Congressional Report Warns of Burgeoning U.S. Obligations : Government: The GAO says the nation has taken on $5 trillion in obligations under various loan and credit programs. The agency fears losses akin to the savings and loan debacle.
The federal government’s habit of creating politically popular loan programs and credit plans as a cheap alternative to outright government spending has mushroomed into a potentially devastating financial problem--$5 trillion in assorted obligations varying from direct student loans to insurance of bank deposits and mortgages.
According to a congressional report to be released today, the total of all these federal programs equals the annual gross national product and amounts to roughly $20,000 for every man, woman and child in the country. It has grown more than tenfold since 1965.
Some of the assistance programs are losing billions of dollars a year and may require government bailouts similar to the one in the savings and loan crisis, warned the report by the General Accounting Office, a congressional research arm.
Taxpayers face an eventual bill estimated by the GAO at $139 billion to make good on federal insurance of deposits at hundreds of failed S&Ls.; The GAO predicted that mounting losses in other programs pose the threat of new drains on the Treasury, although most federal loan and credit programs are probably sounder than the S&L; insurance fund.
“It is apparent that federal financial assistance beyond that already provided by the government will be needed to pay for growing losses,” the report said.
According to the GAO, the government’s risk is heightened because loan defaults are up, guarantees under newer programs are riskier than in the past, and the solvency of some insurance programs is questionable.
Yet estimating the size of the problem remains impossible. Even the magnitude of losses already suffered by the government cannot be determined because of inadequate accounting and monitoring procedures in the various programs, the GAO said.
For instance, the report said the Federal Housing Administration had estimated its losses for 1988 at $858 million for four mortgage-insurance programs. But in September GAO investigators found that losses in the programs were actually much worse--$4.2 billion for the same period--and would require an appropriation of $4 billion to $5 billion from Congress in coming years.
The report highlighted similar financial troubles in other programs, such as federal crop insurance, student loans, veterans’ home-loan insurance funds and pension benefit guarantees for 76 million workers.
The assessment was prepared at the request of Rep. John D. Dingell (D-Mich.), chairman of the House Energy and Commerce Committee. The panel’s subcommittee on oversight and investigations is scheduled to hear testimony today from GAO boss Charles A. Bowsher. A copy of the report was provided to The Times on Wednesday.
“We are preoccupied at the moment with finding $14 billion to $16 billion in budget cuts to satisfy the Gramm-Rudman targets,” Dingell said. “The potential liabilities detailed in the GAO report make that figure look like pocket change.”
Many of the programs have served valuable needs by helping Americans buy homes, attend college and start businesses, Dingell said. “What is at issue is the public’s exposure in the event of losses and defaults,” he said.
The programs have outstripped economic growth over the last two decades because of expansions into new areas to meet specific social and economic needs.
The GAO report said that the fastest growth has come in the area of government-sponsored enterprises, such as the Federal National Mortgage Assn. and the Federal Home Loan Mortgage Corp.
These privately owned entities were created to increase credit to target groups, such as homeowners, and are not expressly backed by the government. But the report predicted that the federal government is likely to bear most of the ultimate losses.
Federal-insurance guarantees constitute the largest part of the assistance, $3.6 trillion. Best-known among these programs are insurance for deposits at banks and savings and loans. The category also includes pension and crop insurance.
A third category comprises federally guaranteed loans, such as FHA mortgages. Direct loans, such as loans to farmers to buy land, constitute the fourth category examined by the GAO.
BUILDING CREDIT
Federal credit obligations, in billions of dollars
1965 1988 Increase Direct loans $33 $222 573% Loan guarantees 91 550 504 Loans to government- sponsored enterprises 15 666 4,340 Insurance commitments 299 3,617 1,110 Total $438 $5,055 1,054%
SOURCE: General Accounting Office
