The Export-Import Bank’s Dodgy Accounting

Thomas Fletcher Policy Analyst, Americans for Prosperity
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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 Furthermore, it begs the question as to why the Export Import Bank uses an accounting practice clearly out of date with the times.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.

As if losing billions of taxpayer money wasn’t bad enough, these loans are corporate welfare. House Financial Services Chairman Jeb Hensarling excoriated the bank in a recent speech, aptly calling it the “poster child of the Washington insider economy and corporate welfare.” The bank should play by the same rules as ordinary folks who don’t have the luxury of corporate lobbyists going to bat for them. Ex-Im beneficiaries should go to private lenders like every other business in the country seeking a loan.

Given this mounting evidence against the bank, it’s no surprise that there is an enormous amount of opposition at the grassroots level to reauthorizing the Ex-Im bank. Americans are tired of seeing their hard-earned tax dollars go toward to an entity with little transparency or accountability

Congress should let the Export Import Bank expire in September. Taxpayers shouldn’t be propping up large corporations with ‘free money.’ Ending it would send a message that Congress is starting to stand up to crony capitalism.

Tom Fletcher is a policy analyst for Americans for Prosperity.