WASHINGTON – Joint Economic Committee (JEC) Ranking Member Carolyn Maloney, D-N.Y., Wednesday argued that proposals to move to so-called “fair value” accounting for federal credit programs - such as student loans, veterans’ home loans and the Export-Import Bank - would distort the budget process, undercut loan programs and, deprive millions of Americans the affordable loans they need to get an education, buy a home or operate a small business.

“In my mind, there is nothing fair about ‘fair value’ accounting,” Maloney said at a JEC hearing to examine the value of an accounting method many Republicans would like to see implemented. It would be inappropriate to force government to apply the same risk premiums private banks calculate, Maloney said, because the goals of government are very different from those of the private sector.

“At its root, today’s hearing is about two vastly different philosophical approaches to government,” Maloney said. “The principal motivation of the private sector is to maximize profit. The principal goal of government is to provide services that the private sector cannot or will not provide.”

The hearing focused on two systems for budgeting federal credit programs. The first was the Federal Credit Reform Act (FCRA), signed into law by George H.W. Bush in 1990. FCRA calculates the lifetime cost of federal credit programs, reflecting both the risk of default and the government’s cost of borrowing; it has proven to be an accurate and reliable tool for budgeting federal credit programs for two decades. In fact, the Office of Management and Budget (OMB) reports that since FCRA’s inception, the initial cost estimates of all credit programs differed from their actual cost by less than one percent of their face value.

The second method, proposed by Congressional Republicans and conservative think tanks, was “fair value” accounting. “Fair value” accounting evaluates the cost of federal credit programs as if the government were forced to borrow with an additional risk premium demanded by the private market, when in fact the programs are funded by the purchase of low-interest Treasury securities. The result would make federal credit programs, like student loans, look more expensive than they actually are, likely leading to cuts in federal loans programs. Less money would be available for students at higher rates.

In her opening remarks, Maloney compared “fair value” accounting to “dynamic scoring,” which Republicans are trying to apply to tax policy to make tax cuts seem less expensive than they really are.

Maloney argued that the federal government has a unique role to play in lending, one not adequately filled by private markets.

“The vast majority of student loans are issued by or guaranteed by the government,” she said.

“Why does the government take on this risk?  Because it helps millions of Americans go to college who might otherwise not be able to afford to go. It also benefits the rest of us by creating a more educated workforce. A better workforce will make our country more competitive and our economy stronger. This is a social good not recognized by private lenders.”

Millions of Americans have something to lose if “fair value” accounting is implemented. Many prominent national organizations, including the National Education Association, The National Association of Homebuilders and the National Association of Realtors, strongly oppose “fair value” accounting.

Other opponents include:

• The National Association of Independent Colleges and Universities
• The Retired Enlisted Association
• The National Rural Cooperative Association
• The Student Aid Alliance
• The National Multifamily Housing Council
• And many others