What Bill Didn't Tell You

The budget mess could get a lot worse

Welcome to fiscal purgatory. Congress and the President can't agree on a balanced-budget plan. The government limps along from one temporary spending bill to the next. The nation faces another threat of default on its debt. Little wonder that the President and GOP are struggling to end the impasse.

In his Jan. 23 State of the Union address, President Clinton reached out to the GOP. "We ought to resolve our remaining differences," he declared. House Speaker Newt Gingrich (R-Ga.) responded the next day by offering to accept a "downpayment" of $80 billion in spending cuts over seven years. But such an agreement would still leave the two sides far apart and the government in limbo.

ON HOLD. If the stalemate continues, entitlement programs such as Medicare, Medicaid, and Social Security would grow unabated. It would be business as usual for welfare. But Republicans would use the impasse to hold down spending for most other domestic programs, including environmental protection, job training, and export promotion. Under the GOP's short-term spending strategy, programs funded by annual appropriations could be cut by as much as 25%. Overall, they would lose about $7 billion of the $248 billion they received last year.

The tax cuts that President Clinton and congressional Republicans promised are also on hold. And a fistful of credits that have expired during the past year are stuck in limbo. Among the victims: tax breaks for business research and employer-paid education expenses.

Atop all this sits the threat of default. On Jan. 22, Treasury Secretary Robert E. Rubin warned that by the end of February, Treasury will run out of funds to pay interest on bonds unless Congress raises the debt ceiling. Hard-line GOP lawmakers, such as House Majority Leader Richard K. Armey (R-Tex.), say they won't even address the matter for now, though a default would mean a huge rise in debt costs for businesses and individuals.

The endless stalemate is draining public confidence in government. "It touches on the national psyche," says Ford Motor Chairman Alexander J. Trotman. "The American public [is] somewhere between anxiety and annoyance." Given voters' malaise, Clinton and the GOP would be playing a dangerous game if they let the impasse continue through the fall elections.

The President would try to convince voters that he can save them from radical Republicans. But Democratic consultant Brian Lunde warns: "He can't be seen as protector of the old order. The Republicans will paint him as a tax-and-spend Democrat." The GOP is at risk as well. In many polls, 70% of Americans blame the party for the budget impasse. And in a Harris survey of 1,055 adults polled on Jan. 18-22, some 52% say they are inclined to back the President when the two sides disagree. That will make it tough for Republicans to sell a positive message should their pledge to balance the budget and cut taxes come to naught. "This is the equivalent of two guys playing Russian roulette," says a GOP consultant. "And there may be enough bullets for both of them."

Voter fury will only increase as the consequences of the bickering are felt. Part of government--including the Pentagon, Congress, and the White House--is funded through September, as are many high-profile programs, from national park visitor services to criminal law enforcement. But most operations will suffer a series of temporary spending bills, making long-term planning impossible.

The Environmental Protection Agency expects to make only about half its usual number of inspections. And business-backed deregulation is stalled, since money for technical analysis of new, more lenient rules has dried up. At the Justice Dept., criminal prosecutions would continue normally, but new civil cases may be on indefinite hold.

The Commerce Dept., a top target of GOP budget-cutters, already has nearly 1,600 export licenses worth $3 billion in its pipeline because of the last government shutdown. It could be May before the backlog gets cleared. And a 25% spending cut would only make matters worse. "We're creating a mind-set abroad that America is unreliable," says William A. Reinsch, Under Secretary for Export Administration. Squeezed between budget cuts and growing demand for visas and passports, the State Dept. is trimming its trade work, too.

After two federal shutdowns, the Occupational Safety & Health Administration faces a backlog of 1,000 complaints. A 25% funding cut would leave the agency unable to do routine inspections. Another Labor Dept. project in jeopardy: a summer jobs program for 600,000 kids. With funding uncertain, local governments will find it tough to recruit businesses to provide the jobs.

IN DOUBT. Ripple effects will hit state and local governments. States get $225 billion--more than 30% of their funding--from Washington. Most of it comes from Medicaid and welfare, both funded for now, but in doubt for the future. An additional $75 billion comes from targeted grants--many of which would be trimmed under the 25% spending cut. Worse, most states have only a month or two to wrap up their legislative budget sessions, and they can't plan. In Colorado, 40% of air and water quality programs are funded by Washington. "It throws everything into a cocked hat," says state Budget Director George Delaney.

If the standoff continues? Clinton can block the GOP from reforming entitlements. Republicans can stop the President from spending as much as he would like on other domestic programs. But nobody can make a policy decision on what the government should be doing and how it should be paying for it.

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