The Corner

CBO to Ex-Im: You Don’t Generate a Profit — You’re Going to Cost Taxpayers Billions

Supporters of the Export-Import Bank have one less talking point to defend the crony-capitalist institution: A new CBO report debunks popular claims that the bank actually generates a profit for taxpayers.

Supporters (and official federal budgets) claim that the bank’s six largest programs will generate budget savings of $14 billion over the next ten fiscal years, but the CBO finds that these programs will actually cost taxpayers $2 billion over the next decade. Whoops!

Released last Thursday, the report compares the accounting practices of several federal credit programs — including the Department of Education’s student-loan programs, the Federal Housing Administration’s single-family mortgage guarantee program, and the Export-Import Bank’s many credit programs — to a more traditional accounting method known as “fair value.”

These DOE, FHA, and Ex-Im programs employ an accounting method prescribed under the Federal Credit Reform Act of 1990 (FCRA). While most federal spending is recorded in the budget on a cash-flow basis that logs inflows and outflows at the time that they occur, these federal credit programs employ a special accounting method that records the lifetime costs of the program up front on an accrual basis. The present value of these programs are calculated by expressing current and future inflows or outflows in terms of a lump sum that would be received or paid today. This value, in turn, depends translating future cash flows (the interest payments) into current value.

The discrepancy between the Export-Import Bank’s FCRA accounting and the CBO’s fair-value accounting rests in the different interest rates that each method employs. The Bank’s FCRA calculates the present value of future interest payments using U.S. Treasury securities rates as a guide; the CBO’s fair-value approach, on the other hand, uses market interest rates when calculating the present value of expected future cash flows. Using market values, as the CBO notes, more properly accounts for the cost of the risk that the government takes on.

The bad news for Ex-Im:

If Ex-Im Bank’s activity in 2015 matches the President’s budget request for that fiscal year, CBO estimates that $37.6 billion in new loans would be made or guaranteed in the bank’s six largest credit programs, with savings totaling $1.4 billion on a FCRA basis and costs totaling $0.2 billion using the fair-value approach. Thus, the 10-year effects would be savings of $14 billion using FCRA methodology and costs of $2 billion using the fair-value approach, a difference of $16 billion. The average subsidy rate under the FCRA approach is estimated to be negative 3.8 percent for all of the bank’s programs combined, whereas the average fair-value subsidy rate is estimated to be positive 0.4 percent.

The CBO notes that administrative and servicing costs were not included in their analysis because they did not have access to those figures. Once factored in, the fiscal picture of Export-Import Bank financing programs presumably looks even worse.

Supporters of the Export-Import Bank can no longer truthfully claim that these programs provide profits to the federal coffers. Don’t expect that to stop from defending big-business subsidies, whatever the cost.

Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.

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