Taxpayers are on the hook for tens of billions in hidden costs, thanks to federal credit programs that mask risks behind inadequate accounting methods, according to a new report released Friday by National Taxpayers Union Foundation (NTUF).
In FY 2025, total federal credit assistance is projected to amount to $1.9 trillion in new direct loans and loan guarantees from 129 different federal programs. When borrowers default and fail to repay these loans, taxpayers are left to foot the bill.
“By adopting fair-value accounting standards, lawmakers can better evaluate the fiscal risks associated with these programs. This may help ensure taxpayers are not forced to bear as much of a burden from risky ventures funded by federal loans,” NTUF’s Demian Brady and Nicholas Huff wrote in the report.
Using the Federal Credit Reform Act (FCRA) approach to measuring costs—the standard accounting method used by the federal government—results in a subsidy cost estimate of $2.4 billion.
The FCRA greatly understates the actual costs of federal credit programs by assuming that federal credit activities are as low-risk as government bonds, which is a flawed comparison. Treasury rates are low-risk because they’re backed by the government, but federal credit programs depend on people and businesses actually paying back their loans.
The more realistic fair-value method accounts for market risk by incorporating a premium that reflects the additional compensation an investor would require to bear the risk. The fair-value method estimates the true cost of these programs at $65.2 billion, which is $62.7 billion more than the FCRA estimate.
Read the report.