The economy continued to grow during FY 2011. Consumer spending rose at a moderate pace. Residential investment grew on a fiscal year basis for the first time since FY 2005, and nonresidential investment strengthened slightly. Job creation accelerated in FY 2011, with the economy adding about 1.9 million private nonfarm payroll jobs (after creating nearly 350,000 private nonfarm payroll jobs during the previous fiscal year). Overall inflation increased during the course of the year, reflecting higher energy and food prices. The core inflation rate (which excludes food and energy) also increased from the previous fiscal year's very low level, but remained low by historical standards. Real wages fell due to a combination of slower nominal wage growth and rising consumer prices. The level of corporate profits increased in FY 2011, but at a slower pace than in the previous fiscal year. Federal spending grew and tax receipts increased in FY 2011, which resulted in the Federal unified budget deficit remaining essentially flat at $1.3 trillion. However, the deficit narrowed as a share of GDP to 8.7 percent from 9.0 percent in FY 2010. The economy continued to receive significant support during the fiscal year by a wide variety of measures implemented under the American Recovery and Reinvestment Act of 2009 (Recovery Act or ARRA). It was also supported by additional measures, including a new Small Business Jobs and Wages Tax Credit, supplemental support for State and local Governments to support jobs and medical services, a 2 percent payroll tax cut, extensions of unemployment benefits, and refundable tax credits, and a two-year extension of the 2001 tax cuts.
What came in? Total Government revenues (calculated using a modified cash basis of accounting) increased slightly from $2.2 trillion to $2.4 trillion in FY 2011. Chart 3 shows that a $133 billion or 7.7 percent increase in personal income and payroll tax revenues during FY 2011 was partially offset by a $5 billion or 2.5 percent decrease in corporate tax revenues. Together, personal and corporate taxes accounted for about 86 percent of total revenues. The other 14 percent is attributed to other revenues, including excise taxes, unemployment taxes, and customs duties.
What went out? To derive its net cost ($3.7 trillion in FY 2011), the Government subtracts revenues earned from Government programs (e.g., Medicare premiums, National Park entry fees, and postal service fees) from its gross costs and adjusts the net amount for gains or losses from changes in actuarial assumptions used to estimate federal employee pensions, other retirement benefits, and other postemployment benefits. For FY 2011, total net costs declined by $635 billion (about 15 percent). This decline is mostly due to significant decreases in estimates of certain non-cash costs from FY 2010 to FY 2011 relating to federal employee and veterans benefits and federal government economic recovery efforts. The amounts associated with these declines are reflected in the 'Change' column of Table 1 and discussed further below.
Chart 4 shows that the largest contributors to the Government's net cost in FY 2011, as is the case in most years, include the Departments of Health and Human Services (HHS) and Defense (DoD) and the Social Security Administration (SSA). The bulk of HHS and SSA costs are attributable to major social insurance and postemployment benefits programs administered by those agencies. Similarly, much of DoD's costs are also associated with its Military Retirement Fund and other benefits programs, as well as its current operations. In fact, across the Government, just the change in current costs of and actuarial and other estimated costs associated with the change in Federal Employee and Veterans Benefits Payable for the Government's three largest postemployment benefits programs ($431.2 billion decrease as shown in Table 1 on the following page) accounted for more than two-thirds of the total $635.2 billion decrease in the Government's net cost and more than half of the $767.7 billion decrease in the bottom line net operating cost, as described below, for FY 2011. Further, the long-term nature of these costs and their sensitivity to a wide range of complex assumptions can, in some cases, cause significant fluctuation in agency and government-wide costs from year to year.
To arrive at the Government's "bottom line" net operating cost, the Government subtracts taxes and other revenues (Chart 3) from its net cost. The 15 percent decrease in net cost combined with a 6.6 percent increase in taxes and other revenues, translated into a $768 billion (37 percent) decrease in the Government's "bottom line" net operating cost from $2.1 trillion in FY 2010 to $1.3 trillion in FY 2011.
The Budget of the United States Government (President's Budget) is the Government's primary financial planning and control tool. It describes how the Government spent and plans to spend the public's money, comparing receipts, or cash received by the Government, with outlays, or payments made by the Government to the public to derive a budget surplus (excess of receipts over outlays) or deficit (excess of outlays over receipts). Outlays are measured primarily on a cash basis and receipts are measured on a purely cash basis – or essentially they are measured when the Government receives or dispenses cash.
The Financial Report of the United States Government (Report) reports on the Government's accrual-based costs, the sources used to finance those costs, how much the Government owns and owes, and the outlook for fiscal sustainability. It compares the Government's revenues, or amounts that the Government has collected and expects to collect, but has not necessarily received, with its costs (recognized when owed, but not necessarily paid) to derive net operating cost. Together, the President's Budget and the Financial Report present complementary perspectives on the Nation's financial health and provide a valuable decision-making and management tool for the Nation's leaders.
Table 1 shows that, the difference between the budget deficit and net operating cost were comparatively minimal for FY 2011 ($14 billion in FY 2011compared to $786.2 billion in FY 2010). However, in both cases, the significant non-cash costs (i.e. changes in estimated liabilities) relating to Federal employee and veteran benefits, as well as future spending on investments in Government Sponsored Enterprises (GSEs), specifically Fannie Mae and Freddie Mac, account for most of the change difference between budget deficit and net operating cost. Further, the changes in these amounts (see 'Change' column in Table 1) account for most of the change in the Government's net cost between FY 2010 and FY 2011. See the Financial Report of the U.S. Government for a more detailed analysis of these issues.
|Dollars in Billions||2011||2010||Increase / (Decrease)|
|Net Operating Cost||$ (1,312.6)||$ (2,080.3)||$ (767.7)|
|Federal Employee and Veterans Benefits Payable||$ 71.9||$ 503.1||$(431.2)|
|Liabilities for Government Sponsored Enterprises||$(43.7)||$ 268.0||$ (311.7)|
|Other, Net||$(14.2)||$ 15.1||$(29.3)|
|Subtotal - Net Difference:||$ 14.0||$ 786.2||$(772.2)|
|Budget Deficit||$ (1,298.6)||$ (1,294.1)||$ 4.5|
Chart 5 is a summary of what the Government owns in assets and what it owes in liabilities. As of September 30, 2011, the Government held about $2.7 trillion in assets, comprised mostly of net property, plant, and equipment ($852.8 billion) and a combined total of $985.2 billion in net loans receivable, mortgage-backed securities, and investments. During FY 2011, the Government's total assets decreased by $176.5 billion, due mostly to elimination of the cash deposits with the Federal Reserve under the Supplementary Financing Program (SFP). Under the SFP, the Treasury issued special bills, which provided cash that the Federal Reserve used to manage its authorized lending and liquidity initiatives.
As indicated in Chart 5, the Government's largest liabilities are: (1) Federal debt held by the public and accrued interest, 1 the balance of which increased from $9.1 trillion to $10.2 trillion during FY 2011, and (2) Federal employee postemployment and veteran benefits payable, which increased slightly during FY 2011, from $5.7 trillion to $5.8 trillion.
In addition to debt held by the public, the Government reports about $4.7 trillion of intragovernmental debt outstanding, which arises when one part of the Government borrows from another. It represents debt held by Government funds, including the Social Security and Medicare trust funds, which are typically required to invest any excess annual receipts in Federal debt securities. Because these amounts are both liabilities of the Treasury and assets of the Government trust funds, they are eliminated in the consolidation process for the Government-wide financial statements. The sum of debt held by the public and intragovernmental debt equals gross Federal debt, which (with some adjustments) is subject to a statutory ceiling (i.e., the debt limit). During FY 2011, the debt limit was raised twice, by $400 billion in August 2011 to $14.694 trillion and by $500 billion in September 2011 to $15.194 trillion, pursuant to the Budget Control Act (BCA) of 2011. The BCA also provides for an additional debt limit increase once certain conditions are met.
If budget deficits continue to occur, the Government will have to borrow more from the public. Instances where the debt held by the public increases faster than the economy for extended periods can pose additional challenges.
Since the financial crisis in 2008, the Treasury Department, the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and other U.S. Government bodies have taken actions to help stabilize financial markets and pave the way for sustained economic recovery. Among these actions were financial support to provide liquidity to the housing market and the financial system and the American Recovery and Reinvestment Act (Recovery Act or ARRA), which provided much-needed support for American families and spurred investment, thereby providing a critical boost to the economy. Chart 6 summarizes the outstanding balances of investments and direct loans related to key economic recovery programs described below.
* Significant disbursements by the Federal Reserve are not included in this chart.
The Housing and Economic Recovery Act of 2008 (HERA) established the Federal Housing Finance Agency (FHFA), to regulate the housing GSEs, including Fannie Mae and Freddie Mac. HERA also authorized the Treasury Department to provide financial support for the housing GSEs through such programs as the Senior Preferred Stock Purchase Agreements (SPSPA) program, which provides that the Government will make funding advances to Fannie Mae and Freddie Mac as needed to ensure that the GSEs have sufficient assets to support their liabilities; and the GSE-guaranteed mortgage-backed securities (MBS) purchase program (which was terminated as of December 31, 2009). These efforts helped bring down mortgage rates to historically low levels and helped provide liquidity to housing markets.
As of September 30, 2011, Treasury's payments under the SPSPA program to Fannie Mae and Freddie Mac totaled a cumulative combined $169.0 billion, reflected on the Government's balance sheet at fair value at $133.0 billion and a combined $316.2 billion has been accrued as a contingent liability under this program. Between October 2008 and December 31 2009, Treasury purchased $225 billion in agency-guaranteed MBS. In March 2011, Treasury began selling off its MBS purchases, reducing the outstanding portfolio by more than half from $172.2 billion as of the end of FY 2010 to $72.4 billion as of September 30, 2011 and by more than two-thirds when compared to Treasury's initial purchases (see Chart 6).
The Emergency Economic Stabilization Act of 2008 (EESA) created the Troubled Asset Relief Program (TARP) , which gave the Secretary of the Treasury authorities and facilities necessary to help restore liquidity and stability to the U.S. financial system and help ensure that such authorities are used in a manner that protects home values, college funds, retirement accounts, and life savings; preserves homeownership; promotes jobs and economic growth; maximizes overall returns to taxpayers; and provides public accountability. EESA provided authority for TARP to purchase or guarantee up to $700 billion in troubled assets. The Dodd-Frank Wall Street Reform and Consumer Protection Act reduced cumulative authority to $475 billion, in line with expected investment amounts.
TARP's bank programs are now producing a profit for taxpayers. The Treasury Department reduced its stake in General Motors Company by 50 percent and fully exited its investment in Chrysler Group, as Chrysler Group repaid its loans six years earlier than the loans' maturity dates. In addition, Treasury, working with other Federal entities, closed on a major restructuring plan for American International Group (AIG), putting the Government in a better position to recover its investment. Chart 6 shows how TARP's net investments have changed since FY 2009. Since TARP's inception through September 30, 2011, Treasury has disbursed $413.4 billion in direct loans and investments, and for the Housing programs under TARP, collected $276.9 billion from repayments and sales, and reported nearly $40 billion from cash received through interest and dividends, as well as from proceeds from the sale and repurchase of assets in excess of cost. As of September 30, 2011, TARP had $122.4 billion in gross outstanding direct loans and equity investments, valued at $80.1 billion (see Chart 6).
The ultimate cost of TARP investments is subject to uncertainty, and will depend on, among other things, how the economy, financial markets, and particular companies perform. Additional information concerning the TARP program and other related initiatives can be found at www.financialstability.gov.
The economic recovery initiatives and efforts undertaken since the spring of 2009 reflect a broad and aggressive policy response that included the HERA and TARP initiatives and programs, other financial stability policies implemented by the FDIC and the Board of Governors of the Federal Reserve, accommodative monetary policy, and the Recovery Act. The purpose of the original $787 billion ARRA package was to jump-start the economy and to create and save jobs, with one-third of ARRA dedicated to tax provisions to help businesses and working families, another third for emergency relief for those who have borne the brunt of the recession, and the final third devoted to investments to create jobs, spur economic activity, and lay the foundation for future sustained growth. Cumulative ARRA amounts paid out by Federal agencies as of September 30, 2011 totaled $421.4 billion, as compared to $307.9 billion as of September 30, 2010.2 Readers may find the most up-to-date information on where and how Recovery Act funds are being used at www.recovery.gov.
1 Debt held by the public, as reported on the Government's balance sheet, consists of Treasury securities, net of unamortized discounts and premiums, and accrued interest. The "public" consists of individuals, corporations, state and local governments, Federal Reserve Banks, foreign governments, and other entities outside the Federal Government.(Back to Content)
2 Agency Financial & Activity Reports as of September 30, 2011 and 2010. For more information, see the Recovery Act website at www.Recovery.gov. (Back to Content)