As the preceding table shows, FFB outlays comprise most of the off-budget outlays of the Federal Government. The problem of off-budget outlays is thus primarily a problem of the budgetary treatment of programs financed by the FFB. Under our July 1983 budget estimates, we project FFB outlays to decline significantly over the next several years primarily due to reduced program levels by the Farmers Home Administration:

Achieving these reductions in off-budget outlays will be difficult.

One

maior reason is that, as discussed above, the off-budget FFB outlays are not subject to the same budgetary review and control they would be if they were counted in the budget totals and charged to the agencies that are responsible

for them.

The magnitude of off-budget FFB activity can be seen in terms of its asse+
The assets held by the FFB at the end of

holdings as well as its outlays.

As of the end of June 1983, the FFB had financed agency operations amounting to a net total of $132.0 billion. These are the cumulative results, from 1974 to the present, of FFB purchasing agency debt securities, buying agency loan assets, and making agency-guaranteed direct loans to the public. The FFB's purchases of agency debt are properly accounted for now. An agency incurs outlays when it spends the proceeds of its borrowing, not when it

borrows.

However, the $103 billion of loan asset purchases and direct loans made to the public constitute Federal outlays that were not recorded in the budget because the FFB is itself off-budget.

This $103 billion of off-budget outlays did, of course, have to be financed by Treasury borrowing, just as did the budget deficit. It therefore added $103 billion to the debt borrowed from the public and to the amount of debt outstanding that is subject to the statutory limit. Since agency debt is generally not subject to the statutory limit, the replacement of agency debt in the market by Treasury debt also added to the total amount of debt subject to limit. Thus, because of the FFB, these agency issues and guarantees are now properly reflected in the total public debt and we support the objectives of now taking the next step and including these activities in the budget as well. The FFB's financing of various programs is concentrated in a few agencies. As shown below, in 1982 the Farmers Home Administration and the Rural Electrification Administration accounted for more than two thirds of FFB outlays, and the foreign military sales credit program accounted for nearly half of the remainder.

In the past decade, there has been a rapid expansion of Federal credit activity through on- and off-budget direct loans, quaranteed loans, and Government-sponsored enterprise lending. Federally subsidized credit changes the allocation of credit from what would otherwise be provided in credit markets and causes distortions in resource allocation and the loss of economic efficiency. The costs of such activity must be weighed against the public benefits of credit programs. In order to obtain accurate accounting of the costs of Federal credit programs, we need to include all direct lending in the budget. This step is not only more honest in the sense of being more consistent and uniform, but it also permits more accurate scrutiny of Government lending.

Budget Concepts

The Report of the President's Commission on Budget Concepts of 1967 is the foundation for the unified Federal budget. To gain budgetary control over the receipts and spending of the Government, the budget should include all of the Government's receipt and spending transactions. To do this consistently, cash flows must be measured for all uses. The past use of the FFB is the greatest evasion of the cash flow concept of the unified budget.

The key improvement that we could make in our present budget process is, therefore, to attribute the cash outlays of the FFB to the appropriate agencies and programs in the unified budget. The overall budget totals would then measure more accurately the true size of Government outlays and the Government deficit. Attribution of the FFB's outlays to each responsible agency would

improve control over the allocation of credit resources among different uses, agency-by-agency and function-by-function. Alternative programs cannot be

compared with each other unless they are consistently and fully measured. Failure to correct the current treatment of FFB activity will continue the distortions, abuses, and lack of control over Federal lending that have plagued proponents of sound budget management for years.

One way of illustrating the inadequate and arbitrary budget treatment of the existing mixture of on- and off-budget lending is to examine a few large lending programs. The table below shows selected net loan outlays and outstanding direct loans for 1982.