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A federal `garage sale'?

LIKE a habitual overeater hoping to drop 10 pounds before Christmas, Washington is continually looking for ``painless'' ways to cut the federal budget deficit. One idea being kicked around right now is selling federal loans, just as a bank, for instance, sells home loans on the secondary mortgage market. The idea is not to be dismissed out of hand, but it raises a number of tough questions.

A loan on the government's books is an ``asset,'' not unlike the other government assets the Reagan administration has suggested selling at one time or another. Selling an asset would indeed bring in needed revenue - once. House Budget Committee chairman William Gray compares selling assets to cut the deficit to selling one's garage to pay the monthly mortgage.

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Two issues here must be kept straight: controlling the deficit and controlling the role of government. Either it makes sense for the federal government to hold a particular asset or it does not. The Reagan administration should not be allowed to exploit an out-of-control budget - for which it bears considerable responsibility - as an opportunity to pursue its id'ee fixe of dismantling the federal government, particularly given the relatively small amounts that asset sales bring in. The loans under consideration for sale, for instance, amount to some $7 billion - small change in the context of a trillion-dollar federal budget.

But not so small to the Wall Street dealmakers consulting with the Office of Management and Budget on how loans might be packaged for sale to the public. Investment bankers stand to make a lot of money from such offerings - and so while their counsel is presumably needed, it should be appropriately discounted to reflect their self-interest.

Then there is the question of accounting. The federal budget is on a cash basis - $100 lent out this year is an outlay; $100 paid back next year will be revenue, or a ``negative outlay,'' in budgetese.

If the government holds a loan itself, ``negative outlays'' trickle in over time. If it sells the loan, however, a lot of cash comes into the Treasury all at once, and presto, the deficit shrinks.

But this kind of deficit reduction is largely bookkeeping legerdemain. The real cost to the federal Treasury of Uncle Sam's direct loans is the so-called ``implied subsidy'' - the (estimated) total of expected defaults, subsidized interest rates, and administrative expenses.

The Congressional Budget Office (CBO) has taken the position - and has had some success in convincing Congress - that credit transactions should be reflected in the budget on the basis of these costs rather than of incidental cash inflows and outflows. If the bookkeeping changes were made in order to do this, there would be less incentive to sell loans.

Given the current accounting rules, though, selling government loans as soon as they are made may indeed be a good way to correct distortions on the balance sheet. The loans would have to be sold to investors at a discount - after all, anyone queuing up at Uncle Sam's loan window is almost by definition not a blue-chip borrower. But selling the loans would enable the green-eyeshade set to nail down the exact cost of that ``implied subsidy,'' and within the current year at that. If $100 million of, say, Small Business Administration loans were sold for $70 million, the implied subsidy is clearly $30 million. How neat and tidy.

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But the case for loan sales as a means of cutting the deficit is less than compelling. The loans may have to be too heavily discounted to bring in much revenue.

Well, wouldn't a government guarantee mean they would fetch a higher price?

Yes, it would. But that guarantee would itself be an expense. The CBO has ruled that selling a 100 percent guaranteed loan is equivalent to selling Treasury securities - to borrowing, in other words. It would be a way of financing the government but not of cutting the deficit.

Nor is it clear that putting loans in private hands would be the best way to meet the needs of government borrowers. Government loans have, after all, generally been in areas where the private sector would not tread in the first place.

Deficit reduction will be a tough process. It will not be achieved by gimmicks.

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