    [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

     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\
    ---------------------------------------------------------------------------
        \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/.