Accounting for the Cost of Government Credit Assistance
The federal government provides extensive credit support for mortgages, student loans, and a variety of commercial endeavors through its traditional direct loan and loan guarantee programs. Those programs-- which are accounted for under the rules of the Federal Credit Reform Act of 1990 (FCRA)--have grown rapidly in recent years, with outstanding balances reaching more than $2.5 trillion in 2011.
The FER believes that use of FCRA accounting rules to calculate the budgetary costs of these credit programs has resulted in the systematic understatement of the cost of federal credit programs. This distortion occurs because of the failure of FCRA rules to account for the full cost of all of the risks associated with providing such credit.
The failure to fully account for the cost of risk has several significant consequences. For one, it has sometimes resulted in the budgetary illusion that government credit programs reduce the government budget deficit. For example, in 2011 the Office of Management and Budget (OMB) reported that new credit extensions reduced the budget deficit by $20.5 billion.
