Credit Reform:

Appropriation of Negative Subsidy Receipts Raises Questions

AIMD-94-58: Published: Sep 26, 1994. Publicly Released: Sep 26, 1994.

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Paul L. Posner
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Pursuant to a congressional request, GAO reviewed federal agencies' budgetary treatment of negative subsidies, focusing on: (1) whether the budgetary treatment could have adverse effects on program management and budgeting; (2) an alternative to appropriating the present value of estimated negative subsidy receipts; and (3) the additional legislative requirements imposed on the Federal Housing Administration's (FHA) Mutual Mortgage Insurance (MMI) program.

GAO found that: (1) the Credit Reform Act does not specifically address credit programs' negative subsidies; (2) Congress has appropriated estimated negative subsidy receipts to cover MMI administrative costs; (3) under Office of Management and Budget guidance, negative subsidies are not available for obligation until they have been actually appropriated and credited to receipt accounts; (4) the credit reform requirement that budget authority be available before the obligations or commitment of direct loan guarantees could cause expenditure delays or reductions; (5) current budgetary treatment of negative subsidies could create an incentive for negative subsidy estimates to influence estimates of administrative costs and vice versa; (6) although legislation calls for programs with both positive and negative subsidies to receive appropriations equal to their net subsidy cost estimates, these programs may not have sufficient budget authority to make all planned subsidized loans; (7) Congress has provided the Export-Import Bank (EximBank) with a general fund appropriation to prevent a lack of sufficient budget authority, but that practice does not conform to the act; (8) budget authority difficulties could be avoided by appropriating an amount equal to the gross subsidy cost from general funds with negative subsidy receipts used to reimburse the general fund; and (9) FHA, EximBank, and the Government National Mortgage Association treat negative subsidies in their budgets in accordance with appropriation, other statutory, and program requirements, but not in accordance with credit reform requirements.

Matters for Congressional Consideration

  1. Status: Closed - Not Implemented

    Comments: Neither OMB nor Congress intend to make this change. In fact, OMB is now going in the other direction.

    Matter: To avoid the potential for appropriations of estimated negative subsidy receipts to cause delays or reductions in planned expenditures which may occur under reasonable OMB implementing guidance, Congress should appropriate only general funds for all subsidy and administrative costs of credit programs, using negative subsidy receipts to reimburse the general fund.

  2. Status: Closed - Not Implemented

    Comments: Appropriations equal to gross subsidy costs would increase the budget support required in a given year and such an increase would be counted under the discretionary caps provided for in the Budget Enforcement Act. Therefore, GAO anticipates no action.

    Matter: Congress should amend the Credit Reform Act to require the appropriation of an amount equal to the gross subsidy cost for credit programs with both positive and negative subsidy components.


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