Order Code RL30346
CRS Report for Congress
Received through the CRS Web
Federal Credit Reform: Implementation
Of the Changed Budgetary Treatment of
Direct Loans and Loan Guarantees
Updated June 23, 2003
James M. Bickley
Specialist in Public Finance
Government and Finance Division
Congressional Research Service ˜ The Library of Congress

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Federal Credit Reform: Implementation
Of the Changed Budgetary Treatment of
Direct Loans and Loan Guarantees
Summary
On November 5, 1990, the Omnibus Budget Reconciliation Act of 1990 (P.L.
101-508) was signed into law. P.L. 101-508 added Title V to the Congressional
Budget Act. Title V, also called the Federal Credit Reform Act of 1990 (the FCRA),
changed how the unified budget reports the cost of federal credit activities (i.e.,
federal direct loans and loan guarantees). Before fiscal year 1992 (FY1992), for a
given fiscal year, the budgetary cost of a new direct loan or loan guarantee was the
net cash flow for that fiscal year. This cash flow measure did not accurately reflect
the true cost of a loan or loan guarantee, which is its subsidy cost over the entire life
of the loan or loan guarantee; i.e., its accrual cost. The purposes of this report are to
explain the credit reform provisions, examine their implementation, and discuss
proposed modifications.
Beginning with FY1992, federal credit reform legislation required that the
reported budgetary cost of a credit program equal the estimated subsidy costs at the
time the credit is provided. The FCRA defines the subsidy cost as “the estimated
long-term cost to the government of a direct loan or a loan guarantee, calculated on
net present value basis, excluding administrative costs.” This places the cost of
federal credit programs on a budgetary basis equivalent to other federal outlays. This
change means, because the subsidy costs of discretionary credit programs are now
provided through appropriations acts, that the discretionary credit programs must
now compete with other discretionary programs on an equal basis. Funding for most
mandatory credit programs (generally entitlement programs) is provided by
permanent appropriations. The Director of the Office of Management and Budget
(OMB) is responsible for coordinating the estimation of subsidy costs to the
government.
Since the passage of the FCRA, federal agencies, working with OMB, have
steadily improved their compliance with credit reform standards. In October 1990,
the Federal Accounting Standards Advisory Board was established. In August 1993,
this Board required that agencies’ accounting procedures be consistent with their
budgetary procedures for their federal credit programs. The Government
Performance and Results Act of 1993 (GPRA) required that federal agencies be held
accountable for achieving program results including those of credit programs. Under
GPRA, the first annual performance reviews occurred for fiscal year 1999. On
August 5, 1997, the Balanced Budget Act of 1997 (P.L. 105-33) was enacted. This
law amended the FCRA to make some technical changes including codifying several
guidelines set by OMB.
Four proposals to modify current practice have been discussed: the principles
of credit reform could be applied to government-sponsored enterprises, the principles
of credit reform could be extended to federal insurance programs, the administrative
costs of credit programs could be included in the calculation of the costs of these
programs, and the budgetary cost of capital for credit programs could be changed to
the after-tax rate of return earned by private financial intermediaries.

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Contents
Federal Credit Concepts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Federal Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Federal Credit Subsidies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Concept of the Unified Budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Budgetary Treatment of Credit Before FY1992 . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Unified Budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Credit Budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Federal Credit Reform Act of 1990 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Subsidy Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Estimation of Subsidies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Budgetary Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Implementation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Federal Accounting Standards Advisory Board . . . . . . . . . . . . . . . . . . . . . . 10
Balanced Budget Act of 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Government Performance and Results Act . . . . . . . . . . . . . . . . . . . . . . . . . 12
Credit Reform in the President’s FY2004 Budget . . . . . . . . . . . . . . . . . . . . 13
Proposals for the Expansion of Reforms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Appendix A. Federal Credit Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Appendix B. Budgetary Treatment of a Hypothetical Direct Loan . . . . . . . . . . . 19
Appendix C. Budgetary Treatment of a Hypothetical Loan Guarantee . . . . . . . 20
Appendix D. Direct Loan Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Appendix E. Loan Guarantee Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Selected Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
CRS Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
List of Tables
Table 1. Federal Credit Data, FY2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Table 2. Direct Loan Data, FY2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Table 3. Loan Guarantee Data, FY2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

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Federal Credit Reform: Implementation
Of the Changed Budgetary Treatment of
Direct Loans and Loan Guarantees
Before FY1992, for a given fiscal year, the reported budgetary cost of a new
loan or new loan guarantee was its net cash flow for that fiscal year. This did not
accurately reflect the true cost of a loan or loan guarantee for the government, which
is its subsidy cost over the entire life of the loan or loan guarantee. Using the old
cash-flow method, it was often difficult for policymakers to accurately monitor and
therefore make informed decisions about federal credit. In addition, administrators
at agencies could understate costs by using budgetary techniques such as generating
“savings” from the fees on increased volumes of new guarantees while ignoring the
increase in expected losses and offsetting the (cash) cost of new direct loans with
current year collections from old loans.
To remedy these problems, Congress added a section on credit reform to the
Omnibus Budget Reconciliation Act of 1990 (OBRA90). The President signed
OBRA90 into law (P.L. 101-508) on November 5, 1990. The legislation added a
new title, Title V, to the Congressional Budget Act. Title V is also called the Federal
Credit Reform Act of 1990 (FCRA).1 Beginning with fiscal year 1992 (October 1,
1991), the FCRA changed the methodology in the unified budget for measuring and
reporting the cost of federal direct loans and federal loan guarantees from cash flow
to accrual accounting.
The FCRA required that the budgetary cost of federal credit would be measured
for any one year as the net present value of the cost to the government of credit
subsidies in the fiscal year that the credit is provided. The General Accounting
Office (GAO), the Congressional Budget Office (CBO), and the Office of
Management and Budget (OMB) all recommended this new measure of the cost of
federal credit.2 Specific provisions of the FCRA represent compromises within
Congress and between the legislative and executive branches of the government.
The purposes of this report are to explain the provisions of the FCRA, examine
the implementation of credit reform including credit reform provisions of the
Balanced Budget Act of 1997 (BBA97), and discuss proposed modifications of credit
reform. In order to achieve these objectives, it is necessary to initially discuss credit
1 This report will be updated as issues develop and new legislation is introduced. For the
most current information about pending legislation, please consult the Legislative
Information System (LIS) at [http://www.congress.gov].
2 U.S. General Accounting Office, Budgetary Treatment of Federal Credit Programs,
Report No. AFMD-89-42 (Washington: April 1989), p. 28.

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concepts and the budgetary treatment of federal credit before the FCRA.3 Those
interested in federal credit programs may find the information in this report to be
useful.
Federal Credit Concepts
Numerous terms in financial economics have specific meanings for federal
budget practices. These terms include federal credit, federal credit subsidies, and the
unified budget. Some of these terms are defined in the FCRA.
Federal Credit
The Office of Management and Budget defines federal credit as federal direct
loans and federal loan guarantees. The FCRA defines a direct loan as “a
disbursement of funds by the government to a nonfederal borrower under a contract
that requires the repayment of such funds with or without interest” [Section 502(1)].
According to the FCRA, a direct loan obligation is “a binding agreement by a federal
agency to make a direct loan when specified conditions are fulfilled by the borrower”
[Section 502(3)]. The FCRA defines a loan guarantee as a “pledge with respect to
the payment of all or a part of the principal or interest on any debt obligation of a
non-federal borrower to a non-federal lender” [Section 502(3)]. A loan guarantee
commitment is “a binding agreement by a federal agency to make a loan guarantee
when specified conditions are fulfilled by the borrower, the lender, or any other party
to the guarantee agreements” [Section 502(4)].
When either a direct loan obligation or a loan guarantee commitment is
extended, the federal government determines future credit flows because the
government signs a contract to provide credit. In some cases the specified conditions
may not be met, and, consequently, credit will not be provided even though a contract
was signed. Furthermore, there is a time lag between the signing of these contracts
and the actual disbursement of a direct loan by the federal government or the actual
disbursement of a guaranteed loan by a private lender. In some cases, particularly for
credit for construction, credit may be disbursed by either the federal government or
a private lender in increments over several fiscal years.4
3 Some of these concepts and the budgetary treatment of federal credit before the FCRA are
presented in more detail in the following source: James M. Bickley, “The Bush
Administration’s Proposal for Credit Reform: Background, Analysis, and Policy Issues,”
Public Budgeting & Finance, vol. 11, no. 1, spring 1991, pp. 50-65.
4 At the end of FY2001, the face value of outstanding direct federal loans totaled $242
billion and the face value of outstanding federally guaranteed loans totaled $1,084 billion.
For data on the face value of outstanding credit by program, see appendix A. The number
of credit programs depends on the degree of aggregation, and data in appendix A are highly
aggregated.

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Federal Credit Subsidies
Federal credit recipients obtain funds on more favorable terms than they could
receive from the private market. OMB describes subsidies from federal direct loans
as consisting of one or more of the following:
! Interest rates below commercial levels,
! Longer maturities than fully private loans,
! Deferral of interest,
! Allowance of grace periods,
! Waiver or reduction of loan fees,
! Higher loan amount in relation to the value of the underlying
enterprise than a fully private loan, and
! Availability of funds to borrowers for purposes for which the private
sector would not lend — at virtually any interest rate under virtually
any repayment terms.5
The recipient of a federal loan guarantee receives a subsidy because the federal
government covers part or all of the default risk—a subsidy conveyed by lower
interest payments. Also, the federal government either does not levy a loan guarantee
fee or charges a smaller fee than a private insurer would charge. Consequently, a
lender can charge the borrower a lower interest rate. In addition, with some
guaranteed loans the federal government may pay to the lender part of the interest due
on a guaranteed loan.6 Thus, a federal loan guarantee with or without a federal
interest payment may provide a lower, equal, or higher level of subsidy than a federal
direct loan.
Concept of the Unified Budget
An important budget reform that preceded credit reform was the adoption of a
unified budget. Before 1967, the federal government most frequently used the
administrative budget, which was not comprehensive in coverage because it excluded
the trust funds (for example, the Social Security trust fund). The federal government
also used two other broad budgets: the consolidated cash budget and the national
income accounts budget. Each of these three budgets had a different coverage of
federal programs and a different accounting method, consequently each had a
different surplus or deficit.7 Each of these budgets had weaknesses, and the
simultaneous use of three different budget concepts caused confusion.8
5 U.S. Executive Office of the President, Office of Management and Budget, Special
Analysis F, Federal Credit Programs, Budget of the United States Government, Fiscal Year
1988 (Washington: GPO, 1987), p. F32.
6 Ibid., p. F33.
7 For a explanation of these budget concepts, see: Report of the President’s Commission on
Budget Concepts (Washington: U.S. Govt. Print. Off., 1967), pp. 82–83.
8 Ibid., p. 1.

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In March 1967, the President’s Commission on Budget Concepts was created
and instructed to make “a thorough and objective review of budgetary concepts.”9
In October 1967, the Commission produced a comprehensive report with detailed
recommendations on implementing a unified budget. In its report, the Commission
stated that the two basic functions of the federal budget are resource allocation and
macroeconomic stabilization.10 For resource allocation, the Commission believed
that the budget should “provide the integrated framework for information and
analyses from which the best possible choices can be made in allocating the public’s
money among competing claims.”11 This function of resource allocation should
include comparisons among government programs and between the public and
private sectors.12 For macroeconomic stabilization, the Commission maintained that
the budget should contain detailed and accurate information in order to evaluate the
effects of federal fiscal activities.
Furthermore, the budget should include data necessary to undertake
discretionary countercyclical fiscal policy.13 Thus, the Commission recommended
a unified budget that would be composed of all federal activities including the trust
funds and federal credit activities. The Commission recommended that federal credit
programs be measured by their cash flows, although it realized that this procedure
provided a poor measure of the economic and budgetary effects of federal credit. In
the FY1969 budget, the Johnson Administration adopted the unified budget concept,
but with some structural differences from the proposal of the Commission. The
Johnson Administration essentially adopted Commission recommendations of
measuring credit by its cash flows. Implementation of federal credit reform would
improve the use of the unified budget for resource allocation and macroeconomic
stabilization as originally desired by the Commission.
Budgetary Treatment of Credit Before FY1992
Before the implementation of the Federal Credit Reform Act of 1990, the
unified budget treated federal credit in two different ways. The unified budget
measured credit by its cash flows, but also, after 1980, included a separate credit
budget which measured and selectively controlled gross credit flows.
Unified Budget
The federal unified budget uses cash-basis accounting. Before FY1992, a new
federal direct loan was treated as a budget outlay in the current fiscal year, and
repayments of principal and payments of interest were treated as offsetting
collections (negative outlays) in the future fiscal years in which they occurred. If a
9 Ibid., p. 105.
10 Ibid., p. 14.
11 Ibid., p. 16.
12 Ibid.
13 Ibid., p. 18.

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loan recipient paid a fee, this fee was treated as an offsetting collection. Loan
defaults reduced repayments of principal and interest, and therefore offsetting
collections. Administrative expenses were reported as outlays. In a given fiscal year,
the budgetary cost of a loan program, not the individual loans, was its net cash flow.
This equaled new loans made plus any administrative expenses associated with these
loans (rarely recognized in the loan accounts) less any loan fees, repayments of
principal, and payments of interest.
The federal acceptance of a contingent liability when a loan guarantee was
provided was not included in the federal budget because no cash flow occurred. The
administrative costs of a guarantee program were outlays in the fiscal year in which
they occurred. Some guarantee programs charge fees to the recipient, and these fees
were considered offsetting collections. Any federal outlays necessary to compensate
lenders for any default losses covered by a federal guarantee were not shown in the
budget until they were actually paid.
Credit Budget
In January 1980, the Office of Management and Budget introduced a federal
credit budget to help monitor and control the growth of federal credit, including new
direct loan obligations and new loan guarantee commitments. Federal credit was
measured at the time that the government signed a binding contract to provide credit
assistance. Initially, the credit budget consisted of nonbinding targets. Before
FY1992, limits in the credit budget were included in the budget resolution and in
annual appropriation acts for discretionary credit programs but not mandatory credit
programs.14 Although the credit budget improved credit visibility, the credit budget
did not measure or control the size of subsidies.
Federal Credit Reform Act of 1990
Reforming federal credit required that the budget, in the year in which the credit
was provided, include the multi-year net cash flows generated by a new direct or
guaranteed loan. Thus, federal credit would be recorded on an accrual basis but
incorporated into a cash flow budget. Advocates of credit reform maintained that the
inclusion of credit subsidies in the unified budget would equalize the budgetary
treatment and therefore congressional consideration of federal credit and noncredit
programs. Federal credit programs could be compared on a dollar-for-dollar basis
with expenditures for noncredit programs and cost-benefit analysis could be more
easily used to evaluate specific federal credit programs. Credit reform was expected
to improve the ability of the unified budget to allocate resources and stabilize the
14 U.S. Executive Office of the President, Office of Management and Budget, Special
Analysis F, Federal Credit Programs, Budget of the United States Government, Fiscal Year
1990 (Washington: U.S. Govt. Print. Off., 1989), p. F4.

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economy. Numerous comprehensive plans were proposed, beginning in 1983. These
proposals culminated in the Federal Credit Reform Act of 1990.15
Purposes
The four stated purposes of the FCRA were to
(1) measure more accurately the costs of federal credit programs;
(2) place the cost of credit programs on a budgetary basis equivalent to
other federal spending;
(3) encourage the delivery of benefits in the form most appropriate to the
needs of beneficiaries; and
(4) improve the allocation of resources among credit programs and other
spending (Section 501 of the FCRA).
Subsidy Costs
The FCRA never uses the word subsidy; nevertheless, the true budgetary and
economic cost of a federal credit program is the subsidy value at the time the credit
is provided. The FCRA defines the [subsidy] cost as “the estimated long-term cost
to the government of a direct loan or loan guarantee, calculated on net present value
basis, excluding administrative costs and any incidental effects on governmental
receipts or outlays” [Section 502(5A)]. The discount rate used to calculate subsidy
costs in terms of present value is the “average interest rate on marketable Treasury
securities of similar maturity” [Section 502(5E)].16 Hence, the subsidy cost of a
program is determined by the amount of credit provided and the discount rate used
to calculate the net present value of that credit.
Any government action that changes the estimated present value of an
outstanding federal credit program is counted in the budget in the year in which the
change occurs as a change in the subsidy cost of that program [Section 502(5D)]. For
example, the federal government could partially forgive the repayment of principle
for low income borrowers from a particular credit program which would increase the
subsidy cost of the program.
Estimation of Subsidies
The Director of the Office of Management and Budget is responsible for
coordinating the estimation of subsidy costs. “The Director may delegate to agencies
authority to make estimates of costs” [Section 503(a)]. But these agencies must use
written guidelines from the Director, which are developed after consultation with the
15 For hypothetical examples of the operation of a direct loan program and a loan guarantee
program under the Federal Credit Reform Act of 1990, see appendices B and C.
16 The derivation of the discount rate was revised by the Balanced Budget Act of 1997.

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CRS-7
Director of the Congressional Budget Office. The Director of OMB and the Director
of CBO are responsible for developing more accurate historical data on credit
programs which are used to estimate subsidy costs (Section 503). The President’s
budget includes “the planned level of new direct loan obligations and new loan
guarantee commitments associated with each appropriations request” (Section 504).
Budgetary Treatment
Beginning with FY1992, discretionary programs providing new direct loan
obligations and new loan guarantee commitments require appropriations of budget
authority equal to their estimated subsidy costs. Credit entitlements (for example,
guaranteed student loans) and existing credit programs of the Commodity Credit
Corporation have indefinite budget authority [Section 505(a-c)] and do not need an
annual appropriation.
An appropriation for the annual subsidy cost of each credit program is made into
a budget account called a credit program account. Funding for the subsidy costs of
discretionary credit programs is provided in appropriation acts and must compete
with other discretionary programs for funding available under discretionary spending
caps, which expire at the end of this fiscal year. Most mandatory credit programs
receive automatic funding for the amount of credit needed to meet the estimated
demand by beneficiaries. Mandatory programs are generally entitlement programs
for which the amount of funding depends on eligibility and benefits rules contained
in substantive law. The subsidy cost of federal credit is scored as an outlay in the
fiscal year in which the credit is disbursed by either the federal government or a
private lender [504d]. For mandatory credit programs, any additional cost from
reestimates of subsidies for a credit program is covered by permanent indefinite
budget authority. This additional cost is displayed in a subaccount in the credit
program account.
Also, beginning with FY1992, each credit program has a nonbudget financing
account. Each of these nonbudget financing accounts receives payments from its
associated credit program account equal to the subsidy cost at the time a new loan or
loan guarantee is provided. They also acquire the value of the unsubsidized portion
of the loans (actual disbursements by the government minus the subsidy cost). These
amounts are borrowed from the Treasury through the loan program.17 Furthermore,
the financing accounts contain all other cash flows to and from the government
associated with each credit program [Section 502(5E6-7)]. Because they are
nonbudget, the cash flows into and out of these accounts are not reflected in total
outlay, receipts, or surplus/deficit. The budget authority of a credit program provides
the means for the credit program account to pay to the financing account an amount
equal to that program’s estimated subsidy costs.
Another special account, the liquidating account, includes all ongoing cash
flows of each credit program resulting from credit advanced prior to October 1, 1991
[Section 502(5E8)]. However, the new budgetary procedures under the FCRA would
17 These transfers within the government represent transfers of budgetary resources rather
than actual financial resources.

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CRS-8
apply to modifications made by the U.S. government to credit terms on credit
provided before FY1992.18
The FCRA does not apply to the credit activities of the Federal Deposit
Insurance Corporation, the National Credit Union Administration, the Resolution
Trust Corporation, national flood insurance, the National Insurance Development
Fund, crop insurance, or the Tennessee Valley Authority (Section 506).
Implementation
Agency
The Federal Credit Reform Act of 1990 was brief; it covered only five and one-
half pages of the U.S. Code and Administrative News.19 Numerous details necessary
to make the Act completely operational were absent. Furthermore, many federal
agencies had inadequate financial and accounting systems to implement credit
reform.20
On July 2, 1992, OMB issued a revised circular which improved and clarified
instructions for credit budget formulation.21 Furthermore, OMB simplified its credit
subsidy model to make it easier for agencies to estimate direct loan and loan
guarantee subsidies.22 On January 11, 1993, OMB updated circular no. A-129
concerning the budgetary treatment of federal credit programs.23 OMB also revised
circular no. A-11 to include federal credit reform procedures. In circular A-11, OMB
explains to agencies how they should fill out credit schedules in preparing their
budget requests.24 Federal agencies working with OMB have steadily improved their
compliance with credit reform standards.
18 U.S. Executive Office of the President, Office of Management and Budget, The Budget
System and Concepts, Budget of the United States Government, Fiscal Year 2003,
Washington: U.S. Govt. Print. Off., 2002, p. 15.
19 U.S. Code, Congressional and Administrative News, 101st Cong., 2nd sess., vol. 6, ( St.
Paul: MN, West Publishing Co., 1991), pp. 610–615.
20 David B. Pariser, Implementing Federal Credit Reform: Challenges Facing Public Sector
Financial Manager, Public Budgeting & Finance, vol. 12, no. 4, winter 1992, p. 28.
21 U.S. Executive Office of the President, Office of Management and Budget, Budget of the
United States Government, Fiscal Year 1994 (Washington: U.S. Govt. Print. Off., 1993),
p. 49.
22 Ibid.
23 U.S. Executive Office of the President. Office of Management and Budget, Policies for
Federal Credit Programs and Non-Tax Receivables, Circular A-129, (Washington:
continually updated), p. 27.
24 OMB's Circulars A-11 and A-129 may be obtained from OMB's website,
[http://www.access.U.S. Govt. Print. Off..gov/omb/index.html].

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Since the passage of the FCRA, OMB has continued to assist agencies in
upgrading the quality of subsidy estimates. Beginning with FY1993 agencies have
recorded reestimates of the cost of their credit programs. Aggregate subsidy
estimates were adjusted downward for FY1994, upward for FY1995 and FY1996,
downward for FY1997, upward for FY1998 and FY1999, and downward for
FY2000, FY2001, FY2002, and FY2003.25 In the aggregate, negative subsidy
reestimates of $13.8 billion were largely offset by positive subsidy reestimates of
$11.9 billion.26
The trend for the subsidy reestimates has been for the magnitude to increase, but
in May 2001, CBO stated that it lacked any methodology to forecast the direction or
size of future reestimates.27 The FCRA provided for permanent indefinite authority
to cover the cost of reestimates so that new appropriations are not needed. Agencies
are required to incorporate improved knowledge into their subsidy estimates for
future direct loan obligations and loan guarantee commitments.28
The General Accounting Office examined subsidy estimates for 10 credit
programs in five agencies for the period of fiscal years 1992 through 1998. GAO
found problems with supporting documentation for subsidy estimates and the
reliability of subsidy rate estimates and reestimates in each agency.29 But GAO
concluded that agencies showed improvement in documenting estimates in each
agency.30
CBO examined credit subsidy reestimates for the period of FY1993 through
FY1999. CBO concluded that
Projecting the losses and costs from federal credit assistance is difficult, and
errors are inevitable. Although various incentives may exist for agencies to
underestimate credit subsidies, the Congressional Budget Office’s analysis of
corrected reestimates does not reveal any pattern of bias in initial subsidy
estimates. However, another problem was uncovered: the reestimates reported
in the president’s budget are in such disorder that analysts cannot rely on them.
25 U.S. Executive Office of the President, Office of Management and Budget, Analytical
Perspectives, Budget of the United States Government, Fiscal Year 2004 (Washington: U.S.
Govt. Print. Off., 2003), p. 217.
26 Ibid.
27 U.S. Congressional Budget Office, An Analysis of the President’s Budgetary Proposals
for Fiscal Year 2002 (Washington: May 2002), p. 4.
28 U.S. Executive Office of the President, Office of Management and Budget, Federal Credit
Supplement, Budget of the United States Government, Fiscal Year 1997 (Washington: GPO,
1996), pp. 48–49.
29 U.S. General Accounting Office, Credit Reform: Greater Effort Needed to Overcome
Persistent Cost Estimation Problems, Report no. AIMD-98-14 (Washington: March 1998),
pp. 9-10.
30 Ibid., p. 11.

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A few modest changes in current practice could reduce agencies’ errors in
preparing, reporting, and accounting for estimates and reestimates.31
OMB established on-budget receipt accounts to receive payments of earnings
from the financing accounts in those unusual cases where federal credit programs are
estimated to produce net income, that is, have negative subsidies.32 Usually
payments into a program’s receipt account are recorded in the Treasury’s general
fund as offsetting receipts.33 “In a few cases, the receipts are earmarked in a special
fund established for the program and are available for appropriation for the
program.”34
Federal Accounting Standards Advisory Board
In October 1990, the Federal Accounting Standards Advisory Board (FASAB
or “the Board”) was established by the Secretary of the Treasury, the Director of
OMB, and the Comptroller General to consider and recommend accounting
principles for the federal government. On September 15, 1992, the Board issued an
exposure draft recommending accounting standards for federal credit programs on
a basis consistent with credit reform. The Board received numerous substantive
comments that were considered in revising its exposure draft, and on August 23,
1993, OMB issued the Board’s revised report titled Accounting for Direct Loans and
Loan Guarantees.35 This report provided extensive detail, including numerous
arithmetic examples, clarifying credit reform practices.36 It further required that
federal agencies use of present value accounting for federal credit programs
consistent with the Federal Credit Reform Act of 1990.37 Thus, for their credit
programs, agencies’ accounting procedures are now required to be consistent with
their budgetary procedures.
31 David Torregrosa, “Credit Subsidy Reestimates, 1993-99,” Public Budgeting & Finance,
vol. 21, no. 2, summer 2001, p. 114.
32 Marvin Phaup, “Credit Reform, Negative Subsidies, and FHA,” Public Budgeting &
Finance, vol. 16, no. 1, spring 1996, p. 24.
33 U.S. Executive Office of the President, Office of Management and Budget, The Budget
System and Concepts, Budget of the United States Government, Fiscal Year 2003, p. 14.
34 Ibid.
35 For a discussion of the Board’s conclusions on issues raised these comments, see: U.S.
Executive Office of the President, Office of Management and Budget, Accounting for Direct
Loans and Loan Guarantees: Statement of the Federal Financial Accounting Standards, no.
2 (Washington: Aug. 23, 1993), pp. 21–42.
36 For a detailed example of the estimation of credit subsidies, see: U.S. General Accounting
Office, Credit Subsidy Estimates for the Sections 7(a) and 504 Business Loan Programs,
Report no. T-RCED-97-197 (Washington: July 16, 1997), p. 19.
37 U.S. Executive Office of the President, Office of Management and Budget, Accounting
for Direct Loans and Loan Guarantees: Statement of the Federal Financial Accounting
Standards, pp. 21-42.

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CRS-11
Balanced Budget Act of 1997
On August 5, 1997, the Balanced Budget Act of 1997 (P.L. 105-33) was
enacted.38 This law (BBA97) amended the Federal Credit Reform Act of 1990 to
make some technical changes including codifying several OMB guidelines.
Important changes were:
First, agencies are required to use the same discount rate to calculate the subsidy
when they obligate budget authority for direct loans and loan guarantees and when
submitting the agency’s budget justification for the President’s budget.39 Thus, the
dollar value of loans for a specific credit program is known when Congress considers
subsidy appropriations for that program. Prior to this change, agencies had used
interest rates from the preceding calendar quarter to calculate the subsidy at the time
a direct loan was advanced or a loan guarantee was obligated.40
Second, agencies are required to use the same forecast assumptions (for
example, default and recovery rates) to calculate subsidy rates when they obligate
credit and when preparing the President’s budget.41
Third, agencies are required to transfer end-of-year unobligated balances in
liquidating accounts (revolving funds for direct loans and loan guarantees made prior
to the effective date of the FCRA) to the general fund as soon as practicable after the
close of the fiscal year.42
Fourth, the same interest rate must be used on financing account debt (which
generates interest payments to the Treasury), financing account balances, and the
discount rate used to calculate subsidy costs.43
Fifth, the definition of the term “cost” is modified so that the discount rate is
based on the timing of cash flows instead of on the term of the loan. Under this new
approach, in the President’s budget, a series of different rates would be used to
calculate the present value of cost flows over a multi-year period. For example, for
a 10-year direct loan (or loan guarantee), costs in the first year would be discounted
using the interest rate on a 1-year Treasury bill, costs in the second year would be
discounted using the interest rate on a 2-year Treasury note, etc. Under the prior
approach, the interest rate of a 10-year Treasury note would have been used as the
38 For an explanation of the contents of the Budget Enforcement Act of 1997, see CRS
Report 97-931, Budget Enforcement Act of 1997: Summary and Legislative History, by
Robert Keith, Oct. 8, 1997, p. 23.
39 U.S. Executive Office of the President, Office of Management and Budget, Analytical
Perspectives, Budget of the United States, Fiscal Year 1999 (Washington, U.S. Govt. Print.
Off., 1998), p. 170.
40 Ibid.
41 Ibid.
42 Ibid.
43 Ibid.

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CRS-12
discount rate. This prior method proved to be inferior because the flow of
semiannual interest payments and the repayment of full principal on the last payment
date did not match up well with yearly cost flows.44
Government Performance and Results Act
On August 3, 1993, the Government Performance and Results Act of 1993
(GPRA; P.L. 103-62) was signed by the President. The purposes of the GPRA
included “systematically holding federal agencies accountable for achieving program
results ... and ... promoting a new focus on results, service quality, and customer
satisfaction”45 The GPRA states that “the Director of the Office of Management and
Budget shall require each agency to prepare an annual performance plan covering
each program activity set forth in the budget of such agency.”46
The GPRA covers all federal programs including direct loan programs and loan
guarantee programs. GPRA specifies the assessment of programs through four
measures: net impacts, output, outcomes, and inputs.47 For credit programs, net
impacts measure the increase in some behavior due to the federal credit assistance
such as a net increase in home ownership or a net increase in higher education
graduates.48 For credit programs, output measures should include an estimate of the
percent of federal credit provided to borrowers who would not have otherwise had
access to the private credit.49 The outcomes measure concerns the gross effects on
society achieved by the credit program. Examples of desired outcomes include
stimulating investments important to the economy, encouraging startups of new
activities, and helping sustain economic development.50 The input measure concerns
resources used, that is the program cost. For a federal credit program, the main input
is the subsidy cost.51 Another input is the administrative cost of a program.52
44 U.S. Congress, Conference Committee, Balanced Budget Act of 1997, Conference Report
to Accompany H.R. 2015, H.Rept. 105-217, 105th Cong., 1st sess. (Washington: July 30,
1997), pp. 996-997.
45 U.S. Code, Congressional and Administrative News, 103rd Cong., 1st sess., 1993 (St. Paul:
Minn., West Publishing Co., 1994), p. 285.
46 Ibid., p. 287.
47 U.S. Executive Office of the President, Office of Management and Budget, Analytical
Perspectives, Budget of the United States Government, Fiscal Year 2001 (Washington:
GPO, 2000), p. 189.
48 Ibid.
49 Ibid., p.190.
50 Ibid.
51 Ibid.
52 Ibid.

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CRS-13
Credit Reform in the President’s FY2004 Budget
In the FY2004 budget, direct loans obligated and loan guarantees committed
before FY1992 remain recorded on a cash flow basis. Unless modified, these “old”
loans and loan guarantees will remain in their liquidating accounts. Also, in the
FY2004 budget, as in the budgets since the FY1992 budget, explicit subsidy
estimates for all credit programs have been made by OMB or agencies using OMB
guidelines. In the early 1990s, “OMB developed a model for estimating subsidies
which ... [has been] used by all agencies in their budget estimates and therefore
provides consistency and uniformity in the discounting method.”53 The loan
characteristic variables in this estimation model are loan maturity period, borrower
interest rate, grace period, upfront fees, annual fees, other fees, assumed default rate,
rate of recovery on defaults, and percent of loan guaranteed (for loan guarantee
programs only).54 In addition, OMB breaks down estimated subsidy rates into four
components: defaults (net of recoveries), interest, fees, and all other.55
For FY2004, the four direct loan programs with the highest levels of proposed
subsidy budget authority in the President’s budget are Debt Restructuring in
International Assistance Programs ($292 million), the Department of Agriculture’s
Rural Housing Insurance Fund ($166 million), the Department of Transportation’s
Federal Aid to Highways ($127 million), and the Department of Agriculture’s Credit
Insurance Fund ($121 million).56 For FY2004, the aggregate level of proposed
subsidy budget authority is only $17 million because of the high negative amount of
the Department of Education’s Federal Direct Student Loan Program (-$1,049
million).57
For FY2004, OMB estimates an aggregate proposed value of new direct loans
of $32,551 million.58 The four programs with the largest proposed dollar value of
direct loans are the Department of Education’s Federal Direct Student Loan Program
($20,954 million), the Department of Agriculture’s Rural Electrification and
Telecommunications Loan Program ($3,035 million), the Department of
Transportation’s Railroad Rehabilitation and Improvement Program ($2,277 million),
and the Department of Agriculture’s Rural Housing Insurance Fund ($1,494
million).59
53 U.S. Executive Office of the President, Office of Management and Budget, Handout on
Credit Reform (Washington: Jan. 31, 1991), p. 13.
54 U.S. Executive Office of the President, Office of Management and Budget, Federal Credit
Supplement, Budget of the United States Government, Fiscal Year 2004 (Washington: GPO,
2003), pp. 15, 19.
55 Ibid.
56 U.S. Executive Office of the President, Office of Management and Budget, Analytical
Perspectives, Budget of the United States Government, Fiscal Year 2004, p. 218.
57 Ibid., for data on subsidy budget authority on each direct loan program, see Appendix D.
58 Ibid.
59 Ibid., for data on proposed loan levels on each direct loan program, see Appendix D.

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CRS-14
For FY2004, the four loan guarantee programs with the highest levels of
proposed subsidy budget authority in the President’s budget are the Department of
Education’s Federal Family Education Loan Program ($6,272 million), Export-
Import Bank Loan Guarantees ($441 million), the Department of Agriculture’s
Commodity Credit Corporation Export Loans ($297 million), and the Veterans
Affairs’ Housing Program ($275 million).60 For FY2004, the aggregate level of
proposed subsidy budget authority was $4,123 million, which was reduced by the
negative subsidy budget authority of two Housing and Urban Development (HUD)
Programs: FHA-Mutual Mortgage Insurance (-$3,378 million) and FHA-General and
Special Risk Program (-$262 million).61
For FY2004, OMB estimates an aggregate proposed value of guaranteed loans
of $347,020 million.62 For FY2004, the four guarantee programs with the highest
estimated dollar value were HUD’s FHA-Mutual Mortgage Insurance Program
($185,000 million), Department of Education’s Federal Family Education Loan
Program ($52,064 million), Veterans Affairs’ Veterans Housing Program ($35,248
million), and HUD’s FHA-General and Special Risk Program ($25,000 million).63
The Federal Credit Reform Act of 1990 decreased the importance of the credit
budget because the control of credit subsidies largely replaced limits on gross credit
flows as a determinant of the amount new federal credit for each program. For
FY2004, appropriations acts limitations on credit loan levels are imposed, although
the term “credit budget” is not used by OMB.64 The estimated subsidy cost to the
taxpayer is the only true constraint on the amount of credit extended, however,
because the appropriations acts’ limitations on credit loan levels are set too high to
realistically affect the amount of credit extended.
Proposals for the Expansion of Reforms
Four major proposals to expand credit reform have been discussed in recent
years. First, the principles of credit reform could be applied to government-
sponsored enterprises (GSEs). GSEs are privately-owned financial intermediaries
which were established and chartered by the federal government. GSEs pay lower
interest rates on their securities because investors generally believe that securities
issued by GSEs have an implied federal guarantee, making them appear less risky
than other private sector securities. Proponents of extending credit reform principles
to GSEs argue that the federal government has already “bailed out” one GSE (the
Farm Credit System). Hence, proponents argue that credit reform should cover the
60 Ibid., p. 207.
61 Ibid., for data on subsidy budget authority on each loan guarantee program, see Appendix
E.
62 Ibid.
63 Ibid.
64 For estimated appropriations acts limitations on credit loan levels for FY2004 by program,
see: Analytical Perspectives, Budget of the United States, Fiscal Year 2004, pp. 224-225.

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CRS-15
subsidy costs to taxpayers of GSEs. Opponents argue that the subsidy costs of GSEs
are difficult to quantify; furthermore, the federal government has no legal
responsibility to “bail out” GSEs. Opponents also maintain that the current exclusion
of administrative costs and a risk premium would probably result in subsidy costs of
approximately zero.
Second, the principles of credit reform could be extended to federal insurance,
which currently is primarily treated on a cash flow basis. Most federal insurance
consists of deposit insurance or pension insurance.65 The General Accounting Office
maintains that credit reform could improve the budgetary information and incentives
for federal insurance.66 But, for some federal insurance programs, significant
difficulties exist in accurately estimating future claims for losses. Often historical
data are unavailable, frequent program modifications occur, and fundamental changes
take place in the activities insured.67 “Many federal insurance programs cover
complex, case-specific, or catastrophic risks that the private sector has historically
been unwilling or unable to cover.”68
The complexity of the issues involved and the need to build agency capacity to
generate such estimates suggest that it is not feasible to integrate accrual-based
costs directly into the budget at this time.69
GAO suggests that a supplemental approach should precede the full inclusion of
insurance programs under credit reform. Thus, GAO recommends that accrual-based
cost measures be initially included along with cash-based estimates as supplemental
information in the budget documents.70
Some opponents of the inclusion of insurance programs maintain that because
the current subsidy measure excludes administrative costs and a risk premium, some
major insurance programs would record negative subsidies.
The Comprehensive Budget Process Reform Act of 1999, H.R. 853 in the first
session of the 106th Congress, as introduced in the House on June 24, 1999, would
have extended credit reform to federal insurance programs. But, H.R. 853 as
reported in the House on August 5, 1999, did not include those sections extending
credit reform to federal insurance programs.
65 U.S. General Accounting Office, Budget Issues: Budgeting for Federal Insurance
Programs, Report no. AIMD-97-16 (Washington: Sept. 1997), p. 6.
66 Ibid., p. 7.
67 U.S. General Accounting Office, Budget Issues: Budgeting for Federal Insurance
Programs, Testimony before the Budget Task Force, Committee on the Budget, House of
Representatives, Report no. T-AIMD-98-147 (Washington: April 23, 1998), p. 9.
68 Ibid.
69 Ibid., p. 13.
70 U.S. General Accounting Office, Budget Issues: Budgeting for Federal Insurance
Programs, Report no. AIMD-97-16, p. 10.

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CRS-16
Third, as was discussed in the 1990 debate, administrative costs of credit
programs could be included in the calculation of the costs of these programs.
Proponents argue that the current exclusion of these costs understates the actual costs
of credit programs. Proponents also stress that cost comparisons among credit
programs are distorted. For example, the administrative costs per $1 million of credit
are higher for direct student loans than guaranteed student loans. Opponents argue
that agencies have difficulty separating the administrative costs of their credit
programs from their general administrative costs.
Fourth, the budgetary cost of capital to taxpayers could be changed to the after
tax rate of return earned by private financial intermediaries.71 Proponents argue that
the after tax rate of return earned by private financial intermediaries accurately
reflects the returns that taxpayers could have earned in the private market by
supplying capital; that is, the opportunity cost of capital to taxpayers.72 This private
market cost would include administrative costs and an after tax rate of return that
would include a risk premium. Some proponents argue that the current measure of
costs permits program designers to exploit the opportunity to engage in interest
arbitrage between Treasury interest rates and private market rates to create credit
programs with zero or even negative subsidy costs. This cost of capital could be
measured by two different methods.
First, a market approach could be used. Shortly after credit is extended, the
loan asset could be sold on financial markets or the loan guarantee could be reinsured
privately. For a loan, the subsidy would be the difference between the dollar amount
of the loan and the sales price of the loan asset. For a loan guarantee, the subsidy
would be the difference between the cost of reinsurance and the loan guarantee fee
(if any).73
Second, under the comparable loan approach, OMB could estimate the interest
costs on comparable private loans and insurance costs on comparable private loan
guarantees. Then, the difference between estimated private sector costs and costs to
the government would equal subsidy costs.74
Both methods have shortcomings. Some federal credit programs were
established to overcome market imperfections such as inadequate information.
Hence, under the market approach, some loans may sell at an excessive discount (that
is, well below their face value) and the reinsurance costs of some loan guarantees
may be prohibitive. Furthermore, if investors perceive an extremely high risk, some
loans may not be salable and some guarantees may not be reinsurable. The
comparable loan approach may be difficult to implement because of an inadequate
71 This change would require new legislation because the FCRA specifies that the subsidy
cost of federal credit is the cost to the taxpayer rather than the market value to the recipient.
72 J. Edmund Colloton, Jr., Budgetary Treatment of Federal Credit Programs, Harvard
Journal on Legislation, vol. 28, winter 1991, p. 228.
73 Ibid., pp. 228–229.
74 Ibid., p. 229.

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CRS-17
data base which would be necessary to make reasonably accurate estimates.75 Both
opportunity cost methods include a private risk premium. Consequently the private
opportunity cost is greater than the cost to the government. Hence, some critics
argue, for the purpose of resource allocation, that this last opportunity cost measure
does not provide a good comparison between federal credit programs and federal
grants or tax preferences.
75 Ibid.

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CRS-18
Appendix A. Federal Credit Data
Table 1. Federal Credit Data, FY2002
Estimated Future Cost of Outstanding Federal Credit Programs
(in billions of dollars)
Estimated
Future Costs
Outstanding
of 2002
Program
2002
Outstandinga
Direct Loansb:
Federal Student Loan Programs
$99
$14
Farm Service Agency (excl. CCC), Rural Development, Rural Housing
45
11
Rural Utilities Service and Rural Telephone Bank
32
2
Housing and Urban Development
12
2
Agency for International Development
9
7
Public Law 480
11
2
Export-Import Bank
12
4
Commodity Credit Corporation
5
3
Federal Communications Commission Spectrum Auction
5
0
Disaster Assistance
4
0
Other Direct Loan Programs
14
0
Total Direct Loans
248
45
Guaranteed Loans:b
FHA-Mutual Mortgage Insurance Fund
467
3
Veterans Housing
265
6
Federal Family Education Loan Program
182
12
FHA-General and Special Risk
96
7
Small Business
41
1
Export-Import Bank
31
5
International Assistance
19
2
Farm Service Agency and Rural Housing
23
0
Commodity Credit Corporation
5
1
Other Guarantee Loan Programs
16
2
Total Guaranteed Loans
1,145
39
Total Federal Credit
$1,393
$84
Source: Adapted by CRS from U.S. Executive Office of the President, Office of Management and Budget,
Analytical Perspectives, Budget of the United States Government, Fiscal Year 2004 (Washington: GPO, 2003),
p. 214.
Note: Detail may not add to total due to rounding.
a Direct loan future costs are the financing account allowance for subsidy cost and the liquidating account
allowance for estimated uncollectible principal and interest. Loan guarantee future costs are estimated
liabilities for loan guarantees.
b Excludes loans and guarantees by deposit insurance agencies and programs not included under credit reform,
such as CCC commodity price supports. Defaulted guaranteed loans which become loans receivable are
accounted for as direct loans.

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CRS-19
Appendix B. Budgetary Treatment of
a Hypothetical Direct Loan
1)
For a proposed direct loan program, CBO is required to estimate the subsidy
cost. If legislation is passed that includes this new loan program, OMB
becomes responsible for estimating the subsidy cost. If a direct loan program
L has been enacted into law, agency A establishes a credit program account and
a nonbudget financing account.
(2) OMB (or agency A using OMB guidelines) estimates that the net present value
of the cost of credit subsidies equals (in this example) 20% of loans disbursed
under program L operated by agency A.
(3) If program L is a discretionary loan program, an appropriations bill for the fiscal
year is passed by Congress and signed into law by the President.76 This bill
includes an appropriation of (in this example) $100 million for the subsidy
budget authority of program L. Within agency A, this $100 million is
appropriated to the credit program account for program L. Furthermore, this
appropriations bill must include an estimate of the dollar amount of new direct
loan obligations supportable by the subsidy budget authority appropriated to
agency A for program L. For example, if program L has an estimated subsidy
rate of 20%, the dollar amount of new direct loan obligations supportable would
be $500 million.
(4) Agency A signs a contract to loan $10 million to a borrower under the auspices
of program L. The estimated subsidy cost of this loan is $2 million (20% of $10
million).

(5) The borrower meets the terms and conditions of the loan contract. Agency A
pays $2 million from its credit program account for L into its financing account
for L. The financing account for program L borrows $8 million (unsubsidized
portion of the loan) from the U.S. Treasury. At the same time that these
budgetary transfers occur within agency A, the loan of $10 million is disbursed
from the financing account for program L to the borrower. The subsidy
payment of $2 million that goes into the financing account is scored as an outlay
for agency A and for the federal budget.
(6) Agency A services the loan. Repayments of principal and payments of interest
are paid by the borrower into the financing account for program L. The
financing account uses these monies to pay the interest and principal on the $8
million loan from the Treasury.
76 If program L is a mandatory loan program, an automatic appropriation of budget authority
would occur for whatever amount of credit needed to meet the estimated demand for
services by beneficiaries.

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CRS-20
Appendix C. Budgetary Treatment of
a Hypothetical Loan Guarantee
(1) For a proposed loan guarantee program, CBO would be required to estimate the
subsidy cost. If legislation is passed that includes this new loan guarantee
program, OMB becomes responsible for estimating the subsidy cost. If a loan
guarantee program G has been enacted into law, agency A establishes a credit
program account and a financing account.
(2) OMB (or agency A using OMB guidelines) estimates that the net present value
of the cost of credit subsidies equals (in this example) 10% of loans guaranteed
under program G operated by agency A.
(3) If program G is a discretionary loan guarantee program, an appropriations bill
for the fiscal year is passed by the Congress and signed into law by the
President.77 This bill includes an appropriation (in this example) of $60 million
for the subsidy budget authority for program G. Within agency A, this $60
million is placed in the credit program account for program G. Furthermore,
this appropriations bill must include an estimate of the dollar amount of
guaranteed loan commitments supportable by the subsidy budget authority
appropriated to agency A for program G. For example, if program G has an
estimated subsidy rate of 10%, the dollar amount of new guaranteed loan
commitments supportable would be $600 million.
(4) Agency A signs a contract to guarantee a loan of $15 million to the borrower.
The estimated subsidy cost of this guarantee is $1.5 million (10% of $15
million). The loan guarantee fee (if any) is paid by the borrower to the
financing account for program G at the time the loan guarantee is obligated.
(5) After the borrower (lender, or other party to the agreement) meets the terms and
conditions of the loan guarantee contract, the borrower obtains the loan from the
lender in the private sector. Agency A pays $1.5 million from its credit program
account for G into its financing account for G. At the same time that this
budgetary transfer occurs within agency A, the agency provides the guarantee
in order for the borrower to obtain the loan from the private lender. The subsidy
payment of $1.5 million that goes into the financing account is scored as an
outlay for agency A and for the federal budget. The borrower must pay to the
lender interest on the principal and repay the principal.
(6) Agency A services the loan guarantee. In the financing account, the subsidy
amount and any loan guarantee fee earn interest which is paid by the Treasury.
If the borrower defaults on all or part of the guaranteed loan then the financing
account is responsible for covering the cost of compensating the lender.
77 If program G is a mandatory loan guarantee program, an automatic appropriation of
budget authority would occur for whatever amount of credit needed to meet the estimated
demand for services by beneficiaries.

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CRS-21
Appendix D. Direct Loan Data
Table 2. Direct Loan Data, FY2004
Estimated 2004 Subsidy Rates, Budget Authority, and Loan Levels for Direct Loansa
(in millions of dollars and percent)
Subsidy
Estimated
Subsidy
Agency and Program
Budget
Loan
Rate
Authority
Levels
Agriculture:
Agricultural Credit Insurance Fund
14.20%
$121
$852
Farm Storage Facility Loans
0
0
117
Rural Community Advancement Program
2.53
33
1,305
Rural Electrification and Telecommunications Loans
-1.58
-48
3,035
Rural Telephone Bank
-4.32
0
0
Distance Learning and Telemedicine, and Broadband
-3.66
9
246
Program
Farm Labor
42.73
18
42
Rural Housing Insurance Fund
11.11
166
1,494
Rural Development Loan Fund
43.27
17
40
Rural Economic Development Loans
18.61
3
15
Public Law 480 Title I
78.90
104
132
Commerce:
Fisheries Finance
-3.33
-1
30
Defense—Military:
Family Housing Improvement Fund
39.95
88
221
Education:
College Housing and Academic Facilities Loans
0
0
227
Federal Direct Student Loan Program
-5.22
-1,049
20,954
Homeland Security:
Disaster Assistance Loans
-2.02
-1
25
Housing and Urban Development:
FHA-Mutual Mortgage Insurance
0
0
50
FHA-General and Special Risk
0
0
50
Interior:
Bureau of Reclamation Loans
0
0
0
State:
Repatriation Loans
70.75
1
1
Transportation:
Federal-Aid Highways
5.58
127
2,277
Railroad Rehabilitation and Improvement Program
0
0
0
Treasury:
Community Development Financial Institutions Fund
34.37
2
5

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CRS-22
Subsidy
Estimated
Subsidy
Agency and Program
Budget
Loan
Rate
Authority
Levels
Veterans Affairs:
Vocational Rehabilitation and Education Loans
0
0
4
Housing
10.80
31
287
International Assistance Programs:
Foreign Military Financing Loans
0
0
0
Debt Restructuring
0
292
0
Overseas Private Investment Corporation
11.00
4
40
Small Business Administration:
Disaster Loans
11.72
79
760
Business Loans
9.55
2
20
Export-Import Bank of the United States:
Export-Import Bank Loans
5.90
19
322
Federal Communications Commission:
Spectrum Auction
0
0
0
Total
N/A
$17
$32,551
Source: Adapted by CRS from U.S. Executive Office of the President, Office of Management and
Budget, Analytical Perspectives, Budget of the United States Government, Fiscal Year 2004
(Washington: 2003), p. 218.
a Additional information on credit subsidy rates is contained in the Federal Credit Supplement to the
budget for 2004.

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CRS-23
Appendix E. Loan Guarantee Data
Table 3. Loan Guarantee Data, FY2004
Estimated 2004 Subsidy Rates, Budget Authority, and Loan Levels for Loan Guaranteesa
(in millions of dollars and percent)
Subsidy
Estimated
Subsidy
Agency and Program
Budget
Loan
Rate
Authority
Levels
Agriculture:
Agricultural Credit Insurance Fund
3.23%
$86
$2,666
Commodity Credit Corporation Export Loans
7.14
297
4,155
Rural Community Advancement Program
3.04
27
887
Rural Electrification and Telecommunications Loans
0.06
0
100
Local Television Loan Guarantee
8.46
0
0
Rural Housing Insurance Fund
1.63
46
2,825
Commerce:
0
0
0
Emergency Oil and Gas Guaranteed Loan
0
0
0
Emergency Steel Guaranteed Loan
Defense–Military:
0
0
0
Procurement of ammunition, Army
5.40
14
259
Family Housing Improvement Fund
Education:
Federal Family Education Loan Program
11.85
6,272
52,064
Health and Human Services:
12.19
18
150
Health Education Assistance Loans
5.88
1
17
Health Resources and Services
Housing and Urban Development:
2.73
1
27
Indian Housing Loan Guarantee Fund
2.73
1
35
Native Hawaiian Housing Loan Guarantee Fund
7.66
131
1,715
Public Housing Capital Fund
10.56
1
8
Native American Housing
0
0
0
Community Development Loan Guarantees
-2.39
-3,378
185,000
FHA-Mutual Mortgage Insurance
-1.05
-262
25,000
FHA-General and Special Risk
Interior:
Indian Guaranteed Loans
6.13
5
84
Transportation:
Minority Business Resource Center Program
2.53
1
18
Federal-Aid Highways
4.77
10
200
Maritime Guaranteed Loan (Title XI)
0
0
0
Treasury:
Air Transportation Stabilizationb
0
0
0
Veterans Affairs:
Housing
0.78
275
35,248
International Assistance Programs:

Microenterprise and Small Enterprise Development
0
0
0
Development Credit Authority
3.11
21
675
Overseas Private Investment Corporation
2.61
20
765
Small Business Administration:
Business Loans
0.46
95
20,802
Export-Import Bank of the United States:
Export-Import Bank Loans
3.08
441
14,320
Presidio Trust:
Presidio Trust
0.14
0
0
Total
N/A
$4,123
$347,020

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CRS-24
Subsidy
Estimated
Subsidy
Agency and Program
Budget
Loan
Rate
Authority
Levels
Addendum: Secondary Guaranteed Loan
Commitment Limitations
GNMA:
Guarantees of Mortgage-Backed Securities
-0.27%
-$405
$200,000
Source: Adapted by CRS from U.S. Executive Office of the President. Office of Management and Budget.
Analytical Perspectives, Budget of the United States Government, Fiscal Year 2004 (Washington: GPO, 2004), p.
219.
N/A = Not applicable.
a For additional information on credit subsidy rates, see the Federal Credit Supplement to the Budget for 2004.
b Numbers shown for 2003 include estimates for loan guarantees that have received either conditional or final
approval. This presentation should not be construed as prejudging the outcome of the Air Transportation
Stabilization Board’s deliberations. The Board does not anticipate making any new loan guarantees in 2004.

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CRS-25
Selected Bibliography
James M. Bickley, The Bush Administration’s Proposal for Credit Reform:
Background, Analysis, and Policy Issues, Public Budgeting and Finance, vol. 11,
no. 1, Spring 1991: pp. 50-65.
J. Edmund Colloton, Jr., Budgetary Treatment of Federal Credit Programs, Harvard
Journal on Legislation, vol. 28, Winter 1991: pp. 219-233.
David B. Pariser, Implementing Federal Credit Reform: Challenges Facing Public
Sector Financial Managers, Public Budgeting and Finance, vol. 12, no. 4, Winter
1992: pp. 19-34.
Marvin Phaup, Credit Reform, Negative Subsidies, and FHA, Public Budgeting and
Finance, vol. 16, no. 1, Spring 1996: pp. 23-36.
Report of the President’s Commission on Budget Concepts, Washington, U.S. Govt.
Print. Off.: 1967, p. 345.
David Torregrosa, Credit Subsidy Reestimates, 1993-99, Public Budgeting and
Finance, vol. 21, no. 2, Summer 2001: pp. 114-118.
U.S. Code, Congressional and Administrative News, 101st Congress, 2nd session, 1990.
St. Paul, Minn., West Publishing Co., 1991, pp. 610-615.
—— 103rd Congress, 1st session, 1993. St. Paul, Minn., West Publishing Co., 1994.
pp. 285-296.
U.S. Congress, Conference Committee, Balanced Budget Act of 1997, Conference
report to accompany H.R. 2015, H.Rept. 105-217, 105th Congress, 1st session,
Washington, July 30, 1997, p. 1,056.

U.S. Congressional Budget Office, An Analysis of the President’s Budgetary Proposals
for Fiscal Year 2002, Washington, May 2001, p. 4.
—— Credit Reform: Comparable Budget Costs for Cash and Credit, Washington,
December 1989, p. 119.
U.S. Executive Office of the President, Office of Management and Budget, Accounting
for Direct Loans and Loan Guarantees: Statement of Federal Financing
Accounting Standards, no 2., Washington: U.S. Govt. Print. Off., Aug. 23, 1993,
p. 92.
—— Analytical Perspectives, Budget of the United States Government, Fiscal Year
1999,Washington: U.S. Govt. Print. Off., 1998, p. 586.
—— Analytical Perspectives, Budget of the United States Government, Fiscal Year
2001, Washington: U.S. Govt. Print. Off., 2000, p. 670.

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CRS-26
—— Analytical Perspectives, Budget of the United States Government, Fiscal Year
2002, Washington: U.S. Govt. Print. Off., 2001, p. 660.
—— Analytical Perspectives, Budget of the United States Government, Fiscal Year
2003, Washington: U.S. Govt. Print. Office, 2002, p. 205.
—— Analytical Perspectives, Budget of the United States Government, Fiscal Year
2004, Washington: U.S. Govt. Print. Office, 2003, pp. 214, 218, 219.
—— The Budget System and Concepts, Budget of the United States Government, Fiscal
Year 2003, Washington: U.S. Govt. Print. Off., 2002, pp. 14-15.
—— Budget of the United States Government, Fiscal Year 1994, Washington: U.S.
Govt. Print. Off., 1993, p. 1,713.
—— Federal Credit Supplement, Budget of the United States Government, Fiscal Year
1997, Washington: U.S. Govt. Print. Off., 1996, p. 59.
—— Federal Credit Supplement, Budget of the United States Government, Fiscal Year
2004, Washington: U.S. Govt. Print. Off., 2003, pp. 15, 19.
—— Handout on Credit Reform, Washington: U.S. Govt. Print. Off., Jan. 31, 1991, p.
25.
—— Policies for Federal Credit Programs and Non-tax Receivables, Circular no. A-
129, Washington: U.S. Govt. Print. Off., Jan. 11, 1993 (revised periodically), p. 27.
—— Preparation and Submission of Budget Estimates, Circular no. A-11,
Washington: U.S. Govt. Print. Off., revised Nov. 3, 1998, pp. 135-172.
—— Special Analysis F, Federal Credit Programs, Budget of the United States
Government, Fiscal Year 1988, Washington: U.S. Govt. Print. Off., 1987, p. F32.
—— Special Analysis F, Federal Credit Programs, Budget of the United States
Government, Fiscal Year 1990,Washington: U.S. Govt. Print. Off., 1989, p. 92.
U.S. General Accounting Office, Budget Issues: Budgeting for Federal Insurance
Programs, Report no. AIMD-97-16, Washington, Sept. 1997, p. 224.
—— Budget Issues: Budgeting for Federal Insurance Programs, Testimony before the
Budget Task Force, Committee on the Budget, House of Representatives, Report
no. T-AIMD-98-147, Washington: U.S. Govt. Print. Off., April 23, 1998, p. 14.
—— Budgetary Treatment of Federal Credit Programs, Report no. AFMD-89-42,
Washington: U.S. Govt. Print. Off., April 1989, p. 28.
—— Credit Reform: Greater Effort Needed to Overcome Persistent Cost Estimation
Problems, Report no. AIMD-98-14, Washington: U.S. Govt. Print. Off., March
1998, p. 120.

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CRS-27
—— Credit Subsidy Estimates for the Sections 7(a) and 504 Business Loan Programs,
Report no. T-RCED-97-197, Washington: U.S. Govt. Print. Off., July 16, 1997,
p. 19.
CRS Report
CRS Report 97-931, Budget Enforcement Act of 1997: Summary and Legislative
History, by Robert Keith. October 8, 1997, p. 23.

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