Government Accounting Rules Hamper Sale Of Assets
November 28, 1995
There is general political agreement that the government should sell off assets it has no compelling reason to own. They would, after all, be run more efficiently by the private sector.
But government accounting rules are so skewed that they misrepresent the advantages of sales and distort the costs of keeping the asset.
- Under current rules and procedures, the government counts as a loss the revenue it forgoes from selling an asset.
- Yet it does not count as a gain the costs it forgoes for operating and maintaining that same asset.
- Moreover, by failing to apply a discount rate to the stream of future revenues, the rules exaggerate the so-called financial loss to the government from the sale of an asset.
- Under current procedures, the government does not account for future maintenance costs when an asset -- such as a ship -- is purchased.
Consider the following example:
By bipartisan consensus, selling the Naval Petroleum Reserves would be beneficial. But the Congressional Budget Office says the sale would cost taxpayers $900 million over seven years. (The sale would garner $1.5 billion, but lost royalty payments would total $2.4 billion.)
Yet operating and maintenance costs -- which the law does not allow CBO to count -- would be $1.3 billion over the seven-year period. So the deal would actually gain taxpayers about $380 million.
Source: Diana Furchtgott-Roth, "Congress Scores Again," Investor's Business Daily, November 28, 1995.
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