2Center or American Progress | Managing Taxpayer Risk
Our review o ederal governmen credi programs back o 1992 shows ha on average hegovernmen is quie accurae in is risk pricing. In ac, he majoriy o governmen crediprograms cos less han originally esimaed, no more.
Specically, we ound ha:
Based on iniial esimaes over he pas 20 years, he governmen expeced is crediprograms o cos axpayers 79 cens or every $100 loaned or guaraneed. Based onrecenly updaed daa, hose cos predicions were reasonably accurae bu slighly underesimaed. Te curren budgeary impac o hese programs is abou 94 cens per$100 loaned or guaraneed.
Tere’s litle evidence ha credi programs are biased oward underpricing risk. Inac, a litle more han hal o all nonemergency ederal credi programs will cos hegovernmen less han wha hey are expeced o over he lie o he program.
Te remainder is accouned or by he losses suered by he Federal Housing Adminisraion on loans made in 2008 during he peak o he housing crisis.Excluding ha book o loans, all nonemergency ederal credi programs cos slighly less han expeced.Conservaive criics oen porray a world in which governmen bureaucras haphazardly issue loans and loan guaranees wihou considering axpayer exposure o risk. Ta’ssimply no he case. Tis issue brie explains how he governmen prices credi risk in heederal budge, how well hose cos esimaes have reeced realiy over he years, and why he governmen is in a paricularly good posiion o assume cerain ypes o risk.
Budgeting for credit risk
Federal governmen agencies adhere o sric budge and accouning sandards o careully assess he risks and poenial losses associaed wih credi programs. Here’s how i works.Beore an agency can issue any loans or loan guaranees, Congress mus rs auhorizeand allocae unding or he program.
In mos cases Congress sars by deermin-ing how much money he program will be auhorized o guaranee or loan and henappropriaes a cerain percenage o ha amoun o cover he program’s expeced coso he governmen. Ta cos esimae—assessed by boh he agency adminisering heprogram and he presiden’s Ofce o Managemen and Budge—akes ino accounexpeced repaymens, deauls, recoveries, and any ineres or ees colleced over he lieo he loan, adjused o curren dollars.Te ne cos o he ederal governmen as a percenage o oal dollars loaned or guar-aneed is known as he subsidy rae.
As an example, say Congress approves a $100million loan guaranee program wihin he Deparmen o Agriculure. Te deparmen