H. Rept. 113-381 - 113th Congress (2013-2014)
March 18, 2014, As Reported by the Budget Committee

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House Report 113-381 - H.R. 1872, BUDGET AND ACCOUNTING TRANSPARENCY ACT OF 2014




[House Report 113-381]
[From the U.S. Government Publishing Office]


113th Congress                                            Rept. 113-381
                        HOUSE OF REPRESENTATIVES
 2d Session                                                      Part 1
_______________________________________________________________________

                                     


                    H.R. 1872, BUDGET AND ACCOUNTING
                        TRANSPARENCY ACT OF 2014

                               __________

                              R E P O R T

                                 of the

                        COMMITTEE ON THE BUDGET

                        HOUSE OF REPRESENTATIVES

                              to accompany

                               H.R. 1872

                             together with

                             MINORITY VIEWS

<GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT>


 March 18, 2014.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed


                        COMMITTEE ON THE BUDGET

                     PAUL RYAN, Wisconsin, Chairman
TOM PRICE, Georgia                   CHRIS VAN HOLLEN, Maryland,
SCOTT GARRETT, New Jersey              Ranking Minority Member
JOHN CAMPBELL, California            ALLYSON Y. SCHWARTZ, Pennsylvania
KEN CALVERT, California              JOHN A. YARMUTH, Kentucky
TOM COLE, Oklahoma                   BILL PASCRELL, Jr., New Jersey
TOM McCLINTOCK, California           TIM RYAN, Ohio
JAMES LANKFORD, Oklahoma             GWEN MOORE, Wisconsin
DIANE BLACK, Tennessee               KATHY CASTOR, Florida
REID J. RIBBLE, Wisconsin            JIM McDERMOTT, Washington
BILL FLORES, Texas                   BARBARA LEE, California
TODD ROKITA, Indiana                 HAKEEM S. JEFFRIES, New York
ROB WOODALL, Georgia                 MARK POCAN, Wisconsin
MARSHA BLACKBURN, Tennessee          MICHELLE LUJAN GRISHAM, New Mexico
ALAN NUNNELEE, Mississippi           JARED HUFFMAN, California
E. SCOTT RIGELL, Virginia            TONY CARDENAS, California
VICKY HARTZLER, Missouri             EARL BLUMENAUER, Oregon
JACKIE WALORSKI, Indiana             KURT SCHRADER, Oregon
LUKE MESSER, Indiana                 [Vacant]
TOM RICE, South Carolina
ROGER WILLIAMS, Texas
SEAN P. DUFFY, Wisconsin

                           Professional Staff

                     Austin Smythe, Staff Director
                Thomas S. Kahn, Minority Staff Director


                            C O N T E N T S

                                                                   Page
H.R. 1872, Budget and Accounting Transparency Act of 2014........     1
Introduction.....................................................     8
Summary of Proposed Changes......................................     8
Legislative History..............................................    11
Hearings.........................................................    15
Section by Section...............................................    15
Votes of the Committee...........................................    21
Committee Oversight Findings.....................................    22
Budget Act Compliance............................................    22
Performance Goals and Objectives.................................    26
Constitutional Authority Statement...............................    26
Committee Cost Estimate..........................................    26
Advisory Committee Statement.....................................    26
Applicability to the Legislative Branch..........................    26
Federal Mandates Statement.......................................    27
Advisory on Earmarks.............................................    27
Duplication of Federal Programs..................................    27
Disclosure of Directed Rule Makings..............................    27
Changes in Existing Law Made by the Bill, as Reported............    27
Views of Committee Members.......................................    42
Minority Views...................................................    43


113th Congress                                            Rept. 113-381
                        HOUSE OF REPRESENTATIVES
 2d Session                                                      Part 1

======================================================================



 
             BUDGET AND ACCOUNTING TRANSPARENCY ACT OF 2014
                                _______
                                

 March 18, 2014.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

Mr. Ryan of Wisconsin, from the Committee on the Budget, submitted the 
                               following

                              R E P O R T

                             together with

                             MINORITY VIEWS

                        [To accompany H.R. 1872]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on the Budget, to whom was referred the bill 
(H.R. 1872) to amend the Balanced Budget and Emergency Deficit 
Control Act of 1985 to increase transparency in Federal 
budgeting, and for other purposes, having considered the same, 
reports favorably thereon with an amendment and recommends that 
the bill as amended do pass.
    The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Budget and Accounting Transparency Act 
of 2014''.

                     TITLE I--FAIR VALUE ESTIMATES

SEC. 101. CREDIT REFORM.

  (a) In General.--Title V of the Congressional Budget Act of 1974 is 
amended to read as follows:

                         ``TITLE V--FAIR VALUE

``SEC. 500. SHORT TITLE.

  ``This title may be cited as the `Fair Value Accounting Act of 2014'.

``SEC. 501. PURPOSES.

  ``The purposes of this title are to--
          ``(1) measure more accurately the costs of Federal credit 
        programs by accounting for them on a fair value basis;
          ``(2) place the cost of credit programs on a budgetary basis 
        equivalent to other Federal spending;
          ``(3) encourage the delivery of benefits in the form most 
        appropriate to the needs of beneficiaries; and
          ``(4) improve the allocation of resources among Federal 
        programs.

``SEC. 502. DEFINITIONS.

  ``For purposes of this title:
          ``(1) The term `direct loan' means a disbursement of funds by 
        the Government to a non-Federal borrower under a contract that 
        requires the repayment of such funds with or without interest. 
        The term includes the purchase of, or participation in, a loan 
        made by another lender and financing arrangements that defer 
        payment for more than 90 days, including the sale of a 
        Government asset on credit terms. The term does not include the 
        acquisition of a federally guaranteed loan in satisfaction of 
        default claims or the price support loans of the Commodity 
        Credit Corporation.
          ``(2) The term `direct loan obligation' means a binding 
        agreement by a Federal agency to make a direct loan when 
        specified conditions are fulfilled by the borrower.
          ``(3) The term `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, but does not 
        include the insurance of deposits, shares, or other 
        withdrawable accounts in financial institutions.
          ``(4) The term `loan guarantee commitment' means a binding 
        agreement by a Federal agency to make a loan guarantee when 
        specified conditions are fulfilled by the borrower, the lender, 
        or any other party to the guarantee agreement.
          ``(5)(A) The term `cost' means the sum of the Treasury 
        discounting component and the risk component of a direct loan 
        or loan guarantee, or a modification thereof.
          ``(B) The Treasury discounting component shall be the 
        estimated long-term cost to the Government of a direct loan or 
        loan guarantee, or modification thereof, calculated on a net 
        present value basis, excluding administrative costs and any 
        incidental effects on governmental receipts or outlays.
          ``(C) The risk component shall be an amount equal to the 
        difference between--
                  ``(i) the estimated long-term cost to the Government 
                of a direct loan or loan guarantee, or modification 
                thereof, estimated on a fair value basis, applying the 
                guidelines set forth by the Financial Accounting 
                Standards Board in Financial Accounting Standards #157, 
                or a successor thereto, excluding administrative costs 
                and any incidental effects on governmental receipts or 
                outlays; and
                  ``(ii) the Treasury discounting component of such 
                direct loan or loan guarantee, or modification thereof.
          ``(D) The Treasury discounting component of a direct loan 
        shall be the net present value, at the time when the direct 
        loan is disbursed, of the following estimated cash flows:
                  ``(i) Loan disbursements.
                  ``(ii) Repayments of principal.
                  ``(iii) Essential preservation expenses, payments of 
                interest and other payments by or to the Government 
                over the life of the loan after adjusting for estimated 
                defaults, prepayments, fees, penalties, and other 
                recoveries, including the effects of changes in loan 
                terms resulting from the exercise by the borrower of an 
                option included in the loan contract.
          ``(E) The Treasury discounting component of a loan guarantee 
        shall be the net present value, at the time when the guaranteed 
        loan is disbursed, of the following estimated cash flows:
                  ``(i) Payments by the Government to cover defaults 
                and delinquencies, interest subsidies, essential 
                preservation expenses, or other payments.
                  ``(ii) Payments to the Government including 
                origination and other fees, penalties, and recoveries, 
                including the effects of changes in loan terms 
                resulting from the exercise by the guaranteed lender of 
                an option included in the loan guarantee contract, or 
                by the borrower of an option included in the guaranteed 
                loan contract.
          ``(F) The cost of a modification is the sum of--
                  ``(i) the difference between the current estimate of 
                the Treasury discounting component of the remaining 
                cash flows under the terms of a direct loan or loan 
                guarantee and the current estimate of the Treasury 
                discounting component of the remaining cash flows under 
                the terms of the contract, as modified; and
                  ``(ii) the difference between the current estimate of 
                the risk component of the remaining cash flows under 
                the terms of a direct loan or loan guarantee and the 
                current estimate of the risk component of the remaining 
                cash flows under the terms of the contract as modified.
          ``(G) In estimating Treasury discounting components, the 
        discount rate shall be the average interest rate on marketable 
        Treasury securities of similar duration to the cash flows of 
        the direct loan or loan guarantee for which the estimate is 
        being made.
          ``(H) When funds are obligated for a direct loan or loan 
        guarantee, the estimated cost shall be based on the current 
        assumptions, adjusted to incorporate the terms of the loan 
        contract, for the fiscal year in which the funds are obligated.
          ``(6) The term `program account' means the budget account 
        into which an appropriation to cover the cost of a direct loan 
        or loan guarantee program is made and from which such cost is 
        disbursed to the financing account.
          ``(7) The term `financing account' means the nonbudget 
        account or accounts associated with each program account which 
        holds balances, receives the cost payment from the program 
        account, and also includes all other cash flows to and from the 
        Government resulting from direct loan obligations or loan 
        guarantee commitments made on or after October 1, 1991.
          ``(8) The term `liquidating account' means the budget account 
        that includes all cash flows to and from the Government 
        resulting from direct loan obligations or loan guarantee 
        commitments made prior to October 1, 1991. These accounts shall 
        be shown in the budget on a cash basis.
          ``(9) The term `modification' means any Government action 
        that alters the estimated cost of an outstanding direct loan 
        (or direct loan obligation) or an outstanding loan guarantee 
        (or loan guarantee commitment) from the current estimate of 
        cash flows. This includes the sale of loan assets, with or 
        without recourse, and the purchase of guaranteed loans (or 
        direct loan obligations) or loan guarantees (or loan guarantee 
        commitments) such as a change in collection procedures.
          ``(10) The term `current' has the same meaning as in section 
        250(c)(9) of the Balanced Budget and Emergency Deficit Control 
        Act of 1985.
          ``(11) The term `Director' means the Director of the Office 
        of Management and Budget.
          ``(12) The term `administrative costs' means costs related to 
        program management activities, but does not include essential 
        preservation expenses.
          ``(13) The term `essential preservation expenses' means 
        servicing and other costs that are essential to preserve the 
        value of loan assets or collateral.

``SEC. 503. OMB AND CBO ANALYSIS, COORDINATION, AND REVIEW.

  ``(a) In General.--For the executive branch, the Director shall be 
responsible for coordinating the estimates required by this title. The 
Director shall consult with the agencies that administer direct loan or 
loan guarantee programs.
  ``(b) Delegation.--The Director may delegate to agencies authority to 
make estimates of costs. The delegation of authority shall be based 
upon written guidelines, regulations, or criteria consistent with the 
definitions in this title.
  ``(c) Coordination With the Congressional Budget Office.--In 
developing estimation guidelines, regulations, or criteria to be used 
by Federal agencies, the Director shall consult with the Director of 
the Congressional Budget Office.
  ``(d) Improving Cost Estimates.--The Director and the Director of the 
Congressional Budget Office shall coordinate the development of more 
accurate data on historical performance and prospective risk of direct 
loan and loan guarantee programs. They shall annually review the 
performance of outstanding direct loans and loan guarantees to improve 
estimates of costs. The Office of Management and Budget and the 
Congressional Budget Office shall have access to all agency data that 
may facilitate the development and improvement of estimates of costs.
  ``(e) Historical Credit Programs Costs.--The Director shall review, 
to the extent possible, historical data and develop the best possible 
estimates of adjustments that would convert aggregate historical budget 
data to credit reform accounting.

``SEC. 504. BUDGETARY TREATMENT.

  ``(a) President's Budget.--Beginning with fiscal year 2017, the 
President's budget shall reflect the costs of direct loan and loan 
guarantee programs. The budget shall also include the planned level of 
new direct loan obligations or loan guarantee commitments associated 
with each appropriations request. For each fiscal year within the five-
fiscal year period beginning with fiscal year 2017, such budget shall 
include, on an agency-by-agency basis, subsidy estimates and costs of 
direct loan and loan guarantee programs with and without the risk 
component.
  ``(b) Appropriations Required.--Notwithstanding any other provision 
of law, new direct loan obligations may be incurred and new loan 
guarantee commitments may be made for fiscal year 2017 and thereafter 
only to the extent that--
          ``(1) new budget authority to cover their costs is provided 
        in advance in an appropriation Act;
          ``(2) a limitation on the use of funds otherwise available 
        for the cost of a direct loan or loan guarantee program has 
        been provided in advance in an appropriation Act; or
          ``(3) authority is otherwise provided in appropriation Acts.
  ``(c) Exemption for Direct Spending Programs.--Subsections (b) and 
(e) shall not apply to--
          ``(1) any direct loan or loan guarantee program that 
        constitutes an entitlement (such as the guaranteed student loan 
        program or the veteran's home loan guaranty program);
          ``(2) the credit programs of the Commodity Credit Corporation 
        existing on the date of enactment of this title; or
          ``(3) any direct loan (or direct loan obligation) or loan 
        guarantee (or loan guarantee commitment) made by the Federal 
        National Mortgage Association or the Federal Home Loan Mortgage 
        Corporation.
  ``(d) Budget Accounting.--
          ``(1) The authority to incur new direct loan obligations, 
        make new loan guarantee commitments, or modify outstanding 
        direct loans (or direct loan obligations) or loan guarantees 
        (or loan guarantee commitments) shall constitute new budget 
        authority in an amount equal to the cost of the direct loan or 
        loan guarantee in the fiscal year in which definite authority 
        becomes available or indefinite authority is used. Such budget 
        authority shall constitute an obligation of the program account 
        to pay to the financing account.
          ``(2) The outlays resulting from new budget authority for the 
        cost of direct loans or loan guarantees described in paragraph 
        (1) shall be paid from the program account into the financing 
        account and recorded in the fiscal year in which the direct 
        loan or the guaranteed loan is disbursed or its costs altered.
          ``(3) All collections and payments of the financing accounts 
        shall be a means of financing.
  ``(e) Modifications.--An outstanding direct loan (or direct loan 
obligation) or loan guarantee (or loan guarantee commitment) shall not 
be modified in a manner that increases its costs unless budget 
authority for the additional cost has been provided in advance in an 
appropriation Act.
  ``(f) Reestimates.--When the estimated cost for a group of direct 
loans or loan guarantees for a given program made in a single fiscal 
year is re-estimated in a subsequent year, the difference between the 
reestimated cost and the previous cost estimate shall be displayed as a 
distinct and separately identified subaccount in the program account as 
a change in program costs and a change in net interest. There is hereby 
provided permanent indefinite authority for these re-estimates.
  ``(g) Administrative Expenses.--All funding for an agency's 
administrative costs associated with a direct loan or loan guarantee 
program shall be displayed as distinct and separately identified 
subaccounts within the same budget account as the program's cost.

``SEC. 505. AUTHORIZATIONS.

  ``(a) Authorization for Financing Accounts.--In order to implement 
the accounting required by this title, the President is authorized to 
establish such non-budgetary accounts as may be appropriate.
  ``(b) Treasury Transactions With the Financing Accounts.--
          ``(1) In general.--The Secretary of the Treasury shall borrow 
        from, receive from, lend to, or pay to the financing accounts 
        such amounts as may be appropriate. The Secretary of the 
        Treasury may prescribe forms and denominations, maturities, and 
        terms and conditions for the transactions described in the 
        preceding sentence, except that the rate of interest charged by 
        the Secretary on lending to financing accounts (including 
        amounts treated as lending to financing accounts by the Federal 
        Financing Bank (hereinafter in this subsection referred to as 
        the `Bank') pursuant to section 405(b)) and the rate of 
        interest paid to financing accounts on uninvested balances in 
        financing accounts shall be the same as the rate determined 
        pursuant to section 502(5)(G).
          ``(2) Loans.--For guaranteed loans financed by the Bank and 
        treated as direct loans by a Federal agency pursuant to section 
        406(b)(1), any fee or interest surcharge (the amount by which 
        the interest rate charged exceeds the rate determined pursuant 
        to section 502(5)(G) that the Bank charges to a private 
        borrower pursuant to section 6(c) of the Federal Financing Bank 
        Act of 1973 shall be considered a cash flow to the Government 
        for the purposes of determining the cost of the direct loan 
        pursuant to section 502(5). All such amounts shall be credited 
        to the appropriate financing account.
          ``(3) Reimbursement.--The Bank is authorized to require 
        reimbursement from a Federal agency to cover the administrative 
        expenses of the Bank that are attributable to the direct loans 
        financed for that agency. All such payments by an agency shall 
        be considered administrative expenses subject to section 
        504(g). This subsection shall apply to transactions related to 
        direct loan obligations or loan guarantee commitments made on 
        or after October 1, 1991.
          ``(4) Authority.--The authorities provided in this subsection 
        shall not be construed to supersede or override the authority 
        of the head of a Federal agency to administer and operate a 
        direct loan or loan guarantee program.
          ``(5) Title 31.--All of the transactions provided in the 
        subsection shall be subject to the provisions of subchapter II 
        of chapter 15 of title 31, United States Code.
          ``(6) Treatment of cash balances.--Cash balances of the 
        financing accounts in excess of current requirements shall be 
        maintained in a form of uninvested funds and the Secretary of 
        the Treasury shall pay interest on these funds. The Secretary 
        of the Treasury shall charge (or pay if the amount is negative) 
        financing accounts an amount equal to the risk component for a 
        direct loan or loan guarantee, or modification thereof. Such 
        amount received by the Secretary of the Treasury shall be a 
        means of financing and shall not be considered a cash flow of 
        the Government for the purposes of section 502(5).
  ``(c) Authorization for Liquidating Accounts.--(1) Amounts in 
liquidating accounts shall be available only for payments resulting 
from direct loan obligations or loan guarantee commitments made prior 
to October 1, 1991, for--
          ``(A) interest payments and principal repayments to the 
        Treasury or the Federal Financing Bank for amounts borrowed;
          ``(B) disbursements of loans;
          ``(C) default and other guarantee claim payments;
          ``(D) interest supplement payments;
          ``(E) payments for the costs of foreclosing, managing, and 
        selling collateral that are capitalized or routinely deducted 
        from the proceeds of sales;
          ``(F) payments to financing accounts when required for 
        modifications;
          ``(G) administrative costs and essential preservation 
        expenses, if--
                  ``(i) amounts credited to the liquidating account 
                would have been available for administrative costs and 
                essential preservation expenses under a provision of 
                law in effect prior to October 1, 1991; and
                  ``(ii) no direct loan obligation or loan guarantee 
                commitment has been made, or any modification of a 
                direct loan or loan guarantee has been made, since 
                September 30, 1991; or
          ``(H) such other payments as are necessary for the 
        liquidation of such direct loan obligations and loan guarantee 
        commitments.
  ``(2) Amounts credited to liquidating accounts in any year shall be 
available only for payments required in that year. Any unobligated 
balances in liquidating accounts at the end of a fiscal year shall be 
transferred to miscellaneous receipts as soon as practicable after the 
end of the fiscal year.
  ``(3) If funds in liquidating accounts are insufficient to satisfy 
obligations and commitments of such accounts, there is hereby provided 
permanent, indefinite authority to make any payments required to be 
made on such obligations and commitments.
  ``(d) Reinsurance.--Nothing in this title shall be construed as 
authorizing or requiring the purchase of insurance or reinsurance on a 
direct loan or loan guarantee from private insurers. If any such 
reinsurance for a direct loan or loan guarantee is authorized, the cost 
of such insurance and any recoveries to the Government shall be 
included in the calculation of the cost.
  ``(e) Eligibility and Assistance.--Nothing in this title shall be 
construed to change the authority or the responsibility of a Federal 
agency to determine the terms and conditions of eligibility for, or the 
amount of assistance provided by a direct loan or a loan guarantee.

``SEC. 506. TREATMENT OF DEPOSIT INSURANCE AND AGENCIES AND OTHER 
                    INSURANCE PROGRAMS.

  ``This title shall not apply to the credit or insurance activities of 
the Federal Deposit Insurance Corporation, National Credit Union 
Administration, Resolution Trust Corporation, Pension Benefit Guaranty 
Corporation, National Flood Insurance, National Insurance Development 
Fund, Crop Insurance, or Tennessee Valley Authority.

``SEC. 507. EFFECT ON OTHER LAWS.

  ``(a) Effect on Other Laws.--This title shall supersede, modify, or 
repeal any provision of law enacted prior to the date of enactment of 
this title to the extent such provision is inconsistent with this 
title. Nothing in this title shall be construed to establish a credit 
limitation on any Federal loan or loan guarantee program.
  ``(b) Crediting of Collections.--Collections resulting from direct 
loans obligated or loan guarantees committed prior to October 1, 1991, 
shall be credited to the liquidating accounts of Federal agencies. 
Amounts so credited shall be available, to the same extent that they 
were available prior to the date of enactment of this title, to 
liquidate obligations arising from such direct loans obligated or loan 
guarantees committed prior to October 1, 1991, including repayment of 
any obligations held by the Secretary of the Treasury or the Federal 
Financing Bank. The unobligated balances of such accounts that are in 
excess of current needs shall be transferred to the general fund of the 
Treasury. Such transfers shall be made from time to time but, at least 
once each year.''.
  (b) Conforming Amendment.--The table of contents set forth in section 
1(b) of the Congressional Budget and Impoundment Control Act of 1974 is 
amended by striking the items relating to title V and inserting the 
following:

                         ``TITLE V--FAIR VALUE

``Sec. 500. Short title.
``Sec. 501. Purposes.
``Sec. 502. Definitions.
``Sec. 503. OMB and CBO analysis, coordination, and review.
``Sec. 504. Budgetary treatment.
``Sec. 505. Authorizations.
``Sec. 506. Treatment of deposit insurance and agencies and other 
insurance programs.
``Sec. 507. Effect on other laws.''.

SEC. 102. BUDGETARY ADJUSTMENT.

  (a) In General.--Section 251(b)(1) of the Balanced Budget and 
Emergency Deficit Control Act of 1985 is amended by adding at the end 
the following new sentence: ``A change in discretionary spending solely 
as a result of the amendment to title V of the Congressional Budget Act 
of 1974 made by the Budget and Accounting Transparency Act of 2014 
shall be treated as a change of concept under this paragraph.''.
  (b) Report.--Before adjusting the discretionary caps pursuant to the 
authority provided in subsection (a), the Office of Management and 
Budget shall report to the Committees on the Budget of the House of 
Representatives and the Senate on the amount of that adjustment, the 
methodology used in determining the size of that adjustment, and a 
program-by-program itemization of the components of that adjustment.
  (c) Schedule.--The Office of Management and Budget shall not make an 
adjustment pursuant to the authority provided in subsection (a) sooner 
than 60 days after providing the report required in subsection (b).

SEC. 103. EFFECTIVE DATE.

  The amendments made by section 101 shall take effect beginning with 
fiscal year 2017.

                     TITLE II--BUDGETARY TREATMENT

SEC. 201. CBO AND OMB STUDIES RESPECTING BUDGETING FOR COSTS OF FEDERAL 
                    INSURANCE PROGRAMS.

  Not later than 1 year after the date of enactment of this Act, the 
Directors of the Congressional Budget Office and of the Office of 
Management and Budget shall each prepare a study and make 
recommendations to the Committees on the Budget of the House of 
Representatives and the Senate as to the feasability of applying fair 
value concepts to budgeting for the costs of Federal insurance 
programs.

SEC. 202. ON-BUDGET STATUS OF FANNIE MAE AND FREDDIE MAC.

  Notwithstanding any other provision of law, the receipts and 
disbursements, including the administrative expenses, of the Federal 
National Mortgage Association and the Federal Home Loan Mortgage 
Corporation shall be counted as new budget authority, outlays, 
receipts, or deficit or surplus for purposes of--
          (1) the budget of the United States Government as submitted 
        by the President;
          (2) the congressional budget; and
          (3) the Balanced Budget and Emergency Deficit Control Act of 
        1985.

SEC. 203. EFFECTIVE DATE.

  Section 202 shall not apply with respect to an enterprise (as such 
term is defined in section 1303 of the Federal Housing Enterprises 
Financial Safety and Soundness Act of 1992 (12 U.S.C. 4502)) after the 
date that all of the following have occurred:
          (1) The conservatorship for such enterprise under section 
        1367 of such Act (12 U.S.C. 4617) has been terminated.
          (2) The Director of the Federal Housing Finance Agency has 
        certified in writing that such enterprise has repaid to the 
        Federal Government the maximum amount consistent with 
        minimizing total cost to the Federal Government of the 
        financial assistance provided to the enterprise by the Federal 
        Government pursuant to the amendments made by section 1117 of 
        the Housing and Economic Recovery Act of 2008 (Public Law 110-
        289; 122 Stat. 2683) or otherwise.
          (3) The charter for the enterprise has been revoked, 
        annulled, or terminated and the authorizing statute (as such 
        term is defined in such section 1303) with respect to the 
        enterprise has been repealed.

                 TITLE III--BUDGET REVIEW AND ANALYSIS

SEC. 301. CBO AND OMB REVIEW AND RECOMMENDATIONS RESPECTING RECEIPTS 
                    AND COLLECTIONS.

  Not later than 1 year after the date of enactment of this Act, the 
Director of the Office of Management and Budget shall prepare a study 
of the history of offsetting collections against expenditures and the 
amount of receipts collected annually, the historical application of 
the budgetary terms ``revenue'', ``offsetting collections'', and 
``offsetting receipts'', and review the application of those terms and 
make recommendations to the Committees on the Budget of the House of 
Representatives and the Senate of whether such usage should be 
continued or modified. The Director of the Congressional Budget Office 
shall review the history and recommendations prepared by the Director 
of the Office of Management and Budget and shall submit comments and 
recommendations to such Committees.

SEC. 302. AGENCY BUDGET JUSTIFICATIONS.

  Section 1108 of title 31, United States Code, is amended by inserting 
at the end the following new subsections:
  ``(h)(1) Whenever any agency prepares and submits written budget 
justification materials for any committee of the House of 
Representatives or the Senate, such agency shall post such budget 
justification on the same day of such submission on the `open' page of 
the public website of the agency, and the Office of Management and 
Budget shall post such budget justification in a centralized location 
on its website, in the format developed under paragraph (2). Each 
agency shall include with its written budget justification the process 
and methodology the agency is using to comply with the Fair Value 
Accounting Act of 2014.
  ``(2) The Office of Management and Budget, in consultation with the 
Congressional Budget Office and the Government Accountability Office, 
shall develop and notify each agency of the format in which to post a 
budget justification under paragraph (1). Such format shall be designed 
to ensure that posted budget justifications for all agencies--
          ``(A) are searchable, sortable, and downloadable by the 
        public;
          ``(B) are consistent with generally accepted standards and 
        practices for machine-discoverability;
          ``(C) are organized uniformly, in a logical manner that makes 
        clear the contents of a budget justification and relationships 
        between data elements within the budget justification and among 
        similar documents; and
          ``(D) use uniform identifiers, including for agencies, 
        bureaus, programs, and projects.
  ``(i)(1) Not later than the day that the Office of Management and 
Budget issues guidelines, regulations, or criteria to agencies on how 
to calculate the risk component under the Fair Value Accounting Act of 
2014, it shall submit a written report to the Committees on the Budget 
of the House of Representatives and the Senate containing all such 
guidelines, regulations, or criteria.
  ``(2) For fiscal year 2017 and each of the next four fiscal years 
thereafter, the Comptroller General shall submit an annual report to 
the Committees on the Budget of the House of Representatives and the 
Senate reviewing and evaluating the progress of agencies in the 
implementation of the Fair Value Accounting Act of 2014.
  ``(3) Such guidelines, regulations, or criteria shall be deemed to be 
a rule for purposes of section 553 of title 5 and shall be issued after 
notice and opportunity for public comment in accordance with the 
procedures under such section.''.

                              Introduction

    Transparency and sound accounting are the bedrocks of 
efficient and effective budgeting. The ``Budget and Accounting 
Transparency Act of 2014'' (H.R. 1872) was introduced by 
Representative Scott Garrett of New Jersey on May 8, 2013. The 
bill increases the transparency of Federal budgeting by 
bringing off-budget entities on-budget, reforms the accounting 
methodology used for Federal credit programs to reflect best 
practices from the private sector, and requires agencies to 
promptly make public the budget justification materials they 
submit to Congress in support of their requests for public 
funds. It also commissions two studies in furtherance of the 
Budget Committees' ongoing review of potential improvements to 
the congressional budget process.

                      Summary of Proposed Changes


Fair Value Accounting

    Beginning with fiscal year 2017, the bill reforms the 
budgetary treatment of Federal credit programs to provide a 
more accurate and comprehensive reporting of the cost these 
programs pose to taxpayers.
    The Federal Credit Reform Act of 1990 (FCRA) reformed the 
budgetary treatment of Federal direct loans and loan guarantees 
to account for the cost of these programs on an accrual basis. 
Under the 1990 bill, the cost of these programs is developed by 
producing a net present value of cash flows using a discount 
rate based on the Federal Government's borrowing costs. Over 
time, CBO has concluded that the Treasury discount rate does 
not fully capture the cost of credit programs:
    ``Fair-value estimates differ from estimates produced using 
the FCRA methodology in an important way: By incorporating a 
market-based risk premium, fair value estimates recognize that 
the financial risk that the government assumes when issuing 
credit guarantees is more costly to taxpayers than FCRA-based 
estimates suggest.''\1\
---------------------------------------------------------------------------
    \1\Letter from CBO Director Douglas W. Elmendorf to Paul Ryan, 
Chairman of the Committee on the Budget, House of Representatives, May 
18, 2011, http://www.cbo.gov/ftpdocs/120xx/doc12054/05-18-
FHA_Letter.pdf.
---------------------------------------------------------------------------
    In addition to CBO's conclusion that fair value accounting 
provides a comprehensive measure of the Federal Government's 
financial risk, other entities have recommended this reform. 
For example, a panel composed of former CBO Directors, OMB 
Directors, and other budget experts recommended moving to fair 
value accounting after concluding:
    ``Two decades of experience with accrual treatment of 
Federal credit has demonstrated that current valuation rules 
understate the subsidies that government provides through 
direct and guaranteed loans and other activities that shift 
risk to taxpayers. To correct this understatement, the budget 
should use fair-market values in calculating costs for 
financial guarantees, insurance, direct loans, loan guarantees, 
and programs that invest in risky financial assets. Fair value 
accounting would make clear that the Federal Government cannot 
invest in risky assets more cheaply nor earn a higher rate of 
return than do private firms or individuals. Ultimately, 
taxpayers bear all the costs of investing, and this fact should 
be explicitly reflected in the budget. Accounting for financial 
guarantees, insurance, direct loans, and loan guarantees on an 
accrual basis is the first step in measuring the cost of these 
activities in a timely manner. But the cost measure must also 
include risk. Without that component, the budget understates 
the cost of these programs.''\2\
---------------------------------------------------------------------------
    \2\A Peterson-Pew Commission Report on Budget Reform, ``Getting 
Back in the Black,'' p. 29, Nov. 2010, http://budgetreform.org/sites/
default/files/Getting_Back_in_the_Black.pdf.
---------------------------------------------------------------------------
    The bill corrects this current flaw by amending FCRA to 
ensure the full exposure to the taxpayer is recorded in the 
budget by providing that fair value estimates be used in 
calculating the cost of Federal credit programs. It also 
provides for a one-time adjustment to the statutory caps on 
discretionary spending contained in the Balanced Budget and 
Emergency Deficit Control Act of 1985 (P.L. 99-177) to ensure 
the caps are held harmless for this accounting change.

Accounting for Fannie Mae and Freddie Mac

    The bill requires that the receipts and disbursements of 
the Federal National Mortgage Association (Fannie Mae) and the 
Federal Home Loan Mortgage Corporation (Freddie Mac) be counted 
as new budget authority, outlays, receipts, deficits or 
surpluses for purposes of the President's budget request, the 
congressional budget resolution, and the Balanced Budget and 
Emergency Deficit Control Act of 1985.
    While the Congressional Budget Office (CBO) and Congress 
have already adopted this approach the Administration has not. 
Section 202 rectifies this disparity by bringing Fannie Mae and 
Freddie Mac (the GSEs) on-budget and consistent with CBO's 
current practice.
    On September 6, 2008, using the authority provided under 
the Housing and Economic Recovery Act of 2008 (P.L. 110-289), 
the Federal Housing Finance Agency (FHFA) placed Fannie Mae and 
Freddie Mac into conservatorships. The purpose of the 
conservatorships is to ``stabilize [the] troubled institutions 
with the objective of maintaining normal business operations 
and restoring financial safety and soundness.''\3\ At the same 
time, the Department of the Treasury entered into agreements 
with the GSEs known as Senior Preferred Stock Purchase 
Agreements (PSPA). The PSPAs are legally binding agreements by 
which the Treasury is obligated to provide sufficient capital 
to keep the net worth of Fannie Mae and Freddie Mac from 
falling below zero.
---------------------------------------------------------------------------
    \3\Federal Housing Finance Agency--Office of Conservatorship 
Operations, http://www.fhfa.gov/Default.aspx?Page=344, (accessed Jan. 
20, 2012).
---------------------------------------------------------------------------
    Given the conservatorship and the Treasury's commitment to 
maintain a positive net value for the GSEs, their agency debt 
now has a certain public character. Consistent with other 
``agency debt'' it is the expectation of the Committee that OMB 
will include the GSEs' agency debt in its Analytical 
Perspectives volume together with other agency debt issued by 
entities such as the Tennessee Valley Authority. Under the 
terms of the PSPA, the GSEs are required to reduce the size of 
their investment portfolios until they reach $250 billion. 
Because the primary purpose of the agency debt issued by the 
GSEs is to finance this portfolio, it is expected that their 
debt issuances will decline with the size of the investment 
portfolio. The bill does not establish a statutory cap on the 
issuance of agency debt by the GSEs nor does it include such 
debt issuances in the Federal debt ceiling.
    Finally, section 203 allows for the removal of the GSEs 
from the Federal budget if three conditions are satisfied. 
These conditions are designed to ensure that a GSE is removed 
from the Federal budget if it becomes a fully private entity 
with no explicit or implicit guarantee from the Federal 
Government.
    First, the conservatorship of the entity must be 
terminated.
    Second, the Director of the FHFA must have certified that 
the GSE has repaid as much of the funds received from the 
Federal Government as is consistent with minimizing the total 
losses to the Federal Government. This condition recognizes 
that the Federal Government may not receive full repayment. It 
should, though, ensure the Federal Government recovers the full 
remaining value of these enterprises if they are privatized.
    Third, the charter of the enterprise and authorizing 
statute must be repealed.

Transparency in Agency Budget Requests

    The bill requires Federal agencies to publish their budget 
justification materials on their official websites on the same 
day those materials are provided to Congress. OMB currently 
requires agencies to post these materials to their websites 
within two weeks of transmittal to Congress.\4\ As under 
current practice, materials should not be released if the 
materials are so classified in order to protect the national 
security.
---------------------------------------------------------------------------
    \4\OMB Circular A-11, 22.6.
---------------------------------------------------------------------------

Studies in Support of Future Reform

    The legislation commissions two studies on areas of the 
budget process that may warrant reform in future legislation. 
These studies will support the Budget Committees in fulfillment 
of their ongoing responsibility under Sec. 703 of the 
Congressional Budget Act to ``study on a continuing basis 
proposals designed to improve and facilitate methods of 
congressional budgetmaking.''
    First, the Directors of the CBO and OMB are directed in 
section 201 to independently conduct studies and provide 
recommendations to the Budget Committees on the feasibility of 
applying fair value concepts (or some similar accrual 
methodology) to budgeting for the costs of Federal insurance 
programs, such as pension insurance and political risk 
insurance. These programs are currently budgeted for on a cash-
flow basis, meaning that a program's cost is the net cash spent 
in a fiscal year. Income is recorded in the budget when 
received, and expenses are recorded when paid, regardless of 
when the income is earned or the expense incurred.
    The Directors of the CBO and OMB are directed to report 
back to the Budget Committees within one year of enactment of 
this bill on the feasibility of addressing this shortcoming in 
the current budgeting methodology for Federal insurance 
programs through a move to a fair value-based accrual budgeting 
system.
    Second, the Director of OMB is directed (sec. 301) to 
prepare a study on the historical use of various terms relating 
to the collection of monies by the Federal Government. The 
Director of CBO is required to review the OMB report and 
provide recommendations to Congress.
    The budget displays revenues (primarily tax collections) 
and outlays (primarily disbursements of cash). The proper 
characterization of revenues and spending is important both for 
the purposes of Congress' carrying out its power of the purse, 
and also provides important information to the public regarding 
the amount of money collected from the private sector and how 
this money is spent.
    The 1967 President's Commission on Budget Concepts 
continues to provide the foundation for determining the 
treatment of transactions in the Federal budget. Generally, 
Federal collections resulting from the exercise of the Federal 
Government's sovereign power are classified as revenues (or 
``receipts''). Those collections resulting from business-like 
activity performed by the Federal Government are recorded as 
negative spending (or ``offsetting collections''). Over the 
years, however, these terms have become jumbled as programs 
have evolved and as statutes have dictated the budgetary 
treatment of Federal collections. Increasingly, collections 
that result from the government's sovereign power are being 
classified as offsetting collections (negative spending). The 
study should review the theoretical bases of these terms, the 
evolution of the classification of collections, the current 
classification of Federal collections, and provide 
recommendations on the future application of such terms.

                          Legislative History


Fair Value Accounting

    The Omnibus Budget Reconciliation Act of 1990 (P.L. 101-
508) added the Federal Credit Reform Act of 1990 (FCRA) as 
Title V of the Congressional Budget and Impoundment Control Act 
of 1974 (Congressional Budget Act). FCRA changed how the 
unified budget reports the cost of Federal credit activities. 
Prior to fiscal year 1992, the unified budget measured the cost 
of Federal credit on a cash-flow basis. This methodology did 
not accurately portray the true cost of a loan or loan 
guarantee when the obligation is incurred.
    Under cash-flow budgeting, disbursements of a direct loan 
are recorded upfront as outlays at the time of disbursement, 
while repayments are recorded over the life of the loan. By 
contrast, an economically equivalent loan guarantee would show 
no upfront cost and might even show an upfront savings because 
of origination fees paid by the loan guarantee recipient. Cash-
flow accounting thus favored loan guarantees over direct loans 
even though both could be structured to pose an equivalent 
financial risk to the Federal Government.
    Cash-flow accounting also failed to accurately capture the 
full costs of credit programs generally and increased the 
difficulty of comparing the costs of credit programs and non-
credit programs thus distorting fiscal decision-making. The 
economically accurate budgetary measure of the costs of 
supplying Federal credit is the net present value of the 
subsidies to credit recipients measured at the time the credit 
is advanced, re-estimated over the life of the credit 
extension. FCRA was enacted in order to achieve this more 
economically appropriate budgetary treatment.
    FCRA, however, understates the true cost to the Federal 
Government because it discounts the cash flows over the life of 
a loan or loan guarantee using interest rates on Treasury 
securities. This is essentially the risk-free rate of interest.
    The loans and loan guarantees issued by the Federal 
Government are not free of risk. To the contrary, the extension 
of Federal credit to the private sector entails the assumption 
by the Federal Government of market risk. Market risk is in 
addition to the risk that a credit beneficiary may default, 
because of individual circumstances. Market risk, also known as 
systematic risk, arises from the correlation between broader 
market and economic conditions and the probability of any 
particular credit program performing as predicted. In order to 
capture the cost to the Federal Government of this risk, fair 
value accounting is a better approach. The principal difference 
between the FCRA approach and a fair value approach is the 
discount rate used to calculate the present value of the future 
costs of the extension of credit by the Federal Government. As 
CBO has testified, ``The fair-value approach produces estimates 
of the value of assets and liabilities that either correspond 
to or approximate market prices.''\5\
---------------------------------------------------------------------------
    \5\Statement of Deborah Lucas, Assistant Director for Financial 
Analysis, ``The Budgetary Cost of Fannie Mae and Freddie Mac and 
Options for the Future Federal Role in the Secondary Mortgage Market,'' 
p. 3 June 2, 2011, http://www.cbo.gov/sites/default/files/cbofiles/
ftpdocs/122xx/doc12213/06-02-gses_testimony.pdf.
---------------------------------------------------------------------------
    In 2008, Congress enacted the ``Emergency Economic 
Stabilization Act of 2008'' (EESA) (P.L. 110-343). EESA 
authorized the Federal Government to purchase troubled 
mortgage-related assets, under the Troubled Assets Relief 
Program (TARP) of that bill. Congress recognized that recording 
these transactions on a cash basis would over-state their 
actual cost, but recording them under FCRA would not fully 
account for their costs. As a result, the EESA provides that 
the activities under TARP would be recorded in the Federal 
budget under the Federal Credit Reform Act of 1990 modified to 
use a risk-adjusted discount rate.
    In the President's fiscal year 2010 budget, the 
administration proposed there be no budget impact recorded from 
U.S. contributions to the International Monetary Fund (IMF). 
The Budget Committees rejected this proposal, but recognized 
that the current budgetary treatment of recording budget 
authority with zero impact on spending and deficits was flawed. 
After reviewing the issue, the Budget Committees concluded that 
FCRA adjusted for market risk was the best measure of recording 
the impact of contributions to the IMF on the budget.
    The Supplemental Appropriations Act of 2009 (P.L. 111-32) 
included a provision incorporating fair value accounting 
standards to adequately account for market risk for the 
purposes of transactions dealing with the IMF.\6\ That measure 
included the following language modifying the application of 
current law Federal Credit Reform Act accounting:
---------------------------------------------------------------------------
    \6\Supplemental Appropriations Act, 2009 (H.R. 2346), Public Law 
111-32, June 24, 2009. In addition, additional information on the 
budgetary treatment of the IMF can be found at: Congressional Budget 
Office, ``Budget Implications of U.S. Contributions to the 
International Monetary Fund,'' Director's Blog, May 19, 2009, http://
cboblog.cbo.gov/?p=270.
---------------------------------------------------------------------------
    [F]or purposes of section 502(5) of the Federal Credit 
Reform Act of 1990, the discount rate in section 502(5)(E) 
shall be adjusted for market risks: Provided further, That 
section 504(b) of the Federal Credit Reform Act of 1990 (2 
U.S.C. 661c(b)) shall not apply.

Government-Sponsored Enterprises

    Fannie Mae and Freddie Mac are government-sponsored 
enterprises (GSEs) that were chartered by Congress to 
facilitate the availability of financing for home mortgages. 
Fannie Mae was first established as a government agency in 1938 
as part of the New Deal. In 1968, it was removed from the 
Federal budget and recreated as a government-sponsored 
enterprise and became a publicly traded company. Though there 
was widely assumed to be an ``implicit'' Federal guarantee of 
Fannie Mae's and Freddie Mac's debt, their securities are 
denied an explicit guarantee.
    They carry out the function of financing home mortgages by 
purchasing home loans from mortgage originators and packaging 
those loans into mortgage-backed securities, which are then 
sold on to private sector investors with a guarantee from 
Fannie Mae or Freddie Mac against losses from any defaults on 
the underlying mortgages. Fannie Mae and Freddie Mac also keep 
a portion of these MBS in their own investment portfolio, which 
they finance through the issuance of debt securities, widely 
known as ``agency debt.'' This agency debt is required by 
statute to include a disclaimer that such obligations together 
with the interest thereon are not guaranteed by the United 
States and do not constitute a debt obligation of the United 
States.\7\
---------------------------------------------------------------------------
    \7\See 12 U.S.C. 1721 and 12 U.S.C. 1455.
---------------------------------------------------------------------------
    On September 6, 2008, using the authority provided under 
the Housing and Economic Recovery Act of 2008 (P.L. 110-289), 
the Federal Housing Finance Agency (FHFA) placed Fannie Mae and 
Freddie Mac into conservatorships. The purpose of the 
conservatorships is to ``stabilize [the] troubled institutions 
with the objective of maintaining normal business operations 
and restoring financial safety and soundness.''\8\ At the same 
time, the Department of the Treasury entered into agreements 
with the GSEs known as Senior Preferred Stock Purchase 
Agreements (PSPA). The PSPAs are legally binding agreements by 
which Treasury is obligated to provide sufficient capital to 
keep the net worth of Fannie Mae and Freddie Mac from falling 
below zero. In return, the government received senior preferred 
stock and warrants making the Treasury the effective owner of 
the GSEs. The Committee received testimony in June 2011 from 
the Congressional Budget Office stating that:
---------------------------------------------------------------------------
    \8\Federal Housing Finance Agency--Office of Conservatorship 
Operations http://www.fhfa.gov/Default.aspx?Page=344, (accessed Jan. 
20, 2012).
---------------------------------------------------------------------------
    Between November 2008 and the end of March 2011, the 
government provided about $154 billion in capital to Fannie Mae 
and Freddie Mac and received more than $24 billion in dividends 
on its preferred stock, resulting in net payments to the GSEs 
of $130 billion. CBO expects additional net cash payments from 
the government over the next several years.
    In CBO's judgment, the Federal conservatorship of Fannie 
Mae and Freddie Mac and their resulting ownership and control 
by the Treasury make the two entities effectively part of the 
government and imply that their operations should be reflected 
in the Federal budget.\9\
---------------------------------------------------------------------------
    \9\Statement of Deborah Lucas, Assistant Director for Financial 
Analysis, ``The Budgetary Cost of Fannie Mae and Freddie Mac and 
Options for the Future Federal Role in the Secondary Mortgage Market,'' 
p. 2, June 2, 2011, available at http://www.cbo.gov/sites/default/
files/cbofiles/ftpdocs/122xx/doc12213/06-02-gses_testimony.pdf.
---------------------------------------------------------------------------
    After consultation with the Budget Committees, CBO began to 
include the operations of Fannie Mae and Freddie Mac in its 
baseline budget projections and chose to use fair value 
methodology for estimating. By contrast, the Obama 
Administration has continued to regard these entities as non-
governmental for budgetary purposes and records in the budget 
only the cash transfers between the Treasury and the GSEs. This 
treatment understates the costs of these entities to the 
Federal Government. As CBO testified: ``That approach can 
postpone for many years the recognition of the costs of new 
obligations. Subsidized mortgage guarantees may even show gains 
for the government in the short term because fees are collected 
up front but losses are realized over time as defaults 
occur.''\10\ In 2013, the GSEs made $97 billion of payments to 
the Treasury, which were recorded as reducing the budget 
deficit. However, the $104.4 billion increase in contingent 
liabilities assumed by the GSEs during this period are nowhere 
reflected in the budget as maintained by the Administration.
---------------------------------------------------------------------------
    \10\Ibid.
---------------------------------------------------------------------------

Studies Conducted by the OMB and CBO on Fair Value Concepts

    The bill calls on CBO and OMB to review other insurance 
programs to determine the possible application of fair value 
accounting to record their costs in a full and transparent 
manner.
    As this Committee noted in 1998:
    Cash budgeting provides incomplete and misleading cost 
information for those programs because, for most insurance 
contracts, premiums are paid long before claims are made. Under 
current budget conventions, legislation affecting Federal 
insurance programs often is seen as providing savings even 
though it expands insurance coverage and increases the 
likelihood that the cost of claims over time will be higher 
than expected in the absence of the legislation. Such 
situations can occur when the legislation increases premiums 
today; but claims due under the higher coverage would not be 
paid until future fiscal years--often well beyond the budget 
window although over the years there has been a growing trend 
in moving to accrual budgeting for the contingent liabilities 
of the Federal Government.\11\
---------------------------------------------------------------------------
    \11\House Report 106-198--Part 2--p. 58, The Comprehensive Budget 
Process Reform Act of 1999, available at http://www.gpo.gov/fdsys/pkg/
CRPT-106hrpt198/pdf/CRPT-106hrpt198-pt2.pdf.
---------------------------------------------------------------------------
    In the same report, the Committee noted:
    Interest in budgeting for contingent liabilities predates 
the congressional budget process. In August 1956, Congress 
enacted a bill that required agency accounts to be maintained 
on an accrual basis `[a]s soon as practicable * * *' (S. 3897, 
Ch. 814-P.L. 863). The issue of unfunded liabilities and 
accrual budgeting was addressed in hearings of the Joint 
Committee on Budget Control in 1973.

Legislation in the 112th Congress

    On December 7, 2011, Members of the House Budget Committee 
introduced a comprehensive package of ten legislative budget 
process reform bills designed to fundamentally reform the 
budget process. Included in this package was H.R. 3581, the 
``Budget and Accounting Transparency Act of 2012,'' introduced 
by Representative Scott Garrett of New Jersey. On February 7, 
2012, H.R. 3581, the ``Budget and Accounting Transparency Act 
of 2012,'' passed the House of Representatives by a 245-180 
vote.

Legislation in the 113th Congress

    On May 8, 2013, Members of the House Budget Committee 
introduced a comprehensive package of seven legislative budget 
process reform bills designed to fundamentally reform the 
budget process. Included in this package was H.R. 1872, the 
``Budget and Accounting Transparency Act of 2014,'' introduced 
by Representative Scott Garrett of New Jersey.

                                Hearings

    In 2011, the House Budget Committee held hearings on budget 
process reform and one of those hearings focused on the Federal 
Credit Reform Act and its application to housing programs.
    The hearing involving fair value, ``Fannie Mae, Freddie Mac 
and FHA: Taxpayer Exposure in the Housing Markets,'' was held 
on June 2, 2011, with Deborah J. Lucas (Congressional Budget 
Office), Alex J. Pollock (American Enterprise Institute) and 
Sarah Rosen Wartell (Center for American Progress and Center 
for American Progress Action Fund).
    The first budget process hearing, ``The Broken Budget 
Process: Perspectives From Former CBO Directors,'' was held on 
September 21, 2011, with former CBO Directors Rudolph Penner 
and Alice Rivlin testifying.
    The second budget process hearing, ``The Broken Budget 
Process: Perspectives From Budget Experts,'' was held on 
September 22, 2011, with Philip Joyce (University of Maryland), 
the Honorable Jim Nussle (Chairman of the Committee on the 
Budget, 2001 through 2007, United States House of 
Representatives) and the Honorable Phil Gramm (former United 
States Senator, 1985-2002) testifying.

                           Section by Section


Section 1. Short Title.

    Section 1 establishes the short title of the bill as the 
``Budget and Accounting Transparency Act of 2014''.

                     Title I--Fair Value Estimates


Section 101. Credit Reform.

    Section 101 amends the Congressional Budget Act of 1974 
(CBA) by striking the existing Title V and replacing it with 
the following new text:

Section 500. Short Title.

    This section establishes the short title of this title as 
the ``Fair Value Accounting Act of 2014''.

Section 501. Purposes.

    Section 501 sets forth the purposes of this title are to 
(1) measure more accurately the costs of Federal credit 
programs by accounting for them on a fair value basis, (2) 
place the cost of credit programs on a budgetary basis 
equivalent to other Federal spending, (3) encourage the 
delivery of benefits in the form most appropriate to the needs 
of beneficiaries, and (4) improve the allocation of resources 
among Federal programs.

Section 502. Definitions.

    Section 502 defines the following terms used in this title: 
direct loan, direct loan obligation, loan guarantee, loan 
guarantee commitment, cost, program account, financing account, 
liquidating account, modification, current, Director, 
administrative costs, and essential preservation expenses.
    ``Cost'' is defined as the sum of (1) the Treasury 
discounting component and (2) the risk component of a direct 
loan or loan guarantee, or a modification thereof. The Treasury 
discounting component is the estimated long-term cost to the 
Government of a direct loan or loan guarantee, or modification 
thereof, calculated on a net present value basis discounted at 
the Treasury borrowing rate. The risk component is the amount 
equal to the difference between the estimated long-term cost to 
the Government of a direct loan or loan guarantee, or 
modification thereof, estimated on a fair value basis, applying 
the guidelines set forth by the Financial Accounting Standards 
Board in Financial Accounting Standard Statement #157 and the 
Treasury discounting component of such a direct loan or loan 
guarantee, or modification thereof. Both components exclude 
administrative costs and any incidental effects on Government 
receipts or outlays.

Section 503. OMB and CBO Analysis, Coordination, and Review.

    Subsection (a) requires, for the executive branch, the OMB 
Director to coordinate estimates and consult with agencies that 
administer direct loans or loan guarantee programs.
    Subsection (b) permits the OMB Director to delegate to 
agencies the authority to make estimates of costs as long as 
such delegation of authority is based upon written guidelines, 
regulations, or criteria consistent with the definitions in 
this title.
    Subsections (c) and (d) require the OMB Director, in 
developing estimation guidelines, regulations, or criteria to 
be used by Federal agencies, to consult with the CBO Director 
and to coordinate the development of more accurate data on 
historical performance and prospective risk of direct loan and 
loan guarantee programs. Subsection (d) also requires the 
Directors of OMB and CBO to annually review the performance of 
outstanding direct loans and loan guarantees to improve 
estimates of costs.
    Subsection (e) requires the OMB Director to review 
historical data and develop the best possible estimates of 
adjustments that would convert aggregate historical budget data 
to credit reform accounting.

Section 504. Budgetary Treatment.

    Subsection (a) requires that beginning with fiscal year 
2017, the President's budget shall reflect the costs of direct 
loan and loan guarantee programs and include the planned level 
of new direct loan obligations or loan guarantee commitments 
associated with each appropriations request. Additionally, 
subsection (a) requires for each fiscal year, within the five-
fiscal year period for such budget to include, on an agency-by-
agency basis, subsidy estimates and costs of direct loan and 
loan guarantee programs with and without the risk component. 
This five-year requirement may be satisfied by including this 
information in the Federal Credit Supplement to the President's 
budget request.
    Subsection (b) requires that new budget authority be 
provided by appropriation in advance before new direct loans or 
loan guarantee commitments are incurred.
    Subsection (c) provides that direct loan or loan guarantee 
programs constituting an entitlement, or existing credit 
programs of the Commodity Credit Corporation on the date of 
enactment of this title, or made by Fannie Mae or Freddie Mac 
are exempt from the requirements of subsection (b), which 
requires the appropriation of new budget authority for direct 
loans and loan guarantees, and of subsection (e), which 
prohibits modifications of direct loans or loan guarantees in a 
manner that increases costs unless additional budget authority 
has been appropriated in advance.
    Subsection (d) provides that the authority to incur new 
direct loan obligations, make new loan guarantee commitments, 
or modify outstanding direct loans or loan guarantees 
constitutes new budget authority in an amount equal to the cost 
of the direct loan or loan guarantee in the fiscal year in 
which definite authority becomes available or indefinite 
authority is used. Such budget authority constitutes an 
obligation of the program account to pay to the financing 
account. The outlays resulting from new budget authority for 
the cost of direct loans or loan guarantees will be paid from 
the program account into the financing account and recorded in 
the fiscal year in which the direct loan or guaranteed loan is 
disbursed or its costs altered.
    Subsection (e) prohibits modifications of direct loans (or 
direct loan obligations) or loan guarantees (or loan guarantee 
commitments) in a manner that increases costs unless additional 
budget authority has been appropriated in advance.
    Subsection (f) provides that when the estimated cost for a 
group of direct loans or loan guarantees for a specific program 
made in a fiscal year is re-estimated in a subsequent year, 
that the additional cost will be displayed as a distinct and 
separately identified subaccount in the program account as a 
change in program costs and a change in net interest. 
Subsection (f) also provides permanent indefinite authority for 
these re-estimates.
    Subsection (g) requires all funding for an agency's 
administrative costs associated with a direct loan or loan 
guarantee program to be displayed as distinct and separately 
identified subaccounts within the same budget account as the 
program's cost.

Section 505. Authorizations.

    Subsections (a) and (b) authorize the President to 
establish non-budgetary accounts as may be appropriate to 
implement the accounting required and direct the Secretary of 
the Treasury to borrow, receive, lend, or pay to the financing 
accounts such amounts as may be appropriate.
    Subsection (b) requires for guaranteed loans financed by 
the Federal Financing Bank and treated as direct loans by a 
Federal agency pursuant to section 406(b)(1), any fee or 
interest surcharge (that exceeds the Treasury discounting 
component of the cost) the Federal Financing Bank charges to a 
private borrower pursuant to section 6(c) of the Federal 
Financing Bank Act of 1973 be considered a cash flow to the 
Government for the purposes of determining the cost of the 
direct loan pursuant to section 502(5). All such amounts shall 
be credited to the appropriate financing account.
    Subsection (b) also authorizes the Federal Financing Bank 
to require reimbursement from a Federal agency to cover the 
administrative expenses of the Federal Financing Bank that are 
attributable to the direct loans financed for that agency. All 
such payments by an agency shall be considered administrative 
expenses subject to section 504(g) and apply to direct loan 
obligations or loan guarantee commitments made on or after 
October 1, 1991. Subsection (b) also provides that the 
authorities provided in this subsection shall not be construed 
to supersede or override the authority of the head of a Federal 
agency to administer and operate a direct loan or loan 
guarantee program.
    Subsection (b) also requires that these transactions be 
subject to the provisions of subchapter II of chapter 15 of 
title 31, United States Code, dealing with the apportionment of 
funds.
    Subsection (b) also requires that excess cash balances be 
maintained in a form of un-invested funds and the Secretary of 
the Treasury shall pay interest on these funds. The Secretary 
shall charge (or pay if the amount is negative) financing 
accounts an amount equal to the risk component for a direct 
loan or loan guarantee, or modification thereof. This amount 
shall be a means of financing and shall not be considered a 
cash flow of the Government for the purposes of section 502(5).
    Subsection (c) requires that amounts in liquidating 
accounts only be available for payments resulting from direct 
loan obligations or loan guarantee commitments made prior to 
October 1, 1991, for payments necessary for the liquidation of 
such direct loan obligations and loan guarantee commitments. 
The amounts credited to liquidating accounts are available only 
for payments required in that year and shall be transferred to 
miscellaneous receipts after the end of the fiscal year.
    Subsection (c) also provides permanent, indefinite 
authority to make any payments required if the funds in the 
liquidating accounts are insufficient to satisfy obligations 
and commitments of such accounts.
    Subsection (d) provides that nothing in this title shall be 
construed as authorizing or requiring the purchase of insurance 
or reinsurance on a direct loan or loan guarantee from private 
insurers. If any such reinsurance for a direct loan or loan 
guarantee is authorized, the cost of such insurance and any 
recoveries to the Government shall be included in the 
calculation of the cost.
    Subsection (e) provides that nothing in this title shall be 
construed to change the authority or the responsibility of a 
Federal agency to determine the terms and conditions of 
eligibility for, or the amount of assistance provided by a 
direct loan or loan guarantee.

Section 506. Treatment of Deposit Insurance and Agencies and Other 
        Insurance Programs.

    Section 506 provides that this title shall not apply to the 
credit or insurance activities of the Federal Deposit Insurance 
Corporation, National Credit Union Administration, Resolution 
Trust Corporation, Pension Benefit Guaranty Corporation, 
National Flood Insurance, National Insurance Development Fund, 
Crop Insurance, or Tennessee Valley Authority.

Section 507. Effect on Other Laws.

    Subsection (a) provides that this title shall supersede, 
modify, or repeal any provision of law enacted prior to the 
date of enactment of this title to the extent such provision is 
inconsistent with this title and that nothing in this title 
shall be construed to establish a credit limitation on any 
Federal loan or loan guarantee program.
    Subsection (b) provides that collections resulting from 
direct loans obligated or loan guarantees committed prior to 
October 1, 1991, shall be credited to the liquidating accounts 
of Federal agencies.
    This section also makes a technical and conforming 
amendment to the table of contents of the CBA.

Section 102. Budgetary Adjustment.

    Subsection (a) makes explicit that the move from accounting 
for loans and loan guarantees on a Federal Credit Reform basis 
to a fair value basis constitutes a change in concept for 
purposes of section 251(b)(1) of the Balanced Budget and 
Emergency Deficit Control Act of 1985. This will result in the 
Director of OMB adjusting the caps on discretionary spending in 
section 251(c) of that Act to account for the change in 
concept.
    Subsection (b) requires OMB, before adjusting the 
discretionary caps, to report to the House and Senate Budget 
Committees the amount of the prospective adjustment, the 
methodology used in determining the size of that adjustment, 
and provide a program-by-program itemization of the components 
of the adjustment.
    Subsection (c) prohibits OMB from making an adjustment 
sooner than 60 days after providing the report required above.

Section 103. Effective Date.

    Section 103 provides that the amendments made by section 
101 shall take effect beginning with fiscal year 2017.

                     Title II--Budgetary Treatment.


Section 201. CBO and OMB Studies Respecting Budgeting for Costs of 
        Federal Insurance Programs.

    Section 201 requires CBO and OMB to each prepare a study 
and make recommendations to the House and Senate Budget 
Committees as to the feasibility of applying fair value 
concepts to budgeting for the costs of Federal insurance 
programs. The report is due within one year of the enactment of 
this bill.

Section 202. On-Budget Status of Fannie Mae and Freddie Mac.

    Section 202 requires the receipts and disbursements, 
including the administrative expenses, of Fannie Mae and 
Freddie Mac to be counted as new budget authority, outlays, 
receipts, or deficit or surplus for the purposes of the budget 
of the US government as submitted by the President; the 
congressional budget; and the Balanced Budget and Emergency 
Deficit Control Act of 1985.

Section 203. Effective Date.

    Section 203 allows for the removal of Fannie Mae and 
Freddie Mac from the Federal budget once three conditions are 
met: (1) the conservatorship for such enterprise has been 
terminated; (2) the regulator of the enterprise has certified 
in writing that the enterprise has repaid as much aid to the 
Federal Government as is consistent with minimizing the total 
cost to the Federal Government of the conservatorship; and (3) 
the charter for the enterprise has been revoked, annulled, or 
terminated and the authorizing statute with respect to the 
enterprise has been repealed.

                 Title III--Budget Review and Analysis.


Section 301. CBO and OMB Review and Recommendations Respecting Receipts 
        and Collections.

    Section 301 requires OMB to prepare a study of the history 
of offsetting collections against expenditures and the amount 
of receipts collected annually, the historical application of 
the budgetary terms ``revenue'', ``offsetting collections'' and 
``offsetting receipts'', and review the current application of 
those terms. CBO is required to review this study. Both CBO and 
OMB are then each required to make recommendations to the House 
and Senate Budget Committees of whether such usage should be 
continued or modified. The report is due within one year of the 
enactment of this bill.

Section 302. Agency Budget Justifications.

    Section 302 requires agencies to make available on its 
public website all budget justification materials provided to 
Congress on the same day such justification is submitted to 
Congress. These materials are required to include information 
on the process and methodology the agency is using to comply 
with the Fair Value Accounting Act of 2014. OMB is also 
required to post these materials in a central location on its 
website. The materials must be searchable, sortable, and 
downloadable by the public; consistent with generally accepted 
standards and practices for machine-discoverability; organized 
uniformly; and use uniform identifiers.
    Section 302 also requires OMB to submit a written report to 
the House and Senate Budget Committees containing the OMB 
issued guidance to agencies on how to calculate the risk 
component under the Fair Value Accounting Act of 2014 no later 
than the day OMB issues such guidance to agencies. Such 
guidance is deemed to be a rule for purposes of section 553 of 
title 5 and can be issued only through a notice and comment 
rulemaking procedure.
    Section 302 also requires the Comptroller General to submit 
an annual report, for fiscal year 2017 and the four ensuing 
fiscal years, to the House and Senate Budget Committees which 
reviews and evaluates the progress of agencies in the 
implementation of the Fair Value Accounting Act of 2014.

                         Votes of the Committee

    Clause 3(b) of rule XIII of the Rules of the House of 
Representatives requires each committee report to accompany any 
bill or resolution of a public character to include the total 
number of votes cast for and against each roll call vote, on a 
motion to report and any amendments offered to the measure or 
matter, together with the names of those voting for and 
against.
    Listed below are the actions taken by the Committee on the 
Budget of the House of Representatives on the Budget and 
Accounting Transparency Act of 2014.
    On February 11, 2014, the committee met in open session, a 
quorum being present.
    Chairman Ryan asked unanimous consent to be authorized, 
consistent with clause 4 of rule XVI of the Rules of the House 
of Representatives, to declare a recess at any time during the 
committee meeting.
    There was no objection to the unanimous consent request.
    Chairman Ryan asked unanimous consent to dispense with the 
first reading of the bill and the bill be considered as read 
and open to amendment at any point.
    There was no objection to the unanimous consent request.
    The committee adopted and ordered reported favorably the 
Budget and Accounting Transparency Act of 2014.
    The committee took the following votes:

Amendment in the Nature of a Substitute Offered by Mr. Garrett

    1. The amendment was offered in the nature of a substitute 
to H.R. 1872 and was made in order as original text. The 
amendment changes the effective date of this bill from fiscal 
year 2015 to fiscal year 2017. The amendment also enhances the 
transparency of estimates produced under a fair-value system 
and incorporates more opportunities for public input in the 
process.
    The amendment was agreed to by voice vote.

Final Passage

    2. Dr. Price made a motion that the committee report the 
bill as amended and that the bill do pass.
    The motion was agreed to by a roll call vote of 17 ayes and 
8 noes.


------------------------------------------------------------------------
  Name &                     Answer     Name &                   Answer
  State      Aye     No     Present     State      Aye     No    Present
------------------------------------------------------------------------
RYAN,         X                       VAN                  X
 PAUL                                  HOLLEN
 (WI)                                  (MD)
 (Chairma                              (Ranking
 n)                                    )
------------------------------------------------------------------------
PRICE         X                       SCHWARTZ
 (GA)                                  (PA)
------------------------------------------------------------------------
GARRETT       X                       YARMUTH              X
 (NJ)                                  (KY)
------------------------------------------------------------------------
CAMPBELL                              PASCRELL
 (CA)                                  (NJ)
------------------------------------------------------------------------
CALVERT       X                       RYAN, TIM
 (CA)                                  (OH)
------------------------------------------------------------------------
COLE (OK)     X                       MOORE                X
                                       (WI)
------------------------------------------------------------------------
McCLINTOC     X                       CASTOR
 K (CA)                                (FL)
------------------------------------------------------------------------
LANKFORD                              McDERMOTT
 (OK)                                  (WA)
------------------------------------------------------------------------
BLACK                                 LEE (CA)
 (TN)
------------------------------------------------------------------------
RIBBLE        X                       CICILLINE
 (WI)                                  (RI)
------------------------------------------------------------------------
FLORES        X                       JEFFRIES             X
 (TX)                                  (NY)
------------------------------------------------------------------------
ROKITA        X                       POCAN                X
 (IN)                                  (WI)
------------------------------------------------------------------------
WOODALL       X                       LUJAN                X
 (GA)                                  GRISHAM
                                       (NM)
------------------------------------------------------------------------
BLACKBURN                             HUFFMAN              X
 (TN)                                  (CA)
------------------------------------------------------------------------
NUNNELEE      X                       CARDENAS
 (MS)                                  (CA)
------------------------------------------------------------------------
RIGELL        X                       BLUMENAUE
 (VA)                                  R (OR)
------------------------------------------------------------------------
HARTZLER      X                       SCHRADER             X
 (M0)                                  (OR)
------------------------------------------------------------------------
WALORSKI      X                       .........
 (IN)
------------------------------------------------------------------------
MESSER        X            .........
 (IN)
------------------------------------------------------------------------
RICE (SC)     X            .........
------------------------------------------------------------------------
WILLIAMS      X            .........
 (TX)
------------------------------------------------------------------------
DUFFY
 (WI)
------------------------------------------------------------------------

    Representative Black requested that the record reflect she 
would have voted aye on the roll call vote had she been 
present.
    Dr. Price made a motion that, pursuant to clause 1 of rule 
XXII of the Rules of the House of Representatives, the staff be 
authorized to make any necessary technical and conforming 
changes to the bill.
    The motion was agreed to without objection.

                      Committee Oversight Findings

    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee on the Budget's 
oversight findings and recommendations are reflected in the 
body of this report.

                         Budget Act Compliance

    The provisions of clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives and section 308(a)(1) of the 
Congressional Budget Act of 1974 (relating to estimates of new 
budget authority, new spending authority, new credit authority, 
or increased or decreased revenues or tax expenditures) are not 
considered applicable. The estimate and comparison required to 
be prepared by the Director of the Congressional Budget Office 
under clause 3(c)(3) of rule XIII of the Rules of the House of 
Representatives and sections 402 and 423 of the Congressional 
Budget Act of 1974 submitted to the committee prior to the 
filing of this report are as follows:

                       Congressional Budget Office,
                                             U.S. Congress,
                                 Washington, DC, February 12, 2014.
Hon. Paul Ryan, Chairman,
Committee on the Budget, U.S. House of Representatives, Washington, DC 
        20515.
    Dear Mr. Chairman: The Congressional Budget Office has prepared the 
enclosed cost estimate for H.R. 1872, the Budget and Accounting 
Transparency Act of 2014.
    If you wish further details on this estimate, we will be pleased to 
provide them. The CBO staff contact is Chad Chirico, who can be reached 
at 226-2820.
            Sincerely,
                            Douglas W. Elmendorf, Director.

Enclosure.

cc: Hon. Chris Van Hollen, Ranking Member.

               congressional budget office cost estimate
                           february 12, 2014

       H.R. 1872: Budget and Accounting Transparency Act of 2014

 As ordered reported by the House Committee on the Budget on February 
                                11, 2014

                                SUMMARY

    H.R. 1872 would modify the budgetary treatment of federal credit 
programs. Specifically, the bill would amend the Federal Credit Reform 
Act of 1990 (FCRA) to require that, beginning in fiscal year 2017, the 
cost of direct loans or loan guarantees be recognized in the federal 
budget on a fair-value basis using guidelines set forth by the 
Financial Accounting Standards Board. A fair-value approach to 
accounting for the cost of federal loans and loan guarantees would 
produce estimates of costs that either correspond to or approximate the 
value of those loans or guarantees to buyers in the private market.
    The bill also would require that the Government Accountability 
Office (GAO) produce annual reports on the progress that federal 
agencies make in its implementation; the federal budget reflect the net 
impact of programs administered by Fannie Mae and Freddie Mac; federal 
agencies post budget justifications on public websites on the same day 
they are submitted to the Congress; and the Office of Management and 
Budget (OMB) and the Congressional Budget Office (CBO) prepare studies 
on the costs of federal insurance programs and the historical 
application of the budgetary terms revenue, offsetting collections, and 
offsetting receipts.
    The proposed changes to the budgetary treatment of federal credit 
programs would increase the estimated costs of such programs compared 
to measures used under current law. (This legislation would not change 
the terms of such credit programs, but would change what is recorded in 
the budget as the cost of credit assistance.) CBO estimates that if 
fair-value procedures were used to estimate the cost of new credit 
activity in 2014, the total deficit for the year would be about $50 
billion greater than the deficit as measured under current estimating 
procedures. Because that increased cost would stem from a change in 
concepts and definitions used to prepare federal budget documents 
rather than a change in agencies' legal authority to operate credit 
programs, it would not be an additional cost attributed to H.R. 1872 
for Congressional budget enforcement procedures.
    CBO estimates that measuring the cost of federal credit programs on 
a fair-value basis as prescribed under H.R. 1872 would increase 
agencies' administrative costs to operate such programs. In addition, 
the requirements to post budget justifications on the Internet and 
produce studies would require additional resources. Assuming 
appropriation of the necessary amounts, CBO estimates such costs would 
total $16 million over the 2014-2019 period. Pay-as-you-go procedures 
do not apply to this legislation because no additional direct spending 
would be attributable to H.R. 1872 since it would not change credit 
programs. The legislation would not affect revenues.
    H.R. 1872 contains no intergovernmental or private-sector mandates 
as defined in the Unfunded Mandates Reform Act (UMRA) and would impose 
no costs on state, local, or tribal governments.

                ESTIMATED COST TO THE FEDERAL GOVERNMENT

    The estimated budgetary impact of H.R. 1872 is shown in the 
following table. The costs of this legislation fall within all budget 
functions that include administrative costs associated with federal 
credit programs.

                                    [By fiscal year, in millions of dollars]
----------------------------------------------------------------------------------------------------------------
                                                       2014    2015    2016    2017    2018    2019    2014-2019
----------------------------------------------------------------------------------------------------------------
                                  CHANGES IN SPENDING SUBJECT TO APPROPRIATION
Estimated Authorization Level.......................       *       5       5       2       2       2          16
Estimated Outlays...................................       *       5       5       2       2       2          16
----------------------------------------------------------------------------------------------------------------
Note: * = less than $500,000.

                           BASIS OF ESTIMATE

    Agencies would face various administrative challenges to develop 
and execute new requirements that would be imposed by a change in 
budgetary treatment for credit programs. CBO estimates that the 
procedures prescribed by the bill would require federal agencies that 
administer credit programs to update their accounting and budget 
preparation systems, procure advisory services, and hire additional 
staff with expertise in financial asset valuation. In addition, the 
bill's requirement that all agencies post uniform, searchable, and 
sortable budget justifications and that OMB, CBO, and GAO produce 
reports would increase administrative costs. Based on information about 
the cost of carrying out similar activities and information from some 
federal agencies that operate major credit programs, CBO estimates that 
implementing H.R. 1872 would cost $16 million over the next five years, 
assuming appropriation of the necessary amounts.

   COMPARISON OF ALTERNATIVE BUDGETARY TREATMENTS OF CREDIT PROGRAMS

    The federal government provides credit assistance in the form of 
direct loans and guaranteed loans. Most of that assistance is offered 
through a few large programs; together, the Federal Housing 
Administration's (FHA's) mortgage guarantee programs and the Department 
of Education's student loan programs account for about 65 percent of 
outstanding federally backed credit.\1\ Other major credit programs 
include the Department of Veterans Affairs' mortgage guarantee 
programs, the Department of Agriculture's credit programs for rural 
utilities, and the Small Business Administration's loan and loan 
guarantee programs. About 100 smaller credit programs currently provide 
assistance for a variety of other activities including international 
trade and investments in new energy technologies.
---------------------------------------------------------------------------
    \1\The term federally backed credit is used to encompass all 
federal loan and loan guarantee programs. For this cost estimate, these 
programs do not include the credit assistance provided by Fannie Mae or 
Freddie Mac, or the Troubled Asset Relief Program.
---------------------------------------------------------------------------
    H.R. 1872 would amend FCRA to modify procedures for calculating the 
budgetary cost of federally backed credit programs. As discussed below, 
such changes would increase the estimated cost of such programs for 
budget purposes, thereby increasing the estimates of future deficits.

                            FCRA PROCEDURES

    FCRA specifies that the budgetary cost of federally backed credit 
programs are calculated and recorded on an accrual basis--unlike most 
items in the federal budget, which are shown on a cash basis. The main 
distinction between cash and accrual accounting is that, whereas under 
cash accounting expenditures are recorded in the years when cash 
payments are made, on an accrual basis the estimated lifetime cost of a 
direct loan or loan guarantee is recognized in the year when the loan 
is approved.
    Under FCRA, the budgetary impact--or subsidy cost--of a direct loan 
or loan guarantee is calculated as the net present value of expected 
cash flows over the life of the loan. For a direct loan, net cash flows 
include payments of principal, interest, and any fees paid by the 
borrower less any amounts lost due to borrower default. For a loan 
guarantee, fees collected from the borrower and guarantor, and payments 
made to make the guarantor whole if the borrower defaults would be 
included in the cash flows. The net present value is estimated by 
discounting the expected cash flows to the time of loan disbursement. 
FCRA specifies that discounting calculations use the interest rates on 
Treasury securities with maturities comparable to the terms of loans. 
For example, cash flows projected in the year following disbursement 
are discounted using the rate for one-year Treasury securities; those 
five years out are discounted using a five-year rate; and so on.

                   COST OF CREDIT PROGRAMS UNDER FCRA

    Over the 2000-2007 period, the face value of loans made or 
guaranteed by the federal government (known as the aggregate volume of 
credit activity) averaged $300 billion and estimated subsidy costs 
under FCRA averaged $6.4 billion annually--for a net, average subsidy 
rate of 2 percent of aggregate loan volume. In contrast, the aggregate 
subsidy rate for programs covered by FCRA was negative in each fiscal 
year over the 2008-2013 period; that is, the government's lending 
activities generated an accounting profit which reduced measures of 
budget deficits in those years. That swing from positive to negative 
FCRA subsidies stemmed primarily from legislative and programmatic 
changes to student loans and FHA mortgage insurance. For 2013, CBO 
estimates that programs covered by FCRA reduced the deficit by $45 
billion.

                         FAIR-VALUE PROCEDURES

    H.R. 1872 would require that subsidy estimates for federal credit 
programs be calculated on a fair-value basis. The Financial Accounting 
Standards Board defines the fair value of a loan as the price that 
would be received if it were sold in a competitive market. Similarly, 
the fair value of a loan guarantee is the price that would have to be 
paid to induce a market participant to assume the guarantee commitment.
    In practice, differences between FCRA estimates and fair-value 
estimates stem from differences in the effective discount rates used to 
calculate the present value of future cash flows. While FCRA requires 
that subsidy calculations use Treasury rates to discount future cash 
flows, fair-value estimates employ rates that also incorporate a 
premium for market risk. Private investors require additional 
compensation for market risk because investments exposed to such risk 
are more likely to have low returns when the economy as a whole is weak 
and resources are scarce and highly valued. By incorporating a market-
based risk premium, fair-value estimates would recognize that the 
government's assumption of financial risk involves costs that exceed 
the average amount of losses that would be expected from defaults.

                COST OF CREDIT PROGRAMS UNDER H.R. 1872

    A consequence of switching to fair-value accounting is that the 
estimated budgetary cost of credit programs would appear higher than 
under FCRA. CBO has provided detailed supplementary information to the 
Congress about the fair-value cost of certain federal credit and 
insurance programs and how they compare to FCRA estimates, including an 
analysis of the cost of all federal credit programs in 2013.\2\
---------------------------------------------------------------------------
    \2\Fair-Value Estimates of the Cost of Federal Credit Programs in 
2013 (June 2012), www.cbo.gov/sites/default/files/cbofiles/attachments/
06-28-FairValue.pdf
    Costs and Policy Options for Federal Student Loan Programs (March 
2010), www.cbo.gov/ftpdocs/110xx/doc11043/03-25-StudentLoans.pdf
    Accounting for FHA's Single-Family Mortgage Insurance Program on a 
Fair-value Basis (May 18, 2011), www.cbo.gov/ftpdocs/120xx/doc12054/05-
18-FHA_Letter.pdf
    Federal Loan Guarantees for the Construction of Nuclear Power 
Plants (August 2011), www.cbo.gov/ftpdocs/122xx/doc12238/08-03-
NuclearLoans.pdf
---------------------------------------------------------------------------
    CBO estimates that if fair-value procedures were used to estimate 
the cost of credit programs in 2014, the total deficit would be about 
$50 billion greater than the deficit as measured using current 
estimating procedures. That increase would be split between the 
mandatory and discretionary portions of the budget:
    
 On a FCRA basis, CBO estimates net subsidies for mandatory 
credit programs would reduce the federal deficit by about $20 billion 
in 2014. On a fair-value basis, the cost of those same programs would 
be roughly $30 billion greater. Starting in 2015, the budget would 
record increased budget authority and outlays for those programs; 
however, because those programs are mandatory, fully funding them on a 
fair-value basis under H.R. 1872 would require no further Congressional 
action.\3\ The estimated net cost of legislative proposals for 
establishing new mandatory credit programs or changes to existing 
programs (such as student loans) would generally be larger using fair-
value procedures than they would be on a FCRA basis.
---------------------------------------------------------------------------
    \3\Mandatory spending refers to budget authority that is provided 
in laws other than appropriation acts and the outlays that result from 
such budget authority.
---------------------------------------------------------------------------
    
 Net receipts from discretionary credit programs reduced 
the estimated cost of appropriations in 2014 by about $10 billion on a 
FCRA basis. On a fair-value basis, CBO estimates that those same 
programs would have required additional appropriations of about $20 
billion. To account for the higher subsidy costs that would be incurred 
by future appropriations when measured on a fair-value basis, H.R. 1872 
would allow the caps on discretionary appropriations set forth in the 
Budget Control Act of 2011 to be adjusted upward.
    The Administration currently records transactions related to the 
Treasury's conservatorship of Fannie Mae and Freddie Mac on a cash 
basis in the federal budget. In contrast, CBO projects the budgetary 
impact of the two entities' operations in future years as if they were 
being conducted by a federal agency because of the degree of management 
and financial control that the government exercises over them. 
Therefore, CBO estimates the net lifetime costs--that is, the subsidy 
costs adjusted for market risk--of guarantees that will be issued by as 
well as loans that will be held by the entities and counts those costs 
as federal outlays in the year of issuance. CBO estimates that the net 
impact of the activities of those entities will cost an average of 
about $2 billion per year on a fair-value basis over the next 10 years.

                   PAY-AS-YOU-GO CONSIDERATIONSNONE.

              intergovernmental and private-sector impact
    H.R. 1872 contains no intergovernmental or private-sector mandates 
as defined in UMRA and would impose no costs on state, local, or tribal 
governments.

                          ESTIMATE PREPARED BY

    Federal Costs: Chad Chirico.
    Impact on State, Local, and Tribal Governments: Melissa Merrell.
    Impact on the Private Sector: Paige Piper/Bach.
                          estimate approved by
    Peter H. Fontaine, Assistant Director for Budget Analysis.

                    Performance Goals and Objectives

    With respect to the requirement of clause 3(c)(4) of rule 
XIII of the Rules of the House of Representatives, the 
performance goals and objectives of this legislation are to 
increase the transparency of Federal budgeting by bringing off-
budget entities on-budget, reform the accounting methodology 
used for Federal credit programs to reflect best practices from 
the private sector, and require agencies to promptly make 
public the budget justification materials they submit to 
Congress in support of their requests for public funds.

                   Constitutional Authority Statement

    Pursuant to clause 7 of rule XII of the Rules of the House 
of Representatives, the committee finds the constitutional 
authority for this legislation in Article I, section 9, clause 
7.

                        Committee Cost Estimate

    Pursuant to clause 3(c)(3) of rule XIII of the Rules of the 
House of Representatives, the committee report incorporates the 
cost estimate prepared by the Director of the Congressional 
Budget Office pursuant to sections 402 and 423 of the 
Congressional Budget Act of 1974.

                      Advisory Committee Statement

    No advisory committee within the meaning of section 5(b) of 
the Federal Advisory Committee Act was created by this 
legislation.

                Applicability to the Legislative Branch

    The committee finds that the legislation does not relate to 
the terms and conditions of employment or access to public 
services or accommodations within the meaning of section 
102(b)(3) of the Congressional Accountability Act (P.L. 104-1).

                       Federal Mandates Statement

    The committee adopts the estimate of Federal mandates 
prepared by the Director of the Congressional Budget Office 
pursuant to section 423 of the Unfunded Mandates Reform Act 
(P.L. 104-4).

                          Advisory on Earmarks

    In accordance with clause 9 of rule XXI of the Rules of the 
House of Representatives, H.R. 1872 does not contain any 
congressional earmarks, limited tax benefits, or limited tariff 
benefits as defined in clause 9(e), 9(f), or 9(g) of rule XXI 
of the Rules of the House of Representatives.

                    Duplication of Federal Programs

    No provision of H.R. 1872, the Budget and Accounting 
Transparency Act of 2014, establishes or reauthorizes a program 
of the Federal Government known to be duplicative of another 
Federal program, a program that was included in any report from 
the Government Accountability Office to Congress pursuant to 
section 21 of Public Law 111-139, or a program related to a 
program identified in the most recent Catalog of Federal 
Domestic Assistance.

                  Disclosure of Directed Rule Makings

    The Committee estimates that H.R. 1872, the Budget and 
Accounting Transparency Act of 2014, does not require any 
directed rule makings.

         Changes in Existing Law Made by the Bill, as Reported

    In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

        CONGRESSIONAL BUDGET AND IMPOUNDMENT CONTROL ACT OF 1974


                    short titles; table of contents

    Section 1. (a) * * *
    (b) Table of Contents.--

Sec. 1. Short titles; table of contents.
     * * * * * * *

                         [TITLE V--CREDIT REFORM

[Sec. 500. Short title.
[Sec. 501. Purposes.
[Sec. 502. Definitions.
[Sec. 503. OMB and CBO analysis, coordination, and review.
[Sec. 504. Budgetary treatment.
[Sec. 505. Authorizations.
[Sec. 506. Treatment of deposit insurance and agencies and other 
          insurance programs.
[Sec. 507. Effect on other laws.]

                           Title V--FAIR VALUE

Sec. 500. Short title.
Sec. 501. Purposes.
Sec. 502. Definitions.
Sec. 503. OMB and CBO analysis, coordination, and review.
Sec. 504. Budgetary treatment.
Sec. 505. Authorizations.
Sec. 506. Treatment of deposit insurance and agencies and other 
          insurance programs.
Sec. 507. Effect on other laws.

           *       *       *       *       *       *       *


                        [TITLE V--CREDIT REFORM

[SEC. 500. SHORT TITLE.

    [This title may be cited as the ``Federal Credit Reform Act 
of 1990''.

[SEC. 501. PURPOSES.

    [The purposes of this title are to--
            [(1) measure more accurately the costs of Federal 
        credit programs;
            [(2) place the cost of credit programs on a 
        budgetary basis equivalent to other Federal spending;
            [(3) encourage the delivery of benefits in the form 
        most appropriate to the needs of beneficiaries; and
            [(4) improve the allocation of resources among 
        credit programs and between credit and other spending 
        programs.

[SEC. 502. DEFINITIONS.

    [For purposes of this title--
            [(1) The term ``direct loan'' means a disbursement 
        of funds by the Government to a non-Federal borrower 
        under a contract that requires the repayment of such 
        funds with or without interest. The term includes the 
        purchase of, or participation in, a loan made by 
        another lender and financing arrangements that defer 
        payment for more than 90 days, including the sale of a 
        government asset on credit terms. The term does not 
        include the acquisition of a federally guaranteed loan 
        in satisfaction of default claims or the price support 
        loans of the Commodity Credit Corporation.
            [(2) The term ``direct loan obligation'' means a 
        binding agreement by a Federal agency to make a direct 
        loan when specified conditions are fulfilled by the 
        borrower.
            [(3) The term ``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, but does not include 
        the insurance of deposits, shares, or other 
        withdrawable accounts in financial institutions.
            [(4) The term ``loan guarantee commitment'' means a 
        binding agreement by a Federal agency to make a loan 
        guarantee when specified conditions are fulfilled by 
        the borrower, the lender, or any other party to the 
        guarantee agreement.
            [(5)(A) The term ``cost'' means the estimated long-
        term cost to the Government of a direct loan or loan 
        guarantee or modification thereof, calculated on a net 
        present value basis, excluding administrative costs and 
        any incidental effects on governmental receipts or 
        outlays.
            [(B) The cost of a direct loan shall be the net 
        present value, at the time when the direct loan is 
        disbursed, of the following estimated cash flows:
                    [(i) loan disbursements;
                    [(ii) repayments of principal; and
                    [(iii) payments of interest and other 
                payments by or to the Government over the life 
                of the loan after adjusting for estimated 
                defaults, prepayments, fees, penalties, and 
                other recoveries;
        including the effects of changes in loan terms 
        resulting from the exercise by the borrower of an 
        option included in the loan contract.
            [(C) The cost of a loan guarantee shall be the net 
        present value, at the time when the guaranteed loan is 
        disbursed, of the following estimated cash flows:
                    [(i) payments by the Government to cover 
                defaults and delinquencies, interest subsidies, 
                or other payments; and
                    [(ii) payments to the Government including 
                origination and other fees, penalties and 
                recoveries;
        including the effects of changes in loan terms 
        resulting from the exercise by the guaranteed lender of 
        an option included in the loan guarantee contract, or 
        by the borrower of an option included in the guaranteed 
        loan contract.
            [(D) The cost of a modification is the difference 
        between the current estimate of the net present value 
        of the remaining cash flows under the terms of a direct 
        loan or loan guarantee contract, and the current 
        estimate of the net present value of the remaining cash 
        flows under the terms of the contract, as modified.
            [(E) In estimating net present values, the discount 
        rate shall be the average interest rate on marketable 
        Treasury securities of similar maturity to the cash 
        flows of the direct loan or loan guarantee for which 
        the estimate is being made.
            [(F) When funds are obligated for a direct loan or 
        loan guarantee, the estimated cost shall be based on 
        the current assumptions, adjusted to incorporate the 
        terms of the loan contract, for the fiscal year in 
        which the funds are obligated.
            [(6) The term ``credit program account'' means the 
        budget account into which an appropriation to cover the 
        cost of a direct loan or loan guarantee program is made 
        and from which such cost is disbursed to the financing 
        account.
            [(7) The term ``financing account'' means the non-
        budget account or accounts associated with each credit 
        program account which holds balances, receives the cost 
        payment from the credit program account, and also 
        includes all other cash flows to and from the 
        Government resulting from direct loan obligations or 
        loan guarantee commitments made on or after October 1, 
        1991.
            [(8) The term ``liquidating account'' means the 
        budget account that includes all cash flows to and from 
        the Government resulting from direct loan obligations 
        or loan guarantee commitments made prior to October 1, 
        1991. These accounts shall be shown in the budget on a 
        cash basis.
            [(9) The term ``modification'' means any Government 
        action that alters the estimated cost of an outstanding 
        direct loan (or direct loan obligation) or an 
        outstanding loan guarantee (or loan guarantee 
        commitment) from the current estimate of cash flows. 
        This includes the sale of loan assets, with or without 
        recourse, and the purchase of guaranteed loans. This 
        also includes any action resulting from new 
        legislation, or from the exercise of administrative 
        discretion under existing law, that directly or 
        indirectly alters the estimated cost of outstanding 
        direct loans (or direct loan obligations) or loan 
        guarantees (or loan guarantee commitments) such as a 
        change in collection procedures.
            [(10) The term ``current'' has the same meaning as 
        in section 250(c)(9) of the Balanced Budget and 
        Emergency Deficit Control Act of 1985.
            [(11) The term ``Director'' means the Director of 
        the Office of Management and Budget.

[SEC. 503. OMB AND CBO ANALYSIS, COORDINATION, AND REVIEW.

    [(a) In General.--For the executive branch, the Director 
shall be responsible for coordinating the estimates required by 
this title. The Director shall consult with the agencies that 
administer direct loan or loan guarantee programs.
    [(b) Delegation.--The Director may delegate to agencies 
authority to make estimates of costs. The delegation of 
authority shall be based upon written guidelines, regulations, 
or criteria consistent with the definitions in this title.
    [(c) Coordination With the Congressional Budget Office.--In 
developing estimation guidelines, regulations, or criteria to 
be used by Federal agencies, the Director shall consult with 
the Director of the Congressional Budget Office.
    [(d) Improving Cost Estimates.--The Director and the 
Director of the Congressional Budget Office shall coordinate 
the development of more accurate data on historical performance 
of direct loan and loan guarantee programs. They shall annually 
review the performance of outstanding direct loans and loan 
guarantees to improve estimates of costs. The Office of 
Management and Budget and the Congressional Budget Office shall 
have access to all agency data that may facilitate the 
development and improvement of estimates of costs.
    [(e) Historical Credit Program Costs.--The Director shall 
review, to the extent possible, historical data and develop the 
best possible estimates of adjustments that would convert 
aggregate historical budget data to credit reform accounting.
    [(f) Administrative Costs.--The Director and the Director 
of the Congressional Budget Office shall each analyze and 
report to Congress on differences in long-term administrative 
costs for credit programs versus grant programs by January 31, 
1992. Their reports shall recommend to Congress any changes, if 
necessary, in the treatment of administrative costs under 
credit reform accounting.

[SEC. 504. BUDGETARY TREATMENT.

    [(a) President's Budget.--Beginning with fiscal year 1992, 
the President's budget shall reflect the costs of direct loan 
and loan guarantee programs. The budget shall also include the 
planned level of new direct loan obligations or loan guarantee 
commitments associated with each appropriations request.
    [(b) Appropriations Required.--Notwithstanding any other 
provision of law, new direct loan obligations may be incurred 
and new loan guarantee commitments may be made for fiscal year 
1992 and thereafter only to the extent that--
            [(1) new budget authority to cover their costs is 
        provided in advance in an appropriations Act;
            [(2) a limitation on the use of funds otherwise 
        available for the cost of a direct loan or loan 
        guarantee program has been provided in advance in an 
        appropriations Act; or
            [(3) authority is otherwise provided in 
        appropriation Acts.
    [(c) Exemption for Mandatory Programs.--Subsections (b) and 
(e) shall not apply to a direct loan or loan guarantee program 
that--
            [(1) constitutes an entitlement (such as the 
        guaranteed student loan program or the veterans' home 
        loan guaranty program); or
            [(2) all existing credit programs of the Commodity 
        Credit Corporation on the date of enactment of this 
        title.
    [(d) Budget Accounting.--
            [(1) The authority to incur new direct loan 
        obligations, make new loan guarantee commitments, or 
        modify outstanding direct loans (or direct loan 
        obligations) or loan guarantees (or loan guarantee 
        commitments) shall constitute new budget authority in 
        an amount equal to the cost of the direct loan or loan 
        guarantee in the fiscal year in which definite 
        authority becomes available or indefinite authority is 
        used. Such budget authority shall constitute an 
        obligation of the credit program account to pay to the 
        financing account.
            [(2) The outlays resulting from new budget 
        authority for the cost of direct loans or loan 
        guarantees described in paragraph (1) shall be paid 
        from the credit program account into the financing 
        account and recorded in the fiscal year in which the 
        direct loan or the guaranteed loan is disbursed or its 
        costs altered.
            [(3) All collections and payments of the financing 
        accounts shall be a means of financing.
    [(e) Modifications.--An outstanding direct loan (or direct 
loan obligation) or loan guarantee (or loan guarantee 
commitment) shall not be modified in a manner that increases 
its costs unless budget authority for the additional cost has 
been provided in advance in an appropriations Act.
    [(f) Reestimates.--When the estimated cost for a group of 
direct loans or loan guarantees for a given credit program made 
in a single fiscal year is reestimated in a subsequent year, 
the difference between the reestimated cost and the previous 
cost estimate shall be displayed as a distinct and separately 
identified subaccount in the credit program account as a change 
in program costs and a change in net interest. There is hereby 
provided permanent indefinite authority for these reestimates.
    [(g) Administrative Expenses.--All funding for an agency's 
administration of a direct loan or loan guarantee program shall 
be displayed as distinct and separately identified subaccounts 
within the same budget account as the program's cost.

[SEC. 505. AUTHORIZATIONS.

    [(a) Authorization of Appropriations for Costs.--There are 
authorized to be appropriated to each Federal agency authorized 
to make direct loan obligations or loan guarantee commitments, 
such sums as may be necessary to pay the cost associated with 
such direct loan obligations or loan guarantee commitments.
    [(b) Authorization for Financing Accounts.--In order to 
implement the accounting required by this title, the President 
is authorized to establish such non-budgetary accounts as may 
be appropriate.
    [(c) Treasury Transactions With the Financing Accounts.--
The Secretary of the Treasury shall borrow from, receive from, 
lend to, or pay to the financing accounts such amounts as may 
be appropriate. The Secretary of the Treasury may prescribe 
forms and denominations, maturities, and terms and conditions 
for the transactions described above, except that the rate of 
interest charged by the Secretary on lending to financing 
accounts (including amounts treated as lending to financing 
accounts by the Federal Financing Bank (hereinafter in this 
subsection referred to as the ``Bank'') pursuant to section 
405(b)) and the rate of interest paid to financing accounts on 
uninvested balances in financing accounts shall be the same as 
the rate determined pursuant to section 502(5)(E). For 
guaranteed loans financed by the Bank and treated as direct 
loans by a Federal agency pursuant to section 405(b), any fee 
or interest surcharge (the amount by which the interest rate 
charged exceeds the rate determined pursuant to section 
502(5)(E)) that the Bank charges to a private borrower pursuant 
to section 6(c) of the Federal Financing Bank Act of 1973 shall 
be considered a cash flow to the Government for the purposes of 
determining the cost of the direct loan pursuant to section 
502(5). All such amounts shall be credited to the appropriate 
financing account. The Bank is authorized to require 
reimbursement from a Federal agency to cover the administrative 
expenses of the Bank that are attributable to the direct loans 
financed for that agency. All such payments by an agency shall 
be considered administrative expenses subject to section 
504(g). This subsection shall apply to transactions related to 
direct loan obligations or loan guarantee commitments made on 
or after October 1, 1991. The authorities described above shall 
not be construed to supersede or override the authority of the 
head of a Federal agency to administer and operate a direct 
loan or loan guarantee program. All of the transactions 
provided in this subsection shall be subject to the provisions 
of subchapter II of chapter 15 of title 31, United States Code. 
Cash balances of the financing accounts in excess of current 
requirements shall be maintained in a form of uninvested funds 
and the Secretary of the Treasury shall pay interest on these 
funds.
    [(d) Authorization for Liquidating Accounts.--(1) Amounts 
in liquidating accounts shall be available only for payments 
resulting from direct loan obligations or loan guarantee 
commitments made prior to October 1, 1991, for--
            [(A) interest payments and principal repayments to 
        the Treasury or the Federal Financing Bank for amounts 
        borrowed;
            [(B) disbursements of loans;
            [(C) default and other guarantee claim payments;
            [(D) interest supplement payments;
            [(E) payments for the costs of foreclosing, 
        managing, and selling collateral that are capitalized 
        or routinely deducted from the proceeds of sales;
            [(F) payments to financing accounts when required 
        for modifications;
            [(G) administrative expenses, if--
                    [(i) amounts credited to the liquidating 
                account would have been available for 
                administrative expenses under a provision of 
                law in effect prior to October 1, 1991; and
                    [(ii) no direct loan obligation or loan 
                guarantee commitment has been made, or any 
                modification of a direct loan or loan guarantee 
                has been made, since September 30, 1991; or
            [(H) such other payments as are necessary for the 
        liquidation of such direct loan obligations and loan 
        guarantee commitments.
    [(2) Amounts credited to liquidating accounts in any year 
shall be available only for payments required in that year. Any 
unobligated balances in liquidating accounts at the end of a 
fiscal year shall be transferred to miscellaneous receipts as 
soon as practicable after the end of the fiscal year.
    [(3) If funds in liquidating accounts are insufficient to 
satisfy obligations and commitments of such accounts, there is 
hereby provided permanent, indefinite authority to make any 
payments required to be made on such obligations and 
commitments.
    [(e) Authorization of Appropriations for Implementation 
Expenses.--There are authorized to be appropriated to existing 
accounts such sums as may be necessary for salaries and 
expenses to carry out the responsibilities under this title.
    [(f) Reinsurance.--Nothing in this title shall be construed 
as authorizing or requiring the purchase of insurance or 
reinsurance on a direct loan or loan guarantee from private 
insurers. If any such reinsurance for a direct loan or loan 
guarantee is authorized, the cost of such insurance and any 
recoveries to the Government shall be included in the 
calculation of the cost.
    [(g) Eligibility and Assistance.--Nothing in this title 
shall be construed to change the authority or the 
responsibility of a Federal agency to determine the terms and 
conditions of eligibility for, or the amount of assistance 
provided by a direct loan or a loan guarantee.

[SEC. 506. TREATMENT OF DEPOSIT INSURANCE AND AGENCIES AND OTHER 
                    INSURANCE PROGRAMS.

    [(a) In General.--This title shall not apply to the credit 
or insurance activities of the Federal Deposit Insurance 
Corporation, National Credit Union Administration, Resolution 
Trust Corporation, Pension Benefit Guaranty Corporation, 
National Flood Insurance, National Insurance Development Fund, 
Crop Insurance, or Tennessee Valley Authority.
    [(b) Study.--The Director and the Director of the 
Congressional Budget Office shall each study whether the 
accounting for Federal deposit insurance programs should be on 
a cash basis on the same basis as loan guarantees, or on a 
different basis. Each Director shall report findings and 
recommendations to the President and the Congress on or before 
May 31, 1991.
    [(c) Access to Data.--For the purposes of subsection (b), 
the Office of Management and Budget and the Congressional 
Budget Office shall have access to all agency data that may 
facilitate these studies.

[SEC. 507. EFFECT ON OTHER LAWS.

    [(a) Effect on Other Laws.--This title shall supersede, 
modify, or repeal any provision of law enacted prior to the 
date of enactment of this title to the extent such provision is 
inconsistent with this title. Nothing in this title shall be 
construed to establish a credit limitation on any Federal loan 
or loan guarantee program.
    [(b) Crediting of Collections.--Collections resulting from 
direct loans obligated or loan guarantees committed prior to 
October 1, 1991, shall be credited to the liquidating accounts 
of Federal agencies. Amounts so credited shall be available, to 
the same extent that they were available prior to the date of 
enactment of this title, to liquidate obligations arising from 
such direct loans obligated or loan guarantees committed prior 
to October 1, 1991, including repayment of any obligations held 
by the Secretary of the Treasury or the Federal Financing Bank. 
The unobligated balances of such accounts that are in excess of 
current needs shall be transferred to the general fund of the 
Treasury. Such transfers shall be made from time to time but, 
at least once each year.]

                          TITLE V--FAIR VALUE

SEC. 500. SHORT TITLE.

    This title may be cited as the ``Fair Value Accounting Act 
of 2014''.

SEC. 501. PURPOSES.

    The purposes of this title are to--
            (1) measure more accurately the costs of Federal 
        credit programs by accounting for them on a fair value 
        basis;
            (2) place the cost of credit programs on a 
        budgetary basis equivalent to other Federal spending;
            (3) encourage the delivery of benefits in the form 
        most appropriate to the needs of beneficiaries; and
            (4) improve the allocation of resources among 
        Federal programs.

SEC. 502. DEFINITIONS.

    For purposes of this title:
            (1) The term ``direct loan'' means a disbursement 
        of funds by the Government to a non-Federal borrower 
        under a contract that requires the repayment of such 
        funds with or without interest. The term includes the 
        purchase of, or participation in, a loan made by 
        another lender and financing arrangements that defer 
        payment for more than 90 days, including the sale of a 
        Government asset on credit terms. The term does not 
        include the acquisition of a federally guaranteed loan 
        in satisfaction of default claims or the price support 
        loans of the Commodity Credit Corporation.
            (2) The term ``direct loan obligation'' means a 
        binding agreement by a Federal agency to make a direct 
        loan when specified conditions are fulfilled by the 
        borrower.
            (3) The term ``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, but does not include 
        the insurance of deposits, shares, or other 
        withdrawable accounts in financial institutions.
            (4) The term ``loan guarantee commitment'' means a 
        binding agreement by a Federal agency to make a loan 
        guarantee when specified conditions are fulfilled by 
        the borrower, the lender, or any other party to the 
        guarantee agreement.
            (5)(A) The term ``cost'' means the sum of the 
        Treasury discounting component and the risk component 
        of a direct loan or loan guarantee, or a modification 
        thereof.
            (B) The Treasury discounting component shall be the 
        estimated long-term cost to the Government of a direct 
        loan or loan guarantee, or modification thereof, 
        calculated on a net present value basis, excluding 
        administrative costs and any incidental effects on 
        governmental receipts or outlays.
            (C) The risk component shall be an amount equal to 
        the difference between--
                    (i) the estimated long-term cost to the 
                Government of a direct loan or loan guarantee, 
                or modification thereof, estimated on a fair 
                value basis, applying the guidelines set forth 
                by the Financial Accounting Standards Board in 
                Financial Accounting Standards #157, or a 
                successor thereto, excluding administrative 
                costs and any incidental effects on 
                governmental receipts or outlays; and
                    (ii) the Treasury discounting component of 
                such direct loan or loan guarantee, or 
                modification thereof.
            (D) The Treasury discounting component of a direct 
        loan shall be the net present value, at the time when 
        the direct loan is disbursed, of the following 
        estimated cash flows:
                    (i) Loan disbursements.
                    (ii) Repayments of principal.
                    (iii) Essential preservation expenses, 
                payments of interest and other payments by or 
                to the Government over the life of the loan 
                after adjusting for estimated defaults, 
                prepayments, fees, penalties, and other 
                recoveries, including the effects of changes in 
                loan terms resulting from the exercise by the 
                borrower of an option included in the loan 
                contract.
            (E) The Treasury discounting component of a loan 
        guarantee shall be the net present value, at the time 
        when the guaranteed loan is disbursed, of the following 
        estimated cash flows:
                    (i) Payments by the Government to cover 
                defaults and delinquencies, interest subsidies, 
                essential preservation expenses, or other 
                payments.
                    (ii) Payments to the Government including 
                origination and other fees, penalties, and 
                recoveries, including the effects of changes in 
                loan terms resulting from the exercise by the 
                guaranteed lender of an option included in the 
                loan guarantee contract, or by the borrower of 
                an option included in the guaranteed loan 
                contract.
            (F) The cost of a modification is the sum of--
                    (i) the difference between the current 
                estimate of the Treasury discounting component 
                of the remaining cash flows under the terms of 
                a direct loan or loan guarantee and the current 
                estimate of the Treasury discounting component 
                of the remaining cash flows under the terms of 
                the contract, as modified; and
                    (ii) the difference between the current 
                estimate of the risk component of the remaining 
                cash flows under the terms of a direct loan or 
                loan guarantee and the current estimate of the 
                risk component of the remaining cash flows 
                under the terms of the contract as modified.
            (G) In estimating Treasury discounting components, 
        the discount rate shall be the average interest rate on 
        marketable Treasury securities of similar duration to 
        the cash flows of the direct loan or loan guarantee for 
        which the estimate is being made.
            (H) When funds are obligated for a direct loan or 
        loan guarantee, the estimated cost shall be based on 
        the current assumptions, adjusted to incorporate the 
        terms of the loan contract, for the fiscal year in 
        which the funds are obligated.
            (6) The term ``program account'' means the budget 
        account into which an appropriation to cover the cost 
        of a direct loan or loan guarantee program is made and 
        from which such cost is disbursed to the financing 
        account.
            (7) The term ``financing account'' means the 
        nonbudget account or accounts associated with each 
        program account which holds balances, receives the cost 
        payment from the program account, and also includes all 
        other cash flows to and from the Government resulting 
        from direct loan obligations or loan guarantee 
        commitments made on or after October 1, 1991.
            (8) The term ``liquidating account'' means the 
        budget account that includes all cash flows to and from 
        the Government resulting from direct loan obligations 
        or loan guarantee commitments made prior to October 1, 
        1991. These accounts shall be shown in the budget on a 
        cash basis.
            (9) The term ``modification'' means any Government 
        action that alters the estimated cost of an outstanding 
        direct loan (or direct loan obligation) or an 
        outstanding loan guarantee (or loan guarantee 
        commitment) from the current estimate of cash flows. 
        This includes the sale of loan assets, with or without 
        recourse, and the purchase of guaranteed loans (or 
        direct loan obligations) or loan guarantees (or loan 
        guarantee commitments) such as a change in collection 
        procedures.
            (10) The term ``current'' has the same meaning as 
        in section 250(c)(9) of the Balanced Budget and 
        Emergency Deficit Control Act of 1985.
            (11) The term ``Director'' means the Director of 
        the Office of Management and Budget.
            (12) The term ``administrative costs'' means costs 
        related to program management activities, but does not 
        include essential preservation expenses.
            (13) The term ``essential preservation expenses'' 
        means servicing and other costs that are essential to 
        preserve the value of loan assets or collateral.

SEC. 503. OMB AND CBO ANALYSIS, COORDINATION, AND REVIEW.

    (a) In General.--For the executive branch, the Director 
shall be responsible for coordinating the estimates required by 
this title. The Director shall consult with the agencies that 
administer direct loan or loan guarantee programs.
    (b) Delegation.--The Director may delegate to agencies 
authority to make estimates of costs. The delegation of 
authority shall be based upon written guidelines, regulations, 
or criteria consistent with the definitions in this title.
    (c) Coordination with the Congressional Budget Office.--In 
developing estimation guidelines, regulations, or criteria to 
be used by Federal agencies, the Director shall consult with 
the Director of the Congressional Budget Office.
    (d) Improving Cost Estimates.--The Director and the 
Director of the Congressional Budget Office shall coordinate 
the development of more accurate data on historical performance 
and prospective risk of direct loan and loan guarantee 
programs. They shall annually review the performance of 
outstanding direct loans and loan guarantees to improve 
estimates of costs. The Office of Management and Budget and the 
Congressional Budget Office shall have access to all agency 
data that may facilitate the development and improvement of 
estimates of costs.
    (e) Historical Credit Programs Costs.--The Director shall 
review, to the extent possible, historical data and develop the 
best possible estimates of adjustments that would convert 
aggregate historical budget data to credit reform accounting.

SEC. 504. BUDGETARY TREATMENT.

    (a) President's Budget.--Beginning with fiscal year 2017, 
the President's budget shall reflect the costs of direct loan 
and loan guarantee programs. The budget shall also include the 
planned level of new direct loan obligations or loan guarantee 
commitments associated with each appropriations request. For 
each fiscal year within the five-fiscal year period beginning 
with fiscal year 2017, such budget shall include, on an agency-
by-agency basis, subsidy estimates and costs of direct loan and 
loan guarantee programs with and without the risk component.
    (b) Appropriations Required.--Notwithstanding any other 
provision of law, new direct loan obligations may be incurred 
and new loan guarantee commitments may be made for fiscal year 
2017 and thereafter only to the extent that--
            (1) new budget authority to cover their costs is 
        provided in advance in an appropriation Act;
            (2) a limitation on the use of funds otherwise 
        available for the cost of a direct loan or loan 
        guarantee program has been provided in advance in an 
        appropriation Act; or
            (3) authority is otherwise provided in 
        appropriation Acts.
    (c) Exemption for Direct Spending Programs.--Subsections 
(b) and (e) shall not apply to--
            (1) any direct loan or loan guarantee program that 
        constitutes an entitlement (such as the guaranteed 
        student loan program or the veteran's home loan 
        guaranty program);
            (2) the credit programs of the Commodity Credit 
        Corporation existing on the date of enactment of this 
        title; or
            (3) any direct loan (or direct loan obligation) or 
        loan guarantee (or loan guarantee commitment) made by 
        the Federal National Mortgage Association or the 
        Federal Home Loan Mortgage Corporation.
    (d) Budget Accounting.--
            (1) The authority to incur new direct loan 
        obligations, make new loan guarantee commitments, or 
        modify outstanding direct loans (or direct loan 
        obligations) or loan guarantees (or loan guarantee 
        commitments) shall constitute new budget authority in 
        an amount equal to the cost of the direct loan or loan 
        guarantee in the fiscal year in which definite 
        authority becomes available or indefinite authority is 
        used. Such budget authority shall constitute an 
        obligation of the program account to pay to the 
        financing account.
            (2) The outlays resulting from new budget authority 
        for the cost of direct loans or loan guarantees 
        described in paragraph (1) shall be paid from the 
        program account into the financing account and recorded 
        in the fiscal year in which the direct loan or the 
        guaranteed loan is disbursed or its costs altered.
            (3) All collections and payments of the financing 
        accounts shall be a means of financing.
    (e) Modifications.--An outstanding direct loan (or direct 
loan obligation) or loan guarantee (or loan guarantee 
commitment) shall not be modified in a manner that increases 
its costs unless budget authority for the additional cost has 
been provided in advance in an appropriation Act.
    (f) Reestimates.--When the estimated cost for a group of 
direct loans or loan guarantees for a given program made in a 
single fiscal year is re-estimated in a subsequent year, the 
difference between the reestimated cost and the previous cost 
estimate shall be displayed as a distinct and separately 
identified subaccount in the program account as a change in 
program costs and a change in net interest. There is hereby 
provided permanent indefinite authority for these re-estimates.
    (g) Administrative Expenses.--All funding for an agency's 
administrative costs associated with a direct loan or loan 
guarantee program shall be displayed as distinct and separately 
identified subaccounts within the same budget account as the 
program's cost.

SEC. 505. AUTHORIZATIONS.

    (a) Authorization for Financing Accounts.--In order to 
implement the accounting required by this title, the President 
is authorized to establish such non-budgetary accounts as may 
be appropriate.
    (b) Treasury Transactions with the Financing Accounts.--
            (1) In general.--The Secretary of the Treasury 
        shall borrow from, receive from, lend to, or pay to the 
        financing accounts such amounts as may be appropriate. 
        The Secretary of the Treasury may prescribe forms and 
        denominations, maturities, and terms and conditions for 
        the transactions described in the preceding sentence, 
        except that the rate of interest charged by the 
        Secretary on lending to financing accounts (including 
        amounts treated as lending to financing accounts by the 
        Federal Financing Bank (hereinafter in this subsection 
        referred to as the ``Bank'') pursuant to section 
        405(b)) and the rate of interest paid to financing 
        accounts on uninvested balances in financing accounts 
        shall be the same as the rate determined pursuant to 
        section 502(5)(G).
            (2) Loans.--For guaranteed loans financed by the 
        Bank and treated as direct loans by a Federal agency 
        pursuant to section 406(b)(1), any fee or interest 
        surcharge (the amount by which the interest rate 
        charged exceeds the rate determined pursuant to section 
        502(5)(G) that the Bank charges to a private borrower 
        pursuant to section 6(c) of the Federal Financing Bank 
        Act of 1973 shall be considered a cash flow to the 
        Government for the purposes of determining the cost of 
        the direct loan pursuant to section 502(5). All such 
        amounts shall be credited to the appropriate financing 
        account.
            (3) Reimbursement.--The Bank is authorized to 
        require reimbursement from a Federal agency to cover 
        the administrative expenses of the Bank that are 
        attributable to the direct loans financed for that 
        agency. All such payments by an agency shall be 
        considered administrative expenses subject to section 
        504(g). This subsection shall apply to transactions 
        related to direct loan obligations or loan guarantee 
        commitments made on or after October 1, 1991.
            (4) Authority.--The authorities provided in this 
        subsection shall not be construed to supersede or 
        override the authority of the head of a Federal agency 
        to administer and operate a direct loan or loan 
        guarantee program.
            (5) Title 31.--All of the transactions provided in 
        the subsection shall be subject to the provisions of 
        subchapter II of chapter 15 of title 31, United States 
        Code.
            (6) Treatment of cash balances.--Cash balances of 
        the financing accounts in excess of current 
        requirements shall be maintained in a form of 
        uninvested funds and the Secretary of the Treasury 
        shall pay interest on these funds. The Secretary of the 
        Treasury shall charge (or pay if the amount is 
        negative) financing accounts an amount equal to the 
        risk component for a direct loan or loan guarantee, or 
        modification thereof. Such amount received by the 
        Secretary of the Treasury shall be a means of financing 
        and shall not be considered a cash flow of the 
        Government for the purposes of section 502(5).
    (c) Authorization for Liquidating Accounts.--(1) Amounts in 
liquidating accounts shall be available only for payments 
resulting from direct loan obligations or loan guarantee 
commitments made prior to October 1, 1991, for--
            (A) interest payments and principal repayments to 
        the Treasury or the Federal Financing Bank for amounts 
        borrowed;
            (B) disbursements of loans;
            (C) default and other guarantee claim payments;
            (D) interest supplement payments;
            (E) payments for the costs of foreclosing, 
        managing, and selling collateral that are capitalized 
        or routinely deducted from the proceeds of sales;
            (F) payments to financing accounts when required 
        for modifications;
            (G) administrative costs and essential preservation 
        expenses, if--
                    (i) amounts credited to the liquidating 
                account would have been available for 
                administrative costs and essential preservation 
                expenses under a provision of law in effect 
                prior to October 1, 1991; and
                    (ii) no direct loan obligation or loan 
                guarantee commitment has been made, or any 
                modification of a direct loan or loan guarantee 
                has been made, since September 30, 1991; or
            (H) such other payments as are necessary for the 
        liquidation of such direct loan obligations and loan 
        guarantee commitments.
    (2) Amounts credited to liquidating accounts in any year 
shall be available only for payments required in that year. Any 
unobligated balances in liquidating accounts at the end of a 
fiscal year shall be transferred to miscellaneous receipts as 
soon as practicable after the end of the fiscal year.
    (3) If funds in liquidating accounts are insufficient to 
satisfy obligations and commitments of such accounts, there is 
hereby provided permanent, indefinite authority to make any 
payments required to be made on such obligations and 
commitments.
    (d) Reinsurance.--Nothing in this title shall be construed 
as authorizing or requiring the purchase of insurance or 
reinsurance on a direct loan or loan guarantee from private 
insurers. If any such reinsurance for a direct loan or loan 
guarantee is authorized, the cost of such insurance and any 
recoveries to the Government shall be included in the 
calculation of the cost.
    (e) Eligibility and Assistance.--Nothing in this title 
shall be construed to change the authority or the 
responsibility of a Federal agency to determine the terms and 
conditions of eligibility for, or the amount of assistance 
provided by a direct loan or a loan guarantee.

SEC. 506. TREATMENT OF DEPOSIT INSURANCE AND AGENCIES AND OTHER 
                    INSURANCE PROGRAMS.

    This title shall not apply to the credit or insurance 
activities of the Federal Deposit Insurance Corporation, 
National Credit Union Administration, Resolution Trust 
Corporation, Pension Benefit Guaranty Corporation, National 
Flood Insurance, National Insurance Development Fund, Crop 
Insurance, or Tennessee Valley Authority.

SEC. 507. EFFECT ON OTHER LAWS.

    (a) Effect on other Laws.--This title shall supersede, 
modify, or repeal any provision of law enacted prior to the 
date of enactment of this title to the extent such provision is 
inconsistent with this title. Nothing in this title shall be 
construed to establish a credit limitation on any Federal loan 
or loan guarantee program.
    (b) Crediting of Collections.--Collections resulting from 
direct loans obligated or loan guarantees committed prior to 
October 1, 1991, shall be credited to the liquidating accounts 
of Federal agencies. Amounts so credited shall be available, to 
the same extent that they were available prior to the date of 
enactment of this title, to liquidate obligations arising from 
such direct loans obligated or loan guarantees committed prior 
to October 1, 1991, including repayment of any obligations held 
by the Secretary of the Treasury or the Federal Financing Bank. 
The unobligated balances of such accounts that are in excess of 
current needs shall be transferred to the general fund of the 
Treasury. Such transfers shall be made from time to time but, 
at least once each year.

           *       *       *       *       *       *       *

                              ----------                              


       BALANCED BUDGET AND EMERGENCY DEFICIT CONTROL ACT OF 1985

  PART C--EMERGENCY POWERS TO ELIMINATE DEFICITS IN EXCESS OF MAXIMUM 
DEFICIT AMOUNT

           *       *       *       *       *       *       *


SEC. 251. ENFORCING DISCRETIONARY SPENDING LIMITS.

    (a) * * *
    (b) Adjustments to Discretionary Spending Limits.--
            (1) Concepts and definitions.--When the President 
        submits the budget under section 1105 of title 31, 
        United States Code, OMB shall calculate and the budget 
        shall include adjustments to discretionary spending 
        limits (and those limits as cumulatively adjusted) for 
        the budget year and each outyear to reflect changes in 
        concepts and definitions. Such changes shall equal the 
        baseline levels of new budget authority and outlays 
        using up-to-date concepts and definitions, minus those 
        levels using the concepts and definitions in effect 
        before such changes. Such changes may only be made 
        after consultation with the Committees on 
        Appropriations and the Budget of the House of 
        Representatives and the Senate, and that consultation 
        shall include written communication to such committees 
        that affords such committees the opportunity to comment 
        before official action is taken with respect to such 
        changes. A change in discretionary spending solely as a 
        result of the amendment to title V of the Congressional 
        Budget Act of 1974 made by the Budget and Accounting 
        Transparency Act of 2014 shall be treated as a change 
        of concept under this paragraph.

           *       *       *       *       *       *       *

                              ----------                              


                      TITLE 31, UNITED STATES CODE



           *       *       *       *       *       *       *
SUBTITLE II--THE BUDGET PROCESS

           *       *       *       *       *       *       *


CHAPTER 11--THE BUDGET AND FISCAL, BUDGET, AND PROGRAM INFORMATION

           *       *       *       *       *       *       *


Sec. 1108. Preparation and submission of appropriations requests to the 
                    President

    (a) * * *

           *       *       *       *       *       *       *

    (h)(1) Whenever any agency prepares and submits written 
budget justification materials for any committee of the House 
of Representatives or the Senate, such agency shall post such 
budget justification on the same day of such submission on the 
``open'' page of the public website of the agency, and the 
Office of Management and Budget shall post such budget 
justification in a centralized location on its website, in the 
format developed under paragraph (2). Each agency shall include 
with its written budget justification the process and 
methodology the agency is using to comply with the Fair Value 
Accounting Act of 2014.
    (2) The Office of Management and Budget, in consultation 
with the Congressional Budget Office and the Government 
Accountability Office, shall develop and notify each agency of 
the format in which to post a budget justification under 
paragraph (1). Such format shall be designed to ensure that 
posted budget justifications for all agencies--
            (A) are searchable, sortable, and downloadable by 
        the public;
            (B) are consistent with generally accepted 
        standards and practices for machine-discoverability;
            (C) are organized uniformly, in a logical manner 
        that makes clear the contents of a budget justification 
        and relationships between data elements within the 
        budget justification and among similar documents; and
            (D) use uniform identifiers, including for 
        agencies, bureaus, programs, and projects.
    (i)(1) Not later than the day that the Office of Management 
and Budget issues guidelines, regulations, or criteria to 
agencies on how to calculate the risk component under the Fair 
Value Accounting Act of 2014, it shall submit a written report 
to the Committees on the Budget of the House of Representatives 
and the Senate containing all such guidelines, regulations, or 
criteria.
    (2) For fiscal year 2017 and each of the next four fiscal 
years thereafter, the Comptroller General shall submit an 
annual report to the Committees on the Budget of the House of 
Representatives and the Senate reviewing and evaluating the 
progress of agencies in the implementation of the Fair Value 
Accounting Act of 2014.
    (3) Such guidelines, regulations, or criteria shall be 
deemed to be a rule for purposes of section 553 of title 5 and 
shall be issued after notice and opportunity for public comment 
in accordance with the procedures under such section.

           *       *       *       *       *       *       *


                       Views of Committee Members

    Clause 2(l) of rule XI of the Rules of the House of 
Representatives requires each committee to provide two days to 
Members of the committee to file Minority, additional, 
supplemental, or dissenting views and to include such views in 
the report on legislation considered by the committee. The 
following views were submitted:

              Minority Views on H.R. 1872, the Budget and
                  Accounting Transparency Act of 2014

    One of the real challenges facing our nation is the ability 
to approve a federal budget on time. Our problem, however, is 
not with the budget process--we have enough tools in our tool 
box to deal with our budget issues. Everybody who serves on 
this Committee and in this Congress knows that the fundamental 
problem as it relates to our budget has a lot less to do with 
process and a lot more to do with politics. Our problem stems 
from overarching politics and an unwillingness of many Members 
of Congress to compromise.
    While we commend Mr. Garrett for the effort he has put into 
this legislation, we do not think that this bill is ready for 
prime time. The Budget Committee has not held a single hearing 
on this complex bill during this Congress even though there are 
many new Members on this Committee. The last time we did hold a 
hearing--more than two years ago--the testimony focused only on 
so-called ``fair value'' estimating in respect to Fannie Mae, 
Freddie Mac, and the Federal Housing Administration. The 
hearing did not address the impact of this legislation on all 
the other loan programs. This bill goes way beyond these 
entities to apply this different type of valuation to all 
government loan and credit programs.
    The government currently estimates the cost of providing 
credit assistance through loans and loan guarantees based on 
the present value of future cash flows, discounted using the 
rates on U.S. Treasury notes. This is the form of accounting 
mandated by the Federal Credit Reform Act of 1990. Such credit 
reform estimates do take into account likely losses in loan 
accounts--they do budget for the risk of default.
    The bill mandates a switch to fair value estimates of cost 
for all government loan and loan guarantee programs. Fair value 
estimates would apply an additional cost of risk to all loans, 
under the assumption that all U.S. government loan programs 
should apply the same risk factors that a private business 
might apply to making a loan, even though the circumstances 
faced by the government are very different.
    However, there is an ongoing debate on whether fair value 
estimates fairly reflect the federal government's costs and 
risks. The Office of Management and Budget (OMB) opposes this 
switch to fair value estimates. The OMB Analytical Perspectives 
from FY 2014 state that ``the budget is more informative when 
it shows the direct cost to the Government in an accurate and 
transparent manner, as opposed to the economic cost, or other 
definitions of cost that depend on unobservable values. It is 
conceptually difficult to identify the uncertainty premium 
relevant to taxpayers, which differs in many cases from the 
uncertainty premium for private investors.''
    The non-partisan Center on Budget and Policy Priorities 
also opposes mandating fair value estimates. It pointed out in 
a paper in 2013 that this legislation would ``add an extra 
amount to the budgetary cost that [OMB and the Congressional 
Budget Office] show for loan and guarantee programs, based on 
the additional amount that private lenders would charge 
borrowers if they, rather than the federal government, issued 
the loans and guarantees. By overstating the federal costs of 
federal credit programs, the proposal would overstate federal 
deficits and force budget documents to offset these phantom 
costs with phantom offsets to avoid overstating the debt as 
well.''
    The outlays that would appear in the budget as a result of 
a shift to fair value estimates would be greater than the 
outlays that would occur in reality. Thus, using fair value 
estimates overstates the real costs of federal credit 
assistance programs.
    If the Budget Committee is serious about further exploring 
the merits of switching to fair value estimates, we should hold 
a hearing that includes a discussion of how this would impact 
federal credit programs across the board. This issue is much 
broader than simply Fannie Mae and Freddie Mac. For all these 
reasons, Budget Committee Democrats voted in opposition to this 
legislation.

                                   John A. Yarmuth,
                                   Gwen Moore,
                                   Kathy Castor,
                                   Tony Cardenas,
                                   Jared Huffman,
                                   Jim McDermott,
                                   Earl Blumenauer,
                                   Barbara Lee,
                                   Michelle Lujan Grisham,
                                   Mark Pocan,
                                   Tim Ryan,
                                   Hakeem S. Jeffries,
                                   Bill Pascrell, Jr.,
                                   Chris Van Hollen,
                                     Members of Congress.

    [Additional submissions for the record from Mr. Van Hollen 
follow:]

            Center on Budget and Policy Priorities,
                            820 First Street NE, Suite 510,
                       Washington, DC 20002, revised June 18, 2013.

 House Bill Would Artificially Inflate Cost Of Federal Credit Programs

         By Richard Kogan, Paul Van de Water, and James Horney

    The House Budget Committee may consider legislation in the near 
future that would change the federal accounting of direct loans and 
loan guarantees in ways that would overstate the federal costs of those 
programs. As a result, the legislation also would overstate total 
federal spending and deficits.
    The Federal Credit Reform Act of 1990 changed the budgetary 
accounting of federal credit programs. Previously, the budget displayed 
the costs of credit programs in the years those costs actually 
occurred; that is, it showed federal expenditures from loans or 
guarantees in any particular year, offset by loan repayments in that 
year. Since the 1990 law, the budget displays the same total net costs 
of loans or guarantees but shows them up front--when the government 
issues the loans and loan guarantees--rather than year by year over the 
course of their lifetimes.
    The legislation--H.R. 1872,\1\ introduced by Rep. Scott Garrett (R-
NJ) and co-sponsored by House Budget Committee chair Paul Ryan (R-WI)--
would significantly change the rules in place since the 1990 law. It 
would require the Congressional Budget Office (CBO) and the Office of 
Management and Budget (OMB) to add an extra amount to the budgetary 
cost that they show for loan and guarantee programs, based on the 
additional amount that private lenders would charge borrowers if they, 
rather than the federal government, issued the loans and loan 
guarantees. By overstating the federal costs of credit programs, the 
proposal would overstate federal deficits and force budget documents to 
offset these phantom costs with phantom offsets to avoid overstating 
the debt as well.
---------------------------------------------------------------------------
    \1\H.R. 1872 is identical to H.R. 3581 from the 112th Congress, 
approved by the House Budget Committee on January 24, 2012 and by the 
House of Representatives on February 7, 2012. It is very similar to 
section 4 of S. 1651, 112th Congress, introduced in October 2011 by 
Sen. Jeff Session (R-AL).
---------------------------------------------------------------------------
    This proposal is not based on any claim that current estimates of 
the federal outlays and receipts associated with federal credit 
programs understate the actual federal costs of these programs. Quite 
the contrary; by requiring CBO and OMB to add an extra amount to their 
estimated cost of federal credit programs, the legislation would 
artificially inflate the programs' estimated budgetary cost.
    Consequently, the budget treatment of federal credit programs under 
H.R. 1872 would conflict with the basic purposes of budgeting and with 
the way that budgets record all other activities.

                  CREDIT ACCOUNTING UNDER CURRENT LAW

    The federal budget generally records revenues and spending on a 
cash basis. That is, the cost recorded for a program in a fiscal year 
is the actual cash spent on that program in that year, and the budget 
deficit for a year is the difference between total cash expenditures 
for all programs in that year and the total amount of cash collected as 
revenues in that year.\2\ By 1990, however, there was widespread 
agreement that showing the effect of government credit programs on a 
cash basis did not facilitate a meaningful comparison between the costs 
of credit programs and other programs, or between the cost of direct 
loans and loan guarantees.
---------------------------------------------------------------------------
    \2\Aside from credit programs (as explained in this analysis), 
there are only a few instances--such as the recording of some Treasury 
interest costs when they accrue rather than when they are paid--in 
which the budget records spending on other than a pure cash basis. And 
in those cases, the only change is to timing, not total amount.
---------------------------------------------------------------------------
    The problem was not that incorrect amounts of cash disbursements 
and receipts were being recorded for credit programs. The problem, 
rather, was that for those programs, showing cash transactions when 
they occurred did not provide policymakers considering whether to cut, 
maintain, or increase those programs with meaningful information about 
the cost of their decisions over time.

       LOANS AND LOAN GUARANTEES FORMERLY RECORDED ON CASH BASIS

    Before the Credit Reform Act, a $100 direct loan was shown in the 
budget as costing $100 in the year the loan was made. The cash the 
government subsequently received when the borrower repaid principal and 
interest was recorded in subsequent years, as those payments were 
received. As a result, a $100 loan in the coming fiscal year appeared 
to have the same budgetary effect as a $100 grant in the same year, 
even though the loan had a significantly smaller true impact on the 
budget than the grant, since all or a substantial portion of the loan 
would be repaid in subsequent years.
    In contrast, a federal guarantee of a $100 loan appeared under the 
pre-1990 budget rules to produce income for the government in the year 
that the guarantee was issued. Federal loan guarantee programs 
generally require borrowers to pay an up-front premium or origination 
fee. That premium (for instance, $5 on a $100 loan) was recorded as 
income to the government in the fiscal year the guarantee commitment 
was made, while federal disbursements to cover the guarantee if the 
borrower later defaulted were recorded as spending in future years, if 
and when a default occurred. Thus, even if the chance of default was 
high, the loan guarantee looked like a savings for the government, 
rather than a cost, in the year the guarantee was issued.

    CREDIT REFORM ACT RECORDS FULL COSTS OF LOANS WHEN THEY ARE MADE

    To make the budgetary effects of loans and loan guarantees 
comparable with each other--and with other federal spending programs--
the Credit Reform Act of 1990 established rules for recording the full 
lifetime cost of loans and loan guarantees in the year that they are 
made.
    Essentially, the cost recorded for making a direct loan is the cash 
disbursement of the loan, minus the present value of the estimated 
repayments of interest and principal that will be received over the 
life of the loan. This estimate takes into account the terms of the 
loan (including the interest rate and repayment schedule), as well as 
the risk that the borrower will default on the loan before it is paid 
off. If the interest rate is low or the borrower is likely to default, 
the cost to the government will be higher than if loan charges a higher 
interest rate or goes to a more credit-worthy borrower.
    To take account of the time-value of money, the interest and 
principal payments received over the course of the loan are discounted 
at the Treasury's cost of borrowing. The time-value of money reflects 
the fact that $100 today is worth more than $100 ten years from now. 
This can easily be illustrated by the fact that if you receive $100 
this year, you could invest that $100 in ten-year U.S. Treasury notes. 
If the interest rate is 3.2 percent and you re-invest your interest 
earnings in Treasury notes, you will end up with $137 after ten years: 
$100 now is worth more than $100 in ten years.
    The Credit Reform Act takes a similar approach with loan 
guarantees. The budget records the up-front cost of a loan guarantee as 
the difference between (1) any up-front premium that the borrower pays 
the government when the loan-guarantee commitment is made; and (2) the 
present value of the government's estimated cost of covering future 
defaults (reduced by any proceeds the government is estimated to 
receive by selling any collateral it acquires when a default occurs).
    The key here is that the cost recorded in the budget reflects up 
front the estimated cash flows related to the loan or loan guarantee 
over the course of the loan. For other programs, in contrast, cash 
flows are shown when they occur. Thus, the Credit Reform Act did not 
change the recorded cost of credit programs, which derives from the 
actual cash the government pays and receives; it only changed the years 
in which those costs were recorded.\3\
---------------------------------------------------------------------------
    \3\Before credit reform was enacted in 1990, all the various cash 
flows of a credit program were shown in the year that they occurred, 
and Treasury debt increased or decreased (as did interest payments) as 
cash left the government or flowed back to the government. When the 
loan finally matured, the sum total of all the cash transactions 
including interest equaled the amount by which the debt held by the 
public had increased as a result of the loan's issuance. Credit reform 
aggregated these credit transactions into a single subsidy cost shown 
up front. After a loan matures, the sum of that subsidy and the 
interest that the Treasury has paid on the money it borrowed to finance 
that subsidy is exactly the same as the amount that would have been 
recorded in the budget before the Credit Reform Act; it represents the 
amount by which the debt held by the public increased. Thus, credit 
reform did not change the recorded lifetime budgetary cost of credit 
programs; it simply shifted the timing of when that cost is recognized. 
The net cost is now shown up front so Congress can better see it at the 
time it votes to impose that cost.
---------------------------------------------------------------------------
    It should be emphasized that the estimated costs of loans and loan 
guarantees, under either the old or the new accounting, take full 
account of so-called default risk--the likelihood that some direct 
loans will not be paid back in full or that a borrower will default on 
a loan that the federal government has guaranteed.\4\
---------------------------------------------------------------------------
    \4\Estimates are based on calculations for a class of similar loans 
or guarantees, not for individual loans or guarantees.
---------------------------------------------------------------------------
             PROPOSAL WOULD ADD A FURTHER AMOUNT TO REFLECT
                      PRIVATE-SECTOR LOSS AVERSION

    Even as the Credit Reform Act was being debated, some argued that 
its method of calculating the cost of credit programs understated the 
``true'' cost of credit programs in a broader societal sense because it 
reflects the cost to the federal government rather than what similar 
loans or loan guarantees would cost in the private market. The 
government's cost of making a loan is less than that of a private 
lender because it can borrow more inexpensively.
    Since 1990, this argument has been refined, particularly in work by 
Deborah Lucas and Marvin Phaup.\5\ Lucas and Phaup argue there is an 
additional ``cost'' of credit programs that is not reflected in 
estimates of the cash flows in and out of the Treasury resulting from 
loans or loan guarantees.
---------------------------------------------------------------------------
    \5\Deborah Lucas and Marvin Phaup, ``Reforming Credit Reform,'' 
Public Budgeting & Finance, Winter 2008, pp. 90-110.
---------------------------------------------------------------------------
    They point out that the loan costs would be higher if the private 
sector made the loans, due to the variability of the cash flows 
associated with loans and the fact that private individuals are loss 
averse, as explained below. They argue that the federal budget should 
show what the loans and loan guarantees would cost if made in the 
private sector, rather than what it costs the government to make them.
    The credit cash flows are variable because it is impossible to know 
with certainty exactly how much will be repaid on a given loan (or 
class of loans), since that figure reflects how many borrowers will 
default and what collateral the government might acquire after a 
default. As a result, the actual collections flowing from any direct 
loan or class of direct loans and the actual guarantee payments 
required to indemnify a lender in the case of defaults on federally 
guaranteed loans may be higher or lower than originally estimated.
    This variability does not mean that the original estimates of the 
cash flows in and out of the Treasury due to a credit program were 
faulty and didn't fully reflect the likelihood of default. It simply 
reflects the inherent uncertainty of the cash flows. To understand 
this, consider what happens when a coin is flipped 100 times. We know 
the best estimate is 50 heads, 50 tails. But if this exercise were 
repeated thousands of times, the result would rarely be exactly 50 
heads out of any 100 flips. The average--or expected value--would be 50 
heads, but most of the time there would be more or fewer than 50 heads.
    Lucas and Phaup do not contend that the current estimates of the 
cost of credit programs misrepresent the cash flows related to loans 
and guarantees; they do not claim that CBO and OMB underestimate the 
true expected value of the cash flows. Their argument is different: 
that regardless of whether the estimates of the cash flows are the best 
ones possible--indeed, even if they perfectly represent the expected 
cash flows--the method of calculating the cost of credit programs under 
the Credit Reform Act does not reflect the full ``cost'' for a 
different reason.
    Lucas and Phaup base their argument on the variability of the 
actual cash flows and how individuals respond to risk in financial 
arrangements. Research has found that private individuals are loss 
averse; for example, they generally appreciate an unexpected gain of 
$100 less than they dislike an unexpected loss of $100. As a result, 
people are unwilling to accept a financial arrangement with variable 
outcomes at a price that only represents the expected value (or best 
estimate) of the outcome.
    Most financial economists use the term ``risk aversion'' as a 
synonym for ``loss aversion.'' They describe markets as being ``risk 
averse'' and investors as demanding a ``risk premium'' before they are 
willing to put their money on the line; they say the premium reflects 
``market risk.'' This phrase does not mean that investors are averse to 
losses (of course they are), but rather that they are more averse to 
losses than they are attracted by equally likely gains of the same 
magnitude.
    Because individuals are loss averse, Lucas and Phaup argue, the 
government should be loss averse as well, on their behalf. That means 
the cost of credit programs should appear in the federal budget as 
exceeding the best estimate of their actual cost to the Treasury (that 
is, as exceeding the best estimate of the cash flows that will result 
from the loans and guarantees). As they put it, ``[I]ncluding a risk 
premium in subsidy cost produces a cost estimate that, on average, 
exceeds outlays for realized losses.''\6\ Because the government should 
be loss averse, they believe, it should be considered as losing more if 
collections turn out lower than estimated than it will gain if 
collections turn out higher than estimated. They argue that this loss 
aversion should be converted into a dollar figure and added to the cost 
of credit programs shown in the federal budget, as well as to the cost 
of legislation related to credit programs.
---------------------------------------------------------------------------
    \6\Lucas and Phaup, page 92.
---------------------------------------------------------------------------
    Lucas and Phaup would have the government calculate this extra 
``cost'' by estimating what private markets would charge to issue or 
guarantee the same set of loans. They would estimate, for example, how 
much the private sector would pay to acquire the government's portfolio 
of direct student loans. Presumably, loss-averse private investors 
would value the portfolio at a lesser amount than the government is 
expected to collect in loan repayments (after fully accounting for 
expected defaults and for the time-value of money).\7\ They would then 
add this extra ``cost''--a loss-aversion penalty--to the actual cost to 
the government of the loans and guarantees.
---------------------------------------------------------------------------
    \7\In the same vein, if the government tried to purchase 
reinsurance from the private sector to cover the defaults associated 
with a government portfolio of loan guarantees, a loss-averse private 
investor would charge more to reinsure that portfolio than a perfect 
estimate of what the government, after accounting for the time-value of 
money, will actually have to pay on the defaults.
---------------------------------------------------------------------------
    To do this, H.R. 1872 defines two separate costs: (a) the 
government's actual cash cost in operating credit programs, as 
calculated under the existing Credit Reform Act rules; and (b) the 
additional amount associated with loss aversion on the part of private 
investors. The bill would require the federal budget to treat the sum 
of these two amounts as the cost of a credit program, thereby raising 
the apparent cost of the program and legislation related to it.

                       WHY THE PROPOSAL IS FLAWED

    This legislation suffers from several serious flaws.\8\
---------------------------------------------------------------------------
    \8\The authors are indebted to an article by David Kamin, ``Risky 
Returns: Accounting for Risk in the Federal Budget,'' May 2012, for its 
presentation of the arguments against including nonbudgetary costs of 
credit programs in the federal budget. Available at http://ssrn.com/
abstract=2039784.
---------------------------------------------------------------------------
Loss Aversion Is Not a Budgetary Cost
    Most fundamentally, the problem with adding a loss-aversion penalty 
to the cost shown in the budget for loan and loan guarantee programs is 
that loss aversion is not, in fact, a budgetary cost. The loss-aversion 
penalty that Lucas and Phaup propose and H.R. 1872 would require would 
reflect amounts that the government would never actually pay to anyone. 
The obvious question then is: why should the budget record loss 
aversion as a cost when the government never pays that cost?
    Answering this question requires thinking about what the budget is 
supposed to do. For over 200 years, the answer has been that the 
federal budget is supposed to record the amount that the government 
disburses on spending programs and the amount it receives in revenues, 
and to show the difference as a surplus or deficit (and to the extent 
that deficits have exceeded surpluses, to cover the difference by 
borrowing and to record that borrowing as debt). To meet this purpose, 
the budget must measure accurately the amounts actually spent on 
programs and the amounts actually collected in taxes and fees, and the 
resulting deficits and debt--what budget analysts call the nation's 
fiscal position.
    Adding a loss-aversion penalty to the spending side of the budget 
would add an extra ``cost'' that the government does not actually 
incur--and that doesn't need to be covered by additional taxes or 
borrowing. It would consequently cause the budget to mis-measure 
deficits and debt and no longer serve the basic purpose of accurately 
presenting the nation's fiscal position. With respect to nation's 
fiscal position, a risk-aversion penalty is a phantom cost.
Proposal Does Not Treat All Programs the Same
    Another problem with the proposal is that it would result in 
inconsistent and discriminatory budgetary treatment of different 
categories of federal programs. To help Congress and the nation 
allocate public resources among competing priorities, the budget should 
record the costs of all government programs in the same way. It is 
essential that $100 in costs for one program mean the same thing as 
$100 in costs for another program, so that policymakers can know how 
much cost a policy will impose on the Treasury as they decide how to 
allocate resources.
    H.R. 1872 violates this principle. It would make credit programs 
appear more expensive to the government than they truly are without 
making similar adjustment for other programs whose actual costs also 
are uncertain and variable. Much of the budget involves programs whose 
costs are only known for certain after the fact--that is, programs for 
which the best, unbiased estimates of expected costs nevertheless 
entail uncertainty, and for which actual costs will almost certainly 
turn out to be either lower or higher than the original estimates. 
Social Security and Medicare are two examples. Even some programs for 
which fixed rather than variable dollars are appropriated, such as 
weapons procurement, involve uncertainty because it is never known 
whether the items will end up costing more or less than budgeted, and 
Congress almost always feels it has to cover any shortfalls. Similarly, 
the costs of existing or proposed tax expenditures are often as 
uncertain as the costs of traditional spending programs.
    If policymakers add a loss-aversion penalty to credit programs, 
they should add one to all other variable and uncertain costs as well. 
Not doing so would disadvantage credit programs relative to other forms 
of government assistance or investment and would distort the budget as 
a tool for allocating public resources.
Phantom Costs Require Phantom Offsets
    Since the loss-aversion penalty that H.R. 1872 would mandate would 
not reflect the amount the government actually spends, recording these 
phantom costs would cause the budget to display a spending total that 
exceeds what the Treasury pays out. The budget's deficit figures would 
also be overstated, since they would exceed the true difference between 
actual expenditures and actual revenues. Similarly, the amount of debt 
held by the public would be inaccurate, since it would be higher than 
the amount the Treasury actually has borrowed.
    To avoid some of these bizarre results, advocates of adding a loss-
aversion penalty tacitly or explicitly advocate accompanying that 
adjustment with a phantom offset. Proposing offsets to prevent the 
deficit and debt figures from being out of whack essentially 
acknowledges that the government will not actually incur the additional 
``cost'' they would require to be shown for credit programs.
    The obviously unsatisfactory nature of these phantom offsets, which 
are described below, underscores the point that the budget should 
measure actual costs and receipts and should not include either phantom 
costs or phantom offsets. And it concedes our point that H.R. 1872 is 
not about generating more accurate and unbiased estimates of likely 
defaults.
    
 Lucas and Phaup propose recording a phantom tax receipt 
equal in size to the phantom loss-aversion penalty they propose for the 
credit programs. In other words, the budget would show both more 
spending than the Treasury actually spends and more tax revenues than 
it actually collects, in order to keep annual deficits and total debt 
from being inaccurate. (Note that under this approach, an increase in a 
credit program would be shown as increasing revenues as well, and hence 
would run afoul of ``no tax'' pledges and be unconstitutional under 
versions of the Balanced Budget Amendment that bar increases in taxes.)
    
 OMB's recent experience with a mandate to display phantom 
costs demonstrates how hard it is to make sense of the results. 
Specifically, a provision of the 2008 Troubled Asset Relief Program 
(TARP) required that OMB record a loss-aversion penalty on top of 
TARP's expected effects on government cash flows. But that legislation 
failed to specify an offset. OMB handled this in two ways. First, to 
avoid overstating the deficit, it created a phantom offset--lower 
interest payments on the debt, spread over time. In other words, over 
the lifetime of the portfolio of assets that Treasury might acquire 
under TARP, OMB showed a figure for interest costs lower than the true 
amount of interest that OMB expected Treasury to pay. This produced an 
incoherent result: TARP's increase in up-front spending and deficits 
was shown to reduce interest costs. But at least the budget totals for 
government spending (counting interest), deficit, and debt would be 
correct over time. Second, OMB proceeded to unwind this phantom 
scorekeeping in each subsequent year by re-estimating downward each 
year both the loss-aversion penalty and the offsetting interest-payment 
adjustment.
    
 H.R. 1872 adopts a different approach. It requires that 
the phantom cost not be offset by phantom revenue increases or phantom 
interest reductions, thus leaving the recorded amount of federal 
spending--and the recorded deficit figures--at permanently inflated 
levels.
    Rather, it directs OMB to ignore the phantom increase in the 
deficit when recording the debt; in effect, it creates a phantom offset 
that would prevent the debt from being recorded too high even though 
the annual deficits would consistently be overstated. One result of 
this approach is that the sum of deficits over time would diverge more 
than it already does from the amount of debt held by the public.
Government May Be Less Risk Averse than Individuals
    The flaws discussed above explain why the basic concept of a 
budgetary loss-aversion penalty is wrong. But even if one believes that 
the government should add a loss-aversion penalty to its recorded 
costs, the government need not be as loss averse as private 
individuals.
    Individuals are loss averse in part because they are likely to need 
their financial assets at specific times, even when the value of those 
assets has declined. They will need their savings when they retire, 
when their children are in college, or when they suffer a severe 
illness or disaster, and so cannot simply ``ride out'' a down financial 
market by borrowing instead of cashing in their assets. Put simply, 
individuals may be forced to ``sell low'' if they need cash when times 
are bad.
    The general fund of the Treasury, in contrast, is rarely or never 
in that position because, as history shows, when times are bad it can 
borrow very inexpensively. (Consider the current low interest rates the 
Treasury pays, which are near or below zero in real terms.) The 
government is thereby able to spread risk across decades or even 
generations, while individuals generally cannot.

             IS THERE A PLACE FOR A LOSS-AVERSION ESTIMATE?

    Estimates of the extent (if any) to which government credit 
activities impose a loss-aversion ``cost'' on taxpayers should not play 
a part in budget accounting, because they do not represent an actual 
government cost and their inclusion in the budget would mis-measure the 
government's fiscal position and inappropriately bias policymakers 
against credit programs relative to other forms of aid. Nevertheless, 
the concept that governmental transactions can impose uncertainty or 
``risk'' on the public is not without merit. To the extent that the 
government does not spread such uncertainty risk across generations (or 
ameliorate it by spreading it to well-off people, who are less loss 
averse), the concept of loss aversion can and should play a part in the 
cost-benefit analysis that policymakers should undertake in deciding 
whether a government program constitutes wise public policy.
    Cost-benefit analysis, however, is not budgeting. A cost-benefit 
analysis serves a different purpose--to provide information on whether 
a program or project is worthwhile. To illustrate the difference 
between budgetary costs and cost-benefit analysis, consider two 
bridges, each of which would cost $50 million to construct. A bridge 
from nowhere to nowhere is a waste of money, while a bridge connecting 
two bustling sister cites might have substantial economic and social 
benefits. The budget should reflect $50 million in cost for each 
bridge--no more and no less--but a cost-benefit analysis that helps 
inform policymakers should take into account all of the pros and cons 
of the two bridges. In this context, loss aversion on behalf of the 
taxpayer, to the extent that it may exist, is a legitimate factor to 
include in the cost side of a cost-benefit analysis.
    Under H.R. 1872, however, other important aspects of cost-benefit 
analysis would not be reflected as phantom budget costs--not the social 
costs and benefits of regulation, for example, nor the large risk-
mitigation benefits of social insurance programs such as Social 
Security and Medicare. Just as most government spending programs have 
uncertain rather than fixed costs, they also have uncertain rather than 
fixed benefits.
    This discussion raises a final point about the basic concept of a 
loss-aversion penalty in the budget. H.R. 1872 looks only at the 
uncertainty cost that a credit program might impose on risk-averse 
taxpayers, while failing to consider the benefits to risk-averse 
borrowers such as students, farmers, or homebuyers. If the subsidy cost 
under a loan program turns out to be higher than the original estimate, 
taxpayers will eventually have to cover the higher costs--but borrowers 
will have received more help. Put differently, the ability to borrow 
from the government creates a benefit (of an uncertain amount) for the 
borrower. To the extent that this benefit proves larger than expected, 
it may impose a social cost on risk-averse taxpayers, but it also 
confers a social benefit on risk-averse students, farmers, homebuyers, 
or other borrowers. The proposed legislation would recognize only the 
costs, not the benefits. Our view--that loss aversion can be one of a 
number of appropriate factors of cost-benefit analysis, but not of 
budget accounting--would still demand that all risk-aversion aspects of 
government programs be taken into account in a fair cost-benefit 
analysis.
    Our conclusion is the same as Robert Reischauer's, who stated that 
this proposal ``would add a cost element from a traditional cost-
benefit analysis without adding anything based on the corresponding 
benefit side of such an analysis. It would also make budget accounting 
less straightforward and transparent [and is] a misguided attempt to 
mold budget accounting to facilitate a cost-benefit analysis, with the 
result that neither the budget nor the cost-benefit analysis would 
serve their intended purposes well.''\9\
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    \9\Reischauer is a former President of the Urban Institute and a 
former Director of the Congressional Budget Office. Letter to 
Representative Chris Van Hollen, January 23, 2012; see http://
www.offthechartsblog.org/reischauer-strongly-opposes-house-bill-to-
inflate-cost-of-federal-credit-programs/.

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