Accounting for Federal Credit Programs

WASHINGTON, DC – The Senate Budget Committee today released its September 15, 2016, Budget Bulletin focused on Accounting for Federal Credit Programs. The Budget Bulletin provides regular expert articles by Senate Budget Committee analysts on the issues before Congress relating to the budget, deficits, debt, and the economy.

During a recent Committee hearing, Congressional Budget Office (CBO) Director Keith Hall noted the agency’s long-held view that fair value scoring provides a more comprehensive accounting of federal credit programs than the methodology the agency uses pursuant to the Federal Credit Reform Act.  This Budget Bulletin describes both accounting approaches, and some of their public policy implications. 

Read the full Senate Budget Bulletin here.

Excerpts follow:

Accounting drives policy. In the private sector, accounting approaches used by public companies shape their quarterly earnings figures, influencing investor valuation as reflected in stock prices.

Similarly, in the federal government, how spending and revenues are presented in the federal budget influences cost estimates (“scoring”), deficit projections, and ultimately policy decisions.

Federal credit programs – such as Federal Housing Administration home loan guarantees, direct student loans and loan guarantees, and Export-Import Bank loan guarantees – have long been used as a form of government subsidy, alongside grants and income-transfer programs.

Before 1990, the government presented virtually the entire federal budget, including credit programs, on a cash-flow (dollars entering and exiting the Treasury) basis. This method tended to skew decisions about use of government credit. The lifetime cost of most loans and loan guarantees was obscured, since cash-flow impacts beyond the budget window were omitted. In addition, a new federal loan guarantee initially appeared to be free, while the entire principal amount of a government-issued loan appeared as an expense in the year the loan was originated.

Eventually, these problems led Congress to overhaul the accounting rules for federal credit programs. As part of the Budget Enforcement Act of 1990, Congress added a new title to the Congressional Budget Act of 1974, title V, cited as The Federal Credit Reform Act of 1990 – commonly known as FCRA.

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