Truth in Government—Really!

Hidden in the US budget (or at least the last time we had one,) is funding for a number of governmental offices that are “off budget.”  These are agencies like Freddie Mac and the US Post Office.  These offices are knows as GSEs or Government Sponsored Enterprises.

There are a number of GSEs (government sponsored enterprises) that are considered off budget.  Politicians use off-budget entities like Fannie Mae, Freddie Mac, and the Postal Service to obfuscate the true cost of government.  Additionally, the government runs a number of credit programs, in which taxpayers are on the hook for loan guarantees.  These guarantees include loans for college students and for energy programs, such as the one that purveyed failed green energy programs like Solyndra. RedState

The “On Budget” cost covers only what these agencies actually do. But not budgeted is the results of those actions nor the money that passes through their hands.

Under current law, Congress only factors in the cost of the loan itself when formulating the annual budget.  Perforce, if the money is paid back with interest, there is no cost to the government.  However, as we have learned so painfully, the loans are, all too often, never paid back.  Taxpayers have been called on to bailout a modicum of failed loan guarantees.  In the private sector, they use “fair value” accounting in calculating the costs of credit programs.  Fair value accounts for the costs of the market risk the lender incurs by issuing a loan, in addition to the actual borrowing costs. — RedState

The US House has passed H.R. 3581 that will force these costs into the open.

H.R. 3581 would modify the budgetary treatment of federal credit programs such that the cost of direct loans or loan guarantees would be calculated on a “fair value” basis, which includes not only the borrowing costs of the federal government, but also the cost of the market risk the government is incurring by issuing a loan or loan guarantee. Under current law, the Federal Credit Reform Act of 1990 (FCRA) requires that the credit subsidy cost of federal direct loans and loan guarantees be measured on a net present value basis which determines the cost of a loan program based on calculations using the interest rates on Treasury securities and estimated losses that would be expected from defaults. However, this calculation ignores additional costs associated with market risks. According the Congressional Budget Office (CBO), “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.” By more accurately accounting for the costs of federal credit programs, H.R. 3581 would increase the estimated costs of such programs compared to measures used under current law.

When I read this article, I wondered if Missouri had similar funding issues?  Are there agencies in Missouri that have off-the-books costs that aren’t covered by budget?  Missouri has a balanced budget requirement.  But the state also receives Federal funding to support some state operated agencies…schools for instance and Medicaid.

People build a degree of expectation, of a level of performance from these agencies and programs.  The funding passes through our state government and on to the end recipient.  If, for some reason, federal funding is cut or stops for these operations, the state would have to provide the funds, cut back the offices and programs, or cancel them all-together.

The people and organizations (schools for instance) receiving aid, assistance or funding through these federally co-funded agencies and programs would feel their expectations are not being met.  Rightly or wrongly, the lack of federal funds would place a burden on the state.

Does the state budget correctly account for these federal funds?  I don’t know, but it’s a good question to ask.  I would expect, at a minimum, that agencies and programs who are dependent on some degree of federal funding, and those who use or are dependent on federal funding passing through the state government, be made aware of the situation and under what circumstances funding may be cut or ended.

We should also be informed, if federal funding was gone, how much additional state taxes would be needed to maintain that level of operation.  Much, much more than we can afford without a doubt.

I would strongly suggest to our state legislators that we begin to wean ourselves from such federal funding scams.  The state must live within its means and those means cannot include federal funding that can suddenly disappear.

We don’t want to become another Greece.

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