Federal Credit Support Page
Frequently Asked Questions in
Credit
Last updated: February xx, 2003
- This page is provided by OMB for the convenience of Federal
agencies with credit programs, for informational purposes only; it
does not represent authoritative OMB guidance.
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Credit
Accounting
Question: Are there
accounting standards for Federal credit programs?
Answer: Yes, accounting
standards for Federal credit programs are provided by the Federal
Accounting Standards Advisory Board (FASAB), which considers and
recommends accounting principles for the Federal Government. FASAB's
accounting standards for Federal credit programs are set forth in
its Statement of Federal Financial Accounting Standards (SFFAS)
Number 2, "Accounting for Direct Loans and Loan Guarantees."
Amendments to SFFAS Number 2 are found in SFFAS Number 18 and SFFAS
Number 19. Additional guidance on credit accounting is provided by
OMB's Office of Federal Financial Management (OFFM). OFFM is the
Executive Branch's central point for developing and promulgating
Federal financial management policy. OFFM's OMB Bulletin 01-09,
"Form and Content of Agency Financial Statements" provides guidance
on reporting credit program data, as well as other types of data, in
agency financial statements.
For More Information:
Credit Accounts
Question: What is a
"financing" account?
Answer: The "financing"
account is a non-budgetary account (its transactions are excluded
from the budget totals) that records all of the cash flows resulting
from post-1991 direct loans or loan guarantees. It disburses loans,
collects repayments and fees, makes claim payments, holds balances,
borrows from Treasury, earns or pays interest, and receives the
subsidy cost payment from the credit program account. There is at
least one financing account associated with each program account.
Separate financing accounts are required for direct loan cash flows
and for loan guarantee cash flows if the program account provides
subsidy costs for both forms of credit.
For More Information:
Question: What is a
"program" account?
Answer: The "program"
account is the budget account that receives and obligates
appropriations to cover the subsidy cost of a direct loan or loan
guarantee and that disburses the subsidy cost to the financing
account. Program accounts usually receive a separate appropriation
for administrative expenses.
For More Information:
Question: What is a
"liquidating" account?
Answer: The
"liquidating" account is the budget account that records all cash
flows to and from the Government
resulting from pre-1992 (pre-credit reform) direct loan obligations
or loan guarantee commitments (unless
they have been modified and transferred to a financing account).
Liquidating account collections in any year
are available only for obligations incurred during that year or to
repay debt. All liquidating accounts are
classified as mandatory. The Federal Credit Reform Act provides
permanent indefinite authority to cover
obligations and commitments in the event that funds in liquidating
accounts are otherwise insufficient.
For More Information:
Question: How do I create
a new credit account?
Answer: Information on
creating and maintaining budget accounts is provided in OMB Circular
A-11. To set up a new credit account, contact your OMB program
examiner. Please remember that at least one financing account must
be created for each new program account.
For More Information:
Credit Subsidy Calculator
Question: Where can I
find information on how the Credit Subsidy Calculator (CSC) works?
Answer: Information on
the Credit Subsidy Calculator is available in the CSC help files
(under the "help" menu) as well as in the working papers on the
Federal Credit Support Page. Some of the working papers, such as
"Getting started with the OMB Credit Subsidy Calculator," provide
information on how to use the CSC while others, such as "How the
subsidy and its components are derived from cash flow observations,"
explain the methods underlying the results produced by the Credit
Subsidy Calculator.
For More Information:
Question: Has the Credit
Subsidy Calculator been audited?
Answer: Yes, outside
firms have verified the conformance of the Credit Subsidy Calculator
with the applicable standards. The firms' reports are available on
the Credit Subsidy Calculator page of the Federal Credit Support
Page web-site, under the "Reports by independent firms" section.
For More Information:
Question: Are there any
known defects in the Credit Subsidy Calculator?
Answer: Information on
known defects in the Credit Subsidy Calculator, and corresponding
work-arounds, is provided on the Credit Subsidy Calculator page of
the Federal Credit Support Page web-site, under the "List of known
defects and work-arounds" section.
For More Information:
Question: How can I tell
if I have the current version of the Credit Subsidy Calculator?
Answer: Information on
identifying the current version of the Credit Subsidy Calculator is
provided on the Credit Subsidy Calculator page of the Federal Credit
Support Page web-site, under the "Software installation" section.
For More Information:
Credit Subsidy Estimates
Question: Where can I
find examples of how to set up cash flow spreadsheets?
Answer: For examples of
how to set up cash flow spreadsheets, see the working paper, "How to
organize cash flow estimates in a spreadsheet file," available in
the Credit Subsidy Calculator help files and on the Federal Credit
Support Page. See also the document, "Constructing Cash Flows for
Use with the OMB Credit Subsidy Calculator: A Tutorial Guide,"
available on the Federal Credit Support Page. Additional examples
are available from your OMB program examiner.
For More Information:
Question: How do I
calculate the credit subsidy cost?
Answer: The credit
subsidy cost is calculated by developing a set of cash flows, in
spreadsheet format, that include all of the flows to and from the
Government over the full term of the direct or guaranteed loans.
This set of cash flows is then discounted to the time of
disbursement, using the OMB Credit Subsidy Calculator, to determine
the credit subsidy cost.
For More Information:
Question: What is the
credit subsidy cost?
Answer: The credit
subsidy cost is the estimated present value of the cash flows from
the Government (excluding administrative expenses) less the
estimated present value of the cash flows to the Government
resulting from a direct loan or loan guarantee, discounted to the
time when the loan is disbursed. The subsidy cost measures the
level of resources that the Government needs to set aside to cover
the cost of the direct loan or loan guarantee over its full term.
For More Information:
Credit Training
Question: Are training
and support materials available online?
Answer: Materials from
the Summer 2002 annual OMB credit training sessions, as well as
additional resource materials, are available on the "Training and
resource materials" page of the Federal Credit Support Page
web-site. Working papers related to the Credit Subsidy Calculator
are available on the "Credit Subsidy Calculator" page. Instructions
for credit utilities are available on the "Utilities for Budget
preparation and execution" page.
For More Information:
Question: Does OMB
provide training in credit budgeting?
Answer: Yes. OMB
provides annual training on credit budgeting topics. The training
generally spans a four-day period. Topics covered in the Summer 2002
credit training included: Introduction to Credit Budgeting; MAX
Schedule Preparation; Apportionment Basics; Credit Program
Accounting Basics; Auditing Credit Programs; Financing Account
Borrowing and Interest; Financing Account Interest Calculator; The
OMB Credit Subsidy Calculator; Calculating Reestimates; The Balances
Approach to Reestimates; Modifications; and Constructing Cash Flows.
Some of these sessions were repeated in fall 2002 to accommodate
demand. OMB may also provide additional training on an as-needed
basis. For example, training was provided at the time of release of
the 11-26-99 version of the Credit Subsidy Calculator and of release
of the 11-26-99 revision 1 (which provides support for reestimates).
For More Information:
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Materials from Summer 2002 credit
training are available on the Federal Credit Support Page,
Training and resources page.
-
For more information on OMB credit
training, contact your OMB program examiner.
Discounting
Question: What is the
basket-of-zeros discounting method?
Answer: Under the
basket-of-zeros method, each cash flow is discounted using the
interest rate on a zero-coupon Treasury security with the same
maturity as that cash flow, regardless of the term of the loan. For
example, cash flows that would occur exactly at the end of one year
are discounted using the interest rate on a Treasury zero that would
mature in exactly one year. Cash flows that would occur exactly at
the end of five years and one month would be discounted using the
interest rate on a Treasury zero that would mature in exactly five
years one month. And so on. The basket-of-zeros method, therefore,
defines the present value of any collection of future cash flows as
the market price of a collection (or "basket") of Treasury zeros
that, at maturity, exactly matches the cash flows. The
basket-of-zeros discounting calculations are performed by the Credit
Subsidy Calculator when a cash flow spreadsheet is run through the
Calculator. Therefore, the agency does not need to perform these
calculations manually.
For More Information:
Question: What is the
similar maturity discounting method?
Answer: The similar
maturity discounting method is used for cohorts FY 1992 through FY
2000. Beginning with FY 2001, the similar maturity method was
replaced by the basket-of-zeros discounting method. Under the
similar maturity method, all cash flows are discounted using the
interest rate (more technically called the "yield-to-maturity" rate)
on a Treasury security of similar maturity to the term of the loan.
For example, the cash flows for a 10-year loan are discounted using
the rate on a 10-year Treasury security, and the cash flows for a
30-year loan are discounted using the rate on a 30-year Treasury
security.
For More Information:
Question: Why is the
basket-of-zeros discounting method used?
Answer: The
basket-of-zeros method provides a more precise measure of present
value because it permits matching discount rates with the timing of
cash flows. This method avoids a discrepancy produced by the
previous constant rate discounting method (similar maturity
discounting method) in which two direct loan or loan guarantee
programs with identical cash flows would result in different
subsidies whenever the loans had differing maturity. With the
basket-of-zeros method, two programs with identical cash flows would
have identical subsidies.
For More Information:
Financing Account
Borrowing and Interest
Question: What interest
rate is used to calculate the financing account interest expense on
borrowing or the financing account interest earnings on balances
held with Treasury?
Answer: The interest
rate for calculating financing account interest expense and interest
earnings is the disbursement-weighted average rate. For cohorts FY
1992 through FY 2000, this is determined by calculating the average
similar maturity discount rate over the disbursement period,
weighted by the proportion of total disbursements occurring in each
disbursement year. For cohorts FY 2001 and future years, this is
calculated as the disbursement-weighted average single effective
rate. The Consolidated Credit Tool, available on the Federal Credit
Support Page, assists agencies with financing account interest
calculations.
For More Information:
Question: Where can I
find information on financing account interest expense on borrowings
from Treasury and financing account interest earnings on balances
held with Treasury?
Answer: OMB Circular
A-11, Section 185, provides information on handling financing
account borrowings from Treasury and balances held with Treasury in
apportionments and budget execution reports. The OMB Consolidated
Credit Tool, available on the Federal Credit Support Page, and
accompanying instructions assist agencies in calculating interest
expense and earnings. For further information on interest expense on
borrowings, contact the Bureau of the Public Debt. For further
information on interest earnings on balances, contact the Financial
Management Service.
For More Information:
Question: Where can I
find information about financing account borrowing from and holding
balances with the Department of Treasury?
Answer: OMB Circular
A-11, Section 185, provides information on handling financing
account borrowings from Treasury and balances held with Treasury in
apportionments and budget execution reports. Agencies borrow from,
and repay borrowings to, the Treasury Bureau of the Public Debt.
Agencies receive interest earnings on balances from the Financial
Management Service. For further information, contact the Bureau of
the Public Debt or the Financial Management Service.
For More Information:
General
Question: Where can I
find a copy of the Federal Credit Reform Act?
Answer: The Federal
Credit Reform Act can be found in the U.S. Code, at 2 USC 661. A
link to an electronic copy is also provided on the Federal Credit
Support Page.
For More Information:
Question: What OMB
Circulars cover Federal credit programs?
Answer: Federal credit
programs are specifically addressed in the following OMB Circulars:
A-11, Section 85 "Federal Credit Data" (credit budgeting and
execution); and A-129, "Policies for Federal Credit Programs and
Non-Tax Receivables (credit policy and management)." Links to each
of these circulars are provided by the Federal Credit Support Page.
Please note that Federal credit programs may be subject to
requirements more generally governing all Federal programs.
For More Information:
Question: What is a
"cohort"?
Answer: A "cohort" is
the group of all direct loans or loan guarantees of a program for
which a subsidy appropriation is provided for a given fiscal year.
For direct loans and loan guarantees for which multi-year or no-year
appropriations are provided, the cohort is defined by the year of
obligation. Credit subsidy estimates are calculated separately and
reestimated separately for each cohort. In addition, direct loans
and loan guarantees are accounted for on a cohort basis.
For More Information:
Question: Is there a
glossary of terms related to credit budgeting?
Answer: Yes. A glossary
of credit budgeting terms is provided in OMB Circular A-11, Section
185.3.
For More Information:
Question: Which credit
programs are subject to the Federal Credit Reform Act (FCRA) of
1990, as amended?
Answer: The Federal
Credit Reform Act of 1990, as amended, applies to Federal direct
loans and loan guarantees made on or after October 1, 1991 to or on
behalf of non-Federal borrowers. The FCRA specifically exempts the
price support loans of the Commodity Credit Corporation, and
clarifies that the Act does not apply to the insurance of deposits,
shares, or other withdrawable accounts in financial institutions.
All direct loans and loan guarantees made to or on behalf of
non-Federal borrowers under any other program are subject to the
FCRA.
For More Information:
Interest
Rates
Question: What economic
assumption interest rates are available?
Answer: All credit
programs must use the economic assumption credit discount rates.
However, depending on how the borrower's rate is set or on other
program features, the agency may also use other types of economic
assumption discount rates. In addition to credit reform discount
rates, the economic assumption package includes: Treasury bill,
note, and bond rates; Treasury bond-equivalent rates; the prime
rate; State and local general obligation debt rates; conventional
mortgage rates; London Interbank rates (LIBOR); commercial paper
rates; and interest rates for new purchases of securities.
For More Information:
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For credit reform economic assumption
discount rates, see the
Credit Subsidy Calculator.
-
For more information on the kinds of
economic assumption interest rates that are available, contact
your OMB program examiner.
Question: Where can I
find economic assumption interest rates?
Answer: Economic
assumption credit reform discount rates are available in the Credit
Subsidy Calculator. Credit reform and other economic assumption
interest rates are available from your OMB program examiner.
For More Information:
-
For the economic assumption credit
reform discount rates, see the OMB
Credit Subsidy Calculator.
-
Further
details on economic assumptions are also available from your OMB
program examiner.
Question: When do
economic assumption interest rates become available?
Answer: The economic
assumption interest rates, including the credit reform discount
rates, are released at the same time as the rest of the economic
assumption package, generally around late November or early
December.
For More Information:
-
For the economic assumption credit
reform discount rates, see the
Credit Subsidy Calculator.
-
Further
details on economic assumptions are also available from your OMB
program examiner.
Question: Where can I
find actual interest rates?
Answer: Actual interest
rates are available: in the Credit Subsidy Calculator; on the
Federal Credit Support page; from the Bureau of Public Debt; and
from your OMB program examiner.
For More Information:
Question: When do actual
interest rates become available?
Answer: Actual interest
rates become available in late September, 10 days before the close
of the fiscal year. For example, the FY 2002 actual interest rates
were released in mid-September 2002.
For More Information:
Management Issues
Question: Can an agency
share the Credit Subsidy Calculator with its contractors?
Answer: It is up to the
individual agency to make this decision.
For More Information:
Modifications
Question: How do I know
if an agency action is a modification?
Answer: If the effects
of an agency action are not included in the subsidy cash flows, and
the action would change the expected subsidy cost, then that action
is a modification. Generally, an action, such as work-out or
rescheduling, is considered to be included in the cash flows if
there is documentation on that action in the cash flow assumptions
or other written program materials, such as the loan contract
For More Information:
Reestimates
Question: When should I
perform reestimates?
Answer: For budget
purposes, perform the interest rate reestimate once for each cohort,
once the cohort is at least 90 percent disbursed. Perform the
technical reestimate after the close of each fiscal year, unless a
different schedule is agreed upon with your OMB program examiner.
Other requirements may apply for financial statement purposes.
For More Information:
Question: When entering
actual data in a cash flow to perform a reestimate, should actual
data include actual non-cash transactions, such as write-offs and
capitalization of interest as a means to a workout?
Answer: The cash flows
should account for any transactions that affect or are expected to
affect cash flows to and from the Government. If accounting
transactions have not already been reflected in the cash flows, then
the cash flows need to be revised to incorporate those transactions.
For More Information:
Question: When preparing
the cash flows to perform a reestimate, should the cash flows
include estimated disbursements expected to occur in future years as
well as the actual disbursements that have already occurred?
Answer: Cash flows
prepared for a reestimate should include actual and estimated
disbursements. The cash flows should account for the complete
expected total disbursements.
For More Information:
Question: What are
"technical" and "interest rate" reestimates?
Answer: The interest
rate reestimate represents the difference between the subsidy rate
calculated using the interest rate assumptions at the time of
formulation (the same assumption is used at the time of obligation
or commitment) and the subsidy rate calculated using the actual
interest rate(s) for the year(s) of disbursement. The technical
reestimate represents all other changes in the subsidy estimate.
For More Information:
Reestimates/Balances
Approach
Question: What is the
balances approach to reestimates?
Answer: The balances
approach is a new approach for performing credit subsidy
reestimates. Under the balances approach, reestimates are performed
by comparing the net present value of projected future cash flows to
the balance in the financing account. The difference between these
two values is the reestimate amount. Since the balance in the
financing account should reflect the results of all actual activity
to date, this approach achieves the same result as the traditional
approach. The "Balances Approach Reestimate Calculator," an
electronic spreadsheet to assist in calculating balances approach
reestimates, and instructions, are available on the "Utilities for
Budget preparation and execution" page of the Federal Credit Support
Page.
For More Information:
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