Text: S.584 — 101st Congress (1989-1990)All Information (Except Text)

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S 584 IS
101st CONGRESS
1st Session
S. 584
To ensure the proper budgetary treatment of credit transactions of Federal
agencies and to improve management of Federal credit programs.
IN THE SENATE OF THE UNITED STATES
March 15 (legislative day, JANUARY 3), 1989
Mr. HEINZ introduced the following bill; which was read twice and referred
jointly pursuant to the order of August 4, 1977 to the Committees on the
Budget and Governmental Affairs with instructions that if one Committee
reports, the other Committee has thirty days of continuous session to report
or be discharged
A BILL
To ensure the proper budgetary treatment of credit transactions of Federal
agencies and to improve management of Federal credit programs.
  Be it enacted by the Senate and House of Representatives of the United
  States of America in Congress assembled,
SECTION 1. SHORT TITLE.
  This Act may be cited as the `Federal Credit Reform Act of 1989'.
SEC. 2. PURPOSES.
  The purposes of this Act are to--
  (a) measure accurately the benefits of Federal credit programs;
  (b) place the cost of credit programs on a budgetary basis equivalent to
  other Federal spending;
  (c) encourage the delivery of benefits in the form most appropriate to
  the needs of beneficiaries;
  (d) improve the allocation of resources among credit programs and between
  credit and other Federal spending;
  (e) establish in the Department of the Treasury two Federal credit revolving
  funds; and
  (f) modify the legislative and executive budgetary processes to carry out
  these purposes.
SEC. 3. DEFINITIONS.
  For purposes of this Act--
  (a) `Federal agency' means an executive department, an independent Federal
  establishment, or a corporation or other entity established by the Congress
  that is owned in whole or in part by the United States. The term does
  not include the Board of Governors of the Federal Reserve System or any
  `government-sponsored enterprise';
  (b) `direct loan' means a disbursement of funds by the Federal Government
  to a non-Federal borrower under a contract that requires the repayment of
  such funds with or without interest. This term includes the purchase of,
  or participation in, a loan made by another lender as well as disbursements
  on behalf of a Federal agency by the Direct Loan Fund as required under
  section 12(c) of this Act. This term does not include the acquisition of
  a federally guaranteed loan in satisfaction of default claims. For the
  purpose of carrying out the provisions of this Act, direct loans may be
  grouped and treated as a single loan as agreed to by the Secretary and
  the head of the affected agency;
  (c) `direct loan obligation' means a binding agreement entered into by a
  Federal agency for the Government under which a Federal agency agrees to
  make a direct loan once specified conditions are fulfilled by the borrower;
  (d) `loan guarantee' means any guarantee, insurance, or other pledge with
  respect to the payment of all or a part of the principal or interest on any
  debt obligation of a non-Federal borrower to a non-Federal lender in the
  event the borrower defaults. This term also shall include any agreement
  or contract made by an agency, the primary purpose or result of which,
  as determined by the Secretary, is to make private credit available, or
  available on more favorable terms than in the absence of the agreement
  or contract, to a non-Federal entity by indirectly or directly assuming
  the risk involved. This term does not include the insurance of deposits,
  shares, or other withdrawable accounts in financial institutions. For the
  purposes of carrying out the provisions of this Act, loan guarantees may
  be grouped and treated as a single loan as agreed to by the Secretary and
  the head of the affected agency;
  (e) `loan guarantee commitment' means a binding agreement entered into by
  a Federal agency for the Government under which a Federal agency agrees to
  guarantee a loan once specified conditions are fulfilled by the borrower,
  the lender, and any other parties to the guarantee agreement;
  (f) `subsidy' means the measure of financial assistance provided to the
  borrower of Federal credit as determined by estimating the net present value,
  based on a comparable market discount rate, of the difference in cost to the
  borrower between the direct loan or guaranteed loan and alternative private
  financing potentially available to the same or a similar borrower for the
  same or a similar purpose. For loan guarantees with an interest payment by
  the Government, the subsidy calculation shall include the present value,
  based on a comparable market discount rate, of the difference between
  the interest paid by the borrower and the interest that would be charged
  by a private lender for such loan. To the extent that fees are charged
  to beneficiaries, such fees will be taken into account in estimating
  the subsidies. An increase in the subsidy associated with a direct or
  guaranteed loan that results from any modification of the terms of such
  direct or guaranteed loan terms shall be subject to the requirements of
  this Act in the same manner as the original estimate of the subsidy.
  Estimates made by the Secretary or by agencies under rules prescribed by
  the Secretary shall constitute the appropriate computation of the subsidy.
  In the event that newly made direct loans are sold without recourse, the
  difference between the face amount of the loans and the gross proceeds
  from their sale shall be taken into consideration in estimating the
  subsidy. Similarly, in the event that any newly made guaranteed loans are
  reinsured, these estimates of the subsidy may take into consideration the
  cost of reinsurance, net of fees and premiums;
  (g) `Direct Loan Fund' means the Federal Credit Direct Loan Fund, as
  established by section 6(a) of this Act;
  (h) `Guaranteed Loan Fund' means the Federal Credit Guaranteed Loan Fund,
  as established by section 6(c) of this Act; and
  (i) `Secretary' means the Secretary of the Treasury.
SEC. 4. DIRECT LOAN PROGRAMS.
  (a) Beginning October 1, 1989, an obligation by any Federal agency to
  make a direct loan to non-Federal borrowers shall be an obligation of the
  Direct Loan Fund and shall be executed in accordance with the same terms
  and conditions as would otherwise apply to the obligations of that agency
  but for the provisions of this Act.
  (b) For each fiscal year beginning with fiscal year 1990, the Federal agency
  shall include in its budget proposal (1) the planned level of new direct
  loan obligations, and (2) the estimated amount of the subsidy associated
  with the proposed level of direct loan obligations.
  (c) Beginning October 1, 1989, a Federal agency shall not obligate the
  Direct Loan Fund to make a direct loan obligation unless funds have been
  appropriated or are available on a permanent indefinite basis to the
  Federal agency for the subsidy or a limitation has been enacted in an
  annual appropriations Act on the use of funds otherwise available to the
  Federal agency for the subsidy.
  (d) At the time a direct loan obligation is incurred, the Federal agency
  shall obtain an estimate of the subsidy of the loan from the Secretary or,
  at the discretion of the Secretary, shall make such an estimate based upon
  guidelines established by the Secretary. For the purposes of section 1501
  of title 31, United States Code, (1) the amount of such estimate shall
  constitute a direct obligation of the Federal agency and a reimbursable
  obligation of the Direct Loan Fund; and (2) the difference between such
  estimate and the face value of the loan shall constitute a direct obligation
  of the Direct Loan Fund.
  (e) The subsidy associated with the direct loan as determined in subsection
  (d) shall be paid by the Federal agency to the Direct Loan Fund as the
  loan is disbursed by such Fund, unless the Secretary determines otherwise.
  (f) Nothing in this Act shall be construed as amending the authority of a
  Federal agency to administer, or to determine the terms and conditions of,
  the eligibility for, or the amount of assistance provided by direct loans
  made by the Federal Government.
SEC. 5. LOAN GUARANTEE PROGRAMS.
  (a) Beginning October 1, 1989, a commitment by any Federal Agency to
  guarantee a loan shall be a commitment of the Guaranteed Loan Fund and
  shall be executed in accordance with the same terms and conditions as would
  otherwise apply to the commitments of that agency but for the provisions
  of this Act.
  (b) For each fiscal year beginning with fiscal year 1990, a Federal
  agency authorized to make loan guarantee commitments shall include in its
  budget proposal (1) the level of new loan guarantee commitments and (2)
  the estimated amount of the subsidy associated with the proposed level of
  loan guarantee commitments.
  (c) Beginning October 1, 1989, a Federal agency shall not commit the
  Guaranteed Loan Fund to guarantee a loan unless funds have been appropriated,
  or are available on a permanent indefinite basis, to the Federal agency for
  the subsidy or a limitation has been enacted in an annual appropriations
  Act on the use of funds otherwise available to the Federal agency for
  the subsidy.
  (d) At the time a loan guarantee commitment is made, the Federal agency
  shall obtain an estimate of the subsidy of the loan guarantee from the
  Secretary or, at the discretion of the Secretary, shall make an estimate
  of the subsidy based upon guidelines provided by the Secretary. The amount
  of such estimate shall constitute an obligation of the Federal agency for
  the purposes of section 1501 of the title 31, United States Code.
  (e) The subsidy associated with the loan guarantee determined in subsection
  (d) shall be paid by the Federal agency to the Guaranteed Loan Fund at
  the time the underlying loan agreement is executed, unless the Secretary
  determines otherwise.
  (f) Nothing in this Act shall be construed as amending the authority of a
  Federal agency to administer, or to determine the terms and conditions of,
  the eligibility for, or the amount of assistance provided by loan guarantees
  made by the Federal Government.
SEC. 6. ESTABLISHMENT OF FEDERAL CREDIT REVOLVING FUNDS WITHIN THE DEPARTMENT
OF THE TREASURY.
  (a) There is hereby established within the Department of the Treasury a
  Federal Credit Direct Loan Fund.
  (b) Beginning on October 1, 1989, the Direct Loan Fund will serve as a
  central revolving fund and financing mechanism for all new Federal direct
  loans in accordance with the terms and conditions of this Act. Amounts
  received pursuant to subsection 7(a)(4) of this Act shall be credited to
  the Fund and shall be available for the purposes of subsections 7(a)(5),
  7(c)(4), and 7(c)(5) of this Act.
  (c) There is hereby established within the Department of the Treasury a
  Federal Credit Guaranteed Loan Fund.
  (d) Beginning on October 1, 1989, the Guaranteed Loan Fund will serve as
  a central revolving fund and financing mechanism for all new Federal loan
  guarantees in accordance with the terms and conditions of this Act. Amounts
  received pursuant to subsection 7(b)(3) of this Act shall be credited to
  the Fund and shall be available for the purposes of the subsections 7(b)(4),
  7(b)(5), 7(c)(3), and 7(c)(4) of this Act.
SEC. 7. AUTHORITY OF THE SECRETARY TO MANAGE THE FUNDS.
  (a) With regard to direct loans obligated on or after October 1, 1989,
  the Secretary shall--
  (1) estimate the subsidy, or require estimates to be made by the Federal
  agencies, for each new direct loan or for groups of similar new direct
  loans taking into account the risk and other costs of the program;
  (2) furnish the appropriate Federal agency with the subsidy estimates or
  with instructions for making subsidy estimates in a timely fashion;
  (3) if he deems necessary for the purpose of validating the subsidy estimate,
  and after consultation with the agency, direct the Federal agencies to
  sell newly made loans without recourse;
  (4) receive into the Direct Loan Fund the following collections--
  (A) direct loan subsidy payments from the Federal agencies;
  (B) payments of principal, interest, fees, and other moneys received by the
  Federal Government for direct loans obligated on or after October 1, 1989;
  (C) proceeds from the sale of direct loans obligated on or after October
  1, 1989, and the proceeds of the sale of any collateral received as the
  result of defaults of such loans; and
  (5) disburse direct loans to the borrowers.
  (b) With regard to guaranteed loan commitments made on or after October 1,
  1989, the Secretary shall--
  (1) estimate the subsidy, or require estimates to be made by the Federal
  agencies, for each loan guarantee or for groups of similar loan guarantees,
  taking into account the risk and other costs of the program;
  (2) furnish the appropriate Federal agency with the subsidy estimates or
  with instructions for making subsidy estimates in a timely fashion;
  (3) receive into the Guaranteed Loan Fund the following collections--
  (A) loan guarantee subsidy payments from the Federal agencies;
  (B) fees and other moneys due the Federal Government for loan guarantees
  for which commitments were made on or after October 1, 1989;
  (C) proceeds from the sale of any collateral received as the result of
  defaults on such loan guarantees and repayments of principal and interest
  on loans acquired as a result of defaults;
  (4) in accordance with agency loan agreements, make claim payments for
  those guaranteed loans in default;
  (5) maintain reserves to cover loan guarantee defaults for these loan
  guarantees; and
  (6) credit interest to the Fund periodically on the average amount of the
  undisbursed cash balances of the Fund during the preceding month at a rate
  determined by the Secretary, taking into consideration the average time
  such funds are anticipated to be held in reserve and the current average
  market yields on outstanding marketable obligations of the United States
  of comparable maturities.
  (c) The Secretary shall, with regard to each Fund--
  (1) ensure full accountability for the credit activity of each Federal
  agency by identifying separately the credit activity of each credit program
  of such agency on the Fund's books;
  (2) ensure that the funds associated with each credit program are not
  comingled and, subject to subsection 7(c)(6), are available for the purposes
  of operating that program;
  (3) require timely uniform reporting from Federal agencies on loan
  performance, borrower characteristics, and such other information as the
  Secretary may require to make subsidy estimates;
  (4) monitor due diligence debt collection efforts, assess Federal agency
  performance, and otherwise study and undertake improvements in Federal
  agency credit management;
  (5) borrow, as necessary to finance the transactions of the Fund as
  authorized under subsection 10(a), and repay such borrowing with interest,
  using collections credited to the Fund or funds appropriated pursuant to
  subsection 10(b); and
  (6) transfer from time to time to the general fund of the Treasury such
  balances of funds associated with each credit program as the Secretary
  determines are in excess of the needs of that program.
  (d) The Secretary is authorized to appoint such officers, attorneys,
  employees, agents, consultants, and financial advisors as may be required, to
  define their duties, to fix and to pay such compensation for their services
  as may be determined, subject to the civil service and classification laws,
  to require bonds for them and pay the premium thereof, to carry out the
  functions of the Federal credit revolving funds.
  (e) The Secretary is authorized to issue such regulations as he deems
  appropriate to carry out his functions under this Act.
SEC. 8. AGENCY RESPONSIBILITIES.
  The head of each Federal agency authorized to make or guarantee loans
  covered by this Act shall--
  (a) provide the Secretary in a timely fashion with information about
  the Federal agency's direct loan or loan guarantee programs sufficient
  to enable the Secretary to calculate the estimated subsidy, or shall,
  as required by the Secretary, estimate the subsidy in accordance with the
  Secretary's guidance;
  (b) request annual appropriations, or limitations on funds otherwise
  available, for the amount of the subsidies attributable to that Federal
  agency's direct loan or loan guarantee program in each fiscal year;
  (c) carry out the Federal agency's direct loan or loan guarantee programs
  within the lower of (1) applicable appropriations Act limitations on direct
  loan obligations or loan guarantee commitments, or (2) annual appropriations
  or funds otherwise available to cover subsidy costs for the program;
  (d) take such action as may be necessary to ensure that loan contracts
  executed by such agency make explicit the procedural and substantive rights
  of borrowers and require any purchaser of such loan to afford the borrower
  those procedural and substantive rights;
  (e) except as provided in subsection (f), collect and credit to the Direct
  Loan Fund all sums received with respect to any direct loan that is an
  obligation of that Fund and collect and credit to the Guaranteed Loan Fund
  all sums received with respect to any guaranteed loan that is a commitment
  of that Fund; and
  (f) to the extent authorized prior to the enactment of this Act and subject
  to such limitations as provided in annual appropriations Acts, retain and
  use sums collected, for the purpose of paying the salaries and expenses
  of the agency in administering direct loan or loan guarantee programs.
SEC. 9. BUDGETARY TREATMENT.
  (a) For the purposes of chapter 11, title 31, United States Code, as
  amended, concerning the executive budget process, and of titles III and IV
  of the Congressional Budget Act of 1974, as amended, in the case of any
  (1) direct loan obligation, or (2) loan guarantee commitment, made by a
  Federal agency beginning October 1, 1989, the subsidy shall be treated as
  an obligation of such agency.
  (b) For the purposes of chapter 11, title 31, United States Code, as amended,
  concerning the executive budget process, and of titles III and IV of the
  Congressional Budget Act of 1974, as amended, obligations for Federal direct
  loans or for honoring loan guarantees shall be treated as obligations of
  the Direct Loan Fund or the Guaranteed Loan Fund, as appropriate.
SEC. 10. AUTHORIZATION OF APPROPRIATIONS.
  (a) The Secretary is authorized, at his discretion, to use the proceeds of
  the sale of any securities hereafter issued under the Second Liberty Bond
  Act (1) to finance direct loans from the Direct Loan Fund to the extent
  not covered by the moneys received under section 7(a)(4) of this Act; and
  (2) to pay claims, resulting from federally guaranteed loans, in excess
  of the reserves of the Guaranteed Loan Fund. Interest shall be paid from
  the borrowing Fund to the Treasury on any borrowing to meet such purposes
  at rates determined under section 7(b)(6) of this Act.
  (b) In the event that either Fund sustains losses on its operations,
  there are authorized to be appropriated to such Fund such sums as may be
  necessary for the purposes of liquidating debt.
  (c) There are authorized to be appropriated to each Federal agency
  otherwise authorized to make obligations for direct loans, such sums
  as may be necessary for the subsidies associated with proposed direct
  loan obligations, including current indefinite budget authority for the
  subsidies associated with entitlements.
  (d) There are authorized to be appropriated to each Federal agency otherwise
  authorized to make guaranteed loan commitments, such sums as may be necessary
  for the subsidies associated with proposed loan guarantee commitments,
  including current indefinite budget authority for the subsidies associated
  with entitlements.
  (e) There are authorized to be appropriated to the Secretary such sums as
  may be necessary for the salaries and expenses incurred to carry out his
  responsibilities under the Act.
SEC. 11. TREATMENT OF DEPOSIT INSURANCE AGENCIES.
  (a) Notwithstanding any other provision of this Act, the credit activities
  directly related to the insurance operation of the Federal Deposit Insurance
  Corporation, the Federal Savings and Loan Insurance Corporation, the National
  Credit Union Administration, the Pension Benefit Guaranty Corporation,
  and the Securities and Exchange Commission shall be treated as follows:
  (1) Obligations to make direct loans to the public or to assume loan assets
  shall remain obligations of the agencies.
  (2) Commitments to guarantee a loan shall remain commitments of the agencies.
  (3) For each fiscal year beginning with fiscal year 1990, such agency shall
  include in its budget proposal the estimated subsidy cost associated with
  proposed direct loan obligations, including acquisitions of loan assets.
  (4) For each fiscal year beginning with fiscal year 1990, such agency shall
  include in its budget proposal the estimated subsidy cost associated with
  proposed loan guarantee commitments. The estimated subsidy costs associated
  with proposed loan guarantee commitments shall constitute an obligation
  of the agency.
  (5) No appropriations or limitations on the use of funds otherwise available
  shall be required for subsidies.
  (b) Nothing in this section shall be construed as amending the authority
  of such agencies to determine the terms and conditions of, eligibility for,
  or the amount of assistance provided by these agencies.
SEC. 12. EFFECT ON OTHER LAWS AND CONFORMING AMENDMENTS.
  (a) Nothing in this Act shall be construed as limiting the authority of
  any Federal agency to enter into agreements to make or to guarantee loans
  under statutes that existed prior to the enactment of this Act or that
  may be enacted subsequently, or to administer such direct loans or loan
  guarantees: Provided, That all such agreements shall be contingent upon
  meeting the requirements of this Act.
  (b) This Act shall supersede, modify, or repeal any provision of law
  heretofore enacted to the extent such provision is inconsistent with
  this Act.
  (c)(1) A Federal agency other than the Department of the Treasury may not
  issue, sell, or guarantee an obligation of a type that is ordinarily financed
  in investment securities markets, as determined by the Secretary, unless the
  terms of the obligation provide that it may not be held by any person or
  entity other than the Secretary. The Secretary may waive this requirement
  with respect to the obligations that the Secretary determines are (A) not
  suitable investments because of the risks entailed in such obligations, (B)
  financed in a manner that is least disruptive of private financial markets
  and institutions, or (C) financed in a manner that is least disruptive of
  Government securities markets. To the extent that the head of a Federal
  agency other than the Department of the Treasury is authorized by any
  law other than this Act to issue, sell, or guarantee such obligations,
  the head of such agency is authorized to issue, sell, or guarantee such
  obligations to the Secretary. Any purchases by the Secretary under this
  subsection shall be upon such terms and conditions as to yield a rate of
  return which shall not be less than a rate determined by the Secretary,
  taking into consideration current market yields on outstanding marketable
  obligations of the United States of comparable maturity.
  (2) Any obligation guaranteed by a Federal agency and financed by the
  Secretary pursuant to this section shall be deemed to be a direct loan
  of the Direct Loan Fund, not withstanding any other provision of law,
  and shall be subject to section 4 of this Act.
  (d)(1) Notwithstanding any other provision of this Act, the purchase by
  the Secretary under subsection (c) of this section of the obligations of
  any local public body or agency within the United States shall be made
  upon such terms and conditions as may be necessary to avoid an increase
  in borrowing costs to such local public body or agency as a result of
  the purchase of the Secretary of its obligations. The head of the Federal
  agency guaranteeing such obligations, in consultation with the Secretary,
  shall estimate the borrowing costs that would be incurred by the local
  public body or agency if its obligations were not sold to the Secretary.
  (2) The Federal agency guaranteeing obligations purchased by the Secretary
  under subsection (c) of this section may contract to make periodic payments
  to the Secretary that shall be sufficient to offset the costs to the
  Secretary of purchasing obligations of local public bodies or agencies
  upon terms and conditions as prescribed in this section. Such contracts
  may be made in advance of appropriations therefor, and appropriations for
  making payments under such contracts are hereby authorized.
  (e) Collections resulting from direct loans obligated or loan guarantees
  committed prior to October 1, 1989, shall be credited to the same accounts to
  which such collections would have been credited prior to this Act. Amounts
  so credited shall be available, to the same extent that they were available
  prior to the enactment of this Act, to liquidate obligations arising from
  such direct loans obligated or loan guarantees committed prior to October
  1, 1989, including repayment of any obligations held by the Secretary or
  the Federal Financing Bank. From time to time, the unobligated balances
  of such accounts that are in excess of current needs shall be transferred
  to the general fund of the Treasury.
  (f) Section 3(a)(2) of the Congressional Budget and Impoundment Control
  Act of 1974, as amended, is amended by adding thereto the following: `Such
  term includes the subsidy for direct loan and loan guarantee programs,
  as those terms are defined by the Credit Reform Act of 1989.'.
SEC. 13. EFFECTIVE DATE.
  This Act shall take effect upon enactment.

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