Financial Audit: Bureau of the Public Debt's Fiscal Years 2003
and 2002 Schedules of Federal Debt (07-NOV-03, GAO-04-177).
GAO audited the Bureau of Public Debt's schedule of Federal Debt
for fiscal years 2003 and 2002. GAO found that (1) the Schedules
of Federal Debt were presented fairly, in all material respects,
in conformity with generally accepted accounting principles; (2)
the Bureau had effective internal control over financial
reporting and compliance with laws and regulations related to the
Schedule of Federal Debt for fiscal year 2003; and (3) there was
no reportable noncompliance in fiscal year 2003 with a selected
provision of a law GAO tested.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-04-177
ACCNO: A08823
TITLE: Financial Audit: Bureau of the Public Debt's Fiscal Years
2003 and 2002 Schedules of Federal Debt
DATE: 11/07/2003
SUBJECT: Debt held by public
Federal debt
Financial statement audits
Accountability
Data integrity
Financial records
Internal controls
Reporting requirements
Bureau of the Public Debt Schedule of
Federal Debt
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GAO-04-177
United States General Accounting Office
GAO
Report to the Secretary of the Treasury
November 2003
FINANCIAL AUDIT
Bureau of the Public Debt's Fiscal Years 2003 and 2002 Schedules of Federal Debt
a
GAO-04-177
Highlights of GAO-04-177, a report to Secretary of the Treasury
GAO is required to audit the consolidated financial statements of the U.S.
government. Due to the significance of the federal debt held by the public
to the governmentwide financial statements, GAO has also been auditing the
Bureau of the Public Debt's (BPD) Schedules of Federal Debt annually. The
audit of these schedules is done to determine whether, in all material
respects, (1) the schedules prepared are reliable, (2) BPD management
maintained effective internal control relevant to the Schedule of Federal
Debt, and (3) BPD complies with selected provisions of significant laws
related to the Schedule of Federal Debt.
Federal debt managed by BPD consists of Treasury securities held by the
public and by certain federal government accounts, referred to as
intragovernmental debt holdings. The level of debt held by the public
reflects how much of the nation's wealth has been absorbed by the federal
government to finance prior federal spending in excess of total federal
revenues. Intragovernmental debt holdings represent balances of Treasury
securities held by federal government accounts, primarily federal trust
funds such as Social Security, that typically have an obligation to invest
their excess annual receipts over disbursements in federal securities.
November 2003
FINANCIAL AUDIT
Bureau of the Public Debt's Fiscal Years 2003 and 2002 Schedules of Federal Debt
In GAO's opinion, BPD's Schedules of Federal Debt for fiscal years 2003
and 2002 were fairly presented in all material respects and BPD maintained
effective internal control related to the Schedule of Federal Debt as of
September 30, 2003. GAO also found no instances of noncompliance in fiscal
year 2003 with selected provisions of the statutory debt limit and debt
issuance suspension period laws we tested.
As of September 30, 2003 and 2002, federal debt managed by BPD totaled
about $6,783 billion and $6,213 billion, respectively. In fiscal year
2003, debt held by the public as a percentage of the annual size of the
U.S. economy increased by approximately 2.3 percentage points to an
estimated 36.5 percent. Further, certain trust funds (e.g., Social
Security and Medicare) continue to run cash surpluses, resulting in
increased intragovernmental debt holdings. These debt holdings represent a
priority call on future budgetary resources. During fiscal year 2003, a
debt issuance suspension period was invoked to avoid breaching the
statutory debt limit. On May 27, 2003, legislation was enacted to raise
the debt limit by $984 billion to $7,384 billion. The Congressional Budget
Office recently projected that this new debt limit will be reached during
fiscal year 2004.
As shown below, total federal debt increased each year over the last 4
years. Debt held by the public decreased as a result of cash surpluses for
the first 2 years of this period, but increased during fiscal years 2002
and 2003, with the return of annual deficits. Intragovernmental debt
holdings steadily increased during this 4-year period primarily due to
excess receipts over disbursements in federal trust funds.
www.gao.gov/cgi-bin/getrpt?GAO-04-177.
For a fuller understanding of GAO's opinion on BPD's fiscal years 2003 and
2002 Schedules of Federal Debt, readers should refer to the complete audit
report, available by clicking the link above, which includes information
on audit objectives, scope, and methodology. For more information,
contact Gary T. Engel at (202) 512-3406. Source: BPD.
Contents
Letter 1
Auditor's Report 7
Opinion on Schedules of Federal Debt 8
Opinion on Internal Control 8
Compliance with Laws and Regulations 8
Consistency of Other Information 9
Objectives, Scope, and Methodology 9
Agency Comments 11
Overview, Schedules, 12
and Notes Overview on Federal Debt Managed by the Bureau of the Public
Debt 12
Schedules of Federal Debt 20
Notes to the Schedules of Federal Debt 21
Appendixes
Appendix I: Comments from the Bureau of the Public Debt 28
Appendix II: GAO Contact and Acknowledgements 29 GAO Contact 29
Acknowledgments 29
Abbreviations
BPD Bureau of the Public Debt
OMB Office of Management and Budget
This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed in
its entirety without further permission from GAO. However, because this
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separately.
A
United States General Accounting Office Washington, D.C. 20548
November 7, 2003
The Honorable John W. Snow The Secretary of the Treasury
Dear Mr. Secretary:
The accompanying auditor's report presents the results of our audits of
the Schedules of Federal Debt Managed by the Bureau of the Public Debt for
the fiscal years ended September 30, 2003 and 2002. The Schedules of
Federal Debt present the beginning balances, increases and decreases, and
ending balances for (1) Federal Debt Held by the Public and
Intragovernmental Debt Holdings, (2) the related Accrued Interest
Payables, and (3) the related Net Unamortized Premiums and Discounts
managed by the bureau.1
The auditor's report contains our (1) opinion on the Schedules of Federal
Debt for the fiscal years ended September 30, 2003 and 2002, (2) opinion
on the effectiveness of related internal control as of September 30, 2003,
(3) conclusion on the bureau's compliance in fiscal year 2003 with laws we
tested, and (4) conclusion on the consistency between information in the
Schedules of Federal Debt and the Overview on Federal Debt Managed by the
Bureau of the Public Debt.
As of September 30, 2003 and 2002, federal debt managed by the bureau
totaled about $6,783 billion and $6,213 billion, respectively, for moneys
borrowed to fund the government's operations. As shown on the Schedules of
Federal Debt, these balances consisted of approximately (1) $3,924 billion
as of September 30, 2003, and $3,553 billion as of September 30, 2002, of
debt held by the public and about (2) $2,859 billion as of September 30,
2003, and $2,660 billion as of September 30, 2002, of intragovernmental
debt holdings.
The level of debt held by the public reflects how much of the nation's
wealth has been absorbed by the federal government to finance prior
federal spending in excess of total federal revenues. It best represents
the cumulative effect of past federal borrowing on today's economy and the
federal budget. To finance a cash deficit, the government borrows from the
1Intragovernmental Debt Holdings represent federal debt issued by Treasury
and held by certain federal government accounts, such as the Social
Security and Medicare trust funds.
public. When a cash surplus occurs, the annual excess funds can then be
used to reduce debt held by the public. In other words, cash deficits or
surpluses generally approximate the annual net change in the amount of
government borrowing from the public.
Cash surpluses during fiscal years 1998 through 2001 enabled Treasury to
reduce debt held by the public by $476 billion, from $3,815 billion as of
September 30, 1997, to $3,339 billion as of September 30, 2001. Treasury
reduced this debt by redeeming maturing debt, reducing the number of
auctions and size of new debt issues, conducting "buybacks" of debt before
its maturity date, and redeeming callable securities when the
opportunities arose.2 However, because of the return to deficits, in
fiscal years 2002 and 2003, debt held by the public increased by $585
billion, with about $371 billion of this increase occurring in fiscal year
2003. Treasury issued more debt by increasing the number of auctions and
the size of new debt issues. During fiscal year 2003, Treasury
reintroduced the 3-year note, which will be offered every quarter. In
addition, Treasury increased the offerings of the 5-year note from
quarterly to monthly offerings; the 10-year note from an offering every
quarter to eight offerings a year; and the 10-year inflation indexed note
from three offerings a year to an offering every quarter. Notwithstanding
the increases in fiscal years 2002 and 2003, debt held by the public as a
percentage of total federal debt has decreased from approximately 71
percent as of September 30, 1997, to approximately 58 percent as of
September 30, 2003.
Intragovernmental debt holdings represent balances of Treasury securities
held by federal government accounts, primarily federal trust funds, that
typically have an obligation to invest their excess annual receipts over
disbursements in federal securities. Most federal trust funds invest in
special U.S. Treasury securities that are guaranteed for principal and
interest by the full faith and credit of the U.S. government. These
securities are nonmarketable; however, they represent a priority call on
future budgetary resources. Certain of these trust funds, such as the
Social Security and federal civilian employee and military retirement
trust funds, have been running cash surpluses, which are loaned to the
Treasury and reduce the current need for the government to borrow from the
public. Primarily as a result of such trust fund surpluses,
intragovernmental debt holdings have increased by approximately $1,276
billion during fiscal years
2During this period, Treasury eliminated the 3-year note and the 52-week
bill. On October 31, 2001, Treasury suspended issuance of the 30-year
bond.
1998 through 2003, from $1,583 billion as of September 30, 1997, to $2,859
billion as of September 30, 2003, with about $199 billion of this increase
occurring in fiscal year 2003. Intragovernmental debt holdings as a
percentage of total federal debt have increased from approximately 29
percent as of September 30, 1997, to approximately 42 percent as of
September 30, 2003.
The transactions relating to the use of the federal government accounts'
surpluses net out on the government's consolidated financial statements
because, in effect, they represent loans from one part of the government
to another. Importantly, these intragovernmental debt holdings also
constitute future obligations of the Treasury since the Treasury must
provide cash to redeem these securities in order for the individual
accounts to pay their benefits or other obligations as they come due. When
this occurs, if sufficient cash surpluses are not available to redeem the
securities, the government would either need to increase borrowing from
the public, raise future taxes, reduce future spending, retire less debt
(if the budget as a whole is in surplus), or some combination thereof.
While both are important, debt held by the public and intragovernmental
debt holdings are very different. Debt held by the public approximates the
federal government's competition with other sectors in the credit markets.
Federal borrowing absorbs resources available for private investment and
may put upward pressure on interest rates. In addition, interest on debt
held by the public is paid in cash and represents a burden on current
taxpayers. It reflects the amount the government pays to its outside
creditors. In contrast, intragovernmental debt holdings perform an
accounting function but typically do not require cash payments from the
current budget or represent a burden on the current economy. In addition,
from the perspective of the budget as a whole, interest payments to
federal government accounts by the Treasury are entirely offset by the
income received by such accounts-in effect, one part of the government
pays the interest and another part receives it. This intragovernmental
debt and the interest on it represents a claim on future resources and
hence a burden on future taxpayers and the future economy. However, these
intragovernmental debt holdings do not fully reflect the government's
total future commitment to trust fund financed programs. They primarily
represent the cumulative cash surpluses of those trust funds and also
reflect future priority claims on the U.S. Treasury. They do not have the
current economic effects of borrowing from the public and do not currently
compete with the private sector for available funds in the credit markets.
However, when trust funds redeem Treasury securities to obtain cash to
fund expenditures, and Treasury borrows from the public to finance these
redemptions, there is competition with the private sector and thus an
effect on the economy.
During fiscal year 2003, Treasury again faced the challenge of managing
the debt within the statutory debt limit. On February 20, 2003, Treasury
entered into a debt issuance suspension period that required it to depart
from its normal debt management procedures and to invoke legal authorities
provided to avoid breaching the debt limit. Actions taken by Treasury
included suspending investment of receipts of the Government Securities
Investment Fund (G-Fund) of the federal employees' Thrift Savings Plan,
the Civil Service Retirement and Disability Trust Fund (Civil Service
fund), and the Exchange Stabilization Fund; redeeming Civil Service fund
securities early; suspending the sales of State and Local Government
Series nonmarketable Treasury securities; exchanging Treasury securities
for Federal Financing Bank securities; and recalling compensating balances
held at some commercial banks. In addition, because the debt subject to
the limit was so close to the ceiling during this period, Treasury turned
to issuing bills with maturity dates of 14 days or less to manage
short-term financing needs. On May 27, 2003, legislation was enacted to
raise the statutory debt limit by $984 billion to $7,384 billion.
Subsequently, Treasury restored all losses to the G-Fund and Civil Service
fund in accordance with legal authorities provided to the Secretary of the
Treasury. The Congressional Budget Office recently projected that this new
debt limit will be reached during fiscal year 2004.3
The challenge of managing the federal debt is not likely to diminish any
time soon. In fiscal year 2003 alone, debt held by the public increased by
approximately 2.3 percent of gross domestic product (GDP)-from 34.2
percent at the start of the fiscal year to an estimated 36.5 percent at
the end. Although the recession of 2001 has been over for almost 2 years,
the federal budget deficit for fiscal year 2003 is the largest (in nominal
dollars) on record, and projections suggest that the deficit for fiscal
year 2004 will be even larger. Budget controls instituted to achieve
balance in the past have expired, and no agreement has been reached on the
appropriate structure or process for focusing on the large and growing
fiscal challenges that now face the federal government.
3Congressional Budget Office, The Budget and Economic Outlook: An Update
(Washington, D.C.: August 2003).
These large deficits come as the squeeze on the federal budget from the
impending retirement of the baby boom generation is becoming more apparent
in the fiscal outlook. Under the Congressional Budget Office's most recent
10-year budget outlook, economic growth is projected to be about half a
percentage point lower on average after 2008 when the leading edge of the
baby boom generation becomes eligible for early retirement. At the same
time, growth in Social Security and Medicare spending is projected to
accelerate while Medicaid spending is projected to continue growing even
faster than these two programs. Under current law, spending for these
three programs will account for nearly half of all federal spending in
2013. Indeed, GAO's long-term budget simulations continue to show that
without changes to the major entitlement programs for the elderly, the
nation will ultimately have to choose between escalating federal deficits
and debt, significant tax increases, and/or dramatic budget cuts in other
areas. Acting sooner rather than later is essential to ease these building
fiscal pressures.
We are sending copies of this report to the Chairmen and Ranking Minority
Members of the Senate Committee on Appropriations; the Senate Committee on
Governmental Affairs; the Senate Committee on the Budget; the Subcommittee
on Transportation, Treasury, and General Government, Senate Committee on
Appropriations; the House Committee on Appropriations; the House Committee
on Government Reform; the House Committee on the Budget; the Subcommittee
on Transportation, Treasury, and Independent Agencies, House Committee on
Appropriations; and the Subcommittee on Government Efficiency and
Financial Management, House Committee on Government Reform. We are also
sending copies of this report to the Commissioner of the Bureau of the
Public Debt, the Inspector General of the Department of the Treasury, the
Director of the Office of Management and Budget, and other agency
officials. In addition, the report will be available at no charge on the
GAO Web site at http://www.gao.gov.
If I can be of further assistance, please call me at (202) 512-5500. This
report was prepared under the direction of Gary T. Engel, Director,
Financial Management and Assurance. Should you or members of your staff
have any questions concerning this report, please contact Mr. Engel at
(202) 512-3406. Another key contact and staff acknowledgments are provided
in appendix II.
Sincerely yours,
David M. Walker Comptroller General of the United States
A
United States General Accounting Office Washington, D.C. 20548
To the Commissioner of the Bureau of the Public Debt
In connection with fulfilling our requirement to audit the financial
statements of the U.S. government, we audited the Schedules of Federal
Debt Managed by the Bureau of the Public Debt (BPD) because of the
significance of the federal debt to the federal government's financial
statements.1
This auditor's report presents the results of our audits of the Schedules
of Federal Debt Managed by BPD for the fiscal years ended September 30,
2003 and 2002. The Schedules of Federal Debt present the beginning
balances, increases and decreases, and ending balances for (1) Federal
Debt Held by the Public and Intragovernmental Debt Holdings, (2) the
related Accrued Interest Payables, and (3) the related Net Unamortized
Premiums and Discounts managed by BPD.2
In our audits of the Schedules of Federal Debt for the fiscal years ended
September 30, 2003 and 2002, we found the following:
o the Schedules of Federal Debt are presented fairly, in all material
respects, in conformity with U.S. generally accepted accounting
principles;
o BPD had effective internal control over financial reporting and
compliance with laws and regulations related to the Schedule of Federal
Debt as of September 30, 2003; and
o no reportable noncompliance in fiscal year 2003 with laws we tested.
The following sections discuss, in more detail, (1) these conclusions and
our conclusion on the Overview on Federal Debt Managed by the Bureau of
the Public Debt and (2) the scope of our audits.
131 U.S.C. sec. 331(e) (2000).
2Intragovernmental Debt Holdings represent federal debt issued by Treasury
and held by certain federal government accounts, such as the Social
Security and Medicare trust funds.
Opinion on Schedules The Schedules of Federal Debt including the
accompanying notes present fairly, in all material respects, in conformity
with U.S. generally accepted
of Federal Debt accounting principles, the balances as of September 30,
2003, 2002, and 2001, for Federal Debt Managed by BPD; the related Accrued
Interest Payables and Net Unamortized Premiums and Discounts; and the
related increases and decreases for the fiscal years ended September 30,
2003 and 2002.
Opinion on Internal Control
BPD maintained, in all material respects, effective internal control
relevant to the Schedule of Federal Debt related to financial reporting
and compliance with applicable laws and regulations as of September 30,
2003. The internal control provided reasonable assurance that
misstatements, losses, or noncompliance material in relation to the
Schedule of Federal Debt for the fiscal year ended September 30, 2003,
would be prevented or detected on a timely basis. Our opinion is based on
criteria established under 31 U.S.C. sec. 3512 (c), (d) (2000) (commonly
referred to as the Federal Managers' Financial Integrity Act) and the
Office of Management and Budget (OMB) Circular A-123, revised June 21,
1995, Management Accountability and Control.
We found matters involving computer controls that we do not consider to be
reportable conditions.3 We will communicate these matters to BPD's
management, along with our recommendations for improvement, in a separate
letter to be issued at a later date.
Compliance with Laws and Regulations
Our tests in fiscal year 2003 disclosed no instances of noncompliance with
selected provisions of laws that would be reportable under U.S. generally
accepted government auditing standards or OMB audit guidance. However, the
objective of our audit of the Schedule of Federal Debt for the fiscal year
ended September 30, 2003, was not to provide an opinion on overall
compliance with laws and regulations. Accordingly, we do not express such
an opinion.
3Reportable conditions are matters coming to our attention that, in our
judgment, should be communicated because they represent significant
deficiencies in the design or operation of internal control, which could
adversely affect the organization's ability to meet the internal control
objectives described in the Objectives, Scope, and Methodology section of
this report.
Consistency of Other BPD's Overview on Federal Debt Managed by the Bureau
of the Public Debt contains information, some of which is not directly
related to the
Information Schedules of Federal Debt. We do not express an opinion on
this information. However, we compared this information for consistency
with the schedules and discussed the methods of measurement and
presentation with BPD officials. Based on this limited work, we found no
material inconsistencies with the schedules.
Objectives, Scope, and Methodology
Management is responsible for the following:
o preparing the Schedules of Federal Debt in conformity with U.S.
generally accepted accounting principles;
o establishing, maintaining, and assessing internal control to provide
reasonable assurance that the broad control objectives of the Federal
Managers' Financial Integrity Act are met; and
o complying with applicable laws and regulations.
We are responsible for obtaining reasonable assurance about whether (1)
the Schedules of Federal Debt are presented fairly, in all material
respects, in conformity with U.S. generally accepted accounting principles
and (2) management maintained effective related internal control as of
September 30, 2003, the objectives of which are the following:
o Financial reporting: Transactions are properly recorded, processed, and
summarized to permit the preparation of the Schedule of Federal Debt for
the fiscal year ended September 30, 2003, in conformity with U.S.
generally accepted accounting principles.
o Compliance with laws and regulations: Transactions related to the
Schedule of Federal Debt for the fiscal year ended September 30, 2003, are
executed in accordance with laws governing the use of budget authority and
with other laws and regulations that could have a direct and material
effect on the Schedule of Federal Debt.
We are also responsible for testing compliance with selected provisions of
laws and regulations that have a direct and material effect on the
Schedule of Federal Debt. Further, we are responsible for performing
limited
procedures with respect to certain other information appearing with the
Schedules of Federal Debt.
In order to fulfill these responsibilities, we
o examined, on a test basis, evidence supporting the amounts and
disclosures in the Schedules of Federal Debt;
o assessed the accounting principles used and any significant estimates
made by management;
o evaluated the overall presentation of the Schedules of Federal Debt;
o obtained an understanding of internal control relevant to the Schedule
of Federal Debt as of September 30, 2003, related to financial reporting
and compliance with laws and regulations (including execution of
transactions in accordance with budget authority);
o tested relevant internal controls over financial reporting and
compliance, and evaluated the design and operating effectiveness of
internal control related to the Schedule of Federal Debt as of September
30, 2003;
o considered the process for evaluating and reporting on internal control
and financial management systems under the Federal Managers' Financial
Integrity Act; and
o tested compliance in fiscal year 2003 with selected provisions of the
following laws: statutory debt limit (31 U.S.C. sec. 3101(b) (2000), as
amended by Pub. L. No. 107-199, sec. 1, 116 Stat. 734 (2002) and Pub. L.
108-24, 117 Stat. 710 (2003)), suspension and early redemption of
investments from the Civil Service Retirement and Disability Trust Fund (5
U.S.C. sec. 8348(j)(k) (2000)), and suspension of investments from the
G-Fund (5 U.S.C. sec. 8438(g) (2000)).
We did not evaluate all internal controls relevant to operating objectives
as broadly described by the Federal Managers' Financial Integrity Act,
such as those controls relevant to preparing statistical reports and
ensuring efficient operations. We limited our internal control testing to
controls over financial reporting and compliance. Because of inherent
limitations in internal control, misstatements due to error or fraud,
losses, or noncompliance may nevertheless occur and not be detected. We
also
caution that projecting our evaluation to future periods is subject to the
risk that controls may become inadequate because of changes in conditions
or that the degree of compliance with controls may deteriorate.
We did not test compliance with all laws and regulations applicable to
BPD. We limited our tests of compliance to selected provisions of laws and
regulations that have a direct and material effect on the Schedule of
Federal Debt for the fiscal year ended September 30, 2003. We caution that
noncompliance may occur and not be detected by these tests and that such
testing may not be sufficient for other purposes.
We performed our work in accordance with U.S. generally accepted
government auditing standards and applicable OMB audit guidance.
Agency Comments In commenting on a draft of this report, BPD concurred
with the facts and conclusions in our report. The comments are reprinted
in appendix I.
David M. Walker Comptroller General of the United States
October 24, 2003
Overview, Schedules, and Notes
Overview on Federal Debt Managed by the Bureau of the Public Debt
Overview, Schedules, and Notes Overview, Schedules, and Notes Overview,
Schedules, and Notes
Intragovernmental Debt Holdings
Intragovernmental debt holdings represent balances of Treasury securities
held by over 200 individual federal government accounts with either the
authority or the requirement to invest excess receipts in special U.S.
Treasury securities that are guaranteed for principal and interest by the
full faith and credit of the U.S. Government. Intragovernmental debt
holdings primarily consist of balances in the Social Security, Medicare,
Military Retirement, and Civil Service Retirement and Disability trust
funds.3 As of September 30, 2003, such funds accounted for $2,535 billion,
or 89 percent, of the $2,859 billion intragovernmental debt holdings
balances (see Figure 4). As of September 30, 2003 and 2002, gross
intragovernmental debt holdings totaled $2,859 billion and $2,660 billion,
respectively (see Figure 1), an increase of $199 billion.
The majority of intragovernmental debt holdings are Government Account
Series (GAS) securities. GAS securities consist of par value securities
and market-based securities, with terms ranging from on demand out to 30
years. Par value securities are issued and redeemed at par (100 percent of
the face value), regardless of current market conditions. Market-based
securities, however, can be issued at a premium or discount and are
redeemed at par value on the maturity date or at market value if redeemed
before the maturity date.
Figure 4 Components of Intragovernmental Debt Holdings as of September 30,
2003
Civil Service
21%
Social Security trust
funds
52%
Medicare trust
funds
10%
trust fund
6% Other programs and trust funds 11%
3 The Social Security trust funds consist of the Federal Old-Age and
Survivors Insurance Trust Fund and the Federal Disability Insurance Trust
Fund. In addition, the Medicare trust funds are made up of the Federal
Hospital Insurance Trust Fund and the Federal Supplementary Medical
Insurance Trust Fund.
Overview, Schedules, and Notes
Significant Events in FY 2003
Railroad Retirement Account
The Railroad Retirement and Survivors' Improvement Act of 2001 established
a new non-Federal entity, the National Railroad Retirement Investment
Trust (Trust). The act required that upon the direction of the Railroad
Board, transfers be made from the Railroad Retirement Account (RRA) to the
Trust to be held outside the government with a private trust account. RRA
investments in Government Account Series (GAS) securities were redeemed to
generate cash transfers to the Trust totaling $19,250 million, $17,750
million was transferred during fiscal year 2003 and $1,500 million during
fiscal year 2002. The cash transfers began on September 18, 2002, and were
made twice a month with the last one paid on March 19, 2003, as dictated
by a 6 month schedule provided to Treasury in accordance with the
Memorandum of Understanding (MOU) between the Railroad Retirement Board
(the RRB), the Trust, the Department of the Treasury (Treasury), and the
Office of Management and Budget (OMB). In addition to the $17,750 million
of GAS securities redeemed during fiscal year 2003 and transferred to the
Trust, $5,130 million was redeemed by RRA for disbursements. The Railroad
Retirement Account currently holds $503 million in par value securities.
Electronic Savings Bonds Introduced
In fiscal year 2003, Public Debt issued the first book-entry (electronic)
savings bonds in the new TreasuryDirect system. Electronic Series I bonds
were introduced in October 2002, and electronic Series EE bonds were added
in May 2003. When fully implemented, TreasuryDirect will enable investors
to establish accounts, purchase book-entry savings bonds and marketable
securities, and manage their holdings online in a secure environment. The
system will validate their identity and process transactions
electronically whenever possible; communications will occur via e-mail;
payments will be made electronically; and investors will be able to access
statements, confirmations, and tax information online.
Department of Defense (DoD) Medicare Retirement Fund
The Department of Defense (DoD) established a new fund, the Medicare
Retirement Fund, in fiscal year 2003. The purpose of the Medicare
Retirement Fund is to accumulate funds in order to finance actuarially
determined liabilities relating to DoD's health care programs for Medicare
eligible beneficiaries. On October 3, 2002, DoD began investing into GAS
securities. Initially, DoD purchased $13 billion in short-term GAS
securities with various maturity dates. Throughout fiscal year 2003, DoD
purchased and sold additional short-term GAS securities and also invested
in overnight GAS securities. At the end of the fiscal year, the balance in
the account totaled $18 billion.
Overview, Schedules, and Notes
Significant Events in FY 2003, cont.
Statutory Debt Ceiling Raised
From February 20 to May 27, 2003, Treasury faced a debt issuance
suspension period that required it to depart from its normal debt
management procedures and to invoke legal authorities provided to avoid
breaching the debt limit. During this period, actions taken by Treasury
included suspending investment of receipts of the Government Securities
Investment Fund (G-Fund) of the federal employees' Thrift Savings Plan,
the Civil Service Retirement and Disability trust fund (Civil Service
fund), and the Exchange Stabilization fund; redeeming Civil Service fund
securities early; suspending the sales of State and Local Government
Series securities; and exchanging Government Account Series securities for
Federal Financing Bank securities not reported on these schedules. In
addition, because the debt subject to the limit was so close to the
ceiling during these periods, Treasury issued cash management bills to
manage short-term financing needs. On May 27, 2003, Public Law 108-24 was
enacted, which raised the statutory debt ceiling by $984 billion to $7,384
billion.
Increased Issuance of Marketable Securities
In the February 5, 2003, Quarterly Refunding Statement, Treasury
reintroduced a 3-year note to be part of future quarterly financing
packages, with the first auction on May 6, 2003. The primary purpose of
introducing the 3-year note was to diversify issuance. Issuance of the
3-year note was expected to provide additional capacity for fresh
borrowing. During fiscal year 2003, Treasury issued a total of $50 billion
in 3-year notes. The February 5, 2003, Quarterly Refunding Statement also
instituted a regular reopening policy for 5-year notes, beginning with May
15, 2003. The reopening will occur one month after the initial auction
(two months before the next auction for a new note).
The April 30, 2003, Quarterly Refunding Statement stated that beginning in
August, Treasury will issue 5-year notes on the 15th of each month.
Treasury will also regularly reopen 10-year notes on the 15th in the month
following the traditional refunding and expand the issuance of 10-year
inflation-indexed notes to 4 times a year. This additional issuance will
help Treasury maintain its flexibility in responding to unexpected changes
in financing requirements.
Depositary Compensation Securities
On July 14, 2003, Treasury issued $44.7 billion in non-marketable
securities, Depositary Compensation Securities (DCS), to compensate those
financial institutions serving as financial agents of the United States
for essential banking services provided to the Government. The phase out
of compensating balances, beginning on July 3, 2003, led to a short-term
infusion of cash into Treasury accounts. Treasury implemented this
temporary measure to pay financial agents and ensure that there was no
interruption in services. DCS are similar to the non-marketable 2 percent
Depositary Bonds first issued in 1941 as a means to compensate
depositaries and financial agents of the Government for essential banking
services including the collection and deposit of all Treasury receipts.
The Depositary Bonds were phased out when other methods of compensation,
including compensating balances, were used and the offering was terminated
in 1994.
Overview, Schedules, and Notes Overview, Schedules, and Notes Overview,
Schedules, and Notes
Schedules of Federal Debt
Overview, Schedules, and Notes
Notes to the Schedules of Federal Debt
Notes to the Schedules of Federal Debt Managed by the Bureau of the Public
Debt For the Fiscal Years Ended September 30, 2003 and 2002
(Dollars in Millions)
Note 1. Significant Accounting Policies
Basis of Presentation
The Schedules of Federal Debt Managed by the Bureau of the Public Debt
(BPD) have been prepared to report fiscal year 2003 and 2002 balances and
activity relating to monies borrowed from the public and certain federal
government accounts to fund the U.S. government's operations. Permanent,
indefinite appropriations are available for the payment of interest on the
federal debt, the redemption of Treasury securities, and the loss on
marketable securities bought back prior to maturity through competitive
redemption processes.
Reporting Entity
The Constitution empowers Congress to borrow money on the credit of the
United States. Congress has authorized the Secretary of the Treasury to
borrow monies to operate the federal government within a statutory debt
limit. Title 31 U.S.C. authorizes Treasury to prescribe the debt
instruments and otherwise limit and restrict the amount and composition of
the debt. BPD, an organizational entity within the Fiscal Service of the
Department of the Treasury, is responsible for issuing Treasury securities
in accordance with such authority and to account for the resulting debt.
In addition, BPD has been given the responsibility to issue Treasury
securities to trust funds for trust fund receipts not needed for current
benefits and expenses. BPD issues and redeems Treasury securities for the
trust funds based on data provided by program agencies and other Treasury
entities.
Basis of Accounting
The schedules were prepared in conformity with U.S. generally accepted
accounting principles and from BPD's automated accounting system, Public
Debt Accounting and Reporting System. Interest costs are recorded as
expenses when incurred, instead of when paid. Certain Treasury securities
are issued at a discount or premium. Prior to October 1, 2002, these
discounts and premiums were amortized over the term of the security using
an interest method for zero-coupon bonds and the straight line method,
which was not materially different from the interest method, for the other
securities. As of October 1, 2002, these discounts and premiums are
amortized over the term of the security using an interest method for all
long term securities and the straight line method for the short term
securities. The Department of the Treasury also issues inflation-indexed
securities. Inflation-indexed securities accrue principal over the life of
the security based on the Consumer Price Index for all Urban Consumers.
For marketable securities bought back prior to maturity through
competitive redemption processes, the difference between the reacquisition
price and the net carrying value of the extinguished debt is recognized as
a gain or loss in the period of extinguishment.
Overview, Schedules, and Notes Overview, Schedules, and Notes
Notes to the Schedules of Federal Debt Managed by the Bureau of the Public
Debt For the Fiscal Years Ended September 30, 2003 and 2002
(Dollars in Millions)
Note 2. Federal Debt Held by the Public (continued)
Government Account Series (GAS) securities are nonmarketable securities
issued to federal government accounts. Federal Debt Held by the Public
includes GAS securities issued to certain federal government accounts. One
example is the GAS securities held by the Government Securities Investment
Fund (G-Fund) of the federal employees' Thrift Savings Plan. Federal
employees and retirees who have individual accounts own the GAS securities
held by the fund. For this reason, these securities are considered part of
the Federal Debt Held by the Public rather than Intragovernmental Debt
Holdings. The GAS securities held by the G-Fund consist of overnight
investments redeemed one business day after their issue. The net increase
in amounts borrowed from the fund during fiscal years 2003 and 2002 are
included in the respective Borrowings from the Public amounts reported on
the Schedules of Federal Debt.
Federal Debt Held by the Public includes federal debt held outside of the
U. S. government by individuals, corporations, Federal Reserve Banks
(FRB), state and local governments, and foreign governments and central
banks. The FRB owned $654 billion and $603 billion of Federal Debt Held by
the Public as of September 30, 2003 and 2002, respectively. These
securities are held in the FRB System Open Market Account (SOMA) for the
purpose of conducting monetary policy.
Note 3. Intragovernmental Debt Holdings
As of September 30, 2003 and 2002, Intragovernmental Debt Holdings are
owed to the following:
2003 2002
SSA: Federal Old-Age and Survivors $1,313,427 $1,173,759
Insurance Trust Fund
OPM: Civil Service Retirement and 601,709 * 558,713 *
Disability Fund
HHS: Federal Hospital Insurance Trust Fund 251,323 228,906
DOD: Military Retirement Fund 172,362 162,396
SSA: Federal Disability Insurance Trust 170,792 * 155,286 *
Fund
DOL: Unemployment Trust Fund 48,188 68,265
FDIC: The Bank Insurance Fund 31,055 30,542
OPM: Employees' Life Insurance Fund 26,778 25,350
DOE: Nuclear Waste Disposal Fund 25,881 23,421
HHS: Federal Supplementary Medical 24,922 38,804
Insurance Trust Fund
HUD: FHA - Liquidating Account 23,819 21,249
DOD: DOD Medicare Retirement Fund 18,445 0
DOT: Highway Trust Fund 13,578 18,840
DOL: Pension Benefit Guaranty Corporation 12,937 12,834
Fund
DOS: Foreign Service Retirement & 12,289 11,734
Disability Fund
FDIC: Savings Association Insurance Fund 11,423 11,153
(SAIF)
VA: National Service Life Insurance Fund 11,246 11,465
DOT: Airport & Airway Trust Fund 10,518 10,997
Treasury: Exchange Stabilization Fund 10,503 9,717
RRB: Railroad Retirement Account 503 23,383
Other Programs and Funds 67,532 63,242
Total Intragovernmental Debt Holdings $2,859,230 $2,660,056
* These amounts include marketable Treasury securities as well as GAS
securities as follows:
Overview, Schedules, and Notes
Notes to the Schedules of Federal Debt Managed by the Bureau of the Public
Debt For the Fiscal Years Ended September 30, 2003 and 2002
(Dollars in Millions)
Note 3. Intragovernmental Debt Holdings (continued)
MarketableGAS Securities TotalTreasury Securities
As of September 30, 2003:
Civil Service Retirement and Disability $601,429 $280 $601,709
Fund
Federal Disability Insurance Trust Fund 170,762 30 170,792
As of September 30, 2002:
Civil Service Retirement and Disability $558,433 $280 $558,713
Fund
Federal Disability Insurance Trust Fund 155,256 30 155,286
Social Security Administration (SSA); Office of Personnel Management
(OPM); Department of Health and Human Services (HHS); Department of
Defense (DOD); Department of Labor (DOL); Federal Deposit Insurance
Corporation (FDIC); Department of Energy (DOE); Department of Housing and
Urban Development (HUD); Department of Transportation (DOT); Department of
State (DOS); Department of Veterans Affairs (VA); Department of the
Treasury (Treasury); Railroad Retirement Board (RRB).
Intragovernmental Debt Holdings primarily consist of GAS securities.
Treasury issues GAS securities at either par value or at an amount that
reflects a discount or a premium. The average interest rates for fiscal
years 2003 and 2002 were 5.5 percent and 6.0 percent, respectively. The
average interest rate represents the original issue weighted effective
yield on securities outstanding as of September 30, 2003 and 2002. GAS
securities are issued with a term of on demand to 30 years.
Overview, Schedules, and Notes Overview, Schedules, and Notes
Notes to the Schedules of Federal Debt Managed by the Bureau of the Public
Debt For the Fiscal Years Ended September 30, 2003 and 2002
(Dollars in Millions)
Note 6. Debt Buybacks
Debt buybacks are competitive redemption processes by which Treasury
accepts offers to redeem particular marketable Treasury securities prior
to their maturity dates. Once the securities have been redeemed from
investors, they are removed from the total Treasury securities
outstanding. On January 19, 2000, the Department of the Treasury issued a
final rule adding part 375 to 31 CFR, setting out the terms and conditions
by which outstanding, unmatured marketable Treasury securities may be
redeemed through Treasury buying back the securities. This authority to
buy back securities enables Treasury to better manage financing needs,
promote more efficient capital markets, and may lower financing costs for
taxpayers.
Three factors are considered if a debt buyback is to occur and on the
amount and timing of any purchases:
1) Treasury's projections of the federal government's annual, unified
surplus or deficit position; 2) Treasury's three-month projections of the
cash position at the time of the regular quarterly refunding
announcements; and 3) Treasury's analysis of how best to minimize
borrowing costs over time.
The first of these "buybacks" occurred on March 9, 2000, and the latest
occurred on April 29, 2002. The premium paid represents the amount of
money paid above par value to buy back securities. There were no buyback
operations in fiscal year 2003. During fiscal year 2002, there were 9
buyback operations, which involved the following:
2002 Total Amount Paid for Debt Buybacks, excluding Accrued Interest
$16,278 Principal Amount of Debt Buybacks 12,521
Premium Paid on Debt Buybacks $3,757 Write Off of Net Unamortized
Discounts on Debt Buybacks 43 Loss on Debt Buybacks $3,800
Overview, Schedules, and Notes
Notes to the Schedules of Federal Debt Managed by the Bureau of the Public
Debt For the Fiscal Years Ended September 30, 2003 and 2002
(Dollars in Millions)
Note 7. Change in Amortization Method
Debt Held by the Public
Intragovernmental Debt Holdings On October 1, 2002, the method for
amortizing discounts and premiums was changed from the straight line
method to an interest method for notes and bonds (other than zero coupon
bonds already being amortized using an interest method). This change was
made to standardize the processing and recording of amortizations for
intragovernmental activity. Amortization for debt held by the public
securities was also changed for consistent reporting with
intragovernmental debt holdings.
Net Unamortized Premiums/(Discounts)
Balance as of September 30, 2002 ($39,275) ($1,514)
Adjustment for change in Amortization Method (670) 4,271
Net Unamortized Premiums/(Discounts)
Adjusted Balance as of September 30, 2002 ($39,945) $2,757
Appendix I
Comments from the Bureau of the Public Debt
AI
Appendix II
GAO Contact and Acknowledgements
GAO Contact Louise DiBenedetto, (202) 512-6921
Acknowledgments In addition to the individual named above, Dawn B.
Simpson, Dean D. Carpenter, Dennis L. Clarke, Chau L. Dinh, Martin J.
Eble, Mickie E. Gray, Nichole Harrington, Jay McTigue, Kara M. Scott,
Stacey L. Volis, and LaShawnda K. Wilson made key contributions to this
report.
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