The outlay ledger does not measure “economic costs" or net business gain or loss under conventional accounting conventions. The Federal lending programs are a form of business enterprise activity with chronic “losses” like dozens of similar programs throughout the budget. The established outlay ledger accounting system is based on account level cash surplus or deficit for the year without regard to true business costs or expenses and revenue accruals. This is essential in order to tie all budget outlay accounts to the central Treasury cash drawer. Treatment of lending enterprise activity in the outlay ledger on a business or economic cost basis (interest rate subsidy plus default reserve) would be totally inconsistent with treatment of other business enterprise accounts and would sever the tie between the Treasury's central cash drawer and individual budget accounts. [In millions of dollars] (A) Pension Benefit Guarantee Corporation (1982 data): The reason that all lending programs must be treated on a strict net cash basis (receipts minus disbursements in the same year) is underscored by the complex transactions that surround many budget accounts. It would be impossible to tie the budget outlay ledger to the central Treasury cash drawer (unified budget) without this convention. SEQUENCE OF TRANSACTIONS TYING CIVIL SERVICE RETIREMENT FUND TO UNIFIED BUDGET OUTLAY Transaction LEDGER 1983 amount Central cash drawer treatment (1) Civilian payroll... (2) 7 percent withholding on Federal pay for civil service retirement contribution by employee. (5) Treasury interest payment to civil service fund for Treasury obligations held by fund. (7) Treasury payment to civil service fund for accrued liabilities and past service costs. (8) Civil service fund receipt of payments for unfunded liabilities. (9) Payment of annuities to retirees............ (10) Summary of net outlay ledger totals: Gross outgo. Gross income. Net outlays.... SEQUENCE OF TRANSACTIONS FOR FOREIGN MILITARY SALE (1) DOD industrial transaction and stock fund purchases of defense equipment. (5) FMS trust fund sales to foreign governments. (6) Military sales credit loans (mostly foreign) to foreign governments to finance equipment purchases from FMS trust fund. (7) FFB sales credit loans (2-10 yr. grace period) to foreign governments to finance purchases from FMS trust fund. (8) FFB collections from foreign governments on outstanding loan portfolio. (9) DOD payments to FFB for loan delinquencies and rescheduling.. (10) FFB receipt of DOD delinquency payments......... (11) FFB borrowing from Treasury to finance difference between current loan disbursements and prior loan repayments. (12) Summary of fiscal year 1983 transactions and program levels: Value of U.S. agreements to sell military equipment...... Level of new orders placed by DSAA.. Level of loan obligations by FFB and FMS. On-budget outlay ledger. Off-budget outlay ledger. 19.0 Preobligation commitments. 15.3 Obligation to purchase. 6.1 Obligation to finance. 3.5 Total net spend-out of prior transactions. BUDGET OUTLAY LEDGER AND FISCAL CONTROL Full budget control can only be achieved with a strategy designed to create backpressure on a major obligation pipeline-off-budget loan activities-that currently feeds the bottom line outlay ledger without restraint. As illustrated below, the comprehensive outlay ledger is ultimately a fiscal residual-the consequence of all the complex program structures and obligations pipelines that eventually generate cash transactions between the Treasury cash drawer and the "rest-of-the-public." Budget control cannot be achieved by cutting outlays directly, but only by working upstream into the multi-year obligation ledger pipelines. But as long as the FFB lending programs remain off-budget, control over the obligation ledger pipeline is seriously handicapped. The off-budget loan programs are not subject to the discipline of the budget resolution and reconciliation process. Neither the 302(a) stage to bind and discipline the authorization, outlay, and revenue aggregates nor the 302(b) stage of formal allocation to the relevant subcommittees includes the off-budget FFB lending activities. Therefore, as long as these off-budget programs remain outside the discipline of the formal budget process, there is no meaningful incentive for Congress or the Administration to curb their expansion. ADDITIONAL CONSIDERATIONS Current on-budget/off-budget classification of Federal lending programs is arbitrary-precisely 50 percent of the lending portfolio is already on-budget. At the program level, there is no rationale for on/off budget treatment of lending programs within related functional policy areas. ILLUSTRATIONS OF INCONSISTENCIES OR ANOMALIES IN BUDGET TREATMENT OF DIRECT LENDING Moreover, on a practical basis, there is no clean distinction between "loans" and "grants". Due to immerse variation in interest rates and terms, the subsidy value can range from just over 1 percent to nearly 100 percent of the face value of the loan. A continum of increasingly subsidy values causes the theoretical grant/loan distinction to evaporate. This is especially true because most lending programs have a social policy or national security purpose which frequently results in conversion of nominal loans to grants over their lifetime. For instance: Regular CCC loans (low subsidy value) can be automatically converted into farmer reserve loans (high subsidy value) upon farmer election. |