Jack Balkin: jackbalkin at yahoo.com
Bruce Ackerman bruce.ackerman at yale.edu
Ian Ayres ian.ayres at yale.edu
Mary Dudziak mary.l.dudziak at emory.edu
Joey Fishkin joey.fishkin at gmail.com
Heather Gerken heather.gerken at yale.edu
Abbe Gluck abbe.gluck at yale.edu
Mark Graber mgraber at law.umaryland.edu
Stephen Griffin sgriffin at tulane.edu
Bernard Harcourt harcourt at uchicago.edu
Scott Horton shorto at law.columbia.edu
Andrew Koppelman akoppelman at law.northwestern.edu
Marty Lederman msl46 at law.georgetown.edu
Sanford Levinson slevinson at law.utexas.edu
David Luban david.luban at gmail.com
Gerard Magliocca gmaglioc at iupui.edu
Jason Mazzone mazzonej at illinois.edu
Linda McClain lmcclain at bu.edu
John Mikhail mikhail at law.georgetown.edu
Frank Pasquale pasquale.frank at gmail.com
Nate Persily npersily at gmail.com
Michael Stokes Paulsen michaelstokespaulsen at gmail.com
Deborah Pearlstein dpearlst at princeton.edu
Rick Pildes rick.pildes at nyu.edu
Richard Primus raprimus at umich.edu
K. Sabeel Rahmansabeel.rahman at brooklaw.edu
Alice Ristroph alice.ristroph at shu.edu
Neil Siegel siegel at law.duke.edu
Brian Tamanaha btamanaha at wulaw.wustl.edu
Mark Tushnet mtushnet at law.harvard.edu
Adam Winkler winkler at ucla.edu
Fair Value Accounting Debunked Again--Will the Congressional Budget Office End its FVA Crusade?
Do public finances suffer when the government fails to charge the maximum interest rate it could impose for its credit programs? For advocates of "fair value accounting" (FVA), the answer is yes. They believe that if, say, banks are offering loans to solar panel manufacturers at 10%, and government offers them loans at 5%, the government should account for the resulting "loss" in its deficit projections. That would require making up for the "loss" via higher taxes, or lower spending, or higher interest rates on the federal credit. We know that higher taxes are, by and large, a non-starter. So FVA becomes an excuse for austerity, or imposing higher interest rates on federal loans.
The implications here for student loans should be obvious. Students are already saddled with unduly high rates. FVA would just push those rates higher. I describe in detail how problematic FVA is in my recent article, Democratizing Higher Education.
Today I learned that the Government Accountability Office has further bolstered criticism of FVA with a detailed report on its shortcomings. Reviewing the report, financial journalist Dave Dayen offers a tough assessment of FVA bitter-enders:
[F]air value accounting advocates . . . want to discourage the use of federal credit programs, to shift the loans – and the profits – to private lenders. Of course, this would also prove much more costly for borrowers, as we’ve already seen when banks were the middlemen in student loans. The advocates can’t come out and say “we want private companies to make more expensive loans for people,” so they concocted this claim about government accounting practices. And GAO, as objective a source as you’ll find, just came as close as a government report gets to calling them liars.
I know this is a rather wonky topic, but it's an important one for the future of public finance. The Congressional Budget Office has repeatedly advocated for Fair Value Accounting, abandoning its traditional role as neutral arbiter on the cost of legislation in order to advance austerity ideology.* As I observed here about seven years ago, this politicization of accounting has undermined sensible health policy. It is time for CBO to simply do its job and estimate costs of programs pursuant to legislatively mandated standards.