By Akash Chougule
A new report from the nonpartisan Congressional Budget Office (CBO) reveals that the Export-Import Bank’s six largest programs will be an enormous loss for taxpayers over the next decade. The Bank, which hands out taxpayer-backed financing to foreign corporations that do business with some of America’s largest companies claims that it makes a profit for the government. But as the CBO report explains, this claim is based on disingenuous accounting. In reality, the Bank’s programs will be a multi-billion dollar loss.
As the result of an insidious number-crunching method, the “Ex-Im” Bank claims it will achieve $14 billion in savings. In reality, however, the programs will cost $2 billion—a $16 billion difference that takes the Bank from the black to the red. Considering a loss of this magnitude, it’s no wonder the Bank’s supporters oppose privatization.
The Ex-Im Bank and other federal credit agencies use an incomplete accounting formula from the Federal Credit Reform Act of 1990 (FCRA). The CBO has detailed the deficiencies of this method, explaining that it “does not provide a full accounting of what federal credit actually costs the government” because it does not account for the full cost of the risk associated with the loans. Government agencies are the only creditors who use this method.
By contrast, private credit agencies (that do not have the option of being bailed out by taxpayers) use fair-value accounting – the more detailed method that CBO used to pin Ex-Im as a $2 billion cost over the next decade. Fair-value accounting recognizes market risk, thus providing a far more accurate picture of the loans’ cost to the government.
The government’s own economists are not the only ones to call into question Ex-Im’s profitability claim. Economists at the Manhattan Institute use a Massachusetts Institute of Technology study to conclude that the Bank would pose a cost of $200 million dollars to taxpayers as a result of its 2012 loans. This conclusion falls in line with the CBO report, since $200 million a year multiplied by ten years equals a $2 billion cost. The Manhattan Institute also used fair-value accounting in their assessment.
The Export-Import Bank’s deceit is nothing new. It should also come as no surprise for an agency that had the nerve to ask for even more funding this year despite the fact that its second biggest beneficiary is “unknown” by its own accounts.
The fact that the Bank loses (and loses track of) taxpayer dollars should give Congress great pause as they consider its reauthorization this year. The legislature would be wise to put an end to this crony boondoggle once and for all.