S. 1679 corrects both of these problems, and represents an important step toward improving the utility of the federal budget. Furthermore, it corrects the problems in the proper fashion,

by attributing the economic activity to the federal agency which is ultimately responsible for initiating it. It avoids the often suggested, but theoretically incorrect, solution of simply treating the FFB as the agency, and incorporating its outlays into the federal budget.

This latter is an important point. I emphasize that the problem is not the FFB itself. Since its establishment in 1974, it has shown itself to be an effective mechanism for marketing the obligations of various federal agencies in an orderly manner, and has resulted in savings to the federal government by virtue of its ability to finance debt at a lower rate than would otherwise be possible. Furthermore, I also wish to emphasize that my support for S. 1679 is in no way an attack upon the several federal agencies which use FFB financing, and whose agency budget treatment would be affected by this legislation. I simply wish to assure that our accounting treatment of agency transactions is consistent, and that the budget reflects accurately federal government activity in this area. For without accurate accounting information, it

is impossible for Congress to make informed decisions about budget

issues.

Passage of S. 1679 would be an important step toward fulfilling the recommendations made by the Temporary Task Force on Federal Credit of the Budget Committee, and also the recommendations embodied in this year's First Concurrent Budget Resolution. It would also ensure that the existence of the FFB financing mechanism itself would be neutral with respect to the budget. This is a condition of the FFB charter which is presently not being met because of its purchase of guaranteed agency loans. S. 1679 is also highly complementary to my own proposal for a federal credit budget in S. 1582.

I do concur in the suggestion made a moment ago by Senator Domenici with respect to the clarification of the budget treatment of the Rural Electrification Agency (REA). I am sympathetic with the underlying goal of incorporating presently off-budget activity into the unified budget. I think, however, that it might be wise to purse the particular issue of the REA separate from S. 1679, since it involves specific separate legislation which is under the jurisdiction of the Agriculture Committee. Even with this modification, S. 1679 would improve the accuracy of the REA's that is, its off-budget budget although it would leave open the question of its incorporation into the unified federal budget.

agency budget

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In conclusion, I believe S. 1679 to be a good bill that will significantly improve budget accounting and assist the Budget Committee and the Congress in its annual task. I urge this Committee to report favorably this legislation.

# # #

Senator TRIBLE. Senator Gorton, thank you for your presentation this morning. You speak not only as a member of this Banking Committee, but as a member of the Senate Budget Committee, as well, and therefore, lend a special perspective to our hearing today. I fully agree with your statement, that to be truly effective, the budget process must report the full nature of its activities. That, of course, is our objective here today, to simply bring this information together, so that we, in turn, can make intelligent decisions on behalf of the American people. Senator Proxmire.

Senator PROXMIRE. Senator Gorton, as you know, I agree with you wholeheartedly on this. The one part of your presentation that disturbs me, though, is your thought that we might exclude the REA. Senator Domenici has the same thought. He says: "I would prefer Congress address this as a separate issue to amend the REA Act rather than change the FFB Act."

I think that's a formula for keeping REA off-budget. I think the world of the Rural Electrification Administration. All of us recognize that if it were not for the REA, we wouldn't have made anything like the progress we did in bringing our agriculture into the electricity age and making it as productive as it has been. It was a magnificent job.

On the other hand, I can't, for the life of me, see how we can make an exception for any operation. I'm afraid if we go through the Agriculture Committee, which is what we would have to do here they were the ones who kept REA out of the budget-it means we're never going to include it. I realize that keeping REA in the bill makes it hard for this legislation to get through but I think you have to face that tough problem and insist that there be no exceptions. If you make an exception for REA, it seems to me it's going to be very hard to have a consistent, comprehensive bill. Senator GORTON. Senator, from a theoretical point of view, it's not only difficult to disagree with you, it's, for all practical purposes, impossible. You, however, have been a member of this body far longer than the chairman and I have, and you have held these views. You have expounded those views eloquently during your entire time in the Senate. Because this bill is very likely to be referred into the Budget Committee, in addition to this committee, it seems to me as it did to the chairman of the Budget Committee, wiser to recognize the reality, the reality that it was unlikely that the bill could be reported or passed while it dealt with this subject, and our view was that it was better to take the single entity which falls into the general category with which this bills deals, which has created the most controversy in the Budget Committee itself, and separate it out for consideration in a different bill, simply because we are quite serious, as I know you are, about the necessity for the kind of improvements which are represented by S. 1679 or by the bill which you and I introduced. Because it was our feeling that the chances of success were so much greater handling it in this fashion that it would be in a way which, from a conceptual standpoint is almost certainly preferable.

Senator PROXMIRE. Senator Gorton, that reminds me of Alexander Pope's observation in "Rape of the Lock," when he said, "He would have ravished her, which but for a timely compliance, she prevented."

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It seems to me, in this case, it might be wise for us to consider two approaches. I think you are undoubtedly right from a realistic standpoint as to the actions the Budget Committee might take. Supposing the Banking Committee referred the bill, after acting on it, to the Budget Committee, which I understand we are going to do, and the Budget Committee had their own amendment, so that then the Senate could decide on the floor with a vote to support the position that you think is realistic, the position that I think is more consistent.

Senator GORTON. That's a little harder play to call, but it is certainly not out of the realm of reason by any manner.

Senator PROXMIRE. Thank you, sir.

Senator TRIBLE. Senator Hecht.

Senator HECHT. I have no questions.

Senator TRIBLE. Senator Gorton, we thank you very much for being here this morning and for your presentation and your active support of this measure. Why don't you come up and join us now as a member of the committee?

Senator GORTON. Thank you, Mr. Chairman.

Senator TRIBLE. We are expecting this morning, Senator Domenici to testify on behalf of this measure. He is not yet here, so let's go on then to Mr. Joseph Wright, Deputy Director of the Office of Management and Budget.

Welcome, Mr. Wright. Glad to have you with us this morning.

JOSEPH WRIGHT, DEPUTY DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET

Mr. WRIGHT. Thank you, Mr. Chairman. I have a prepared testimony, which I will submit for the record, and very briefly summarize, if I may.

Senator TRIBLE. Your full testimony will be made a part of the record. We invite you to make whatever remarks you deem appropriate.

Mr. WRIGHT. Thank you. In general, Mr. Chairman, the administration is in favor of S. 1679, and would very definitely like to work with you, the staff and the committee on some technical amendments that we think would be appropriate in order to achieve the goals that I think both you and we would like to see in this bill. We feel that it's time that all transactions of the FFB be reflected in the unified Federal budget, that outlays are charged to agencies that are using the FFB, and that the outlays not exceed the budget authority provided to those agencies.

And generally, we agree with the statement that you made, Mr. Chairman, I believe, when you introduced the bill on July 26. You stated that the legislation first would close significant budget accounting loopholes, and second would make the unified Federal budget a much more accurate reflection of the fiscal operations of the Federal Government. Further, the bill would eliminate the present understatement of Federal spending, and would provide a more precise measurement of the impact of Federal borrowing on the Nation's credit markets. It would charge Federal agencies for outlays for which they are responsible, by insuring that the loan programs that involve Federal outlays and repayments would

appear in the budget documents. This would strengthen the congressional control of all direct Federal loans.

A major priority, as you know, Mr. Chairman, of this administration has been greater control of Federal credit activity. As you can see on page 4 of my testimony, where I present a table of net Federal credit activity and total funds advanced and raised, this entire area of activity has been growing rapidly.

I might direct your attention down to the line that's called "Advanced under Federal auspices." This is lending which went up from $27 billion in 1975 to $87.7 billion in 1982, and then is projected to jump dramatically by the end of this fiscal year to $131 billion. That means that we're running on participation ratio from lending that was as low as 9.3 percent in 1976, and ranged in the 10-, 15-percent area until 1978 to almost double that, in the 20- to 21-percent range in 1982.

"Federal borrowing from the public," which is the next line down, was $135 billion in 1982 and is projected to rise to $216 billion in 1983 in these estimates. The guaranteed borrowing went up more than 21⁄2 times, from $20.9 billion in 1982 to almost $56 billion in 1983; and the Government-sponsored enterprise borrowing went from $32.8 billion in 1982 to $53.5 billion in 1983. In other words, Mr. Chairman, Federal and federally assisted borrowing went up from $200 billion in 1982 to $325 billion, basically, in one

year.

That means a participation ratio that was as low as 18.9 percent in 1979, is now approaching 50 percent.

Now, the off-budget outlays have been a problem, as you mention in your statement introducing the bill. On my table on page 5, I show that the FFB started in 1974, but in 1975, the first real full year of operation, outlays were in the $6 billion range for 2 years, went up to $21 billion in 1981, then declined to $14 billion in 1982, and $14 billion again in 1983. As you know, FFB outlays comprise most of the off-budget outlays in total.

One of the reasons for the growth of FFB outlays is that they are not subject to the same budgetary review as on-budget outlays. Therefore we think that, over the years, this has made it very easy for agencies to increase their lending outlays.

The assets of the FFB are shown on page 6. I have divided them up into three categories. First is "Agency debt"; at the end of June 1983, it was $28.7 billion.

The two larger categories, "Loan assets purchased from agencies" and "Loans directly made to the public," are the ones that we have serious problems with. Basically they are a way of avoiding outlays' being recorded in the budget. Loan assets purchased from the agencies are at $58.6 billion, and loans made directly to the public are $44.7 billion.

The major users of the FFB are shown on page 7. Farmers Home Administration and REA are the two primary users; between the two of them, outlays are $9.4 billion out of $14.1 billion in 1982.

Mr. Chairman, we believe that to gain budgetary control cash flows must be measured for all uses. And the past use of the FFB is the greatest evasion of the cash flow concept in the unified budget.