WE DON'T KID ourselves: A Congressional Budget Office report titled "Third-Party Financing of Federal Projects" isn't apt to go flying off the shelves. But for anyone who pays taxes -- and, more important, for anyone who spends tax dollars -- it is worth a look. The title refers to a technique, increasingly tempting in tough budgetary times, by which government agencies arrange to pay for programs through creative financing arrangements that make costs look lower but end up higher. The most infamous such proposal is the ill-advised and mercifully ill-fated Boeing tanker lease deal, now back in the news with the release of a damning report by the Defense Department's inspector general.
But the particular sordidness of the Boeing deal shouldn't obscure the more general problems with this technique, which has been used for everything from building housing on military bases to constructing electricity transmission lines. The arrangements are varied and complex, but the common goal is to spread the cost of an investment over a number of years -- making it look like an annual operating expense -- instead of reflecting the obligation in full at the time it is made, as federal budget rules require.
These budgetary end runs generally end up costing the government more. According to the CBO, the extra fees charged by intermediaries who put together the financing packages and other parts of the deal "can add at least 2 percent -- and in some cases more than 50 percent -- to the costs of a project." If the project is financed by selling bonds, the government has to pay interest rates one to three percentage points higher than the rate on Treasury bonds.
So far such arrangements represent a trickle -- about $12 billion since 1998 -- in the vast river of federal spending. But there's growing pressure to fashion more. The CBO is right to resist this course and insist on honest budgeting.