CBO's Monthly Budget Review

December 5, 2008

Yesterday, CBO released its Monthly Budget Review. CBO estimates that the Treasury will report a federal budget deficit of $408 billion for the first two months of fiscal year 2009, $253 billion higher than the deficit recorded through November of last year. This estimate includes $191 billion disbursed for the Troubled Assets Relief Program (TARP) during the first two months of the fiscal year.

CBO believes that the equity investments for that program should be recorded on a net present value basis adjusted for market risk, as specified in the Emergency Economic Stabilization Act of 2008, rather than on a cash basis as recorded by the Treasury. CBO's preliminary analysis suggests that the present value cost of the TARP transactions made through November totals about $50 billion, $141 billion less than the cash disbursement recorded in the budget by the Treasury. The estimated cost accounts for subsidized interest rates and market risk, but also for the likelihood that the government will ultimately get much of its money back. As a result, CBO's estimates of outlays and the deficit are much lower than the amounts that will be reported by the Treasury.

Evaluating TARP on a net present value basis, CBO estimates the federal deficit totaled $267 billion through November, compared with a deficit of $155 billion during the same period last year. Revenues are running about 6 percent below receipts during the same period last year---but even excluding the TARP payments and $14 billion in payments to Freddie Mac to cover its losses, outlays are up by about 13 percent (after adjusting for shifts in the timing of certain payments).