Hearing of the House Budget Committee - H.R.1872 - Budget and Accounting Transparency Act of 2014

Hearing

Thank you, Mr. Chairman and I also want to commend Mr. Garrett for the work he's put in to this. I know we've had this discussion in this Committee in the past. I don't think that this bill right now is ready for prime time, I think it addresses some issues especially with respect to Fannie and Freddie. However this bill goes way beyond Fannie and Freddie to all government loan programs where there is credit risk. I do want to make one thing really clear to members of the Committee -- I want to urge everybody, if you haven't had an opportunity to dig into this stuff, please do. I only say that because we have not had a hearing in this Congress on this. We have a lot of new Members on this Committee who have not had the benefit of hearing on very detailed issues and even when we did have a hearing in the last Congress we really only focused on this in respect to Fannie, Freddie and FHA. We never really got into the impact of this legislation on all the other loan programs. The gentleman mentioned Solyndra, the reality is that our current budgeting process is designed to take into account those losses. In fact in the Department of Energy program, there were budgeted losses set aside for losses in those portfolios and in fact, even after Solyndra, it turns out that the losses budgeted for were conservative in that particular account. So, it's important that everybody understand that we already budget for the risk of default. We also budget based on present value. What this proposal does is say the U.S. government should apply all the same risk factors that an individual might apply even though the circumstances faced by the government when it comes to these issues is very different.

I do just want to read a couple things because there is an ongoing debate on this. Just from the OMB Analytical Perspectives from FY 2014, it points out "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 tax payers which differs in many cases from the uncertainty premium for private investors." And then as the Center for Budget and Policy Priorities pointed out in a paper in 2013, "What this legislation would do is add in an extra amount to the budgetary cost that they show for loan and guarantee programs based on an 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 those phantom costs with phantom offsets to avoid overstating the debt as well."

So, Mr. Chairman we had this conversation last time around, which is that the actual outlays that this would propose in the budget would be greater than the outlays that would occur in reality and therefore it does not provide you an accurate budget picture of the real costs going forward. So I would just suggest to the members that if this committee is really interested in digging further into this whole area, that we hold another hearing, that we let the new members have the benefit of another hearing, and that that hearing include a discussion of how this would impact federal credit programs across the board and not simply Freddie and Fannie because make no mistake this legislation is much broader than Fannie and Freddie. I know that's the headline that people are using but it is much broader than that.

And with that, I will reserve the balance of my time.

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