Senator TRIBLE. Senator Domenici, as chairman of the Budget Committee and a distinguished colleague, we are pleased that you're here today. The point that you have made very eloquently is that to be truly effective the budget process must fully and accurately report the activities of the Federal Government, and that is our intention here, to help bring that to pass.

Senator DOMENICI. Senator, I also think, as Senator Proxmire has indicated many times, that the unified budget itself-as contrasted with the budget process-which is the budget that the National Government has followed since Lyndon Johnson's so-called unified budget, is distorted, whether we have a budget process or not, by the agencies' not putting those items in the budget. So regardless of what decisions we're going to make in the budget process here, it certainly would be helpful to have these items in the unified budget. We don't have a credit budget yet, as you know. We experiment with it. A binding credit budget would be much more effective than merely putting FFB financing on-budget, but even if we don't have a credit budget, which requires a change in the budget act itself, it certainly would be helpful to have this spending in the unified budget.

Senator TRIBLE. These two initiatives are not at all mutually exclusive, but rather will complement each other.

Senator DOMENICI. Absolutely.

Senator, if you'd like, there were a number of questions that were asked of us that we did produce the question and answer as far as my answer to questions-your staff submitted a number and we gathered up some. I would ask that they be made a part of the record. I think they explain some of the nuances in terms of guarantee versus direct loans.

Senator TRIBLE. The graph that you prepared and the questions and answers that you have submitted will all be made part of the record.

[The complete statements and documents follow:]

TESTIMONY OF SENATOR PETE V. DOMENICI ON

S. 1679, THE HONEST BUDGETING ACT OF 1983

SEPTEMBER 19, 1983

CHAIRMAN GARN, SENATOR PROXMIRE, AND DISTINGUISHED MEMBERS OF THE

COMMITTEE, I AM PLEASED TO TESTIFY THIS MORNING IN SUPPORT OF S. 1679,

SENATOR TRIBLE'S HONEST BUDGETING ACT OF 1983.

AS YOU KNOW, NEARLY TEN YEARS AGO THE CONGRESS ESTABLISHED THE

FEDERAL FINANCING BANK (OR FFB) IN THE TREASURY DEPARTMENT TO COOR

DINATE FEDERAL AGENCY BORROWING FROM THE PUBLIC. THE IDEA WAS TO

ELIMINATE THE "TRAFFIC JAM" IN THE CREDIT MARKETS CAUSED BY THE

INCREASING NUMBER AND BEWILDERING VARIETY OF AGENCY SECURITIES AND THE

LARGE VOLUME OF TREASURY DEBT.

THE FFB WAS EMPOWERED TO BUY SECURITIES ISSUED BY FEDERAL AGENCIES

SUCH AS THE POSTAL SERVICE AND THE EX-IM BANK AND TO BORROW FROM THE

TREASURY TO FINANCE PURCHASES OF SUCH AGENCY DEBT. THIS PROCEDURE

WAS DESIGNED TO ALLOW ALL FEDERAL BORROWING TO BE FINANCED BY THE

TREASURY, AT LESS COST TO THE TAXPAYERS AND TO PRIVATE BORROWERS.
IN THE LAST DECADE THIS PROCEDURE HAS WORKED WELL, SAVING MONEY

THROUGH LOWER INTEREST RATES ON FEDERAL BORROWING AND THE ELIMINATION

OF NEEDLESS DUPLICATION OF AGENCY FINANCIAL STAFFS.

CONTRARY TO THE ORIGINAL INTENT OF CONGRESS, AS I UNDERSTAND IT,

THE FFB ALSO HAS BECOME AN IMPORTANT SOURCE OF OFF-BUDGET FINANCING

FOR FEDERAL DIRECT LOANS TO PRIVATE BORROWERS MADE BY OR AT THE

REQUEST OF OTHER AGENCIES. THIS UNINTENTIONAL USE OF THE FFB FOR

OFF-BUDGET FINANCING DISTORTS THE BUDGETARY PROCESS.

I SUPPORT S. 1679.

THAT IS WHY

THE FFB PROVIDES OFF-BUDGET FINANCING OF DIRECT LOANS IN TWO

WAYS:

• FIRST, BY PURCHASING LOAN ASSETS (CALLED CERTIFICATES OF

BENEFICIAL OWNERSHIP OR CBOS) FROM LENDING AGENCIES. THE

FARMERS HOME ADMINISTRATION AND THE RURAL ELECTRIFICATION
ADMINISTRATION SELL NEARLY ALL THE CBO'S PURCHASED BY THE FFB.

• SECOND, BY MAKING LOANS TO PRIVATE BORROWERS WHOSE CREDIT

IS BACKED BY OTHER AGENCIES' GUARANTEES OF THE LOANS. THE

LARGEST FFB GUARANTEED LOAN FINANCING IS DONE FOR THE DEFENSE

DEPARTMENT'S FOREIGN MILITARY SALES PROGRAM AND FOR REA.

THESE TWO ASPECTS OF THE FFB'S ACTIVITY DISTORT THE BUDGETARY

PROCESS BECAUSE FEDERAL LENDING FINANCED BY THE FFE DOES NOT APPEAR

IN THE UNIFIED BUDGET OR IN THE SPENDING TOTALS IN CONGRESSIONAL

BUDGET RESOLUTIONS. THE OFF-BUDGET STATUS OF LENDING FINANCED BY

THE FFB UNDERMINES THE INTEGRITY OF THE BUDGET AND THE CONGRESS'

ABILITY TO MAKE INFORMED BUDGET CHOICES.

SALES OF CBOS TO THE FFB BY ON-BUDGET LENDING AGENCIES, NOTABLY

FARMERS HOME, OFFSET THE AGENCIES' LOAN OUTLAYS, TRANSFERING THAT

SPENDING OFF-BUDGET TO THE FFB. THIS REDUCES ON-BUDGET OUTLAYS

AND THE DEFICIT, LEAVING THE PERCEPTION OF LOWER SPENDING, WHILE

IN FACT THE REALITY IS THAT TOTAL GOVERNMENT OUTLAYS REMAIN THE

SAME.

(FFB PURCHASES OF CBOS FROM REA TRANSFER LOAN OUTLAYS FROM

REA TO THE FFE IN THE SAME WAY, BUT SINCE REA IS ALREADY OFF-BUDGET

BY STATUTE, NO CHANGE IN ON-BUDGET SPENDING OR THE DEFICIT OCCURS).

WHEN THE FFB MAKES LOANS GUARANTEED BY OTHER AGENCIES, FEDERAL

OUTLAYS OCCUR.

HOWEVER, THE OUTLAYS ARE CHARGED TO THE FFB, NOT

THE AGENCY REQUESTING THE LOAN, WHICH ONLY RECORDS: A LOAN GUAR

ANTEE.

WHEN THE GUARANTEEING AGENCY IS ON-BUDGET, THIS PRODUCES

THE PERCEPTION THAT THE GOVERNMENT HAS PROVIDED ASSISTANCE WITH

A LOAN GUARANTEE, WHILE THE REALITY IS THAT THE GUARANTEE HAS BEEN

CONVERTED INTO AN OFF-BUDGET DIRECT LOAN.

(THE FFB FINANCES LOANS GUARANTEED BY REA IN THE SAME WAY.

LOANS WOULD BE OFF-BUDGET IF MADE DIRECTLY BY REA).

BOTH OF THESE FORMS OF FFB FINANCING OF FEDERAL DIRECT LOANS

SUCH

FOR OTHER AGENCIES UNDERMINE THE INTEGRITY OF THE BUDGET BY UNDER

STATING FEDERAL SPENDING AND THE DEFICIT. THE COST OF FEDERAL CREDIT

ASSISTANCE FINANCED BY THE FFB IS "HIDDEN" OFF-BUDGET, RATHER THAN

DISPLAYED IN THE BUDGETS OF THE AGENCIES UTILIZING THAT FINANCING.

OFF-BUDGET FEDERAL SPENDING IS, BY DEFINITION, OUTSIDE THE CONGRESSIONAL BUDGET PROCESS. WHEN THE CONGRESS CONSIDERS THE

APPROPRIATE LEVELS OF FEDERAL SPENDING AND THE DEFICIT, THE OUTLAYS

OF THE FFB AND OTHER OFF-BUDGET AGENCIES ARE NOT COUNTED, AND THE

TRUE SIZE OF GOVERNMENT ACTIVITY IS NOT CONSIDERED. WHEN THE CONGRESS

MAKES DECISIONS ABOUT THE DISTRIBUTION OF FEDERAL SPENDING AMONG

THE DIFFERENT AREAS OF THE ECONOMY, OUTLAYS OF THE FFB AND OTHER

OFF-BUDGET AGENCIES THAT SUPPORT AGRICULTURE, HOUSING, NATIONAL

DEFENSE AND OTHER AREAS ARE NOT CONSIDERED, AND THE TRUE LEVEL OF