Federal Budgets Do Not Accurately Reflect Costs

June 11, 2014

According to the Washington Post, the cost of government loan and credit programs is far greater than the Congressional Budget Office (CBO) has previously calculated.

Rather than paying for the programs that it enacts out of general revenues, Congress often uses a less transparent and less accurate method of funding: issuing government loans and credit guarantees. And because U.S. law requires the CBO to calculate the budgetary impact of these programs using a low interest rate, the costs of these programs are distorted:

  • When the CBO calculated cash flows for the three biggest federal credit programs (the Export-Import Bank, the Federal Housing Administration and the federal student loan program) based on the low, national discount rate, all three generate surpluses.
  • However, when the CBO made the calculations based on "fair-value" accounting, which utilizes more realistic, higher interest rates to calculate market risks, the costs for each program become significantly more expensive.
  • Fair value accounting indicates that these programs will require large outlays over the next 10 years: $2 billion for the Export-Import Bank, $30 billion for the Federal Housing Administration and $88 billion for student loans.

The justification behind using such a low interest rate to calculate costs is that the government is somewhat indifferent to credit risk, and its social programs take priority over recouping taxpayer dollars.

Government accounting should reflect actual costs, and these credit programs should not give Congress a way to avoid fiscal discipline.

Source: "The Billion-Dollar Risk Hidden in the Federal Budget," Washington Post, June 4, 2014.

 

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