Blowing out the balanced budget

This summer Washington is likely to blow up one of its most notable achievements of the decade - the 1997 agreement between the White House and Congress to balance the federal budget.

This doesn't mean that deficits, the Dark Side of fiscal policy, are about to return. The surplus continues to grow, fed by taxes from the strong economy.

But breaking the '97 pact's tight spending straitjacket could have major political consequences. Neither party wants to look like spendthrifts, however unrealistic the fiscal limits may now appear.

Their hesitance highlights the fact that both Republicans and Democrats are continuing to grope for appropriate roles in Washington's Era of Black Ink.

"The two parties are actually following the same budget policy for the first time in decades. But they can't face that they're doing it," says Stan Collender, senior vice president of the Federal Budget Consulting Group at Fleishman-Hillard Inc.

Discussions about whether to circumvent the balanced-budget pact have been occurring in congressional committees for some time. The issue will gain more prominence this week as the first batch of the year's parade of annual spending bills appears on the House floor.

The basic problem facing lawmakers is this: Back in 1997, balancing the federal budget did not look easy. To reach that goal by 2002, as the deal intended, politicians had to make deep cuts in projected government spending.

Yet with 1998 elections looming, neither the White House nor the GOP-led Congress wanted to appear mean-spirited, fiscally speaking. So they put off the sharpest reductions ... until now.

The Pentagon would be exempt from these cuts, under the 1997 plan, as would Social Security and most other entitlements. Reductions would be concentrated in the rest of the budget - so-called discretionary spending. Right now, those discretionary funds are scheduled for a 10 percent whack this year.

Meanwhile, the booming economy has helped bring about a balanced budget years earlier than the 2002 goal. The Congressional Budget Office (CBO) predicts the surplus for 2000 will be $111 billion. By 2004, it will reach $239 billion, the CBO adds.

Against this background, sticking with the spending "caps" for this year's appropriations bills looks difficult to all but the most committed deficit hawks.

"The caps are unrealistic, and they were recognized as unattainable even when the balanced budget act of 1997 was being put together," says Robert Reischauer, a budget expert at the Brookings Institution in Washington. "But they were a necessary element to a successful journey to the fiscal promised land."

That leaves lawmakers two options, says Mr. Reischauer.

The first is to limbo under the caps via fancy footwork. To a certain extent, that has already happened. The $15 billion spending bill for Kosovo operations which passed the Senate last week was only partly about Kosovo. It also contained billions in extra spending for such items as a farm-aid program. Since the bill was an "emergency" supplement, these funds won't count against the budget caps.

The second option is to face political reality, which is that neither party really wants big cuts in popular programs such as school loans or the National Institutes of Health, and vote to revise the caps.

But Democrats don't want to look like they are reverting to their old tax-and-spend image. Republicans, who control Congress by a thin margin, don't want to make themselves vulnerable to charges that they are raiding the surplus, which they promised to husband for Social Security.

"Both sides are waiting for the other to cry 'uncle,' " says Reischauer.

The standoff may be particularly dangerous to the GOP. It's supposed to be in charge of Congress, and the spending debate is already causing divisions within the party.

The powerful Appropriations Committee chairman who oversee the budget allocation process - Sen. Ted Stevens (R) of Alaska, and Rep. Bill Young (R) of Florida - are both openly complaining that they cannot live with cap restrictions. Many in the GOP rank-and-file agree with them.

But conservatives think the caps should be sacred, and the party leadership tends to agree. "We should stay within the caps. We knew the caps would pinch," said majority leader Sen. Trent Lott of Mississippi last week.

Still, Republicans know that congressional delay and division will inevitably strengthen the White House. The GOP does not want a repeat of last year, when lawmakers, desperate to cram appropriations bills out the door and go home to campaign, agreed to administration demands for big increases in programs favored by Democrats.

Ironically, Democrats and Republicans really are not that far apart on budget politics, according to Mr. Collender.

Democrats are no longer the party of tax-and-spend. The GOP is no longer the party of constant fiscal reduction. Given that background, the surplus should allow relatively easy agreement.

"Republicans could say, 'We want increased defense spending, and you want more eduction money,' " says Collender. "They could agree to do both, and then walk arm-in-arm from the room."