Waste of the Day: Federal Lending Potentially Underestimated By $62.8 Billion

Topline: The federal budget claims that Washington will lose $2.4 billion lending money next year, but a “more comprehensive” estimate would reveal a projected cost that is 27 times higher, according to a new report from the Congressional Budget Office.

The federal lending excess

Key facts: CBO projects the federal government will offer $1.9 trillion of credit assistance in 2025: $228 billion lent directly to Americans, and $1.6 trillion in guarantees to help Americans pay back private loans if they default.

By law, the government must estimate how much it will lose on the loans using a formula set by the Federal Credit Reform Act of 1990, which ignores market risk and assumes that no one borrowing money from the government will default on their loan.

But with the “fair value” formula used by private businesses, which accounts for financial risk, the credit assistance is projected to cost the government $65.2 billion, according to the CBO — or $62.8 billion more than it estimated.

The report says, “In CBO’s view, fair-value estimates of the costs of federal credit programs are more comprehensive than FCRA estimates and thus help lawmakers better understand the advantages and drawbacks of various policies.”

Two-thirds of the credit assistance is mandatory spending set by federal law. The remaining one-third is discretionary money; Congress can spend more or less each year. Almost all the money goes toward mortgage payments and student loans.

Accuracy in spending

Background: Reps. Ralph Norman (R-S.C.) and Glenn Grothman (R-Wisc.) last year introduced the Fair-Value Accounting and Budget Act, which would allow Congress and the White House to account for market risk when projecting the cost of federal loans.

Norman wrote, “Without a supplemental fair-value accounting method, legislators have a false sense of deficit reduction which will continue to lead to dangerous budget confusion and irresponsible reckless spending.”

Summary: As the U.S. spending crisis worsens, lawmakers must be honest and accurate about how much money the government is doling out.

The #WasteOfTheDay is brought to you by the forensic auditors at OpenTheBooks.com.

This article was originally published by RealClearInvestigations and made available via RealClearWire.