Export-Import Bank (Ex-Im) and the Federal Budget

Export-Import Bank (Ex-Im) and the Federal Budget

July 18, 2014
Export-Import Bank (Ex-Im) and the Federal Budget
The estimated subsidy is -$570 million for FY2014 and
Background
-$1.4 billion for FY2015. (These subsidy estimates were
taken from the President’s Budget documents prepared by
What is Ex-Im Bank and what is the congressional
the Office of Management and Budget. The Congressional
interest? As the official U.S. export credit agency (ECA),
Budget Office utilizes different models and assumptions
Ex-Im Bank finances and insures U.S. exports of goods and
when making credit estimates for purposes of the
services on a demand-driven basis. Ex-Im Bank operates as
appropriations process and CBO’s baseline estimates. There
an independent agency under a renewable charter, the
are proposals that would change the accounting method for
Export-Import Bank Act of 1945, as amended. In 2012,
federal credit programs, increasing their cost. These
Congress debated and ultimately renewed Ex-Im Bank
proposed changes are explained in a later section.) Subsidy
through September 30, 2014, and raised its exposure cap to
rates from federal credit programs are subject to re-
$140 billion. Currently, Congress is considering whether to
estimates in future years, resulting in new subsidy estimates
renew Ex-Im Bank’s authority and, if so, under what terms.
that may be higher or lower compared to the original
estimate. For example, in FY2012, the original subsidy rate
What is the current size of the Ex-Im Bank’s portfolio?
for Ex-Im Bank’s direct loans was -9.30%. Currently, it has
In FY2013, Ex-Im Bank authorized $6.9 billion in new
been reestimated at 7.85%. The original credit subsidy rate
direct loans (export financing and the Tied Aid War Chest)
for loan guarantees in the same year was -1.66%. It is
and $20.5 billion in new loan guarantees (medium and long
currently reestimated at -0.02%.
term guarantees, short and medium term insurance, and the
working capital fund). Total authorizations for FY2014 are
Figure 1. Ex-Im Bank’s New Authorizations by
estimated at $30.9 billion ($5.0 billion for new direct loans
Fiscal Year
and $25.9 billion for new loan guarantees) and for FY2015
at $37.6 billion ($3.0 billion for new direct loans and $34.6
billion for new loan guarantees). At the end of FY2013, the
size of Ex-Im Bank’s outstanding portfolio (exposure)
totaled $113.8 billion ($33.0 billion for direct loans and
$80.8 billion for loan guarantees).
Budgetary Considerations
How are federal credit programs, like Ex-Im Bank,
accounted for in the federal budget? Beginning with
FY1992, the Federal Credit Reform Act (FCRA) required
that the reported budgetary cost of a credit program equal
the estimated subsidy costs at the time the credit is
provided. FCRA defines the subsidy cost as "the estimated
long-term cost to the government of a direct loan or a loan
guarantee, calculated on a net present value basis, excluding
administrative costs." Before FY1992, the budgetary cost of
a new loan or new loan guarantee was reported as its net
cash flow for that fiscal year. This arguably places the cost
of federal credit programs on a budgetary basis equivalent
to other federal outlays.

Notes: Totals may not sum due to rounding. Classification of
What are the effects of the Ex-Im Bank programs on the
programs based on Budget Appendix. FY = fiscal year.
budget deficit? The FCRA methodology described above
Source: OMB, The Budget for Fiscal Year 2015, Budget Appendix.
resulted in an estimated budgetary impact for FY2013 of
Graphic created by CRS.
-$1 billion, or reduction in the budget deficit of $1 billion.
A negative subsidy indicates that the discounted present
What is the amount of the Ex-Im Bank’s offsetting
value of cash inflows exceeds the discounted value of cash
collections and what does it do with any surplus
outflows over the life of the loans, resulting in a reduction
revenues? Offsetting collections are defined as funds
in the budget deficit for the fiscal year in which the subsidy
collected by government agencies from other government
estimate is made. This negative credit subsidy is calculated
agencies or from the public in businesslike or market-
based on the negative credit subsidy rate multiplied by the
oriented transactions that are credited to an expenditure
total dollar value of loans and loan guarantees in that year.
account. They are classified as negative budget authority. In
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Export-Import Bank (Ex-Im) and the Federal Budget
the case of Ex-Im Bank, revenues are collected from
Department of State, Foreign Operations, and Related
customers, from fees or premia and loan principal and
Programs appropriations act. These expenses are not
interest payments. Offsetting collections in FY2013 were
included in the credit subsidy calculation, unlike the
nearly $1.3 billion after setting funds aside for credit loss
majority of the bank’s activities, but are recorded on a cash
reserves. Ex-Im Bank states that nearly $1.1 billion of that
basis. Because Ex-Im Bank collects revenues from its
amount was in excess of operating costs. That amount is
customers, classified in the federal budget as offsetting
calculated on a cash basis and based on the $1.3 billion in
collections, it is able to reimburse Treasury for the costs of
offsetting collections less $90 million in administrative
those expenses resulting in a net appropriation of zero
expenses and $108 million that was retained in Ex-Im
(administrative expenses $90 million in FY2013; Inspector
Bank’s accounts to be available for obligation as allowed
General $4 million in FY2013).
under law.
What are the effects of the Ex-Im Bank programs on the
The amount of excess revenue calculated on a cash basis,
federal debt? The budgetary impact (the credit subsidy) of
discussed above, is different than the amount calculated on
the Ex-Im Bank’s activities is different from its impact on
a budgetary basis. For budgetary purposes, the credit
the federal debt. When the Bank issues a new direct loan or
subsidy calculation incorporates the expected costs as well
has to pay an obligation on a loan guarantee, it borrows
as profits (i.e., excess cash). When a credit account
money from the U.S. Treasury which Treasury raises in the
generates a negative subsidy rate, as is the case with the Ex-
form of Treasury securities to the extent that it does not
Im Bank, a negative credit subsidy is recorded in the federal
have enough incoming revenue to cover the obligation.
budget in the form of offsetting receipts and can be used to
That borrowing from the Treasury increases the size of the
offset other costs incurred by the Bank. The negative credit
U.S. federal debt in the amount borrowed on a dollar-for-
subsidy for this fiscal year indicates that over the lifetime of
dollar basis. Therefore, while the loan or loan guarantee
the obligations made in this fiscal year, Ex-Im Bank is
remains outstanding, the activities of the bank increase the
projected to generate more in offsetting collections than
size of the U.S. debt. As these obligations are repaid, the
what was initially borrowed to provide the direct loan in
amount of debt outstanding to the U.S. Treasury declines,
present value terms.
thereby decreasing the size of the Ex-Im Bank’s
contribution to the federal debt. The size of the credit
What are some budget proposals regarding potential
subsidy calculated for budgetary purposes should reflect the
reforms to federal credit accounting and how would
size of the long-term cost (or debt burden) on the U.S.
they affect Ex-Im Bank’s budgetary impact? There have
Treasury, though the estimates are inherently inexact.
been some proposals introduced and considered in the past
Outstanding Ex-Im authorized borrowing owed to the U.S.
few Congresses to change the methodology for scoring
Treasury totaled $18.1 billion at the end of FY2013. (Any
federal credit programs from a FCRA approach, based on
repayments to Treasury for outstanding debt do not directly
Treasury interest rates, to a fair value approach, based on
affect Ex-Im Bank’s credit subsidy for budgetary purposes.)
market rates (i.e., higher interest rates to account for market
risk). In the 113th Congress, H.R. 1872, which passed the
For more information see CRS Report R43581, Export-
House but has not been acted on in the Senate, would make
Import Bank: Overview and Reauthorization Issues, by
such a change. CBO estimated that if this accounting
Shayerah Ilias Akhtar, CRS In-Focus IN00021, Export-
change were to be made for federal credit programs, the 10-
Import Bank (Ex-Im Bank) Reauthorization, by Shayerah
year cost of the Ex-Im Bank (FY2015-FY2024) would
Ilias Akhtar, and CRS Report R42632, Budgetary
increase from -$14 billion to +$2 billion. This would mean
Treatment of Federal Credit (Direct Loans and Loan
that Ex-Im Bank’s budgetary impact would shift from
Guarantees): Concepts, History, and Issues for Congress,
reducing the deficit to increasing it over the 10-year period.
by Mindy R. Levit.
How would changes to federal credit accounting affect
Mindy R. Levit, mlevit@crs.loc.gov, 7-7792
Ex-Im Bank appropriations? The activities of the Ex-Im
IF00039
Bank are classified as discretionary. As a federal credit
program, the activities of the Bank are subject to federal
credit accounting rules and the calculation of a credit
subsidy. The Ex-Im Bank’s credit subsidy was negative in
FY2013 and is estimated to be negative in FY2014 and
FY2015. Therefore, no appropriation is required to cover
the cost of the subsidy for budgetary purposes. However, if
the credit subsidy calculation resulted in a positive subsidy
rate or if the methodology for calculating subsidies for
federal credit programs should change (i.e., to fair-value
accounting) and lead to a positive subsidy rate, then an
appropriation from Congress would be required to cover the
credit subsidy amount.
Separately, Congress provides an appropriation for the
activities of the Ex-Im Bank’s Inspector General and sets an
upper limit on its administrative expenses as part of the
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Document Outline

Background

Budgetary Considerations