j I 538 September 30, 1986 CHRISTMAS IN OCTOBER WHY REAGAN SHOULD VETO THE CONTINU1,NG RESOLUTION INTRODUCTION In his weekly radio address last Saturday, Ronald Reagan roundly attacked Congress's last minute spending bill, de signed to keep the government operating past the beginning of the new fiscal year starting October 1st; Denouncing the Continuing Resolution as a Christmas tree hung with pet projects,'I Reagan has threatened to close down the government with a veto unles s the bill is changed substantially.

Continuing Resolution is the most expensive single piece of legislation in U.S. history. The bloated spending bill represents the grand culmination of nine months of congressional election-year budget posturing budget s urplus than a $200 billion deficit annual appropriations wrapped together into a single bill, is objectionable on three counts. First, it is extraordinarily costly.

Five of the individual appropriations bills contained in the continuing resolution exceed President Reagan's January spending requests by a total of almost $30 billion. The President must stand firm against such extravagance and veto the entire Resolution, if the Senate-House Conference agrees to any single appropriations bill that exceeds his original budget request.

Second, the Resolution is, in the words of Congressman Dick Armey Reagan is correct in using the veto threat. The 560 billion It is a spending bill more in keeping with a $200 billion The Continuing Resolution, which is a package of all thirteen R-TX loaded with more pork than a Jimmy Dean farm bill includes such items as earmarked funds for keeping open obsolete The budget I I I military bases located in key congressional districts, thirtylnew mult'imillion dollar Corps of Engine e rs water projects, and a $100 mill'ion appropriation for Department of Interior road construction to promises to add as much as $10 billion to the federal deficit I benefit timber states in the Northwest. Such pork-barrel spending I Finally, the spending b ill is replete with disturbing policy directives intended to deprive the President of many of his Executive Branch powers--virtually the only check on the congressional spending machine. These riders would: restrict the President's ability to contract out commercial services to private firms--although this would save money; prohibit the executive agencies.from even studying possible savings from privatization; and constrain the President's deferral authority-an Executive Branch privilege since near the tur n of the century. The purpose of these and other policy directives inserted in the Continuing Resolution is to place the executive powers pilot. Unless these provisions are removed, Reagan has correctly vowed to veto the bill I of the most popular Presiden t in the last twenty years on automatic I I Reagan's failure to veto the Continuing Resolution, unless Congress radically alters it in the Senate-House Conference, would have adverse long-term policy consequences 1) The bill amounts to a tax increase in 19 8 7 Among them I The only victory that Reagan can claim from this year's budget battle is that taxes have not been raised. But if the President signs the Continuing Resolution as it now stands, he will give credence to the claims of the big spenders in Cong ress that the budget has been cut to the bone and that the only deficit solution is a tax hike.

Already Senate Budget Committee Chairman Pete Domenici (R-NM) and I House Budget Committee Chairman William Gray (D-PA) are insisting on a tax hike in 19

87. Reagan's successful opposition to new taxes in this year's budget will prove to be a hollow victory if he does not hold lawmakers' feet to the fire on spending by vetoing the Contin,uing Resolution. Signing the bill would play right into the hands of the pro-tax lobby in Congress.

Gramm-Rudman deficit law, and with it, any realistic hope of achievinq a balanced budset I 2) The Resolution could sound the death knell of the The strategy of the Gram-Rudman balanced budget act was. to spread the pain of de ficit reduction over a five-year period; so that heavy spending cuts would not be necessary in any single year,. But unless the President forces Congress to make' adequate budget :cuts this year, the budget will have to be reduced next year by far more th a n the 35 billion planned under the Gram-Rudman schedule will need to find an additional $25 to $40 billion in reductions to compensate for the fact that no cuts were made this year Congress I That total 2of between $60 billion and $75 billion in cuts duri n g a single year is likely to be far beyond the pain threshold of lawmakers. A veto would force- Congress back- on the Gkamm-Rudman track to zero def icits nesotiations will be seriously eroded. 3) The President's baraainina power in future budaet The Pres i dent's single most powerful weapon in controlling congressional spending is the veto. The mere threat of a veto can prod Congress to temper its spending behavior. But that threat is an effective means of shaping legislation only if the President actually e mploys the veto when Congress violates the conditions he has laid down past twelve months to veto any "budget busting spending bills," Reagan If, after publicly threatening over a dozen times during the fails to strike down the most little reason for Cong ress to future.

HOW THE CONTINUING RESOLUTION expensive bill in history, there is very beiieve Reagan s BUSTS THE BUDGET veto threats in the I I 1) The individual appropriations bills do not conform to The thirteen appropriation bills contained in the Cont inuing This has permitted legislators to Reaaan's budget priorities.

Resolution alter fundamental Reagan Administration .budget priorities.

Put,simply, defense has been severely slashed by Congress to avoid making domestic spending cuts increase spending significantly above the Reagan budget benchmarks for five domestic appropriations. Table 1 compares the Senate and House versions of these five individual appropriations bills with the Reagan 1987 budget. Reagan should veto the Continuing Resolution unle s s each bill is brought within White House targets 2) The Resolution ends very few proarams I During the past two years, President Reagan has recommended the termination of 26 domestic programs with savings of more than $15 billion. Other than passing legi slation recently to sell Conrail, the only program that Congress has voted to eliminate has been revenue sharing.

Congress must bite the bullet and end wasteful programs.

Congress simply reduces a program's budget, these cuts result in one-time savings wi th little lasting impact on the deficit the coalition of administrators and beneficiaries supporting ,the nroaram remains in existence to fiqht another day. Not surprisingly If the deficit is to be brought permanently under control When Moreover Ld those p rograms receiving budget cuts in one most likeiy candidates for budget increases fiscal year often are-the in subsequent years 3TABLE 1 COMPARISON OF REAGAN BUDGET WITH SELECTED HOUSE-SENATE APPROPRIATIONS Budget Authority Bill Reagan Request House Bill S enate Interior Agriculture 6.6 28.6 8.2 $8.0 45.2 $30.5 Transportation $7.0 $10.3 $10.2 Labor, Health, Education $104.8 $103.7 113.7 45.5 $54.0 $53.4 I Housing Excludes appropriations for some programs not yet authorized.

Source: Consressional Quarterly Th us President Reagan must insist that Congress eliminate more programs before he signs the budget bill candidates appropriated for FY 1987 The EDA is a multimillion dollar public works program that has never been shown to create any net new jobs.

The EDA h as had delinquency rates on its loans of up to 40 percent There are several obvious The Economic Development Administration (EDAI S 275 million The Lesal Services Corporation 300 million The Legal Services Corporation has become increasingly involved in p ublic advocacy issues, rather than in pursuing its original mission--providing basic legal counsel for the poor. Only 4 percent of the nation's poor have ever received legal services assistance.

Impact Aid, Part B 130 million These funds "reimburse local governments for the cost of educating the children of those military personnel who live off base and pay local property taxes.

The payments allow jurisdictions already benefiting from military bases to collect a further windfall payment from the federal government.

The Work Incentive Proaram (WIN 200 millionl: WIN job placement programs have enormous administrative cbsts, compared with 4I the program's benefits Iwork for welfare program, modeled after successful plans in California, Massachusetts, and othe r states WIN should be eliminated and replaced with a U.S. Postal Service Subsidies 650 million The federal postal subsidy finances low-price postal rates for "preferred mailers," including nonprofit groups and magazine publishers. As the Office of Manage ment and Budget notes, the subsidized mailings only encourage Iladvertising and commercial solicitation of product services at the taxpayers' expense."

Housins,and Urban Development HUD) Rental Housins Development Grants ($225 million The cost per unit of this housing program has been estimated at $76,400 by the Office of Management and Budget housing voucher program would cut.costs by more than half. Mo r eover new construction programs make little sense, given the President's Housing Commission finding that the low-income housing problein is one of. affordability, not supply A HUD Rental Rehabilitation Grants 250 million This program is expensive, poorly targeted, and duplicates the Community Development Block Grant, which provides cities with over 1 billion each year for housing rehabilitation. ,Moreoyer, the $250 million appropriation is triple the 1986 spending level.

Small Business Administration (SBA) Direct Loans ($170 millionL: The default rate on SBA direct loans is nearly 30 percent continued funding of a program with such a poor performance record is unjustified and does little to foster new enterprises. Congress also should reduce the SBA's $2 b illion guaranteed loan program authorization, which assists less than one percent of all small businesses. In fact, the formation rates of new, small businesses bear no relationship to the level of SBA loan finance.

Amtrak Subsidies 590 million Studies sho w that over the first ten years of federal ownership, Amtrak cost federal taxpayers 12 billion. Amtrak passengers-typically middle class Americans rather than the poor--are subsidized by an average of more than 30 per ride.

Urban Mass Transit Discretionar ir Grants 1.000 million The Administration proposed ending these discretionary transit funds and replacing them with a transportation block grant, which would give cities greater flexibility in developing their transit systems.

Congress ignored that proposal. The discretionary grants system has encouraged cities to begin building multimillion dollar rail #systems that are underused by commuters 53) Many domestic proqrams will receive siunificant spendinq increases in 1987.

The claim made by congressmen that there is no room for further spending cuts on the domestic side of the budget is just not true.

Not only have legislators ignored the President's requests for program terminations, they have also hiked spending for most other domestic agencies above th e level recommended by the White House. Dozens of programs will receive healthy spending increases in 1987, if the Continuing Resolution is not overhauled.

Table 2 contains a sample list of programs scheduled in either the House or the Senate version of t he Continuing Resolution to receive appropriations at least 100 million above the President's budget As the figures indicate, there is still plenty of room for domestic spending cuts. The President should require Congress to prune spending levels in each of these programs before he agrees to sign the Resolution.

TABLE 2 SELECTED PROGRAMS THAT EXCEED THE REAGAN SPENDING REQUEST BY MORE THAN $100 MILLION Proaram Amount Above the Reaaan Reauest EPA Construction Grants Veterans Medical Benefits Internal Revenu e Service Health Resources and Services National Institutes of Health Job Training and Employment Corporation for Public Broadcasting All Department of Education Programs Federal Highway Aid Airport Improvement Program Fossil Energy R C D Energy Conservat i on Federal Land Acquisition Agricultural Conservation Programs Agricultural Extension Service Strategic Petroleum Reserve Indian Health Urban Mass Transit Formula Grants 600 million 400 million 150 million 330 million 1,220. million 860 million 100 gillio n 3,000 million $1,030 million 280 million 160 million $240 million $100 million 340 million 180 million 140 million 110 million $810 million Total above Reagan Request $10,050 million Source: Office of Management and Budget 6 4) The bill includes obiectio nable policv directives that strip Both the House and the Senate have inserted into the Continuing the President of his proper Executive Branch ~owers.

Resolution dozens of little noticed policy statements and regulations which would limit the President's power as chief administrator of the federal agencies micro-manage the spending of federal funds. Not only are they objectionable on constitutional grounds, but they also could cost taxpayers billions of dollars. These policy directives should not be hidde n as riders on huge appropriations bills fundamental and long-term change in the relationship between Congress and the Presidency and therefore needs separate debate and legislation.

Restrictions on Contractins Out: Language in the Senate agriculture bill contained within the Resolution prohibits the contracting out of debt collection for seriously delinquent loans administered by the Fanners Home Administration; language in the House and Senate Treasury Bill prohibits the General Services Administration f r om contracting out such activities as janitorial work. Yet contracting out commercial services, such as debt collection typically saves taxpayers about 20 to 30 percent of the cost time of fiscal restraint, Congress should be'vigorously promoting contract i ng out-not restricting it bar the Office of Management and Budget from studying Power Marketing Administration privatization and repricing plans, from assessing the feasibility of selling the federal uranium enrichment plants, and from finding ways to sel l the Naval Petroleum Reserves-even though Congress already has agreed to the sale in 19

88. This "know nothing strategy is like a bankrupt firm deciding to fire its accountant.

Congress evidently wants to prevent itself or the American people from ever l earning of the potential taxpayer benefits of privatization by preventing OMB from undertaking feasibility studies In many cases these are attempts by Congress to Each involves a At a Gas Rules" on Privatization: The Continuing Resolution would Prohibitio n s asainst Job Corps Center closinss: The House Labor Appropriations Bill would prevent the President from closing any Job Corps Centers, even when a center is not successful. Thus it would prevent the government from utilizing private job training groups a s a more cost-effective alternative Limitations on the President's deferral authoritv: The House version of the Continuing Resolution repeals the President's power to defer funds appropriated to the Department of the Interior. When the President defers sp e nding, he withholds appropriated funds until the 7 next fiscal year. The U.S. Chamber of Commerce has calculated that the deferral power has saved taxpayers tens of billions of dollars over the past thirty years. Any congressional efforts to restrict this basic presidential authority should be strenuously opposed. If the deficit is ever to be tamed, Congress should be increasing the President's powers over the purse--not acting to restrict the few powers he has SHOULD REAGAN CLOSE DOWN THE GOVERNMENT WITH A VETO?

A presidential veto.of the Continuing Resolution would risk shutting down the go vernment for lack of funds when the new fiscal year begins on October 1st. This would not affect the military and other essential services, but it is still a step that everyone wishes to avoid. It would be the sign of a breakdown in the budget process.

Ye t there are several reasons why the President should not allow the possibility of a g0vernmen.t shutdown to deter him from vetoing a fiscally irresponsible budget. First, it was Congress's choice, not the President's, to bundle the entire fiscal year 1987 budget into a single bill It was also Congress's choice, not the President's, to delay serious budget negotiations until the week before the start of the fiscal year. If Reagan must veto that bill to eliminate a host of objectionable items, it will be the fault of Congress if the federal government is brought to a temporary standstill.

Second, a failure to veto the Continuing Resolution would only encourage Congress to resort to future massive Continuing Resolutions in order to circumvent presidential poli cy recommendations and budget targets. The very reason Congress turns to the Continuing Resolution is that the bill is assumed to be veto-proof. Reagan should prove.

Congress wrong on that count, if only to encouragemore timely and responsible budgeting in the future.

Finally, a veto of the Continuing Resolution would contribute significantly to the growing recognition that the President must be given a line-item veto if sound budgeting is ever to return to Washington. This year's budget debacle has stimu lated support for such a veto line-item veto-editorialized recently on the $560 billion Continuing Resolution: "No President should be forced to swallow all that at once line-item veto.I' The case-would be made even stronger if Reagan were to veto the ent i re bill As the New York Times--a long time opponent of the Such irresponsible packaging only reinforces the case for a 8 CONCLUSION Two weeks before President Reagan released his fiscal year'1987 budget, Congress derisively insisted that that document wou ld be "dead on arrival.Il proceedings, Congress has completely ignored the White House budget.

It is time for the White House to return the compliment. Seldom has the President been forced to play so limited a role in determining the final composition of c ongressional spending bills as has Reagan this year. The President should turn the tables on Congress by declaring its budget "dead on arrival," and vetoing it action, Ronald Reagan could reassert his proper leadership role in the budget process-to the be nefit of taxpayers and lawmakers alike And throughout the past nine months of budget With that single Stephen Moore Policy Analyst I I 9