by Chad Miller
American Action Forum
June 30, 2014
The term “fair-value accounting” describes a method of bookkeeping used by the Congressional Budget Office (CBO) to estimate the future budget impacts of proposed legislation or policy. CBO has stated on numerous occasions that fair-value accounting provides a more comprehensive measure of federal costs as it takes into account market risk when estimating the future cost of federal credit programs. But although CBO has lauded the benefits of fair-value accounting practices, federal law requires CBO to use a different method established by the Federal Credit Reform Act (FCRA). This method arbitrarily excludes certain types of expenditures, and erroneously assumes that economic conditions at the time of the calculation will remain the same indefinitely. Requiring the executive branch and Congress to adopt “fair value” accounting principles would go a long way to providing assurances of accuracy. This could pave the way for federal student aid reforms that tap private sector funding and shift costs away from the federal government.

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