The Government's Loan Asset Sales Pilot Program

GAO discussed its evaluation of the government's plan to sell to the public loans that the government holds as assets. According to the Office of Management and Budget (OMB), which promulgated the program guidelines, the objectives of the program are to: (1) reduce the government's cost of administering credit programs by transferring debt-servicing responsibility to the private sector; (2) provide an incentive for agencies to improve loan terms, conditions, and documentation; (3) determine the actual subsidies of federal credit programs; and (4) increase the government's receipts in order to reduce the budget deficit in the year of sale. GAO believes that the OMB guidelines will hamper the program by requiring that agencies: (1) make asset sales without future recourse to the government; and (2) transfer collection and servicing to the purchaser at the time of sale. In addition, GAO noted that: (1) OMB proposes to treat the sales proceeds as borrowings if the sales are made with recourse to the government, contrary to the normal budgetary treatment of loan guarantees; (2) the guidelines, and the proposed OMB policy on subsidy determination, will not contribute to an accurate measure of credit subsidies; and (3) the OMB guidelines will not adequately protect the government's interests and will prevent full achievement of the program's objectives.