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 Joint Statement of Secretary Geithner and OMB Deputy Director for Management Jeffrey Zients on Budget Results for Fiscal Year 2012


10/12/2012

 

JOINT STATEMENT OF TIMOTHY GEITHNER, SECRETARY OF THE TREASURY,

AND JEFFREY ZIENTS, DEPUTY DIRECTOR FOR MANAGEMENT OF THE OFFICE OF MANAGEMENT AND BUDGET, ON BUDGET RESULTS FOR FISCAL YEAR 2012

 

WASHINGTON, D.C. – U.S. Treasury Secretary Timothy Geithner and Office of Management and Budget (OMB) Deputy Director for Management Jeffrey Zients today released details of the final fiscal year (FY) 2012 budget results. The release shows the deficit in FY 2012 fell to $1.089 trillion, $207 billion less than the FY 2011 deficit and $238 billion less than forecast in President Obama’s February Budget. The Administration remains committed to enacting proposals to help create jobs and promote economic growth while adopting a balanced deficit reduction package that puts the budget on a sustainable path over the long term.

 

In signing the Budget Control Act of 2011 (BCA), President Obama enacted a significant down payment on deficit reduction by cutting nearly $1 trillion in discretionary spending over the next 10 years, reducing discretionary spending to the lowest level as a share of the gross domestic product (GDP) since at least the Eisenhower Administration. Looking forward, the President has called on the Congress to enact a balanced deficit reduction package, including both spending and revenue components, along the lines of the $4 trillion deficit reduction proposals he offered in his February Budget and in his submission to the Joint Select Committee on Deficit Reduction in September of 2011.

 

“The President has put forward a balanced proposal to further strengthen the economy and reduce the country’s future deficits,” said Treasury Secretary Geithner. “It is time for Congress to act on these necessary steps that will help create sustainable economic growth for years to come.”

 

“The path forward on deficit reduction is clear,” said OMB Deputy Director for Management Zients. “Congress needs to work with the Administration to enact balanced deficit reduction that includes further spending cuts and additional revenue from asking the wealthiest to contribute their fair share. This deficit reduction can and must be achieved without sacrificing investments in education, infrastructure, and research and development that are so critical to creating jobs and securing our Nation’s long-term economic growth and competitiveness.”

 

Summary of Fiscal Year 2012 Budget Results

 

Year-end data from the September 2012 Monthly Treasury Statement of Receipts and Outlays of the United States Government (Monthly Treasury Statement) show that the deficit for FY 2012 was $1.089 trillion. This was a decrease of $207 billion, or 16.0 percent, from last year. As a percentage of GDP, the deficit fell to 7.0 percent, down from 8.7 percent in FY 2011.

 

The FY 2012 deficit was $238 billion or 17.9 percent less than the estimate in the February Budget, and $121 billion or 10.0 percent less than estimated in the July Mid-Session Review (MSR).

 

 

Table 1. Total Receipts, Outlays, and Deficit (in billions of dollars)

 

Receipts

Outlays

Deficit

FY 2011 Actual

2,302

3,599

-1,297

   Percentage of GDP

15.4%

24.1%

8.7%

FY 2012 Estimates:

    2013 Budget

2,469

3,796

-1,327

    2013 Mid-Session Review

2,442

3,653

-1,211

FY 2012 Actual

2,449

3,538

-1,089

   Percentage of GDP

15.7%

22.7%

7.0%

 

 

 

 

 

 

The decline in the deficit from last year was due to a combination of higher receipts and lower outlays in FY 2012. Government receipts totaled $2.449 trillion in FY 2012. This was $147 billion higher than in FY 2011, an increase of 6.4 percent. The increased receipts can be attributed to the expiration of certain tax provisions and a stronger economy. Corporation income tax collections were a major contributor to the increase in FY 2012. However, collections also increased for all other major sources of receipts except for Federal Reserve deposits of earnings. As a percentage of GDP, receipts equaled 15.7 percent, slightly higher than in FY 2011. FY 2012 receipts were $20 billion lower than estimated in the February Budget.

 

Outlays for FY 2012 were $61 billion below those in FY 2011, a 1.7 percent decrease. The reduction in outlays can be attributed to the expiration or phase down of stimulus provisions, a stronger economy, and the end of military operations in Iraq and the continuing drawdown in Afghanistan. As a percentage of GDP, total outlays were 22.7 percent, down from last year’s 24.1 percent. The largest decreases relative to the prior year came from the Department of Defense, unemployment insurance, and Medicaid. Outlays were lower for the Department of Education because of the winding down of Recovery Act spending (the State Fiscal Stabilization Fund) and similarly for the Department of Housing and Urban Development. These decreases were somewhat offset by higher spending for Social Security benefits. Overall, outlays were $257 billion less than estimated in the February Budget.

 

Federal borrowing from the public, net of financial assets and liabilities, increased by $1.089 trillion during FY 2012 to $10.391 trillion, or 66.8 percent of GDP. (This measure of net borrowing, as reported in the Monthly Treasury Statement, excludes the Federal Government’s holdings of Fannie Mae and Freddie Mac preferred stock. If those stock holdings were included, net borrowing as a percentage of GDP would be reduced by roughly one percentage point.)

 

Below are explanations of the differences between estimates in the MSR and the year-end actual amounts for receipts and agency outlays.

 

Fiscal Year 2012 Receipts

 

Total receipts for FY 2012 were $2.449 trillion, $7 billion higher than the MSR estimate of $2.442 trillion. This net increase in receipts relative to the MSR was attributable to higher-than-estimated collections of social insurance and retirement receipts, individual income taxes, and other sources of receipts, which more than offset lower-than-estimated collections of corporation income taxes. Table 2 displays actual receipts and estimates from the Budget and the MSR by source.

 

  • Individual income taxes were $1.132 trillion, $6 billion higher than the MSR estimate. Higher-than-estimated withholding and lower-than-expected refunds increased individual income tax collections by $6 billion and $2 billion, respectively, relative to the MSR. These increases were partially offset by lower-than-estimated non-withheld payments of individual income tax liability, which were $2 billion below the MSR estimate.     
  • Corporation income taxes were $242 billion, $9 billion lower than the MSR estimate. This difference reflected lower-than-expected payments of 2012 corporation income tax liability of $10 billion, partially offset by lower-than-estimated refunds of $2 billion.   
  • Social insurance and retirement receipts were $845 billion, $6 billion higher than the MSR estimate. Higher-than-expected unemployment insurance receipts, attributable to higher-than-estimated deposits by States to the unemployment insurance trust fund to replenish depleted balances, increased social insurance and retirement receipts by $9 billion. This increase was partially offset by reductions in other sources of social insurance and retirement receipts–primarily Social Security and Medicare payroll taxes–of $3 billion.
  • Excise taxes were $79 billion, the same as the MSR estimate.  
  • Estate and gift taxes were $14 billion, $1 billion greater than the MSR estimate. 
  • Customs duties were $30 billion, the same as the MSR estimate.
  • Miscellaneous receipts were $106 billion, $2 billion greater than the MSR estimate. Higher-than-expected deposits of earnings by the Federal Reserve System, attributable in large part to changes in the value of foreign currency holdings and favorable returns on financial assets held by the Federal Reserve, accounted for the increase in miscellaneous receipts relative to the MSR estimate.

 

Fiscal Year 2012 Outlays

 

Total outlays were $3.538 trillion for FY 2012, $114 billion below the MSR estimate. Table 3 displays actual outlays by agency and major program as well as estimates from the Budget and the MSR. The largest changes in outlays from the MSR were in the following areas:

 

  • Department of Agriculture — Outlays for the Department of Agriculture were $139.7 billion, $7.7 billion lower than the MSR estimate. Major differences from MSR estimates include:
      • Outlays for the Farm Service Agency (FSA) were $1.2 billion lower than expected. The bulk of this difference was due to lower commodity marketing loan-making and higher loan repayments than anticipated, due to higher-than-estimated crop prices. Additionally, FSA paid out less in disaster assistance for 2010 crop losses and other disaster payments than anticipated in the MSR.
      • Actual outlays from private lands conservation programs in the National Resources Conservation Service were roughly $250 million lower than estimated in the MSR, reflecting outlay of funds from contracts over a slightly longer period than previously anticipated.
      • Outlays in FY 2012 for the Food and Nutrition Service were $2.6 billion lower than estimated in MSR. The majority of this difference was due to lower-than-expected growth in the Child Nutrition free meals program 
      • Outlays for the Federal Crop Insurance Corporation Fund were $1.5 billion lower than estimated in the MSR, due to lags in insurance claims.
  • Department of Defense — Outlays for the Department of Defense (DOD) were $650.9 billion, $9.6 billion lower than the MSR estimate. Most of this difference was due to slower-than-expected outlays over the second half of the fiscal year for military personnel costs and operation and maintenance activities. DOD shifted significant amounts in these areas late in the fiscal year to address more immediate needs, leading to some delays in outlays from FY 2012 to FY 2013. DOD also spent $1.8 billion less than expected for military construction activities, due in part to a shift from construction contracts to environmental restoration contacts in support of base realignment and closure activities. These environmental restoration contracts are awarded later in the fiscal year and tend to execute more slowly than construction contracts.
  • Department of Education — Outlays for the Department of Education were $57.2 billion, $6.0 billion lower than the MSR estimate. The difference was almost entirely accounted for by Congressional inaction on the proposals in the MSR to create jobs and jumpstart growth through funding for school modernization, supporting local teaching jobs, and other education initiatives, which reduced outlays by $5.9 billion relative to MSR estimates.
  • Department of Energy — Outlays for the Department of Energy were $32.5 billion, $2.9 billion lower than the MSR estimate. The National Nuclear Security Administration (NNSA), the Office of Energy Efficiency and Renewable Energy (EERE), and the Power Marketing Administrations (PMAs) accounted for the most significant differences between actual outlays and the MSR estimates. NNSA’s outlays were $0.9 billion below the MSR estimate due to reimbursable work that did not materialize, delays in construction projects and information technology procurement, and scope and schedule changes in major warhead upgrades. EERE accounted for $0.7 billion of the difference, primarily as a result of slower-than-expected Recovery Act spending than expected for the Energy Efficiency and Conservation Block Grant, Weatherization Assistance, and State Energy Program projects, as grantees have sought to maximize the impact of remaining funds. Similar reasons, as well as adjusted project spend-out rates, apply to other energy program accounts which, combined, accounted for $0.4 billion of the difference from the MSR estimate. Outlays for the PMAs accounted for $0.7 billion of the overall difference, with a combination of factors – including lower annual and purchase, power, and wheeling expenses; increased hydropower revenue due to above average run-off; and early payment of an outstanding loan balance and interest – contributing to lower-than-expected-outlays.
  • Department of Health and Human Services — Outlays for the Department of Health and Human Services (HHS) were $848.1 billion, $16.9 billion lower than the MSR estimate. Major differences from MSR estimates include:
      • Outlays for Medicaid were about $8.8 billion lower than the MSR estimate, accounting for about half the difference in the HHS total. The difference was the result of lower-than-anticipated benefits spending, due primarily to reduced acute care spending and high State spending projections.
      • Gross outlays for Medicare were about $2 billion lower than the MSR estimate. Medicare Hospital Insurance (Part A) outlays were $0.9 billion lower than in the MSR. Outlays for Supplementary Medical Insurance (Part B) and the Prescription Drug Account (Part D) were $0.3 billion and $0.8 billion lower than in the MSR, respectively.
      • Outlays for program management and other activities within Centers for Medicare and Medicaid Services (CMS) were $2.3 billion lower than the MSR estimate. Approximately $1.2 billion of the difference was from slower-than-projected outlays of mandatory funds transferred to CMS program management from the Medicare trust funds. The remainder of the difference is attributable to lower outlays in a number of other CMS activities.
  • Department of Homeland Security — Outlays for the Department of Homeland Security were $47.4 billion, $4.6 billion lower than the MSR estimate. Most of the difference was due to the Federal Emergency Management Administration (FEMA) and U.S. Customs and Border Protection (CBP) accounts. FEMA outlays were $2.1 billion lower than estimated in the MSR, primarily because of the unpredictability of disaster events and slower-than-expected outlay of homeland security grant awards. Of the $1.0 billion difference for CBP, over $700 million was due to an error in the MSR estimates of spending from fee receipts. Adjusted for this error, actual outlays for CBP were $276 million less than the MSR estimate. This remaining difference was primarily attributable to delays in procurement of border surveillance technology and air assets, which will be purchased in FY 2013 instead of FY 2012.
  • Department of Justice — Outlays for the Department of Justice (DOJ) were $31.2 billion, $3.0 billion lower than the MSR estimate. Lack of Congressional action on the President’s proposal to support the hiring and retention of public safety personnel through the COPS program reduced outlays by $840 million relative to MSR estimates. Other differences are attributable to slower-than-expected outlays across a number of DOJ accounts, including the Working Capital Fund.
  • Department of Labor — Outlays for the Department of Labor (DOL) were $104.7 billion, $5.8 billion lower than the MSR estimate. The largest factor contributing to the decline was a $2.4 billion reduction in outlays for Unemployment Insurance (UI) benefits compared to the MSR. Most of the difference was due to lower spending in the Emergency Unemployment Compensation program, based on lower weekly benefit amounts, and in the regular UI program as the number of weeks claimed declined below expected levels.
  • Department of Transportation — Outlays for the Department of Transportation were $75.1 billion, $6.2 billion lower than the MSR estimate. More than half of that difference, $3.9 billion, was because the Congress did not enact the Administration’s proposal for $50 billion in immediate transportation investments. The next largest difference was in the Federal Aviation Administration, where outlays were $0.9 billion below MSR estimates primarily due to slower-than-anticipated outlays in the airport grants program. In FY 2011, the airport grant program experienced a two-week shutdown slowing FY 2011 obligations, which had a residual impact on FY 2012 outlays. Federal Railroad Administration outlays were $0.8 billion below the MSR projection, principally within the high speed rail program, which continues to outlay slowly. Federal Transit Administration outlays were $0.4 billion below the MSR estimate, principally for formula and bus grant programs. Partially offsetting this slower-than-expected spending, outlays for Federal Aid Highways and Transit New Starts were $0.5 and $0.4 billion higher than expected, respectively.
  • Department of the Treasury — Outlays for the Department of the Treasury were $464.7 billion, $91.3 billion lower than the MSR estimate. The decrease in outlays was mostly due to reductions in outlays for interest on the public debt, payments to Fannie Mae and Freddie Mac, and Troubled Asset Relief Program (TARP) housing programs. Major changes from MSR estimates include:
      • Interest on the public debt – which is paid to Government accounts as well as the public – was $359.2 billion, $81.3 billion lower than the MSR estimate. Interest paid to Government accounts was $77.8 billion lower than projected. This difference is almost entirely due to a $75.1 billion adjustment to reflect a change in the accounting method for interest transactions with Defense Civil Programs from an accrual basis to a cash basis. This accounting change resulted in a reduction of Treasury interest outlays to reflect the premiums that would have been recorded at the time of purchase under the cash-based method. This intragovernmental interest adjustment has no net effect on the deficit. The offsetting amounts for the $75.1 billion adjustment appear under interest received by trust funds ($49.3 billion, for the Military Retirement and Education Benefits trust funds) and under Defense Civil ($25.9 billion, for the Medicare-Eligible Retiree Health Care Fund, which is a Federal fund rather than a trust fund). Interest paid to the public was $3.5 billion lower than estimated in the MSR due largely to lower-than-projected interest on inflation-indexed securities.
      • Outlays from payments to Fannie Mae and Freddie Mac under Treasury's Preferred Stock Purchase Agreements (PSPAs) were $18.7 billion in FY 2012, $4.7 billion less than estimated in the MSR. PSPA outlays are determined by the quarterly financial results of Fannie Mae and Freddie Mac as reported in their financial statements and are highly dependent on GAAP accounting standards and assumptions about future U.S. home prices. There were no PSPA outlays in the fourth quarter of FY 2012.
      • Outlays for the Troubled Asset Relief Program (TARP) were $10.7 billion below the MSR estimate, due almost entirely to lower outlays under TARP housing programs, including TARP support for FHA programs. Outlays reported for TARP under the Department of the Treasury do not include the proceeds of the sale of American International Group (AIG) securities owned by Treasury that were received from the trust created by the Federal Reserve Bank of New York; see the “Undistributed Offsetting Receipts” section of this report for a discussion of net outlay differences attributable to Treasury’s sale of these securities.
      • Outlays from Treasury’s Claims, Judgments, and Reliefs Acts account were $3.1 billion lower than MSR estimates due mostly to a delayed settlement that was assumed in the MSR to be paid in FY 2012 but which will not be paid out until FY 2013. In addition, Internal Revenue Service (IRS) outlays were approximately $1.0 billion below the MSR estimate largely due to lower-than-expected outlays associated with several refundable tax credit and direct pay bond programs, notably the American Opportunity Tax Credit, Child Tax Credit, Build America Bond, and Qualified School Construction Bond programs. The interest associated with refunding Internal Revenue collections also came in below the MSR estimate due to lower interest rates and assessed interests. 
      • Partially offsetting these decreases from the MSR estimates, net outlays for intragovernmental interest transactions with credit financing accounts were $8.9 billion higher than projected, including $5.5 billion lower-than-projected interest paid to credit financing accounts and $14.4 billion lower-than-anticipated receipts of interest from credit financing accounts. (Interest received from credit financing accounts is reported in Treasury’s aggregate offsetting receipts.) Transactions with the TARP financing accounts comprised $4.9 billion of the total $8.9 billion difference. The differences in TARP transactions were primarily the effects of TARP statutory requirements for interest rates, under which budget projections use market-risk adjusted interest rates while actual TARP financing account interest transactions are recorded using Treasury rates.
  • Department of Veterans Affairs — Outlays for the Department of Veterans Affairs were $124.1 billion, $3.4 billion lower than the MSR estimate. The Readjustment Benefits program accounted for $1.5 billion of that difference, mainly due to lower-than-expected school enrollment rates and slower-than-expected spending in the new Veterans Retraining Assistance Program. The Medical Services program accounted for another $1.1 billion of the difference, primarily due to delays in purchasing medical equipment and lower-than-expected spending for supplies.
  • International Assistance Programs — Outlays for the International Assistance Programs were $20.1 billion, $3.4 billion lower than the MSR estimate. This difference was principally related to increased receipts for Foreign Military Sales (FMS) and lower-than-anticipated military assistance outlays. Receipts relating to FMS were $2.4 billion higher than the MSR estimate due to higher-than-expected receipts for FMS contracts. Military assistance outlays were $0.9 billion lower than expected due to slower execution of assistance programs than previously estimated.
  • Other Defense Civil Programs — Outlays for Other Defense Civil Programs were $77.3 billion, $25.2 billion higher than the MSR estimate. This difference was almost entirely due to a $25.9 billion adjustment related to a change in the accounting treatment of intragovernmental interest earnings on investments in Treasury securities for the Medicare-Eligible Retiree Health Care Fund, as explained above under the Department of the Treasury. This intragovernmental interest, paid out of the Department of the Treasury account for interest on the public debt, has no net impact on total Federal Government outlays.
  • Office of Personnel Management — Outlays for the Office of Personnel Management (OPM) were $79.5 billion, $8.5 billion lower than the MSR estimate. This difference is primarily attributable to Congressional inaction on the MSR proposal for reform of the United States Postal Service (USPS). This proposal included a $5.45 billion payment in FY 2012 from the Civil Service Retirement and Disability Fund to refund excess Federal Employees Retirement System contributions to USPS, as well as $1.85 billion of net outlays related to USPS retiree health coverage. Most of the remaining difference in OPM was for the Employees and Retired Employees Health Benefits Funds, which were $0.9 billion lower than estimated in the MSR, due to experience-related carriers not realizing claims/benefit payments at the modeled rate during FY 2012.
  • Federal Deposit Insurance Corporation — Outlays for the Federal Deposit Insurance Corporation (FDIC) were $4.6 billion, $13.2 billion lower than the MSR estimate. The difference was primarily attributable to lower-than-expected payments related to FDIC’s resolution of failed insured depository institutions through its Deposit Insurance Fund, which was partially a result of improved capital positions in the banking sector.
  • United States Postal Service — Outlays for the United States Postal Service (USPS) were $2.7 billion, $4.7 billion higher than the MSR estimate, due largely to Congress not moving on the MSR proposal for Postal reform. The MSR proposed to provide USPS with short-term cash relief, beginning in FY 2012, and to make longer-term structural reforms to address USPS’s financial imbalance. Lack of action on the proposal increased USPS outlays for FY 2012 by $4.3 billion.
  • Undistributed Offsetting Receipts — Undistributed offsetting receipts were $230.7 billion, $45.6 billion lower than the MSR estimate, increasing net outlays relative to the MSR.
      • Interest received by trust funds was $127.1 billion, $50.6 billion lower than the MSR estimate (increasing net outlays). This difference is almost entirely due to a $49.3 billion adjustment related to a change in the accounting treatment of intragovernmental interest earnings of Other Defense Civil accounts (the Military Retirement and Education Benefits trust funds), as explained above under the Department of the Treasury. This intragovernmental interest is paid out of the Department of the Treasury account for interest on the public debt and has no net impact on total Federal Government outlays.
      • Receipts for employer share, employee retirement were $83.9 billion, $2.6 billion below MSR estimates (increasing net outlays). This difference is largely due to Congressional inaction on the MSR proposal for Postal reform, which provided for a $3.2 billion receipt in FY 2012 into the employer share accounts.
      • Disposition of the Government’s interest in the American International Group (AIG) resulted in receipts of $13.0 billion, $9.0 billion more than estimated in the MSR (reducing net outlays). The Government acquired securities issued by AIG as part of its interventions to halt the 2008 financial crisis. The shares reflected in this account were received from the trust established for the benefit of the Treasury in connection with the initial assistance provided to AIG by the Federal Reserve Bank of New York. The shares were distributed to the Treasury in January 2011. Treasury has been gradually selling these securities concurrently with sales of securities purchased through the Troubled Asset Relief Program (TARP) which are accounted for separately under the Department of the Treasury.

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