CSC2
OMB’s revised
Credit Subsidy Calculator
for the 2009 President’s Budget
Tyler Curtis
Sarah Lyberg
CSC2@omb.eop.gov
CSC2 What we’ll cover
What the CSC2 is and when to use it
Goals of transition to the CSC2, and
challenges for implementation
CSC2 Functionality and Output
Financing account interest
Examples
Summary
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Credit Subsidy Calculator 2 (CSC2)
OMB tool for performing credit calculations
Incorporates financing account interest
and dollar reestimates functionality,
previously in Consolidated Credit Tool (C-
Credit) and Balances Approach
Reestimate Calculator (BARC)
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Credit Program Overview
Agency
C-Credit
Interest Interest Program Account CSC
repayment
C-Credit
Subsidy + or BARC
Treasury Reestimates
Budget line
Agency
Borrowing Loan
Principal
Financing Account Borrower/
Principal Loan repayment Public
repayment (P & I)
Budget: Projecting future cashflows with the Public, reestimates
Accounting: Recording actual cashflows, execution, financing account interest
Different tools at different times meant sometimes inconsistent data used for
credit calculations, & tools used simplified interest calculations. 4
CSC2: Goals and Challenges
Goals
Simplify and streamline process
Reduce and reconcile errors
Provide decision makers better information on the
cost of providing credit assistance
Challenges
Organization barriers
Reconciliation
Transparency
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Shortfalls of the old process
Financing account interest calculations:
No reconciliation with cashflows used to calculate reestimates
No formal process for correcting for interest payments/earnings
at budget assumption rates
CSC2—one cashflow for both, method for interest adjustments
Traditional approach or Balances approach reestimates:
Methods for technical reestimates of cohort subsidy cost
Traditional approach had no check on accounting errors—
unexplained balances in financing accounts
Balances approach could not distinguish between reestimates
resulting from borrower performance and accounting errors
CSC2—agencies perform both at once, opportunity to reconcile
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Goals: Streamline the process
Three separate tools
CSC C-Credit BARC
combined into one
Budget subsidy rates
Reestimates
Financing Account
Interest in C-Credit
CSC2
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Goals: Reduce/reconcile errors
Consistent data
Disconnects in financing account balances
are transparent
Accounting differences are transparent
Subsidy execution
Financing account interest earnings/costs
Modifications
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Goals: Better subsidy cost
estimates for policy makers
Cost accurately reflects long term cost to
government, borrower performance
Transactions to and from public +
Intra-governmental transactions =
Financing account balance
Corrects disconnects in previous methods
Financing account interest consistent with
discounting methodology
Method for financing account interest adjustments
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Challenges: Organization Barriers
Agencies need to start building process
Build in regular communication
Ownership/roles clearly defined
Documentation, record maintenance
Identifying and resolving data issues
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Challenges: Reconciliation
Calculates reestimates using traditional
and balances approach
Calculated vs reported cohort balances
Balances approach (assets = liabilities)
Traditional approach (cashflows to/from
public)
Financing Account Interest Adjustments
Differences will require explanation
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Challenges: Transparency
Accounting mistakes uncovered sooner
rather than later
Auditors will see differences
Key is to work now to identify and analyze
discrepancies
One-time effort to transition existing
cohorts is necessary
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CSC2 Functionality
Budget subsidy rates
Interest rate reestimates
Single effective rate/cohort interest rate
Financing account interest
Dollar Reestimates
Financing Account Interest Adjustments
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Financing Account Interest: Review
Credit financing accounts earn interest on
balances
Interestearnings are received from the Treasury
Financial Management Service
Credit financing accounts pay interest on
outstanding borrowings from Treasury
Interestpayments are made to the Treasury Bureau
of the Public Debt
Cohorts must use the same rate as used to
discount cashflows
These earnings and costs affect the deficit
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CSC2: Financing account interest
FAIC CSC2
Simplified methods Consistent with
discounting
Simple interest Compound interest
Average balances Actual cash flows
Disconnects with Aligned with reestimate
reestimate cashflows cashflows
Improved calculations, same requirements
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Cohort Interest Rate
Financing accounts must earn and pay interest
at the same rate used to discount the credit
subsidy cash flows for each cohort
For FY 1992-2000 cohorts, this is the disbursement-
weighted average discount rate
For FY 2001 and subsequent cohorts, this is the
single effective rate, generated by the Credit Subsidy
Calculator (in most cases, either budget formulation
rate or final rate from the first technical reestimate
after 90% disbursement)
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CSC2: Cohort Interest Rate
Methods for calculating cohort interest rates
have not changed
Comes from first technical reestimate after
interest rate reestimate
Cohorts that have established actual
DWADR/SER continue to use established rate—
No need to recalculate
Cohorts substantially disbursed in 2007—use
CSC2 to calculate cohort rate
Data requirements are the same as old CSC
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CSC2: Interest owed
Compute interest owed to the Treasury – Interest owed to the
Treasury is based on two categories of transactions:
Debt to Treasury at the beginning of the year includes all borrowing
outstanding at the beginning of the year. A full year of interest is
paid on such debt.
Transactions with BPD include all borrowings and repayments
during the year. Borrowings made during the year are back-dated to
the beginning of the year and a full year of interest is paid on the
borrowing. Debt repayment and end of year borrowing to pay
interest take place at year-end and do not impact the interest
calculation. Interest owed is adjusted for repayments that occur at
the middle of the year.
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CSC2: Interest earned
Compute Interest due from the Treasury –based on three categories of
transactions:
Cash balances include all cash on deposit with the Treasury at the
beginning of the year.
Intra-governmental transfers with the financing account include transfers of
subsidy, modification subsidy, modification adjustment transfer, reestimates,
interest on reestimates, financing account interest, and interest
adjustments. Reestimates, interest on reestimate and interest adjustments
are assumed to occur at the start of the year and earn a full year interest.
Subsidy transfers and modifications have timing assigned by the user, and
interest is earned or paid accordingly. Financing account interest is
assumed to be paid at the end of the year.
Transactions with the public include all loan disbursements, claim
payments, loan payments, fees, defaults, and recoveries. For these,
interest is earned depending on the timing assumption indicated for the
individual cash flow line. Outflows to the public reduce the interest earned;
inflows from the public increase the interest earned.
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CSC2: Compound interest
Formula for the PV factor used to calculate interest is (1+
SER) ^ time
SER is the cohort interest rate
Time relative to the LCFY
Example, for a cohort with a 5% rate, a cashflow to the financing
account at the end of Q1 would earn 3.73% interest that year
(1+0.05)^0.75= 1.0373
Debt and cash balances are end of year
Borrowing, repayment, financing account interest and
reestimate timing have fixed timing assumptions
Timing for other cashflows are specified by the agency in
the cashflow inputs
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CSC2: Calculating Financing
Account Interest
Can be calculated at the same time as
reestimates
Can be calculated separately from
reestimates
Requires an input cashflow formatted for
the CSC2
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CSC2—Required Cashflow Inputs
Latest completed fiscal year
Reference point--required for financing account interest and
reestimate calculations
Cohort Balances
Debt to Treasury/Cash Balance with Treasury
Treasury Transactions
Borrowings and repayments
Budgetary Transactions
Subsidy transfers, financing account interest, reestimates, and
modifications—reconciling balances, financing account interest,
and reestimates
Historical cashflows with the public
Cashflows in latest completed fiscal year required for ALL
cohorts
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CSC2—Input Cashflows
Reestimate discount rate must be a number
Latest completed fiscal year is a must!
New keywords
Timing for Balance sheet, borrowings, repayments,
financing account interest, and reestimates are
FIXED.
Debt to Treasury EOY must be entered as a negative
Cash Held by Treasury EOY must be positive
Subsidy and modifications—must specify timing!
Inflows to the financing account are positive
Outflows from the financing account are negative
Upward reestimates—positive, downward--negative
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Name: Loan guarantee example
Description: FAI and reestimate
Program Type: Guarantee
CSC2 Purpose:
Latest completed fiscal year
Cohort
Reestimate
2001
2001
Reestimate Discount Rate 4.76
Original Subsidy Rate 4.78
Interest Rate Reestimated Sub Rate 4.91
Input Commitments (+) ...............................................
Year 1
1,000,000
Year 2 Year 3 Year 4
cashflow Annual, Beginning
Timing ...............................................................................
1
Disbursements (+) ............................................. ,000,000
*****Balances with Treasury
Key Debt to Treasury EOY
Cash balance EOY
0
27,138
changes ****Intragovernmental Transactions
Borrowings from Treasury SOY 0
for input in Borrowings from Treasury EOY
Repayments of Treasury Debt MOY
0
0
Repayments of Treasury Debt EOY 0
purple Financing Account Interest
Financing Account Interest Adjustments
Reestimate SOY 0
Interest on Reestimate SOY 0
Subsidy transfer [annual,beginning] 47800
Modification 0
Modification Adjustment transfer 0
****Borrower Cashflows
Timing .................................... Annual, End
Default claim payments (+) [annual,end] 41,324 41,324 41,324 41,324
Recoveries (-) [annual,end] -20,662 -20,662 -20,662 -20,662
End
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CSC2 Output: CSC2 Tab
1) Present Value Calculations
PVF relative to the point of disbursement
PVF relative to the latest completed fiscal year
Converted Cashflow—sum of all inflows and outflows
to and from the financing account
2) Reported balances compared to net
Cashflows
End of year balance calculated vs. reported
Any difference must be explained
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CSC2 Output: CSC2 Tab
3) Financing Account Interest Calculation
Interest owed—Debt balance SOY,
borrowings backdated to 10/1, MOY
repayment
Interest earned—Cash balance SOY,
borrowings backdated to 10/1, MOY
repayment, cashflows to and from the account
Net financing account interest—sum of
interest owed and interest earned
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CSC2 Output: CSC2 Tab
4) Balances Approach Reestimate
Assets vs. Liabilities approach
NPV of cashflows after LCFY
Net EOY debt or cash balance with interest
Difference=reestimate
Financing account interest adjustment
included with reestimate
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CSC2 Output: CSC2 Tab
5) Traditional reestimate check
Reestimated subsidy rate based off historical and
future borrower cashflows
Should generate the same result as BA reestimate
6) Financing Account Interest Adjustment
Calculates interest that should have been earned/paid
on the financing account
Compares to the sum of reported interest, plus
section 3 net interest
Any difference = financing account interest
adjustment
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CSC2 Output: Summary Tab
Financing account interest
Reestimate summary (Federal credit
supplement)
Current year reestimate summary
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Summary
CSC2 replaces the C-Credit financing
account interest calculator
Same data is needed, different format
Improved financing account interest
calculations
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