{
  "id": "R42503",
  "type": "CRS Report",
  "typeId": "REPORTS",
  "number": "R42503",
  "active": false,
  "source": "EveryCRSReport.com",
  "versions": [
    {
      "source": "EveryCRSReport.com",
      "id": 413109,
      "date": "2012-04-25",
      "retrieved": "2016-04-07T00:08:26.032207",
      "title": "Subsidy Cost of Federal Credit: Cost to the Government or Fair Value Cost?",
      "summary": "Since the mid-1980s, budget experts have debated whether the best method of measuring the subsidy cost of federal credit (direct loans and loan guarantees) is the cost to the government or the fair value cost. The cost to the government would reflect the actual budget cost measured by discounting of expected cash flows associated with each program at the interest rate on risk-free Treasury securities. The measure of the cost to the government would place the cost of federal credit on the same basis as a grant or a tax expenditure; consequently, policymakers would have an incentive to use the most appropriate means to cover the cost of a government program. \nThe fair value cost would equal the cost that the credit recipient would have had to pay to borrow on the private credit market. The fair value cost would include market risk and reflect the opportunity cost of shifting capital from the private sector to the public sector. Proponents argue that the social cost rather than the budgetary cost should be used to allocate resources between the public and private sectors. This debate has yet to be resolved. \nThe U.S. government uses federal credit to allocate financial capital to a range of areas, including home ownership, student loans, small business, agriculture, and energy. A direct loan is 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. A loan guarantee is a pledge by the federal government to repay all or part of the principal or interest on any debt obligation of a non-federal borrower to a non-federal lender. At the end of FY2011, outstanding federal direct loans totaled $838 billion and outstanding guaranteed loans totaled $2,017 billion. \nBefore FY1992, federal credit programs were measured on an annual cash flow basis. 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. In the year it was granted, a loan guarantee was a contingent liability, which means the federal government was only responsible for repayment in the event of a default. Congress and the executive branch debated options to convert the budgetary treatment of federal credit from cash flow accounting to accrual accounting, which would record the subsidy cost of federal credit over the entire life of a loan or loan guarantee. One of the primary decisions concerning accrual accounting was whether the subsidy cost of federal credit should be measured by the \u201ccost to the government\u201d or the \u201cfair value\u201d cost. \nOn November 5, 1990, the President signed P.L. 101-508, 104 Stat. 1388, the Omnibus Budget Reconciliation Act of 1990 (OBRA90), which included the Federal Credit Reform Act of 1990 (FCRA). Beginning with FY1992, 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 with the cost to the government used in measuring subsidy costs.\nIn the 112th Congress, six bills have been introduced that would provide for calculation of subsidy costs using fair value accounting: companion bills S. 1651/H.R. 3414 (Honest Budget Act), H.R. 3581 (Budget and Accounting Transparency Act of 2011), H.R. 3844 (Honest Budget Act of 2012), House Fiscal Year 2012 Budget Resolution (H.Con.Res. 34, 112th Congress), and House Fiscal Year 2013 Budget Resolution (H.Con.Res. 112, 112th Congress). This report presents a chronology of this still unresolved debate, which dates from the mid-1980s. \nThis report will be updated as issues develop and new legislation is introduced.",
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      "typeId": "REPORTS",
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}