Congress budget watchdog says Reagan underestimates deficit

As Ronald Reagan prepared for his speech yesterday on the need for a strong military, a new study warned that the President has sharply underestimated the cost of his defense plans. The findings by the nonpartisan Congressional Budget Office (CBO) are likely to complicate further the administration's efforts to maintain its defense buildup. His defense-spending plans already are in trouble on Capitol Hill.

The figures of the highly respected CBO also show that Congress will face a tougher time than indicated by the President's budget in meeting the deficit-cutting targets imposed by the Gramm-Rudman balanced-budget law. The law is currently being challenged in the courts.

According to CBO calculations, the deficits resulting from the President's budget would violate the Gramm-Rudman targets for each of the next five years. The law requires a balanced budget by fiscal year 1991, and the administration's figures showed the targets being met.

But the CBO figures show the Reagan budget underestimates the federal budget deficit by $16.1 billion in 1987 and by $150.9 billion over the next five years.

In preparing its analysis, the CBO reestimates or reprices the President's budget using CBO's economic and technical estimating methods and assumptions rather than those of the President's Office of Management and Budget (OMB).

The CBO's analysis of the President's budget, prepared for the Senate Appropriations Committee, asserted that Mr. Reagan had underestimated the cost of his defense plans by $14.5 billion for fiscal 1987 and by $68.1 billion over the next five years.

Disputes over technical estimating methods were behind the differing cost figures, CBO said. The difference between the CBO and administration defense figures is vastly larger for the current budget than for past budgets, CBO said.

Each year Congress gives the Pentagon new budget authority that allows the Defense Department to enter into spending obligations. But CBO Director Rudolph Penner notes that these obligations may not result in cash outlays for several years.

The CBO is using historical data to determine how fast budget authority will be turned into cash out of Pentagon.

The administration contends that the historical data no longer give a realistic picture of spending trends. OMB spokesman Edward Dale said, ``We still think the defense outlay estimate is reasonable.''

In addition to the dispute over defense estimates, the administration's more-optimistic economic assumptions were the other major factor throwing off the administration's budget figures, the CBO said. CBO assumes a lower rate of inflation-adjusted economic growth and until 1991 it also assumes higher inflation-adjusted interest rates than the administration does.

Last week CBO released its baseline budget forecast, which assumes that current laws affecting spending and taxes remain unchanged. Under those assumptions, CBO projects the federal deficit will fall from $208.3 billion in 1986 to $104.3 billion in '91. This week's report examines the deficit incorporating policy changes proposed in the President's '87 budget.

The President's budget proposes funding a defense buildup with continuing cuts in domestic programs. The CBO report noted that of the $309 billion in nondefense outlay reductions the President proposes over the next five years, 30 percent would come from cutting grants to state and local governments.

A new study issued Wednesday by the American Federation of State, County, and Municipal Employees reported that cuts proposed in the President's budget would wipe out the expected year-end budget surpluses in 43 out of 50 states. The likely result, the study asserted, was that states will either have to cut programs or boost taxes.