United States Department of Education Notes to Principal Financial Statements September 30, 2000 Note 1. Summary of Significant Accounting Policies Reporting Entity The U.S. Department of Education (the Department) was established on May 4, 1980, by Congress, under the Department of Education Organization Act of 1979 (Public Law 96-88). It is responsible, through the execution of its congressionally approved budget, for administering direct loan, guaranteed loan, and grant programs. Under the Higher Education Act Amendments of 1998, Student Financial Assistance (SFA) became a Performance Based Organization within the U.S. Department of Education. SFA is responsible for administering and reporting on the Federal Direct Student Loan Program, the Federal Family Education Loan (FFEL) Program, Pell Grants, and the Campus-Based Program. The Federal Direct Student Loan Program, authorized by the Student Loan Reform Act of 1993, makes loans directly to eligible undergraduate and graduate students and their parents through participating schools. SFA borrows money from the Treasury Department to fund the loans. The Federal Family Education Loan (FFEL) Program, authorized by the Higher Education Act (HEA) of 1965, as amended, cooperates with state and private nonprofit Guaranty Agencies to provide loan guarantees and interest subsidies on loans made by private lenders to eligible students. The Pell Grant and Campus-Based Programs provide educational grants and other financial assistance to eligible applicants. The Department also administers numerous grant programs and the Facilities Loan Program. Grant programs include grants for the disadvantaged, elementary and secondary education, special education and rehabilitative services, and educational research and improvement. Under the Facilities Loan Program, also authorized by the HEA of 1965, as amended, the Department administers low interest loans to institutions of higher education for the construction and renovation of facilities. Basis of Accounting and Reporting The financial statements present the financial position as of September 30, 2000, and the net cost, changes in net position, and budgetary resources for the year ended September 30, 2000, as required by the Chief Financial Officers Act of 1990 (Public Law 101-576), and the Government Management Reform Act of 1994 (GMRA). They were prepared from the books and records of the Department, in accordance with accounting principles generally accepted in the United States as promulgated by the Federal Accounting Standards Advisory Board (FASAB) and are presented in the format prescribed for form and content specified in Office of Management and Budget (OMB) Bulletin No. 97-01, as amended. These statements are, therefore, different from the financial reports, also prepared by the Department pursuant to other OMB directives, that are primarily used to monitor and control the use of budgetary resources. The Balance Sheet, Statement of Net Cost, and the Statement of Changes in Net Position consolidate the balances of 210 discrete appropriations that comprise 31 fund accounts within eight reporting groups. The Statement of Budgetary Resources and the Statement of Financing are presented as combined statements for the Department and as combining statements for the eight reporting groups. Inter- 24 United States Department of Education Notes to Principal Financial Statements September 30, 2000 program transactions and balances are eliminated under the consolidated basis but not under the combined basis. The reporting groups include: Student Financial Assistance (SFA); Office of Elementary and Secondary Education (OESE); Office of Special Education and Rehabilitative Services (OSERS); Office of Vocational and Adult Education (OVAE); Office of Postsecondary Education (OPE); Office of Educational Research and Improvement (OERI); Office of Bilingual Education and Minority Languages Affairs (OBEMLA); and Department Management (DM). The accounting structure reflects both accrual and budgetary accounting transactions. Under accrual accounting, revenues are recognized when earned and expenses are recognized when incurred, without regard to receipt or payment of cash. Under budgetary accounting, budgetary resources are obligated based on legal requirements, which may differ from when an accrual- based transaction is recorded. Use of Estimates in Preparing Financial Statements The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make assumptions and estimates that directly affect the amounts reported in the financial statements. Actual results may differ from those estimates. Credit Reform - Present Value Accounting Beginning October 1, 1991, the Federal Credit Reform Act of 1990 (Public Law 101-508) requires agencies to measure the total costs of Federal credit programs at the time a loan is committed. The Federal Credit Reform Act of 1990, the FASAB's Statement of Federal Financial Accounting Standard (SFFAS) No. 2, Accounting for Direct Loans and Loan Guarantees, and related regulations and guidance, require recording subsidy costs (the present value of interest subsidies, defaults, fee offsets, certain administrative expenses and other cash flows) associated with direct loans and loan guarantees in the year loans are disbursed. In addition, subsidy costs are recorded as an allowance (reduction) for direct loans receivable or as a liability for loan guarantees. All credit program receivables are recorded at the principal and interest outstanding, net of the allowance for subsidy. Subsidy costs are estimated based on the difference between the present values of expected government cash outflows (e.g. net interest expense and defaults) and inflows (e.g. collections), discounted by the interest rate earned on a Treasury debt instrument of similar term at the time loans are disbursed. Subsidy costs are recognized as an expense in the year loans are disbursed. Subsidy costs of credit program loans are re-estimated each year. 25 United States Department of Education Notes to Principal Financial Statements September 30, 2000 Budget Authority Budget authority is the authorization provided by law for the Department to obligate for future outlays of Federal funds. The Department’s budgetary resources as of September 30, 2000 include current authority (appropriations and borrowing authority) and unobligated balances remaining from annual, multi-year, and no-year budget authority received in prior years. Budgetary resources also include reimbursements received and other revenue (spending authority from offsetting collections credited to an appropriation account and recoveries of prior year obligations). Pursuant to Public Law 101-510, unobligated balances associated with appropriations expiring at the end of the fiscal year remain available only for obligation adjustment, until the account is cancelled after five years. Borrowing from Treasury provides most of the funding for the loan principal disbursements made under the Federal Direct Student Loan Program. The costs of the Department’s programs are generally funded with congressional appropriations. Revenues are recognized from other agencies and from the public in exchange for goods or services. Major sources of reported revenue include interest accrued from the Federal Direct Student Loan Program borrowers on outstanding loans receivable and interest accrued from Treasury on uninvested fund balances. Property and Equipment Previously, the Department expensed all property when it was purchased. In FY 2000, the Department elected to begin capitalizing bulk purchases of property and equipment with a total cost of $500,000 or more. A bulk purchase is defined as the purchase of like items related to a specific project or that occur within the same fiscal year, and have an estimated useful life greater than 2 years. In accordance with FASAB’s Statement of Federal Financial Accounting Standard (SFFAS) No. 6, Accounting for Property, Plant, and Equipment, these assets are depreciated using the straight-line method. The Department has adopted the following useful lives for classes of depreciable property: • 3-Year Property – Information Technology (IT) and Telecommunications equipment • 5-Year Property – Furniture and Fixtures Leases The Department leases office space from the General Services Administration (GSA). Generally, leases are cancelable by either party without a penalty upon 120 days notice, and future lease payments are not accrued as liabilities. Lease costs for office space for FY 2000 amounted to approximately $48.8 million, of which $15.6 million was for non-GSA owned office space. Under existing commitments as of September 30, 2000, estimated future minimum lease payments are as follows: 26 United States Department of Education Notes to Principal Financial Statements September 30, 2000 Future Minimum Lease Payments (Dollars in Thousands) Fiscal Year End: Amount 2001 $20,136 2002 19,974 2003 20,473 2004 20,985 After 2004 21,510 Total $103,078 The Department does not have any capital leases. Accounts Receivable Accounts receivable are monies due from the public for items such as overpayments of educational assistance. In addition, the Department enters into agreements with other Federal agencies that result in amounts due the Department. Accounts receivable are estimated using the net realizable value methodology (see Note 3). Credit Program Receivables Credit program receivables are recorded at the principal and interest outstanding, net of allowances for subsidy. Allowances for subsidy represent the differences between the present values of estimated cash inflows and outflows of the underlying credit program loans held by the Department. The allowance for subsidy is amortized using the effective interest method based on the interest rate at the time the loans were disbursed. All credit program receivables are valued using net present value methodology (see Note 4). Accounts Receivable - Guaranty Agency Reserves Under Section 422A of the HEA of 1965, as amended, Guaranty Agencies were required to establish a Federal Student Loan Reserve Fund (the "Federal Fund") and an Operating Fund by December 6, 1998. The Federal Fund and the non-liquid assets developed or purchased by a Guaranty Agency, in whole or in part with Federal reserve funds, regardless of who holds or controls the Federal reserve funds or assets, are the property of the United States. The Federal Fund is to be used only to pay lender claims and default aversion fees into a Guaranty Agency's Operating Fund. The Operating Fund is the property of the Guaranty Agency except for funds an agency borrows from the Federal Fund under Section 422A of the HEA of 1965, as amended. The Operating Fund is used by the Guaranty Agency to fulfill its responsibilities. These include repaying money borrowed from the Federal Fund, default aversion and collection activities. 27 United States Department of Education Notes to Principal Financial Statements September 30, 2000 Guaranty Agency reserves consist of the Department’s interest in the net assets of FFEL Program Guaranty Agencies. Guaranty Agency assets include initial Federal start-up funds (Guaranty Agency advances), receipts of Federal reinsurance payments, insurance premiums, Guaranty Agency share of collections on defaulted loans, investment income and administrative cost allowances, and other assets purchased out of reserve funds. Liabilities result from initial Federal start-up funds, lender claims, operating expenses and Federal reinsurance fees. Guaranty Agency reserves are recorded as a non-entity asset (see Note 3) and as a corresponding liability due Treasury. Liabilities Liabilities represent the amount of funds likely to be paid as a result of transactions or events which have already occurred. Liabilities without budget authority are classified as liabilities not covered by budgetary resources. Most of the FFEL and Federal Direct Student Loan Program liabilities result from entitlements covered by permanent indefinite budget authority. Liabilities for Loan Guarantees The estimated liability for loan guarantees under the FFEL Program is the estimated long-term cost to the Department of its loan guarantees calculated on a net present value basis, excluding administrative costs. Obligations for the subsidy cost will be recorded against budget authority when a loan guarantee commitment is made (see Note 4). Subsidy costs are recognized as expenses in the year loans are disbursed. This cost is re-estimated each year, which is recognized as an increase or decrease of subsidy expense. Borrowing from Treasury Programs are generally funded by congressional appropriations. However, borrowing from the U.S. Treasury provides most of the funding for loans made under the Federal Direct Student Loan Program and Facilities Loan Program. The Department repays the loan principal based on available fund balances. Interest on the debt is calculated at fiscal year end using rates set by the U.S. Treasury. Principal and interest payments are remitted to the U.S. Treasury annually. Accrued Grant Liability Disbursements of grant funds are made to recipients through a drawdown request using the Grants and Administrative Payment System (GAPS) and are recorded as expenditures at the time of disbursement. However, some recipients do not request funds until after they incur the expenditures. Therefore, the Department accrues a liability for those expenditures for which drawdowns have not yet been requested. The accrual amount is estimated based on a statistical sample. 28 United States Department of Education Notes to Principal Financial Statements September 30, 2000 Net Position Net position consists of unexpended appropriations and cumulative results of operation. Unexpended appropriations include undelivered orders and unobligated balances, excluding activity of the liquidating and financing accounts required under the Federal Credit Reform Act of 1990. Cumulative results of operations represent the net result of operations since inception (i.e. the difference between the Department’s financing sources and its expenses). Prior Period Adjustments Prior period adjustments are included in the calculation of the net change in cumulative results of operations to correct errors from prior periods and reflect accounting changes with retroactive effects. Annual, Sick and Other Leave The liability for annual leave, compensatory time off, and other leave is accrued when earned and reduced when taken. Each year, the accrued annual leave account balance is adjusted to reflect current pay rates. Annual leave earned but not taken, within established limits, is funded from future financing sources. Sick leave and other types of non-vested leave are expensed as taken. Retirement Plans and Other Employee Benefits Employees participate in either the Civil Service Retirement System (CSRS), a defined benefit plan, or the Federal Employees Retirement System (FERS), a defined benefit and contribution plan. For CSRS employees, the Department contributes 8.51 percent of pay. For FERS employees, the Department contributes 10.7 percent of pay to the defined benefit plan and 1 percent of pay to the thrift savings plan (a defined contribution plan), and matches employee contributions to the thrift savings plan up to an additional 4 percent of pay. For FERS employees, the Department also contributes the employer’s share for Social Security (FICA) and Medicare. SFFAS No. 5, Accounting for Liabilities of the Federal Government, requires government agencies to report the full cost of employee benefits for the CSRS, FERS, the Federal Employee Health Benefit (FEHB), and the Federal Employees Group Life Insurance (FEGLI) programs. The Department used the applicable cost factors provided by the Office of Personnel Management (OPM) in these financial statements. Federal Employees Compensation Act A portion of the estimated liability for disability benefits assigned to the Department under the Federal Employees Compensation Act (FECA), administered and determined by the Department of Labor (DOL) is accrued. The liability is based on the net present value of estimated future 29 United States Department of Education Notes to Principal Financial Statements September 30, 2000 payments as determined by DOL. Related Party Transactions The Department’s financial activities interact with and depend upon those of the Federal government as a whole. Specifically, the Department is subject to the financial decisions and management controls of OMB and the U.S. Treasury. As a result of the relationship with other Federal government entities, operations may not be conducted, nor financial position reported, as they would if the Department were a separate and unrelated party. Note 2. Fund Balance with the U.S. Treasury Fund Balance with the U.S. Treasury (Dollars in Thousands) Appropriated Funds $29,993,164 Revolving Funds 12,104,012 All Other Funds 63,543 Total $42,160,719 The Fund Balance with the U.S. Treasury represents appropriated funds and revolving funds, which include undisbursed U.S. Treasury borrowings that are available to pay current liabilities and finance loan programs. The Department has the authority to disburse the funds directly to agencies and institutions participating in its programs. The U.S. Treasury processes cash receipts and disbursements on behalf of the Department. The undisbursed account balances are entity assets. A portion of the appropriated funds included at September 30, 2000, were funded in advance by multi-year appropriations for expenditures anticipated during the current and future fiscal years. Revolving funds conduct continuing cycles of business-like activity and do not require an annual appropriation. The Department also maintains undisbursed account balances with the U.S. Treasury in deposit funds that are not available to fund the activities of the Department. In FY 2000, these balances amounted to $216 million. Note 3. Accounts Receivable Accounts Receivable Net Amount Due (Dollars in Thousands) Entity Accounts Receivable Governmental $ 82,703 Non-Entity Accounts Receivable 2,231,814 Total Accounts Receivable $2,314,517 30 United States Department of Education Notes to Principal Financial Statements September 30, 2000 Entity accounts receivable represent balances due from recipients of grant and other financial assistance programs, and from other Federal agencies. They are recorded at their net realizable value. Estimates for the allowance for loss on uncollectible accounts are based on historical data. Guaranty Agency reserves and Federal fund balances are recorded as a non-entity accounts receivable and as a liability due to the U.S. Treasury. Guaranty Agency reserves and Federal fund balances represent the Federal government’s interest in the net assets of state and non-profit FFEL Program Guaranty Agencies. Note 4. Credit Program Receivables and Liabilities for Loan Guarantees The Department provides loans to students and parents through the Federal Direct Student Loan Program and the Federal Family Education Loan Program. The Department also administers low interest loans through the Facilities Loan Program to assist in the construction, reconstruction, or renovation of housing, academic facilities, and other educational facilities for students and faculty at institutions of higher education. Under the Federal Direct Student Loan Program, the Federal government provides loans directly to qualified individuals through participating schools. Loans are available to students and their parents regardless of income, and student borrowers who demonstrate financial need receive Federal interest subsidies. Under the FFEL Program, over 4,000 financial institutions make loans to students and parents. The Federal government guarantees these loans against default, with 36 state or private non- profit Guaranty Agencies acting as intermediaries in administering the guarantees. FFEL Program participants receive Federal interest and special allowance subsidies and the Guaranty Agencies receive administrative fee payments. All payments are set by statute. Lenders and Guaranty Agencies also share in the cost of defaulted loans. The Federal Credit Reform Act of 1990 governs direct loan obligations and loan guarantee commitments, made after fiscal year 1991, and the resulting direct loans or loan guarantees. It provides that the subsidy costs associated with direct loans and loan guarantees be recognized as an expense in the year the direct or guaranteed loan is disbursed. The subsidy costs are revalued annually, and are calculated as a net present value of interest subsidies, defaults, fee offsets, certain administrative expenses, and other cash flows. Under credit reform, these subsidy cash flows exclude direct Federal administrative expenses. (For the student loan programs, an exception is made for contractual payments to third-party private loan collectors, who receive a set percentage of amounts they collect.) The Federal Direct Student Loan Program and defaulted FFEL Program loan receivables are reported net of an allowance for subsidy computed at net present value. The FFEL program estimated loan liability is reported at the net present value of estimated net cash outflows. The 31 United States Department of Education Notes to Principal Financial Statements September 30, 2000 Department has elected to report its pre-fiscal year 1992 defaulted FFEL program loans and loan guarantee liabilities on a net present value basis. The Department estimates all cash flows associated with loans made under the Federal Direct Student Loan and FFEL Programs, including the loss related to future defaults. Projected cash flows are used to develop subsidy estimates, which, as noted above, represent the net present value of future Federal costs associated with a cohort of loans. These estimates are recorded as a reduction of the direct loans and FFEL Program defaulted loans receivable outstanding, and as a liability for the FFEL Program guarantees. To comply with the Federal Credit Reform Act of 1990 and related requirements, the Department employs a cash flow projection model to compute the estimated subsidy cost. The Department estimates cash flows over the life of a loan, grouping the loans by loan type, cohort year, and risk group. The cohort year for a loan represents the year the direct loan is obligated or the FFEL Program loan is guaranteed. Risk groups include students at two-year colleges, four-year colleges, graduate schools, and proprietary schools. In recent years, the consolidation of existing loans into new direct or guaranteed loans has increased significantly. Under the Federal Credit Reform Act of 1990 and guidance provided by OMB Circulars A-11 and A-34, the retirement of an existing loan through consolidation is considered a payment of principal and interest to the loan holder: either a private lender or, in the case of defaulted loans, the Department. One effect of this treatment is that Department collections on defaulted loans are significantly higher than they would have been in the absence of the increase in consolidations. Collections related to the disbursement of a new consolidation loan reduce the subsidy cost of the retired underlying loans. The liability and net receivable apply only to currently existing loans. As noted above, borrowers may pre-pay and close out existing loans from capital raised through the disbursement of a new consolidation loan. The FY 2000 loan liability and net receivable include estimates of future prepayments of existing loans; they do not, however, reflect costs associated with these anticipated consolidation loans, which do not currently exist. The credit program receivables at September 30, 2000, are comprised of Direct Loans, defaulted FFEL Program loans, and related interest receivable net of the allowance for subsidy. The credit program receivables, presented by credit program, are summarized as follows: 32 United States Department of Education Notes to Principal Financial Statements September 30, 2000 Credit Program Receivables (Dollars in Thousands) Defaulted FFEL Loans Direct Facilities Loans Pre 1992 Post 1991 Loans Total Loans Receivable $58,522,455 $14,986,951 $5,341,825 $504,976 $79,356,207 Interest Receivable 1,707,927 2,006,678 1,188,792 9,342 4,912,739 Gross Program Receivables $60,230,382 $16,993,629 $6,530,617 $514,318 $84,268,946 Less: Allowance for Subsidy 2,585,250 (14,086,594) 1,502,777 (108,375) (10,106,942) Net Credit Program Receivables $62,815,632 $2,907,035 $8,033,394 $405,943 $74,162,004 The FY 2000 allowance for subsidy in Direct Loans and post-1991 FFEL loans have positive balances. This is a function of the high collection rate on Department receivables and the estimates that total future collections of principal and interest will exceed the current receivable for these loans. It is important to recognize that the credit program receivables, net amount, is not the same as the proceeds that the Department would expect to receive from selling the loans. The proceeds the Department would expect to receive would be determined by the marketplace. As of September 30, 2000, total outstanding loan guarantees under FFEL were approximately $139 billion. If all the loans currently guaranteed defaulted, the Department would not pay the full guaranteed amount to the Guaranty Agencies. Instead, it would pay an amount ranging from 75 to 95 percent based on reinsurance rates and the default rate of the Guaranty Agency. The present value of estimated losses on guaranteed loans as of September 30, 2000, is shown below: Liability for Loan Guarantees (Dollars in Thousands) Pre-1992 Guarantees, Present Value $443,713 Post-1991 Guarantees, Present Value 13,224,270 Total Loan Guarantee Liability $13,667,983 Loan liabilities and net receivables represent the net present value of future projected cash flows, including principal and interest repayments. As such, these estimates vary significantly with changes in forecasting assumptions, particularly involving the interest rates charged to students, paid to loan holders, and used for discounting cash flows. The FY 2000 liability was calculated using government-wide interest rate projections provided by the Office of Management and Budget on November 21, 2000. The Bush Administration, which entered office, January 20, 2001, may issue revised interest rate forecasts that could produce a significantly different 33 United States Department of Education Notes to Principal Financial Statements September 30, 2000 liability estimate. As a result, the President’s FY 2002 budget, which will reflect any revised interest rate assumptions provided by the new Administration, may include a liability estimate that differs from that included in the FY 2000 financial statements. Total Direct Student Loan and FFEL Program subsidy expenses for the period ended September 30, 2000, are shown below: Subsidy Expense (Dollars in Thousands) Direct Student Loan Program FFEL Program Total Loan Defaults (Net of Recoveries) $ 453,467 $ 1,262,779 $1,716,246 Interest Subsidies (1,880,221) 2,815,910 935,689 Fees 545,993 (1,067,831) (521,838) Other Write-offs (187,889) 519,276 331,387 Total Current Year Subsidy Transfers $(1,068,650) $ 3,530,134 $2,461,484 Re-estimates (2,864,278) (3,234,603) (6,098,881) Total Subsidy Expense $(3,932,928) $ 295,531 $(3,637,397) The Facilities Loan Program incurred a negative subsidy expense of $596 thousand for FY 2000. Note 5. Property and Equipment Property and equipment includes computer software for a new financial accounting system. As of September 30, 2000, the acquisition cost was $1.3 million. Since the system was not yet in service at the end of FY 2000, no amortization has been recognized. Note 6. Borrowing from Treasury Status of Debt to the U.S. Treasury (Dollars in Thousands) Direct Student Facilities Loans Loans Total Beginning Balance $52,069,506 $379,803 $52,449,309 New Borrowing 16,346,598 0 16,346,598 Repayments (3,069,223) (298) (3,069,521) Reclassified as a Payable to FFB (11,000) (11,000) Ending Balance $65,346,881 $368,505 $65,715,386 The Department’s debt to the U.S. Treasury was $65.7 billion as of September 30, 2000. The funds were borrowed to provide funding for the direct loan and facilities loan programs. The 34 United States Department of Education Notes to Principal Financial Statements September 30, 2000 borrowing is authorized through indefinite permanent authority at interest rates set each year by the U.S. Treasury. In FY 2000, the Department reclassified the debt related to the Historically Black Colleges and Universities (HBCU) Capital Financing Program as a Payable to the Federal Financing Bank (see Note 8). Note 7. Payable to Treasury At September 30, 2000, the Department reported $7.9 billion as a payable to the U.S. Treasury. $3.9 billion is associated with the FFEL Program liquidating fund and will be repaid from future excess liquidating fund receivable collections. $4.0 billion represents a downward subsidy re- estimate in the FFEL program fund. This amount will be repaid in FY 2001. Note 8. Payable to Federal Financing Bank Public Law 102-325, the Higher Education Amendments of 1994, authorized the Department to issue bonds on behalf of the HBCU Capital Financing Program. To date, all bonds issued under this program have been purchased by the Federal Financing Bank (FFB). The Department reports the corresponding liability for full payment of principal and interest as a payable to the FFB under rules established by the Credit Reform Act of 1990. Payable to Federal Financing Bank (Dollars in Thousands) Reclassified from Borrowing from Treasury $11,000 New Borrowing 9,796 Repayments (97) Ending Balance $20,699 Note 9. Other Liabilities Other liabilities covered by budgetary resources include contractual services, administrative services, interagency agreement accruals, and suspense account balances. Other liabilities not covered by budgetary resources include accrued annual leave and FECA disability benefits. Other Liabilities (Dollars in Thousands) Other Liabilities Covered by Budgetary Resources: Intragovernmental $ 112,562 Governmental 186,424 Total $ 298,986 Other Liabilities Not Covered by Budgetary Resources: Intragovernmental $ 250,261 Governmental 44,734 Total $ 294,995 Total Other Liabilities $ 593,981 35 United States Department of Education Notes to Principal Financial Statements September 30, 2000 Note 10. Accrued Grant Liability The Department’s accrued grant liability of $2 billion represents an estimate of the expenses incurred by grantees that have not yet been reimbursed. The total liability is allocated among the reporting groups based on the grant balance available at September 30, 2000. The accrued grant liability by reporting group is shown below: Accrued Grant Liability (Dollars in Thousands) Reporting Allocated Group Grant Liability SFA $319,376 OESE 752,098 OSERS 486,687 OVAE 137,219 OPE 179,749 OERI 80,245 OBEMLA 50,755 Total $2,006,129 Note 11. Net Position Net Position is composed of two elements – unexpended appropriations and cumulative results of operations. Unexpended appropriations represent appropriations not yet expended, which have not lapsed, been withdrawn, or rescinded. The Department’s unexpended appropriations consist of unobligated balances – available, unobligated balances – not available, and undelivered orders. The Department’s unexpended appropriations as of September 30, 2000, are summarized as follows: Unexpended Appropriations (Dollars in Thousands) Unobligated Available $ 1,795,131 Not Available 566,462 Undelivered Orders 24,361,167 Total $ 26,722,760 Unexpended appropriations do not include any funding activity for which appropriations have not been received. Therefore, the unobligated balances and undelivered orders for financing funds are not included in unexpended appropriations. As a result, unexpended appropriations reported in the Consolidated Balance Sheet will not agree with the balances of budget authority. 36 United States Department of Education Notes to Principal Financial Statements September 30, 2000 Cumulative results of operations represent the net result of operations since inception. As of September 30, 2000, the Department’s cumulative results of operations amounted to a $124 million deficiency (i.e. expenses exceeded financing). The deficiency consists primarily of unfunded expenses for certain payroll accruals and a subsidy re-estimate for the Federal Direct Student Loan Program that will be executed in FY 2001. These expenses are funded from future appropriations and the cumulative results of operations will be reversed through the normal accounting process when funding occurs. Note 12. Interest Revenue and Expense The interest revenues and expenses directly attributable to the Federal Direct Student Loan Program, the FFEL Program, and other remaining programs are summarized below: Interest Revenue and Expenses (Dollars in Thousands) Federal Direct Student Loan Program FFEL Program Other Programs Total Interest Revenue Federal $1,261,281 $499,843 $ 161 $1,761,285 Non-Federal 3,211,256 23,067 3,234,323 Total Interest Revenue $4,472,537 $499,843 $ 23,228 $4,995,608 Interest Expense Federal $4,472,537 $499,843 $ 20,933 $4,993,313 Non-Federal 115 109 81 305 Total Interest Expense $4,472,652 $499,952 $ 21,014 $4,993,618 Note 13. Allocation of Direct and Indirect Cost The reported salaries and administrative expenses include the allocation of direct and indirect administrative costs among the reporting groups. The distribution was made in accordance with the FASAB’s Statement of Federal Financial Accounting Standard (SFFAS) No. 4, Managerial Cost Accounting Concepts and Standards for the Federal Government, and is calculated based on a combination of full time employees and program costs. 37 United States Department of Education Notes to Principal Financial Statements September 30, 2000 Allocation of Administrative Expenses (Dollars in Thousands) Reporting Direct Indirect Total Group Costs Costs Costs SFA $ 50,580 $ 63,131 $113,711 OSERS 32,182 22,628 54,810 OCR 0 30,076 30,076 OERI 34,806 14,304 49,110 OESE 23,304 23,124 46,428 OPE 25,878 12,468 38,346 OBEMLA 3,729 2,569 6,298 OVAE 9,943 7,077 17,020 Total $180,422 $175,377 $355,799 Note 14. Imputed Financing The Statement of Changes in Net Position recognizes an imputed financing source of $20.8 million for the period ended September 30, 2000. A corresponding post-employment benefit expense is recognized on the Statement of Net Cost as a program cost under salaries and administrative expense. The imputed financing source represents annual service costs not paid by the Department or employee contributions to the Civil Service Retirement System. No imputed financing source is recognized for the Federal Employee Retirement System, since it is a fully funded retirement service plan. The post-employment benefit expense represents the Department's estimate of the funds necessary to pay employees future pension, life, and health benefits. Note 15. Prior Period Adjustments During FY 2000, the Department performed various analyses of its account balances in an effort to improve the financial data recorded in its accounting records. Adjustments were made to Fund Balance with Treasury, Loan Guarantee Liability, Disbursements in Transit, and other financial statement accounts. Items of income and expense related to prior periods were recorded as prior period adjustments and Net Position was amended to reflect the adjustments. 38 United States Department of Education Notes to Principal Financial Statements September 30, 2000 Prior Period Adjustments (Dollars in Thousands) Adjustments Related Equity and Loan to GAPS Subsidiary Guarantee Liability System and Proprietary Adjustment in And Budgetary Other Reporting Group FFEL Financing Fund Account Reconciliation Adjustments Total FFEL $820,123 $12,805 $(8,283) $824,645 DL 20,694 20,694 SFA Grants 85,716 85,716 OESE 3,701 3,701 OSERS (63,372) (63,372) OVAE (3,824) (3,824) OPE (27,925) 87,556 59,631 OERI (27,935) (27,935) OBEMLA 10,191 10,191 DM (35,863) (35,863) Total Adjustments $820,123 $(46,506) $99,967 $873,584 The Department performed a detailed review of the FFEL financing fund to identify prior year transactions that created cumulative results of operations as of Fiscal Year 1999 year-end. Under Federal Credit Reform accounting, financing funds do not generate net costs or cumulative results of operations. Prior period adjustments were made to comply with current credit reform accounting practices which resulted in corrections to the Loan Guarantee Liability account and Net Position. The Department performed the following analyses during FY 2000 that resulted in prior period adjustments related to its grant and loan programs: • Analysis of undelivered order balances between the GAPS payment system (subsidiary system) and the general ledger. • Reconciliation of transactions recorded in the Disbursement in Transit Account, dating back to Fiscal Year 1997, when the Department converted to its current accounting system. • Relationships between Fund Balance with Treasury and budgetary accounts comprising unobligated balances, undelivered orders, and accounts payable and receivable. The adjustments resulted in changes to Fund Balance with Treasury, Unexpended Appropriations, Undelivered Orders, and Unobligated Balances. Other prior period adjustments were made to correct transactions posted in prior years. 39 United States Department of Education Notes to Principal Financial Statements September 30, 2000 Note 16. Unobligated and Obligated Balances – Beginning of Period During FY 2000, the Department performed a review of Fiscal Year 1999 ending balances and recorded adjustments to correct account balances. The adjustments were made to Obligations Incurred and beginning Obligated and Unobligated balances. The Statement of Budgetary Resources reflects the adjusted beginning Unobligated and Obligated balances. The reconciliation is shown below. Unobligated Balances – Beginning of Period (Dollars in Thousands) Fiscal Year 2000 Fiscal Year 2000 Beginning Balance Beginning Balance Reporting Group (Unadjusted) Adjustments (Adjusted) FFEL $7,771,917 $498,922 $8,270,839 DL 29,794 29,794 SFA Grants 4,720,204 182,208 4,902,412 OESE 349,420 (43,763) 305,657 OSERS 176,630 (7,741) 168,889 OVAE 68,870 (9) 68,861 OPE 80,431 (986) 79,445 OERI 22,278 (120) 22,158 OBEMLA 3,682 3,682 DM 30,209 (17,675) 12,534 Total $13,253,435 $610,836 $13,864,271 Obligated Balances – Beginning of Period (Dollars in Thousands) Fiscal Year 2000 Fiscal Year 2000 Beginning Balance Beginning Balance Reporting Group (Unadjusted) Adjustments (Adjusted) FFEL $3,060,836 $745,255 $3,806,091 DL 6,907,766 6,907,766 SFA Grants 2,807,498 143,208 2,950,706 OESE 9,751,345 (76,228) 9,675,117 OSERS 7,868,327 (3,320) 7,865,007 OVAE 1,912,742 11 1,912,753 OPE 1,572,427 (4) 1,572,423 OERI 704,807 (10,610) 694,197 OBEMLA 529,117 529,117 DM 253,153 65 253,218 Total $35,368,018 $798,377 $36,166,395 40 United States Department of Education Notes to Principal Financial Statements September 30, 2000 Note 17. Statement of Budgetary Resources The Statement of Budgetary Resources compares budgetary resources with the status of those resources. As of September 30, 2000, budgetary resources outstanding were $81.3 billion and outlays for the year were $48.6 billion. The Department had $33.1 billion in net budgetary resources obligated for undelivered orders at September 30, 2000, consisting of $16.2 billion for SFA, $8.1 billion for OESE, $4.6 billion for OSERS, $1.8 billion for OPE, $1.1 billion for OVAE, and $1.3 billion for all other programs. An undelivered order is an amount of goods and services ordered from another Federal agency or the public but not yet received, i.e., the amount of orders for goods and services outstanding for which the liability has not yet accrued. Borrowing authority is a budgetary resource used to fund loans made under the Federal Direct Student Loan Program. Borrowing authority is authority granted to a Federal entity to borrow and to obligate and expend the borrowed funds. This program may borrow from Treasury to fund loans originated during the year. The available borrowing authority remaining for loans originated during FY 2000 was $3.3 billion. Borrowings may be repaid to Treasury at any time without penalty and funds not expended accrue interest as uninvested funds. The majority of the funds used to repay Treasury borrowings are from collections on outstanding loans. The Federal Direct Student Loan Program and the FFEL Program were granted permanent indefinite appropriation budget authority through previously enacted legislation. The following legislation pursuant to the HEA of 1965 (Part D of the William D. Ford Federal Direct Loan Program and Part B of the Federal Family Education Loan Program) pertains to the existence, purpose, and availability of the permanent indefinite appropriation authority: “Federal Direct Student Loan Program: In General-There are hereby made available, in accordance with the provisions of this part, such sums as may be necessary to make loans to all eligible students (and the eligible parents of such students) in attendance at participating institutions of higher education selected by the Secretary, to enable such students to pursue their course of study at such institutions during the period beginning July 1, 1994.” “Federal Family Education Loan Program: Authorization of appropriations for the purpose of carrying out this part - there are authorized to be appropriated to the student loan insurance fund (established by section 431) (A) the sum of $ 1,000,000 and (B) such further sums, if any as may become necessary for the adequacy of the student loan insurance fund.” The majority of the “Adjustments” line item on the Statement of Budgetary Resources consists of repayments of borrowings, negative subsidy returns, and excess collections returned to Treasury. In addition, adjustments were made in preparing the fiscal year 2000 Statement of Budgetary Resources. The beginning obligated and unobligated balances were incorrect due to systemic problems in the general ledger closing process and other accounting errors that occurred in prior years. The Beginning Unobligated Balance was adjusted upward by $611 million while the Beginning Obligated Balance was adjusted upward by $798 million (see Note 16). 41 United States Department of Education Notes to Principal Financial Statements September 30, 2000 The Statement of Budgetary Resources is presented as a combined statement for the Department and as a combining statement for its major programs. The budgetary resources obligated balances, by reporting group, as of September 30, 2000, are summarized below: Obligated Balances (Dollars in Thousands) Reporting Group Amount SFA $21,629,148 OESE 8,825,209 OSERS 5,118,981 OVAE 1,271,965 OPE 1,994,678 OERI 732,133 OBEMLA 557,130 Department Management 220,591 Total $40,349,835 Note 18. Statement of Financing The major resources that do not impact net cost of operations for the Department result from loan guarantee and direct loan activities that fall under the purview of the Credit Reform Act of 1990. Most cash flows that are normally recorded as an expense or revenue in accrual accounting are recorded to liability for loan guarantees or the allowance for subsidy under present value accounting. In addition, special circumstances surround unfunded expenses such as upward subsidy re-estimates, accrued annual leave, and other payroll-related accruals. These unfunded expenses affect the Statement of Net Cost but are not covered by budgetary resources, i.e. do not give rise to a budgetary accounting event. Liabilities not covered by budgetary resources were $295 million as of September 30, 2000. The Statement of Financing is presented as a combined statement for the Department and as a combining statement for its major programs. For the period ended September 30, 2000, the net cost of operations, by reporting group, is shown below: Net Cost of Operations (Dollars in Thousands) Reporting Group Amount SFA $ 6,234,813 OESE 13,828,926 OSERS 8,176,263 OVAE 1,608,749 OPE 1,542,678 OERI 715,758 OBEMLA 409,166 Department Management 202,471 Total Cost of Operations $32,718,824 42 United States Department of Education Notes to Principal Financial Statements September 30, 2000 Note 19. Cost and Revenue by Budget Function The Department’s costs and revenue, by budget function, are presented below: Cost and Revenue by Budget Function (Dollars in Thousands) Earned Budget Function Gross Costs Revenue Net Costs Education, training, employment, and social services $37,666,354 $5,086,278 $32,580,076 Administration of justice 138,918 170 138,748 Total $37,805,272 $5,086,448 $32,718,824 Note 20. Contingencies Guaranty Agencies The Department can assist Guaranty Agencies experiencing financial difficulties by advancing funds or by other means. No provision has been made in the principal statements for potential liabilities related to financial difficulties of Guaranty Agencies because the likelihood of such occurrences is uncertain and cannot be estimated with sufficient reliability. Perkins Loans Reserve Funds The Perkins Loan Program is a campus-based program providing financial assistance to eligible post-secondary school students based on financial need. The Department provides about 86 percent of the capital used to make loans to eligible students. The remaining 14 percent is provided by the institution. For the latest academic year (ended June 30, 2000) there were approximately 653,000 loans made, totaling $1.1 billion at approximately 1,817 institutions, averaging $1,700 per loan. As of September 30, 2000, the Department's share of the Perkins Loan Program was approximately $6.2 billion. Perkins Loan borrowers who meet statutory eligibility requirements--such as service as a teacher in low-income areas, as a Peace Corp or VISTA volunteer, in the military, or in law enforcement, nursing, or family services--may receive partial loan forgiveness for each year of qualifying service. In these circumstances, the Department compensates Perkins Loan institutions for the cost of lost borrower repayments. Borrower Class Actions The Department is involved in pending litigation challenging the enforceability of FFEL Program loans made to students who attended various closed trade schools. In most instances, a large percentage of the loans in question are in default and have been acquired by Guaranty Agencies and/or the Department. No provision has been made in the principal statements for any potential reductions in estimated future collections related to the outcome of these suits, since the Department’s potential loss exposure is uncertain. 43 United States Department of Education Notes to Principal Financial Statements September 30, 2000 Other Matters The Department is involved in various other claims and legal actions related to its programs, arising in the ordinary course of business. In addition, some portion of current year financial assistance expenses (grants) may include funded recipient expenditures which were subsequently disallowed through program review or audit processes. In the opinion of management, the ultimate disposition of these matters will not have a material effect on the Department’s financial statements. 44 REQUIRED SUPPLEMENTARY INFORMATION For the Year Ended September 30, 2000 INVESTMENT IN HUMAN CAPITAL The U. S. Department of Education (ED) executes programs under the Education, Training, Employment and Social Services function established by Congress in the Budget Act of 1974. This report presents Human Capital activity related to the execution of the ED's congressionally approved budget and programs. NARRATIVE DISCUSSION The Department of Education’s mission is to ensure equal access to education and to promote educational excellence throughout the nation. To carry out this mission, the Department works in partnership with states, schools, communities, institutions of higher education, and financial institutions--and through them with students, teachers and professors, families, administrators, and employers. Key functions of the partnership are: ∙ Leadership to address critical issues in American education. ∙ Grants to education agencies and institutions to strengthen teaching and learning and prepare students for citizenship, employment in a changing economy, and lifelong learning. ∙ Student loans and grants to help pay for the costs of postsecondary education. ∙ Grants for literacy, employment, and self-sufficiency training for adults. ∙ Monitoring and enforcement of civil rights to ensure nondiscrimination by recipients of federal education funds. ∙ Support for statistics, research, development, evaluation, and dissemination of information to improve educational quality and effectiveness. The Department promotes educational excellence for all students by providing financial support to states and local agencies, promoting challenging standards, getting families and communities involved in schools, providing information on the best educational practices, ensuring that postsecondary education is affordable, and providing high-quality statistics and evaluations on federal programs. HUMAN CAPITAL PROGRAMS Federal investment in Human Capital comprises those expenses for general public education and training programs that are intended to increase or maintain national economic productive capacity. Concern over America’s ability to compete in world markets has highlighted the relationship between education and economic growth. The Department of Education’s Human Capital programs include Elementary and Secondary, Postsecondary, Student Financial Assistance, Special and Rehabilitative Education, 45 REQUIRED SUPPLEMENTARY INFORMATION For the Year Ended September 30, 2000 Research and Improvement, Bilingual and Minority Languages, and Vocational and Adult Education. Elementary and Secondary Education The Office of Elementary and Secondary Education provides leadership, technical assistance, and financial support to State and local educational agencies for maintenance and improvement of both public and private preschool, elementary, and secondary education. Compensatory Education Programs provide financial assistance to State and local education agencies and other institutions to support services for children in high poverty schools, institutions for neglected and delinquent children, homeless children, and certain Indian children. The Comprehensive School Reform Demonstration Program provides grants to States to help public schools adopt or develop effective comprehensive school reforms with an emphasis on basic academics and parental involvement. State educational agencies are encouraged to place emphasis on schools with low levels of student achievement and high dropout rates. Goals 2000 Programs provide grants to support State and local district efforts to improve schools and parental involvement in schools so all children can reach challenging academic standards. The Parental Assistance Program helps parents better understand their children’s educational needs and strengthens the partnerships between parents and schools. The State and Local Education Systemic Improvement Program assists States in developing plans to improve teaching and learning through long-term and broad-based efforts to help students achieve higher standards of learning. The Technology Literacy Challenge Fund supports State, local and private sector partnerships focused on integrating technology into teaching and learning. The Impact Aid Program provides financial assistance for the maintenance and operations of school districts in which the Federal Government has acquired substantial real property. It provides direct assistance to local educational agencies that educate substantial numbers of federally connected pupils (children who live on, or whose parents work on, federal property). Indian Education supports the efforts of local educational agencies, Indian tribes, and other entities to meet the academic needs of American Indians and Alaska Natives so these students can achieve to the same State performance standards as all students. Programs include professional development programs designed to increase the number of Indian individuals in designated professions, a fellowship program for undergraduate and 46 REQUIRED SUPPLEMENTARY INFORMATION For the Year Ended September 30, 2000 graduate study, programs for the gifted and talented, adult education, and national research activities. Migrant Education Programs support high-quality comprehensive educational programs for migratory children to address disruptions in schooling and other problems that result from repeated moves. States use funds to design programs to help migratory children overcome academic, cultural, and language barriers, social isolation, health- related problems, and other factors that hinder academic achievement. Safe and Drug-Free Schools Programs provide leadership to ensure that all schools are free of drugs and violence and the unauthorized presence of firearms and alcohol and that all schools offer a disciplined environment that is conductive to learning. Students at all levels of education, from elementary school through college, are supported by such programs as: Elementary School Counseling and Demonstration, Middle School Coordinators, Alternative Strategies, and Alcohol and Other Drug Prevention Models On College Campuses. School Improvement Programs provide financial assistance to State and Local Educational Agencies, institutions of higher education, and other public and private nonprofit organizations for general assistance, projects to meet special educational needs of target children, and teacher development. Class Size Reduction Program - Research demonstrates that students attending small classes in the early grades make more rapid educational progress than students do in larger classes. These achievement gains persist well after students move on to larger classes in later grades. The Class-Size Reduction Program is an initiative to help schools improve student learning by hiring additional, highly qualified teachers so children — especially those in the early elementary grades — can attend smaller classes. Through this program, classes in grades K-3 will be reduced to a nationwide average of 18 students. The fiscal year 2000 budget allowed for $1.3 billion dollars to be used for this purpose. The 21st Century Community Learning Centers Program is a key in the effort to keep children safe and to provide academic enrichment and other recreational and enrichment opportunities such as band, drama, art, and other cultural events for children. It also provides life-long learning opportunities for community members. The Community Technology Centers Program expands access to information technology and learning services by creating computer learning centers in low-income communities. The centers are used for pre-school preparation, workforce development, after-school enrichment, and adult and continuing education. 47 REQUIRED SUPPLEMENTARY INFORMATION For the Year Ended September 30, 2000 The Reading Excellence Program helps children learn to read through instruction based on research, professional development, family literacy, and extended learning activities. Postsecondary Education The Office of Postsecondary Education formulates policy and coordinates programs that assist postsecondary educational institutions and students pursuing a postsecondary education. Policy, Planning, and Innovation supports The Fund for the Improvement of Postsecondary Education, which provides grants to colleges and universities to promote reform, innovation, and improvement in postsecondary education. Higher Education Programs (HEP) administer discretionary funds and provide support services that improve student access to postsecondary education and foster excellence in institutions of higher education. Program funds are awarded to elementary, secondary, and postsecondary education institutions and non-profit organizations that assist in the distribution and administration of federal funds. HEP also administers several fellowship programs to graduate and undergraduate students in targeted areas of study. Learning Anytime Anywhere Partnerships (LAAP) - The Office of Postsecondary Education supports partnerships among colleges, businesses, and other organizations to promote technology-mediated distance education that is not limited by time or place. LAAP improves access to lifelong learning and promotes coordination and resource sharing among distance education providers. Student Financial Assistance (SFA) Programs SFA administers need-based financial assistance programs for students pursuing postsecondary education. ED makes available federal grants, loans and work-study funding to eligible undergraduate and graduate students. ED’s two major loan programs are the Federal Family Education Loan Program (FFELP) and the William D. Ford Direct Student Loan Program. The FFELP operates with State and private nonprofit guaranty agencies to provide loan guarantees and interest supplements through permanent budget authority on loans by private lenders to eligible students. The William D. Ford Direct Student Loan Program is a direct lending program in which loan capital is provided to students by the Federal Government through borrowing from the U.S. Treasury. 48 REQUIRED SUPPLEMENTARY INFORMATION For the Year Ended September 30, 2000 Special Education and Rehabilitative Services The Office of Special Education and Rehabilitative Services supports programs that assist in educating children with special needs. It provides for the rehabilitation of youth and adults with disabilities and supports research to improve the lives of individuals with disabilities. The Office of Special Education Programs administers programs and projects relating to the free public education of all children, youth, and adults with disabilities from birth through age 21. Most special education funds provide grants to states and territories to assist them in providing education to all children with disabilities. The early intervention and preschool grant programs provide grants to each state for children with disabilities from birth through age five. Rehabilitation Services Administration (RSA) oversees programs such as counseling, medical and psychological services, job training, and other individualized services that help individuals with physical or mental disabilities to obtain employment. RSA provides funds to State vocational rehabilitation agencies to provide employment-related services for individuals with disabilities, giving priority to severely disabled individuals. The National Institute on Disability and Rehabilitation provides leadership and support for a comprehensive program of research related to the rehabilitation of individuals with disabilities. Educational Research and Improvement The Office of Educational Research and Improvement (OERI) is responsible for expanding America’s fundamental knowledge and understanding of education through research and development. OERI promotes excellence and equity in American education by conducting research and demonstration projects that help improve education, collecting statistics on the status and progress of schools, and distributing information and providing technical assistance to those working to improve education. Media and Information Services (MIS) provides leadership in developing effective media and information services for OERI. MIS responds to customer needs through its outreach and publication activities, ensuring all OERI media products are of the highest quality in terms of content, format, and suitability for intended audiences. The National Center for Education Statistics fulfills a Congressional mandate to collect, collate, analyze, and report complete statistics on the condition of American education, conduct and publish reports, and review and report on education activities internationally. 49 REQUIRED SUPPLEMENTARY INFORMATION For the Year Ended September 30, 2000 The National Institute on Early Childhood Development and Education administers a comprehensive program of research and development to improve early childhood development and education. These activities improve the learning, cognitive and social-emotional development, and general well being of children from birth through age eight and their families. The National Institute on the Education of At-Risk Students administers a comprehensive program of research and development for the improvement of education for at-risk students. At-Risk Students are defined as those who because of limited English proficiency, poverty, race, geographic location, or economic disadvantage face a greater risk of low education achievement or reduced academic expectations. The National Institute on Educational Governance, Finance, Policymaking, and Management develops and disseminates information to guide the design and implementation of effective governance strategies, coherent policy information, reasonable management decisions, and equitable finance allocations to support high levels of learning by all students. The National Institute on Postsecondary Education, Libraries, and Lifelong Learning provides information about the education and training of adults in a variety of settings including postsecondary institutions, community-based education programs, libraries, and the workplace. It conducts research and development activities promoting quality and access to education and training for adults. The National Institute on Student Achievement, Curriculum, and Assessment administers a comprehensive program of research and development to provide leadership for states and localities striving to improve student achievement in core content areas and working to integrate these areas to enhance student learning. The National Library of Education (NLE) is the largest federally funded library devoted entirely to education. NLE serves in three areas: Reference and Information Services, which responds to telephone, mail, electronic, and other inquiries for education information; Collection and Technical Services, which directs the acquisition, preparation, and assessment of all collections; and Resource Sharing and Cooperation, which develops and maintains a network of national education resources. The Office of Reform Assistance and Dissemination supports comprehensive education reform by linking teachers, administrators, parents, policymakers, and the public with the best knowledge from education research, statistics, and practice. Responsibilities include providing technical and financial assistance for development, conducting research on models for successful uses of knowledge, providing training for 50 REQUIRED SUPPLEMENTARY INFORMATION For the Year Ended September 30, 2000 putting in place exemplary education programs, connecting schools and teachers with appropriate sources of assistance, and disseminating useful research findings. Bilingual Education and Minority Language Affairs Congress passed the Bilingual Education Act in 1968 in recognition of the growing number of linguistically and culturally diverse children enrolled in schools who, because of their limited English proficiency, were not receiving an education equal to their English-proficient peers. The Office of Bilingual Education and Minority Languages Affairs helps school districts meet their responsibility to provide equal education opportunity to limited English proficient children. Office of Vocational and Adult Education The Office of Vocational and Adult Education provides funds for vocational-technical education for youth and adults. Most of the funds are awarded in the form of grants to State education agencies. These grants are allotted according to a formula based on States' populations in certain age groups and their per capita income. STEWARDSHIP EXPENSES In the Department of Education, discretionary spending constitutes approximately 91 percent of the budget and includes nearly all programs, the major exceptions being student loans and rehabilitation services. The Federal Government is mandated by law to cover the cost of guaranteeing and directly making loans to students. The variable costs of the student loan programs are largely beyond control, and the costs fluctuate based on the number of students who borrow or default and the prevailing interest rates. The only other significant mandatory funding in ED is for Rehabilitation Act programs. The Rehabilitation Act mandates that the appropriation for State grants must increase each year at the rate of change in the Consumer Price Index. While spending for entitlement programs is usually a function of the authorizing statutes creating the programs, and is not generally affected by appropriations laws, spending for discretionary programs is decided in the annual appropriations process. Most Department programs are discretionary - for example, Impact Aid, Vocational Education, Special Education, Pell Grants, Research, and Statistics. 51 REQUIRED SUPPLEMENTARY INFORMATION For the Year Ended September 30, 2000 Fiscal Year 2000 Summary of Human Capital Expenses (Dollars in Thousands) Student Financial Assistance Direct Loan Subsidy Expense $ (3,932,928) Guaranteed Loan Subsidy Expense 295,531 Grant Program Expense 8,960,280 Salaries & Administrative Expense 273,866 Subtotal $ 5,596,749 Other Departmental OESE Grant Expense $ 13,773,266 OSERS Grant Expense 8,104,963 Other Departmental Program Expense 3,955,390 Salaries & Administrative Expense 312,051 Subtotal $ 26,145,670 Grand Total $ 31,742,419 Intra-governmental Amounts Intra-governmental amounts by trading partner include assets and liabilities. Assets primarily consist of $42.2 billion in fund balance with the Treasury. Liabilities to the Treasury include the following: borrowings of $65.7 billion, payables of $7.9 billion, and Guaranty Agency Federal & Restricted Funds of $2.2 billion. Payables due to the Federal Financing Bank amount to $20.7 million. Accounts payable, interest payable, and other intra-governmental liabilities covered by budgetary resources due to other federal agencies amount to $6.6 million, $83.5 million, and $112.6 million, respectively. Other intra-governmental liabilities not covered by budgetary resources due to other federal agencies total $250.3 million. 52 REQUIRED SUPPLEMENTARY INFORMATION For the Year Ended September 30, 2000 PROGRAM OUTPUTS Education is primarily a State and local responsibility in the United States. States and communities, as well as public and private organizations, establish schools and colleges, develop curricula, and determine requirements for enrollment and graduation. The structure of education finance in America reflects this predominantly State and local role. Combining ED’s expenditures of roughly $42 billion a year with funding from all other federal agencies, such as the Department of Health and Human Services' Head Start program and the Department of Agriculture's School Lunch program, the Federal Government contributes approximately 9 percent of total national expenditures on education. The remaining 91 percent come from State, local, and private sources. That $42 billion is less than 2 percent of the Federal Government's $1.8 trillion budget. ED currently administers 174 programs affecting every area and level of education. The Department's elementary and secondary programs annually serve more than 15,000 school districts and more than 50 million students attending almost 90,000 public schools and more than 27,000 private schools. Department programs also provide grant, loan, and work-study assistance to more than 8 million postsecondary students. While ED's programs and responsibilities have grown substantially over the years, the Department itself has not. In fact, ED's fiscal year 2000 full time equivalent staff ceiling of 4,717 is nearly 37 percent below the 1980 employee level of 7,528. These staff reductions, along with a wide range of management improvements, have helped limit administrative costs to less than 2 percent of the Department's budget. This means that ED delivers more than 98 cents on the dollar in education assistance to States, school districts, postsecondary institutions and students. PROGRAM OUTCOMES Education is the stepping stone to higher living standards for American citizens. Education is key to national economic growth. But education’s contribution is more than increased productivity and incomes. Education improves health, promotes social change and opens doors to a better future for children and adults. Economic outcomes, such as wage and salary levels, historically have been determined by the educational attainment of individuals and the skills employers expect of those entering the labor force. Recently, both individuals and society as a whole have placed increased emphasis on educational attainment as the workplace has become increasingly technological and employers now seek employees with the highest level of skills. For prospective employees, the focus on higher level skills means investing in learning or 53 REQUIRED SUPPLEMENTARY INFORMATION For the Year Ended September 30, 2000 developing skills through education. Like all investments, developing higher level skills involves costs and benefits. Returns, or benefits, of investing in education come in many forms. While some returns accrue for the individual, others benefit society and the Nation in general. Returns related to the individual include higher earnings, better job opportunities, and jobs that are less sensitive to general economic conditions. Returns related to the economy and society include reduced reliance on welfare subsidies, increased participation in civic activities, and greater productivity. Over time, the returns of developing skills through education have become evident. Statistics illustrate the rewards of completing high school and investing in postsecondary education: • Employment Rate: Between 1971 and 1998, the employment rate of male and female 25- to 34-year-olds was generally higher among those individuals with a higher level of education. The employment rate of males ages 25-34 decreased for those who had not finished high school and those with a high school diploma or GED, and remained relatively constant for those with some college and those with a bachelor's degree or higher. The employment rate of females ages 25-34 increased across all education levels. However, the rate of increase for females who did not complete high school was lower than the rate of increase for females who attained higher levels of education. • Annual Earnings: In 1997, the median annual earnings of adults ages 25-34 who had not completed high school were substantially lower than those of their counterparts who had done so (29 and 37 percent lower for males and females, respectively). Adults ages 25-34 who had completed a bachelor’s degree or higher earned substantially more than those who had earned no more than a high school diploma or GED (50 and 91 percent more for males and females, respectively). These returns of investing in education directly translate into the advancement of the American economy as a whole. 54
U.S. Department of Education FY 2000 Financial Statement Audit Reports.
Published by the Department of Education, Office of Inspector General on 2001-02-28.
Below is a raw (and likely hideous) rendition of the original report. (PDF)