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UNDERSTATEMENT OF THE BUDGET DEFICIT, FISCAL
SOURCES: Fiscal years 1974-1982 data, Budget of the United States Government 1976-1982; fiscal year 1983 data, Congressional Budget Office, The Economic and Budget Outlook: An Update (August 1983).
a. Includes outlays of the U.S. Postal Service, Rural Telephone Bank, Regional Rail program, and the Strategic Petroleum Reserve.
There are several alternative approaches to correcting the budget presentation of the FFB. 2/ The budgetary problems raised by the FFB are
See Congressional Budget Office, The Federal Financing Bank and the
attributable to the budgetary treatment of the transactions it finances: purchases of loan assets and the making of direct loans to guaranteed borrowers. The problems can be solved by changing the budgetary treatment either of those transactions or of the FFB itself.
Simply putting the FFB on budget would make the unified deficit a better indicator of federal financing needs. But it would still leave the activity levels in the lending and guaranteeing agencies understated. Thus, unless the budgetary treatment of FFB loan asset purchases and direct loans is addressed, distortion in the budget will persist.
Honest Budgeting Act of 1983
Senator Trible has introduced legislation to correct the problems presented by the budgetary treatment of the FFB by amending the Federal Financing Bank Act. The Honest Budgeting Act of 1983 (S. 1679) would require the transactions of the FFB to be reflected in the unified budget. The federal budget would, therefore, more accurately reflect the fiscal operations of the federal government. The bill would require the transactions of the FFB to be recorded in the originating agencies' budgets, thereby ensuring that all agency transactions would be taken into consideration as budget resources were allocated. Budget authority would have to be appropriated for any agency-guaranteed loan that was financed by the FFB.
In order to ensure that agencies could not bypass the FFB and return to the securities markets, the Honest Budgeting Act would require that all activities financed through the bank prior to the effective date would remain in the bank thereafter. Thus, when the new accounting provisions took effect, these activities would be fully and correctly recorded in the budget.
We understand that the intent of the bill is to freeze current practice with respect to programs now financed through the FFB and to correct their budget treatment. Thus, all guarantees currently financed as direct loans by the FFB would continue to be financed by the FFB but would be correctly recorded as direct loans. Additional guarantee programs could be financed by the FFB if they were appropriately recorded as direct loans of the originating agencies. Assuming this interpretation is correct, I believe that this is the right approach. As noted previously, I would prefer to see most guaranteed loans have significant private sector involvement, and as a result, they would not qualify for FFB financing.
Had the Honest Budgeting Act been in place for fiscal year 1982, total unified budget outlays would have increased by $14 billion, or 2 percent. Federal borrowing requirements would have been unchanged. Two budget functions would have been greatly increased: the energy function by 111 percent, and the commerce and housing function by 74 percent (see Table 4).
The budgets of individual agencies would have been increased even more dramatically. Farmers Home Administration outlays would have increased from $3 billion to $8 billion. Outlays for the foreign military sales program would have increased by 460 percent (see Table 5).
TABLE 4. IMPACT OF SHIFTING FFB OUTLAYS ON
Budget of the United States Government, Fiscal Year 1984,
To the individual agencies and borrowers that have benefited from the present budgetary treatment of the FFB, the Honest Budgeting Act no doubt presents some concerns. The budget authority and outlays they have previously shifted to the FFB would henceforth be shown in their budgets.
IMPACT OF SHIFTING FFB OUTLAYS ON BUDGET, BY AGENCY, AND PROGRAM, FISCAL YEAR 1982 (In billions of dollars)
SOURCE: Budget of the United States Government, Fiscal Year 1984,
Budget Accounts Listing.
But the effects should not be overstated.
First, the standard budget
convention is to adjust all historical data to reflect subsequent changes in budget structure. There would be no jump in year-to-year agency budget authority and outlays upon implementation of the Honest Budgeting Act. Second, the program levels of almost all of the large credit programs financed through the FFB are already controlled through the appropriations process. As part of the credit budget, the Appropriations Committees have