`Smoke and mirror' tricks used to cut budget deficit. Actual US deficit expected to top Gramm-Rudman limits

In its sprint to cut spending for 1987, Congress last week included $2 billion from the sale of Conrail in the latest fiscal year's budget. What made this transaction remarkable is that Congress also included the sale of Conrail's assets in last year's budget. This Conrail double entry, part of an $11.7 billion deficit reduction package, is just one of the blurry accounting gimmicks, sometimes called ``smoke and mirrors.'' Congress initiated these moves in an almost frantic preelection rush to make it appear that it could meet the budget targets set by the Gramm-Rudman deficit-reduction bill. (Is tax reform really tax reform? Story, Page 19.)

The numbers are suspect, however, prompting one congressional staff member to comment, ``If you believe Congress's numbers, you can write a letter to Santa and send it up the chimney.''

Although Congress claims to have gotten the deficit down to about $150 billion, budget observers expect the actual budget will be much higher, ranging from $170 billion to $200 billion.

Furthermore, Congress has made it even more difficult to meet budget guidelines set for 1988 and '89 by selling off loans and other assets.

By the end of the week, James Miller III, who is the director of the Office of Management and Budget (OMB), hopes to complete an appraisal of Congress's actions. The administration must present a budget for 1988 early next year.

Among the items bound to raise eyebrows at OMB are:

Congress decided to advance nearly $700 million in revenue-sharing payments by one day from Oct. 1 to Sept. 30. This increased the 1986 budget deficit while reducing the 1987 deficit.

``The reasoning behind this,'' says one congressional aide, ``was that no one would notice it in a year with a $230 billion deficit.''

Congress plans a fire sale of loans made by the Export-Import Bank, the Rural Development Agency, the Rural Housing Insurance Fund, and the Economic Development Administration.

The government will sell these loans at a discount to their full value, bringing in an estimated $5 billion, but depriving the government of revenue. The Congressional Budget Office and OMB are now estimating how much revenues will be reduced.''

Congress has imposed user fees on the Federal Deposit Insurance Corporation for foreign deposits, the Federal Energy Regulatory Commission, the Nuclear Regulatory Commission, including fees from the licensees, the Coast Guard, and Customs Service.

Congress has done this without having in place the mechanism to collect the fees. And it began the fees 17 days after they were supposed to be paid.

Such actions have prompted widespread criticism, even though they are done every year in some form. One congressional staff member notes, ``This is a low point in fiscal responsibility.''

Stanley Collender, director of national issues and federal budget policies at the Touche Ross accounting firm, says, ``The real question is whether Congress has any shame. How can you defend this stuff?''

George Goldberger, president of the Citizens Against Government Waste, agrees, adding, ``If you tried to do this stuff in the private sector, if your accountants didn't catch you, the Feds would throw you in jail.''

Congress itself is not enthusiastic about its deed. Rep. Lynn Martin (R) of Illinois, said, ``This is a medium-lousy reconciliation bill [paring $11.7 billion], but it is the best we could come up with.''

Even with the smoke and mirrors, some progress has been made on cutting the budget deficit, maintains Wendell Belew, former chief counsel to the House Budget Committee and now a consultant with Mathis Belew & Associates.

For example, the growth of deficit spending in relation to the gross national product has stabilized.

Mr. Belew believes the cuts serve a good function this year, because they permit Congress to avoid raising taxes or cut spending at a time when the economy is vulnerable.

``If you want to stick with the Gramm-Rudman approach,'' he says, ``you should not reduce the deficit in increments that are politically unrealistic and economically unwise.''

In its assumption about the economy, Congress has taken a middle-of-the-road course, guessing the economy will grow at slightly more than 3 percent.

The White House continues to maintain the economy will perk up to at least 4 percent, but some Wall Street forecasters expect growth as low as 1 percent. A poll by Blue Chip Economic Indicators, a Sedona, Ariz., newsletter, predicts the current quarter's economy will grow by only 3 percent.

Slow growth will only compound the budget process. Perhaps understanding the complications of slow growth, several senators gave the President an extra month, until Feb. 5, to show how he would lower the deficit to the Gramm-Rudman target of $108 billion in the next fiscal year.

The White House will decide this week if it will take the extension. Not everyone, however, appreciates easing a deadline extension. Says Mr. Collender, ``This means we are already a month behind before we've even started.''