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CBO - Congressional Budget Office

07/12/2018 | News release | Distributed by Public on 07/12/2018 12:05

How CBO Produces Fair-Value Estimates of the Cost of Federal Credit Programs: A Primer

The federal government supports some private activities-such as home ownership, postsecondary education, and certain commercial ventures-through credit assistance offered to individuals and businesses. Some of that assistance is in the form of federal direct loans, and some is through federal guarantees of loans made by private financial institutions. Although the costs of most federal activities are recorded in the budget on a cash basis (showing the balance of inflows and outflows when those flows occur), the lifetime costs of federal credit programs are recorded up front on an accrual basis. That budgetary treatment applies both to direct loans (for which most of the cash outflows occur up front, when loans are disbursed) and to loan guarantees (for which cash flows both to and from the government occur gradually over the life of the commitments).

The cost of providing credit assistance is an important consideration for policymakers as they allocate spending among programs and choose between credit assistance and other forms of aid such as federal grants-but assessing cost is not a simple matter. Indeed, it is more difficult to measure the cost of credit assistance than to assess the costs of other forms of aid because, for credit assistance, the measurement of cost must account for future cash flows of uncertain amounts that can continue for many years.

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