	Introduction

The U.S. government uses federal credit (direct loans and loan guarantees) to allocate capital to a range of areas including home ownership, education, small business, farming, energy, infrastructure investment, and exports. Thus, at the end of FY2013, outstanding federal credit totaled $3,154 billion. FCRA measures the cost of new federal credit as the net present value of cash flows over the life of the loan or loan guarantee at the time the credit is extended, using Treasury interest rates to discount the value of future cash flows. Background

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 cash flow measure did not accurately reflect the cost of a loan or loan guarantee (federal credit) to the federal government because it did not provide a good measure of the economic and budgetary effects. 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. The four stated purposes of FCRA were listed in Section 501:
(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. FCRA defines [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)]. 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 the constraints of a budget resolution. 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. Thus, for their credit programs, agencies' accounting procedures were now required to be consistent with their budgetary procedures. Balanced Budget Act of 1997

On August 5, 1997, the Balanced Budget Act of 1997 was enacted. This law amended the Federal Credit Reform Act of 1990 to make some technical changes including codifying several OMB guidelines. Proposals for the Expansion of Reforms

Four major proposals to expand credit reform have been discussed in recent years. Inclusion of Government-Sponsored Enterprises

The principles of credit reform could be applied to government-sponsored enterprises (GSEs). Extension to Federal Insurance

The principles of credit reform could be extended to federal insurance, which is treated primarily on a cash flow basis. Inclusion of Market Risk

The budgetary cost to taxpayers of providing federal credit could be changed to include market risk. Inclusion of Administrative Costs

As was discussed in the 1990 debate, administrative costs of credit programs could be included in the calculation of the costs of these programs. Proposed Legislation in the 113th Congress

Two bills have been introduced in the 113 th Congress that included major proposals to reform the budgetary treatment of federal credit. Honest Budget Act of 2013 (H.R. Budget and Accounting Transparency Act of 2014 (H.R. Further, Title II of the legislation states that 
Not later than 1 year after the date of enactment of this Act, the Directors of the Congressional Budget Office and the Office of Management and Budget shall each prepare a study and make recommendations to the Committees on the Budget of the House of Representatives and the Senate as to the feasibility of applying fair value concepts to budgeting for the costs of Federal insurance programs. Federal Credit Data
Appendix C. Budgetary Treatment of Federal Credit Before FY1992 
Before the implementation of the Federal Credit Reform Act of 1990, the unified budget treated federal credit in two different ways. 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 supported 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.
The U.S. government uses federal credit (direct loans and loan guarantees) to allocate financial capital to a range of areas, including home ownership, higher education, small business, agriculture, and energy. At the end of FY2013, outstanding federal credit totaled $3.2 trillion. This report explains the budgetary treatment of federal credit, examines proposed reforms, and describes recent legislation.
Title V of the Omnibus Budget Reconciliation Act of 1990 (P.L. 101-508), the Federal Credit Reform Act of 1990 or FCRA, changed how the unified budget reports the cost of federal credit activities (i.e., federal direct loans and loan guarantees) to an accrual basis beginning in 1992. Before 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 cost of a loan or loan guarantee, which is its subsidy cost over the entire life of the loan or loan guarantee, that is, its accrual cost.
Beginning with FY1992, 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." This arguably places the cost of federal credit programs on a budgetary basis equivalent to other federal outlays. Because the subsidy costs of discretionary credit programs (such as the business loan programs of the Small Business Administration and the loan guarantee programs of the Export-Import Bank) are now provided through appropriations acts, this change meant that discretionary credit programs must compete with other discretionary programs on an equal basis. In contrast, 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 federal government.
Since the passage of FCRA, federal agencies, working with OMB, have steadily improved their compliance with credit reform standards. In October 1990, the Federal Accounting Standards Advisory Board (FASAB) was established. In August 1993, this board required that agencies' accounting procedures be consistent with their budgetary procedures for their federal credit programs. On August 5, 1997, the Balanced Budget Act of 1997 (P.L. 105-33) was enacted, amending FCRA to make technical changes, including codifying several guidelines set by OMB.
Four proposals to expand credit reform have been discussed: the principles of credit reform could be applied to government-sponsored enterprises (GSEs); the principles of credit reform could be extended to federal insurance programs; the budgetary cost of capital for credit programs could be changed to include market risk; and the administrative costs of credit programs could be included in the calculation of the costs of these programs. These proposals are described in this report.
In the 113th Congress, two bills have been proposed with provisions concerning the budgetary treatment of federal credit: the Honest Budget Act of 2013 (H.R. 1270) and the Budget and Accounting Transparency Act of 2014 (H.R. 1872). The latter passed the House but has not been acted on by the Senate. This report will be updated as events warrant.