greater.

REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) 208

Tax Assessments

The government is authorized and required to make inquiries, determinations, and assessments of all taxes that have not

been duly paid. Unpaid assessments result from taxpayers filing returns without sufficient payment, as well as enforcement

programs such as examination, under-reporter, substitute for return, and combined annual wage reporting. Under federal

accounting standards, unpaid assessments are categorized as taxes receivable if taxpayers agree or a court has determined the

assessments are owed. If neither of these conditions are met, the unpaid assessments are categorized as compliance

assessments. Assessments with little or no future collection potential are called write-offs. Although compliance assessments

and write-offs are not considered receivables under federal accounting standards, they represent legally enforceable claims of

the government. There is, however, a significant difference in the collection potential between compliance assessments and

receivables.

Compliance assessments and pre-assessment work in process are $83.9 billion and $76.1 billion for FYs 2021 and 2020,

respectively. The amount of allowance for uncollectible amounts pertaining to compliance assessments cannot be reasonably

estimated, and thus the net realizable value of the pre-assessment work-in-process cannot be determined. The amount of

assessments that entities have statutory authority to collect at the end of the period but that have been written off and

excluded from accounts receivable are $85.5 billion and $95.1 billion for FYs 2021 and 2020, respectively.

Federal Oil and Gas Resources

The DOI is responsible for managing the nation’s oil and natural gas resources and the mineral revenues on federal

lands, both onshore and on the Outer Continental Shelf. This management process can be broken down into six essential

analysis components: pre-leasing, post-leasing and pre-production, production and post-production, revenue collection, fund

disbursement, and compliance.

Federal Oil and Gas Resources as of September 30, 2021, and 2020

Offshore Onshore Total

(In billions of dollars) 2021 2020 2021 2020 2021 2020

Oil and lease condensate .................................................................................................................................................................. 30.8 32.0 19.9 19.2 50.7 51.2

Natural gas, wet after lease separation ........................................................................................................................................................................................ 2.3 2.2 20.1 17.3 22.4 19.5

Total ............................................................................................................................................................................................... 33.1 34.2 40.0 36.5 73.1 70.7

The above table presents the estimated PV of future federal royalty receipts on estimated proved reserves12 as of

September 30, 2021 and 2020. The federal government’s estimated petroleum royalties have as their basis the DOE’s EIA

estimates of proved reserves. The EIA provides such estimates directly for federal offshore areas and they are adjusted to

extract the federal subset of onshore proved reserves. The federal proved reserves were then further adjusted to correspond

with the effective date of the actual production for calendar year 2019, the most recently published EIA proved reserves

report and then are projected, separately for oil and natural gas, over time to simulate a schedule of when the reserves would

be produced. Future royalties are then calculated from these production streams by applying future price estimates by the

12 Per the EIA, lease condensate is a mixture consisting primarily of pentanes and heavier hydrocarbons which is recovered as a liquid from natural gas in

lease separation facilities. This category excludes natural gas plant liquids, such as butane and propane, which are recovered at downstream natural gas processing plants or facilities. Also per the EIA, natural gas, wet after lease separation, is the volume of natural gas remaining after removal of lease

condensate in lease and/or field separation facilities, if any, and after exclusion of nonhydrocarbon gases where they occur in sufficient quantity to render the

gas unmarketable. Natural gas liquids may be recovered from volume of natural gas, wet after lease separation, and at natural gas processing plants (https://www.eia.gov/dnav/ng/TblDefs/ng_prod_deep_tbldef2.asp).

https://www.eia.gov/dnav/ng/TblDefs/ng_prod_deep_tbldef2.asp

209 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)

OMB, production growth estimates from the EIA’s 2021 Annual Energy Outlook, and effective royalty rates, adjusted for

transportation allowances and other allowable deductions. The valuation method used for gas captures royalties from three

products–dry gas, wet gas, and natural gas liquids–which collectively are reported as natural gas, wet after lease separation.

The PV of these royalties are then determined by discounting the revenue stream back to the effective date at a public

discount rate assumed to be equal to the OMB’s estimates of future 30-year Treasury bill rates. The 30-year rate was chosen

because this maturity life most closely approximates the productive lives of the proved reserves estimates.

Estimated Federal Oil and Gas Petroleum Royalties (Proved Reserves)

As of September 30, 2021, and 2020 Average Purchase Average Royalty

Quantity (In millions) Price ($) Rate (%)

Petroleum Category 2021 2020 2021 2020 2021 2020

Oil and lease condensate (Bbl):

Offshore ......................................................................................................................................................................................... 5,001.6 5,126.9 59.43 42.75 13.06 12.96

Onshore ......................................................................................................................................................................................... 3,702.5 3,461.3 57.72 40.26 12.25 12.15

Total ............................................................................................................................................................................................... 8,704.1 8,588.2

Natural gas, wet after lease separation (Mcf):

Total ............................................................................................................................................................................................... 45,647.9 51,423.2

Bbl = barrels

Mcf = 1,000 cubic feet

The table above provides the estimated quantity, a weighted average purchase price, and a weighted average royalty rate

by category of estimated federal petroleum royalties at the end of FYs 2021 and 2020.13 The estimated quantities, average

purchase prices and royalty rates vary by region; the above table reflects an overall weighted average purchase price and

royalty rate, and is not presented on a regional basis, but is instead calculated based on regional averages. The prices and

royalty rates are based upon historical (or estimated) averages, excluding prior-period adjustments, if any, and are affected by

such factors as accounting adjustments and transportation allowances, resulting in effective average prices and royalty rates.

Prices are valued at the lease rather than at the market center, and differ from those used to compute the asset estimated PV,

which are forecasted and discounted based upon OMB economic assumptions. For additional details on federal oil and gas

resources, refer to the financial statements of DOI. In addition to the oil and gas resources discussed above, the federal

government also owns oil and gas resources that are not currently under lease.

13 Gulf of Mexico proved reserves are royalty-bearing volumes. In the Gulf of Mexico, an additional 518.8 million Bbl for FY 2021 and 598.5 million Bbl

for FY 2020 of proved oil reserves, and 374.4 million Mcf for FY 2021 and 534.8 million Mcf for FY 2020 of proved gas reserves are not reflected in these totals as they are estimated to be producible royalty-free under various royalty relief provisions. The NPV of the royalty value of the royalty-free proved

reserves volumes in the Gulf of Mexico is estimated to be $3.2 billion for FY 2021 and $3.9 billion for FY 2020.

REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) 210

Federal Natural Resources Other than Oil and Gas

Federal Natural Resources Other than Oil and Gas as of September 30, 2021, and 2020

(In billions of dollars) 2021 2020

Coal royalties .................................................................................................................................................................................. 8.2 7.9

Total ................................................................................................................................................................................................ 8.2 7.9

The ONRR within DOI is responsible for the management and collection of revenues associated with federal coal leases

which are managed by the BLM within DOI. The ONRR achieves optimal value by ensuring that all natural resource

revenues are efficiently and accurately collected as well as disbursed to recipients in a timely manner by performing audit and

revenue compliance activities.

The Mineral Leasing Act of 1920, as amended, and the Mineral Leasing Act for Acquired Lands of 1947, as amended,

gives DOI the responsibility for coal leasing on approximately 700 million acres of federal mineral estate which includes 570

million of acres where coal development is allowed. The surface estate of these lands may be under the control of BLM, the

U.S. Forest Service (within USDA), private or state landowners, or other federal entities.

Public lands are available for coal leasing after the lands have been evaluated through a multiple-use planning process.

DOI receives coal leasing revenues from a bonus paid at the time of the lease, an annual rent payment of $3.00 per acre, and

royalties paid on the value of the coal after it has been mined. The royalty rate for surface-mining methods is 12.5 percent

and is 8.0 percent for underground mining, and the BLM can approve reduced royalty rates based on maximum economic

recovery. Regulations that govern BLM’s coal leasing program are contained in Title 43, Groups 3000 and 3400 of the CFR.

The above table presents the estimated PV of future federal coal royalty receipts on estimated recoverable reserves as of

September 30, 2021 and 2020. The federal government’s estimated coal royalties have as their basis the DOI’s BLM

estimates of recoverable reserves. The federal recoverable reserves are then further adjusted to correspond with the effective

date of the analysis and then are projected over time to simulate a schedule of when the reserves would be produced. Future

royalties are then calculated by applying future price estimates and effective royalty rates, adjusted for transportation

allowances and other allowable deductions. The PV of these royalties are then determined by discounting the revenue stream

back to the effective date at a public discount rate assumed to be equal to the OMB’s estimates of future 30-year Treasury bill

rates. The 30-year rate was chosen because this maturity life most closely approximates the productive lives of the

recoverable reserves estimates.

In addition to the coal resources discussed above, the federal government has other natural resources under lease

contract whereby the lessee is required to pay royalties on the sale of the natural resource. These natural resources include

soda ash, potash (including muriates of potash and langbeinite phosphate), lead concentrate, copper concentrate, and zinc

concentrate. Soda ash and potash have the largest estimated PV of future royalties. The federal government also owns coal

resources and certain other natural resources that are not currently under lease. For additional details on federal natural

resources-other than oil and gas, refer to the financial statements of DOI.

211 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)

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OTHER INFORMATION (UNAUDITED) 212

United States Government Other Information (Unaudited) for the Years Ended September 30, 2021, and 2020

Tax Burden

The IRC provides for progressive tax rates, whereby higher earned income is generally subject to higher tax rates. The

following tables present the latest available information on income tax and related income, deductions, and credit: for

individuals by income level, and for corporations by size of assets.

Individual Income Tax Liability for Tax Year 2019

Average Average

Total Adjusted Income Income

Number of Adjusted Income Gross Income

Tax per Tax as a

Taxable Gross Income Tax per Return Return Percentage

Returns (In millions (In millions (In whole (In whole of Adjusted

Adjusted Gross Income (In thousands) of dollars) of dollars) dollars) dollars) Gross Income

Under $15,000 ................................................................................................................................................................................. 30,881 237,255 391 7,683 13 0.2% $15,000 under $30,000 ..................................................................................................................................................................... 28,823 643,794 15,069 22,336 523 2.3% $30,000 under $50,000 ..................................................................................................................................................................... 28,594 1,120,332 51,692 39,181 1,808 4.6% $50,000 under $100,000 ................................................................................................................................................................... 36,357 2,589,840 192,888 71,234 5,305 7.4% $100,000 under $200,000 ................................................................................................................................................................. 21,998 3,004,364 333,838 136,574 15,176 11.1% $200,000 under $500,000 ................................................................................................................................................................. 7,298 2,090,809 348,843 286,491 47,800 16.7% $500,000 or more ............................................................................................................................................................................. 1,719 2,517,544 638,389 1,464,540 371,372 25.4%

Total .............................................................................................................................................................................................. 155,670 12,203,938 1,581,110

213 OTHER INFORMATION (UNAUDITED)

Corporate Income Tax Liability for Tax Year 2018

Percentage of

Income Subject Total Income Tax Income Tax After

Total Assets to Tax After Credits Credits to

(In thousands of dollars) (In millions of dollars) (In millions of dollars) Taxable Income

Zero Assets ..................................................................................................................................................................................... 55,884 11,595 20.7% $1 under $500 .................................................................................................................................................................................. 7,829 1,569 20.0% $500 under $1,000 ........................................................................................................................................................................... 4,829 956 19.8% $1,000 under $5,000 ........................................................................................................................................................................ 17,223 3,496 20.3% $5,000 under $10,000 ....................................................................................................................................................................... 10,086 2,016 20.0% $10,000 under $25,000 ..................................................................................................................................................................... 19,143 3,805 19.9% $25,000 under $50,000 ..................................................................................................................................................................... 14,385 2,812 19.5% $50,000 under $100,000 ................................................................................................................................................................... 16,854 3,294 19.5% $100,000 under $250,000 ................................................................................................................................................................. 25,808 4,773 18.5% $250,000 under $500,000 ................................................................................................................................................................. 26,192 4,679 17.9% $500,000 under $2,500,000 .............................................................................................................................................................. 126,275 20,836 16.5% $2,500,000 or more .......................................................................................................................................................................... 1,632,171 184,856 11.3%

Total ............................................................................................................................................................................................. 1,956,679 244,687

Tax Gap

The gross tax gap is the difference between the amount of tax imposed by law and what taxpayers actually pay on time.

The tax gap provides an estimate of the level of overall noncompliance and voluntary compliance during the relevant tax

periods. Tax gap estimates provide periodic appraisals about the nature and extent of noncompliance for use in formulating

tax administration strategies. Estimating the tax gap is inherently challenging and requires assessing the merits of alternative

methods, assumptions, and data sources. There is no single approach that can be used for estimating all the components of the

tax gap, so multiple methods are used. The most recent estimates covering the Tax Year 2011-2013 timeframe were released

in FY 2019.

The gross tax gap is the amount of a tax liability that is not paid voluntarily and on time. The estimated annual average

gross tax gap is $441.0 billion. The gross tax gap is comprised of three components: non-filing, underreporting, and

underpayment. The estimated gross tax gap for each of these components is $39.0 billion, $352.0 billion, and $50.0 billion,

respectively. The gross tax gap estimates are also segmented by type of tax; individual income tax, corporation income tax,

employment tax, and estate and excise tax. The estimated gross tax gap for each of these types of tax is $314.0 billion, $42.0

billion, $81.0 billion, and $4.5 billion, respectively.1

The net tax gap is the gross tax gap less tax that subsequently will be paid either late through voluntary payments or

collected through IRS administrative and enforcement activities and is the portion of the gross tax gap that will not be paid. It

is estimated that $60.0 billion of the gross tax gap will eventually be paid resulting in a net tax gap of $381.0 billion. The net

tax gap estimates are also segmented by type of tax; individual income tax, corporation income tax, employment tax, and

estate and excise tax. The estimated net tax gap for each of these types of tax is $271.0 billion, $32.0 billion, $77.0 billion,

and $1.0 billion, respectively. For additional information on the tax gap, refer to Treasury’s financial statements.

1 Individual amounts may not add to totals due to rounding.

OTHER INFORMATION (UNAUDITED) 214

Tax Expenditures

As discussed in greater detail in Note 20—Collections and Refunds of Federal Revenue, tax and other revenues reported

reflect the effects of tax expenditures, which are special exclusions, exemptions, or deductions or which provide tax credits,

preferential tax rates or deferrals of tax liability, that allow individuals and businesses to reduce taxes they may otherwise

owe.

The figures reported in the following table are estimates of tax expenditures using data from previous years and

economic forecast from the FY 2022 Midsession Review. The largest tax expenditures in FY 2021 are the following (and see

the table below):

• The exclusion from workers’ taxable income of employers’ contributions for health care, health insurance premiums, and premiums for long-term care insurance;

• The exclusion of contributions to and the earnings of employer defined benefit and defined contribution pension funds (minus pension benefits that are included in taxable income);

• Imputed rental income forms part of the total value of goods and services produced in a country. But unlike returns from other investments, the return on homeownership “imputed rent” is excluded from taxable income. In contrast,

landlords must count as income the rent they receive, and renters may not deduct the rent they pay. A homeowner is

effectively both landlord and renter, but the tax code treats homeowners the same as renters while ignoring their

simultaneous role as their own landlords and exempting potential rent they would have paid themselves;

• Preferential tax rates on long-term capital gains; and

• In taxable year 2021, taxpayers may claim a credit for up to $3,600 per child under age six and up to $3,000 per child age six through 17 (figure in table only includes non-refundable portion of credit)

Largest Income Tax Expenditures as of September 30, 2021

(In billions of dollars) 2021

Exclusion of employer contributions for medical insurance premiums & health care.............................................................................. 221.5 Defined benefit & defined contribution pension funds ......................................................................................................................... 170.4 Exclusion of net imputed rental income ............................................................................................................................................. 124.1 Preferential tax rates on long term capital gains ................................................................................................................................. 102.3 Child tax credit ................................................................................................................................................................................. 72.6

Generally, identifying and measuring a tax expenditure requires defining a baseline tax system against which identified

tax provisions are exceptions. The tax expenditures prepared for the Budget are estimated relative to a simplified

comprehensive income tax, which defines income as the sum of consumption and the change in net wealth in a given period

of time. 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, for the following reasons:

• Eliminating a tax expenditure may have incentive effects that alter economic behavior, which can affect the resulting magnitudes of the activity or of other tax provisions or government programs. For example, if capital gains were

taxed at ordinary rates, capital gain realizations would be expected to decline, resulting in lower tax receipts. Such

behavioral effects are not reflected in the estimates.

• Tax expenditures are interdependent even without incentive effects. Repeal of a tax expenditure provision can increase or decrease the tax revenue effect of other provisions. For example, even if behavior does not change,

repeal of an itemized deduction could increase revenue costs from other deductions as some taxpayers move into

higher tax brackets. Alternatively, an itemized deduction repeal could lower the revenue foregone from other

deductions if taxpayers choose to claim the standard deduction over itemizing. Similarly, if two provisions were

repealed simultaneously, the tax liability increase could be greater or less than the sum of the two separate tax

expenditures, because each is estimated assuming that the other remains in force.

215 OTHER INFORMATION (UNAUDITED)

• Repeal effects may depend on concurrent tax rate changes. Lowering or raising tax rates can decrease or increase the estimated revenues from a particular provision. A $10,000 charitable contributions deduction is worth $3,500 in

corporate tax revenues at a 35.0 percent tax rate, but only $2,100 at a 21.0 percent tax rate.

A more comprehensive ranking, including rankings over a 10-year period, and descriptions of tax expenditures can be

found at the following location from Treasury’s Office of Tax Policy https://home.treasury.gov/policy-issues/tax-policy/tax-

expenditures.

Unmatched Transactions and Balances

Unmatched Transactions and Balances as of September 30, 2021, and 2020

Restated

(In millions of dollars) 2021 2020

Statement of Operations and Changes in Net Position:

Custodial transfers non-exchange ..................................................................................................................................................... (532.4) (622.8) Benefit program revenue/cost ........................................................................................................................................................... 651.5 601.9 Non-reciprocating ............................................................................................................................................................................. (3,761.3) 4,147.0 Appropriations received/warrants issued ............................................................................................................................................ - 68.0 Custodial and non-entity collections transferred out/in ........................................................................................................................ 629.5 1,003.9 Accrual amounts collected/transferred in............................................................................................................................................ (209.4) 326.8 Other ............................................................................................................................................................................................... 3,057.0 5,933.2 (165.1) 11,458.0

Balance Sheet:

Custodial and non-entity liability/asset ............................................................................................................................................... - (1,155.9) Accounts payable/receivable ............................................................................................................................................................. 556.3 (65.0) Advances from/to others & deferred credits/prepayments ................................................................................................................... (898.3) (385.3) Non-reciprocating ............................................................................................................................................................................. (320.2) (355.3) Fund balance with Treasury .............................................................................................................................................................. (899.2) (1,100.9) Other ............................................................................................................................................................................................... (116.1) - (1,677.5) (3,062.4)

Unmatched transactions and balances, net ........................................................................................................................................ (1,842.6) 8,395.6

( ) Parentheses indicate a decrease to Net Position.

The unmatched transactions and balances are needed to balance the accrual-based financial statements. Both the

Statement of Operations and Changes in Net Position and the Balance Sheet include a line for the unmatched transactions and

balances, while the unmatched transactions and balances are recorded in existing lines in the Statement of Net Cost.

Transactions and balances between federal entities must be eliminated in consolidation to calculate the financial position of

the government. The amounts included in the table represent intra-governmental activity and balances that differed between

federal entity trading partners and often totaled significantly more in the absolute than the net amounts shown. The table also

reflects other consolidating adjustments and other adjustments that contributed to the unmatched transactions and balances

amount. A number of lines in the “Unmatched Transactions and Balances” table were adjusted to zero after intra-

governmental difference analysis determined they were immaterial at or below $0.1 billion, and thus, are not reported in the

table above. The adjustments were added to, or subtracted from, gross cost in the Statement of Net Cost in the year they were

recorded. Unresolved intra-governmental differences (i.e., unmatched transactions and balances) result in errors in the

consolidated financial statements. The ultimate effect on the accrual-based financial statements of resolving and correcting

these differences has not been fully determined and could be material.

Unmatched transactions and balances between federal entities impact not only in the period in which differences

originate but also in the periods where differences are resolved. As a result, it would not be proper to conclude that increases

https://home.treasury.gov/policy-issues/tax-policy/tax-expenditures

OTHER INFORMATION (UNAUDITED) 216

or decreases in the unmatched amounts shown in the “Unmatched Transactions and Balances” table reflect improvements or

deteriorations in the government’s ability to resolve intra-governmental transactions. The federal community considers the

identification and accurate reporting of intra-governmental activity a priority.

The FY 2020 Statement of Operations and Changes in Net Position section of the Unmatched Transactions and

Balances table is restated. A reevaluation of construction-in-progress was made based on DOD’s department-wide effort to

improve financial reporting. The prior year adjustment affected the Other line on the Unmatched Transactions and Balances

table as the adjustments were non-federal.

In FY 2021, a change in presentation has been made to the Unmatched Transactions and Balances table to be consistent

with how balances impact net position on the Balance Sheet and the Statement of Operations and Changes in Net Position.

The unmatched transactions and balances, net reflects the combined impact that each statement line has on the overall

net position of the Financial Report.

217 OTHER INFORMATION (UNAUDITED)

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APPENDIX A 218

Appendix A: Reporting Entity

This appendix lists the entities (consolidation entities, disclosure entities, or related parties) included in the U.S.

government’s Financial Report. SFFAS No. 47, Reporting Entity, provides guidance for identifying entities that are

consolidation entities, disclosure entities, and related parties.

The Financial Report includes all organizations meeting the inclusion principles of: a) budgeted for by elected officials

of the government; b) owned by the government; and c) controlled by the government with risk of loss or expectation of

benefits. In addition, the Financial Report includes organizations where it would be misleading to exclude even though the

organization does not meet any of the three inclusion principles. If an organization meets the inclusion principles, a

determination of consolidation or disclosure is made.

SFFAS No. 47 identifies consolidation entities as organizations that should be consolidated in the financial statements

based on the assessment of the following characteristics as a whole, the organization: a) is financed through taxes and other

non-exchange revenues; b) is governed by the Congress or the President; c) imposes or may impose risks and rewards to the

government; and d) provides goods and services on a non-market basis. It also includes organizations that would result in

misleading or incomplete financial statements, if excluded.

Disclosure entities are entities with which the federal government has relationships that meet the inclusion criteria in

SFFAS No. 47, but are afforded a greater degree of autonomy than consolidation entities. These entities may maintain a

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

insulate the organization from political influence, and/or have relative financial independence. Other organizations that are

owned or controlled by the government as a result of regulatory actions, or other government intervention actions are,

generally, deemed to be disclosure entities if the relationship with the government is not expected to be permanent.

Related parties exist if the existing relationship, or one party to the existing relationship, has the ability to exercise

significant influence over the other party’s policy decisions. Related parties do not meet the principles for inclusion, but are

reported in the Financial Report, if they maintain relationships of such significance that it would be misleading to exclude.

1. Consolidation Entities included in the Financial Report:

There are a total of 162 entities that meet the consolidation criteria, and as such are included in the Financial Report.

The lists below describe three groups of consolidation entities that comprise the consolidated government-wide reporting

entity for the Financial Report and include entities from all three branches of government.

Twenty-Four Chief Financial Officer Act Consolidation Entities

Department of Agriculture

www.usda.gov

Department of Labor

www.dol.gov

Department of Commerce

www.doc.gov

Department of State

www.state.gov

Department of Defense

www.defense.gov

Department of Transportation

www.dot.gov

Department of Education

www.ed.gov

Department of the Treasury

www.treasury.gov

Department of Energy

www.energy.gov

Department of Veterans Affairs

www.va.gov

Department of Health and Human Services

www.hhs.gov

Environmental Protection Agency

www.epa.gov

Department of Homeland Security

www.dhs.gov

General Services Administration

www.gsa.gov

Department of Housing and Urban Development

www.hud.gov

National Aeronautics and Space Administration

www.nasa.gov

Department of the Interior

www.doi.gov

National Science Foundation

www.nsf.gov

Department of Justice

www.usdoj.gov

Office of Personnel Management

www.opm.gov

http://www.usda.gov/

http://www.dol.gov/

http://www.doc.gov/

http://www.state.gov/

http://www.defense.gov/

http://www.dot.gov/

http://www.ed.gov/

http://www.treasury.gov/

http://www.energy.gov/

http://www.usdoj.gov/

http://www.opm.gov/

219 APPENDIX A

Small Business Administration

www.sba.gov

U.S. Agency for International Development

www.usaid.gov

Social Security Administration

www.ssa.gov

U.S. Nuclear Regulatory Commission

www.nrc.gov

Sixteen Additional Significant Consolidation Entities

Export-Import Bank of the U.S.

www.exim.gov

Farm Credit System Insurance Corporation

www.fcsic.gov

Federal Communications Commission

www.fcc.gov

Federal Deposit Insurance Corporation

www.fdic.gov

General Fund of the U.S. Government

www.fiscal.treasury.gov/general-fund

Millennium Challenge Corporation

www.mcc.gov

National Credit Union Administration

www.ncua.gov

National Railroad Retirement Investment Trust

www.rrb.gov

Pension Benefit Guaranty Corporation

www.pbgc.gov

Railroad Retirement Board

www.rrb.gov

Securities and Exchange Commission

www.sec.gov

Security Assistance Accounts

www.dsca.mil

Smithsonian Institution

www.si.edu

Tennessee Valley Authority

www.tva.com

U.S. International Development Finance Corporation

www.dfc.gov

U.S. Postal Service

www.usps.com

One Hundred Twenty-two Additional Consolidation Entities

400 Years of African-American History Commodity Futures Trading Commission

Commission Congressional Budget Office

Access Board Congressional-Executive Commission on the People’s

Administrative Conference of the U.S. Republic of China

Advisory Council on Historic Preservation Consumer Product Safety Commission

African Development Foundation Corporation for National and Community Service

Alyce Spotted Bear and Walter Soboleff Council of the Inspectors General on Integrity and

Commission on Native Children Efficiency

American Battle Monuments Commission Court of Appeals for Veterans Claims

Appalachian Regional Commission Court Services and Offender Supervision Agency for DC

Architect of the Capitol DC Courts

Armed Forces Retirement Home DC Courts–Defender Services

Barry Goldwater Scholarship and Excellence in Defense Nuclear Facilities Safety Board

Education Foundation Delta Regional Authority

Bureau of Consumer Financial Protection Denali Commission

Central Intelligence Agency Dwight D. Eisenhower Memorial Commission

Chemical Safety and Hazard Investigation Board Election Assistance Commission

Christopher Columbus Fellowship Foundation Environmental Dispute Resolution Fund

Commission for the Preservation of America’s Equal Employment Opportunity Commission

Heritage Abroad Executive Office of the President

Commission on Civil Rights Farm Credit Administration

Commission on Combating Synthetic Opioid Federal Election Commission

Trafficking Federal Financial Institutions Examination Council

Commission of Fine Arts Federal Housing Finance Agency

Commission on International Religious Freedom Federal Labor Relations Authority

Commission on Security and Cooperation in Europe Federal Maritime Commission

Committee for Purchase from People Who Are Blind or Federal Mediation and Conciliation Service

Severely Disabled Federal Mine Safety and Health Review Commission

http://www.sba.gov/

http://www.usaid.gov/

http://www.ssa.gov/

http://www.nrc.gov/

http://www.exim.gov/

http://www.fcsic.gov/

http://www.fcc.gov/

http://www.fdic.gov/

http://www.fiscal.treasury.gov/general-fund

http://www.mcc.gov/

http://www.ncua.gov/

https://rrb.gov/FinancialReporting/NRRIT

APPENDIX A 220

Federal Permitting Improvement Steering Council National Security Commission on Artificial Intelligence

Federal Trade Commission National Transportation Safety Board

Government Accountability Office Neighborhood Reinvestment Corporation

Government Publishing Office Northern Border Regional Commission

Gulf Coast Ecosystem Restoration Council Nuclear Waste Technical Review Board

Harry S. Truman Scholarship Foundation Occupational Safety and Health Review Commission

House of Representatives Office of Congressional Workplace Rights

Institute of Museum and Library Services Office of Government Ethics

Intelligence Community Management Account Office of Navajo and Hopi Indian Relocation

Inter-American Foundation Office of Nuclear Waste Negotiator*

International Trade Commission Office of Special Counsel

James Madison Memorial Fellowship Foundation Open World Leadership Center

Japan-U.S. Friendship Commission Patient Centered Outcomes Research Trust Fund

John C. Stennis Center for Public Service Peace Corps

Training and Development Presidio Trust

John F. Kennedy Center for the Performing Arts Privacy and Civil Liberties Oversight Board

Judiciary Public Buildings Reform Board

Library of Congress Public Defender Service for the DC

Marine Mammal Commission Selective Service System

Medicaid and Children’s Health Insurance Program Senate Commission on Art

Payment and Access Commission St. Lawrence Seaway Development Corporation

Medicare Payment Advisory Commission State Justice Institute

Merit Systems Protection Board Surface Transportation Board

Military Compensation and Retirement Modernization Thrift Savings Fund

Commission* U.S. Agency for Global Media

Morris K. Udall and Stewart L. Udall U.S. Capitol Police

Foundation U.S. Capitol Preservation Commission

National Archives and Records Administration U.S. China Economic and Security Review Commission

National Capital Planning Commission U.S. Holocaust Memorial Museum

National Commission on Military Aviation Safety U.S. Institute of Peace

National Commission on Military, National and Public U.S. Interagency Council on Homelessness

Service U.S. Semiquincentennial Commission

National Council on Disability U.S. Senate

National Endowment for the Arts U.S. Tax Court

National Endowment for the Humanities U.S. Trade and Development Agency

National Gallery of Art Vietnam Education Foundation

National Labor Relations Board Western Hemisphere Drug Policy Commission

National Mediation Board Women’s Suffrage Centennial Commission

National Railroad Passenger Corporation, Office of the Woodrow Wilson International Center for Scholars

Inspector General WWI Centennial Commission

*These entities are no longer active and have either returned all remaining fund balances to Treasury during FY 2021 or have

remaining fund balances pending final return to Treasury as of September 30, 2021.

221 APPENDIX A

2. Disclosure Entities and Related Parties of the Financial Report

The entities included below, after considering various factors including quantitative and qualitative materiality, meet the

criteria of SFFAS No. 47 to be reported as disclosure entities or related parties in the Financial Report. Information about the

government’s relationship with these entities is disclosed in Note 28—Disclosure Entities and Related Parties. Additionally,

component entities have also identified additional disclosure entities and related parties that do not meet the qualitative or

quantitative criteria in SFFAS No. 47 to be reported in the Financial Report and are not included in the entities below. The

component entity of each disclosure entity is provided in the brackets below. Refer to the financial statements of the

component entities for more information on additional disclosure entities and related parties.

Disclosure Entities

Amtrak (National Railroad Passenger Service Corp) [DOT]

Federal Home Loan Mortgage Corporation (Freddie Mac) [Treasury]/[FHFA]

Federal National Mortgage Association (Fannie Mae) [Treasury]/[FHFA]

Federal Reserve System [Treasury]

Special Purpose Vehicles [Treasury]

Related Parties

Federal Home Loan Banks [FHFA]

International Monetary Fund and Multilateral Development Banks [Treasury]

Private Export Funding Corporation [EXIM]

APPENDIX B 222

Appendix B: Glossary of Acronyms

This is the current list of acronyms used in the Financial Report.

AAP Accelerated and Advance Payment

APM Alternative Payment Models

ARP American Rescue Plan Act of 2021

ARRA American Recovery and Reinvestment Act of 2009

ASC Accounting Standards Codification

AT&T American Telephone & Telegraph Company

BBA Bipartisan Budget Act

Bbl Barrels

BIA Bureau of Indian Affairs

BLDBP Black Lung Disability Benefit Program

BLDTF Black Lung Disability Trust Fund

BLM Bureau of Land Management

BPA Bonneville Power Administration

BRS Blended Retirement System

BTFA Bureau of Trust Funds Administration

Budget Budget of the U.S. Government

CAA Consolidated Appropriations Act, 2021

CARES Act Coronavirus Aid, Relief and Economic Security Act

CCF Corporate Credit Facility LLC

CERCLA Comprehensive Environmental Response, Compensation, and Liability Act

CFO Chief Financial Officers

CFO Act Chief Financial Officers Act of 1990

CFR Code of Federal Regulations

CMS Centers for Medicare & Medicaid Services

COLA Cost of Living Adjustments

COVID-19 Coronavirus Disease 2019

CPFF Commercial Paper Funding Facility II LLC

CPI Consumer Price Index

CPIM Consumer Price Index–Medical

CRF Coronavirus Relief Fund

CSRDF Civil Service Retirement and Disability Fund

CSRS Civil Service Retirement System

DACA Deferred Action for Childhood Arrivals

D.C. District of Columbia

DERP Defense Environmental Restoration Program

DHS Department of Homeland Security

DI Disability Insurance

DIF Deposit Insurance Fund

DM&R Deferred Maintenance and Repairs

DOC Department of Commerce

223 APPENDIX B

DOD Department of Defense

DOE Department of Energy

DOI Department of the Interior

DOJ Department of Justice

DOL Department of Labor

DOT Department of Transportation

Education Department of Education

EIA Energy Information Administration

EIDL Economic Injury Disaster Loan

EIP Economic Impact Payment

EO Executive Order

EPA Environmental Protection Agency

ERA Emergency Rental Assistance

ESF Exchange Stabilization Fund

ESPC Energy Savings Performance Contract

EUCA Extended Unemployment Compensation Account

EXIM Bank Export-Import Bank of the U.S.

Fannie Mae Federal National Mortgage Association

FASAB Federal Accounting Standards Advisory Board

FASB Financial Accounting Standards Board

FCC Federal Communications Commission

FCIC Federal Crop Insurance Corporation

FCSIC Farm Credit System Insurance Corporation

FDIC Federal Deposit Insurance Corporation

FECA Federal Employees’ Compensation Act

Federal Reserve Act Federal Reserve Act of 1913

Federal Reserve Board Federal Reserve Board of Governors

FEGLI Federal Employees’ Group Life Insurance

FEMA Federal Emergency Management Agency

FERS Federal Employees’ Retirement System

FFEL Federal Family Education Loan

FFMIA Federal Financial Management Improvement Act of 1996

FHA Federal Housing Administration

FHFA Federal Housing Finance Agency

FHLBanks Federal Home Loan Banks

FHWA Federal Highway Administration

FICA Federal Insurance Contribution Act

Financial Report Financial Report of the U.S. Government

FirstNet First Responder Network Authority

FOMC Federal Open Market Committee

FPUC Federal Pandemic Unemployment Compensation

FR System

FRBB

Federal Reserve System

Federal Reserve Bank of Boston

FRBNY Federal Reserve Bank of New York

FRB Federal Reserve Banks

APPENDIX B 224

Freddie Mac Federal Home Loan Mortgage Corporation

FRN Floating Rate Notes

FRTIB Federal Retirement Thrift Investment Board

FUA Federal Unemployment Account

FV Fair Value

FY Fiscal Year

GAAP U.S. Generally Accepted Accounting Principles

GAO U.S. Government Accountability Office

GDP Gross Domestic Product

General Fund General Fund of the U.S. Government

Ginnie Mae Government National Mortgage Association

GSA General Services Administration

GSE Government-Sponsored Enterprise

HAF Homeowner Assistance Fund

HHS Department of Health and Human Services

HI Hospital Insurance

HQM High Quality Market

HUD Department of Housing and Urban Development

IIM Individual Indian Monies

IMF International Monetary Fund

IRC Internal Revenue Code

IRS Internal Revenue Service

IT Information Technology

LLC Limited Liability Company

LP Limited Partnership

LPR Lawful Permanent Resident

MAC Moving Average Cost

MACRA Medicare Access and Children’s Health Insurance Program Reauthorization Act of 2015

MBS Mortgage-Backed Securities

MD&A Management Discussion & Analysis

MDB Multilateral Development Banks

MERHCF Medicare Eligible Retiree Health Care Fund

MHPI Military Housing Privatization Initiative

MLF Municipal Liquidity Facility LLC

MRF Military Retirement Fund

MSF Main Street Facilities LLC

MTF Military Treatment Facilities

MTS Monthly Treasury Statement

NAB New Arrangements to Borrow

NASA National Aeronautics and Space Administration

NAV Net Asset Value

NCUA National Credit Union Administration

NCUSIF The National Credit Union Share Insurance Fund

NDAA National Defense Authorization Act

NFIP National Flood Insurance Program

NPV Net Present Value

225 APPENDIX B

NRRIT National Railroad Retirement Investment Trust

NWPA Nuclear Waste Policy Act of 1982

OASDI Old-Age, Survivors, and Disability Insurance

OASI Old-Age and Survivors Insurance

OM&S Operating Materials and Supplies

OMB Office of Management and Budget

ONRR Office of Natural Resources Revenue

OPEB Other Postemployment Benefits

OPM Office of Personnel Management

ORB Other Retirement Benefits

P3s Public-Private Partnerships

PAYGO Pay As You Go

PBGC Pension Benefit Guaranty Corporation

PCE Personal Consumption Expenditures

PEFCO Private Export Funding Corporation

PHSSEF Public Health and Social Services Emergency Fund

P.L. Public Law

PMCCF Primary Market Corporate Credit Facility

PPACA Patient Protection and Affordable Care Act

PP&E Property, Plant, and Equipment

PPP Paycheck Protection Program

PPPHCE Paycheck Protection Program and Health Care Enhancements

PUA Pandemic Unemployment Assistance

PV Present Value

QSMO Quality Service Management Office

R&D Research and Development

RCRA Resource Conservation and Recovery Act

RRB Railroad Retirement Board

RRP Railroad Retirement Program

RSI Required Supplementary Information

SAA Security Assistance Accounts

SBA Small Business Administration

SCSIA Statements of Changes in Social Insurance Amounts

SDR Special Drawing Rights

SEC Securities and Exchange Commission

SECA Self-Employment Contributions Act

SFA Special Financial Assistance

SFFAS Statement of Federal Financial Accounting Standards

SGLI Service Members Group Life Insurance

SLFRF Coronavirus State and Local Fiscal Recovery Funds

SLTFP Statements of Long-Term Fiscal Projections

SMI Supplementary Medical Insurance

SNF Spent Nuclear Fuel

SOMA System Open Market Account

SOSI Statements of Social Insurance

APPENDIX B 226

SPSPA Senior Preferred Stock Purchase Agreement

SPV Special Purpose Vehicle

SSA Social Security Administration

State Department of State

TALF Term Asset Backed Securities II LLC

TCJA Tax Cuts and Jobs Act of 2017

TFL TRICARE for Life

TIPS Treasury Inflation-Protected Securities

TNC Yield Curve for Treasury Nominal Coupon Issues

Treasury Department of the Treasury

TRIP Terrorism Risk Insurance Program

TSF Thrift Savings Fund

TSP Thrift Savings Plan

TSP’s G Fund Thrift Savings Plan’s Government Securities Investment Fund

TTD Time-to-Death

TVA Tennessee Valley Authority

UI Unemployment Insurance

U.S. United States

U.S.C. United States Code

USCG United States Coast Guard

USDA U.S. Department of Agriculture

USPS United States Postal Service

UTF Unemployment Trust Fund

VA Department of Veterans Affairs

VR&E Vocational Rehabilitation and Employment

WHO World Health Organization

227 APPENDIX B

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U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 228

Independent Auditor’s Report

The President The President of the Senate The Speaker of the House of Representatives

In our audits of the U.S. government’s consolidated financial statements as of and for the fiscal years ended September 30, 2021, and 2020, we found the following:

• Certain material weaknesses1 in internal control over financial reporting and other limitations on the

scope of our work resulted in conditions that continued to prevent us from expressing an opinion on the accompanying accrual-based consolidated financial statements as of and for the fiscal years ended September 30, 2021, and 2020.2

the 2021 and 2020 Statements of Long-Term Fiscal Projections;4 the 2021, 2020, 2019, 2018, and

2017 Statements of Social Insurance;5 and the 2021 and 2020 Statements of Changes in Social

1A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there

is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected, on a timely basis. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis.

2The accrual-based consolidated financial statements as of and for the fiscal years ended September 30, 2021, and 2020, consist of the (1) Statements of Net Cost, (2) Statements of Operations and Changes in Net Position, (3) Reconciliations of Net Operating Cost and Budget Deficit, (4) Statements of Changes in Cash Balance from Budget and Other Activities, and (5) Balance Sheets, including the related notes to these financial statements. Most revenues are recorded on a modified cash basis. We previously reported that certain material weaknesses and, for some years, other limitations on the scope of our work prevented us from expressing an opinion on the accrual-based consolidated financial statements of the U.S. government for fiscal years 1997 through 2020.

3We have previously reported that significant uncertainties prevented us from expressing an opinion on the sustainability financial statements (Statements of Social Insurance for fiscal years 2010 through 2020 and Statements of Long-Term Fiscal Projections for fiscal years 2015 through 2020). The Statements of Social Insurance were first presented for fiscal year 2006 and the Statements of Long-Term Fiscal Projections were first presented for fiscal year 2015.

4The 2021 and 2020 Statements of Long-Term Fiscal Projections present, for all the activities of the federal government, the present value of projected receipts and noninterest spending under current policy without change, the relationship of these amounts to projected gross domestic product (GDP), and changes in the present value of projected receipts and noninterest spending from the prior year. These statements also present the fiscal gap, which shows the combination of noninterest spending reductions and receipts increases necessary to hold debt held by the public as a share of GDP at the end of the projection period to its value at the beginning of the period. The valuation date for the Statements of Long-Term Fiscal Projections is September 30.

5The Statements of Social Insurance present the present value of revenue and expenditures for social benefit programs, primarily Social Security and Medicare. These statements are presented for the current year and each of the 4 preceding years as required by U.S. generally accepted accounting principles. For the Statements of Social Insurance, the valuation date is January 1 for the Social Security and Medicare programs, October 1 for the Railroad Retirement program, and September 30 for the Black Lung program.

229 U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT

Insurance Amounts. A material weakness in internal control also prevented us from expressing an opinion on the 2021 and 2020 Statements of Long-Term Fiscal Projections.

• Material weaknesses resulted in ineffective internal control over financial reporting for fiscal year

2021.

• Material weaknesses and other scope limitations, discussed above, limited tests of compliance with

selected provisions of applicable laws, regulations, contracts, and grant agreements for fiscal year

2021.

This audit report discusses the following in more detail.

• Our report on the accompanying consolidated financial statements, which includes (1) three emphasis of matters—the federal government’s response to the COVID-19 pandemic, long-term fiscal challenges, and equity investments in the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac); (2) required supplementary information (RSI)6 and other information7 included with the consolidated financial

statements in the Fiscal Year 2021 Financial Report of the United States Government (2021 Financial Report); and (3) information on Chief Financial Officers Act of 1990 (CFO Act) agency financial management systems.

• Our report on internal control over financial reporting.

• Our report on compliance with laws, regulations, contracts, and grant agreements.

• The Department of the Treasury’s and the Office of Management and Budget’s (OMB) comments on a draft of this audit report.

Appendix I discusses our audit objectives, scope, and methodology.

Report on the Consolidated Financial Statements

The Secretary of the Treasury, in coordination with the Director of OMB, is required to annually submit audited financial statements for the U.S. government to the President and Congress. GAO is required to audit these statements.8 As noted above, the consolidated financial statements consist of the

accrual-based consolidated financial statements as of and for the fiscal years ended September 30, 2021, and 2020, and the sustainability financial statements, consisting of the 2021 and 2020 Statements of Long-Term Fiscal Projections; the 2021, 2020, 2019, 2018, and 2017 Statements of Social Insurance; the 2021 and 2020 Statements of Changes in Social Insurance Amounts; and the related notes to the financial statements.

6The RSI consists of Management’s Discussion and Analysis and information in the Required Supplementary Information section of the Fiscal Year 2021 Financial Report of the United States Government.

7Other information consists of information in the Fiscal Year 2021 Financial Report of the United States Government other than the consolidated financial statements, RSI, auditor’s report, and Statement of the Comptroller General of the United States.

8The Government Management Reform Act of 1994 has required such reporting, covering the executive branch of government, beginning with financial statements prepared for fiscal year 1997. 31 U.S.C. § 331(e). The consolidated financial statements include the legislative and judicial branches.

U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 230

We performed sufficient audit work to provide this report on the consolidated financial statements. We considered the limitations on the scope of our work regarding the accrual-based consolidated financial statements and the sustainability financial statements in forming our conclusions. We performed our work in accordance with U.S. generally accepted government auditing standards.

Management’s Responsibility

Management of the federal government is responsible for (1) the preparation and fair presentation of annual consolidated financial statements of the U.S. government in accordance with U.S. generally accepted accounting principles; (2) preparing, measuring, and presenting the RSI in accordance with U.S. generally accepted accounting principles; (3) preparing and presenting other information included in documents containing the consolidated financial statements and auditor’s report, and ensuring the consistency of that information with the consolidated financial statements and RSI; and (4) maintaining effective internal control over financial reporting, including the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express opinions on these consolidated financial statements based on conducting the audit in accordance with U.S. generally accepted government auditing standards. We are also responsible for applying certain limited procedures to the RSI and other information included with the consolidated financial statements. Because of the matters discussed below, we were unable to obtain sufficient appropriate evidence to provide a basis for audit opinions on the consolidated financial statements.

Basis for Disclaimers of Opinion on the Consolidated Financial Statements

Accrual-Based Consolidated Financial Statements

The federal government is not able to demonstrate the reliability of significant portions of the accompanying accrual-based consolidated financial statements as of and for the fiscal years ended September 30, 2021, and 2020, principally because of limitations related to certain material weaknesses in internal control over financial reporting and other limitations affecting the reliability of these financial statements and the scope of our work, as discussed below.9 As a result of these

limitations, readers are cautioned that amounts reported in the accrual-based consolidated financial statements and related notes may not be reliable.

The federal government did not maintain adequate systems or have sufficient appropriate evidence to support certain material information reported in the accompanying accrual-based consolidated financial statements. The underlying material weaknesses in internal control, which generally have existed for

9Such limitations include the following: (1) The Department of Defense received a disclaimer of opinion on its fiscal years 2021 and 2020 financial statements. (2) The Small Business Administration (SBA) received a disclaimer of opinion on its fiscal year 2021 balance sheet and its remaining statements were unaudited. SBA also received a disclaimer of opinion on its fiscal year 2020 financial statements. (3) The Department of Labor received a qualified opinion on its fiscal year 2021 financial statements but received an unmodified opinion on its fiscal year 2020 financial statements. (4) The fiscal year 2021 Schedules of the General Fund of the U.S. Government were not audited to allow Treasury sufficient time to continue to implement a remediation plan to address the issues we reported as part of our disclaimer of opinion on the fiscal year 2020 Schedules of the General Fund. Also, for fiscal years 2021 and 2020, the financial information for Security Assistance Accounts was unaudited.

231 U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT

years, contributed to our disclaimer of opinion on the accrual-based consolidated financial statements. Specifically, these weaknesses concerned the federal government’s inability to

• satisfactorily determine that property, plant, and equipment and inventories and related property, primarily held by the Department of Defense (DOD), were properly reported in the accrual-based consolidated financial statements;

• reasonably estimate the value of loans receivable and loan guarantee liabilities, most notably at the Small Business Administration (SBA);

• reasonably estimate or adequately support amounts reported for certain liabilities, such as environmental and disposal liabilities, or determine whether commitments and contingencies were complete and properly reported;

• support significant portions of the reported total net cost of operations, most notably related to DOD and SBA, and adequately reconcile disbursement activity at certain federal entities;

• adequately account for intragovernmental activity and balances between federal entities;

• reasonably assure that the consolidated financial statements are (1) consistent with the underlying audited entities’ financial statements, (2) properly balanced, and (3) in accordance with U.S. generally accepted accounting principles; and

• reasonably assure that the information in the (1) Reconciliations of Net Operating Cost and Budget Deficit and (2) Statements of Changes in Cash Balance from Budget and Other Activities is complete, properly supported, and consistent with the underlying information in the audited entities’ financial statements and other financial data.

These material weaknesses continued to (1) hamper the federal government’s ability to reliably report a significant portion of its assets, liabilities, costs, and other related information; (2) affect the federal government’s ability to reliably measure the full cost, as well as the financial and nonfinancial performance, of certain programs and activities; (3) impair the federal government’s ability to adequately safeguard significant assets and properly record various transactions; and (4) hinder the federal government from having reliable, useful, and timely financial information to operate effectively and efficiently. Because of these material weaknesses and other limitations on the scope of our work discussed below, additional issues may exist that were not identified and could affect the accrual-based consolidated financial statements. Appendix II describes these material weaknesses in more detail and highlights the primary effects of these material weaknesses on the accompanying accrual-based consolidated financial statements, the sustainability financial statements, and the management of federal government operations.

In addition, the federal government did not adequately account for and report on the Special Financial Assistance Program for Financially Troubled Multiemployer Plans (SFA program) established by the American Rescue Plan Act of 2021 (ARPA).10 ARPA established the SFA program to provide payments

to eligible multiemployer pension plans to enable them to pay benefits at plan levels through 2051.

10ARPA, Pub. L. No. 117-2, § 9704, 135 Stat. 4, 190-99 (Mar. 11, 2021), classified at 29 U.S.C. §§ 1305(i), 1432.

U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 232

Plans are not required to repay amounts received from the SFA program, which is funded by appropriations from the General Fund of the U.S. Government.11

Total cost of payments to eligible multiemployer pension plans under the SFA program is estimated to range from $66 billion to $147 billion, with an estimated mean of $97 billion.12 Fiscal year 2021 liabilities

and net costs were reduced by about $60 billion, representing Pension Benefit Guaranty Corporation’s previously recorded multiemployer plan liability related to those plans expected to be eligible to receive SFA program payments. However, while the cost and liability reduction assumed that the SFA program payments would be made, the federal government did not recognize the increase in liabilities and costs related to the estimated SFA program payments to those plans.

Sustainability Financial Statements

Significant uncertainties (discussed in Note 25, Social Insurance, to the consolidated financial statements), which primarily relate to the achievement of projected reductions in Medicare cost growth, affect the sustainability financial statements. In addition, the material weakness related to the Reconciliations of Net Operating Cost and Budget Deficit and the Statements of Changes in Cash Balance from Budget and Other Activities hampers the federal government’s ability to demonstrate the reliability of historical budget information used for certain key inputs to the 2021 and 2020 Statements of Long-Term Fiscal Projections. As a result of these significant uncertainties and this material weakness, readers are cautioned that amounts reported in the 2021 and 2020 Statements of Long- Term Fiscal Projections; the 2021, 2020, 2019, 2018, and 2017 Statements of Social Insurance; the 2021 and 2020 Statements of Changes in Social Insurance Amounts; and the related notes to these financial statements may not fairly present, in all material respects, the sustainability information for those years in accordance with U.S. generally accepted accounting principles.

These significant uncertainties primarily relate to the following:

• Medicare projections in the 2021 and 2020 Statements of Long-Term Fiscal Projections and the 2021, 2020, 2019, 2018, and 2017 Statements of Social Insurance were based on benefit formulas under current law and included a significant reduction in Medicare payment rate updates for productivity improvements for most categories of Medicare providers,13 based on full implementation

of the provisions of the Patient Protection and Affordable Care Act, as amended (PPACA),14 and

11The General Fund is a component of Treasury’s central accounting function. It is a stand-alone reporting entity that comprises the activities fundamental to funding the federal government (e.g., issued budget authority, cash activity, and debt financing activities).

12See Pension Benefit Guaranty Corporation (PBGC), FY 2020 Projections Report (Sept. 2021), accessed on Feb. 9, 2022, https://www.pbgc.gov/documents/fy-2020-projections-report. As discussed therein, these estimates are based on provisions of PBGC’s interim final rule (86 Fed. Reg. 36,598) published in July 2021, and may change once the final rule is issued.

13Under the Patient Protection and Affordable Care Act’s productivity adjustment provisions, productivity improvements are expected to result in lower overall Medicare spending because of smaller annual increases in the Medicare payment rates paid to many health care providers. This is often referred to as a reduction in Medicare payment rate updates. The health care provider categories affected include inpatient/outpatient hospital services, skilled nursing facilities, home health care, ambulance, ambulatory surgical centers, durable medical equipment, and prosthetics.

14PPACA, Pub. L. No. 111-148, 124 Stat. 119 (Mar. 23, 2010), as amended by the Health Care and Education Reconciliation Act of 2010, Pub. L. No. 111-152, 124 Stat. 1029 (Mar. 30, 2010). In this report, references to PPACA include any amendments made by the Health Care and Education Reconciliation Act of 2010.

https://www.pbgc.gov/documents/fy-2020-projections-report

233 U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT

physician payment updates specified by the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA).15

• Management has noted that actual future costs for Medicare are likely to exceed those shown by the projections under current law presented in the 2021, 2020, 2019, 2018, and 2017 Statements of Social Insurance because of, for example, the likelihood of changes to the scheduled reductions in Medicare payment rate updates for productivity adjustments relating to most categories of Medicare providers and the specified physician payment updates. The extent to which actual future costs exceed the amounts projected under current law because of changes to the scheduled reductions in Medicare payment rate updates for productivity adjustments and specified physician payment updates depends on both the specific changes that might be enacted and whether enacted legislation would include further provisions to help offset such costs. Consequently, there are significant uncertainties concerning the achievement of these projected reductions in Medicare payment rate updates.

• Management has developed an illustrative alternative projection intended to provide additional context regarding the long-term sustainability of the Medicare program and to illustrate the uncertainties in the Statement of Social Insurance projections. The present value of future estimated expenditures in excess of future estimated revenue for Medicare, included in the illustrative alternative projection in Note 25, Social Insurance, exceeds the $48.2 trillion estimate in the 2021 Statement of Social Insurance by $9.9 trillion.

• Management noted that these significant uncertainties about projected reductions in health care cost growth also affect the projected Medicare and Medicaid costs reported in the 2021 and 2020 Statements of Long-Term Fiscal Projections.

Projections of Medicare costs are sensitive to assumptions about future policymaker decisions and consumer, employer, and health care provider behavioral responses as policy, incentives, and the health care sector change over time. Such secondary effects are not fully reflected in the sustainability financial statements but could be expected to influence the excess cost growth rate used in the projections.16 Key drivers of uncertainty about the excess cost growth rate include the future

development and deployment of medical technology, the evolution of personal income, and the cost and availability of insurance, as well as federal policy changes, such as the implementation of PPACA. As discussed in the RSI section of the 2021 Financial Report, the projections are very sensitive to changes in the health care cost growth assumption.

As discussed in Notes 25, Social Insurance, and 26, Long-Term Fiscal Projections, to the consolidated financial statements, the sustainability financial statements are based on management’s assumptions. These sustainability financial statements present the present value of the U.S. government’s estimated future receipts and future spending using a projection period sufficient to illustrate long-term sustainability.17 The sustainability financial statements are intended to aid users in assessing whether

15MACRA, Pub. L. No. 114-10, title I, § 101, 129 Stat. 87, 89 (Apr. 16, 2015). MACRA included many provisions that affect Medicare, including the repeal of the sustainable growth rate formula for calculating annual updates to Medicare reimbursement payment rates to physicians and certain nonphysician medical providers, and established an alternative set of annual updates.

16The excess cost growth rate is the increase in health care spending per person relative to the growth of GDP per person after removing the effects of demographic changes on health care spending.

17The projection period used for the Social Security, Medicare, and Railroad Retirement social insurance programs is 75 years. The projection period used for the Black Lung program is 25 years.

U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 234

future resources will likely be sufficient to sustain public services and to meet obligations as they come due.

In preparing the sustainability financial statements, management selects assumptions and data that it believes provide a reasonable basis to illustrate whether current policy is sustainable. As discussed in the 2021 Financial Report, current policy is based on current law but includes several adjustments. In the Statements of Long-Term Fiscal Projections, notable adjustments to current law include

• projected spending, receipts, and borrowing levels assume raising or suspending the current statutory limit on federal debt;

• continued discretionary appropriations are assumed throughout the projection period;

• scheduled Social Security and Medicare Part A benefit payments are assumed to occur beyond the projected point of trust fund depletion; and

• many mandatory programs with expiration dates prior to the end of the 75-year projection period are assumed to be reauthorized.

In the Statements of Social Insurance, the one adjustment to current law is that scheduled Social Security and Medicare Part A benefit payments are assumed to occur beyond the projected point of trust fund depletion. Assumptions underlying such sustainability information do not consider changes in policy or all potential future events that could affect future revenue and expenditures and, hence, sustainability. Also, the projections assume that debt could continuously rise without severe economic consequences. The RSI section of the 2021 Financial Report includes unaudited information on how changes in various assumptions would affect the Statements of Long-Term Fiscal Projections and Statements of Social Insurance. The projections in the sustainability financial statements are not forecasts or predictions.

The 2021 sustainability financial statements are based on the economic assumptions that underlie the 2021 Social Security Trustees’ Report. Those assumptions include the Trustees’ best estimates of the effects of the COVID-19 pandemic and the 2020 recession, which were not reflected in the 2020 projections. Further, the projections included in the Statements of Long-Term Fiscal Projections were adjusted, where possible, for the effects of the COVID-19 pandemic and economic recovery spending that are judged to be temporary. Budget totals that cannot be adjusted result in higher projections of future spending. Consequently, there is an unusually large degree of uncertainty about the impact of the COVID-19 pandemic and economic recovery spending on the projections.

As discussed in the unaudited RSI section of the 2021 Financial Report, the combined Social Security trust funds are projected to be depleted in 2034.18 Further, based on the achievement of the cost

growth reductions discussed above, the Medicare Hospital Insurance (Part A) trust fund is projected to be depleted in 2026. After depletion, the trust funds would be unable to pay the full amount of scheduled future benefits. For Social Security, future revenues were projected to be sufficient to pay 78 percent of scheduled benefits in 2034, the year of projected trust funds (combined) depletion, and decreasing to 74 percent of scheduled benefits in 2095. For Medicare Hospital Insurance (Part A), future revenues were projected to be sufficient to pay 91 percent of scheduled benefits in 2026, the

18The projected depletion date for the combined Social Security trust funds is hypothetical and often used for simplicity to illustrate the solvency of the Social Security program by combining the separate Federal Old-Age and Survivors Insurance trust fund and the Federal Disability Insurance trust fund. For the Federal Old-Age and Survivors Insurance trust fund, future revenues were projected to be sufficient to pay 76 percent of scheduled benefits in 2033, the year of projected trust fund depletion, decreasing to 72 percent in 2095. For the Federal Disability Insurance trust fund, future revenues were projected to be sufficient to pay 91 percent of scheduled benefits in 2057, the year of projected trust fund depletion, increasing to 92 percent in 2095.

235 U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT

year of projected trust fund depletion, declining to 78 percent by 2045, and then increasing to 91 percent of scheduled benefits in 2095.

Because of the large number of factors that affect the sustainability financial statements and the fact that future events and circumstances cannot be projected with certainty, even if current policy is continued, there will be differences between the projections in the sustainability financial statements and the actual results, and those differences may be material.

Other Limitations on the Scope of Our Work

For fiscal years 2021 and 2020, there were other limitations on the scope of our work, in addition to the material weaknesses and significant uncertainties noted above, that contributed to our disclaimers of opinion on the consolidated financial statements. Such limitations primarily relate to our ability to obtain adequate representations from management. Treasury and OMB depend on representations from certain federal entities to provide their representations to us regarding the U.S. government’s consolidated financial statements. Treasury and OMB were unable to provide us with adequate representations regarding the U.S. government’s accrual-based consolidated financial statements for fiscal years 2021 and 2020, primarily because certain federal entities provided them insufficient or no representations.

Disclaimers of Opinion on the Consolidated Financial Statements

Accrual-Based Consolidated Financial Statements

Because of the significance of the related matters described in the Basis for Disclaimers of Opinion on the Consolidated Financial Statements section above, we were not able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on the accrual-based consolidated financial statements. Accordingly, we do not express an opinion on the accrual-based consolidated financial statements as of and for the fiscal years ended September 30, 2021, and 2020.

Sustainability Financial Statements

Because of the significance of the related matters described in the Basis for Disclaimers of Opinion on the Consolidated Financial Statements above, we were not able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on the Statements of Long-Term Fiscal Projections for 2021 and 2020; the Statements of Social Insurance for 2021, 2020, 2019, 2018, and 2017; and the Statements of Changes in Social Insurance Amounts for 2021 and 2020. Accordingly, we do not express an opinion on these sustainability financial statements.

Emphasis of Matters

The following key items deserve emphasis in order to put the information in the consolidated financial statements and the Management’s Discussion and Analysis section of the 2021 Financial Report into context. Our disclaimers of opinion noted above are not modified with respect to these matters.

The Federal Government’s Response to the COVID-19 Pandemic

U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 236

Significant assets and liabilities as of September 30, 2021, and 2020, resulting from the federal government’s response to the COVID-19 pandemic include

• advances of $254 billion (2021) and $173 billion (2020), primarily as a result of aid to state, local, territorial, and tribal governments and Medicare providers;

• loans under the Economic Injury Disaster Loan (EIDL) program, representing almost all of the $244 billion (2021) and $181 billion (2020) in net disaster loans;

• loan guarantee liabilities of $231 billion (2021) and $520 billion (2020), primarily related to the PPP.21

The actions the federal government has taken to combat the pandemic and their effects on the financial statements are discussed throughout the 2021 Financial Report and summarized in Note 30 to the consolidated financial statements. The ultimate cost of these actions and any future actions in response to the pandemic and their impact on the federal government’s financial condition will not be fully known for some time.

Long-Term Fiscal Challenges

19As discussed in Note 8, Investments in Special Purpose Securities, to the consolidated financial statements, equity investments in special purpose vehicles decreased to $26 billion in fiscal year 2021 from $108 billion in fiscal year 2020 primarily because the Department of the Treasury and the Federal Reserve amended several of the special purpose vehicle agreements and the Federal Reserve returned equity investments to Treasury.

20As discussed in Note 2, Cash and Other Monetary Assets, to the consolidated financial statements, cash and other monetary assets decreased in fiscal year 2021 because Treasury reduced the cash balance in fiscal year 2021 to well under its prudent policy level because of debt limit constraints.

21The change from fiscal year 2020 to fiscal year 2021 is primarily due to new guarantees of $304 billion, offset by loan forgiveness payments to lenders of $558 billion.

237 U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT

government continues to face an unsustainable long-term fiscal path. At the end of fiscal years 2021 and 2020, debt held by the public was approximately 100 percent of gross domestic product (GDP), up from approximately 79 percent at the end of fiscal year 2019. The projections show that debt held by the public will reach its historical high of 106 percent of GDP in 2024 and will grow faster than the economy over the long term. For the 2021 projections, debt held by the public as a share of GDP (debt- to-GDP) at the end of the 75-year projection period is projected to be 701 percent. Annual budget deficits are projected to continue throughout the 75-year projection period. Over the long term, the imbalance between spending and revenue that is built into current policy and law is projected to lead to continued growth of debt-to-GDP. This situation—in which debt held by the public grows faster than GDP—means that the federal government’s long-term fiscal path is unsustainable.

Under the 2021 Financial Report projections, spending for the major health and retirement programs will increase more rapidly than GDP in the coming decades, in part because of an aging population and projected continued increases in health care costs. These projections for Social Security and Medicare are based on the same assumptions underlying the information presented in the Statement of Social Insurance and assume that the provisions enacted in PPACA designed to slow the growth of Medicare costs are sustained and remain in effect throughout the projection period. The projections also reflect the effects of MACRA, which, among other things, revised the methodology for determining physician payment rates. If, however, the Medicare cost containment measures and physician payment rate methodology are not sustained over the long term—concerns expressed by the Trustees of the Medicare trust funds, the Centers for Medicare & Medicaid Services’ Chief Actuary, the Congressional Budget Office (CBO), and others—spending on federal health care programs will grow more rapidly than assumed in the projections.

In addition, based on the 2021 Financial Report projections, spending on net interest (primarily interest on debt held by the public) will surpass Social Security spending and become the largest category of spending in 2034. Net interest is projected to increase from 1.6 percent of GDP in fiscal year 2021 to 6.0 percent of GDP in fiscal year 2034 (about 20 percent of 2034 projected total spending), and to 31.7 percent of GDP in fiscal year 2096 (about 56 percent of 2096 projected total spending).

GAO and CBO also prepare long-term federal fiscal simulations, which continue to show debt-to-GDP rising in the long term.22 GAO, CBO, and the 2021 Financial Report all project that debt-to-GDP will

surpass its historical high (106 percent in 1946) in the next 10 years. Each of these long-term projections uses somewhat different assumptions, but their overall conclusions are the same: based on current revenue and spending policies, the federal government’s fiscal path is unsustainable.

Further, these projections do not fully account for emerging issues and unforeseen challenges, such as another economic downturn or large-scale disaster. These unforeseen events, also known as fiscal exposures, place additional pressure on the federal budget. They result in responsibilities, programs, and activities that may legally commit or create expectations for future federal spending based on current policy, past practices, or other factors. A more complete understanding of fiscal exposures can help policymakers anticipate changes in future spending and can enhance oversight of federal resources.

Currently, policymakers are understandably focused on dealing with the pandemic and its effect on the economy. However, once these issues are addressed, policymakers will need to turn their attention to

22For more information on GAO’s simulations, see GAO, America’s Fiscal Future, accessed on Feb. 9, 2022, https://www.gao.gov/americas_fiscal_future. For more information on CBO’s simulations, see Congressional Budget Office, The 2021 Long-Term Budget Outlook (Washington, D.C.: Mar. 4, 2021).

https://www.gao.gov/americas_fiscal_future

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the serious long term challenges of addressing the federal government’s large and growing deficits that are driven primarily by rising health care costs and known demographic trends.

projections in the 2021 Financial Report, if policymakers choose to achieve a debt-to-GDP target of 100 percent—the level the federal government reached at the end of fiscal years 2020 and 2021—over a 75-year period (fiscal years 2022 to 2096), they would need to make policy changes that increase projected revenues by 32 percent, reduce projected noninterest spending by 25 percent, or a combination of the two, over this period. The projections show that the longer such policy changes are delayed, the more significant the changes will need to be.

Equity Investments in Fannie Mae and Freddie Mac

As discussed in Notes 9, Investments in Government-Sponsored Enterprises, and 21, Commitments, to the consolidated financial statements, in 2008, during the financial crisis, the federal government placed Fannie Mae and Freddie Mac under conservatorship and entered into preferred stock purchase agreements with these government-sponsored enterprises (GSE) to help ensure their financial stability. The agreements with the GSEs could affect the federal government’s financial condition. As of September 30, 2021, the federal government reported about $221 billion of investments in the GSEs, which is net of about $38 billion in valuation losses. The reported maximum remaining contractual commitment to the GSEs, if needed, is $254.1 billion.

In valuing these equity investments, management considered and selected assumptions and data that it believed provided a reasonable basis for the estimated values reported in the accrual-based consolidated financial statements. However, as discussed in Note 1, Summary of Significant Accounting Policies, to the consolidated financial statements, there are many factors affecting these assumptions and estimates that are inherently subject to substantial uncertainty arising from the uniqueness of the transactions and the likelihood of future changes in general economic, regulatory, and market conditions. As such, there will be differences between the estimated values as of September 30, 2021, and the actual results, and such differences may be material.

Also, as discussed in Note 1, Summary of Significant Accounting Policies, to the consolidated financial statements, the assets, liabilities, and results of operations of Fannie Mae and Freddie Mac are not consolidated into the federal government’s consolidated financial statements. Treasury and OMB have determined that these entities do not meet the criteria for consolidation.24 The ultimate role of the GSEs

could affect the federal government’s financial condition and the financial condition of certain federal entities, including the Federal Housing Administration (FHA), which in the past expanded its lending role in distressed housing and mortgage markets. In addition, as discussed in Note 22, Contingencies, to the consolidated financial statements, the Government National Mortgage Association (Ginnie Mae) guarantees the performance of about $2.1 trillion in securities backed by federally insured mortgages— $1.1 trillion of which were insured by FHA and $1 trillion by other federal entities, such as the Department of Veterans Affairs.

23The primary deficit is the difference between noninterest spending and receipts.

24For additional information on the GSE preferred stock purchase agreements and valuation of the investment in the GSEs, see Note 9, Investments in Government-Sponsored Enterprises, to the consolidated financial statements. For additional information on the criteria used to determine which federal entities are included in the reporting entity for the consolidated financial statements, as well as the reasons for not including certain entities, such as Fannie Mae and Freddie Mac, see app. A of the 2021 Financial Report.

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Other Matters

Required Supplementary Information

U.S. generally accepted accounting principles issued by the Federal Accounting Standards Advisory Board (FASAB) require that the RSI be presented in the 2021 Financial Report to supplement the financial statements. Although the RSI is not a part of the financial statements, FASAB considers this information to be an essential part of financial reporting for placing the financial statements in appropriate operational, economic, or historical context. We were unable to apply certain limited procedures to the RSI in accordance with U.S. generally accepted government auditing standards because of the material weaknesses and other scope limitations discussed in this audit report. We did not audit and do not express an opinion or provide any assurance on the RSI.

Other Information

Other information included in the 2021 Financial Report contains a wide range of information, some of which is not directly related to the consolidated financial statements. This information is presented for purposes of additional analysis and is not a required part of the consolidated financial statements or RSI. We read the other information included with the consolidated financial statements in order to identify material inconsistencies, if any, with the consolidated financial statements. We did not audit and do not express an opinion or provide any assurance on the other information in the 2021 Financial Report.

Readers are cautioned that the material weaknesses, significant uncertainties, and other scope limitations discussed in this audit report may affect the reliability of certain information contained in the RSI and other information that is taken from the same data sources as the accrual-based consolidated financial statements and the sustainability financial statements.

CFO Act Agency Financial Management Systems

The federal government’s ability to efficiently and effectively manage and oversee its day-to-day operations and programs relies heavily on the ability of entity financial management systems to produce complete, reliable, timely, and consistent financial information for use by executive branch agencies and Congress.25 The Federal Financial Management Improvement Act of 1996 (FFMIA) was

designed to lead to system improvements that would result in CFO Act agency managers routinely having access to reliable, useful, and timely financial information with which to measure performance and increase accountability throughout the year.

The 24 CFO Act agencies are responsible for implementing and maintaining financial management systems that comply substantially with FFMIA requirements. FFMIA requires auditors, as part of the 24 CFO Act agencies’ financial statement audits, to report whether those agencies’ financial management systems comply substantially with (1) federal financial management systems requirements, (2) applicable federal accounting standards, and (3) the federal government’s U.S. Standard General Ledger at the transaction level.

For fiscal years 2021 and 2020, auditors of nine of the 24 CFO Act agencies reported that the agencies’ financial management systems did not comply substantially with one or more of the three FFMIA

25The Federal Financial Management Improvement Act of 1996, which is reprinted in 31 U.S.C. § 3512 note, defines “financial management systems” to include the financial systems and the financial portions of mixed systems necessary to support financial management, including automated and manual processes, procedures, controls, data, hardware, software, and support personnel dedicated to the operation and maintenance of system functions.

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requirements. Agency management at the 24 CFO Act agencies also annually report on FFMIA compliance. For fiscal years 2021 and 2020, agency management of eight (2021) and seven (2020) of the 24 CFO Act agencies reported that their agencies’ financial management systems did not comply substantially with one or more of the three FFMIA requirements. Based on agency financial reports, differences in the assessments of substantial compliance between the auditors and agency management reflect differences in management’s and auditors’ views regarding the effect of reported deficiencies on agency financial management systems.

Long-standing financial management systems weaknesses at several large CFO Act agencies, along with the size and complexity of the federal government, continue to present a formidable management challenge in providing accountability and contribute significantly to certain material weaknesses and other limitations discussed in this audit report.

Report on Internal Control over Financial Reporting

Management’s Responsibility

Management of the federal government is responsible for (1) maintaining effective internal control over financial reporting, including the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error, and (2) evaluating the effectiveness of internal control over financial reporting, based on criteria established under the Federal Managers’ Financial Integrity Act (FMFIA).26

Auditor’s Responsibility

The purpose of an audit of financial statements is to express an opinion on the financial statements. An audit of financial statements includes considering internal control over financial reporting to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of internal control over financial reporting. We did not consider all internal controls relevant to operating objectives as broadly established under FMFIA, such as those controls relevant to preparing performance information and ensuring efficient operations.

Our responsibility is to report any material weaknesses or significant deficiencies in internal control over financial reporting for fiscal year 2021 that come to our attention as a result of our audit.27 Based on the

scope of our work and the effects of the other limitations on the scope of our audit noted throughout this audit report, our internal control work was not designed to, and would not necessarily, identify all deficiencies in internal control, including those that might be material weaknesses or significant deficiencies. Therefore, additional material weaknesses or significant deficiencies may exist that were not identified. We performed our work in accordance with U.S. generally accepted government auditing standards.

Definitions and Inherent Limitations of Internal Control over Financial Reporting

An entity’s internal control over financial reporting is a process effected by those charged with governance, management, and other personnel, the objectives of which are to provide reasonable

2631 U.S.C. § 3512(c), (d) (commonly referred to as FMFIA). This act requires executive agency heads to evaluate and report annually to the President and Congress on the adequacy of their agencies’ internal control and accounting systems and on actions to correct significant problems.

27A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness yet important enough to merit attention by those charged with governance.

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assurance that (1) transactions are properly recorded, processed, and summarized to permit the preparation of financial statements in accordance with U.S. generally accepted accounting principles, and assets are safeguarded against loss from unauthorized acquisition, use, or disposition, and (2) transactions are executed in accordance with provisions of applicable laws (including those governing the use of budget authority), regulations, contracts, and grant agreements, noncompliance with which could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent, or detect and correct, misstatements due to fraud or error.

Material Weaknesses Resulted in Ineffective Internal Control over Financial Reporting

The material weaknesses discussed in this audit report resulted in ineffective internal control over financial reporting. Consequently, the federal government’s internal control did not provide reasonable assurance that a material misstatement of the consolidated financial statements would be prevented, or detected and corrected, on a timely basis.

In addition to the material weaknesses that contributed to our disclaimers of opinion on the accrual- based consolidated financial statements and the sustainability financial statements, which were discussed previously, we found two other continuing material weaknesses in internal control, related to the federal government’s inability to

• determine the full extent to which improper payments occur and reasonably assure that appropriate actions are taken to reduce them and

• identify and resolve information security control deficiencies and manage information security risks on an ongoing basis.

These material weaknesses are discussed in more detail in appendix III, including the primary effects of the material weaknesses on the accrual-based consolidated financial statements and on the management of federal government operations.

We also found three significant deficiencies in the federal government’s internal control related to implementing effective internal controls at certain federal entities for the following areas:

• taxes receivable,

• federal grants management, and

• Medicare social insurance information.

These significant deficiencies are discussed in more detail in appendix IV.

Further, individual federal entity financial statement audit reports identified additional control deficiencies that the entities’ auditors reported as either material weaknesses or significant deficiencies at the individual entity level. We do not consider these additional deficiencies to represent material weaknesses or significant deficiencies with respect to the U.S. government’s consolidated financial statements.

U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 242

Intended Purpose of Report on Internal Control over Financial Reporting

The purpose of this report on internal control over financial reporting is solely to describe the scope of our consideration of internal control over financial reporting, and the results of our procedures, and not to provide an opinion on the effectiveness of internal control over financial reporting. This report on internal control over financial reporting is an integral part of an audit performed in accordance with U.S. generally accepted government auditing standards. Accordingly, this report on internal control over financial reporting is not suitable for any other purpose.

Report on Compliance with Laws, Regulations, Contracts, and Grant Agreements

Management’s Responsibility

Management of the federal government is responsible for the federal government’s compliance with laws, regulations, contracts, and grant agreements.

Auditor’s Responsibility

An audit of federal financial statements includes testing compliance with selected provisions of applicable laws, regulations, contracts, and grant agreements that have a direct effect on the determination of material amounts and disclosures in the financial statements, and performing certain other limited procedures. Accordingly, we did not test the federal government’s compliance with all laws, regulations, contracts, and grant agreements. Because of the limitations discussed below and the scope of our procedures, noncompliance may occur and not be detected by these tests.

Our objective was not to provide an opinion on the federal government’s compliance with laws, regulations, contracts, and grant agreements. Accordingly, we do not express such an opinion. We performed our work in accordance with U.S. generally accepted government auditing standards.

Results of Tests for Compliance with Laws, Regulations, Contracts, and Grant Agreements

Our work to test compliance with selected provisions of applicable laws, regulations, contracts, and grant agreements was limited by certain of the material weaknesses and other scope limitations discussed in this audit report. U.S. generally accepted government auditing standards and OMB guidance require auditors to report on entities’ compliance with selected provisions of applicable laws, regulations, contracts, and grant agreements. Certain significant component entity audit reports contain instances of noncompliance. None of these instances were deemed to be reportable noncompliance with regard to the accompanying U.S. government’s consolidated financial statements.

Intended Purpose of Report on Compliance with Laws, Regulations, Contracts, and Grant Agreements

The purpose of this report on compliance with laws, regulations, contracts, and grant agreements is solely to describe the scope of our testing of compliance with selected provisions of applicable laws, regulations, contracts, and grant agreements, and the results of that testing, and not to provide an opinion on compliance. This report on compliance with laws, regulations, contracts, and grant agreements is an integral part of an audit performed in accordance with U.S. generally accepted government auditing standards in considering compliance. Accordingly, this report on compliance with laws, regulations, contracts, and grant agreements is not suitable for any other purpose.

243 U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT

Agency Comments

We provided a draft of this audit report to Treasury and OMB officials, who provided technical comments that we have incorporated as appropriate. Treasury and OMB officials expressed their continuing commitment to addressing the problems this report outlines.

Robert F. Dacey Chief Accountant U.S. Government Accountability Office

February 9, 2022

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Appendix I

Objectives, Scope, and Methodology

Our objectives were to audit the consolidated financial statements consisting of the (1) accrual-based consolidated financial statements as of and for the fiscal years ended September 30, 2021, and 2020, and (2) sustainability financial statements, which consist of the 2021 and 2020 Statements of Long- Term Fiscal Projections; the 2021, 2020, 2019, 2018, and 2017 Statements of Social Insurance; and the 2021 and 2020 Statements of Changes in Social Insurance Amounts. Our objectives also included reporting on internal control over financial reporting and on compliance with selected provisions of applicable laws, regulations, contracts, and grant agreements.

The Chief Financial Officers Act of 1990 (CFO Act), as expanded by the Government Management Reform Act of 1994 (GMRA), requires the inspectors general of the 24 CFO Act agencies to be responsible for annual audits of agency-wide financial statements that these agencies prepare.28

GMRA requires GAO to be responsible for the audit of the U.S. government’s consolidated financial statements.29 The Accountability of Tax Dollars Act of 2002 requires most other executive branch

entities to prepare financial statements annually and have them audited.30 The Office of Management

and Budget (OMB) and the Department of the Treasury have identified 40 federal entities that are significant to the U.S. government’s fiscal year 2021 consolidated financial statements, including the 24 CFO Act agencies.31 We consider these 40 entities to be significant component entities for purposes of

our audit of the consolidated financial statements.

For the significant component entities audited by inspectors general or independent public accountants, we performed our work in coordination and cooperation with them to achieve our respective audit objectives. Our audit approach regarding the accrual-based consolidated financial statements primarily focused on determining the current status of the material weaknesses that contributed to our disclaimer of opinion on the accrual-based consolidated financial statements and the other material weaknesses affecting internal control that we reported in our report on the consolidated financial statements for fiscal year 2020.32 We also separately audited the financial statements of certain component entities,

and parts of a significant component entity, including the following.

• We audited and expressed an unmodified opinion on the Internal Revenue Service’s (IRS) financial statements as of and for the fiscal years ended September 30, 2021, and 2020.33 In fiscal years

2021 and 2020, IRS collected about $4.1 trillion (2021) and $3.5 trillion (2020) in tax payments and paid about $1.1 trillion (2021) and $736 billion (2020) in refunds and other payments to taxpayers. For fiscal year 2021, we also reported that although internal controls could be improved, IRS maintained, in all material respects, effective internal control over financial reporting. In addition, we reported that we found no reportable noncompliance for fiscal year 2021 with provisions of applicable laws, regulations, contracts, and grant agreements we tested.

2831 U.S.C. § 3521(e). GMRA authorized the Office of Management and Budget to designate agency components that also must report financial statements and have them audited. See 31 U.S.C. § 3515(c).

2931 U.S.C. § 331(e)(2).

3031 U.S.C. § 3515.

31See app. A of the Fiscal Year 2021 Financial Report of the United States Government for a list of the 40 entities.

32GAO, Financial Audit: FY 2020 and FY 2019 Consolidated Financial Statements of the U.S. Government, GAO-21-340R (Washington, D.C.: Mar. 25, 2021).

33GAO, Financial Audit: IRS’s FY 2021 and FY 2020 Financial Statements, GAO-22-104649 (Washington, D.C.: Nov. 10, 2021).

https://www.gao.gov/products/gao-21-340r

https://www.gao.gov/products/gao-22-104649

245 U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT

• We audited and expressed an unmodified opinion on the Schedules of Federal Debt managed by Treasury’s Bureau of the Fiscal Service for the fiscal years ended September 30, 2021, and 2020.34

For these 2 fiscal years, the schedules reported (1) about $22.3 trillion (2021) and $21.0 trillion (2020) of federal debt held by the public,35 (2) about $6.1 trillion (2021) and $5.9 trillion (2020) of

intragovernmental debt holdings,36 and (3) about $392 billion (2021) and $371 billion (2020) of

interest on federal debt held by the public. We also reported that although internal controls could be improved, Fiscal Service maintained, in all material respects, effective internal control over financial reporting relevant to the Schedule of Federal Debt as of September 30, 2021. In addition, we reported that we found no reportable noncompliance for fiscal year 2021 with provisions of applicable laws, regulations, contracts, and grant agreements we tested related to the Schedule of Federal Debt.

• We audited and expressed unmodified opinions on the U.S. Securities and Exchange Commission’s (SEC) and its Investor Protection Fund’s (IPF) financial statements as of and for the fiscal years ended September 30, 2021, and 2020.37 We also reported that SEC maintained, in all

material respects, effective internal control over financial reporting for both the entity as a whole and IPF as of September 30, 2021. In addition, we reported that we found no reportable noncompliance for either SEC or IPF for fiscal year 2021 with provisions of applicable laws, regulations, contracts, and grant agreements we tested.

• We audited and expressed an unmodified opinion on the Federal Housing Finance Agency’s (FHFA) financial statements as of and for the fiscal years ended September 30, 2021, and 2020.38

We also reported that FHFA maintained, in all material respects, effective internal control over financial reporting as of September 30, 2021. In addition, we reported that we found no reportable noncompliance for fiscal year 2021 with provisions of applicable laws, regulations, contracts, and grant agreements we tested.

• We audited and expressed an unmodified opinion on the Office of Financial Stability’s (OFS) financial statements for the Troubled Asset Relief Program (TARP) as of and for the fiscal years ended September 30, 2021, and 2020.39 We also reported that OFS maintained, in all material

respects, effective internal control over financial reporting for TARP as of September 30, 2021. In addition, we reported that we found no reportable noncompliance for fiscal year 2021 with provisions of applicable laws, regulations, contracts, and grant agreements we tested.

34GAO, Financial Audit: Bureau of the Fiscal Service’s FY 2021 and FY 2020 Schedules of Federal Debt, GAO-22-104592 (Washington, D.C.: Nov. 9, 2021).

35Debt held by the public on the Schedules of Federal Debt represents federal debt that Treasury issued and that is held by investors outside of the federal government, including individuals, corporations, state or local governments, the Federal Reserve, and foreign governments.

36Intragovernmental debt holdings represent federal debt that Treasury owes to federal government accounts, primarily federal trust funds, such as those established for Social Security and Medicare.

37GAO, Financial Audit: Securities and Exchange Commission’s FY 2021 and FY 2020 Financial Statements, GAO-22-104738 (Washington, D.C.: Nov. 15, 2021).

38GAO, Financial Audit: Federal Housing Finance Agency’s FY 2021 and FY 2020 Financial Statements, GAO-22-105109 (Washington, D.C.: Nov. 15, 2021).

39GAO, Financial Audit: Office of Financial Stability’s (Troubled Asset Relief Program) FY 2021 and FY 2020 Financial Statements, GAO-22-105173 (Washington, D.C.: Nov. 10, 2021).

https://www.gao.gov/products/gao-22-104592

https://www.gao.gov/products/gao-22-104738

https://www.gao.gov/products/gao-22-105109

https://www.gao.gov/products/gao-22-105173

U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 246

• We audited and expressed an unmodified opinion on the Bureau of Consumer Financial Protection’s (CFPB)40 financial statements as of and for the fiscal years ended September 30, 2021,

and 2020.41 We also reported that CFPB maintained, in all material respects, effective internal

control over financial reporting as of September 30, 2021. In addition, we reported that we found no reportable noncompliance for fiscal year 2021 with provisions of applicable laws, regulations, contracts, and grant agreements we tested.

• We audited and expressed a disclaimer of opinion on the Schedules of the General Fund of the U.S. Government42 as of and for the fiscal year ended September 30, 2020.43 Underlying scope

limitations, which were the basis for our disclaimer of opinion on the Schedules of the General Fund, related to readily (1) identifying and tracing General Fund transactions to determine whether they were complete and properly recorded in the correct general ledger accounts and line items within the Schedules of the General Fund and (2) providing documentation to support the account attributes assigned to Treasury Account Symbols that determine how transactions are reported in the Schedules of the General Fund.44 The Schedules of the General Fund as of and for the fiscal

year ended September 30, 2021, were not audited to allow Treasury sufficient time to develop and implement a remediation plan to address the issues we identified as part of our audit of the fiscal year 2020 Schedules of the General Fund.

We performed work related to Treasury processes and controls used to prepare the consolidated financial statements. We also considered our ongoing audit work on the General Fund of the U.S. Government.

We considered the significant entities’ fiscal years 2021 and 2020 financial statements and the related auditors’ reports that the inspectors general or independent public accountants prepared. We did not audit, and we do not express an opinion on, any of these individual federal entity financial statements.

We considered the disclaimers of opinion that the Department of Defense (DOD) Office of Inspector General (OIG) issued on DOD’s department-wide financial statements as of and for the fiscal years ended September 30, 2021, and 2020.45 The disclaimers of opinion were partially based on the

disclaimers of opinion for multiple DOD components, including the Army, Navy, Air Force, U.S. Marine Corps, Defense Health Program, Defense Information Systems Agency, Defense Logistics Agency, U.S. Special Operations Command, and U.S. Transportation Command. DOD OIG also reported material weaknesses in internal control over financial reporting (28 in fiscal year 2021 and 26 in fiscal year 2020), including those related to (1) property, plant, and equipment; (2) inventory and related

40The Bureau of Consumer Financial Protection, which was established by the Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, Title X, § 1011(a), 124 Stat. 1376, 1964 (July 21, 2010), classified at 12 U.S.C. § 5491(a), is often referred to as the Consumer Financial Protection Bureau.

41GAO, Financial Audit: Consumer Financial Protection Bureau’s FY 2021 and FY 2020 Financial Statements, GAO-22- 105067 (Washington, D.C.: Nov. 15, 2021).

42The General Fund is a component of Treasury’s central accounting function. It is a stand-alone reporting entity that comprises the activities fundamental to funding the federal government (e.g., issued budget authority, cash activity, and debt financing activities).

43GAO, Financial Audit: Bureau of the Fiscal Service’s FY 2020 Schedules of the General Fund, GAO-21-362 (Washington, D.C.: Apr 15, 2021).

44A Treasury Account Symbol is a unique identifier associated with a federal entity’s individual appropriation, receipt, or other fund account that Treasury assigns in collaboration with OMB.

45Department of Defense, United States Department of Defense Agency Financial Report for Fiscal Year 2020 (Arlington, Va.: Nov. 15, 2021).

https://www.gao.gov/products/gao-22-105067

https://www.gao.gov/products/gao-21-362

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property; (3) environmental and disposal liabilities; (4) reconciliations of disbursement activity; (5) intragovernmental transactions; and (6) financial management systems and information security.

We considered the disclaimers of opinion that the Small Business Administration’s (SBA) auditor issued on SBA’s balance sheet as of September 30, 2021 (its remaining statements were unaudited), and SBA’s financial statements as of and for the fiscal year ended September 30, 2020.46 The disclaimers

of opinion were based on SBA’s inability to provide adequate evidential matter in support of a significant number of transactions and account balances related to COVID-19 relief programs, such as the Paycheck Protection Program and the expanded Economic Injury Disaster Loan program, because of inadequate processes and controls. SBA’s auditor also reported material weaknesses in internal control over financial reporting (five in fiscal year 2021 and seven in fiscal year 2020), largely pertaining to these programs.

Our audit approach for the 2021 and 2020 Statements of Long-Term Fiscal Projections focused primarily on determining whether the information relating to the Statements of Social Insurance is properly reflected therein and testing the methodology used, as well as evaluating key assumptions. We also evaluated whether the internal control deficiencies related to the accrual-based consolidated financial statements affected certain key inputs used in generating the projections.

Because of the significance of the amounts presented in the Statements of Social Insurance and Statements of Changes in Social Insurance Amounts related to the Social Security Administration (SSA) and the Department of Health and Human Services (HHS), our audit approach regarding these statements focused primarily on reviewing audit work performed with respect to these two federal entities. For each federal entity preparing a Statement of Social Insurance and Statement of Changes in Social Insurance Amounts,47 we considered the entity’s 2021, 2020, 2019, 2018, and 2017

Statements of Social Insurance and the 2021 and 2020 Statements of Changes in Social Insurance Amounts, as well as the related auditor’s reports that the inspectors general or independent public accountants prepared.

We performed sufficient audit work to provide our reports on (1) the consolidated financial statements; (2) internal control over financial reporting; and (3) compliance with selected provisions of applicable laws, regulations, contracts, and grant agreements. We considered the limitations on the scope of our work regarding the accrual-based consolidated financial statements and the sustainability financial statements in forming our conclusions. We performed our work in accordance with U.S. generally accepted government auditing standards.

46Small Business Administration, Agency Financial Report for Fiscal Year 2021 (Washington, D.C.: Nov. 15, 2021).

47These entities are SSA, HHS, the Railroad Retirement Board, and the Department of Labor.

U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 248

Appendix II

Material Weaknesses Contributing to Our Disclaimer of Opinion on the Accrual-Based Consolidated Financial Statements

This appendix describes material weaknesses that contributed to our disclaimer of opinion on the federal government’s accrual-based consolidated financial statements and highlights the primary effects of these material weaknesses on the accompanying accrual-based consolidated financial statements, the sustainability financial statements, and the management of federal government operations.48 The federal government did not have sufficient appropriate evidence to support

information reported in the accompanying accrual-based consolidated financial statements, as described below.

Property, Plant, and Equipment and Inventories and Related Property

The federal government could not satisfactorily determine that property, plant, and equipment (PP&E) and inventories and related property were properly reported in the accrual-based consolidated financial statements. Most of the PP&E and inventories and related property are the responsibility of the Department of Defense (DOD). As in past years, DOD did not maintain adequate systems or have sufficient records to provide reliable information on these assets. Certain other entities’ auditors reported continued deficiencies in internal control procedures and processes related to PP&E.

Deficiencies in internal control over PP&E and inventories and related property could affect the federal government’s ability to fully know the assets it owns, including their location and condition. They can also affect the government’s ability to effectively (1) safeguard assets from physical deterioration, theft, or loss; (2) account for acquisitions and disposals of such assets and reliably report asset balances; (3) ensure that the assets are available for use when needed; (4) prevent unnecessary storage and maintenance costs or purchase of assets already on hand; and (5) determine the full costs of programs that use these assets.

Loans Receivable and Loan Guarantee Liabilities

The auditor of the Small Business Administration (SBA), which had substantial activity related to the COVID-19 pandemic response, reported internal control deficiencies related to SBA’s implementation of provisions in the CARES Act and related COVID-19 relief laws. SBA’s auditor reported several material weaknesses in internal control related to the Paycheck Protection Program (PPP) and disaster loans under the Economic Injury Disaster Loan (EIDL) program. These weaknesses included control deficiencies in (1) approvals, reporting, review, forgiveness, and service provider oversight related to PPP and (2) eligibility, recording, and service provider oversight related to the EIDL program. In addition, the auditor reported that SBA did not properly design and implement effective entity-level controls to establish an internal control system that produces reliable and accurate financial reporting. These internal control deficiencies significantly increased the risks of misstatements, noncompliance, fraud, and improper payments.

In addition, internal control deficiencies related to loans receivable and loan guarantee liabilities continued to exist at several other federal entities. These deficiencies were associated with accounting and reporting for credit programs and the related financing activities, including estimating the cost of credit programs and determining the value of loans receivable and loan guarantee liabilities.

48The material weakness related to the Reconciliations of Budget Deficit to Net Operating Cost and Changes in Cash Balance also contributed to our disclaimer on the 2021 and 2020 Statements of Long-Term Fiscal Projections.

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These deficiencies, and the complexities associated with accounting and reporting for credit programs, significantly increase the risk that misstatements in federal entity and government-wide financial statements could occur and go undetected. Further, these deficiencies can adversely affect the entities’ ability to support annual budget requests for these programs, make future budgetary decisions, manage program costs, and measure the performance of lending activities.

Liabilities and Commitments and Contingencies

The federal government could not reasonably estimate or adequately support amounts reported for certain liabilities. For example, the DOD auditor was not able to substantiate the completeness and accuracy of DOD’s environmental and disposal liabilities. In addition, the DOD auditor reported that DOD could not support a significant amount of its estimated military postretirement health benefits liabilities included in federal employee and veteran benefits payable. These unsupported amounts relate to the cost of direct health care that DOD-managed military treatment facilities provided. In addition, auditors reported internal control deficiencies at several other federal entities that related to material liabilities. Further, the federal government could not determine whether commitments and contingencies, including any related to treaties and other international agreements entered into to further the federal government’s interests, were complete and properly reported.

Problems in accounting for liabilities affect the determination of the full cost of the federal government’s current operations and the extent of its liabilities. Also, deficiencies in internal control supporting the process for estimating environmental and disposal liabilities could result in improperly stated liabilities. They also could adversely affect the federal government’s ability to determine priorities for cleanup and disposal activities and to appropriately consider future budgetary resources needed to carry out these activities. In addition, to the extent disclosures of commitments and contingencies are incomplete or incorrect, reliable information is not available about the extent of the federal government’s obligations.

Cost of Government Operations and Disbursement Activity

Reported net cost was affected by the other material weaknesses that contributed to our disclaimer of opinion on the accrual-based consolidated financial statements. As a result, the federal government was unable to support significant portions of the reported total net cost of operations, most notably those related to DOD and SBA.

With respect to disbursements, auditors of DOD and certain other federal entities reported continued control deficiencies in reconciling disbursement activity. For fiscal years 2021 and 2020, inadequate reconciliations of disbursement activity included (1) unreconciled differences between federal entities’ and the Department of the Treasury’s records of disbursements and (2) unsupported federal entity adjustments, which could also affect the balance sheet.

Unreliable cost information affects the federal government’s ability to control and reduce costs, assess performance, evaluate programs, and set fees to recover costs where required or authorized. Improperly recorded disbursements could result in misstatements in the financial statements and in certain data that federal entities provide for inclusion in The Budget of the United States Government (President’s Budget) concerning obligations and outlays.

Intragovernmental Activity and Balances

Significant progress has been made over the past several years, but the federal government continues to be unable to adequately account for intragovernmental activity and balances between federal entities. Federal entities are responsible for properly accounting for and reporting their intragovernmental activity and balances in their entity financial statements. When preparing the

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consolidated financial statements, intragovernmental activity and balances between federal entities should be in agreement and must be subtracted out, or eliminated, from the financial statements. If the two federal entities engaged in an intragovernmental transaction do not both record the same intragovernmental transaction in the same year and for the same amount, the intragovernmental transactions will not be in agreement, and if not properly resolved, would result in errors (i.e., differences or unmatched amounts) in the consolidated financial statements.

The Office of Management and Budget (OMB) and Treasury have issued guidance directing component entities to reconcile intragovernmental activity and balances with their trading partners and resolve identified differences. In addition, the guidance directs the chief financial officers (CFO) of significant component entities to report to Treasury, their respective inspectors general, and GAO on the extent and results of their intragovernmental activity and balance reconciliation efforts as of the end of the fiscal year.

To support this process during fiscal year 2021, Treasury continued to provide information and assistance to significant component entities to aid in resolving their intragovernmental differences. Treasury also issued additional guidance to entities for specific types of trading partner transactions. In addition, Treasury’s quarterly scorecard process49 highlights differences needing the entities’ attention,

identifies differences that need to be resolved through a formal dispute resolution process,50 and

reinforces the entities’ responsibilities to resolve intragovernmental differences. Treasury continued to identify and monitor systemic root causes of intragovernmental differences and related corrective action plans. As a result of these and other actions, a significant number of intragovernmental differences were identified and resolved.

While progress was made, we continued to note that amounts that federal entity trading partners reported to Treasury were not in agreement by significant amounts. Reasons for the differences that several CFOs cited included differing accounting methodologies, accounting errors, and timing differences. Auditors for several significant component entities continued to report that the entities did not have effective processes for reconciling intragovernmental activity and balances with their trading partners. For example, the DOD auditor reported that DOD, which has a substantial amount of intragovernmental activity and balances, did not have accounting systems that were able to capture the trading partner data required to eliminate intradepartmental and intragovernmental transactions, which resulted in a risk of material misstatements. In addition, other material weaknesses reported by DOD’s auditor could contribute to this material weakness.

The federal government’s ability to determine the effect of intragovernmental differences on the accrual-based consolidated financial statements is significantly impaired. Addressing the intragovernmental transactions problem remains a difficult challenge and will require federal entities’ strong and sustained commitment to resolving differences with their trading partners timely, as well as Treasury’s and OMB’s continued strong leadership.

49For each quarter, Treasury produces a scorecard for each significant entity, as well as any other component entity reporting significant intragovernmental balances or differences, that reports various aspects of the entity’s intragovernmental differences with its trading partners, including the composition of the differences by trading partner and category. Pursuant to Treasury guidance, entities are expected to resolve, with their respective trading partners, the differences identified in their scorecards.

50When an entity and its respective trading partner cannot resolve an intragovernmental difference, Treasury guidance directs the entity to request that Treasury resolve the dispute. Treasury will review the dispute and issue a decision on how to resolve the difference, which the entities must follow.

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Preparation of Consolidated Financial Statements

Treasury, in coordination with OMB, has implemented corrective actions in recent years related to the preparation of the consolidated financial statements. Corrective actions included improving systems and implementing new processes for preparing the consolidated financial statements, enhancing guidance for collecting data from component entities, and implementing procedures to address certain internal control deficiencies detailed in our previously issued management reports.51 However, the

federal government’s systems, controls, and procedures were not adequate to reasonably assure that the consolidated financial statements are consistent with the underlying audited entity financial statements, properly balanced, and in accordance with U.S. generally accepted accounting principles (U.S. GAAP). During our fiscal year 2021 audit, deficiencies in the preparation of the consolidated financial statements included the following.

• For fiscal year 2021, auditors reported internal control deficiencies at several component entities related to their entity-level controls, including the control environment, risk assessment, information and communication, and monitoring components of internal control, that could affect Treasury’s ability to obtain reliable financial information from federal entities for consolidation. For example, DOD and SBA reported material weaknesses in entity-level controls.

• For fiscal year 2021, auditors reported internal control deficiencies at several component entities related to the entities’ financial reporting processes that could affect information included in the consolidated financial statements. For example, DOD could not demonstrate that its financial statements were consistent with underlying records.

• While progress has been made, Treasury is unable to properly balance the accrual-based consolidated financial statements because of its inability to fully eliminate intragovernmental activity and balances. To make the fiscal years 2021 and 2020 consolidated financial statements balance, Treasury recorded unmatched transactions and balances in the Statements of Operations and Changes in Net Position, Balance Sheets, and Statements of Net Cost. Unmatched transactions and balances primarily represent unresolved differences in intragovernmental activity and balances between federal entities. The Statement of Operations and Changes in Net Position and the Balance Sheet include specific lines for the unmatched transactions and balances, while the unmatched transactions and balances are recorded in existing lines in the Statement of Net Cost. Specifically, for fiscal years 2021 and 2020, Treasury recorded a net $0.2 billion (2021) and $11.5 billion (2020) of unmatched transactions and balances on the Statements of Operations and Changes in Net Position. Treasury recorded a net $1.7 billion (2021) and $3.1 billion (2020) of unmatched transactions and balances on the Balance Sheets as of September 30. Treasury recorded an additional net $1.5 billion (2021) and $1.8 billion (2020) of unmatched transactions in the Statements of Net Cost. Unresolved intragovernmental differences (i.e., unmatched transactions and balances) result in errors in the consolidated financial statements. The ultimate effect on the accrual-based financial statements of resolving and correcting these differences cannot be fully determined and could be material.

51Most of the issues that we identified in fiscal year 2021 existed in fiscal year 2020, and many have existed for a number of years. Most recently, in August 2021, we reported on the status of the issues we identified to Treasury and OMB and provided recommendations for corrective action. See GAO, Management Report: Continued Improvements Needed in the Processes Used to Prepare the U.S. Consolidated Financial Statements, GAO-21-587 (Washington, D.C.: Aug. 12, 2021).

https://www.gao.gov/products/gao-21-587

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• Over the past several years, Treasury has taken significant actions to help ensure that financial information is reported or disclosed in the consolidated financial statements in accordance with U.S. GAAP. For example, Treasury has developed and implemented U.S. GAAP compliance operating procedures and checklists. Also, Treasury, along with the Department of State, is implementing a multiphase approach to review existing treaties and other international agreements to determine which of these agreements may result in commitments or contingencies.

However, Treasury’s reporting of certain financial information required by U.S. GAAP continues to be impaired. Because of certain control deficiencies noted in this audit report—for example, commitments and contingencies related to treaties and other international agreements—Treasury is precluded from determining if U.S. GAAP requires additional disclosure in the consolidated financial statements, which could be material. In addition, for fiscal year 2021, Treasury did not have adequate procedures to assess the impact of the Special Financial Assistance Program for Financially Troubled Multiemployer Plans (SFA program) established by the American Rescue Plan Act of 2021 (ARPA) on the accrual-based consolidated financial statements (see the basis for disclaimer of opinion section above).52 Further, Treasury’s ability to report information in accordance

with U.S. GAAP will also remain impaired until federal entities can provide Treasury with the complete and reliable information required to be reported in the consolidated financial statements.

In fiscal year 2021, Treasury continued to take corrective actions intended to resolve internal control deficiencies in the processes used to prepare the consolidated financial statements. In addition, Treasury and OMB continued to enhance guidance for component entity financial reporting, including the implementation of a new balance sheet format that more directly links component-level information to the government-wide balance sheet.

However, until these deficiencies have been fully addressed, the federal government’s ability to reasonably assure that the consolidated financial statements are consistent with the underlying audited federal component entities’ financial statements, properly balanced, and in accordance with U.S. GAAP will be impaired. It is important that Treasury (1) continues to improve its systems and processes and (2) remains committed to maintaining the progress that has been made in this area and building on that progress to make needed improvements that fully address the magnitude of the financial reporting challenges it faces. Resolving the remaining internal control deficiencies continues to be a difficult challenge and will require a strong and sustained commitment from Treasury, OMB, and federal entities.

Reconciliations of Budget Deficit to Net Operating Cost and Changes in Cash Balance

The Reconciliations of Net Operating Cost and Budget Deficit and the Statements of Changes in Cash Balance from Budget and Other Activities (Reconciliation Statements) reconcile (1) the accrual-based net operating cost to the primarily cash-based budget deficit and (2) the budget deficit to changes in cash balances. The budget deficit is calculated by subtracting actual budget outlays (outlays) from actual budget receipts (receipts).53 The outlays and receipts are key inputs to the Statements of Long-

Term Fiscal Projections.

52ARPA, Pub. L. No. 117-2, § 9704, 135 Stat. 4, 190-99 (Mar. 11, 2021), classified at 29 U.S.C. §§ 1305(i), 1432. ARPA established the SFA program to provide payments to eligible multiemployer pension plans to enable them to pay benefits at plan levels through 2051.

53The budget deficit, receipts, and outlays amounts, with minor adjustments, are reported in Treasury’s Monthly Treasury

Statement and the President’s Budget.

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Treasury continued to develop its process for preparing the Reconciliation Statements. One of the two Schedules of the General Fund of the U.S. Government provides information supporting the Statements of Changes in Cash Balance from Budget and Other Activities.54 However, as reported in

our disclaimer of opinion on the fiscal year 2020 Schedules of the General Fund, Treasury was unable to readily provide sufficient appropriate evidence to support certain information reported in the Schedules of the General Fund.55 With regard to the Reconciliation Statements, such limitations

primarily related to readily identifying and tracing transactions to determine whether they were complete and properly recorded in the Schedules of the General Fund. Specifically, certain amounts are netted and recorded at a summarized level thus preventing Treasury from readily obtaining the necessary details, at the transaction level, to support financial reporting for certain line items in the Statements of Changes in Cash Balance from Budget and Other Activities.

During fiscal year 2021, Treasury continued to implement procedures and develop new transaction codes to improve the accounting for and reporting of General Fund transactions and balances that Treasury uses to compute the budget deficit reported in the Reconciliation Statements. Because of the nature and complexity of the issues identified, some of the control deficiencies are expected to be remediated over several years and will largely depend on federal agencies implementing and properly reporting activity using the new transaction codes.

As of the end of fiscal year 2021, Treasury’s processes and procedures for preparing the Reconciliation Statements were not effective in (1) identifying and reporting all the items in the Reconciliation Statements, (2) properly supporting amounts used in calculating the budget deficit, and (3) reasonably assuring that the information in these statements was fully consistent with the underlying information in the significant component entities’ audited financial statements and other financial data. Consequently, there may be misstatements in the Reconciliation Statements.

In fiscal year 2021, as in prior years, we noted that several entities’ auditors reported internal control deficiencies related to monitoring, accounting, reconciliation, and reporting of budgetary transactions, including deficiencies related to federal entities’ budget and accrual reconciliations.56 These control

deficiencies could affect the reporting and calculation of the net outlay amounts in the entities’ Statements of Budgetary Resources. In addition, such deficiencies may also affect the entities’ ability to report reliable budgetary information to Treasury and OMB and may affect the budget deficit reported in the Reconciliation Statements. Treasury also reports the budget deficit in its Combined Statement of Receipts, Outlays, and Balances and in other federal government publications.57

54The General Fund is a component of Treasury’s central accounting function. It is a stand-alone reporting entity that comprises the activities fundamental to funding the federal government (e.g., issued budget authority, cash activity, and debt financing activities).

55GAO, Financial Audit: Bureau of the Fiscal Service’s FY 2020 Schedules of the General Fund, GAO-21-362 (Washington, D.C.: Apr. 15, 2021). The fiscal year 2021 Schedules of the General Fund were not audited to allow Treasury time to continue to implement a remediation plan to address the issues we reported as part of our disclaimer of opinion on the fiscal year 2020 Schedules of the General Fund.

56Statement of Federal Financial Accounting Standards (SFFAS) 53, Budget and Accrual Reconciliation: Amending SFFAS 7, and 24, and Rescinding SFFAS 22, became effective for periods beginning after September 30, 2018, and provides for the budget and accrual reconciliation (BAR) to replace the statement of financing. The BAR explains the relationship between an entity’s net outlays on a budgetary basis and its net cost of operations during the period.

57Treasury’s Combined Statement of Receipts, Outlays, and Balances presents budget results and cash-related assets and liabilities of the federal government with supporting details. According to Treasury, this report is the recognized official publication of receipts and outlays of the federal government based on entity reporting.

https://www.gao.gov/products/gao-21-362

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Appendix III

Other Material Weaknesses

Material weaknesses in internal control discussed in this audit report resulted in ineffective controls over financial reporting. In addition to the material weaknesses discussed in appendix II that contributed primarily to our disclaimer of opinion on the accrual-based consolidated financial statements, we found two other continuing material weaknesses in internal control. This appendix describes these weaknesses and highlights their primary effects on the accrual-based consolidated financial statements and on the management of federal government operations.

Improper Payments

We have reported improper payments—payments that should not have been made or that were made in an incorrect amount—as a material deficiency or material weakness in internal control in our audit reports on the U.S. government’s consolidated financial statements since fiscal year 1997.58 The

federal government is unable to determine the full extent to which improper payments occur and reasonably assure that appropriate actions are taken to reduce them. Reducing improper payments is critical to safeguarding federal funds. The Payment Integrity Information Act of 2019 (PIIA)59 requires

federal executive agencies60 to do the following:

1. Review all programs and activities. 2. Identify those that may be susceptible to significant improper payments. 3. Estimate the annual amount of improper payments for those programs and activities identified as

susceptible to significant improper payments. 4. Implement actions to reduce improper payments and set reduction targets with respect to the risk-

susceptible programs and activities. 5. Report on the results of addressing the foregoing requirements.61

Sixteen agencies reported improper payment estimates totaling about $281 billion for fiscal year 2021, based on improper payment estimates reported individually by 86 federal programs or activities in www.paymentaccuracy.gov.62 Most of the estimate was concentrated in the following areas:

Department of Health and Human Services’ (HHS) Medicaid ($99 billion); Department of Labor’s (DOL)

58Under the Payment Integrity Information Act of 2019 (PIIA), Pub. L. No. 116-117, 134 Stat. 113 (Mar. 2, 2020), an improper payment is statutorily defined as any payment that should not have been made or that was made in an incorrect amount (including overpayments and underpayments) under statutory, contractual, administrative, or other legally applicable requirements. It includes any payment to an ineligible recipient, any payment for an ineligible good or service, any duplicate payment, any payment for a good or service not received (except for such payments where authorized by law), and any payment that does not account for credit for applicable discounts. See 31 U.S.C. § 3351(4). PIIA also provides that when an executive agency’s review is unable to discern whether a payment was proper as a result of insufficient or lack of documentation, this payment must also be included in the improper payment estimate. 31 U.S.C. § 3352(c)(2).

59PIIA, Pub. L. No. 116-117, 134 Stat. 25413 (Mar. 2, 2020), which is codified at 31 U.S.C. §§ 3351-58.

60An executive agency, as that term is defined under title 31 of the U.S. Code, means a department, an agency, or an instrumentality in the executive branch of the U.S. government. 31 U.S.C. § 102.

61See 31 U.S.C. § 3352.

62An official U.S. government website managed by Office of Management and Budget (OMB), www.paymentaccuracy.gov contains, among other things, information about current and historical rates and amounts of estimated improper payments.

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Unemployment Insurance ($78 billion); and HHS’s Medicare—comprising three programs—($50 billion).63 In addition, four other programs reported improper payment estimates of $5 billion or more.64

The fiscal year 2021 government-wide total of reported estimated improper payments, among programs and activities that reported estimates, increased by about $75 billion from the fiscal year 2020 estimate of about $206 billion. The specific programs and activities included in the government-wide total of reported improper payment estimates may change from year to year. While decreases in estimated improper payments were reported for several programs and activities, these were more than offset by increases for certain other programs and activities.65 For example, DOL reported an increase of about

$70 billion in estimated improper payments for Unemployment Insurance in fiscal year 2021. This large increase resulted from (1) the doubling of the improper payment rate from 9.2 percent in fiscal year 2020 to 18.9 percent in fiscal year 2021 and (2) the large increase of reported outlays in the Unemployment Insurance program from $87 billion in fiscal year 2020 to $413 billion in fiscal year 2021. In addition, HHS reported an increase of estimated improper payments of about $12 billion for Medicaid in fiscal year 2021.

It is important to note that reported improper payment estimates include overpayments, underpayments, and payments for which the agency could not find sufficient documentation, and may also be based on payment data and sampling drawn from periods that do not coincide with the fiscal year for which the estimates are reported. Federal agencies reported over 91 percent of the government-wide estimate as overpayments.

The $281 billion of reported improper payment estimates for fiscal year 2021 generally do not include estimates related to the expenditures to fund response and recovery efforts for the COVID-19 pandemic, such as the Small Business Administration’s Paycheck Protection Program.66 Under OMB

guidance, a risk assessment to determine susceptibility to significant improper payments should be completed after the first 12 months of program operations.67 OMB guidance also states that in the fiscal

year following the fiscal year in which the risk assessment was conducted, programs that are determined to be susceptible to the risk of significant improper payments are to develop and report improper payment estimates, including root causes and corrective actions. In addition to the COVID-19 programs, we also identified some risk-susceptible programs for which agencies did not report fiscal year 2021 estimated improper payment amounts, including HHS’s Temporary Assistance for Needy

63Medicare comprises Fee-For-Service, Part C, and Part D programs.

64The other four programs with reported improper payment estimates greater than $5 billion in fiscal year 2021 were the (1) Department of the Treasury’s Earned Income Tax Credit, (2) Social Security Administration’s Supplemental Security Income, (3) HHS’s Children's Health Insurance Program, and (4) Treasury’s Additional Child Tax Credit.

65For fiscal year 2021, agencies reported decreases in total estimated improper payments in excess of $1 billion for four programs and activities and increases in total estimated improper payments in excess of $1 billion for five programs and activities. The four programs and activities with a decrease in excess of $1 billion were the Department of Veterans Affairs’ Community Care, Department of Defense’s (DOD) Civilian Pay, DOD’s Military Pay-Air Force, and DOD’s Military Pay-Army. The five programs and activities with increases in excess of $1 billion were the Department of Education’s Title I Grants to Local Educational Agencies, HHS’s Medicaid, HHS’s Medicare Advantage (Part C), Treasury’s Earned Income Tax Credit, and DOL’s Unemployment Insurance.

66See the Payment Integrity enclosure to GAO, COVID-19: Urgent Actions Needed to Better Ensure an Effective Federal Response, GAO-21-191 (Washington, D.C.: Nov. 30, 2020), for our matter for congressional consideration related to accelerating the reporting of improper payments estimates for COVID-19 relief funds.

67OMB, Appendix C to OMB Circular A-123, Requirements for Payment Integrity Improvement, OMB Memorandum M-21-19 (Washington, D.C.: Mar. 5, 2021).

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Families, HHS’s Advance Premium Tax Credit, and the Department of Agriculture’s Supplemental Nutrition Assistance Program.

If an agency’s inspector general determines that the entity is not in compliance with the criteria listed in PIIA, such as reporting an improper payment rate of 10 percent or greater for any risk-susceptible program or activity, that agency must submit a plan to Congress describing the actions that it will take to come into compliance. For example, the Department of Defense (DOD) Office of Inspector General (OIG) found that DOD did not comply with two such criteria. Specifically, DOD OIG reported that DOD did not publish reliable improper payment estimates for seven of its 11 risk-susceptible programs and did not meet its improper payment reduction targets. For fiscal year 2021, agencies reported estimated improper payment rates of 10 percent or greater for 26 risk-susceptible programs and activities,68

accounting for about 87 percent of the government-wide total of reported estimated improper payments.

Further, agency auditors continued to report internal control deficiencies over financial reporting in their fiscal year 2021 financial statement audit reports, such as financial system limitations and information system control weaknesses. Such deficiencies could significantly increase the risk that improper payments may occur and not be detected promptly.

The fiscal year 2021 President’s Budget included program integrity proposals at multiple agencies aimed at reducing improper payments.69 Also, efforts continue to implement PIIA requirements to better

identify and prevent improper payments, waste, fraud, and abuse, as well as to recover overpayments. In addition, the statutory Do Not Pay initiative under PIIA requires agencies to review prepayment and pre-award procedures and ensure a thorough review of available databases to determine program or award eligibility before the release of any federal funds. PIIA also directs the Office of Management and Budget to annually identify a list of high-priority federal programs for greater levels of oversight and review and requires each agency responsible for administering one of these high-priority programs to submit a program report to its inspector general annually and make the report available to the public.70

Finally, the federal government reported recovery of over $22 billion in overpayments for fiscal year 2021.

Until the federal government has implemented effective processes to determine the full extent to which improper payments occur and has taken appropriate actions across agencies and programs and activities to effectively reduce improper payments, it will not have reasonable assurance that the use of federal funds is adequately safeguarded.

Information Security

GAO has reported information security (controls in information technology systems, or IT controls) as a government-wide material weakness since fiscal year 1997.71 During our fiscal year 2021 audit, we

found that serious and widespread IT control deficiencies continued to place federal assets at risk of

68The improper payment rate reflects the estimated improper payments as a percentage of total annual outlays.

69Office of Management and Budget, Budget of the United States Government, Fiscal Year 2021 (Washington, D.C.: Feb. 10, 2020).

70OMB has designated high-priority programs as those programs and activities with improper payment monetary loss (also known as overpayments) estimates that exceed $100 million annually.

71We have also designated information security as a government-wide high-risk area since 1997. For more information, see GAO, High-Risk Series: Dedicated Leadership Needed to Address Limited Progress in Most High-Risk Areas, GAO-21-119SP (Washington, D.C.: Mar. 2, 2021).

https://www.gao.gov/products/gao-21-119sp

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inadvertent or deliberate misuse, unauthorized modification or destruction of financial information, inappropriate disclosure of sensitive information, and disruption of critical operations. Seventeen of the 24 agencies covered by the Chief Financial Officers Act of 1990 reported material weaknesses or significant deficiencies in IT controls. Specifically, control deficiencies were identified related to (1) security management; (2) access to computer data, equipment, and facilities; (3) changes to and configuration of information system resources; (4) segregation of incompatible duties; and (5) contingency planning. Such control deficiencies increase the risk of unauthorized access to, modification of, or disclosure of sensitive data and programs and disruptions of critical operations.

Most of the significant component entities that reported IT controls as a material weakness or significant deficiency for fiscal year 2021 identified weaknesses related to security management, access controls, configuration management, or combinations thereof. Security management is the foundation of a security-control structure and reflects senior management’s commitment to addressing security risks. Security management programs should provide a framework and continuous cycle of activity for managing risk, developing and implementing effective security policies, assigning responsibilities, and monitoring the adequacy of the entity’s IT controls. Without a well-designed security management program, IT controls may be inadequate; responsibilities may be unclear, misunderstood, or improperly implemented; and controls may be inconsistently applied. In addition, such conditions may lead to insufficient protection of sensitive or critical resources, improper or unauthorized changes to information systems, and disproportionately low expenditures for controls over high-risk resources.

Recent IT security events highlight the urgent need for federal entities to strengthen their security management program to identify and resolve deficiencies. Over the past 2 years, the Cybersecurity & Infrastructure Security Agency has issued eight emergency directives and alerts identifying certain vulnerabilities that posed an unacceptable risk to federal entities. Additionally, in May 2021, the President issued Executive Order 14028, Improving the Nation’s Cybersecurity, which directed the Secretary of Homeland Security, in consultation with the Attorney General, to establish a Cyber Safety Review Board to review and assess the threat activity, vulnerabilities, and mitigation activities of, and federal entity responses to, significant cyber incidents.72

Until federal entities strengthen their security management program and resolve their reported deficiencies, federal information technology systems will continue to be at risk of inadvertent or deliberate misuse, unauthorized modification or destruction of financial information, inappropriate disclosure of sensitive information, and disruption of critical operations.

72The White House, Improving the Nation’s Cybersecurity, Executive Order 14028 (Washington, D.C.: May 12, 2021), reprinted in 86 Fed. Reg. 26,633 (May 17, 2021).

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Appendix IV

Significant Deficiencies

In addition to the material weaknesses discussed in appendixes II and III, we found three significant deficiencies in the federal government’s internal control related to maintaining effective internal controls at certain federal entities, as described below.

Taxes Receivable

During fiscal year 2021, a significant deficiency continued to affect the federal government’s ability to manage its taxes receivable effectively. While the Department of the Treasury’s Internal Revenue Service (IRS) made necessary and appropriate adjustments derived from a statistical estimation process to correct its financial statements, IRS’s underlying records did not always reflect the correct amount of taxes owed to the federal government at interim periods and year-end because of financial system limitations and other control deficiencies that led to errors in taxpayers’ accounts. Such inaccurate tax records impair management’s ability to effectively manage taxes receivable throughout the year and place an undue burden on taxpayers who may be compelled to respond to IRS inquiries caused by errors in taxpayer accounts.

Federal Grants Management

In fiscal year 2021, several federal entities’ auditors continued to identify internal control deficiencies related to grants management.73 Reported deficiencies primarily related to accounting for grants,

monitoring of grant activities, and conducting grant closeout. These internal control deficiencies could adversely affect the federal government’s ability to provide reliable financial statements as well as reasonable assurance that grants are awarded properly, recipients are eligible, and federal grant funds are used as intended.

Medicare Social Insurance Information

In fiscal year 2021, auditors for the Department of Health and Human Services (HHS) identified internal control deficiencies in certain controls related to the sufficiency of the review of methodologies and related calculations and estimates that HHS used to prepare its Statement of Social Insurance for the Medicare program. Specifically, HHS’s auditor identified formula errors in certain spreadsheets used to prepare the Statement of Social Insurance that HHS’s monitoring and review function did not detect. Such control deficiencies could result in misstatements to the Statement of Social Insurance.

73Key entities contributing to the significant deficiency for federal grants management include the Small Business Administration, the Department of Homeland Security, and the Department of Health and Human Services.