U.S. Government Releases FY 2008 Financial Report

December 15, 2008
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Washington – The Treasury Department and the Office of Management and Budget today released the Fiscal Year 2008 Financial Report of the United States Government. The report details the U.S. government’s current financial position, as well as its short-term and long-term financial outlook, complementing the President’s Budget to be released in the spring of 2009.

“Throughout this unprecedented year, the Treasury Department has worked to achieve and maintain the stability of the financial system with short-term actions, but we must not forget the long-term needs that pose a significant threat to our country’s fiscal sustainability,” said Treasury Secretary Henry M. Paulson, Jr. “The projected costs for Medicare, Medicaid and other social programs are much greater than the resources that will be available to pay for them. Changes are needed to ensure these programs are fiscally sustainable.”

“It is without question that we face extraordinary challenges in our financial markets and the larger economy,” said OMB Director Jim Nussle. “As a result, the bottom-line budget results in the short-term are sobering. It is imperative to continue to aggressively confront today’s challenges. Functioning markets and a healthy economy will not only help put the federal budget back on a path towards balance, but will position us to take on inevitable future economic challenges, such as the our nation’s biggest budgetary challenge, the entitlement crisis.”

Revenue results in this year’s Financial Report were $2.7 trillion, increasing slightly by $34 billion or just over 1 percent, compared to last year. Total costs were $3.6 trillion, an increase of $.7 trillion or 25 percent compared to last year. Net operating cost increased to $1 trillion, up from last year’s net operating cost of $275.5 billion. The growth in the net operating cost resulted from the economic slowdown, the government’s response to the slowdown, and significant re-estimates of the government’s long-term liabilities for veterans’ disability compensation benefits.

Treasury projected an estimated present value of future social insurance program expenditures for all current and future program participants to be $43 trillion. Over the next two decades, Social Security and Medicare expenditures are projected to increase from their current 8 percent of GDP to about 11 percent. Without reform, the cost of these programs is projected to approach 18 percent of GDP by 2080. Medicare, Medicaid, and Social Security accounted for 16 percent of total government expenditures 40 years ago. Today, they comprise 40 percent of all expenditures.

The report also discusses the steps the federal government has taken to restore stability to the U.S. financial system. Although recently passed housing and economic stabilization laws authorize the government to spend money in the recovery effort, the majority of those funds have yet to actually be spent and, as a result, are not and would not be reported in the government’s consolidated financial statements. Amounts spent under the stabilization initiative have been and are expected to be treated as investments or loans, as the government may recover, and possibly even earn a positive return on amounts invested as economic conditions improve.

Each year, the Administration issues two reports, which detail the financial results for the

government. The President’s Budget, the government’s primary financial planning and control tool, describes how the government spent and plans to spend the money it collects. By comparison, the accrual-based Financial Report of the United States government includes the cost of operations, the sources used to finance those costs, how much the government owns and owes, and the outlook for its social insurance programs.

Although certain accounting and internal control challenges continue to prevent the Government Accountability Office from rendering an unqualified opinion on the government’s consolidated financial statements, significant progress was made in fiscal year 2008 to improve the reliability of the government’s financial information. Of the major federal agencies, 20 received clean opinions, one more than reported last year and the highest total in the past six years. The State Department intends to re-issue its audited financial statements with a clean opinion for fiscal year 2008 based on the updated report its auditor issued on December 12. The information on the updated audit report was not available in time to include in the final version of the Financial Report, which reflects a fiscal year 2008 “disclaimed” opinion for the State Department.

In addition, the number of material weaknesses government-wide declined by 18 percent, from 39 to 32. This is the fifth consecutive year that material weaknesses have declined, with a nearly 50 percent decrease in weaknesses since 2001.

For the past four years, Treasury has issued the report on December 15 or the first business day following that date, well ahead of the statutory March 31 deadline. As the issues discussed in the Report affect, and should be of interest to every citizen, for the second consecutive year, the Department is also releasing an accompanying Citizen’s Guide to the Financial Report. The report and the guide are available at http://www.fms.treas.gov/fr/index.html.