09-01-2001

CONGRESS: As the Surplus Drops, So Do Expectations

Move in the hearses. As lawmakers return to Washington after Labor Day,
they may find that Capitol Hill is starting to look like a massive morgue.
Given the shrinking surplus-and the shrinking legislative calendar-many
presidential and congressional initiatives ranging from missile defense to
prescription drug coverage will soon be declared dead for the year.
Members of both parties are preparing for a complex exercise of
legislative triage in which they struggle to determine how much they can
salvage from their hefty wish lists before adjourning.


"It's going to be a very difficult fall period for the Congress and
the Administration," predicted Senate Budget Committee Chairman Kent
Conrad, D-N.D.


But first things first. Expect at least several weeks of partisan
finger-pointing before Congress actually gets down to the business of
trying to find common ground so that it can finish its work for the year.
The name-calling that began in August with the grim surplus
forecasts-issued first by the White House's Office of Management and
Budget and then by the Congressional Budget Office-is sure to become
ear-splitting.


Democrats are howling over the CBO's projection that, because of the
worsening economy and the recently enacted tax cut, the Treasury will be
forced to dip into the Social Security trust fund this year and, quite
possibly, during each of the next three fiscal years. "There will be
a colossal blame game with Democrats saying, `We told you so,' " a
veteran House Democratic aide said in forecasting the coming
weeks.


Republicans contend they can rise above the din. President Bush's
congressional allies believe they can sustain the momentum they built
before the August recess, when the House passed his faith-based
initiative, energy package, and patients' rights legislation. Moreover, a
well-placed GOP source this week said with a smile that it's not such a
bad thing for Democrats to be loudly making the point that the
deteriorating budget picture makes it difficult for Washington to engage
in its typical year-end spend-a-thon.


In any event, the official plans of the Democratic-run Senate and the
Republican-run House to adjourn by October 5 are widely considered to be
out the window. After all, Congress hasn't sent any of the must-pass
spending bills to the White House. "It's a given that we'll be here
through the middle of November," said a senior Senate GOP aide.
"There's a question of whether we're here past
Thanksgiving."


In four of the past six non-election years, Congress adjourned before
Thanksgiving. But in no case did it finish business before November 13.
Some Capitol Hill sources believe that Senate Majority Leader Thomas A.
Daschle, D-S.D., will want to keep Congress in session into December so
that Bush will not have the stage entirely to himself. The Senate could be
here until then anyway because it faces a nightmarish logistical challenge
in scheduling its mountain of pending business.


Another surprise or two is a good bet for a year that already has had its
share of strange twists, from the contested presidential election, to the
Senate turnover, to the travails of Rep. Gary Condit, D-Calif. Even before
the bad budget news, both parties were warily eyeing the prospects of
working out compromises in House-Senate conference committees. Now, doing
business has become even more difficult in a narrowly divided government
that suddenly finds itself short of funds.


The Spending Bills


Budget experts are groping for new adjectives to describe how difficult it
will be for Congress to complete the 13 annual appropriations bills now
that there's little money to spend on new initiatives.


In any year, the process is "ugly," noted Stanley Collender,
managing director of the federal budget consulting group at
Fleishman-Hillard Inc. But after the OMB issued its economic projections
on August 22, Collender said he amended his prediction to "very
ugly." And when the CBO followed on August 28 with even worse news,
he said he changed his prediction to "extremely very
ugly."


The CBO reported that the Republican-sponsored tax cut and the continued
sluggish economy will result in Washington politicians' doing something
this year that they in recent years of bountiful surplus projections had
pledged not to do: use part of the Social Security surplus-some $9
billion-to help pay for government operations. In fiscal 2002, the CBO
projected a tiny-at least in government terms-surplus of $2 billion
outside of the Social Security trust fund.


House Republicans are in a particularly bad position because they have
promised over and over not to tap what they refer to as the Medicare trust
fund surplus. The CBO said that some $36 billion of the Medicare surplus
will be spent next year. "The House passed legislation five times
pledging that they wouldn't do this," said a senior aide to House
Minority Leader Richard A. Gephardt, D-Mo. "If they don't mind lying,
fine.... But the public is not that stupid."


The White House, Senate Republicans, and even some House Republicans now
say that the Medicare trust fund doesn't really exist in terms of the way
that the federal government actually keeps its books. "It was a
goal" to fence off the Medicare money, said Richard May, a former
Republican staff director of the House Budget Committee who is now a
legislative consultant for the law firm of Brownstein Hyatt & Farber.
"It was a hope. But it didn't work out. You can't put the genie back
in the bottle, so why worry about it?"


Even though Republicans for years have talked about the sanctity of the
trust funds, they've been soft-peddling the recent developments and their
impact on the appropriations debate. "Let me be unequivocal that this
Congress will work with this President to ensure that every dime collected
for Social Security and Medicare will be spent solely on Social Security
and Medicare," said House Speaker J. Dennis Hastert, R-Ill., in an
August 27 statement. Hastert added that the CBO report simply means that
"we will not be able to pay off as much debt as soon as we originally
had wanted."


Likewise, OMB Director Mitchell E. Daniels Jr. downplayed the importance
of leaving the Medicare and Social Security money untouched. "It
would be a big mistake to shortchange long-term priorities for the sake of
symbolic priorities," Daniels said in an August 27 conference call
with reporters.


Some Republicans concede that work on the appropriations bills will now be
tougher. "The budget is tight," House Budget Committee Chairman
Jim Nussle, R-Iowa, told reporters on August 28. "A little tighter
than we wanted it to be." But referring to the tax cut, Nussle added,
"Getting that money out of town is the most important thing we could
have done."


So far, the House has passed nine of the 13 annual spending bills, and the
Senate has passed five. Neither chamber has started work on the two
biggest bills: those covering the Defense Department and the Labor, Health
and Human Services, and Education Departments. Insiders have expected the
main battles to be over defense and education spending.


In recent months, the White House, congressional Republicans, and even
some Democrats had suggested that appropriations deals could be cut fairly
easily by tapping a "reserve fund" of surplus money that
Congress carved out for itself this spring in its fiscal 2002 budget
resolution. Republicans wanted to use the reserve money to cover Bush's
$18.4 billion supplemental defense spending request, while Democrats
wanted $3 billion to $4 billion to go toward education.


But the budget resolution had a catch: The Budget Committee chairmen can
tap the "reserve" only as long as the budget does not invade the
Social Security or Medicare surpluses. In other words, the cushion
disappeared when the CBO issued its August 28 report, leaving Congress
with no apparent way to fund Bush's defense request or any other extra
initiatives. "The President's request for additional money for
defense [comes] right out of the Social Security Trust Fund," Conrad
said at an August 28 press conference.


Conrad called on Bush to work with Congress to update the budget.
"The first thing the Administration needs to do is admit there's a
problem," Conrad said. "Then we can work on a rescue plan. Then
we're perfectly willing to work with them on a rescue plan."


Top House and Senate Democrats took a similar tack in an August 29 letter
to Bush. "Although you continue to advance [your] proposals, your
Administration has failed to put forward any plan to reconcile their costs
with the rapidly dwindling surplus," the Democrats wrote. "We
would appreciate the opportunity to meet with you.... Presidential
leadership is critical to resolving complex budget problems. That is the
kind of leadership needed now. We need to work together to find ways to
fund our nation's priorities, get our economy back on track, and put
America back on the path of fiscal responsibility."


Some Republicans believe the problems are not so serious and that the
money already exists to fund the first year of Bush's defense budget
request, since the entire $18.4 billion could not be spent in one year.
"The President's defense request could be accommodated within the CBO
figures," said Senate Budget Committee ranking member Pete V.
Domenici, R-N.M.


Nussle, however, continues to question the need for the $18.4 billion
defense request. He contended that Defense Secretary Donald Rumsfeld has
not produced the strategic review needed to justify the additional
spending. "I am very concerned about the fiscal responsibility of
funding the defense of the past," Nussle said.


James Dyer, staff director of the House Appropriations Committee, said he
believes there is sufficient congressional support for defense that Bush
could get his $18.4 billion in defense spending even if some trust fund
must be tapped to get it. "I think there's enough of a consensus that
we can pass the defense bill with the $18.4 billion," Dyer
said.


Dyer said besides defense, the only other large remaining issue is
education. He said House Republican appropriators are willing to spend an
additional $3.3 billion to fund the pending education reform legislation,
but it remains unclear where the money will come from. "You have a
problem here when you have the President's signature domestic program and
no money to spend on it," he said.


The appropriations mess obviously won't be settled by the end of the
fiscal year on September 30, which is only about 14 legislative days away.
Yet Dyer said he believes that the budget problems may not be as difficult
to resolve as Democrats predict, even though he conceded he may be too
optimistic. "I'd kill myself if I wasn't," Dyer
concluded.


Other Priorities


Apart from the appropriations legislation, members hope to complete a slew
of other high-profile bills before they close shop later this year. But
proposals with big price tags will run into some of the same fiscal
limitations.


Bush's energy package and faith-based initiative, for example, include tax
breaks that Democrats objected to when the House considered the bills. At
the time, Republicans dismissed the Democrats' worries that the tax cuts
would force a deficit. Paying for other pending bills that chiefly
regulate the marketplace-such as patients' rights legislation or a
minimum-wage hike-could also become problematic because Republicans want
to include tax-cut sweeteners to help businesses.


And still other difficulties arise because this spring's budget resolution
made spending on some new programs-ranging from prescription drug
coverage, to health coverage for the uninsured, to agricultural
initiatives-contingent on the size of the surplus.


Republicans acknowledge that Congress will need to carefully weigh its
priorities in light of the budget situation. "Determinations will
have to be made on a case-by-case basis," said an aide to House
Majority Leader Dick Armey, R-Texas. "These will be tough
choices." The aide pointedly added that Armey "wants to assure
that tax relief stays in place, but with the necessary
belt-tightening."


That probably won't satisfy most Democrats, who have consistently sought
to roll back parts of the tax cut and now demand an entirely new budget in
response to the economic changes. "Their budget was predicated on
assumptions that no longer exist," said the Gephardt aide. "We
told them that they are wrong. They ignored us."


Expect to hear plenty more of such rhetorical exchanges before Congress
gets out of town this year.


David Baumann and Richard E. Cohen

National Journal