Washington, D.C. – U.S. Senator Deb Fischer (R-Neb.) has introduced legislation, the Budget and Accounting Transparency Act of 2014 (S.2420), to increase honesty in government accounting practices by requiring the full costs of federal credit programs to be included in both annual budgets and cost estimates for future legislation. Currently, the federal government underestimates the costs of federal credit programs because it does not account for market risk or the costs associated with individuals defaulting on federally backed loans, such as mortgages or student loans. Including these costs is known as “fair-value” accounting, a real world accounting method commonly used by private sector investors. Administrative costs are also omitted from official Congressional Budget Office (CBO) cost estimates. 

The difference between reported costs and savings under current government accounting practices and the fair-value method exceeds hundreds of billions of dollars. In a May 22, 2014 report, the CBO suggested the true costs of the Department of Education’s student loan programs, the Export-Import Bank’s credit programs, and the Federal Housing Administration’s (FHA’s) mortgage guarantee program based on fair-value accounting would result in a minimum loss of $120 billion, rather than the previously estimated $212 billion gain. Fischer’s legislation would require the federal government to use fair-value accounting and provide Congress and taxpayers with more complete cost estimates associated with the market risk inherent in such programs.

Senator Fischer released the following statement:

“These congressionally required budget gimmicks hide the true costs of government spending. Even for a wasteful federal government, such spending tricks totaling hundreds of billions of dollars are shocking. Failing to include the cost of default on federally backed loans, which is increasingly likely during weak economic periods, amounts to dishonesty to taxpayers, who are on the hook regardless. If we are ever going to make any meaningful progress toward achieving a balanced budget, we must be honest and transparent in our accounting.”

The Budget and Accounting Transparency Act of 2014 would:  

  1. 1. Require the executive branch and Congress to use fair value accounting when estimating the cost of federal credit programs.  For programs offering direct loans or loan guarantees (such as student loans), both the borrowing costs and the risk the federal government is incurring must be considered.
  2. 2. Require agencies to make public the budgetary-justification materials prepared in support of their request for use of taxpayer dollars.
  3. 3. Require the CBO and the Office of Management and Budget to conduct studies to consider extending the fair-value methodology to federal insurance programs (currently accounted for on a cash-flow basis); and to prepare a study about the current budgetary terms used in the federal government and make recommendations about potential changes to those terms to Congress.

The full text of Fischer’s legislation is available online HERE.

The Budget and Accounting Transparency Act of 2014 is similar to Representative Scott Garrett’s (NJ-5) legislation, H.R. 1872, which was passed in the House of Representatives on April 7, 2014.  The Wall Street Journal editorial board endorsed Garrett’s legislation.