Budget Issues:

Budgetary Treatment of Federal Credit Programs

AFMD-89-42: Published: Apr 10, 1989. Publicly Released: Apr 10, 1989.

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Pursuant to a congressional request, GAO reviewed its proposal for improving budgeting practices for federal credit programs, focusing on how: (1) it would calculate credit program subsidy costs; and (2) its subsidy estimates would affect the government's reported budget authority, outlay, and deficit totals. GAO also reviewed other proposals by the Senate Budget Committee, the Congressional Budget Office (CBO), and the Office of Management and Budget (OMB).

GAO found that the four proposals: (1) endorsed estimating total federal credit subsidy costs for proposed direct loans and loan guarantees and appropriating funds for the subsidy costs before loans and guarantees are made; and (2) differed principally only on the method used to calculate subsidy costs. GAO recommended a cost-to-the-government model, which measures loan subsidy costs as the difference between the amount loaned out and the present value of the amount expected to be paid back over the life of the loan, because the model measures future cash outlays and would place credit program costs on a budgetary basis more comparable with grants and other federal programs. GAO found that CBO and OMB prefer a market-valuation measurement approach, which calculates the economic benefit borrowers receive as a result of obtaining federal, rather than private-sector, loans. GAO believes that the government should: (1) make appropriations for subsidy costs when it approves credit activities; and (2) implement credit reform without changing the overall federal deficit.

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