Skip Navigation

This staff working paper analyzing the federal credit budget was prepared by the Congressional Budget Office (CBO) at the request of the House and Senate Budget Committee staffs. The paper provides a general introduction to credit budget concepts and historical data on credit budgets. It reviews the Administration's credit budget proposals for the years 1986 to 1990, which have been reestimated by CBO. Major proposed program changes are discussed in terms of new credit program levels, the net outlay increases and savings represented, and the subsidy cost implications of the proposal. Finally, the paper details the credit budget by major function. It includes descriptions of all major credit programs, and the impact of the President's request on the larger credit programs.

The paper was prepared by Dick Emery and Mark Weatherly of the Budget Process Unit. Review and comment were provided by Marvin Phaup. Sherry Snyder edited the manuscript which was typed by Paula Gatens and Brenda Lockhart. Any questions or comments on its contents should be directed to them.
 
 

SUMMARY

CHAPTER I. CREDIT ACTIVITY IN AGGREGATE

• Review of Recent Credit Activity
• How Federal Credit Levels are Determined and Controlled

CHAPTER II. THE ADMINISTRATION'S CREDIT BUDGET PROPOSALS

• CBO Reestimates of the Administration's Credit Budget Proposals
• Major Program Changes Proposed By the Administration
• Closing Comment

CHAPTER III. THE CREDIT BUDGET BY MAJOR BUDGET FUNCTION

• National Defense
• International Affairs
• Energy
• Natural Resources and Environment
• Agriculture
• Commerce and Housing Credit
• Transportation
• Community and Regional Development
• Education, Training, Employment and Social Services
• Health
• Income Security
• Veterans' Benefits
• General Government
• General Purpose Fiscal Assistance

The Administration's 1986 budget proposed decreases in credit levels consistent with the intention to reduce the federal government's presence in capital markets, and to improve the spending deficit of the government.

The Congressional Budget Office (CBO) has reestimated the President's budget using CBO economic assumptions and technical estimating methods. When the reestimated President's budget is compared with CBO baseline projections, which assume no change in current policy, the President's proposal is for $25.8 billion in new direct loan obligations for 1986. This would be a 52 percent decrease from the previous year. The President has proposed gradually lower direct loan levels in each year from 1987 to 1990. Direct loan programs slated for sizable reductions or elimination include the programs of the Farmers Home Administration, the Rural Electrification and Telephone Revolving Fund, the Export-Import Bank, and the Small Business Administration.

To offset partially this loss of subsidized borrowing to program constituents, the Administration proposes a slight increase in guaranteed loans. Relative to the CBO baseline, guarantee commitments would increase in 1986 by $2.4 billion, or 3 percent. For the five-year period ending in 1990, the Administration's proposals would increase guarantees by $10.3 billion, or 2.5 percent over the guarantee amount estimated to occur under current policies.

Although federal guaranteed loans represent governmental intrusion into private capital markets, they have no budgetary effect unless a default on the guaranteed loan ensues. Therefore guarantees usually have a small effect on outlays and the government's deficit position. Federal direct loans, in contrast, have a more immediate impact on outlays. The $110 billion reduction from baseline of direct loans that the Administration proposes translates into nearly $80 billion in reduced outlays over the period. Direct loans are unique among forms of government spending in that they also represent future cash inflows as loans are repaid. For this reason the outlay impact of one fewer dollar in direct loan obligations is not properly understood unless the change in the government's cash position is viewed over the time period including loan repayment.

The President's Office of Management and Budget (OMB) and CBO have been examining ways of capturing this cash effect over time. One way of measuring the effect--expressed as the "subsidy" implicit in the government loan--is used in this report. In Chapters II and III major program changes are viewed from several perspectives: their effect on total government credit activity, their outlay effect, and the change in subsidies extended.

This document is available in its entirety in PDF.