Opinion
Fred Hochberg, chairman and president of the Export-Import Bank of the United States, testifies before a Senate Banking, Housing and Urban Affairs Committee hearing on "Oversight and Reauthorization of the Export-Import Bank of the United States" on Capitol Hill in Washington on January 28, 2014. REUTERS/Joshua Roberts Fred Hochberg, chairman and president of the Export-Import Bank of the United States, testifies before a Senate Banking, Housing and Urban Affairs Committee hearing on "Oversight and Reauthorization of the Export-Import Bank of the United States" on Capitol Hill in Washington on January 28, 2014. REUTERS/Joshua Roberts  

The Export-Import Bank’s Dodgy Accounting

Photo of Thomas Fletcher
Thomas Fletcher
Policy Analyst, Americans for Prosperity

Reasons to oppose the taxpayer-backed Export-Import Bank just keep adding up. The latest one is a report from the non-partisan Congressional Budget Office (CBO), highlighting serious flaws in the accounting practices used by Ex-Im, which hands out billions in taxpayer-backed loans to foreign companies. Up until now, one of the bank’s major talking points when promoting itself is that it makes money, but this new report shows that the Ex-Im Bank hemorrhages billions of taxpayer dollars.

The new CBO report shows that the Bank uses accounting practices that don’t accurately reflect risk. This flawed accounting practice means that Ex-Im can claim that it will save $14 billion over the next decade; using fair value accounting, Ex-Im costs $2 billion over this period. This report shows that this bank continues to operate in a fashion that prompts many questions but provides few answers.

The reason for this $16 billion difference is bad methodology. Instead of using fair-value accounting, which is the standard accounting practice, the bank uses one enacted in 1990 with the Federal Credit Reform Act. Herein lies the problem, since FCRA “does not provide a full accounting of what federal credit actually costs the government,” according to the CBO. Moreover it gives the bank cover over something which is misleading. The bank uses federal Treasury security rates instead of market interest rates to estimate the cost of the loan. While Treasury securities are assumed to carry no risk, the risk of their loans to multi-national companies is much greater. This is problematic because it allows the bank to overstate its benefits when making loans without considering the associated risk.

On the other hand, fair accounting, the appropriate accounting standard, uses estimates based on market value as well as the cost of market. This provides more accurate risk assessment of the investment.

With the Export Import Bank due to expire at the end of September, we hear increasing calls from special interests to reauthorize the bank. These supporters claim that the bank is profitable, but this latest report by the CBO has turned that claim on its head. Furthermore, it begs the question as to why the Export Import Bank uses an accounting practice clearly out of date with the times.

Taxpayers deserve transparency, not Enron or Arthur Andersen-style accounting. It’s not enough for the government to issue empty assurances that their money is safe when it clearly is not. It makes the report all the more disturbing and creates a credibility problem for the bank. The CBO report confirms what many, including the Manhattan Institute and an MIT study, have suspected for years — the bank is engaged in dodgy accounting and operates at a loss, not a profit.