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Chapter 2 Budget and Legislative Policy for Credit Programs

Overview

This Chapter describes policies with respect to Federal credit

programs, as outlined in the Office of Management and Budget

(OMB) Circular No. A-129, “Policies for Federal Credit Programs

and Non-Tax Receivables” which may be found at the OMB web

site at www.whitehouse.gov/omb and the Department of the

Treasury’s Financial Management Service web site at

www.fms.treas.gov. When developing new or revising existing

credit programs, Federal agencies must take into consideration the

Budget and Legislative Policy for Credit Programs promulgated in

OMB Circular No. A-129, which states: 

“Federal credit assistance should be provided only when it is

necessary and the best method to achieve clearly specified Federal

objectives. Use of private credit markets should be encouraged,

and any impairment of such markets or misallocation of the

nation's resources through the operation of Federal credit programs

should be minimized.” 

OMB Circular No. A-129, Section II., provides four subsections to

assist agencies with respect to development and review of budget

and legislative policy.

Program Review 

Proposals submitted to OMB for new programs and for

reauthorizing, expanding, or significantly increasing funding for

existing credit programs should be accompanied by a written

review. See OMB Circular No. A-129, Section II., subsection 1.,

paragraphs a-f, for the factors that must be included in the written

review. 
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Form of Assistance 

When Federal credit assistance is necessary to meet a Federal

objective, loan guarantees should be favored over direct loans,

unless attaining the Federal objective requires a subsidy, as defined

by the Federal Credit Reform Act of 1990, deeper than can be

provided by a loan guarantee. See OMB Circular No. A-129,

Section II., subsection 2., paragraphs a-f, for details on the use of

guaranteed loans over direct loans and other considerations

regarding loan guarantees. 

Financial Standards 

In accordance with the Federal Credit Reform Act of 1990,

agencies must analyze and control the risk and cost of their

programs. Agencies must develop models (statistical or otherwise)

predictive of defaults and other deviations from loan contracts. 

Agencies are required to estimate subsidy costs and to obtain

budget authority to cover such costs before obligating direct loans

and issuing loan guarantee commitments. Specific instructions

for budget justification, subsidy cost estimation and budget

execution under the Federal Credit Reform Act of 1990 are

provided in OMB Circular No. A-11.

Agencies shall follow sound financial practices in the design and

administration of their credit programs. Where program objectives

cannot be achieved while following sound financial practices, the

cost of these deviations shall be justified in agency budget

submissions in comparison with expected benefits. Unless a

waiver is approved, agencies should follow the financial

practices discussed in Circular No. A-129, Section II.,

subsection 3., paragraphs a-g.
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Implementation 

The provisions of OMB Circular No. A-129, Section II will be

implemented through the OMB Circular No. A-19 legislative

review process and the OMB Circular No. A-11 budget

justification and submission process. 

For accounting standards for Federal credit programs, see

Accounting for Direct Loans and Loan Guarantees, Statement of

Federal Financial Accounting Standards Number 2, developed by

the Federal Accounting Standards Advisory Board. See OMB

Circular No. A-129, Section II., subsection 4., paragraphs a-c, for

details on such matters as:

a. proposed legislation on credit programs, reviews of credit

proposals made by others, and testimony on credit activities

submitted by agencies under the OMB Circular No. A-19. 

The legislative review process should conform to the

provisions of this OMB Circular No. A-129;

b. How to request a waiver from OMB for use of proposed

provisions or language not in conformance with the

policies of OMB Circular No. A-129. Agencies will be

required to request in writing that OMB waive the

requirement, and the request must be submitted on a

standard waiver request form, available from OMB. See

OMB Circular No. A-129, Section II., subsection 4.,

paragraph (c) 1, for details on how requests should be

completed; 

c. the checklist for review of legislative and budgetary

proposals. See Appendix B of OMB Circular No. A-129;

and 

d. the model bill language to be used in developing and

reviewing legislation (unless OMB has approved the use of

alternative language that includes the same substantive

elements) See Appendix C of OMB Circular No. A-129.
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Every four years, or more often at the request of the OMB

examiner with primary responsibility for the account, the agency's

annual budget submission (required by OMB Circular No. A-11,

Section 15.2) should include:

a. a plan for periodic, results-oriented evaluations of the

effectiveness of the program, and the use of relevant

program evaluations and/or other analyses of program

effectiveness or causes of escalating program costs. See

OMB Circular No. A-129, Section II. for further details on

program evaluation;

b. a review of the changes in financial markets and the status

of borrowers and beneficiaries to verify that continuation of

the credit program is required to meet Federal objectives, to

update its justification, and to recommend changes in its

design and operation to improve efficiency and

effectiveness; and

c. proposed changes to correct those cases where existing

legislation, regulations, or program policies are not in

conformance with the policies of OMB Circular No. A129, Section II. When an agency does not deem a change

in existing legislation, regulations, or program policies to

be desirable, it will provide a justification for not

conforming with the Circular.

Questions regarding this chapter should be referred to the Office of

Management and Budget, Budget Review Division at

202-395-3945.