How Resurrecting Ex-Im Could Impact Taxpayers

 

A bipartisan coalition is trying to resurrect the Ex-Im Bank. Enough signatures have been gathered for a discharge petition forcing a vote in the House on a measure to reauthorize Ex-Im. The Bank provided credit subsidies to exporters selling goods abroad and to foreign companies that want to import U.S. products. The charter for the government-sponsored bank expired in June leaving it unable to issue new subsidies, though it continues to service previously issued loans and guarantees.

The Bank's backers argue that it is good for jobs and balances the global playing field because foreign governments provide similar export subsidies to their native companies. Opponents have singled it out as corporate welfare.

How would it impact the budget? That depends on how you look at it. The Congressional Budget Office (CBO) reported that the administrative functions of the bank would cost $300 million over the next five years if it is reauthorized.

Under existing law, the CBO uses an accounting method prescribed under the Fair Credit Reform Act of 1990 to review the Bank's loans and guarantees. Under FCRA, CBO estimates that the loans would generate $2.6 billion in offsetting receipts for the federal government over five years.

If this is the case, one would think that private financiers would be clamoring for such business and there would be no need for a taxpayer-backed lender.

However, CBO also provided a budget review of the loans using an alternative fair-value accounting basis. The main difference is the fair-value takes into account market risk:

Market risk is the component of financial risk that remains even after investors have diversified their portfolios as much as possible; it arises from shifts in macroeconomic conditions, such as productivity and employment, and from changes in expectations about future macroeconomic conditions. The government is exposed to market risk when the economy is weak because borrowers default on their debt obligations more frequently and recoveries from borrowers are lower. When the government extends credit, the associated market risk of those obligations is effectively passed along to taxpayers, who, as investors, would view that risk as having a cost. Therefore, the fair-value approach offers a more comprehensive estimate of federal costs[Emphasis added.]

In 2014, CBO’s fair-value value review determined that the Ex-Im’s subsidies would actually cost taxpayers $200 million.

A more recent analysis by CBO found a lower subsidy cost of $4 million in the first year and balancing out to no net cost over five years. However there is a caveat and several "weasel words" in the report emphasizing the conditional nature of the estimate. CBO notes that is based on the assumption that Bank would “significantly increase” the fees it charges, which:

suggests that the subsidy cost per dollar of credit activity might be less than CBO previously projected. However, such an increase in fees would probably result in less risky borrowers finding credit from other sources, leaving the bank with riskier and, hence, more costly loans. Those considerations are incorporated into CBO’s current subsidy estimates. But, because the bank’s authorization has expired, CBO could not review those changes with the bank, which makes the estimates more uncertain than in previous years.