By Vicki Needham - 05/22/14 06:24 PM EDT
Conservatives pounced on new figures released Thursday showing that the Export-Import Bank would cost taxpayers $2 billion over the next decade using a private-market accounting system.
House Financial Services Committee Chairman Jeb Hensarling (R-Texas) and Heritage Action, which oppose the reauthorization of the Ex-Im Bank, said that fresh numbers from the nonpartisan Congressional Budget Office (CBO) provide the ammunition they need to kill the agency's charter.
Advocates of the Bank’s role in helping exporters say the CBO’s report makes assumptions about Ex-Im's costs with an accounting method that isn't even used.
“Our initial analysis of the CBO Report is that it makes assumptions on a range of factors to make its calculations and uses benchmarks that raise a lot of questions,” said Linda Dempsey, vice president of international affairs at the National Association of Manufacturers (NAM).
Under current law, Ex-Im is required to use the Federal Credit Reform Act (FCRA) accounting method, not the fair-value approach that the CBO uses, in comparison in its report.
“Nothing in this new report negates the basic role of Ex-Im Bank to promote the export of American products and to support and grow American jobs,” Dempsey said.
“It similarly ignores the fact that manufacturers must compete in a global economy where other countries are aggressively backing their own exporters through generous financing,” she said.
But Hensarling argued that if Ex-Im were required to use fair-value accounting, “the Bank’s ledger would actually show a loss, not a profit.”
“I have long believed that many taxpayers feel it is indeed time to exit the Ex-Im, and this CBO report certainly reinforces that belief,” he said.
The Bank’s reauthorization is backed by powerful business groups such as the NAM and the U.S. Chamber of Commerce that argue the Ex-Im fills a funding void for U.S. exporters and helps firms of all sizes compete in the global economy.
The 80-year-old Bank returned $1 billion to the Treasury Department’s coffers last year. its charter is set to expire Sept. 30.
The CBO analysis showed that if Ex-Im provides $37.6 billion in new loans in fiscal 2015 across the bank’s six largest credit programs, there would be $1.4 billion in savings on a FCRA basis and costs totaling $200 million using the fair-value approach.
So, over 10 years, Ex-Im would generate a savings of $14 billion under FCRA but cost $2 billion on a fair-value basis.
“The Congressional Budget Office debunked one of the main arguments deployed by proponents of the Export-Import Bank,” said Michael Needham, CEO of Heritage Action.
“Under fair-value rules, the Export-Import Bank is a cost to taxpayers," Needham said.
"Today’s report makes clear those who wish to argue in favor of reauthorizing the Bank must do so on the grounds that market disruption, taxpayer risk and cronyism are laudatory, not on the grounds of budgetary savings."
The CBO report said that the negative fair-value estimate could arise because of “obstacles that prevent private entities from making loans on the same terms or because CBO’s estimates understate the true subsidy cost because they exclude the program’s administrative costs from subsidy cash flows or because the methods CBO used to estimate risk premiums are not precise.”
To that end, a blog post on the Peterson Institute for Economics website last week said that “a fair-value basis calculation requires both faith in the accuracy of the risk assessments embedded in private market interest rates and guarantee fees and, in many cases, assumptions about the comparable rates and fees.”
“Private market interest rates and guarantee fees reflect guesses about future financial risks.”