Budget Issues:

Agency Authority to Borrow Should Be Granted More Selectively

AFMD-89-4: Published: Sep 15, 1989. Publicly Released: Sep 15, 1989.

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Pursuant to a legislative requirement, GAO studied federal agencies' authority to borrow from the Department of the Treasury or the public to obtain funds in advance of appropriations, focusing on: (1) agencies' use of that authority between fiscal years (FY) 1978 through 1987; (2) guidelines for future provision of such authority; and (3) the appropriateness of such authority.

GAO found that 19 federal agencies: (1) obtained a total of $353 billion from a total of 37 budget accounts with authority to borrow from FY 1978 through 1987, which constituted about 4 percent of the federal government's total budget authority for that period; (2) increased their outstanding debt with the public and Treasury from $76 billion to $195 billion from FY 1978 through 1987; and (3) frequently used new borrowings to repay old debt, borrowed more than they repaid, and repaid debt with appropriations rather than collections from program users. GAO also found that: (1) collections constituted the only meaningful reimbursement to Treasury of borrowed funds, since Treasury did not actually recover any funds when agencies repaid debts with appropriations or new borrowings; (2) although borrowing suggested that agencies would repay funds they received from Treasury, many accounts were not able to repay with their collections; (3) the legislative histories of most of 12 reviewed accounts did not indicate whether Congress considered the accounts' ability to generate sufficient revenues to repay their debts or a reason why Congress selected authority to borrow as the form of financing; (4) 8 of the 12 reviewed accounts were unlikely to repay with collections, with 2 of those accounts not receiving any collections; and (5) such forms of financing as subsidized loan programs, annual appropriations, and contingency reserves could meet the needs of accounts using borrowing authority.

Matters for Congressional Consideration

  1. Status: Closed - Implemented

    Comments: The Federal Credit Reform Act of 1990 enacted credit reform, effective for FY 1992. This resolved the issue for all credit accounts.

    Matter: Congress should enact legislation requiring annual appropriations of credit subsidy costs for new direct and guaranteed loans and restricting the use of authority to borrow to the unsubsidized portion of direct loans for the following credit accounts: (1) the Federal Housing Administration Fund in the Department of Housing and Urban Development; (2) the Agricultural Credit Insurance Fund in the Farmers Home Administration, Department of Agriculture; (3) the Federal Ship Financing Fund in the Maritime Administration, Department of Transportation; and (4) the Export-Import Bank. If Congress chooses not to enact such legislation for these four accounts, an alternative would be to repeal the accounts' authority to borrow and replace it with another form of financing, such as contingency reserve or a permanent appropriation.

  2. Status: Closed - Not Implemented

    Comments: The Federal Credit Reform Act of 1990 resolves the recommendation with regard to loans guaranteed by the Office of the Administrator, FRA. It does not appear that this issue will be addressed for items (2) or (3) in the near future.

    Matter: Congress should replace authority to borrow with another form of financing, such as a contingency reserve or permanent appropriation for the following accounts that cannot repay their borrowings with collections: (1) Office of the Administrator in the Federal Railroad Administration (FRA); (2) the Ocean Freight Differential in the Maritime Administration; and (3) the National Flood Insurance Fund in the Federal Emergency Management Agency.

  3. Status: Closed - Not Implemented

    Comments: SLSDC has not used this authority in over 10 years. It does not appear that this issue will be addressed in the near future.

    Matter: Congress should repeal the Saint Lawrence Seaway Development Corporation's (SLSDC) remaining $3.2 million in authority to borrow in view of Congress' recent action to fund SLSDC operation and maintenance with annual appropriations.

  4. Status: Closed - Not Implemented

    Comments: The Federal Credit Reform Act of 1990 enacted credit reform, effective for FY 1992. The issue remains open for non-credit accounts. It does not appear that this issue with regar to non-credit accounts will be addressed in the near future.

    Matter: Congress should: (1) require accounts to repay their debt with collections; (2) limit the number of years the accounts can use authority to borrow without renewed congressional approval; and (3) limit the amount of debt they can accumulate.

  5. Status: Closed - Not Implemented

    Comments: The Federal Credit Reform Act of 1990 enacted credit reform, effective for fiscal year (FY) 1992. This corrected the issue for credit programs with authority to borrow. It does not appear that the rest of this issue will be addressed in the near future.

    Matter: Congress should provide authority to borrow only for accounts that will probably be able to repay their debt with collections.

  6. Status: Closed - Implemented

    Comments: The issue of limits on government guarantees is being debated in Congress on savings and loans, banks, and other financial institutions. The Federal Credit Reform Act resolved this issue.

    Matter: Congress should place a limit on the amount of debt the Government National Mortgage Association's Guarantees of Mortgage-Backed Securities can have with Treasury.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: The OMB credit reform bill was included in the Omnibus Budget Reconciliation Act of 1990.

    Recommendation: The Director, Office of Management and Budget (OMB), should review accounts with authority to borrow that were not included in this study to determine if they are likely to have sufficient collections to repay their debt and if their authority to borrow should be replaced with another form of financing. The Director should report his findings to Congress.

    Agency Affected: Executive Office of the President: Office of Management and Budget

 

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