On pages 9 and 10, I basically show a table illustrating the different budgetary treatment for programs such as the CCC fund, the Agricultural credit insurance fund, Eximbank and several others. What I am trying to show here is just a strong dichotomy in terms of how these programs are handled between on-budget and off-budget treatment. You see on page 10 that of those that I have listed in terms of net loan outlays, 61 percent are off-budget; and of the direct loans outstanding for those particular categories, 69 percent are off-budget. Mr. Chairman, there is no defensible reason for mixing the on- and off-budget lending transactions that have been illustrated in that table.

I would emphasize, however, that placing the FFB outlays on budget does not solve the problem of credit control, and, if anything, we believe the credit budget must be strengthened. It's the only mechanism that we have of monitoring all Federal credit activity. This bill is a very good start, and would be an important part of strengthening the unified budget's treatment of several lending programs.

For all of the above reasons, we support the basic provisions of S. 1679. There are a few essential amendments we think are important and we want to work with you on them. In section 2 of the bill, for example, we're concerned-as I believe, the Treasury isthat an internal Federal transaction might be double counted.

In section 3, we would like to strengthen the securities "of a type" language that refers to securities you have for existing, new, and revised programs. Our mutual goal is to make sure that all proper securities come within the provisions of S. 1679.

Mr. Chairman, I would be more than happy to answer any questions you may have.

[The complete statement follows:]

FOR RELEASE ON DELIVERY
EXPECTED AT 10:30 A.M.

MONDAY, SEPTEMBER 19, 1983

STATEMENT OF JOSEPH R. WRIGHT
DEPUTY DIRECTOR

OF THE OFFICE OF MANAGEMENT AND BUDGET
BEFORE THE SENATE COMMITTEE ON BANKING,
HOUSING, AND URBAN AFFAIRS

Mr. Chairman and Members of the Committee:

I am here today to present the Administration's view of S. 1679, a bill that would require the transactions of programs financed by the Federal Financing Bank to be reflected in the Federal budget.

The Honest Budgeting Act of 1983

The "Honest Budgeting Act of 1983" requires that all transactions of the Federal Financing Bank (FFB) be reflected in the unified Federal budget, instead of being excluded as they are under current law. The bill requires that outlays incurred on behalf of Federal agencies will be charged to these agencies and shall not exceed amounts of budget authority provided to these agencies. It further provides that amounts disbursed by the Bank shall be treated as a means of financing the responsible agency. Finally, agencies would not be permitted to borrow directly from the private credit markets by issuing obligations of the same type as those financed through the FFB between October 1, 1981, and September 30, 1984, without first offering those obligations to the FFB.

This bill would greatly improve the review and control of Federal outlays by both the Congress and the Executive branch by including the outlays of FFBfinanced programs in the budget totals and by charging those outlays to the responsible agency. It would help prevent agencies from avoiding the budgetary control process by financing their programs through fully guaranteed obligations issued in the private credit markets. Thus, it would improve budgetary control while maintaining the principle of efficient debt management that was the original intent in setting up the Federal Financing Bank.

The Administration supports this bill, with some important reservations involving the types of obligations that should be covered by this bill. We believe these issues can be resolved and we expect to work closely with Congress in resolving them.

Federal Credit Activity

A major priority of this Administration has been greater control over Federal credit activity. In 1982, Federal and federally assisted lending was 21% of all funds advanced by nonfinancial sectors in the U.S. credit markets. This is well above the range of 10 to 15% that had prevailed for many years until 1978. Between 1978 and 1982, total direct loans and guaranteed loans outstanding increased by 99%, from $347 billion to $689 billion.

In 1982, Federal and federally assisted borrowing was $200 billion, or 49% of all funds raised by nonfinancial sectors in U.S. credit markets. This is the highest participation rate since World War II and is a large increase since

the early 1970's. From 1970 to 1974, for example, Federal and federally assisted borrowing averaged $32 billion per year, and was 21% of all funds raised. The participation rate has thus more than doubled since that time. The following table shows the growth in Federal and federally assisted borrowing and lending since 1975.

The growth of agency programs financed by the FFB was a major contributor to the increase in Federal borrowing. In 1982, the FFB outlays amounted to 10.4% of Federal borrowing from the public. It is crucial that this large and largely hidden, use of Federal credit be controlled effectively in order to encourage economic recovery and strong future growth.

One means of controlling this activity is the Federal credit budget, which measures the total amount of new credit activity. The Administration is committed to improving and strengthening the credit budget. An important complementary means towards the goal of greater control over credit, however, would be to attribute outlays to the individual programs that are supported by FFB lending on their behalf. This is achieved by S. 1679. This would lead to greater control over all outlays, as well as credit-related outlays.

Size and Growth of FFB Spending

The problem of control posed by the present budgetary treatment of programs financed by the FFB applies to a large and rapidly growing volume of Federal activity. As shown in the following table, FFB outlays more than doubled from $6.4 billion in 1975, the first full year of operation, to $14.1 billion in 1982.

NET FEDERAL CREDIT ACTIVITY AND TOTAL FUNDS ADVANCED AND RAISED