1. Tyler Curtis Sarah Lyberg CSC2@omb.eop.gov
CSC2 OMB’s revised Credit Subsidy Calculator for the 2009 President’s Budget
Tyler Curtis
Sarah Lyberg

2. 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

3. 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)

4. Credit Program Overview
Agency
Treasury
C-Credit
Program Account
Interest
Interest
repayment
CSC
C-Credit or BARC
Subsidy + Reestimates
Budget line
Agency Borrowing
Principal
Financing Account
Loan
Borrower/
Public
Principal repayment
Loan 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.

5. CSC2: Goals and Challenges
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

6. 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

7. Goals: Streamline the process
Three separate tools combined into one
Budget subsidy rates
Reestimates
Financing Account Interest in C-Credit
CSC
C-Credit
BARC
CSC2

8. 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

9. 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

10. 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

11. 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

12. 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

13. CSC2 Functionality Budget subsidy rates Interest rate reestimates
Single effective rate/cohort interest rate
Financing account interest
Dollar Reestimates
Financing Account Interest Adjustments

14. Financing Account Interest: Review
Credit financing accounts earn interest on balances
Interest earnings are received from the Treasury Financial Management Service
Credit financing accounts pay interest on outstanding borrowings from Treasury
Interest payments 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

15. CSC2: Financing account interest
FAIC
CSC2
Simplified methods
Simple interest
Average balances
Disconnects with reestimate cashflows
Consistent with discounting
Compound interest
Actual cash flows
Aligned with reestimate cashflows
Improved calculations, same requirements

16. 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 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)

17. 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

18. 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.

19. 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.

20. 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=
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

21. 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

22. 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

23. 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

24. CSC2
Input cashflow
Key changes for input in purple

25. 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

26. 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

27. 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

28. 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

29. CSC2 Output: Summary Tab
Financing account interest
Reestimate summary (Federal credit supplement)
Current year reestimate summary

30. Summary
CSC2 replaces the C-Credit financing account interest calculator
Same data is needed, different format
Improved financing account interest calculations