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Answers to Questions for the Record Following a Hearing on the Budget and Economic Outlook for 2014 to 2024 Conducted by the House Committee on the Budget 1 (June 19, 2014)

handle is hein.congrec/cbo1688 and id is 1 raw text is: JUNE 19, 2014 Answers to Questions for the Record Following a Hearing on the Budget and Economic Outlook for 2014 to 2024 Conducted by the House Committee on the Budget On February 5, 2014, the House Committee on the Budget convened a hearing at which Douglas W Elmendorf Director of the Congressional Budget Office, testified about CBO's report The Budget and Economic Outlook: 2014 to 2024 (February 2014), . Some Members of the Committee submitted further questionsfor the record, and this document provides CBO's answers. Chairman Paul Ryan Question. Do you believe the current scoring conventions for federal insurance programs accurately measure the risks borne by the federal government? Specifically, do CBO scores related to the National Flood Insurance Program, the Aviation War Risk Insurance Program, and the Terrorism Risk Insurance Program fully capture government risk? For certain credit programs, CBO has published a fair value estimate in addition to the required FCRA-based estimate. Is there a similar alternative measure for insurance programs? CBO has said that FCRA-based cost estimates do not provide a full accounting of what federal credit programs actually cost the government because they do not incorporate the full cost of the risk associated with the loans. Given the similarity between a loan guarantee and an insurance product, could the same be said about federal insurance programs? Answer. In preparing baseline projections and legislative cost estimates related to federal insurance programs, the Congressional Budget Office aims to capture the full extent of expected costs to the government, taking into account each program's unique features and statutory framework. CBO's estimates consider the federal government's exposure to losses; probabilistic analyses of the likelihood of such losses' occurring; and anticipated income from fees, premiums, or other mechanisms intended to offset costs. Those estimates are intended to represent the middle of the range of possible outcomes, but there is a significant likelihood that the government's costs could be greater or less than CBO projects. However, the cash-based budgetary treatment that applies to all noncredit programs creates a potential mismatch between the timing of spending and income for some insurance programs. As a result, the full extent of budgetary effects for such programs may not be captured within the 10-year period covered by CBO's estimates. For example, although income from premiums charged to air carriers under the Federal Aviation Administration's

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