title II—BUDGET PROCESS REFORM
Section 212. Credit Reform.
The Congressional Budget Office, in consultation with the General Accounting Office, shall study and report to Congress on Federal direct loan and loan guarantee programs for fiscal year 1987 and fiscal year 1988. The report shall be submitted as soon as practicable to all congressional committees of appropriate jurisdiction. The report shall provide information and recommendations on: (1) more accurately measuring the costs to the Federal Government of such credit programs, (2) comparing the cost of credit programs to other forms of Federal assistance, and (3) improving the allocation of resources between credit and other programs. The report shall also discuss the considerations involved in establishing a system for using the information on the costs of credit programs as part of the budget process.
Joint Explanatory Statement (BBEDCRA 1987)
The Joint Explanatory Statement of the Managers of Conference on the Balanced Budget and Emergency Deficit Control Reaffirmation Act of 1987 included this description:
12. Credit Reform
Current Law regarding the treatment of credit activities in the budget process is under the law.
Senate Amendment numbered 3 in part adds a new title (Title III-Credit Reform), to be cited as the “Federal Credit Reform Act of 1987,” to the joint resolution.
The Senate amendment establishes the scoring of direct loans and guarantees on the basis of subsidy costs, defined as the present value of the direct costs to Government to extend credit assistance.
Beginning in FY 1989, agencies would receive an appropriation for the subsidy costs of loans and loan guarantees expected during the year. Deposit insurance agencies are not required to have subsidy appropriations. For entitlement programs funded by permanent indefinite appropriations, indefinite amounts will be requested for subsidies, but specific estimates will be included in the budget.
The subsidy calculations take into account direct Government outlays and lost or delayed repayments. Fees and premiums paid by borrowers would reduce the subsidy estimate. The term “subsidy” also refers to changes in the terms of loans that have the effect of increasing the Government’s cost, including loan forgiveness, waiving of penalties, and other changes in the terms of a loan agreement. Agencies will include an estimate of the subsidy costs of such changes in their requests for appropriations.
The Senate amendment establishes a Federal credit management agency in the Treasury Department to supply and verify subsidy elements and to study and recommend improvements in Federal agency credit management.
The Senate amendment neither requires nor authorizes the selling of direct loans; the title prohibits the reinsurance of loan guarantees.
Two kinds of budget accounts are established for credit programs-a subsidy account and a financing account. Amounts appropriated for loan subsidies would be credited to the subsidy account and paid into the financing account as the loan is disbursed. All of the unsubsidized cash flow associated with loans made after October 1, 1988 (including loan disbursements, repayments, default claims, and fees and premiums paid by borrowers), would be assigned to a financing account.
Assets and liabilities resulting from loans made before FY 1989 will be transferred to financing accounts as well.
All of these financing accounts will be assigned to a separate and newly established budget function. Amounts in this function would not be allocated to committees and would not be counted when determining compliance with various sections of the 1974 Budget Act.
Because both the financing and subsidy accounts are on-budget, the credit reform title would have no impact on the cash-flow measure of the deficit.
Agencies have authority to borrow from the Treasury to cover the obligations of these financing accounts. For new loans, an agency may borrow to cover the unsubsidized financing requirements of a program if sufficient resources are not available in the financing account. For example, an agency might receive an appropriation of $10 million to make direct loans with a face value of $50 million. It would borrow $40 million in order to disburse these loans and would recover this amount with borrower repayments. The bill would also extend this borrowing authority to obligations associated with loans made before FY 1989. An agency would redeem its debt with Treasury as borrowers repay their loans. If it did not have sufficient funds, the agency would have to request an appropriation to liquidate the debt.
The Senate amendment makes it out of order in either House to consider an appropriations bill which provides new credit authority, for programs that are estimated to require a subsidy, but does not also provide an appropriation for that subsidy cost.
Finally, the Senate amendment states that nothing in the title should be construed as altering the underlying terms and conditions of, or eligibility for, or the amount of assistance provided by, any Federal direct loan or loan guarantee.
The conference agreement deletes the Senate language establishing a credit reform title and directs the Congressional Budget Office, in consultation with the General Accounting Office, to study and report to Congress on Federal credit programs for FY 1987 and FY 1988. The report, which shall be submitted to the committees of jurisdiction as soon as practicable, must address and make recommendations on the following areas: (1) more accurately measuring the costs of Federal credit programs, (2) comparing the cost of Federal credit programs to other forms of assistance, and (3) improving the allocation of resources between credit programs and other programs. The report shall also consider how to include information on the cost of Federal credit programs in the budget process.
U.S. House of Representatives, Balanced Budget and Emergency Deficit Control Reaffirmation Act of 1987: Conference Report to Accompany H. J. Res. 324, House Ways and Means Committee (H. Rept. 100-313) September 21, 1987.