GAO discussed whether the financing to resolve the current crisis in the savings and loan industry should be on- or off-budget. GAO found that: (1) H.R. 1278 would establish an off-budget, government-sponsored enterprise (GSE), the Resolution Funding Corporation (REFCORP), to raise funds for a new on-budget federal corporation, the Resolution Trust Corporation (RTC); (2) REFCORP would borrow $50 million through sales of 30-year bonds, then transfer the borrowed money to RTC by purchasing its capital certificates; (3) the legislation would require the savings and loan (S&L) industry to provide about $5 billion to $6 billion to REFCORP by purchasing its common stock; (4) REFCORP would use this money to purchase 30-year Treasury bonds, which would provide the $50 billion needed to pay off its debt principal; (5) classifying REFCORP as an off-budget GSE would make it easier for the government to meet its deficit reduction targets, since the money the government would receive would be treated as a federal collection rather than a federal borrowing; (6) concerns over the high interest costs REFCORP would pay and the possibility that REFCORP features would more closely resemble a federal agency, prompted a proposal to fund the resolution actions through Treasury; and (7) an on-budget, Treasury-financed approach would increase the budget deficit, since GSE collections would not offset the resolution outlays. GAO believes that Congress may wish to: (1) raise deficit targets to accommodate any extra governmental spending to resolve the S&L industry crisis; and (2) consider the added costs and implications for budget discipline of establishing an off-budget GSE.
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