House Bill Would Artificially Inflate Cost of Federal Credit Programs

[Bill USA]

http://www.cbpp.org/cms/index.cfm?fa=view&id=3661

[font color="blue"](all emphases are my own__Bill USA)[/font]

By James R. Horney, Richard Kogan and Paul N. Van de Water

January 23, 2012

The House Budget Committee is scheduled to consider legislation on January 24 that would change the federal accounting of direct loans and loan guarantees in ways that would overstate the federal costs of those programs. As a result, the legislation also would overstate the size of federal deficits.

The Federal Credit Reform Act of 1990 changed the budgetary accounting of federal credit programs. Previously, the budget displayed the costs of credit programs on a yearly basis – that is, based on the federal costs from loans or guarantees in any particular year, offset by loan repayments in that year. Since the 1990 law, the budget now displays the expected total net costs of loans or guarantees up front – when the government issues the loans and loan guarantees – rather than year by year over the course of their lifetimes.

[font size="3"]The legislation that's now before the House Budget Committee – H.R. 3581, introduced by Rep. Scott Garrett and endorsed by House Budget Committee chair Paul Ryan – would significantly change the rules in place since the 1990 law. It would require the Congressional Budget Office (CBO) and the Office of Management and Budget (OMB) to add an extra amount to the budgetary cost that they show for loan and guarantee programs,[font color="red"] based on the additional amount that private lenders would charge if they, rather than the federal government, issued the loans and loan guarantees[/font]. By overstating the federal costs of credit programs, the proposal would overstate federal deficits and force policymakers to offset these "phantom costs" with "phantom offsets" to avoid overstating the debt as well.[/font]

This proposal is not based on any claim that current estimates of the federal outlays and receipts associated with federal credit programs understate the actual federal costs of these programs. Quite the contrary, by requiring CBO and OMB to add an extra amount to their estimated cost of federal credit programs, the legislation would artificially inflate the programs' estimated budgetary cost.
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Seems to me, if anything, the costs that private lenders would charge should be noted parenthetically as a measure of the amount of money SAVED by financing 'in-house'.