American International Group still relies largely on government funding for capital and liquidity, and “most observers” expect that the AIG Investment Program will generate “significant losses” to U.S. taxpayers, according to a government report.

The Congressional Oversight Panel’s September report on the Troubled Asset Relief Program (TARP)–called “Assessing the TARP on the Eve of Its Expiration”–says the latest estimates by the Congressional Budget Office, the Office of Management and Budget, and the Treasury Department project losses of $36 billion, $50 billion and $45 billion, respectively.

However, the report notes that estimated losses have steadily decreased since the inception of the credit facility.

The report said Treasury’s ability to recoup its investment depends on the value of AIG’s common stock at the time Treasury sells its interests.

Therefore, the report states, the value of Treasury’s substantial investment in AIG and the size of any gain or loss are dependent on many external variables, and “the protracted investment in AIG continues to create significant risks to taxpayers.”

The report noted that Treasury has invested approximately $47.5 billion of TARP funds in AIG, comprised of $40 billion in non-cumulative preferred stock and an equity capital facility under which AIG has drawn down $7.5 billion.

Including $1.6 billion in unpaid dividends, AIG’s outstanding TARP assistance equals $49.1 billion, the report said, noting that AIG must also repay $79.1 billion in outstanding debt to the Federal Reserve Bank of New York.

“The timing of Treasury’s exit is complicated by the fact that AIG is not permitted to repay Treasury until it has fully repaid FRBNY,” the report noted.

Treasury, the Federal Reserve and AIG have stated that they are confident AIG will fully repay FRBNY in the near future without “jeopardizing its financial viability,” according to the report.

While the report said TARP provided “critical support” to the financial markets at a time when market confidence was in freefall, it has been far less effective in meeting its other statutory goals–such as supporting home values, retirement savings and economic growth. The result has been public anger and skepticism.

“Thus, the greatest consequence of the TARP may be that the government has lost some of its ability to respond to financial crises,” the report concluded.

Meanwhile, the Treasury Department said it has priced its secondary public offering of more than 52 million warrants to purchase common stock of The Hartford Financial Services Group Inc. at $13.70 per warrant.

The offering is expected to net more than $706 million, Treasury said, adding that proceeds from the sale will be returned to American taxpayers, in addition to dividends The Hartford has already paid. The closing is expected to occur on or about Sept. 27.

The department said the sale represents its remaining interest in the company. The Hartford borrowed $3.4 billion from the Treasury last year under TARP.

In March, the company said it would raise the money to pay back the government with an offering of $1.45 billion of common stock, $500 million of mandatory convertible preferred stock and $425 million in cash, for a total of $2.4 billion.

The 52 million warrants were given to Treasury to secure the TARP money. The Hartford also said in March that it had no intention of buying back the warrants from the Treasury.