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Carol Aarhus Alpha Files
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administrative marker by the George Bush Presidential
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Record Group/Collection: George H.W. Bush Presidential Records
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Speechwriting, White House Office of
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Aarhus, Carol, Files
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Alpha File, 1990-1992
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Budget Agreement, 1990
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19
2
5
1
THE WHITE HOUSE
WASHINGTON
Date:
9/25
TO:
Mak Davis
FROM: JAMES P. PINKERTON
Deputy Assistant to the President
for Policy Planning
fyi
POLYCONOMICS, INC.
Political and Economic Communications
Draft Language for Presidential Address on the Capital Gains Tax
September 24, 1990
My fellow Americans:
I have asked for this time to speak with you about our
nation's budget crisis. Our nation is at a crossroads, and the
actions we take during the next days and weeks will touch the lives
of all Americans for years to come. We are in the eighth year of
the longest peacetime economic expansion in our history. Now we
must decide whether we shall pursue the path of growth taken by the
Republican administration you elected in 1980, or whether we will
revert to the policies that brought us to the brink of national
ruin.
What I have to tell you this evening is that I have decided to
order a sequester of Federal spending, in compliance with the
Gramm-Rudman-Hollings law which requires the government to reduce
its deficit in this fiscal year. I do this in full awareness that
the results of my decision will be painful. It means that thousands
of Federal workers will be furloughed, and many important
government services will temporarily shut down. I could have
postponed this difficult decision by making a "business-as-usual"
compromise with the Democratic party leaders of the Congress. But
the time for business as usual has past. I would not be fulfilling
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my obligation to you as your President, if I did not use all the
means in my power to make you aware of the serious nature of this
budget crisis. I cannot accept a compromise that fails to address
this problem with a prescription for economic growth. For without
economic growth, we cannot solve our budgetary problems, or address
any of the other urgent problems this country faces.
During the Presidential elections two years ago, I campaigned
for a capital gains tax cut to foster economic growth. On Election
Day, you gave me a mandate to pursue this growth policy. For the
past several month, my Cabinet and I have been negotiating with the
leaders of Congress to find a solution to this nation's budget
problems that ensure that this country continues to grow. We have
come to an impasse in these negotiations, and I feel I need to
explain to you, the people of the United States, why I have refused
to make a business-as-usual compromise.
Cutting the capital gains tax will benefit every American
family, both directly and indirectly, and I want to show you how.
Let's take stock for a moment of where the U.S. economy stands
today. Since 1980, the United States has created 20 million new
jobs. That's nine-tenths of all the jobs created in the whole
industrial world. By that most fundamental measure of economic
health, the United States economy is the wonder of the world. Some
people complain that there are too many low-paying jobs. In fact,
our big problem is not too many low-paying jobs, but educating our
children well enough to fill all the high-paying, high-skill jobs
the economy can create.
3
Where did all those jobs come from? Overwhelmingly, they came
from the initiative and enterprise of small business. Two-thirds of
all the jobs created during the 1980s came from small business. The
nation's 500 biggest companies, meanwhile, have lost a fifth of
their jobs since 1982.
America's small and medium-sized businesses are the engine of
our economic growth, and I intend to keep it that way. I am not
talking about tax breaks for the so-called rich: the average small
business investment comes from a family making $90,000 a year,
which risks its savings in a new venture. They start a new
business, sell it for a profit, and start another. Our small
entrepreneurs will benefit most from a lower capital gains tax. Tax
away that profit, and we lose investment, and the jobs that come
with investment. As jobs disappear, the poorest Americans, and
above all, minorities, will suffer the most. Those who are "last
hired, first fired" are already feeling economic pain, as our rate
of job creation slows.
The fact is that families pursuing the American Dream create
most of this country's wealth. America offers more opportunities
for ordinary people, including our minorities and our new
immigrants, than any other country in the world. The capital gains
tax is a tax on the creation of wealth. There is nothing wrong with
taxing the creation of wealth -- but not at such a high rate that
this wealth disappears, along with the jobs it generates. One of
the reasons our economy now is weaker than it should be is that we
are, in fact, taxing wealth out of existence. Worst of all, we are
POLTCONUPICS
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4
taxing people who take risks, who innovate, who contribute
something new to our economy. Three out of five small businesses
fail during their first five years. In fact, the ventures that
carry the greatest risk, in new technologies, add the most to our
economic productivity. The government doesn't give you a tax break
when you lose money you invested. To make it worthwhile to take
risks, we have to set a lower tax rate on risk income than on
ordinary income.
Our present capital gains tax is a big part of the reason why
states like Massachusetts, which depend SO much on high-technology
industry, are showing signs of economic weakness. Since this tax
went into effect in 1987, investors have almost stopped putting
money into high-technology ventures.
Another problem, perhaps the biggest of all, is that our
present law taxes capital gains resulting from inflation. The 28%
tax rate on capital gains turns into a 75% rate on capital gains or
more, when you consider that it is a tax on illusory gains due to
inflation. It's no surprise that housing prices, like the prices of
real estate and other assets, have fallen so sharply in many parts
of the country. To solve this problem, we must index the capital
gains tax for inflation, and tax only real capital gains, not
artificial gains due to inflation.
This tax on capital gains due to inflation imposes a hardship
on every family that owns a home, by reducing their wealth. It also
imposes a hardship on state and local governments, who depend on
the real estate industry for a large part of their income. If we
5
reduce the capital gains tax, as I propose, tax revenues will flow
into the treasuries of state and local governments across the
nation. The tax increases which have hit taxpayers across the
country at the state and local level would no longer be necessary.
For this reason, our present tax law is a major cause of the
problems among our savings and loans. Many of them risked
depositors' money in the real estate market, and lost it when real
estate prices fell. Taxing illusory capital gains due to inflation,
though, undermines the real estate market. The chairman of the
Federal Reserve Board, as well as the officials responsible for the
savings and loan rescue operation, have assured me that the cost of
the rescue operation will fall drastically if we lower the capital
gains tax. Ultimately, this could save you, the taxpayers, hundreds
of billions of dollars, and make resources available for other
important programs.
Some people say that a lower capital gains tax will lose money
for the government. That just doesn't make sense. Government
revenues depend on economic growth. During the 1980s, the longest
peacetime economic expansion in American history, federal tax
revenues grew twice as fast as they did in the 1970s, even though
our tax rates were much lower than before. We cannot solve our
budget problem without economic growth, and we won't have the
economic growth we need with a tax that punishes individual
initiative.
Our international competitiveness also depends on a lower
capital gains tax. We are the only industrial country in the world
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6
which confiscates 50 much of the wealth created by our citizens.
Germany and Britain have no capital gains tax, while Japan's
capital gains tax amounts to less than 5 percent. America remains
the world's greatest source of industrial inventiveness. But our
most innovative companies are starving for capital, because we
deter investors from funding them. Unless we change this
destructive tax, other countries will reap the benefits of American
ingenuity, by turning our ideas into marketable products.
I want to make clear that this debate is not about Republicans
VS. Democrats. Last year, the House of Representatives, which has
a majority of Democrats, passed a reduction of the capital gains
tax that I could accept. But the Senate never had the chance to
vote on this issue, because the Democratic leadership of the Senate
refused to bring it to a vote.
The difference here is not one of political party, but of
philosophy. To me, a capital gains tax cut means a chance for
enterprising middle-class families to risk their money in
businesses that create new jobs. To the Democratic leadership of
the Senate, it means a tax giveaway to the rich. That just isn't
true. The average small business investor, with a family income of
$90,000 a year, earns more than most Americans. Giving these
families a good reason to risk their money in ventures that create
jobs does not amount to a giveaway to the rich. But the fact is
that rich people don't suffer from an excessive capital gains tax,
because they don't have to pay it. The tax applies only when
property is sold. The rich can choose not to sell property which
09/24/90
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7
has gained in value, and avoid paying any tax at all. But a family
that has to sell its home, or a small entrepreneur who has to sell
his business, has no such choice. Ordinary people like them, not
the rich, suffer from this oppressive tax.
Opponents of a capital gains tax cut know all these facts and
figures, but they have a different philosophy. Where I see
enterprise, jobs, international competitiveness, and fiscal health
for government at all levels, they see only unfairness. To them, it
is more important to punish the rich, than to ensure continued
economic growth.
I am confident that more Americans share my philosophy than
that of the Democratic leadership of the Senate. Not only did you
elect me President, but the House of Representatives voted for this
growth policy. It is time for the Democratic leadership of the
Senate to stop using procedural tactics to block a vote on the
capital gains issue, and bring the issue to the Senate floor. And
I am asking you, the American people, to make your views known to
your senators and congressmen. Together, we can ensure that the
unprecedented economic growth of the 1980s continues through the
next decade as well.
BACKGROUND ON THE BIPARTISAN BUDGET AGREEMENT
CONTENTS
*
OVERVIEW
*
ECONOMIC CONSEQUENCES IF CONGRESS FAILS TO
ADOPT AGREEMENT
*
STRENGTHENING THE ECONOMY
*
ENCOURAGING SMALL BUSINESS AND CREATING NEW JOBS
*
REFORMING THE BUDGET PROCESS
*
ACHIEVING REAL SAVINGS
*
RAISING REVENUES, BUT HOLDING THE LINE ON INCOME TAX
RATES
*
PROVIDING OPPORTUNITY AND EMPOWERING LOW INCOME
AMERICANS
*
KEEPING OUR COMMITMENTS TO SENIOR CITIZENS
*
SAFEGUARDING NATIONAL SECURITY
*
PRESERVING GOVERNMENT SERVICES
*
MEDICARE PREMIUMS
*
LOW INCOME AND ENTITLEMENT PROGRAMS NOT AFFECTED
BY THE BUDGET SUMMIT AGREEMENT
*
WHAT THE BIPARTISAN BUDGET AGREEMENT WON'T DO
*
ENERGY TAX INCENTIVES
*
LIMITS ON ITEMIZED DEDUCTIONS WOULD NOT AFFECT
INCENTIVES FOR CHARITABLE GIVING
*
THE NEED FOR ACTION
OVERVIEW
"It's time we put the interest of the United States of
America first. "
-- President George Bush, September 30, 1990
Announcing the Bipartisan Budget Agreement
We must stop mortgaging the future of our children and their
children. America needs a budget agreement. The public demands
it. And, as President Bush said, this agreement meets the
challenge of putting America first.
The five-year bipartisan budget plan will enhance America's
long-term economic vitality. It will give small and medium-size
business a shot in the arm, creating jobs. It will cut the
projected federal deficit by half-a-trillion dollars -- the
single biggest cut ever.
This will mean real and lasting spending cuts. And it will
not raise individual income-tax rates. The plan will support
future economic growth.
Our nation's economic problems are everyone's concern. So
this agreement is, above all, fair. Everyone will have to make a
sacrifice, but no one will have to bear the burden alone.
ECONOMIC CONSEQUENCES IF CONGRESS FAILS TO ADOPT
BIPARTISAN BUDGET AGREEMENT
Bigger budget deficits -- soaring to $300 billion per year.
Interest Rates Go Up
Interest rates 1-1/2 percentage point (or more) higher than
if the budget agreement is passed.
--
Worsening outlook for the already weak housing and
automobile sectors of the economy.
:
Major increases in mortgage payments for American
families: an increase of $110 on a typical adjustable
rate mortgage.
--
A $350 increase in the interest cost over the life of a
$10,000 car loan.
--
About $30 billion more over the next three years in
interest costs to the Federal Government -- ultimately
the tax payer -- funds unavailable either for deficit
reduction or worthy spending programs.
Growth Slows: Recession Risk Rises
Slower economic growth, meaning hundreds of billions less in
income to American families in the coming decade.
Reduced entrepreneurial incentives, meaning foregone
opportunities for new industries and new jobs.
STRENGTHENING THE ECONOMY
Interest Rates
O
The most pronounced effect is the expected reduction in
interest rates as a result of the $500 billion deficit
reduction plan. By drastically reducing the Federal
Government's drain on the Nation's scarce supply of private
saving, the budget agreement would substantially reduce
interest rates, spur investment, and create jobs.
-- Long-term interest rates have fallen by 1/3 percentage
point since the middle of last week, largely because of
the agreement.
--
Using conventional assumptions, long-run interest rates
will decline by approximately 1-1/2 percentage points
from what they would have been in the absence of an
agreement.
O
Lower interest rates mean:
--
More job-creating investment in both business and
housing:
-
Between 100,000-150,000 more housing starts in the
year following the lower interest rates.
-
About 500,000 more auto sales in the year
following the lower interest rates.
-
Increases in business equipment and structures
over what they would have been without an
agreement.
--
A reduction of about $110 per month in payments on a
mortgage on a typical home.
--
A savings of about $350 of interest over the life of a
$10,000 auto loan.
Increased Growth
O
By the end of this decade, real GNP will be 2 percent higher
per year as a result of more saving and investment and lower
interest costs.
By the end of the decade, GNP will cumulatively total more
than $1 trillion more than if interest rates did not fall.
A lower deficit will provide an added safeguard against
inflation.
ENCOURAGING SMALL BUSINESS AND CREATING NEW JOBS
O
A package of incentives for small businesses will
substantially reduce their cost of capital and stimulate
investment in new and growing enterprises.
-- Currently, about 2.3 million corporations would
qualify, almost two-thirds of all U.S. corporations.
-- According to the SBA, nearly 70 percent of new jobs
come from small businesses ($50 million or less).
--
As the American Business Conference (ABC) -- the CEOs
of the country's fastest growing midsize companies --
put it, "the growth initiatives in the package will
spur creation of a whole new generation of ABC-like
companies. These are the entrepreneurs that will be
generating much of the new employment in the next
decade."
-
Deduction for Investment. Individuals can invest
up to $200,000 per year in small companies and
receive a tax deduction for 25 percent of their
investment. In effect, the company can raise each
$1 in funds at a cost to the investor of only
93 cents. The deduction is provided "going in",
at the time of the stock purchase.
-
Indexing. New stock purchases in these firms
qualify for indexing for the next 5 years. For
example, if inflation averages 4 percent and the
total return over 5 years is 50 percent, indexing
is equivalent to a 34 percent exclusion on the
nominal gain.
-
Basis Adjustment. This allows investors,
particularly entrepreneurs and others who invest
for at least five years, to limit their effective
capital gains tax. "Zero basis" stock receives an
effective 50 percent capital gains exclusion (a
14 percent effective rate for those in the
28 percent bracket.) Individuals whose
investments have tripled receive a 25 percent
capital gains exclusion (for a 21 percent
effective rate).
-
Research and Experimentation Credit. This
important provision is extended through 1991. If
not extended, companies with rapidly growing
research programs would pay much more tax, which
would discourage the research necessary to
maintain American competitiveness in world
markets. The agreement would increase the credit
from 20 percent to 30 percent for small firms.
--
Expensing -- or first-year write-off of some
investment--increases the value of the tax savings from
depreciating new equipment. Additional expending is
provided for scientific equipment. This will stimulate
equipment purchases by these companies.
-- Corporate Rate Change. This will effectively lower the
corporate tax rate from 39 percent to 36.5 percent for
many small corporations. For example, a company with
taxable profits of $300,000 will save $5,000 in taxes
from this provision. Large corporations with profits
over $570,000 will be unaffected by this provision.
Other growth incentives include enterprise zones, energy
production incentives, and user fees for infrastructure and
patent production.
:
Enterprise zones would be established to create jobs
and develop business in specially designed urban and
rural areas in need of economic assistance. Tax
incentives would be provided to encourage starting
businesses and hiring workers.
-- Energy incentives would encourage exploration for oil
and gas, production from marginal properties, and
enhanced oil recovery. In addition, Section 29 would
be extended and expanded to tight sands gas, and
incentives for ethanol would be modified and extended.
These provisions would not only improve our energy
security, but would provide jobs, increase business,
and help to constrain energy prices.
REFORMING THE BUDGET PROCESS
1.
Strengthens Budget Law
Retains and Extends the existing Gramm-Rudman-
Hollings (G-R-H) sequester system. Extends GRH to
1995, with deficit reduction path intended to reach
zero in 1996.
For the first time, establishes in law binding caps
on total discretionary spending for five years.
Establishes binding caps on each of the categories
of domestic spending, international, and defense
spending, for 1991-1993.
2.
Tough New Enforcement
Adds to G-R-H new procedure triggering automatic
across-the-board spending cuts if appropriations
bills exceed any of the caps.
Automatic cuts equal to the excess spending occur
in 15 days if bill is enacted before July 1, and on
October 1 if the bill is enacted after July 1.
The reduction is ordered against the spending
category exceeded, to focus and target enforcement.
Caps could be exceeded only in the event of an
emergency request by the President.
3.
Pay-As-You-Go For All New Entitlements
For the first time, ensures by law that no new
entitlement legislation can increase the deficit.
Requires all entitlement or revenue legislation to
meet pay-as-you-go test: any new entitlement
spending legislation must be offset by reductions
in other entitlements or by revenue increases.
Tough enforcement if Pay-As-You-Go is violated:
--
Any entitlement legislation not meeting the
pay-as-you-go test would trigger an automatic
across-the-board sequester in the entitlement
category.
--
Doubles the amount of entitlement spending
subject to sequester
4.
Reforms Congressional Budgeting Procedure
Requires congressional budget to cover five years.
Requires 60 votes in the Senate to pass spending
bills that would violate caps.
If a revenue losing bill is reported, then
automatic instructions are issued to the offending
committee to provide offset. In the Senate, a 60
vote point of order is established against revenue-
losing bills.
5.
Forces Action on Hidden Government Liabilities
Completely Reforms budgeting for federal credit
programs.
For the first time, requires the subsidy value of
new credit programs to be explicitly determined up
front, before laws are passed to extend government
credit.
No more S&L surprises.
O
For the first time, new government credit would
have to be explicitly paid for up front, before
laws are passed -- not left to accumulate for
payment later.
Government sponsored enterprises (GSEs) :
congressional action on reforms to ensure financial
soundness is required in 1991.
6.
Protects Social Security
Removes Social Security operating surpluses from
G-R-H.
Requires 60 votes in the Senate for passage of
legislation that would violate the actuarial
soundness of Social Security.
ACHIEVING REAL SAVINGS
The agreement represents the biggest deficit-reduction
package in American history.
The budget plan will cut $120 billion in government spending
on entitlement and mandatory programs -- the largest such
savings ever produced. These programs have been the biggest
single source of growth in government spending. This is the
first time such cuts will be guaranteed in law. No more
smoke and mirrors. Savings will include:
-- $60 billion from Medicare
--
$13 billion from Agricultural payments
-- $4.2 billion in Postal Service reform
The agreement will also produce $182 billion in
discretionary program savings, including cuts in defense
outlays of $67 billion over three years.
RAISING REVENUES, BUT HOLDING THE LINE ON INCOME TAX RATES
Again, these cuts were made without caving in on raising
individual income-tax rates. The agreement calls for
raising $134 billion in five years. And we can raise this
tax-revenue with these measures:
-- A phased-in increase in the gasoline tax -- five
cents a gallon the first year and another five
cents the next year. This measure will produce
the greatest revenues.
-- Increased taxes on alcohol and cigarettes, as well
as selected luxury items.
PROVIDING OPPORTUNITY AND EMPOWERING LOW-INCOME AMERICANS
Lower interest rates will help working Americans by cutting
mortgage payments.
The plan makes an historic breakthrough by providing federal
tax incentives for the development of enterprise zones -- to
create jobs and opportunity for those who need it the most.
Enterprise zones will foster new businesses in depressed
urban and rural areas and give poor people a better chance
to work toward the American dream.
The agreement lends a hand to the working poor through an
increase in the earned-income tax credit.
No one below the poverty line will have to pay for a
Medicare premium increase. Medicaid will pay.
The budget preserves programs for low-income Americans, such
as:
-- Aid to Families with Dependent Children.
-- Food Stamps.
-- Medicaid.
Above all, the plan provides for strong economic growth.
The best way to expand opportunity for lower-income
Americans is to increase the number of jobs in the private
sector.
KEEPING OUR COMMITMENTS TO SENIOR CITIZENS
The plan does not touch Social Security cost-of-living
increases.
The plan does not touch military or federal retirement.
The plan does not increase taxes on Social Security
beneficiaries.
By helping prevent a return of high inflation, the plan will
provide a special benefit to senior citizens on fixed
incomes, who suffered most during the disastrous price
increases of the late 1970s.
SAFEGUARDING NATIONAL SECURITY
Although the defense budget is cut by $67 billion over three
years (and more over five years), our men and women serving
in the Persian Gulf region will still get the backing they
deserve to defend themselves and accomplish their mission.
-- The budget plan provides important supplemental
funds for Operation Desert Shield.
O
The agreement prevents deeper defense cuts that might have
reduced America's military readiness and placed further
strains on our brave men and women in uniform.
PRESERVING GOVERNMENT SERVICES
Enactment of the bipartisan budget plan will prevent a
sequestration that could cut into important government
services such as:
--
Drug enforcement
-- Crime control and prison management
-- Air traffic control
-- Meat and poultry inspections
-- Inspection of blood banks
MEDICARE PREMIUMS
(Dollars in Billions)
FY91
FY92
FY93
FY94
FY95
Total
Pre-Summit Medicare
$116
$130
$145
$161
$179
$730
Pre-Summit Growth Rate
11%
12%
12%
11%
11%
Summit Savings
-$5
-$9
-$12
-$15
-$19 -$60
Post-Summit Medicare
$111
$121
$133
$146
$160
$670
Post-Summit Growth Rate
6%
9%
10%
10%
10%
Overview
O
The $60 billion in Summit Agreement savings is derived
equally from slower growth in provider payments, and
increased beneficiary payments (substituting for general
taxpayer financing).
After the Summit Agreement, Medicare provider payments
will grow at 10% per year for FY91-95 -- only slightly
less than the 11.5% average annual growth rate projected
without the Summit.
After the Summit Agreement, general taxpayer support of
Medicare (70% portion of cost) increases faster than
beneficiary premiums and other payments.
O
Over the FY91-95 period, the Summit Agreement's
proposals result in a net out-of-pocket increase in
monthly payments by the average Medicare beneficiary
(premiums, co-payments, and deductibles) of $2.55,
$5.34, $6.69, $7.44, and $7.92/month respectively.
Provider Savings (Doctors and Hospitals)
O
The Summit Agreement first-year provider savings of $3.1
billion are comparable to those achieved in the past.
-- The 1989 reconciliation bill reduced FY90 provider
payments by $2.9 billion; total provider payments
still grew by 11% over FY89-FY90.
-- The 1987 reconciliation bill reduced FY88 provider
payments by $2.1 billion; total provider payments
still grew by 7% over FY87-FY88.
The Summit Agreement contains real savings for each of
the five years -- unlike prior years, where Congress
opted for one-year proposals which expired the next
year.
Beneficiaries: Low-Income Protections
o
After the Summit Agreement, low-income Medicare
beneficiaries will continue to pay nothing for Medicare
coverage.
-- Medicaid will pay these individuals' premiums, co-
payments, and deductibles.
-- The Summit Agreement specifically set aside
additional funds ($2 billion Federal matched by $1.6
State) to expand the number of beneficiaries whose
Medicare costs are paid entirely by Medicaid.
After the Summit Agreement, the remaining beneficiaries
will incur slightly higher out-of-pocket costs for
Medicare coverage.
-- However, compared to the original structure of the
Medicare program, these beneficiaries incur much
lower out-of-pocket costs
Premiums:
-- As enacted in 1965, Medicare beneficiaries paid a
premium for Part B insurance (primarily physician
services) set to cover 50% of the cost of the
program.
-- Beginning in 1973, Congress capped premium increases
so that by 1990, Part B premiums covered only 25% of
the program -- with the remainder financed by general
taxpayer revenues.
-- The Summit Agreement's 30% premium still requires a
70% subsidy from wage-earner's taxes.
Deductible:
-- In 1965, Medicare required beneficiaries to pay a $50
deductible. This was increased to $60 in 1972 and
$75 in 1982. If it had increased to keep pace with
program costs, the deductible today would exceed
$800.
-- The Summit Agreement's gradual buildup to a $150
deductible still represents a significant benefit
relative to the program's original structure.
LOW INCOME AND ENTITLEMENT PROGRAMS NOT
IMPACTED BY BUDGET SUMMIT AGREEMENT
I. No Social Security Cola Delay or Adjustment
Numerous Approaches Advocated a COLA Freeze, a Delay of a
COLA Increase Below CPI
II. No Increase in Taxes on Social Security Benefits
Numerous Approaches Advocated Raising the Taxable Rate on
Social Security from 50% to 85%
- Under This Package Social Security Grows From $268B to
$335B '91-'95
III. No Medicare Impact on Low Income
- No Impact on Those Below Poverty Line: They Are Held
Harmless for all Increases in Medicare Premiums, Copays
and Deductibles 100%. Medicaid Will Pick-Up the New Costs
- What About Those Just Above the Poverty Line?
$2B Provided in Package to Protect Additional Low Income
Above the Poverty Line (Along With the State Share of
Medicaid, $3.6B Will Protect These Low Income
Beneficiaries)
IV. No Impact on Other Low Income Programs
- Aid to Families
with Dependent
Children
- Food Stamps
- Medicaid
WHAT THE BIPARTISAN BUDGET AGREEMENT WON'T DO
It will not raise individual income tax rates.
It does not touch Social Security Cost of Living Increases,
nor does it increase taxes on Social Security beneficiaries.
It does not touch federal or military retirement.
It does not affect Operation Desert Shield -- our men and
women will still get the backing they deserve.
It has no impact on families participating in low income
programs such as Aid to Families with Dependent Children,
Medicaid, WIC, and food stamps.
ENERGY TAX INCENTIVES
Proposed Tax Incentives
Tax incentives to enhance energy security include:
--
incentives for new oil and gas exploration
--
incentives to continue production from marginal properties
:
incentives for enhanced oil recovery from existing fields
--
an extension of current incentives for production of non-
sands gas
conventional fuels (Section 29), with inclusion of tight
--
extension and modification of ethanol tax credits.
Total revenue loss from the incentives will be $0.4 billion in FY
1991 and $4.0 billion over the 5 year period FY 91-95.
Rationale
The proposed tax incentives are designed to encourage
reverse the decline in recent years. For example:
increased domestic oil, gas and ethanol production, and help
--
Over the last ten years exploration activity (as
measured by the U.S. annual average rotary rig count)
has fallen by 77 percent from a high of about 4000 in
1981 to under 1000 in 1989.
--
U.S. domestic oil production in 1989 averaged only 9.2
million barrels per day, the lowest in 25 years.
Because the U.S. is unable to meet its needs from
domestic production oil import levels have risen. In
1989 imported oil accounted for 41 percent of our oil
year. use. This increased to over 50 percent earlier this
o
and could decline substantially in the coming months.
Even though current prices are high, they are not stable,
Because of this uncertainty the necessary long-term
investments in new domestic oil and gas production may not
occur. Although there is a strong relationship between oil
prices and domestic exploration activity, other factors such
domestic oil exploration and future production levels.
as government tax policy will have a significant impact on
Historically, oil prices fluctuate widely creating
activities. oil prices can fall 25 percent to 50 percent
substantial risks for investors in exploration and drilling
between the time an exploration project is financed and
make an otherwise risky and costly investment in oil
drilling actually is completed. This price volatility can
drilling completely uneconomic overnight. Tax credits can
reduce these risks, providing investors an incentive to
explore.
Enhanced oil Recovery Techniques can recover some of the
nearly two-thirds of the original oil left in place after
conventional production ceases. Because the reserves are
established and wells are already in place additional
production can be initiated relatively quickly.
Credits for Marginal Production will ensure that producing
wells are not prematurely abandoned. Stripper wells
(marginal wells producing less than 10 barrels per day)
account for about 15 percent of U.S. production. Over the
past 5 years, an average of almost 18,000 wells have been
abandoned each year. In addition, another 50,000 wells have
been temporarily shut-in. (The average stripper well
produces about 3 barrels per day, compared with an average
of 2,500 b/d for a well in the Middle East.)
Credits for new oil and gas exploration would help to
reverse the decline in U.S. proven reserves, establishing a
reserve base to sustain long-term production.
O
The Section 29 non-conventional fuels tax credit will help
stimulate additional production from a vast resource base of
non-conventional fuels, including tight sands gas. Production
of tight sands gas accounts for about 10 percent of U.S.
natural gas production.
O
Extension and modification of the ethanol credits will
provide both energy security as well as environmental
benefits. Current U.S. ethanol production represents the
equivalent of about 1 percent of U.S. gasoline demand. In
addition, ethanol is an important component of the clean
fuels programs contained in the pending clean air act.
LIMITS ON ITEMIZED DEDUCTIONS
WOULD NOT AFFECT INCENTIVES FOR CHARITABLE GIVING
Under the budget agreement, taxpayers with Adjusted Gross
Income (AGI) over $100,000 would have their itemized
deductions reduced by three percent of the amount their AGI
exceeded $100,000. This would increase their taxable
income and the taxes paid.
-- Example A taxpayer has $250,000 of AGI and $50,000
of itemized deductions. The taxpayer's itemized
deductions would be reduced by $4,500: three percent
of the $150,000 by which AGI exceeded $100,000. The
taxpayer would thus be able to claim itemized
deductions of $45,500.
The incentive to contribute more to charity would be
unaffected. Additional contributions to charity would
still be fully deductible.
-- Example Assume our hypothetical taxpayer gave
$10,000 more to charity, raising his itemized
deductions to $60,000. The amount of disallowed
deductions would remain unchanged at $4,500. The
taxpayer's allowed itemized deductions would rise by
the full amount of his charitable contribution.
Very few taxpayers would lose the tax deduction for their
existing charitable contributions.
THE NEED FOR ACTION
Congress must act, and act soon. We need measures to boost
economic growth, and solve long-term problems.
We can meet the challenge through bipartisan leadership and
quick and decisive action.
No one will agree with all measures, but everyone will
benefit in the long run.
If we do not reform entitlements to control their growth
-- as this agreement provides -- America may never be able
to solve its deficit problem.
Most of all, this is our last best chance to get the
federal budget deficit under control. We owe this much to
our country, and to generations of Americans to come.
Davis
Title: Primet
Date: Oct. 2, 1990
Draft: Two
TELEVISED ADDRESS TO THE NATION
THE OVAL OFFICE/OCTOBER 2nd, 1990
Good evening.
Tonight I want to talk to you about a problem that has
lingered and dogged and vexed this country for far too long --
the federal budget deficit.
Thomas Paine said, many years ago, "these are the times that
try men's souls." As we speak, our nation is standing together
against Saddam Hussein's aggression. But here at home there is
another threat -- a cancer gnawing away at our nation's health.
That cancer is the budget deficit. Year after year, it mortgages
the future of our children.
No family, no nation, can continue to do business the way
the federal government has been operating -- and survive. When
you get a bill, that bill must be paid. When you write a
check, you're supposed to have money in the bank.\\ If you don't
obey these simple rules of common sense, there is a price to pay.
But for too long, the nation's business in Washington has
been conducted as if these basic rules did not apply.
Well these rules do apply. And if we fail to act, next year
alone we will face a federal budget deficit of more than $300
billion -- a deficit that could weaken our economy further and
2
cost us thousands of precious jobs. If what goes up, must come
down -- then the way down could be very hard.
But it doesn't have to be that way. We can do something --
in fact, we have started to do something -- but we must act this
week -- when Congress will hold the first of two crucial up or
down votes. These votes will be on a deficit-reduction agreement
worked out between the Administration and the bipartisan leaders
of Congress.
This budget agreement is the result of eight months of
blood, sweat and fears -- fears of the economic chaos that would
follow our if we fail to reduce the deficit.
Of course, I cannot claim it is the best deficit-reduction
plan possible. It is not. Any one of us alone might have
written a better plan. But it is the best agreement that can be
legislated now.
It is the biggest deficit-reduction agreement ever -- half-
a-trillion dollars.
It is the toughest deficit-reduction package ever -- with
new enforcement rules to make sure that what we fix now stays
fixed.
And it has the largest spending savings ever -- more than
$300 billion.
For the first time, a Republican President and leaders of a
Democratic Congress have agreed to real cuts that will be
enforced by law, not promises. No smoke, no mirrors, no magic
act -- but real and lasting spending cuts.
3
This agreement will also raise revenue. I'm not -- and I
know you're not -- a fan of tax increases. But if there have to
be tax measures, they should allow the economy to grow, they
should not turn us back to higher income-tax rates, and they
should be fair. Everyone who can, should contribute something.
And no one should have to contribute beyond their fair share.
Our bipartisan agreement meets these tests. And through
specific new incentives, it will help create more jobs.
It's a little known fact, but America's best job-creators
and greatest innovators tend to be our smaller companies. So our
budget plan will give small and medium-size companies a needed
shot in the arm.
Just as important, I am convinced that this agreement will
help lower interest rates. And lower interest rates mean savings
for consumers, lower mortgage payments for new homeowners, and
more investment to produce more jobs.
That is what this agreement will do. Now, let me tell you
what this agreement will not do.
It will not raise income tax rates -- personal or corporate.
It will not mess with Social Security in any way.
It will not put America's national security at risk.
And, most of all, it will not let our economy slip out of
control.
Clearly, each and every one of us can find fault with
something in this agreement. In fact, that is a burden that any
4
truly fair solution must carry. Any workable solution must be
judged as a whole, not piece by piece.
Those who dislike one part or another, may pick our
agreement apart. But if they do, believe me, the political
reality is that no one can put a better one back together again.
Everyone will bear a small burden; but if we succeed, every
American will have a large burden lifted. 11
If we fail to enact this agreement, our economy will falter,
markets may tumble, and recession will follow.
In just a moment, the Senate Majority Leader, Senator
Mitchell, will offer what is known as the "Democratic response" -
- offer a rebuttal. But not tonight.
Tonight, the Democratic leadership and I speak with one
voice in support of this agreement. Tonight, we ask you to help
us move this agreement forward. The Democratic leadership and I
both have a job to do in getting the Congress to enact it.
And tonight I ask for your help. First, I ask you to
understand how important -- and for some, how difficult -- this
vote is for your Congressman and Senators. Many worry about your
reaction to one part or another. But I know you know the
importance of the whole. So, second, I ask you to take this
initiative: tell your Congressman and Senators you support this
deficit-reduction agreement.
If they are Republicans, urge them to stand with your
President. Urge them to do what the bipartisan leadership has
done -- come together in the spirit of compromise to solve this
5
national problem. If they are Democrats, urge them to stand with
their Congressional leaders. Ask them to fight for the future of
your kids by supporting this budget agreement.
Now is the time for you -- the American people -- to have a
real impact. Your Senators and Congressmen need to know that you
want this deficit brought down -- that the time for politics and
posturing is over -- and the time to come together is now.
This deficit-reduction agreement is tough. So are the
times. This agreement is fair. So is the American spirit. This
agreement is bipartisan. So is the vote. This agreement is
real. So is this crisis.
This is the first time in my Presidency I have made an
appeal like this to you, the American people. With your help, we
can at last put this budget crisis behind us and face the other
challenges that lie ahead.
If we do, the long-term result will be a healthier nation
and something more. We will have once again put ourselves on the
path of economic growth. And we will have demonstrated that no
challenge is greater than the determination of the American
people.
Thank you, God bless you and good night.
#
#
#
tions, the Democratic-controlled House of Representatives
Since President Bush called for bi-partisan budget negotia-
has passed ten appropriations bills adding up to $211 bil-
lion: $25.119 billion over 1990 appropriations levels --
13.5 percent increase, and $14.348 billion above the amount
bills the President asked for. A chart is attached summarizing the
and examples of some of the wasteful spending follows:
SUMMARY
1990 Appropriations Spending
1991 Bush Appropriation Request
= $186.5 billion
1991 Congressional (House) Appropriation Action = $211.6 billion
= $197.3 billion
House Action is $25 billion (13.5 percent) above last
year's level of spending.
House Action is $14 billion (7.2 percent) above the
amount the President asked for.
3/90
137
WHAT DEFICIT CRISIS?
CONGRESS CONTINUES ITS
PORK-LADEN SPENDING SPREE
Billions in New Spending," July 25,1990.)
(Updating Backgrounder No.780, "While Talking About A Deficit Crisis, Congress Proposes
How is Congress responding to George Bush's broken no-new-tax pledge? With visions of
revenues and dancing in its head, Congress has gone on a spending spree that will push the federal new bud-
seem wring to their hands and gnash their teeth about what they call the deficit crisis, what they really
licly get the tax burden on the American people to record highs. While many in Congress thus pub-
passed 11.46 a $50.34 billion Rural Development/Agriculture appropriations bill, which is $5.18 billion or
care about is only more spending. Examples: On July 18, the House of Representatives
percent higher than the 1990 amount. On July 19 the House approved a $170.44 billion
or 11.3 percent over last year's level.
Labor/Health and Human Services appropriations bill, which increases spending by $17.31 billion
$403.09 billion, or $41 billion over 1990 levels, an increase of 11.4 percent. This is $68 billion spent over
With only eight of the thirteen appropriations bills passed so far, the House already has
1989 levels, an increase of 20 percent.
Table 1
Appropriations Bills
($billions for Fiscal Year)
BILL
1989
1990
1991
Bush
1991
Approps.
Approps.
$ Change
% Change
% Change
Proposal
Approps.
90 - 91
89 91
90 91
Commerce/
14.85
11.70
Justice
11.10
10.50
-1.20
-29.30
-10.20
Energy/Water
17.83
18.43
20.20
20.77
+2.40
Foreign Operations
+ 16.52
14.29
+ 12.70
15.52
15.52
15.78
VA/HUD
+0.30
+ 10.46
59.39
+ 1.69
71.28
78.78
83.57
Transportation
+ 12.30
+ 40.72
25.67
+ 17.25
28.17
26.73
30.94
Treasury/P.O.
+2.70
+ 20.54
16.02
+9.50
18.45
20.71
20.72
Labor/HHS
+ 2.27
+ 29.34
140.37
+ 12.30
153.13
166.23
170.44
Agriculture
+17.31
+ 21.42
46.61
+ 11.30
45.17
50.43
50.35
+5.18
TOTALS
+ 8.00
335.03
+ -11.46
361.85
390.00
403.09
+ 41.24
+ 20.00
+ 11.40
If the House continues at this record pace in the remaining five appropriations bills and if both
the Senate and President approve, spending will rise by nearly $75 billion over similar fiscal year
1990 levels. This dramatic increase is of particular concern because the 13 appropriations bills rep-
resent only about 60 percent of all federal spending. When combined with the automatic increases
in entitlement programs and interest on the national debt, which comprise the remaining 40 per-
cent of the budget, fiscal 1991 spending could top last year's levels by nearly $110.
George Bush is partly to blame for this spending spree. He ignited it by bowing to pressure from
Budget Director Richard Darman and Treasury Secretary Nicholas Brady to agree to a budget sum-
mit with Congressional leaders in which all issues, including taxes, were on the table. And taking
the cue from Darman and Brady again, Bush threw open the floodgates on June 26 when he an-
nounced that it was clear to him that "tax revenue increases" would be needed to bring the deficit
in line. Smelling blood in the water, the liberal-dominated House of Representatives went on a
feeding frenzy. It rejected proposals by some House members to reduce the rate of spending in-
creases on the Agriculture appropriations bill and the Labor/HHS appropriations bill. It defeated
eleven such amendments by wide margins. Six amendments that would have slowed spending across
the board were offered by Republican representatives William Dannemeyer, from California, and
Bill Frenzel, from Minnesota, in addition to Timothy Penny, the Minnesota Democrat. The House
even rejected the symbolic amendment by Robert S. Walker, the Pennsylvania Republican; it would
have trimmed the overall level of spending in the Agriculture bill by just $19.90 - a piddling
0.0000000002 percent.
Table 2
($ billions for Fiscal Year)
1990
1
Bill
Penny
Approps.
(9.5%)
Frenzel
2
Dannemeyer³
Penny
4
1991
(2%)
Approps.
Agriculture
45.17
46.01
46.65
47.95
49.39
50.35
Labor/HHS
153.13
N/A
163.74
N/A
169.90
170.44
1. There were two amendments offered by Representative Penny to the Agriculture Bill. The first was an across-the-board
9.5 percent cut on the proposed 1991 appropriations, which was actually an amendment to Frenzel's 7.7 percent cut. This
amendment contained an exemption to the cut, the Women and Infant Children program, which was not cut at all.
2. The Frenzel amendments were an across-the-board 7.7 percent cut on the Agriculture bill, and an across-the-board 15.2
percent cut on proposed HHS spending bill. This cut on the HHS bill amounts to only a little over 3 percent of the total bill
when the unauthorized funds are added in.
3. The Dannemeyer amendment to the Agriculture bill was an across-the-board cut of 5 percent, but again, this percentage
only would have an effect on discretionary spending. The percentage of the total bill was much less.
4. The second Penny amendment to the Agriculture bill was an across-the-board 2 percent cut. The Penny amendment to
the HHS bill was also a 2 percent across-the-board cut, but it excluded certain programs such as Chapter 1 Compensatory
Education, Education for the Handicapped, and Higher Education.
Other amendments were offered to prevent spending increasing above fiscal 1990 levels on spe-
cific programs. Walker proposed four amendments to test the House's resolve for holding the line
on spending increases. The first amendment would have prevented a $65,000 increase for the
$4,935,000 Law School Clinical Experience program; the second would have prevented $10,000,000
from being spent on a new "Education Summit Follow-Up" study; the third would have prevented a
$65,000 increase in the $3,806,000 Physician Payment Review Commission; and the fourth would
2
04:52 PM
FY 1990 ENACTED AND FY 1991 BUSH BUDGET
(BUDGET AUTHORITY AND OUTLAYS IN BILLIONS OF DOLLARS)
FY 1991
FY 1990
BUSH BUDGET
HOUSE
HOUSE FLOOR vs.
LATEST HOUSE vs.
BILL
ENACTED
REQUEST
FLOOR
1990 ENACTED
1991 BUSH BUDGET
BA
Outlays
BA
Outlays
BA
Outlavs
BA
Outlays
BA
Outlays
Commerce, Justice, & State 1/
19.527
17.932
19 145
18.869
18.417
18.651
-1.110
0.719
-0.728
-0.218
District of Columbia
0.538
0.578
0.540
0.539
0.550
0.550
0.012
-0.028
0.010
0.011
Energy & Water
18.472
17.669
20.251
19.422
20.901
19.730
2.429
2.061
0.650
0.308
Foreign Operations
14.739
13.382
14.843
13.741
14.971
13.605
0.232
0.223
0.128
-0.136
Labor/HHS/Education 1/
44.243
48.909
45.705
52.232
50.579
53.924
6.336
5.015
4.874
1.692.
Military Construction
8.244
8.760
9.058
8.743
8.598
8.787
0.354
0.027
-0.460
0.044
Rural Development,
Agriculture
9.184
9.009
5.796
7.397
9.997
9.670
0.813
0.661
4.201
2.273
Transportation
12.612
27.876
11.377
28.324
12.599
29.665
-0.013
1.789
1.222
1.341
Treasury-Postal Service 2/
9.836
9.733
11.468
11.002
11.476
10.926
1.640
1.193
0.008
-0.076
Veterans Affairs, HUD,
Independent Agencies
49.133
54.647
59.116
59.927
63.559
59.052
14.426
4.405
4.443
-0.875
TOTAL
186.527
208.496
197.301
220.198
211.648
224.560
25.119
16.065
14.348
4.364
Note: Detail may not add to totals due to rounding.
1/ Commerce/Justice/State and Labor/HHS/Education data for House floor include OMB estimates for unauthorized programs.
2/ FY 1990 enacted BA for Treasury/Postal adjusted to exclude $1,254 million for lease-purchase projects authorized prior to FY 1990. FY 1991 Bush Budget
Request outlays increased by $344 million to reflect outlay estimates consistent with G-R-H outlay estimates.
APPROPRIATIONS
Energy/Water
The House and Senate voted to continue subsidies to power
marketing administrations out west in areas which already
enjoy the cheapest power in America. (Hatfield, Foley)
In the House, $36 million was added to keep the Fast Flux
Test Facility nuclear reactor operating in Hanford,
Washington, for a purpose for which the reactor was not
even designed. (Foley)
University of Alabama: House added $10 million for the
Biomedical Research Facility. (Bevill)
Mississippi State University: House added $4.0 million
for (Whitten) Diagnostic Instrument and Analysis Laboratory.
Riverfront Park, Charleston, West Virginia: The Corps
has been directed to spend $350,000 to build a park
facility that other cities use their own funds to con-
struct. (Byrd, Rockefeller)
Boudinot Harbor, Oklahoma: The Corps has been directed
to spend an additional $400,000 for dock facilities
usually provided by private companies.
Wallisville, Texas: The corps has been directed to
build, over its own objections, a $70 million
single-purpose water supply project that would sacrifice
over 5,000 acres of pristine wetlands, (including over
3,000 acres of virgin cypress swamps). The purpose of
this new expense is to provide heavily subsidized water
to a local Texas community. Meanwhile, other American
cities and towns bear this expense on their own, without
Federal subsidies. (Brooks)
Garrison Diversion, North Dakota: The President's budget
proposed terminating this uneconomic and environmentally
damaging project, which would require over $1 billion to
complete. The irrigation component would benefit only
about 400 farmers at an investment of $6,000 to $8,000
per acre to grow crops that are already heavily subsi-
dized by the government. Hence its completion will only
lead to higher government payments under the farm pro-
gram. The Department of the Interior's Inspector General
recently found that farmers would be unable to repay even
the annual operation and maintenance expenses, which they
are required by law to do. (Burdick, Conrad, Dorgan)
2
Transportation
Federal Highway "Demonstrations" The House and Senate
combined added $523 million worth of special earmarkings.
Among the pet projects are the following three that
construction projects:
supposedly "demonstrate" road safety, but are simply road
$4 million for a highway project between Paintsville and
Prestonburg, Kentucky. (Perkins)
Florida. (Grant)
$2 million to improve U.S. Route 931 in Jackson County,
$20 million for four projects in Mississippi. The
eventual costs for these projects will exceed $320
million. (Whitten)
Treasury/P.O.
The GSA Federal Buildings Fund was established to build and
renovate federal buildings. Yet Congress appropriates funds
for such projects as:
Northern Arizona University, Flagstaff: Southwest For-
estry Science Complex. Senate - $5,000,000. (DeConcini)
University of Georgia: Dean Rusk Center for Internation-
al and Comparative Law. Senate - $1,000,000. (Fowler)
Christopher Columbus Center on Marine Research and Explo-
ration, Baltimore, Maryland: Grant for planning and
design. House - $5,000,000. (Hoyer)
Agriculture and Rural Development
The bill passed by the House is $4.2 billion over the
)
President's request -- that's more than 72%!!
The House added $250,000 for research on methods to
improve the texture of sweet potatoes -- an idea proposed
by an industry group. The industry group sponsor also
obtained approval for research on sweet potato pox virus-
es by Agricultural Research Service scientists.
3
The House added $175,000 of agriculture funds for a firm
in New York to do a film on youth at risk.
$500,000 for the University of Mississippi: Food Service
Management Institute. (Whitten)
District of Columbia
Board of Education: $15.1 million of Federal funding for
a local school board. This is an unique, direct federal
contribution for maintenance and improvement of the
District's public schools. Since 1985, public school
enrollment in the District has dropped by 6,376 students
(pre-kindergarten through 12th grade). The District
already receives $56.0 million of its public school
funding from Federal grants that are also available to
other local school districts.
Supplemental Appropriations (For FY 1990; Passed 5/25/90)
In early March of 1990, President Bush sought $800
million in emergency supplemental funds to help the
world's newest democracies, Nicaragua and Panama. Nearly
three months later the Democratic House and Senate perpe-
trated budgetary hijacking. The House and Senate waylaid
the proposal and stuffed it with new spending. When they
were done, the Congress added over $1.3 billion for
unrequested domestic spending.
By a vote of 246-160 (R 32-130; D 214-30), the House
agreed to a Senate amendment to force a federal agency
that is supposed to do ocean research to procure a fish
farm in Arkansas. (Bumpers)
Congress added $1.8 million for renovating a Great Lakes
research vessel in Michigan (not in either the House- or
Senate-passed bills). (Traxler)
The Senate added $185 million for an FBI building in West
Virginia (Byrd) that is not expected to be built for five years.
Congress added $6 million for a wildlife park in Iowa (a
provision that was not in either the House- or Senate-
passed supplemental bills and was snuck in, in confer-
ence). (Neal Smith)
Congress added $750,000 to buy a ferry vessel for Ameri-
can Samoa. (Inouye)
4
ENTITLEMENTS/AUTHORIZATIONS
Excellence in Education
In February 1989, President proposed the Educational
Excellence Act, a bill to authorize seven educational
improvement initiatives increasing flexibility in the
system, at a cost of $423 million for the first year.
Congressman Hawkins (D. Calif) sponsored H.R. 5115,
adding dozens of new costly and bureaucratic categorical
programs. Total cost: $1.4 billion in budget authority
for FY 1991.
Child Care
The President proposed an 8-page, $9.4 billion bill.
The Senate doubled the cost. $18 billion.
The House tripled the cost: $28.9 billion and included
120 pages of child care regulation.
Key members: Sen. Kennedy, Sen. Dodd, Rep. Downey.
Foster Care Administrative Cost Reforms
Between FY 1981 and FY 1991, state claims for administra-
tive costs have grown over 2,800 percent.
The Administration proposed limiting the growth to 10
percent a year, saving $121 million in outlays.
Congress (Sen. Bentsen [D-Texas], Rep. Downey [D-New
York] have proposed program expansion without fixing the
abuses. Total cost: $426 million in outlays for FY
1991, and $6.4 billion over FY 1991-95.
In the District of Columbia, 86 percent of foster care
funds goes to administrative expenses and 14 percent goes
to children. In D.C., per child:
- $22,050 is spent on city costs.
- $5,000 is spent on foster care.
5
Railroad Retirement Tax Diversion
In the last 10 years, Congress subsidized the Railroad
Retirement Board to the tune of $1.2 billion.
These subsidies will cost the Federal government over
$100 million in FY 91.
Congress extended this subsidy through FY 90. Sen.
Baucus (D-Mont) who has a disproportionate number of
railroad retirees in Montana, proposed legislation to
extend this again this year.
Housing
grams. The President proposed $23.7 billion for housing pro-
The House bill exceeds the President's FY 1991 Budget by
over $4.6 billion in Budget Authority due in part to an
emphasis on new housing construction including the Title
III Rental Housing Production Program and the Title IV
Community Housing Partnership program.
The Senate bill exceeds the President's Budget by over $4
billion in B.A. due to higher authorizations for existing
programs and for the new Housing Opportunity Partnerships
(HOP block grants to states and localities).
1990 Farm Bill
The Administration sent to Congress in February a bill which
would have continued of the market-oriented farm support
programs instituted by the successful 1985 farm bill.
Moreover, in his FY '91 budget, the President proposed to
reduce farm subsidies by $1.5b this year. The Congress, in
bills now out of both houses but not yet in conference,
essentially rejected that proposal and raised subsidies
above current levels.
Both the House and the Senate passed bills that set five
year farm subsidy spending at around $54 billion, close
President. to $20 billion over the amounts recommended by the
The House rejected a proposal by the Administration to
eliminate government subsidies to people who earn more
than $100,000 per year. Thus, people who earn 3 times
the average income for an American family of four will
6
keep getting income supports from the government under
the farm program. Similarly, the Senate rejected a cut-
off of subsidies to those very large farmers who gross
more than a half million dollars a year. Either of these
proposals would have saved the taxpayer on the order of
$1 billion over five years.
The House also rejected a proposal to tighten loopholes
in the farm laws. Payments are supposed to be limited to
$50, 000 per person -- but big corporate farmers re-
organize to evade the limit. Some farmers made almost $1
million each in subsidies last year. The House voted no
on a Republican amendment (by Rep. Conte) to close this
loophole, and in the process saved close to three-
quarters of a billion dollars over five years.
The House and the Senate voted against any reform in
sugar subsidies, which cost American consumers more than
$1.5 billion each year. The Administration had proposed
a two cent per pound reduction in the sugar support
price, but not even this modest adjustment was adopted.
So American consumers will keep paying twice the world
price to keep a handful of sugar producers wealthy.
The House voted "no" on an amendment to phase out honey
support, even though it would have saved $200 million
between now and 1995. That's $200 million for only a
handful of beekeepers; eliminating their payments would
not endanger the work of the vast majority of beekeepers.
7
Document No.
WHITE HOUSE STAFFING MEMORANDUM
10/3/90
DATE:
ACTON/CONCURRENCE/COMMENT DUE BY:
FACT SHEET ON THE BIPARTISAN BUDGET AGREEMENT
SUBJECT:
ACTION FYI
ACTION FYI
VICE PRESIDENT
MCCLURE
SUNUNU
NEWMAN
SCOWCROFT
PORTER
DARMAN
ROGICH
CARD
UNTERMEYER
CICCONI
WINSTON
DEMAREST
BOSKIN
FITZWATER
PINKERTON
GRAY
GREEN
HAGIN
AMEND
HOLIDAY
DELAND
BROMLEY
REMARKS:
CARNEY
The attached has been cleared for your use.
RESPONSE:
James W. Cicconi
Assistant to the President
and Deputy to the Chief of Staff
Ext. 2702
BACKGROUND ON THE BIPARTISAN BUDGET AGREEMENT
CONTENTS
*
OVERVIEW
*
ECONOMIC CONSEQUENCES IF CONGRESS FAILS TO
ADOPT AGREEMENT
*
STRENGTHENING THE ECONOMY
*
ENCOURAGING SMALL BUSINESS AND CREATING NEW JOBS
*
REFORMING THE BUDGET PROCESS
*
ACHIEVING REAL SAVINGS
*
RAISING REVENUES, BUT HOLDING THE LINE ON INCOME TAX
RATES
PROVIDING OPPORTUNITY AND EMPOWERING LOW INCOME
AMERICANS
*
KEEPING OUR COMMITMENTS TO SENIOR CITIZENS
*
SAFEGUARDING NATIONAL SECURITY
*
PRESERVING GOVERNMENT SERVICES
*
MEDICARE PREMIUMS
*
LOW INCOME AND ENTITLEMENT PROGRAMS NOT AFFECTED
BY THE BUDGET SUMMIT AGREEMENT
WHAT THE BIPARTISAN BUDGET AGREEMENT WON'T DO
*
ENERGY TAX INCENTIVES
*
LIMITS ON ITEMIZED DEDUCTIONS WOULD NOT AFFECT
INCENTIVES FOR CHARITABLE GIVING
*
THE NEED FOR ACTION
OVERVIEW
"It's time we put the interest of the United States of
America first. "
-- President George Bush, September 30, 1990
Announcing the Bipartisan Budget Agreement
We must stop mortgaging the future of our children and their
children. America needs a budget agreement. The public demands
it. And, as President Bush said, this agreement meets the
challenge of putting America first.
The five-year bipartisan budget plan will enhance America's
long-term economic vitality. It will give small and medium-size
business a shot in the arm, creating jobs. It will cut the
projected federal deficit by half-a-trillion dollars -- the
single biggest cut ever.
This will mean real and lasting spending cuts. And it will
not raise individual income-tax rates. The plan will support
future economic growth.
Our nation's economic problems are everyone's concern. So
this agreement is, above all, fair. Everyone will have to make a
sacrifice, but no one will have to bear the burden alone.
ECONOMIC CONSEQUENCES IF CONGRESS FAILS TO ADOPT
BIPARTISAN BUDGET AGREEMENT
O
Bigger budget deficits -- soaring to $300 billion per year.
Interest Rates Go Up
Interest rates 1-1/2 percentage point (or more) higher than
if the budget agreement is passed.
--
Worsening outlook for the already weak housing and
automobile sectors of the economy.
--
Major increases in mortgage payments for American
families: an increase of $110 on a typical adjustable
rate mortgage.
--
A $350 increase in the interest cost over the life of a
$10,000 car loan.
-- About $30 billion more over the next three years in
interest costs to the Federal Government -- ultimately
the tax payer -- funds unavailable either for deficit
reduction or worthy spending programs.
Growth Slows: Recession Risk Rises
Slower economic growth, meaning hundreds of billions less in
income to American families in the coming decade.
Reduced entrepreneurial incentives, meaning foregone
opportunities for new industries and new jobs.
STRENGTHENING THE ECONOMY
Interest Rates
O
The most pronounced effect is the expected reduction in
interest rates as a result of the $500 billion deficit
reduction plan. By drastically reducing the Federal
Government's drain on the Nation's scarce supply of private
saving, the budget agreement would substantially reduce
interest rates, spur investment, and create jobs.
--
Long-term interest rates have fallen by 1/3 percentage
point since the middle of last week, largely because of
the agreement.
--
Using conventional assumptions, long-run interest rates
will decline by approximately 1-1/2 percentage points
from what they would have been in the absence of an
agreement.
O
Lower interest rates mean:
-- More job-creating investment in both business and
housing:
-
Between 100,000-150,000 more housing starts in the
year following the lower interest rates.
-
About 500,000 more auto sales in the year
following the lower interest rates.
-
Increases in business equipment and structures
over what they would have been without an
agreement.
--
A reduction of about $110 per month in payments on a
mortgage on a typical home.
--
A savings of about $350 of interest over the life of a
$10,000 auto loan.
Increased Growth
0
By the end of this decade, real GNP will be 2 percent higher
per year as a result of more saving and investment and lower
interest costs.
O
By the end of the decade, GNP will cumulatively total more
than $1 trillion more than if interest rates did not fall.
O
A lower deficit will provide an added safeguard against
inflation.
ENCOURAGING SMALL BUSINESS AND CREATING NEW JOBS
A package of incentives for small businesses will
substantially reduce their cost of capital and stimulate
investment in new and growing enterprises.
-- Currently, about 2.3 million corporations would
qualify, almost two-thirds of all U.S. corporations.
--
According to the SBA, nearly 70 percent of new jobs
come from small businesses ($50 million or less).
-- As the American Business Conference (ABC) -- the CEOs
of the country's fastest growing midsize companies --
put it, "the growth initiatives in the package will
spur creation of a whole new generation of ABC-like
companies. These are the entrepreneurs that will be
generating much of the new employment in the next
decade. "
-
Deduction for Investment. Individuals can invest
up to $200,000 per year in small companies and
receive a tax deduction for 25 percent of their
investment. In effect, the company can raise each
$1 in funds at a cost to the investor of only
93 cents. The deduction is provided "going in",
at the time of the stock purchase.
-
Indexing. New stock purchases in these firms
qualify for indexing for the next 5 years. For
example, if inflation averages 4 percent and the
total return over 5 years is 50 percent, indexing
is equivalent to a 34 percent exclusion on the
nominal gain.
-
Basis Adjustment. This allows investors,
particularly entrepreneurs and others who invest
for at least five years, to limit their effective
capital gains tax. "Zero basis" stock receives an
effective 50 percent capital gains exclusion (a
14 percent effective rate for those in the
28 percent bracket.) Individuals whose
investments have tripled receive a 25 percent
capital gains exclusion (for a 21 percent
effective rate).
-
Research and Experimentation Credit. This
important provision is extended through 1991. If
not extended, companies with rapidly growing
research programs would pay much more tax, which
would discouragé the research necessary to
maintain American competitiveness in world
markets. The agreement would increase the credit
from 20 percent to 30 percent for small firms.
--
Expensing -- or first-year write-off of some
investment--increases the value of the tax savings from
depreciating new equipment. Additional expending is
provided for scientific equipment. This will stimulate
equipment purchases by these companies.
--
Corporate Rate Change. This will effectively lower the
corporate tax rate from 39 percent to 36.5 percent for
many small corporations. For example, a company with
taxable profits of $300,000 will save $5,000 in taxes
from this provision. Large corporations with profits
over $570,000 will be unaffected by this provision.
Other growth incentives include enterprise zones, energy
production incentives, and user fees for infrastructure and
patent production.
--
Enterprise zones would be established to create jobs
and develop business in specially designed urban and
rural areas in need of economic assistance. Tax
incentives would be provided to encourage starting
businesses and hiring workers.
-- Energy incentives would encourage exploration for oil
and gas, production from marginal properties, and
enhanced oil recovery. In addition, Section 29 would
be extended and expanded to tight sands gas, and
incentives for ethanol would be modified and extended.
These provisions would not only improve our energy
security, but would provide jobs, increase business,
and help to constrain energy prices.
REFORMING THE BUDGET PROCESS
1.
Strengthens Budget Law
Retains and Extends the existing Gramm-Rudman-
Hollings (G-R-H) sequester system. Extends GRH to
1995, with deficit reduction path intended to reach
zero in 1996.
For the first time, establishes in law binding caps
on total discretionary spending for five years.
Establishes binding caps on each of the categories
of domestic spending, international, and defense
spending, for 1991-1993.
2.
Tough New Enforcement
Adds to G-R-H new procedure triggering automatic
across-the-board spending cuts if appropriations
bills exceed any of the caps.
Automatic cuts equal to the excess spending occur
in 15 days if bill is enacted before July 1, and on
October 1 if the bill is enacted after July 1.
The reduction is ordered against the spending
category exceeded, to focus and target enforcement.
Caps could be exceeded only in the event of an
emergency request by the President.
3.
Pay-As-You-Go For All New Entitlements
For the first time, ensures by law that no new
entitlement legislation can increase the deficit.
Requires all entitlement or revenue legislation to
meet pay-as-you-go test: any new entitlement
spending legislation must be offset by reductions
in other entitlements or by revenue increases.
Tough enforcement if Pay-As-You-Go is violated:
--
Any entitlement legislation not meeting the
pay-as-you-go test would trigger an automatic
across-the-board sequester in the entitlement
category.
--
Doubles the amount of entitlement spending
subject to sequester
4.
Reforms Congressional Budgeting Procedure
Requires congressional budget to cover five years.
Requires 60 votes in the Senate to pass spending
bills that would violate caps.
If a revenue losing bill is reported, then
automatic instructions are issued to the offending
committee to provide offset. In the Senate, a 60
vote point of order is established against revenue-
losing bills.
5.
Forces Action on Hidden Government Liabilities
O
Completely Reforms budgeting for federal credit
programs.
For the first time, requires the subsidy value of
new credit programs to be explicitly determined up
front, before laws are passed to extend government
credit.
No more S&L surprises.
For the first time, new government credit would
have to be explicitly paid for up front, before
laws are passed -- not left to accumulate for
payment later.
Government sponsored enterprises (GSEs) :
congressional action on reforms to ensure financial
soundness is required in 1991.
6.
Protects Social Security
Removes Social Security operating surpluses from
G-R-H.
Requires 60 votes in the Senate for passage of
legislation that would violate the actuarial
soundness of Social Security.
ACHIEVING REAL SAVINGS
The agreement represents the biggest deficit-reduction
package in American history.
The budget plan will cut $120 billion in government spending
on entitlement and mandatory programs -- the largest such
savings ever produced. These programs have been the biggest
single source of growth in government spending. This is the
first time such cuts will be guaranteed in law. No more
smoke and mirrors. Savings will include:
--
$60 billion from Medicare
--
$13 billion from Agricultural payments
--
$4.2 billion in Postal Service reform
The agreement will also produce $182 billion in
discretionary program savings, including cuts in defense
outlays of $67 billion over three years.
RAISING REVENUES, BUT HOLDING THE LINE ON INCOME TAX RATES
Again, these cuts were made without caving in on raising
individual income-tax rates. The agreement calls for
raising $134 billion in five years. And we can raise this
tax-revenue with these measures:
--
A phased-in increase in the gasoline tax -- five
cents a gallon the first year and another five
cents the next year. This measure will produce
the greatest revenues.
-- Increased taxes on alcohol and cigarettes, as well
as selected luxury items.
PROVIDING OPPORTUNITY AND EMPOWERING LOW-INCOME AMERICANS
Lower interest rates will help working Americans by cutting
mortgage payments.
The plan makes an historic breakthrough by providing federal
tax incentives for the development of enterprise zones -- to
create jobs and opportunity for those who need it the most.
Enterprise zones will foster new businesses in depressed
urban and rural areas and give poor people a better chance
to work toward the American dream.
The agreement lends a hand to the working poor through an
increase in the earned-income tax credit.
No one below the poverty line will have to pay for a
Medicare premium increase. Medicaid will pay.
The budget preserves programs for low-income Americans, such
as:
-- Aid to Families with Dependent Children.
-- Food Stamps.
-- Medicaid.
Above all, the plan provides for strong economic growth.
The best way to expand opportunity for lower-income
Americans is to increase the number of jobs in the private
sector.
KEEPING OUR COMMITMENTS TO SENIOR CITIZENS
The plan does not touch Social Security cost-of-living
increases.
The plan does not touch military or federal retirement.
The plan does not increase taxes on Social Security
beneficiaries.
By helping prevent a return of high inflation, the plan will
provide a special benefit to senior citizens on fixed
incomes, who suffered most during the disastrous price
increases of the late 1970s.
SAFEGUARDING NATIONAL SECURITY
Although the defense budget is cut by $67 billion over three
years (and more over five years), our men and women serving
in the Persian Gulf region will still get the backing they
deserve to defend themselves and accomplish their mission.
-- The budget plan provides important supplemental
funds for Operation Desert Shield.
The agreement prevents deeper defense cuts that might have
reduced America's military readiness and placed further
strains on our brave men and women in uniform.
PRESERVING GOVERNMENT SERVICES
Enactment of the bipartisan budget plan will prevent a
sequestration that could cut into important government
services such as:
--
Drug enforcement
-- Crime control and prison management
-- Air traffic control
-- Meat and poultry inspections
--
Inspection of blood banks
MEDICARE PREMIUMS
(Dollars in Billions)
FY91
FY92
FY93
FY94
FY95
Total
Pre-Summit Medicare
$116
$130
$145
$161
$179
$730
Pre-Summit Growth Rate
11%
12%
12%
11%
11%
Summit Savings
-$5
-$9
-$12
-$15
-$19 -$60
Post-Summit Medicare
$111
$121
$133
$146
$160
$670
Post-Summit Growth Rate
6%
9%
10%
10%
10%
Overview
O
The $60 billion in Summit Agreement savings is derived
equally from slower growth in provider payments, and
increased beneficiary payments (substituting for general
taxpayer financing).
After the Summit Agreement, Medicare provider payments
will grow at 10% per year for FY91-95 -- only slightly
less than the 11.5% average annual growth rate projected
without the Summit.
After the Summit Agreement, general taxpayer support of
Medicare (70% portion of cost) increases faster than
beneficiary premiums and other payments.
O
Over the FY91-95 period, the Summit Agreement's
proposals result in a net out-of-pocket increase in
monthly payments by the average Medicare beneficiary
(premiums, co-payments, and deductibles) of $2.55,
$5.34, $6.69, $7.44, and $7.92/month respectively.
Provider Savings (Doctors and Hospitals)
O
The Summit Agreement first-year provider savings of $3.1
billion are comparable to those achieved in the past.
-- The 1989 reconciliation bill reduced FY90 provider
payments by $2.9 billion; total provider payments
still grew by 11% over FY89-FY90.
-- The 1987 reconciliation bill reduced FY88 provider
payments by $2.1 billion; total provider payments
still grew by 7% over FY87-FY88.
The Summit Agreement contains real savings for each of
the five years -- unlike prior years, where Congress
opted for one-year proposals which expired the next
year.
Beneficiaries: Low-Income Protections
O
After the Summit Agreement, low-income Medicare
beneficiaries will continue to pay nothing for Medicare
coverage.
-- Medicaid will pay these individuals' premiums, co-
payments, and deductibles.
-- The Summit Agreement specifically set aside
additional funds ($2 billion Federal matched by $1.6
State) to expand the number of beneficiaries whose
Medicare costs are paid entirely by Medicaid.
After the Summit Agreement, the remaining beneficiaries
will incur slightly higher out-of-pocket costs for
Medicare coverage.
-- However, compared to the original structure of the
Medicare program, these beneficiaries incur much
lower out-of-pocket costs
Premiums:
-- As enacted in 1965, Medicare beneficiaries paid a
premium for Part B insurance (primarily physician
services) set to cover 50% of the cost of the
program.
-- Beginning in 1973, Congress capped premium increases
so that by 1990, Part B premiums covered only 25% of
the program -- with the remainder financed by general
taxpayer revenues.
-- The Summit Agreement's 30% premium still requires a
70% subsidy from wage-earner's taxes.
Deductible:
-- In 1965, Medicare required beneficiaries to pay a $50
deductible. This was increased to $60 in 1972 and
$75 in 1982. If it had increased to keep pace with
program costs, the deductible today would exceed
$800.
-- The Summit Agreement's gradual buildup to a $150
deductible still represents a significant benefit
relative to the program's original structure.
LOW INCOME AND ENTITLEMENT PROGRAMS NOT
IMPACTED BY BUDGET SUMMIT AGREEMENT
I. No Social Security Cola Delay or Adjustment
#
Numerous Approaches Advocated a COLA Freeze, a Delay of a
COLA Increase Below CPI
II. No Increase in Taxes on Social Security Benefits
Numerous Approaches Advocated Raising the Taxable Rate on
Social Security from 50% to 85%
- Under This Package Social Security Grows From $268B to
$335B '91-'95
III. No Medicare Impact on LOW Income
- No Impact on Those Below Poverty Line: They Are Held
Harmless for all Increases in Medicare Premiums, Copays
and Deductibles 100%. Medicaid Will Pick-Up the New Costs
- What About Those Just Above the Poverty Line?
$2B Provided in Package to Protect Additional Low Income
Above the Poverty Line (Along With the State Share of
Medicaid, $3.6B Will Protect These Low Income
Beneficiaries)
IV. No Impact on Other Low Income Programs
- Aid to Families
with Dependent
Children
- Food Stamps
- Medicaid
WHAT THE BIPARTISAN BUDGET AGREEMENT WON'T DO
It will not raise individual income tax rates.
It does not touch Social Security Cost of Living Increases,
nor does it increase taxes on Social Security beneficiaries.
It does not touch federal or military retirement.
It does not affect Operation Desert Shield -- our men and
women will still get the backing they deserve.
It has no impact on families participating in low income
programs such as Aid to Families with Dependent Children,
Medicaid, WIC, and food stamps.
ENERGY TAX INCENTIVES
Proposed Tax Incentives
Tax incentives to enhance energy security include:
--
incentives for new oil and gas exploration
incentives for enhanced oil recovery from existing fields
incentives to continue production from marginal properties
an extension of current incentives for production of non-
sands conventional fuels (Section 29), with inclusion of tight
gas
--
extension and modification of ethanol tax credits.
Total 1991 revenue loss from the incentives will be $0.4 billion in FY
and $4.0 billion over the 5 year period FY 91-95.
Rationale
The increased proposed tax incentives are designed to encourage
reverse the domestic oil, gas and ethanol production, and help
decline in recent years. For example:
--
Over the last ten years exploration activity (as
measured has by the U.S. annual average rotary rig
1981 to under 1000 in 1989.
fallen by 77 percent from a high of about 4000 count) in
million barrels per day, the lowest in 25 years.
U.S. domestic oil production in 1989 averaged only 9.2
Because the U.S. is unable to meet its needs from
domestic production oil import levels have risen.
1989 imported oil accounted for 41 percent of our oil In
year. use. This increased to over 50 percent earlier this
O
and Even though current prices are high, they are not stable,
could decline substantially in the coming months.
Because of this uncertainty the necessary long-term
investments in new domestic oil and gas production
occur. Although there is a strong relationship between may not
as prices and domestic exploration activity, other factors such oil
domestic government tax policy will have a significant impact on
oil exploration and future production levels.
Historically, oil prices fluctuate widely creating
activities. substantial risks for investors in exploration and drilling
between the time an exploration project is financed
oil prices can fall 25 percent to 50 percent
make drilling actually is completed. This price volatility and can
an otherwise risky and costly investment in oil
drilling completely uneconomic overnight. Tax credits can
reduce these risks, providing investors an incentive to
explore.
Enhanced Oil Recovery Techniques can recover some of the
nearly two-thirds of the original oil left in place after
conventional production ceases. Because the reserves are
established and wells are already in place additional
production can be initiated relatively quickly.
o
Credits for Marginal Production will ensure that producing
wells are not prematurely abandoned. Stripper wells
(marginal wells producing less than 10 barrels per day)
account for about 15 percent of U.S. production. Over the
past 5 years, an average of almost 18,000 wells have been
abandoned each year. In addition, another 50,000 wells have
been temporarily shut-in. (The average stripper well
produces about 3 barrels per day, compared with an average
of 2,500 b/d for a well in the Middle East.)
O
Credits for new oil and gas exploration would help to
reverse the decline in U.S. proven reserves, establishing a
reserve base to sustain long-term production.
O
The Section 29 non-conventional fuels tax credit will help
stimulate additional production from a vast resource base of
non-conventional fuels, including tight sands gas. Production
of tight sands gas accounts for about 10 percent of U.S.
natural gas production.
O
Extension and modification of the ethanol credits will
provide both energy security as well as environmental
benefits. Current U.S. ethanol production represents the
equivalent of about 1 percent of U.S. gasoline demand. In
addition, ethanol is an important component of the clean
fuels programs contained in the pending clean air act.
LIMITS ON ITEMIZED DEDUCTIONS
WOULD NOT AFFECT INCENTIVES FOR CHARITABLE GIVING
Under the budget agreement, taxpayers with Adjusted Gross
Income (AGI) over $100,000 would have their itemized
deductions reduced by three percent of the amount their AGI
exceeded $100,000. This would increase their taxable
income and the taxes paid.
-- Example A taxpayer has $250,000 of AGI and $50,000
of itemized deductions. The taxpayer's itemized
deductions would be reduced by $4,500: three percent
of the $150,000 by which AGI exceeded $100,000. The
taxpayer would thus be able to claim itemized
deductions of $45,500.
The incentive to contribute more to charity would be
unaffected. Additional contributions to charity would
still be fully deductible.
-- Example Assume our hypothetical taxpayer gave
$10,000 more to charity, raising his itemized
deductions to $60,000. The amount of disallowed
deductions would remain unchanged at $4,500. The
taxpayer's allowed itemized deductions would rise by
the full amount of his charitable contribution.
Very few taxpayers would lose the tax deduction for their
existing charitable contributions.
THE NEED FOR ACTION
Congress must act, and act soon. We need measures to boost
economic growth, and solve long-term problems.
We can meet the challenge through bipartisan leadership and
quick and decisive action.
No one will agree with all measures, but everyone will
benefit in the long run.
If we do not reform entitlements to control their growth
-- as this agreement provides -- America may never be able
to solve its deficit problem.
Most of all, this is our last best chance to get the
federal budget deficit under control. We owe this much to
our country, and to generations of Americans to come.
THE WHITE HOUSE
WASHINGTON
October 17, 1990
BACKGROUND ON THE BUDGET
Attached is background material on the debate over the
budget, including:
-- Statement by the President announcing his intentions
to veto the House passed budget plan.
-- Statement of Administration policy on the "Ways and
Means Democratic Alternative" legislation.
-- New York Times editorial from October 17, 1990
-- Excerpts from President Bush's remarks in Wheaton,
Illinois; Des Moines, Iowa; and Omaha, Nebraska.
-- Transcript of Governor Sununu's interview on the
"Today" show this morning.
THE WHITE HOUSE
Office of the Press Secretary
For Immediate Release
October 16, 1990
STATEMENT BY THE PRESIDENT
Tonight the Democrats in Congress have turned back the
clock. By a partisan vote in the House of Representatives, the
Democrats pushed through a tax increase on working men and women.
The hidden tax is back. By removing the indexing of tax
rates, the Democrats have resurrected an inequity most Americans
thought was a thing of the past: bracket creep.
Also, I find unacceptable surcharges and other hidden
mechanisms that increase income taxes on all Americans.
I am determined that the budget deficit reduction package be
fair. I am determined that the budget not be balanced on the
backs of working Americans. That's why I will veto the
Democratic plan passed by the House should it reach my desk.
I am hopeful that it will not come to that. The bipartisan
plan now being considered in the Senate does not raise income tax
rates. Its approach is therefore much more in keeping with our
efforts to insure that the final budget plan is fair to all
Americans.
EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF MANAGEMENT AND BUDGET
WASHINGTON, D.C. 20503
October 16, 1990
House Floor
STATEMENT OF ADMINISTRATION POLICY
(THIS STATEMENT HAS BEEN COORDINATED BY OMB WITH THE CONCERNED AGENCIES.)
THE "WAYS AND MEANS DEMOCRATIC ALTERNATIVE" TO THE
OMNIBUS RECONCILIATION ACT OF 1990
The "Ways and Means Democratic Alternative" relies
principally on increases in income taxes for people in all
brackets. Delaying the indexation of tax rates for inflation
will increase the income taxes paid by middle class families --
hardly an argument for fairness. In addition, there is nothing
in the package to encourage economic growth, the driving force
behind increases in the standard of living for all Americans.
Because of these serious flaws, the President's senior advisors
would recommend that he veto the "Ways and Means Democratic
Alternative" if it were presented to him for his signature.
The "Ways and Means Democratic Alternative" includes a $93.6
billion across-the-board income tax increase. Specifically:
-- The proposal reduces the tax benefits of the personal
exemption by removing indexing for inflation. This
will increase taxes on everyone except the wealthiest
one million taxpayers who lost their personal
exemptions in the 1986 tax bill.
-- The "Ways and Means Democratic Alternative" brings back
bracket creep with a vengeance. Since World War II
every taxpayer was subject to ever-increasing taxes
through inflation. Bracket creep was the favorite tool
of the tax and spenders. It was stopped in 1985 with
indexing of personal exemptions and tax brackets. By
reversing this policy, the "Ways and Means Democratic
Alternative" brings back silent rate increases for
everyone. This provision raises $36 billion over 5
years, largely on the backs of low and middle class
income families. This is advertised as a "one-year tax
increase." What will keep the Democratically-
controlled Congress from repeated extensions?
-- It increases income taxes for people in all brackets.
-
A married couple with two children, who have
taxable income of $34,000 in 1991 would pay income
taxes of $5,100 under current law. Under the no-
indexing provision of the "Ways and Means
Democratic Alternative, " they would pay $5,413.50,
an increase of $313.50, more than six percent.
-
A single person with no dependents who has taxable
income of $21,000 in 1991 would pay income taxes
of $3,150 under current law. Under the no-
indexing provision of the "Ways and Means
Democratic Alternative," that person would pay
$3,301.50, an increase of nearly five percent.
--
These tax increases are permanent. Even if indexing
is delayed for just one year, the increase will apply
for every year thereafter.
******
2
ARTHUR OCHS BULEBERGER. Publisher
ARTHUR OCH8 BULZBERGER JR. Deputy Publisher
MAX FRANKEL. Brecutive Editor
JOSEPH LELYVELD, Managing Editor
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The New York Times
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Founded in 1851
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ADOLPH S. OCHS. Publisher 1896-1935
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10/17/90
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Fooling Around With Taxes
The House is on the verge of passing a $500
House Ways and Means Committee, similar to one
billion deficit reduction package. But it is hard to
before the Senate Finance Committee, would have
take the bill seriously. It includes amendments
increased taxes on gasoline, alcohol, cigarettes and
imposing stiff tax increases, aimed at the rich, that
several luxury items. It would also have reduced
are unlikely to pass the Senate and that President
the total amount of deductions for rich families and
Bush is sure to veto.
expanded tax credits for the working poor. Roughly
The principle of taxing the rich more than the
speaking, it would have affected most income
poor to pay for deficit reduction might be noble. But
groups proportionately.
the amendments amount to demagogy. They would
The plan voted in the House yesterday drops
eliminate an increase in the gas tax, undermining
the tax hike on gasoline and postpones for a year the
energy conservation. They would postpone correc-
indexing of tax rates and personal exemptions for
tion of the income tax code for inflation, leaving an
inflation. That's a cynical way to hit the middle
invisible tax on the middle class. They would lower
class with an invisible rather than a visible tax. And
the capital gains tax for exactly the wrong kinds of
it would undo a boost for energy conservation.
The House plan would also raise the tax rate on
investments.
The House plan was well designed to embar-
the highest incomes to 33 percent from 28, and raise
rass Republicans into voting against a package
the tax on wealthy families that take advantage of
weighted in favor of the poor. The Republicans
enormous amounts of deductions and exemptions.
responded with some demagogy of their own, pro-
But the Democrats surely know that Mr. Bush
posing a deficit reduction package that pretended to
would veto any package that raised income taxes
cut the deficit without raising taxes. Congress owes
unless it also capitulated to his obsessive quest for a
the country a responsible deficit reduction package.
capital gains tax cut.
Three days before the deadline for closing down the
It is precisely on capital gains that the House
Government again, the country is still waiting.
plan reverberates with ignorance - or cynicism. It
would allow individuals $100,000 of capital gains
free of income tax over a lifetime - but only on the
Last month's budget summit produced a plan
sale of real estate, farms, businesses and timber,
to cut the deficit by $500 billion over five years. But
not stocks. The tax code already heavily favors
it would have raised taxes on the poorest families
investments in real estate and timber. To direct
three times as much as on the richest. That was the
more precious resources their way is shameless.
main reason the House rejected the package.
The budget clock is still ticking. Congress is
The alternative plan approved last week by the
still fooling around.
Excerpt from the President's Remarks at the Reception for Kay
Orr, Hal Daub and Ally Milder, in Omaha, Nebraska:
October 15, 1990
And you know, much of the political debate we hear in
Washington is tired and it's old and it's all this 'inside the
beltway' jargon. And it's jargon that just gets in the way of
what's really at stake. So let me try to simplify it. America
must have a real and significant deficit reduction budget to get
this economy moving. And that deficit reduction will bring down
interest rates on home purchases and car loans. And it will
create new jobs.
And to get these results, the budget cannot be the sameold
politicla shell game. We must not tolerate business as usual.
The budget must be real, enforceable, and preserve incentives for
growth in this country.
And you know what the problem has always been -- it's the
unwillingness in Congress to vote to hold down federal spending.
And you know, with higher spending, higher taxes are usually not
far behind. And that said, let me mention here one thing that
appeals to me about what's going on now, appeals to me about the
current Senate package is that it holds the line on income tax
rates. And that is worth fighting for in my view.
I have this concern that's always been that Congress will
continue to pay for its spending habits by raising income tax
rates on everybody. After concessions by both the Democratic and
the Republican leaders -- the budget summit -- nobody liked every
part of it. It did move us in the right direction, and it has
brought us to the final countdown week. And in the next five
days, Congress has the chance -- in fact, I'd put it this way --
Congress has the obligation to act. And I believe the American
people have every right to expect the United States Cogress to
act responsibly.
And so my message -- and I expect it would be your messsage -- to
the Congress is simple and straightforward: complete your work,
meet Friday's dealine and pass a sensible budget. We've got to
put this nation back on the path to long-term econoic growth.
And the way to do that, is to get a budget through, and that will
bring the interest rates down, and that will put more and more
Americans back to work where they belong."
Excerpt from the President's Remarks at the Edgar for Governor
Rally at the College of DuPage, Wheaton, Illinois:
October 16, 1990
=
Sometimes the rhetoric back there gets pretty thick inside
that Washington beltway. So let me just put it in perspective
budget to get this country moving. And when we get that kind of
for you
We must have a significant and real deficit reduction
a deal, it will bring down the interest rates on home purchases
and car loans. It will bring them down and create new jobs. So
the time for Democratic rhetoric is over, and the time to move
ahead is to get the Congress moving now to get us that kind of an
agreement.
I guess what I'm saying is that we can't afford business as
usual. The budget's got to be real; it's got to be enforceable;
and it's got to preserve our incentives for growth.
You know, I do believe -- I'll take my fair share of the hits,
but I believe the American people really know that the problem
has always been the failure of this one-party controlled Congress
to hold down spending. We're not taxing you too little: we're
spending too much.
And so make no mistake about it: when you hear this liberal crowd
that runs the Congress in Washington talking about taxing the
rich, they're going to be after you the next thing you know,
because that's they way it works -- tax and spend, tax and spend.
And I want to end it once and for all.
So today, they're marking up a big budget plan back in
Washington. It's a Democratic tax plan. If it reaches my desk,
the one that comes out of the House of Representatives, I will
veto it because it raises the income taxes of the working men and
women of this country. And I'm not going to do that.
One thing, incidentally, that appeals to me on this Senate
package is that it holds the line on income tax rates.
Republicans have always feared that Congress will continue to pay
for its spending habits by raising the income tax rates on
everybody. So, clearly, the budget summit moved us in the right
direction, brought us to this final countdown week. And now
we're down to four days back there in Washington. And Congress
has the opportunity and the obligation to act. And the American
people have every right to expect the Congress to act responsibly
for the taxpayers' interest in this country."
Excerpt from the President's Remarks at the Fundraising Breakfast
for Terry Branstad and Tom Tauke, Des Moines, Iowa:
October 16, 1990
Year after year, Congress has to pass emergency measures.
It's all Washington jargon called continuing resolutions
Enough is enough
And this Friday, the Congress must face the
budget deadline once again. But this time, let them face up to
their responsibilities as well
America must have a real and significant deficit reduction --
real and significant -- deficit reduction to get the economy
moving. And that deficit reduction will, indeed, and almost
instantly bring down the interest rates that are holding back new
job creation and holding back job opportunity. The deficit rate.
is going to bring those interest rates down; you're going to have
more home purchases, more car loans, create new jobs.
And to get those results, Congress cannot simply play with the
numbers in order to get phony savings. We cannot afford business
as usual in Washington anymore. So the budget must be real, it
must be enforceable, and it must preserve our incentives for
growth. I want to see this economy grow, not shrink, from higher
taxes and more government spending
We're not dumb in this country. Most people know that when --
the failure to hold down spending is inevitably followed by
higher taxes. They might be just around the corner. And that
said, let me reiterate that the one thing that appeals to me
about the current Senate package -- you've got a House bill that
looks like it's going through. Raise the rates, index the taxes
-- that's on the middle class and the lower middle calss. That's
every taxpayer in this country. Nobody understands it, but
that's what indexing means. So they're saying it's a "soak the
rich" deal. But, inevitably, it gets into your pocket. It gets
into the pocket of every working man and woman. And that's
exactly what's coming out of the House.
But the Senate bill has some merit to it. It holds the line on
income tax rates. And I've always been concerned, and I think
the American people share this concern, that the Congress will
continue to pay for its spending habits by going back and
starting to raise the income tax rates on everyone. And I want
to hold the line on the tax rates.
So we're in a countdown. We're in another countdown. The next
four days, Congress has the responsibility and the obligation to
act. And the American people have every right to see this
Congress act responsibly.'
White House News Summary
Wednesday, October 17, 1990
TODAY SHOW INTERVIEW
Guest: White House Chief of Staff John Sununu
October 17, 1990
BRYANT GUMBEL: The president's chief of staff is John
Sununu. This morning he's in our NBC bureau in Washington.
Governor, good morning.
JOHN SUNUNU: Good morning.
Q: I know there's a lot of reasons you find the plan
unacceptable. Is the president determined to veto any plan that
hikes the tax rates?
SUNUNU: Yes. The president realizes the Democrats
may have conned the media into suggesting that the tax plan is
just raising taxes on the rich. But what it does is rip off
middle America, working men and women with an income tax
increase for them.
You leave that out every time you describe the tax
plan. But the fact is that it is there. And so with that tax
increase on the working men and women, the president is going to
veto that package if it gets to his desk.
Q: Well, it delays the adjustment of rates for
inflation a year, and eliminates some middle class tax breaks,
but--
SUNUNU: It raises their income tax though, Bryant.
And--and you ought not to become an apologist for the Democratic
Party by rationalizing that the rise in the income tax that the
people have to pay is not a rise in income tax.
Q: In logical terms, does it follow that those who
can afford to pay more in times of crisis should pay more?
SUNUNU: Absolutely. But the fact is that the
addiction to tax and spend that the Democrats have leads them,
every time they play around with the income tax rate at the high
end, to have to play around with income tax on working men and
women.
That's what the president warned America about. And
that's exactly what has happened. One quarter of this package
takes money out of the pockets of working men and women by extra
income taxes. That is a part of a tax-and-spend plan that the
president has said he will veto.
Q: But only a month ago the president conceded that
higher taxes were necessary; had signed on to a budget agreement
that included $134 billion in added revenues. Why now is it so
unacceptable?
-more-
-2-
SUNUNU: Well, don't revise history now. Remember,
the president was holding out against taxes, but he recognized
that the economy was about to go into a decline. He asked for a
deficit reduction package. Congress refused to come forward. We
are six months late on this budget by their own calendar. They
refused to come forward with a package. They held the deficit
reduction package hostage until the president agreed to allow
taxes on the table.
The fact that they made the president eat his tax
broccoli doesn't mean that he's very happy about what's in the
package.
Q: But, Governor, that doesn't change the fact that
the president signed on to that agreement, went on national TV
behind that agreement, and said that this was a good agreement
and one we could live with and it included new revenues. Why
now is that unacceptable?
SUNUNU: It was one that he could live with, because
that package did not raise the income tax of middle America, of
working America. There is a difference between that package and
this one, which rips off the men and women of America who are
out there working and earning a living.
Q: Governor, the Senate seems headed towards a plan
that would double the gasoline tax, raise the taxes of higher
income folks while lowering the capital gains taxes for
everybody on a proportional basis. You like that one?
SUNUNU: There's no capital gains reduction in the
Senate package. You ought to be more accurate in your
description.
Q: Well, there is a capital gains reduction in the
Senate package, Governor, the one that--that lowers the rates
proportionally to the income of Americans.
SUNUNU: No, not in the Senate package. In the Senate
package there is no capital gains piece. There is no tax rate
increase in the Senate package; there's no capital gains piece.
That's what the president has said: Let's pass that package
now.
Q: Governor, have you any new ideas to break the
impasse? Any new offerings? It's easy to find fault with a
number of packages that are coming off the Hill.
SUNUNU: There's I think general agreement between the
president and the Republican and Democratic leadership in
Congress that the best package is one that is close to the
summit agreement. It's not the kind of package the president
would have written alone; it's not the kind of package that the
Democratic or Republican leaders would have written alone. It
is a compromise package, but it is good for the country. It
reduces the deficit. And it deals with some of the problems of
the economy, and gets the economy going again. That's what we
ought to pass.
-more-
-3-
Q: But, Governor, that's a package that even the
Republicans in the House rejected?
SUNUNU: Well, that's the reference point that we
ought to work towards. We think that the Senate package is
relatively close to that, and that's the package that the
president has said he would feel comfortable getting come out of
conference and sign. The fact that that Senate package is
supported by both Republicans and Democrats in the Senate is a
good sign. It is a bipartisan package. It is one that doesn't
raise the income tax on lower and middle income America. It's a
good package. We ought to get it.
Q: Governor, you've seen the numbers as we all have.
People are tried of the finger pointing. They feel Congress
isn't doing the job. They feel the president isn't prepared towork
with Congress. What's the White House prepared to do on an
active basis over the next two days to break the deadlock?
SUNUNU: White House is ready to receive the
bipartisan package, similar to the Senate package; get it to the
president's desk; and he'll sign it. When the president asks the
Congress to stay instead of going on vacation in August,
they promised they'd get a package as soon as they came back.
The clock is running out; government's about to shut down. They
ought to put a package together in the next day or two, get it
to the president and let him sign it, and let them go home and
let America go about its business.
Q: Are you willing to agree, is the White House
willing to agree, to a continuing resolution if you see progress
on a bill that you find acceptable?
SUNUNU: You know, whenever Congress comes to a tough
decision they run to a continuing resolution which is business
as usual. Thirty-seven times in the last 10 years they've
evaded the tough decisions of budgets by going to a continuing
resolution. They tried to do that a couple of weeks ago with a
soft resolution; the president vetoed it.
Let's not bandaid the problem. Let's put a package
together in the Senate. Compromise it down to a package the
president can accept with the House, and get a package on his
desk. There's enough time to do that before Friday evening.
Instead of trying to figure out a way to avoid the decision,
Congress ought to do its business, get it done, and get out oftown.
Q: Governor, can I ask you to stay a couple ofminutes,
we'll come back and do a little more?
SUNUNU: Sure.
Q: Okay, let me take a break right.
(Announcements)
Q: As we come back, it's 7:18, we're continuing--
excuse me--in Washington with Governor John Sununu, White House
chief of staff. Governor, thank you--
-more-
-4-
SUNUNU: Thank you.
Q: --for--for extending your stay. I appreciate it.
When we left for a commercial you were talking of bandaid
solutions and how the White House rejects that, but is that to
say a firm no that if there is work towards a compromise bill on
Friday that you're unwilling to extend the deadline?
SUNUNU: If there was a deadline extension that
carried with it a really significant reduction in the deficit
built into the deadline extension to show that Congress meant
business about it, I'm sure the president would, you know,
consider that as a good faith extension. But that continuing
resolution can't continue spending levels at current levels
without any effort to reduce the deficit even for a couple of
days.
Q: And if not, is the president prepared to shut down
the government and live with the consequences?
SUNUNU: The president vetoed one about a week ago
when Congress wanted to leave for the Columbus Day weekend, the
president vetoed the continuing resolution; convinced them to
stay. They passed the budget resolution. I think the president
likes that formula of keeping folks around to work and get their
business done.
Q: Have you contingency plans to run a government
saddled with Gramm-Rudman cuts?
SUNUNU: Well, the president has had contingency plans
in place for a long time. We ran the government for a couple of
months last year under sequester. People hardly noticed.
Q: Governor, you can't be, I'm sure, unconcerned
about the polls that show the president's approval ratings
taking a nose dive. What is he prepared to do to reverse the
feeling that in this time of crisis he is not proving an
effective leader?
SUNUNU: Look, the president is not one to just store
his political capital. The deficit is an important issue, and
the president was willing to take his political lumps. He saw
that the deficit had to be reduced, so he allowed the Democrats
to bring taxes onto the table. He took a lot of lumps for that,
but it was important to the country to get a deficit reduction
package. It's important to get this deficit reduction package
done this week.
He's willing to take his political lumps to do that.
But if folks think that after he gets this package he's going to
sit around and mope, he's wrong. He's going to go out and
explain to the American public the fact that this budget,
deficit reduction package was held hostage. He's going to point
out to folks that for over two decades Congress has been on a
tax-and-spend binge.
-more-
-5-
SUNUNU continues: The budget that passed last night is
just a reflection of that. It reduces the cuts in spending --
there's less spending cuts in that package and more taxes.
Whenever Congress runs into a tough vote, it runs to more spending
and more taxes. The president will point that out.
So I think he'll be able to restore his political
capital quite effectively in the process.
Q: That was a good argument, but it would seem again
from the polls that a great many in the public are not buying
that argument.
SUNUNU: Let's look at what the polls say, Bryant.
Sixty percent blame Congress; 20 percent blame the president. If
I were a politician in America, I'd walk into any campaign with
that kind of ratio in my favor.
Q: The polls also say the president's popularity has
dropped something like 25 percent in the last month.
SUNUNU: Now, instead of being astronomical, it's just
exceptionally good. The president is willing to deal with that
and live with that.
Q: We'll have to stop playing the numbers game,
because our number is coming up. It's 7:22. Governor, thank
you.
SUNUNU: Thank you very much, Bryant.
Q: Again, I appreciate your extending the stay.
SUNUNU: It's good to be here.
END INTERVIEW
The Reuter Transcript Report
Sununu interview (Today Show)
Oct. 17, 1990
REUTER
Reut09:01 10-17
Dz
THE WHITE HOUSE
spechwriting
Chriss-
WASHINGTON
DIDA.
October 31, 1990
MEMORANDUM FOR LARRY LINDSEY
FROM:
ANDY MITRUSI
SUBJECT:
Economic Fun Facts for the President
We are currently in the 96th month of an economic
expansion that is the longest peacetime expansion in our
nation's history. Only the Vietnam War expansion lasted
longer - 107 months.
During the last Democrat Presidency from 1977 to 1981, the
economy grew at a 2.4 percent rate. Between the time
Republicans took over in 1981 until 1989, the most recent
date data is available, the economy has grown at a 3.0
percent rate.
If the economy had continued to grow at the Democrat rate
in the 1980s, our economy would be about $250 billion
smaller today than it actually is today. That works out
to $1000 per person per year.
During the Democrats' 4 years, average¹ family income fell
by 1.5 percent per year. During the Republican years,
average family income grew by 2.1 percent per year.
Inflation masked this incredible deterioration in incomes
during the Democrat years.
Had family income done as poorly in the Republican years
as they had in the Democrat years, the average family
income in 1989 would have been $10,150 lower than the
current $41,500.
The Republican years saw incomes rise among all groups,
whereas the Democrat years saw incomes falling for
everyone but especially for the poor. Under the
Democrats, the poorest fifth of the population saw their
income fall 13 percent from 1977 to 1981, the other groups
lost between 3 and 6 percent. Under the Republicans,
every group gained between 6 and 21 percent from 1981 to
1988.
Inflation was rampant during the Democrat years, rising
from 6.5 percent in 1977 to 10.3 percent in 1981. In the
Republican years the rate fell to 4.8 percent in 1989.
1 mean income for families
2
Unemployment in the Democrat years went from 6.9 percent
in 1977 to 7.5 in 1981, and then fell back during the
Republican years to 5.2 percent in 1989 -- the lowest
level since 1973.
Jimmy Carter spoke of the misery index during his campaign
-- the sum of inflation and unemployment. This index rose
from 13.4 in 1977 to 17.8 in 1981, and then fell to 10.0
in 1988, more than making up for the Democrat years.
Contrary to myths one hears from detractors, American
industry is stronger than ever. During the Democrat
years, manufacturing fell from 22 percent of GNP to 21
percent. The Republican years reversed that SO that by
1989, manufacturing represents 23 percent of GNP.
American industry is growing faster than that of Europe
and is keeping pace with growth in Japan. Since 1982, the
industrial production index in the U.S. and Japan has
grown nearly 40 percent whereas the European Economic
Community has grown less than 20 percent.
Job growth in the U.S. has outpaced both Japan and Europe
-- 16 percent from 1981 to 1989 for the U.S. compared to
10 percent for Japan and 3 percent for Europe.
Job growth has not been limited to hamburger flippers as
detractors often maintain. In reality, from 1981 to 1989,
the fastest growing category of workers has been
professional and managerial, growing 34 percent.
Technical sales and support has grown 18 percent, service
occupations 17 percent, precision production 13 percent
and operators and laborers 1 percent.
Taxes paid by the rich have been going up dramatically,
contrary to popular claims. From 1981 to 1986, the share
of income taxes paid by top 1/10 of 1 percent of taxpayers
has gone from 6.5 percent to 13.2 percent -- a doubling
in the tax share. The top 2 percent saw their share rise
from 24 percent to 33.3 percent.
Education spending in the Republican years has grown
substantially per school age child compared to the
Democrat years. Total spending after inflation per
elementary and high school age child has been growing at a
4 percent rate in the 1980s compared to a 2 percent rate
in the Democrat years, adjusted for inflation. College
and University spending has been increasing at a 7 percent
rate after inflation in the 1980s, compared to 1 percent
in the Democrat years.
THE UNEMPLOYMENT RATE WAS UNCHANGED IN OCTOBER
The civilian unemployment rate remained steady at 5.7
percent in October.
-This was below the median forecast of 5.8 percent.
The overall unemployment rate also remained steady at
5.6 percent.
-Both the labor force and the work force declined.
Although the unemployment rate had increased in the last few
months, it remains close to a 16 year low, and is well below
the average of the late 1970s and early 1980s.
For adult females the unemployment rate fell from 5.0 to 4.9
percent; for adult men it as was unchanged at 5.1 percent.
The unemployment rate fell for both blacks and hispanics,
but rose for teenagers.
The number of unemployed workers on layoff declined in
October, after rising in September, while the number of
persons working part time because of slack demand fell.
NONFARM EMPLOYMENT FELL IN OCTOBER
Nonfarm payroll employment fell by 68,000 workers in October
-Jobs in service industries--including retail trade
and government- by 74, 000, but jobs in
construction and manufacturing fell by 142,000.
Average weekly hours in manufacturing fell from 41.1 hours
to 40.8 hours
--Combined with the reduction in employment, the
decline in average weekly hours lead to a decline in
total production hours of 2.6 percent.
THE INDEX OF LEADING INDICATORS FELL FOR SEPTEMBER
The index of leading indicators fell by .8 percent in
September, the second monthly decline in a row.
--The decline was completely expected, representing old
news about September.
This index is not a reliable forecaster of recessions: for
example, it fell four months in a row starting in October
1987, while 1988 turned out to be a very strong growth year.
XEROX Telecopier 7017; 7-13-90 13:14
2024566218:# 8/14
8
There's something hollow in their "make the crooks pay" rhetoric, their efforts to revise the history of
the eighties. Sort of like Nikita Khrushchev pinning the blame on Joe Stalin.
Call it the Big Lie.
Well, my friends, you can fool some of the people all the time. They're the ones who vote the straight
Democratic ticket.
You can fool some of the people some of the time. They're ticket splitters. Just enough Democratic House
and Senate candidates manage to run away from the national party to fool them.
But you can't fool all the people, all of the time.
We've got the Democratic Party's number.
Another example of the Big Lie.
Crime. The Democrats say they're tough on it. But watch what they do.
In the House of Representatives they've bottled up President Bush's crime bill for more than a year.
Meantime, the FBI reports crime rates soaring - especially crime against women. Over the past ten years,
rapes have increased four times the total crime rate.
Republicans care about the rights of victims of crime; Democrats care about the rights of criminals.
There's another Big Lie coming. You can smell it in the air. You can be sure the Democrats will try to
blame us for any entitlement cuts that come out of the budget summit.
What they won't do is admit that Republican leadership has given us the longest period of sustained
economic growth in peacetime history. We've created tens of millions of jobs. Incomes for average working
people - what's left after taxes - have gone up steadily. The dream of home ownership has been restored.
We led in the eighties. We're proud of our record, and we won't run and hide from it.
You won't catch us trying to salvage our future by savaging our past.
And we'll lead in the nineties.
We'll lead, because we want parents and communities in control of our schools, not educational bureaucrats
and remote unions.
We'll lead, because we want to control crime by punishing criminals, not by depriving honest Americans of
their rights or making them in fear of walking the streets.
We'll lead, because we believe that the working people deserve to keep the money they earn, not fork it
over in taxes to pay for Congress' waste.
Ron Brown says the Democratic Party is on a roll.
Is he right, or is he wrong?
Here's his idea of a roll the recent "urgent, dire, emergency" supplemental spending bill - that's what
they called it.. Three-quarters of a million dollars to buy an 800-ton ferry for Samoa. $6 million to fund a fish
farm, in Iowa. And in this time of high deficits, $20 million for Congress' own private art collection.
Maybe they got that idea from David Paul. With $20 million, they can buy David Paul's $12 million
Rubens' painting at CenTrust's fire sale.
Since President Bush called for bi-partisan budget negotia-
tions, the Democratic-controlled House of Representatives
has passed ten appropriations bills adding up to $211 bil-
lion: $25.119 billion over 1990 appropriations levels --
13.5 percent increase, and $14.348 billion above the amount
the President asked for. A chart is attached summarizing the
bills and examples of some of the wasteful spending follows:
SUMMARY
1990 Appropriations Spending
= $186.5 billion
1991 Bush Appropriation Request
= $197.3 billion
1991 Congressional (House) Appropriation Action = $211.6 billion
House Action is $25 billion (13.5 percent) above last
year's level of spending.
House Action is $14 billion (7.2 percent) above the
amount the President asked for.
3/90
137
WHAT DEFICIT CRISIS?
CONGRESS CONTINUES ITS
PORK-LADEN SPENDING SPREE
(Updating Backgrounder No.780, "While Talking About A Deficit Crisis, Congress Proposes
Billions in New Spending," July 25,1990.)
How is Congress responding to George Bush's broken no-new-tax pledge? With visions of new
revenues dancing in its head, Congress has gone on a spending spree that will push the federal bud-
get and the tax burden on the American people to record highs. While many in Congress thus pub-
licly wring their hands and gnash their teeth about what they call the deficit crisis, what they really
seem to care about is only more spending. Examples: On July 18, the House of Representatives
passed a $50.34 billion Rural Development/Agriculture appropriations bill, which is $5.18 billion or
11.46 percent higher than the 1990 amount. On July 19 the House approved a $170.44 billion
Labor/Health and Human Services appropriations bill, which increases spending by $17.31 billion
or 11.3 percent over last year's level.
With only eight of the thirteen appropriations bills passed so far, the House already has spent
$403.09 billion, or $41 billion over 1990 levels, an increase of 11.4 percent. This is $68 billion over
1989 levels, an increase of 20 percent.
Table 1
Appropriations Bills
($billions for Fiscal Year)
BILL
1989
1990
1991
Bush
1991
$ Change
% Change
Approps.
% Change
Approps.
Proposal
Approps.
90 91
89 91
90 91
Commerce/
14.85
11.70
11.10
10.50
-1.20
Justice
-29.30
-10.20
Energy/Water
17.83
18.43
20.20
20.77
+2.40
+ 16.52
+ 12.70
Foreign Operations
14.29
15.52
15.52
15.78
+0.30
+ 10.46
+ 1.69
VA/HUD
59.39
71.28
78.78
83.57
+ 12.30
+ 40.72
+ 17.25
Transportation
25.67
28.17
26.73
30.94
+ 2.70
+ 20.54
+ 9.50
Treasury/P.O.
16.02
18.45
20.71
20.72
+ 2.27
+ 29.34
+ 12.30
Labor/HHS
140.37
153.13
166.23
170.44
+ 17.31
+ 21.42
+ 11.30
Agriculture
46.61
45.17
50.43
50.35
+ 5.18
+ 8.00
+ 11.46
TOTALS
335.03
361.85
390.00
403.09
+ 41.24
+ 20.00
+ 11.40
If the House continues at this record pace in the remaining five appropriations bills and if both
the Senate and President approve, spending will rise by nearly $75 billion over similar fiscal year
1990 levels. This dramatic increase is of particular concern because the 13 appropriations bills rep-
resent only about 60 percent of all federal spending. When combined with the automatic increases
in entitlement programs and interest on the national debt, which comprise the remaining 40 per-
cent of the budget, fiscal 1991 spending could top last year's levels by nearly $110.
George Bush is partly to blame for this spending spree. He ignited it by bowing to pressure from
Budget Director Richard Darman and Treasury Secretary Nicholas Brady to agree to a budget sum-
mit with Congressional leaders in which all issues, including taxes, were on the table. And taking
the cue from Darman and Brady again, Bush threw open the floodgates on June 26 when he an-
nounced that it was clear to him that "tax revenue increases" would be needed to bring the deficit
in line. Smelling blood in the water, the liberal-dominated House of Representatives went on a
feeding frenzy. It rejected proposals by some House members to reduce the rate of spending in-
creases on the Agriculture appropriations bill and the Labor/HHS appropriations bill. It defeated
eleven such amendments by wide margins. Six amendments that would have slowed spending across
the board were offered by Republican representatives William Dannemeyer, from California, and
Bill Frenzel, from Minnesota, in addition to Timothy Penny, the Minnesota Democrat. The House
even rejected the symbolic amendment by Robert S. Walker, the Pennsylvania Republican; it would
have trimmed the overall level of spending in the Agriculture bill by just $19.90 - a piddling
0.0000000002 percent.
Table 2
($ billions for Fiscal Year)
1990
1
Bill
Penny
2
4
Approps.
(9.5%)
Frenzel
Dannemeyer
3
Penny
1991
(2%)
Approps.
Agriculture
45.17
46.01
46.65
47.95
49.39
50.35
Labor/HHS
153.13
N/A
163.74
N/A
169.90
170.44
1. There were two amendments offered by Representative Penny to the Agriculture Bill. The first was an across-the-board
9.5 percent cut on the proposed 1991 appropriations, which was actually an amendment to Frenzel's 7.7 percent cut. This
amendment contained an exemption to the cut, the Women and Infant Children program, which was not cut at all.
2. The Frenzel amendments were an across-the-board 7.7 percent cut on the Agriculture bill, and an across-the-board 15.2
percent cut on proposed HHS spending bill. This cut on the HHS bill amounts to only a little over 3 percent of the total bill
when the unauthorized funds are added in.
3. The Dannemeyer amendment to the Agriculture bill was an across-the-board cut of 5 percent, but again, this percentage
only would have an effect on discretionary spending. The percentage of the total bill was much less.
4. The second Penny amendment to the Agriculture bill was an across-the-board 2 percent cut. The Penny amendment to
the HHS bill was also a 2 percent across-the-board cut, but it excluded certain programs such as Chapter 1 Compensatory
Education, Education for the Handicapped, and Higher Education.
Other amendments were offered to prevent spending increasing above fiscal 1990 levels on spe-
cific programs. Walker proposed four amendments to test the House's resolve for holding the line
on spending increases. The first amendment would have prevented a $65,000 increase for the
$4,935,000 Law School Clinical Experience program; the second would have prevented $10,000,000
from being spent on a new "Education Summit Follow-Up" study; the third would have prevented a
$65,000 increase in the $3,806,000 Physician Payment Review Commission; and the fourth would
2
04:52 PM
FY 1990 ENACTED AND FY 1991 BUSH BUDGET
(BUDGET AUTHORITY AND OUTLAYS IN BILLIONS OF DOLLARS)
1,
FY 1991
FY 1990
BUSH BUDGET
HOUSE
HOUSE FLOOR vs.
LATEST HOUSE vs.
BILL
ENACTED
REQUEST
FLOOR
1990 ENACTED
1991 BUSH BUDGET
BA
Outlays
BA
Outlays
BA
Outlays
BA
Outlays
BA
Outlays
Commerce, Justice, & State 1/..
19.527
17.932
19145
18.869
18.417
18.651
-1.110
0.719
-0.728
-0.218
District of Columbia
0.538
0.578
0.540
0.539
0.550
0.550
0.012
-0.028
0.010
0.011
Energy & Water
18.472
17.669
20.251
19.422
20.901
19.730
2.429
2.061
0.650
0.308
Foreign Operations
14.739
13.382
14.843
13.741
14.971
13.605
0.232
0.223
0.128
-0.136
Labor/HHS/Education 1/
44.243
48.909
45.705
52.232
50.579
53.924
6.336
5.015
4.874
1.692
Military Construction
8.244
8.760
9.058
8.743
8.598
8.787
0.354
0.027
-0.460
0.044
Rural Development,
Agriculture
9.184
9.009
5.796
7.397
9.997
9.670
0.813
0.661
4.201
2.273
Transportation
12.612
27.876
11.377
28.324
12.599
29.665
-0.013
1.789
1.222
1.341
Treasury-Postal Service 2/
9.836
9.733
11.468
11.002
11.476
10.926
1.640
1.193
0.008
-0.076
Veterans Affairs, HUD,
Independent Agencies
49.133
54.647
59.116
59.927
63.559
59.052
14.426
4.405
4.443
-0.875
TOTAL
186.527
208.496
197.301
220.198
211.648
224.560
25.119
16.065
14.348
4.364
Note: Detail may not add to totals due to rounding.
1/ Commerce/Justice/State and Labor/HHS/Education data for House floor Include OMB estimates for unauthorized programs.
2/ FY 1990 enacted BA for Treasury/Postal adjusted to exclude $1,254 million for lease-purchase projects authorized prior to FY 1990. FY 1991 Bush Budget
Request outlays increased by $344 million to reflect outlay estimates consistent with G-R-H outlay estimates.
APPROPRIATIONS
Energy/Water
The House and Senate voted to continue subsidies to power
marketing administrations out west in areas which already
enjoy the cheapest power in America. (Hatfield, Foley)
In the House, $36 million was added to keep the Fast Flux
Test Facility nuclear reactor operating in Hanford,
Washington, for a purpose for which the reactor was not
even designed. (Foley)
University of Alabama: House added $10 million for the
Biomedical Research Facility. (Bevill)
Mississippi State University: House added $4.0 million
for (Whitten) Diagnostic Instrument and Analysis Laboratory.
Riverfront Park, Charleston, West Virginia: The Corps
has been directed to spend $350,000 to build a park
facility that other cities use their own funds to con-
struct. (Byrd, Rockefeller)
Boudinot Harbor, Oklahoma: The Corps has been directed
to spend an additional $400,000 for dock facilities
usually provided by private companies.
Wallisville, Texas: The corps has been directed to
build, over its own objections, a $70 million
single-purpose water supply project that would sacrifice
over 5,000 acres of pristine wetlands, (including over
3,000 acres of virgin cypress swamps). The purpose of
this new expense is to provide heavily subsidized water
to a local Texas community. Meanwhile, other American
cities and towns bear this expense on their own, without
Federal subsidies. (Brooks)
Garrison Diversion, North Dakota: The President's budget
damaging project, which would require over $1 billion to
proposed terminating this uneconomic and environmentally
complete. The irrigation component would benefit only
about 400 farmers at an investment of $6,000 to $8,000
per acre to grow crops that are already heavily subsi-
dized by the government. Hence its completion will only
lead to higher government payments under the farm pro-
gram. The Department of the Interior's Inspector General
the recently found that farmers would be unable to repay even
are required by law to do. (Burdick, Conrad, Dorgan)
annual operation and maintenance expenses, which they
2
Transportation
Federal Highway "Demonstrations". The House and Senate
combined added $523 million worth of special earmarkings.
Among the pet projects are the following three that
supposedly "demonstrate" road safety, but are simply road
construction projects:
$4 million for a highway project between Paintsville and
Prestonburg, Kentucky. (Perkins)
Florida. (Grant)
$2 million to improve U.S. Route 931 in Jackson County,
$20 million for four projects in Mississippi. The
eventual costs for these projects will exceed $320
million. (Whitten)
Treasury/P.O.
The GSA Federal Buildings Fund was established to build and
renovate federal buildings. Yet Congress appropriates funds
for such projects as:
Northern Arizona University, Flagstaff: Southwest For-
estry Science Complex. Senate - $5,000,000. (DeConcini)
University of Georgia: Dean Rusk Center for Internation-
al and Comparative Law. Senate - $1,000,000. (Fowler)
Christopher Columbus Center on Marine Research and Explo-
ration, Baltimore, Maryland: Grant for planning and
design. House - $5,000,000. (Hoyer)
Agriculture and Rural Development
The bill passed by the House is $4.2 billion over the
)
President's request -- that's more than 72%!!
The House added $250,000 for research on methods to
improve the texture of sweet potatoes -- an idea proposed
by an industry group. The industry group sponsor also
obtained approval for research on sweet potato pox virus-
es by Agricultural Research Service scientists.
3
The House added $175,000 of agriculture funds for a firm
in New York to do a film on youth at risk.
$500,000 for the University of Mississippi: Food Service
Management Institute. (Whitten)
District of Columbia
Board of Education: $15.1 million of Federal funding for
a local school board. This is an unique, direct federal
contribution for maintenance and improvement of the
District's public schools. Since 1985, public school
enrollment in the District has dropped by 6,376 students
(pre-kindergarten through 12th grade). The District
already receives $56.0 million of its public school
funding from Federal grants that are also available to
other local school districts.
Supplemental Appropriations (For FY 1990; Passed 5/25/90)
In early March of 1990, President Bush sought $800
million in emergency supplemental funds to help the
world's newest democracies, Nicaragua and Panama. Nearly
three months later the Democratic House and Senate perpe-
trated budgetary hijacking. The House and Senate waylaid
the proposal and stuffed it with new spending. When they
were done, the Congress added over $1.3 billion for
unrequested domestic spending.
By a vote of 246-160 (R 32-130; D 214-30), the House
agreed to a Senate amendment to force a federal agency
that is supposed to do ocean research to procure a fish
farm in Arkansas. (Bumpers)
Congress added $1.8 million for renovating a Great Lakes
research vessel in Michigan (not in either the House- or
Senate-passed bills). (Traxler)
The Senate added $185 million for an FBI building in West
Virginia (Byrd) that is not expected to be built for five years.
Congress added $6 million for a wildlife park in Iowa (a
provision that was not in either the House- or Senate-
passed supplemental bills and was snuck in, in confer-
ence). (Neal Smith)
Congress added $750,000 to buy a ferry vessel for Ameri-
can Samoa. (Inouye)
4
ENTITLEMENTS/AUTHORIZATIONS
Excellence in Education
In February 1989, President proposed the Educational
Excellence Act, a bill to authorize seven educational
improvement initiatives increasing flexibility in the
system, at a cost of $423 million for the first year.
Congressman Hawkins (D. Calif) sponsored H.R. 5115,
adding dozens of new costly and bureaucratic categorical
programs. Total cost: $1.4 billion in budget authority
for FY 1991.
Child Care
The President proposed an 8-page, $9.4 billion bill.
The Senate doubled the cost. $18 billion.
The House tripled the cost: $28.9 billion and included
120 pages of child care regulation.
Key members: Sen. Kennedy, Sen. Dodd, Rep. Downey.
Foster Care Administrative Cost Reforms
Between FY 1981 and FY 1991, state claims for administra-
tive costs have grown over 2,800 percent.
The Administration proposed limiting the growth to 10
percent a year, saving $121 million in outlays.
Congress (Sen. Bentsen [D-Texas], Rep. Downey [D-New
York] have proposed program expansion without fixing the
abuses. Total cost: $426 million in outlays for FY
1991, and $6.4 billion over FY 1991-95.
In the District of Columbia, 86 percent of foster care
funds goes to administrative expenses and 14 percent goes
to children. In D.C., per child:
- $22,050 is spent on city costs.
- $5,000 is spent on foster care.
5
Railroad Retirement Tax Diversion
In the last 10 years, Congress subsidized the Railroad
Retirement Board to the tune of $1.2 billion.
These subsidies will cost the Federal government over
$100 million in FY 91.
Congress extended this subsidy through FY 90. Sen.
Baucus (D-Mont) who has a disproportionate number of
railroad retirees in Montana, proposed legislation to
extend this again this year.
Housing
grams. The President proposed $23.7 billion for housing pro-
over $4.6 billion in Budget Authority due in part to an
The House bill exceeds the President's FY 1991 Budget by
emphasis on new housing construction including the Title
III Rental Housing Production Program and the Title IV
Community Housing Partnership program.
The Senate bill exceeds the President's Budget by over $4
billion in B.A. due to higher authorizations for existing
programs and for the new Housing Opportunity Partnerships
(HOP block grants to states and localities).
1990 Farm Bill
The Administration sent to Congress in February a bill which
would have continued of the market-oriented farm support
programs instituted by the successful 1985 farm bill.
Moreover, in his FY '91 budget, the President proposed to
bills now out of both houses but not yet in conference,
reduce farm subsidies by $1.5b this year. The Congress, in
above current levels.
essentially rejected that proposal and raised subsidies
Both the House and the Senate passed bills that set five
year farm subsidy spending at around $54 billion, close
President. to $20 billion over the amounts recommended by the
The House rejected a proposal by the Administration to
eliminate government subsidies to people who earn more
than $100, 000 per year. Thus, people who earn 3 times
the average income for an American family of four will
6
keep getting income supports from the government under
the farm program. Similarly, the Senate rejected a cut-
off of subsidies to those very large farmers who gross
more than a half million dollars a year. Either of these
proposals would have saved the taxpayer on the order of
$1 billion over five years.
The House also rejected a proposal to tighten loopholes
in the farm laws. Payments are supposed to be limited to
$50,000 per person -- but big corporate farmers re-
organize to evade the limit. Some farmers made almost $1
million each in subsidies last year. The House voted no
on a Republican amendment (by Rep. Conte) to close this
loophole, and in the process saved close to three-
quarters of a billion dollars over five years.
The House and the Senate voted against any reform in
sugar subsidies, which cost American consumers more than
$1.5 billion each year. The Administration had proposed
a two cent per pound reduction in the sugar support
price, but not even this modest adjustment was adopted.
So American consumers will keep paying twice the world
price to keep a handful of sugar producers wealthy.
The House voted "no" on an amendment to phase out honey
support, even though it would have saved $200 million
between now and 1995. That's $200 million for only a
handful of beekeepers; eliminating their payments would
not endanger the work of the vast majority of beekeepers.
7
STATE OFFICE PREMIUM
EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF MANAGEMENT AND BUDGET
WASHINGTON, D.C. 20503
D
MID-SESSION REVIEW
OF THE BUDGET
NOTICE:
Embargoed: There should be
no release of this document
until 9:00 a.m. (E.D.T.)
Monday, July 16, 1990
July 16, 1990
July 26 .. Both sides agree to put budget plans on the table. The Administration and Republican
negotiators develop a plan to produce $50 billion savings in the first year and $500 billion in savings
over 5 years.
-- No plan from the Democrats.
-- Administration states and restates its willingness to exchange offers.
July 31 -- When in doubt, go back on recess. Unable and unwilling to come up with their own plan,
Democrats propose to delay exchange until after the August recess. Eighty six days after the President
called on Democrat leaders to work out a bipartisan budget solution, they had yet to offer one single
proposal.
August 1 -- Enough is enough. The President announces he will vcto each and every spending bill the
Democrats write that busts the budget, and tells Republicans in Congress that when it comes to dealing with
the Democrats, all bets are off.
Here's a Few Examples of What the $100 billion Sequester Will Mean:
The following are just a few of the effects should a sequester order take place on October 15, 1990:
For defense, reductions of up to one million military
personnel, about half the force, if military personnel are
not exempted. And if military personnel are exempted,
reductions-in-force or furloughs of up to 850,000
defense civilian employees along with a severe degrada-
tion of military force readiness.
For the Federal Aviation Administration, major cutbacks
in air traffic controllers, extensive closure of facilities,
PHOTO
the curtailment or removal from service of over 100 air
traffic control towers, a substantial reduction in the
number of flights, and an increase in traveler delays of
400 to 600 percent.
For Superfund, a halt in all new cleanups of toxic waste
sites.
For INS, no new hiring of Border Patrol staff and
building of new traffic checkpoints to intercept drug
and alien smugglers.
For white collar crime, a drop of about 25 percent in
completed investigations and about 1,000 fewer convic-
tions. Prosecution of those who have perpetrated S &
L institutions fraud would be slowed.
PHOTO
For student aid, the outright elimination of Pell grants
to 1.2 million students and a 22 percent reduction of all
other Pell grants to 2.2 million additional students.
For meat and poultry, the absence of inspection
services for about 140 days, thus forcing the shutdown
of many processing plants.
VI. POTENTIAL EFFECTS OF $100 BILLION SEQUESTER
If the Budget Summit negotiations do not produce a satisfactory deficit reduction program, a
large sequester will ensue. With that possibility in view, this section discusses the sequester calculations
and the potential effects of a 1991 sequester of $100 billion.
For purposes of determining the sequester amount, it seems reasonable to assume the continuation
of the food stamp program, and a return to normal operating levels for the Census Bureau. Spending
from the Resolution Trust Corporation (RTC), however, including administrative expenses and interest
payments to the Federal Financing Bank, is excluded from the baseline totals at this point-in part
because current law limits total RTC spending and in part because many believe that RTC expenditures
should be excluded from G-R-H sequester calculations. Under these assumptions, the adjusted baseline
deficit would be $168.8 billion in 1991, $104.8 billion above the $64 billion deficit target required by
the G-R-H law. Thus if no additional policy actions were taken to reduce this adjusted baseline deficit
before the initial sequester report is issued on August 25th, the President must issue an order to
withhold roughly $100 billion effective October 1st. If no policy actions were taken before the final
sequester report is issued on October 15th, a sequester of roughly $100 billion would be required. (If
RTC were authorized to spend more, and if such expenditures were included in the sequester calculation,
the likely sequester would exceed $150 billion.)
Sequestration Calculations
Reductions associated with a $100 billion sequester would be determined using the following
steps, as shown in Table 11.
Table 11. MID-SESSION REVIEW:
SEQUESTRATION CALCULATIONS FOR 1991
(Outlays in billions of dollars)
Outlays
Required deficit reduction (assumed as of July 15, 1990).
100.0
Defense (military personnel sequestered): 1
Total required reductions
50.0
Estimated outlays associated with across-the-board
sequesterable budgetary resources
198.8
Uniform reduction percentage
25.1%
Nondefense:
Total required reductions
50.0
Estimated savings from automatic spending
0.1
Estimated savings from special rules
1.8
Amount remaining to be obtained from uniform percent-
age reductions of budgetary resources
48.1
Estimated outlays associated with across-the-board
sequesterable budgetary resources 2
125.3
Uniform reduction percentage
38.4%
MEMORANDUM
Defense (military personnel exempt): 1
50.0
!
$5.7
1999
17
First, one-half of the required deficit reduction, $50 billion, would be assigned to defense programs
(budget accounts in the national defense function, 050, excluding the Federal Emergency Management
Agency) and the other half to nondefense programs.
Second, savings from eliminating automatic spending increases in three specific programs (the
National Wool Act, the special milk program, and vocational rehabilitation) would be applied to the
required reduction in outlays for nondefense programs. Savings from eliminating these adjustments
would be $58 million.
Third, the amount of outlay savings to be obtained by applying four special rules would be
calculated. These special rules are for guaranteed student loans, foster care and adoption assistance,
medicare and certain other health programs. The estimated savings from these special rules, $1.8
billion for 1991, would be applied toward the required spending reductions in nondefense programs.
The reductions in defense programs and remaining reductions in nondefense programs would be
taken on a uniform percentage basis, computed separately for each category. Under the adjusted
baseline estimates, the uniform percentage reductions would be 38.4 percent for nondefense programs.
For defense programs, the uniform percentage reduction would be 25.1 percent if military personnel
accounts were sequestered and 41.3 percent if these accounts were exempted by the President from
sequestration.
In the event that a sequester is required, not all programs will be subject to reductions. For
defense and nondefense programs combined, about 67 percent of total outlays are associated with
budgetary resources exempt from sequestration. The burden of sequester falls on programs that
comprise the remaining 33 percent of budget outlays. Of these outlays, defense programs account for
47 percent, special rule nondefense programs for 25 percent, and other nondefense programs account
for 28 percent.
Programmatic Impact of a $100 Billion Sequester
In addition to the sequester effects described for individual programs that follow, most, if not all,
hiring freezes.
Federal agencies would be forced to reduce staff costs through reductions-in-force, furloughs, and
Reductions-in-force are required to be implemented in an orderly way, generally using the criteria,
within Federal job classifications, of abolishing positions, thereby terminating the employment of the
most junior and non-veteran employees first. Severe reductions-in-force (of the size necessary under
this sequester) also can affect senior employees whose jobs are abolished. These employees may then
"bump" more junior employees in other job classifications for which the senior employee is qualified.
Furloughs involve telling employees not to come to work for a certain length of time and then
cannot be furloughed.
not paying them for that time period (e.g., involuntary leave without pay). By law, military personnel
Hiring freezes result in the random loss of employees and frequently the loss of the most critical
specialties and the creation of imbalances within an organization.
Legal requirements, the regulations of the Office of Personnel Management, and labor-management
yield any savings, the reduction-in-force process should begin at the time of the initial sequester
agreements must be followed in administering both reductions-in-force and furloughs. In order to
report on August 25th or not later than the issuance of the final sequester report on October 15th.
Termination expenses (payments for unused annual leave, return of retirement contributions,
Separating a person at the beginning of the year on average saves only $11,500 or 35-40 percent of
ployment compensation payments, etc.) offset the savings made possible by discontinuing employment. unem-
former compensation and benefits during the first year after a reduction-in-force. In subsequent the
of employees' full compensation and benefits would normally be saved. On this basis, the separation years,
100,000 employees through a reduction-in-force would save only $1.1 billion in 1991. Many thousands
18
of dependents, businesses, and creditors who depend upon the income and purchasing power of Federal
employees would be hurt by these actions.
Agencies also would reduce travel, training, printing, contractual services, and supply and equip-
ment purchases. Those employees who remained would be hampered in their efforts to enforce the
law, carry out agency missions mandated by law, and supply previous levels of services not only
because of the reduced number of personnel, but also because of organizational disruptions created
by adverse personnel actions and by the lack of non-personnel resources.
While the description of the effect of the sequester by program that follows is extensive, it is not
comprehensive and is intended for illustrative purposes only.
Department of Agriculture
Commodity Credit Corporation (CCC)
A sequester applies to CCC cash deficiency payments and commodity loan programs by crop year.
Based on projected 1991 crop year cash deficiency payments of $7.1 billion, a sequester would require
a reduction of $2.7 billion in deficiency payment outlays in fiscal years 1991 and 1992. The value of
1991 crop loans estimated in fiscal years 1991 and 1992 is $6.0 billion. Checks written during harvest
time to farmers who place crops under loan would be reduced by about $2.3 billion in 1991 and 1992.
Reductions in CCC outlays, net of loan repayments would be $3.9 billion during fiscal years 1991 and
1992.
To illustrate the wide-spread impact of a sequester, note that approximately 300,000 commodity
loans and 9,000,000 deficiency payments are currently issued through the CCC. For 1989 crop
programs, the following number of farms received cash deficiency payments for crops:
Cotton
100,000
Feed grains
1,100,000
Wheat
435,000
Rice
18,500
In addition, an estimated 175,000 dairy producers would face large assessments on their milk
marketings (the assessment of 10.4 cents per hundredweight of milk markets would reduce cash
receipts of dairy farmers by approximately $150 million), and 40,000 peanut farms and 424,000 tobacco
farms would be affected through loan proceeds reductions.
The average deficiency payment for the 1989 feed grain crop was $4,363, and the average for all
commodity loans was $13,771. A sequester would reduce the average deficiency payment by $1,658
and the average commodity loan by $5,233.
Conservation
The 1985 Food Security Act (FSA) established the Conservation Reserve Program. People who
agree to retire highly erodible land for 10 years receive an annual rental payment and financial
assistance in establishing a permanent cover on the land. Under a sequester, annual rental payments
due under the nearly 334,000 conservation reserve program contracts with farmers could not be paid
in full.
The FSA also established several new conservation initiatives that require Soil Conservation
Service (SCS) technical assistance. Under the law, SCS is responsible for defining highly erodible
lands (HEL) and wetlands and for helping farmers develop and install conservation plans that
producers will need if they are to continue receiving program benefits from the Department of
Agriculture. While conservation planning and HEL determinations have been completed, only about
30 percent of the measures have been installed. The law requires that producers install the approved
conservation systems by December 31, 1994. The "swampbuster" provisions of the FSA require that
SCS also conduct wetland determinations and inventories to help farmers recognize wetlands and
prevent unintentional conversions. The target date for completing the wetland determinations is
19
December 31, 1991 with wetland inventories being scheduled for completion by the end of 1992. In
addition to these efforts, SCS must provide technical assistance for the conservation reserve program,
for any necessary revisions to FSA plans, and for compliance reviews to ensure that conservation
plans are properly installed.
A sequester would require that SCS emphasize meeting the provisions and deadlines mandated
by FSA at the expense of other conservation operations such as the water quality initiative, soil
mapping, and plant center renovation, which are authorized but not subject to statutory deadlines.
Even with best efforts to meet the highest priority needs, it is unlikely that many of the FSA
conservation targets could be met. Continued assistance to the nearly 3,000 conservation districts
would be jeopardized and service would be reduced at most SCS field offices. Watershed planning
and construction would be delayed or terminated for many projects that address high priority national
problem areas such as local flood control, emergency assistance, land treatment, and water quality.
Cost sharing projects would be stopped or slowed down.
Cooperative State Research and Extension
Under a sequester (that must be applied uniformly), higher priority projects could not be preserved
by applying larger reductions to (or canceling) lower priority projects. Across-the-board cuts would
reduce USDA's National Research Initiative (designed to use competitive research grants to enhance
production efficiency, food safety, and environmental quality). One important component of this ini-
tiative is an effort to map the genomes of plants to permit scientists to explore more fully the genetics
of plants. Other research that would be cut could contribute to the design of more economical production
practices and to dealing with pests and disease in ways that protect the environment. A large number
of special interest research grants and construction projects would also be affected.
Farmers Home Administration (FmHA)
A sequester would impair efforts to service FmHA's portfolio of almost $59 billion in outstanding
debt. This would reduce borrowers' chances of success in meeting their loan obligations and increase
losses to the Government. In particular, efforts to restructure about $5 billion in delinquent farm
loans would be delayed, causing borrowers undue hardship and reducing the recovery value of these
loans.
Federal Crop Insurance Corporation
A sequester would reduce the funds available for commission payments on insurance policy sales
made by private insurers, causing a suspension in sales when funds run out. The reduction in the
amount of insurance sold would also reduce the premiums paid to the Government.
Federal Research (Including Buildings and Facilities)
Under a sequester (that must be applied uniformly), higher priority projects could not be preserved
by applying larger reductions to (or canceling) lower priority projects. Such reductions would reduce
USDA's Food Safety Initiative and the collection of food safety information. This information is
expressly intended for further use in setting Federal food safety policies and regulations. Other
research, such as water quality research projects included in the Water Quality Initiative and federally
sponsored human nutrition studies, also would be constrained.
The layoff of Federal scientists and technicians would impede the delivery of new technologies
to improve agricultural competitiveness and address environmental issues. Reductions in research
programs at 59 agricultural experiment stations, as well as at other colleges and universities, would
impair the ability of States to continue a full range of research to address local and regional concerns.
Most adversely affected would be the historically black 1890 colleges and Tuskegee University that
receive nearly 100 percent of their research funding from the Federal Government.
20
Foreign Agricultural Service
A sequester would compromise the execution of trade policy responsibilities, including those
related to the Uruguay round during the most crucial stage of this multilateral trade negotiation.
Reductions in our overseas presence, including attaches and counselors, would impair the collection
and reporting of agricultural intelligence and the administration of export and market development
programs. Some overseas cooperator offices would have to be closed and some smaller cooperator
organizations would have to end participation in the program. Since agriculture is the one major
"positive" in U.S. trade, these reductions would have a detrimental effect on the balance of trade.
Forest Service
A sequester would severely affect the ability of the Forest Service to maintain projected targets
for recreation, wildlife and fish habitat management, and timber sales. Timber sales could decline to
below eight million board feet. Timber preparation work would be greatly reduced, reducing 1991 and
out year sales. Receipts to the Treasury and to States and counties would decline significantly.
Economic effects, particularly in the West, would be substantial.
Certain campgrounds and other recreational facilities would be closed. Services at remaining
sites would be significantly curtailed. Efforts to protect and improve habitat to achieve recovery goals
for endangered and threatened species would be substantially reduced.
No seasonal hiring would occur, further inhibiting quick response to fire fighting emergencies
and significantly curtailing services (e.g., garbage pickup and rest room cleaning) at the recreational
facilities that remain open. Road maintenance and most other field work would all but cease, resulting
in the deterioration of roads and facilities and ultimately road closures for safety concerns.
Meat and Poultry Inspection
The Federal Meat Inspection Act (P.L. 90-201) and the Poultry Products Inspection Act (P.L.
90-449) require carcass-by-carcass inspection by Federal inspectors in establishments slaughtering
food animals. All plants engaged in further processing of meat and poultry must also be inspected by
Federal inspectors, Since meat packing plants cannot operate without these Federal inspectors, the
meat and poultry slaughter and processing industry would be forced to limit or curtail production by
the same extent that inspectors are not available. The meat and poultry industry is one of the largest
in the country. It employs over 400,000 people at 7,800 meat and poultry plants and has an annual
retail value of more than $100 billion. Many thousands more people are employed in the breeding,
raising, transportation, storage, and distribution of food animals. The economic loss from any shut
down due to a sequester would result in the loss of billions of dollars to the American economy. In
addition to the economic disruption, the limited inspection coverage would erode the high level of
safety of the nation's meat and poultry products.
A sequester would result in the absence of inspection services (and the shutting down of meat
and poultry slaughter and processing plants) for about 140 days.
Quarantine and Inspection Activities
A sequester would defeat recent progress by the Animal and Plant Health Inspection Service to
eliminate pseudorabies, brucellosis, and the Russian wheat aphid. Emergency eradication of the
Mediterranean fruit fly and grasshopper would be defeated. All 39 quarantine and inspection activities
would be reduced. This would result in serious delays in import shipments of plants and animals as
well as baggage inspection for international travel. Extensive delays or disruption of service could
cause significant losses of plants and animals in quarantine or awaiting inspection. It would also
drastically reduce the number of inspections and thus increase the risk of introducing serious animal
and plant diseases and pests into the United States. Implementation of the pending regulations on
animal welfare might not be possible.
The Federal Grain Inspection Service would totally eliminate contractual research including
aflatoxin research outlined in the Administration's farm bill proposal. The Agricultural Cooperative
21
Service would not be able to conduct research studies in support of farmer cooperatives and the Office
of Transportation would not be able to assist in solving transportation problems related to agriculture.
Department of Commerce
National Oceanic and Atmospheric Administration (NOAA)
A sequester would severely impair several high priority research programs, in particular, NOAA's
contribution to the interagency U.S. Global Change Research program and the Coastal Ocean Science
program. Several major system procurement actions supporting the modernization of the Weather
Service would be canceled or deferred including such safety programs as the NEXRAD doppler radars
(that detect severe weather patterns) and the next generation of geostationary weather satellites.
It would severely reduce fisheries stock assessments and research, thereby requiring an extremely
conservative fisheries management regime including closure of certain grounds to commercial fishing.
Operations of the NOAA research fleet and air wing would be reduced to the minimum required to
support hurricane reconnaissance responsibilities. These actions would be required to ensure that
NOAA would be able to provide weather warnings and, on a less frequent basis than normal, weather
forecasts.
Department of Defense-Military
Military personnel exempted.-The President can exempt up to 100 percent of the military personnel
accounts from sequester. If he chose to do this, force readiness would be severely degraded. Because
a sizeable portion of operation and maintenance expenses are relatively fixed in the short term (e.g.,
hospitals and other required medical costs and bases that cannot be closed according to the G-R-H
law), readiness related activities (training, flying, steaming, and maintenance) could be cut by more
than 50 percent. Substantial cuts in operating rates would result. For example, the flying time for
Air Force pilots would be reduced to less than 10 hours per month (compared to the current 19.5
hours per month that is considered the minimum necessary for adequate readiness). Navy steaming
time for the deployed fleets could be reduced to less than 25 days per quarter from the normal rate
of over 50 days per quarter and many ships would rarely leave their home ports. The operating rate
reductions would require substantial adjustments in naval deployments and operations, reducing the
President's flexibility to deploy forces where needed, including drug interdiction missions. It would
also require reductions-in-force (RIFs) or furloughs of up to 80 percent of the requested level of 1.1
million civilian employees. Contractor personnel also would be reduced significantly. Roughly $8 billion
of equipment maintenance and $3 billion of real property maintenance would have to be deferred.
Modernization programs would be delayed and quantities planned for purchase would be cut.
For example, about 115 fighter aircraft could be cut from the 276 requested, six major combatant
ships could be cut from the 15 requested, and about 250 Army fighting vehicles could be cut from the
600 requested. Similar cuts would be made in all other procurement programs. Unit production costs
would increase. Research and development programs would be disrupted, resulting in delays in new
weapon programs, including high priority strategic systems.
Military personnel not exempted.-Not exempting military personnel could result in a reduction
of up to 1.0 million military, about one-half of the force. A sudden force cut of this magnitude would
severely weaken our ability to react to any major crisis.Morale and force readiness would be severely
degraded. Force structure cuts would include up to eight Army divisions (16 requested in 1991 versus
18 in 1990), the equivalent of one Marine Corps division and air wing (3 divisions and wings requested:
twelve Air Force tactical air wings (24 requested), and seven aircraft carrier battle groups (14
requested).
Force readiness would be severely degraded. Because a sizeable portion of operation and main-
tenance expenses are relatively fixed in the short term (e.g., hospitals and other required medical
costs and bases that cannot be closed according to the G-R-H law), readiness related activities (training
flying, steaming, and maintenance) could be cut by over 30 percent. Substantial cuts in operating
rates would result. For example, the flying time for Air Force pilots would be reduced to less tha-
14 hours per month (compared to the current 19.5 hours per month that is considered the minimum
22
necessary for adequate readiness). Navy steaming time for the deployed fleets could be reduced to
less than 35 days per quarter from the normal rate of over 50 days per quarter and many ships would
rarely leave their home ports. The force reductions in conjunction with the operating rate reductions
would require substantial adjustments in naval deployments and operations, reducing the President's
Cexibility to deploy forces where needed, including drug interdiction missions. It would also require
RIFs and furloughs of up to one-half of civilian employees (requested level is 1.1 million). Contractor
personnel also would be reduced significantly. Roughly $6 billion of equipment maintenance and $3
Illion of real property maintenance would have to be deferred.
Modernization programs would be delayed and quantities planned for purchase would be cut.
For example, about 70 fighter aircraft could be cut from the 276 requested, four major combatant
ships could be cut from the 15 requested, and about 150 Army fighting vehicles could be cut from the
COO requested. Similar cuts would be made in all other procurement programs. Unit production costs
could increase. Research and development programs would be disrupted, resulting in delays in new
*eapon programs, including high priority strategic systems.
Department of Defense-Civil
Army Corps of Engineers
The effect of a sequester on the civil works program would be twofold: substantial reductions in
personnel in labor-intensive activities, and contract delays and cutbacks in the construction and
operation and maintenance of water resources development projects.
A sequester would require reductions-in-force (RIF) affecting some 3,300 positions. A RIF of some
950 work-years is likely for the Regulatory program and General expenses accounts. Such cuts would
require delays in some, if not all, non-cost-shared preconstruction engineering and design studies;
and handicap new partnership arrangements with non-Federal cost-sharing project sponsors.
A RIF of 450 staff years would be required in the Corps labor intensive Regulatory program
under which the Corps administers Section 404 permits for dredge-and-fill activities in wetlands and
when waters, and for section 10 permits construction and other activities in navigable waterways.
These RIF's would adversely affect support for the environmental initiative to improve permit en-
forcement and compliance.
Construction contracts on non-cost-shared projects, including seven Inland Waterways lock and
dam projects, would be delayed and in some cases terminated. Work would be postponed for previously
funded, cost-shared new starts for which a local cooperative agreement had not been executed. Some
continuing contracts for cost-shared construction projects would be terminated.
The Operation and maintenance program would experience reductions in service delivery and
increased backlogs. Specifically, the use of seasonal labor would be minimized, the recreation season
shortened, recreational and other dredging deferred, and the number of shifts employed for the
operation of the locks on the Inland Waterways System constrained. Moreover, there would be
insufficient funds available to retain the number of employees needed to safeguard public safety and
health and to assure the integrity of project operations and work placement. Recreational facilities
would be closed and maintenance for flood control and navigation projects would be cut. Revetment
(repair of embankments) of the navigation channels of the Mississippi River and its tributaries would
be reduced by over 60 percent. Reductions would be imposed on the supervision and inspection of
work placement and the engineering and design of follow-on construction contracts. Additionally, new
programmed maintenance would be deferred, including channel and harbor dredging, lock and dam
repairs, and hydropower maintenance.
Department of Education
Pell Grants
In the major discretionary student aid program, Pell grants, the 1991 request would provide an
average award of $1,443 to 3.4 million students. Under the Pell law, the reduction in the appropriation
23
is translated into award reductions in accord with a specified "linear reduction" schedule that protects
awards to the poorest students. However, a sequester above 24 percent would reach the awards to
the poorest Pell grant recipients (those with expected family contributions of $200 or less).
If these students are not protected, then a sequester would eliminate grants to 1.2 million students,
at an average grant of $1,000, and reduce all remaining grants (2.2 million recipients) by $320 each,
or 22 percent of the average grant under the 1991 request.
Department of Energy (DOE)
Atomic Energy Defense Activities
A sequester would require a delay in cleanup activities, deferral of operational safety improvements,
a decimation of the ability of DOE to support future nuclear weapons production, and a serious
detriment to our nuclear deterrent. As an illustration only, the cut would require:
A 12-month delay in cleanup activities at contaminated sites.
DOE would not be able to meet the terms of agreements with States for obtaining compliance
with environmental requirements.
Deferring the operating safety and environmental measures that are now being instituted for
assured safe operation of the tritium production reactors.
Deferring work on safety improvements at weapons production facilities and suspending pro-
duction of new nuclear weapons.
Placing all plutonium processing facilities on standby at the very time we are returning weapons
to be reprocessed due to successful START negotiations.
Deferring indefinitely all design and construction activities for new facilities, which include
improvements for environment, safety, and health deficiencies found by the DOE Tiger Teams.
Substantially reducing nuclear weapons testing, and cutting research and development by about
25 percent, which will severely imperil initiatives to enhance nuclear weapons safety.
To effect the savings, contractor employees at the shut-down and deferred facilities would have
to be laid off. Significant numbers of personnel would have to remain, however, to ensure safety and
security of facilities. The maintenance of facilities in safe and secure conditions (even with no production)
years. could be somewhat compromised. Rehiring of employees after such a major disruption would take
This would, in essence, force the Defense Weapons complex to proceed expeditiously to shut down
all operations, and place them in as safe a standby position as possible.
Energy Conservation Grants
Asequester would reduce the number of low-income homes weatherized through the Weatherization
Assistance program from approximately 125,000 to approximately 85,000 homes. This decrease would
place increased burdens on State and local governments in the colder winter months and would create
a hardship for many poorer American families. The number of grants to schools and hospitals for
weatherization activities would be reduced by 250. Grants to States for energy conservation planning
(or canceling) lower priority projects.
priority research and development projects could not be preserved by applying larger reductions to
and extension activities would also be reduced. Because a sequester must be applied uniformly, higher
General Science Program
A sequester would force the cancellation or delay of facility upgrades at several sites by at least
a year. Start up of the Continuous Electron Beam Accelerator Facility in Virginia as well as construction
of the Relativistic Heavy Ion Collider facility at Brookhaven National Laboratory would also be
delayed. Operating levels of high energy facilities (Fermilab, Stanford Linear Accelerator Center, and
24
the Los Alamos Meson Physics Facility) would be reduced by 50 percent or more. The impact of layoffs
of highly skilled staff would take years to reverse.
It would severely reduce research productivity at all the major national laboratories (e.g., Fermilab,
Brookhaven, and the Stanford Linear Accelerator Laboratory) and at one or more of the smaller
funding. accelerator and research facilities. University research programs would experience large cuts in
Superconducting Super Collider (SSC)
A sequester would severely affect the basic ongoing research programs as well as the construction
of the Superconducting Super Collider.
Virtually all site work, research and development on detector designs, and purchase of capital
equipment for detector systems would cease. Design activities would have to be scaled back significantly
from 1990, causing personnel layoffs.
Implementation of the magnet industrialization plan would be impossible. The magnet contract
award would be delayed at least one year. This action would increase the total cost of the magnets
and significantly delay the project.
Cuts of this size would send a strong negative signal to potential international collaborators about
the commitment of the United States to the project and would jeopardize their participation. The
sequester would almost certainly result in no foreign contributions to SSC construction. In this event,
the United States would have to assume the full costs after the Texas contribution.
Department of Health and Human Services
Alcohol, Drug Abuse, and Mental Health Administration (ADAMHA) Drug Abuse Programs
Activities that address the demand side of the war on drugs-research, prevention, and treat-
ment-would be reduced by over one-third. All new research, including medications development,
would be eliminated. Prevention programs for high risk youth and pregnant women would be unable
to support new grants, and the number of continuing grants could be reduced by approximately 20
percent.
The Alcohol, Drug Abuse, and Mental Health Block Grant would fall sharply, reducing the number
of treatment slots far below Administration goals.
Centers for Disease Control
A sequester would cut the Preventive Health Care block grant, grants for sexually transmitted
disease clinics, childhood immunization grants, research on occupational safety and health, health
statistics, and HIV/AIDS grants.
A sequester would sharply reduce service to the public, including approximately 1,000,000 children
who would not be vaccinated for polio, measles, mumps, rubella, haemophilus influenza b, diphtheria,
tetanus, and pertussis. Other effects include: (1) decreased support for block grants could eliminate
over 50 percent of States' prevention programs in tuberculosis, smoking, nutrition, and chronic diseases;
(2) efforts to prevent the spread of sexually transmitted diseases would be hampered: 300,000 fewer
persons would be examined for syphilis, 2,500,000 fewer persons would be tested for gonorrhea, and
1,000,000 fewer persons would be tested for chlamydia; (3) the number of births monitored for changes
in the incidence of birth defects would decrease by 60,000; and (4) approximately 200 disease outbreaks
would not be investigated.
Food and Drug Administration (FDA)
A sequester could (1) lengthen the drug review process, (2) suspend efforts to make experimental
therapies available to patients with no therapeutic alternatives, and (3) reduce inspections of foods,
25
drugs, devices, and imports. The expedited review proposed for AIDS drugs would be slowed and field
inspections and product-related research would be reduced. The number of new orphan drug grants
awarded, laboratory equipment, and automobiles necessary for field inspections would be substantially
reduced. A sequester also would eliminate proposed enhancements for seafood and generic drug
inspections.
HIV/AIDS
A sequester would seriously cripple the Public Health Service's (PHS) efforts to prevent HIV
transmission and conduct research into therapies and vaccines, reducing funding below 1989. Fewer
promising therapies could be tested, fewer education and prevention programs could be supported,
and fewer research initiatives to develop cures and therapies could be pursued. Specifically, about
400 fewer AIDS research grants could be supported, and instead of hiring the 300 additional PHS
staff requested in 1991 for fighting AIDS, staff levels probably would be reduced.
Maternal and Child Health Block Grant-Health Resources and Services Administration
A sequester would reduce these block grants $114 million below the 1986 level, and could require
the States to reduce sharply perinatal health services for pregnant women and their infants. Perinatal
services provided by the States and the ability of States to carry out new requirements contained in
the Omnibus Budget Reconciliation Act of 1989 would be severely limited. Cutbacks in perinatal
health care will have a direct effect on infant mortality and low birth weight, and will severely hamper
State efforts to establish case-management and community-based services that are accessible to the
most needy. The number of Special Projects of Regional and National Significance (SPRANS) could
be cut by a minimum of 150 (from 445). SPRANS grants focus on improved services to high risk
groups, promotion of early and continuous prenatal care, reduction in neonatal mortality, and reduced
behavioral risk activities in pregnant women.
Research at the National Institutes of Health (NIH) and the Alcohol, Drug Abuse, and Mental
Health Administration (ADAMHA)
A sequester would threaten the Federal Government's substantial commitment to pursuing new
scientific opportunities and searching for new cures and therapies and seriously curtail efforts to
invest in the nation's future health. A sequester could reduce by over 9,000 the number of Public
Health Service-supported research grants (from a total of 28,000) and cut by over 4,200 the number
of scientists receiving Federal research training assistance.
Social Security Administration (SSA)
A sequester in SSA's Limitation on Administration Expense account would force SSA to postpone
new hiring and training, defer most work not directly related to paying and processing benefits (such
as issuance of Personal Earnings and Benefit Statements to young workers and reconciling discrepant
wage records of young workers), slow down contract payments and other deferable payments, and
postpone nearly all automation system upgrades. All of these steps would affect service over time,
but not immediately.
After taking these initial cost savings steps, SSA would be forced to slow down or divert staff
resources from non-payment related services. For instance, SSA might be forced to focus resources
on taking initial applications for social security benefits and to close portions of the 800 number
telephone service for a period during the year. SSA would also cut back significantly on monitoring
of the benefit rolls (such as evaluations of continuing disability and eligibility for Supplemental
Security Income-SSI) which would increase overpayment of benefits that may be difficult to collect.
Even with these cost savings steps. SSA would be forced to develop priorities for claims related
applicants
deferring
or
try
persons
with
means
togo
income
retirement
applications.
Punely ment of Social Security and Supplemental Security Income benefits to Bome firw
applicants could be threatened. SSA would likely be able to continue to pay benefits to currently
26
entitled persons, although any post-entitlement changes, such as new addresses, would probably be
deferred or significantly slowed. New applicants, however, might have to wait longer to get their first
monthly checks.
In addition to reducing Federal staffing available to process work, a sequester of this size would
force a significant reduction in the administrative budget available for State agencies determining
disabilities for SSA. These agencies, which are budgeted to receive $800 million in 1991, make all
initial disability determinations. A reduction in their resources could slow their processing of disability
decisions.
Social Services
A sequester would result in: (1) a reduction of $715 million from the budget for Head Start (this
would fund the enrollment of 208,400 fewer poor four-year-old children from the planned 548,400);
(2) a reduction of $163 million from the budget in grants to support meals for the elderly (this would
fund 106 million fewer meals from the planned 258,740,000); and (3) a reduction of $1,065 million
from the budget for the Social Services block grant that would require States to decide whether to
make across-the-board cuts, redistribute reductions among all service areas, or eliminate certain
service categories and maintain others at current funding.
Department of Housing and Urban Development (HUD)
A sequester would:
Reduce funds available for the extension of expiring housing contracts to a level that might
cause some low-income families to lose their housing assistance and possibly become homeless.
Cut the number of new subsidized households assisted from 82,000 in the budget to 45,000
after the sequester.
Force some public housing agencies (PHA's) to discontinue their efforts to eliminate drugs in
public housing, defer regular maintenance on the housing stock, increase future modernization
costs, and possibly threaten the health and safety of residents.
Delay and hamper efforts to help end homelessness. Funding would be below 1990 and far
below the levels authorized in the McKinney Act. Long term solutions to aid the homeless
would be prevented.
Delay efforts to assist tenants adversely affected by prepayment of HUD subsidized mortgages.
Eliminate proposed improvements in the oversight and monitoring of HUD funds and jeopardize
recent improvements. These improvements are aimed at reducing waste, fraud, and abuse in
multi-billion dollar HUD programs.
Impair management of HUD's programs because of a lack of staff-instead of focusing on
improvements in monitoring and internal control systems, HUD officials would need to manage
staff furloughs to stay within constrained funding. Such furloughs would increase further the
risk of waste, fraud and abuse in these multi-billion dollar programs.
Delay the approval of housing construction projects due to insufficient staff.
Department of the Interior
Bureau of Indian Affairs (BIA)
A sequester would reduce funds from the 1991 request for BIA elementary and secondary school
operations by $2,200 per Indian student. At least half (about 80) of BIA's schools would close and the
school year would have to be shortened for the remaining schools.
One of BIA's two post-secondary schools would close entirely. The remaining school would have
to operate with a shortened school year. All capital expenditures on facilities improvements would be
deferred. Aid for post-secondary education would be unavailable for 6,100 Indian students (a 44
27
percent reduction from the 1991 request). Vocational education training would be denied to 1,300
Indian students.
Funding for the BIA general assistance (welfare) program would be reduced by $20 million below
the request. This would prevent the BIA from making assistance payments for almost five months
during the year to an estimated 50,000 needy individual Indians.
Bureau of Land Management (BLM)
A sequester would curtail on-the-ground management of public lands, including inspection and
enforcement of mining and mineral leasing operations, grazing, timber, recreation, wilderness, and
wildlife programs. Reduced inspection of mineral leases would result in reduced revenues from Indian
and Federal leases. A major automation initiative, the Automated Land and Mineral Records System
(ALMRS) that is part of BLM's integrated Modernization effort, would be postponed, and hazardous
materials management inventory and cleanup efforts would be drastically reduced on 270 million
acres of public land managed by BLM in 28 States. Also, discretionary fire fighting pre-suppression
activities would be cut back, possibly increasing the ultimate cost of emergency fire suppression
operations.
The America the Beautiful initiatives for BLM, including Recreation 2000 and Wildlife 2000,
would effectively be shut down. BLM's increased drug eradication and interdiction program could not
be supported. Land acquisition, maintenance and construction projects would be cut in half. The
ability to offer allowable cut timber volumes in western Oregon would be greatly reduced, thereby
significantly reducing receipts and payments to Oregon and California counties.
Bureau of Reclamation
A sequester would result in no new contract awards to continue work on water projects currently
under construction and no major rehabilitation or improvement work at existing projects. Further
adjustments would be required, including the termination of contingent construction contracts (with
payment of penalties) for existing projects. This would lead to delays in the completion of projects,
the realization of project benefits, and, in some cases, the initiation of project repayment.
Routine preventive maintenance efforts at dams, pumping plants, canals, and other project
features would be curtailed, as necessary, in order to continue the operation of project facilities. This
might result in higher project maintenance and repair costs in future years. Operations at some
existing projects might be curtailed due to a lack of funds for repairs or required maintenance to
ensure safe operation of project facilities.
Fish and Wildlife Service (FWS)
A sequester would not permit nine new National Wildlife Refuges to open in 1991 as planned,
100 refuges would be placed in caretaker status, law enforcement activities associated with drug
control on FWS lands would be severely curtailed, funding for FWS America the Beautiful land
acquisition and resource protection initiatives would be drastically reduced, and the North American
Waterfowl Management Plan (that provides the focal point for the restoration of North American
waterfowl populations) would not be implemented.
Other examples would be: (1) planned acquisition of water rights to help restore the important
Stillwater National Wildlife Refuge in Nevada would not be implemented; (2) FWS would not meet
its planned target of restoring some 13,000 acres of high priority wetlands; (3) at least 15 national
fish hatcheries would have reduced operations and curtailed production, and several hatcheries would
be closed; (4) the environmental contaminants program would be adversely affected, resulting in
reduced contaminant clean-up on FWS lands; and (5) substantial funding to States would be delayed
for one year for the Wallop-Breaux and Pittman-Robertson fish and wildlife programs.
28
Genlegical Survey
A sequester would adversely affect operation of the Global Climate Change Research program;
National Water Quality Assessment program, designed to determine the status and trends of the
Nation's ground and surface waters, and which would not become operational in 1991 as planned;
and the Advanced Cartographic System (ACS), an effort to develop and implement a new, state-of-the-art
regraphic data collection, analysis, and presentation system.
Ongoing programs adversely affected would be geologic and mineral resources investigations,
including important studies in earthquake and volcano hazards and energy resources assessments.
The collection and analysis of water resources data would be lessened, possibly resulting in voids in
various databases or delays in research dependent on such information.
Operation of approximately 675 water quality streamflow stations would be discontinued in the
F. deral Data Collection and Analysis program. Approximately 3,000 water quality streamflow gauges
.....1 as many as 180 cooperative investigations would have to be discontinued in the Federal-State
perative Data Collection and Analysis program. The grant to each of the 54 State Water Resources
search Institutes would be significantly reduced.
Historic Preservation fund
A sequester would translate into smaller grants to State historic preservation offices and to the
National Trust for Historic Preservation. Some grants might be eliminated. Fewer properties would
in nominated to and placed on the National Register of Historic Preservation; efforts to ensure that
State and local development planning and permitting recognize historic values would be reduced; and
he visitation to National Trust properties might be curtailed. Efforts that now help to ensure that
1.:31 planning and permitting recognize historic values would be eliminated.
Minerals Management Service
A sequester would cause major reductions to the auditing staff and reduce the accuracy of revenue
collections of royalties from minerals production on Federal lands. Revenues would be reduced due
:- an inability to audit royalty collections effectively. In addition, there would be a reduction in
inspection staff and helicopter support needed to enforce safe and environmentally sound operations
if outer continental shelf oil and gas operations. Revenues would be reduced due to the cancellation
.1 new off-shore oil and gas leasing. Environmental studies and lease preparation activities would be
curtailed, leading to further delays in off-shore leasing.
National Park Service (NPS)
A sequester would severely and adversely affect NPS's ability to keep parks safe and open to the
cusiting public. Park operating funds would be reduced to levels available in the mid-1970's. There
has been significant expansion of the park system since that time. Many of these newer and smaller
...... would be closed to permit the "Crown Jewels" (e.g., Yellowstone, Yosemite, and the Grand
Junyon) to remain open to the public. Funding for regional repair and rehabilitation programs would
in cut to focus only on emergencies. Resource protection efforts would be continued at a suitable level
some areas, while other areas would be essentially closed until greater resources became available.
Seasonal hiring would be eliminated and hundreds of park rangers and maintenance staff would
in furloughed. All back country areas would be closed to hikers and campers because there would be
one to patrol the areas. Park Police efforts in urban parks, including drug law enforcement, would
in substantially curtailed. Discretionary ecological research projects, such as the effects of acid rain
and aircraft noise studies, would be suspended.
The America the Beautiful initiative for NPS covering land acquisition, resource protection, and
recreation enhancement would be severely curtailed.
Office of Surface Mining Reclamation and Enforcement (OSM)
A sequester would lead to reduced inspections for surface mine land reclamation activities and
oversight of State inspection activities. Reductions in State regulatory grants would endanger the
primacy of State oversight programs. OSM's ability to respond to emergency reclamation needs through
its emergency reclamation program would be limited. This could lead to increased risks to the health
and safety of miners and communities experiencing emergency reclamation requirements.
Payments to States by the Minerals Management Service
A sequester would delay a portion of the payments due to 27 States (primarily in the West) until
1992 and disrupt planned activities. States might not have adequate funding for schools, roads, and
emergencies.
The impact on the six largest payments would be:
(In millions of dollars)
1991
Post
Budget
Reduction
Sequester
Wyoming
$202
-$77
$125
New Mexico
101
-38
63
Utah
61
-23
38
Colorado
37
-14
23
California
28
-11
17
Montana
23
-9
14
21 Other States
31
-12
19
Total
483
-184
299
Department of Justice
Drug Enforcement Administration (DEA)
A sequester would eliminate 1991 program enhancements, thereby crippling this element of the
President's drug strategy. Across-the-board reductions to domestic marijuana eradication programs,
State and local task forces, foreign cooperative investigations, domestic enforcement programs, and
intelligence activities would also be required. Training for State and local police officers and imple-
mentation of the Chemical Control and Trafficking Act would also be curtailed. Further, planned
purchases of investigative and automated data processing equipment and some major computer
contracts would be canceled.
In some cities and rural areas, DEA would simply have no presence. Foreign support would be
spread so thin that cooperative efforts with foreign governments would be hindered and the security
of our agents would be at great risk. All State and local programs such as task forces, training, and
laboratory support would be eliminated. The result might be increased drug trafficking because drug
dealers are quick to notice the level of effort expended by the Federal Government on law enforcement.
Federal Bureau of Investigation (FBI)
A sequester would leave all 1991 program enhancements unfunded. Funding for the President's
Financial Fraud and Crime Initiative packages implemented in 1990 would be reduced. Prosecution
of those who have perpetrated savings and loan institutions fraud would be slowed. New investigative
programs such as white collar crime investigations aimed at procurement fraud, and investigations
of Asian organized crime would be severely impaired. The foreign counterintelligence and drug
programs would be diminished substantially. Specifically, the anticipated completion of white collar
crime investigations would likely drop by 25 percent (1,000-plus fewer convictions) from planned 1991
levels. The FBI's efforts directed at Asian groups would not advance in 1991 while current investigative
efforts would be cut in half. Investigations into La Cosa Nostra and other major organized crime
30
groups would be cut by 20 percent from planned 1991 levels. Major equipment purchases affecting
for State and local officers would also be curtailed.
the fingerprint automation and field office management system programs would be canceled. Training
Priority investigative programs and those in which the FBI has sole law enforcement jurisdiction
would be affected. As all equipment purchases would be foregone, agents would be inadequately
equipped to use the sophisticated investigative techniques required for complex cases. Continued use
of obsolete protective equipment would expose agents to possibly dangerous situations. The FBI would
be unable to provide adequate support for automated data processing and telecommunications oper-
ations integral to information collection and analysis in support of investigative operations. All State
and local programs, such as the Uniform Crime Report publications, laboratory analysis of evidence,
and fingerprint identification work, would be halted. It is also likely that crime and foreign intelligence
activities would increase during this period as the deterrence factor decreases.
Federal Prison System (FPS)
A sequester would prevent newly constructed prisons with 3,315 beds from becoming operational,
and force FPS to move 6,595 prisoners out of non-Federal contract facilities and into its already
overcrowded facilities, increasing overcrowding to well over 89 percent from the current level of about
70 percent. It would eliminate the staff increases (2,000 work years) necessary to address inadequate
staff levels, and require furloughing 5,600 employees. This would eliminate staff training, greatly
reduce FPS's administrative efforts, and reduce the quality and amount of food and medical services,
inmate security, and inmate supervision.
Virtually every program available to inmates within the prisons (e.g., rehabilitative and educa-
tional) would be eliminated, thereby causing FPS to "lock down" all institutions and inviting inmate
idleness, violence, and court intervention.
Immigration and Naturalization Service (INS)
A sequester would prevent INS from hiring 200 new Border Patrol staff and building new traffic
checkpoints to intercept drug and alien smugglers that are important elements of the President's
drug strategy. Such a funding level would hamper INS's border enforcement activities, processing of
travelers across our land borders, and efforts to deter illegal immigration through detention of aliens
and enforcement of employer sanctions. Such massive cutbacks would be likely to lead to major
influxes of illegal aliens that were common prior to the enactment of the Immigration Reform and
Control Act in 1986.
Even basic operations would be seriously impacted. Reductions in enforcement activities would
immobilize operations and seriously jeopardize the ability of the INS to stem the flow of illegal aliens
and the ever-increasing flow of illegal drugs. The ability of INS to detain and process criminal aliens
apprehended by the Border Patrol would be constrained because of a lack of detention officers and
funding to operate detention facilities. Investigations of major alien smuggling operations would be
seriously reduced. Major backups would be experienced at ports-of-entry. Backlogs in processing of
refugee and asylum applications as well as adjudication requests would be inevitable.
U.S. Attorneys' Office
Reduced staff resulting from a sequester would prevent litigation of any cases that would have
been litigated as a result of increased resources provided for the crime and financial institution fraud
initiatives in 1990. Specific areas that would be affected are prosecutions of narcotics cases, bankruptcy
and procurement fraud cases, and other criminal fraud prosecutions.
U.S. Attorneys would be forced to abandon almost 25 percent of all ongoing litigation designed
to obtain criminal convictions against violators of substance abuse, immigration and civil rights laws,
organized criminal groups, and tax evaders. Attorneys would slow down efforts to recover monies
from failed institutions resulting from saving and loan and bank fraud violations. All ongoing activities
for collecting monies owed to the Government would be limited. Litigation designed to defend the
Government from substantial monetary losses as a result of other types of fraud would be reduced.
31
Department of Labor
A sequester would have the following effects on Department of Labor (DOL) programs, compared
with the 1991 request:
Some 8,000 work years would be lost across all DOL agencies, requiring reductions-in-force in
all enforcement programs. Among other effects, some 29,100 fewer work places would be
inspected by the Occupational Safety and Health Administration, 27,400 fewer mine inspections
would be initiated, increases for improving pension oversight as well as some base funding
would be eliminated, and DOL's ability to maintain its core national labor force statistical series
would be in jeopardy.
In the DOL State grant programs area, States would close 250 or more of the 1,900 local offices
that process walk-in unemployment insurance claims and provide employment services. Staff
at remaining offices and operating hours would be reduced. Claims delays would be univer-
sal-taking up to five days in some areas; States would divert any remaining resources from
program integrity efforts and devote them to processing claims. The quality control program
would be abandoned.
For the Job Corps, the sequester would mean reducing the program by up to 15,600 slots. This
could require closing about 39 of the existing 107 Job Corps centers, reducing the number of
centers to 68. Work on acquiring and operating the six new centers mandated by Congress
would have to cease if current centers have to be closed. As a result, no funds would be available
to operate the two new centers scheduled to open in 1991, while plans to open two new centers
in 1992 and 1993 would be postponed or curtailed. The Job Corps anti-drug initiative would
be canceled.
Some 141,000 fewer participants would be served in the President's Job Training Partnership
Act (JTPA) training program for severely disadvantaged adults and 260,000 fewer low-income
young adults would be enrolled in the new initiatives targeted on this at-risk group. Participation
in each program would drop by about 38 percent. Implementation of the President's new JTPA
initiative would be curtailed. About 91,000 fewer displaced workers would receive readjustment
assistance in JTPA's dislocated worker program.
Approximately 21,500 fewer subsidized job slots for low income persons age 55 and older would
be financed in the Older Americans Employment program, representing a 38 percent cut in
program participation.
Department of State
Under a sequester in operations accounts, large infrastructure related projects, such as construction
of the new Foreign Service training facility would stop, and procurement and maintenance would be
eliminated. Maintenance at over 2,200 Government-owned and long-term leased properties overseas
would fall below minimum levels, and the Department would be forced to defer the foreign affairs
community's high priority telecommunications enhancement (DOSTN) as well as important consular,
procurement, accounting and finance computer upgrades. In addition, nine embassy construction
projects at high threat posts planned to begin in 1991 would be put on hold because of a lack of
construction security funds, and plans for new construction projects would be eliminated. Major
rehabilitations of four high priority posts would also be deferred.
The Department of State would be required to either close, or significantly reduce staffing in,
the majority of its over 240 overseas missions. Except in a few critical instances, most diplomatic
reporting and representational activities would stop. Public oriented activities such as consular and
visa services and trade promotion programs would either cease or be limited to only emergency
situations. Services to the public from Washington and other domestic offices in areas such as passport
issuances, munitions licensing, Freedom of Information requests, and export promotion would either
cease or be reduced to unacceptable levels.
The security of the Department's personnel, property, and classified information would be threat-
ened by reductions in physical and technical security programs. The multi-billion dollar inventory in
overseas properties, anti-terrorism equipment, and information management systems would be left
32
vulnerable to both technical and security failures because of the lack of funds for required maintenance
and repair. Overseas inspections, including those of the newly-established Office of Security Oversight,
would be eliminated.
The State Department would be unable to meet U.S. treaty obligations for our assessed share of
the budgets of international organizations, thereby increasing total U.S. arrearages to over $1 billion.
This would likely result in the loss of our vote in some of the UN-affiliated and other international
organizations. In addition, U.S. effectiveness would be hurt in shaping the agendas of multilateral
organizations that manage programs such as nuclear energy safety, AIDS research, and the peaceful
resolution of armed conflicts in important regions of the world such as Central America and Middle
East. It would also reduce the U.S. ability to participate in the critical Conference on Security and
Cooperation in Europe (CSCE), "Open Skies", and other conferences that are aimed at influencing
the fundamental changes occurring in East-West relations.
Anti-narcotics efforts associated with the National Drug Control Policy in the Andean nations of
South America, overseas humanitarian assistance, and funded refugee admissions into the United
States, particularly from the Soviet Union, would be reduced. Efforts to improve anti-terrorism
programs designed to prevent the reoccurrence of disasters like that of Pan Am 103 would be hindered.
Department of Transportation
Federal Aviation Administration (FAA)
Under a sequester, the hours of operation at virtually all airport control towers and, therefore,
the number of flights between cities, would be reduced. The air traffic control system would turn into
chaos. Reductions of this magnitude would unquestionably require the airlines to cancel numerous
scheduled flights with negative financial consequences for the airline industry. Major cutbacks in the
air traffic controller work force would produce service interruptions far more extensive than those
experienced after the 1981 strike. Delays to air travelers would increase by: 400-600 percent. Even
due to recovery problems.
worse, a major FAA cutback and disruption in 1991 would affect air travelers for at least three years
There would be extensive closure of facilities, including all contract towers. Over 100 control
towers would have to be taken out of service or the hours of operation drastically reduced. Imple-
mentation activity and training for modernization of the airspace system would be curtailed. Training
and hiring for the future air traffic control computer system would fall three years behind schedule.
Delays in repairing navigational aids would cause time-consuming rerouting of aircraft and
intermittent closure of some airports. Reductions in safety inspector and security staff, including
Federal air marshals, would result in fewer scheduled inspections of aircraft and airports.
Many major computer and radar contracts that are approaching the peak year of their delivery
schedules would be canceled or renegotiated. This would add several years to the schedule for
modernization the air traffic control system. Contract penalties due to stop-restart requirements of
the sequester would exceed $500 million. Critical technical skills would be lost for several years.
FAA also would have to postpone: (1) the replacement of various facilities, such as airport control
towers planned for San Diego, Chicago Midway, Kansas City, and Los Angeles and stall construction
already underway at Chicago O'Hare, St. Louis, and Newark; (2) upgrading computer software and
hardware used by controllers to separate aircraft, which could exacerbate the problem at some facilities
of information disappearing from controller radar screens; (3) joint development of long range radar
replacements used to ensure safe operation and separation of aircraft; (4) establishment of a voice
communications system required for the sector suite system; and (5) maintenance of many FAA
buildings and facilities, which would delay FAA work to strengthen buildings in earthquake risk areas
and to extend the service life of buildings built in the 1940's that house electronic systems. Cuts of
this size would also postpone installation of equipment needed at the new Denver airport and continued
expansion at Dallas/Fort Worth.
33
Installation of approximately 400 items of national airspace system equipment procured in
in years further would be delayed. This would jeopardize the safety of the air transportation system and result prior
delaying modernization of the system. Such delays would include the upgrade of
equipment. communications, weather information, automated data processing, and tower and en route center radar,
Critically needed airport improvement and capacity enhancement programs related to
This new capabilities directly aimed at reducing congestion in the national air system would be providing deferred.
is would include a slowdown in the interim plan to support the airspace system until modernization
completed.
presence full implementation of the recommendations of the President's Commission security
The FAA and would be unable to follow-through with current efforts to expand its overseas
required by the Drug Control Act of 1988.
Security and Terrorism would be slowed. Also, FAA would delay implementation of anti-drug on activities Aviation
Select research and development contracts would be canceled or delayed. Progress on
detection traffic control computers would be delayed by more than a year. Progress on new
for FAA air research and development programs that are directly tied to safety and capacity improvements numerous
on Airline Security and Terrorism recently urged acceleration of this research.
technology research would continue but at a much slower rate. The President's Commission explosive
Federal Railroad Administration
would track, have bridges, equipment, and operations. In addition, DOT's automated track inspection railroad
A sequester would result in a 40 percent reduction in scheduled safety inspections of
hazardous to reduce planned operations from a planned 28,500 miles to 20,500 miles on vehicle
to eliminate materials, and other priority routes. Federal oversight of the railroad industry's passenger, actions
drug and alcohol usage among railroad workers would be interrupted.
Department of the Treasury
Internal Revenue Service (IRS)
A sequester would primarily affect revenue-generating enforcement activities with
revenue of loss of $8.5 billion. The indirect effects on voluntary compliance produced by the an estimated
receive taxpayers would find it more difficult to complete their returns; 15 million fewer taxpayers precipitously would
and a faltering IRS enforcement presence would be even greater. Taxpayer service would fall perception
nentially. assistance and busy signals for those seeking assistance by telephone would increase expo-
work deferred, increasing the chance of a returns processing breakdown in the future. Returns be
All computer investments, including the critical Tax System Modernization project, would
longer than 45 days to process a refund, interest must be paid to the taxpayer. The impact of IRS the
would demand top resource priority but there would be delays in refund checks. If it processing takes
fewer sequester would greatly increase these interest payments. Tax processing errors would increase
to their employees, work. struggling to meet workload, would not be able to exercise proper care and attention as
work (e.g., returns processing for one year would not be completed before returns for the next season
The projected loss of 9,000 workers in returns processing would prevent a closure of filing
IRS arrived). Inventories of unprocessed returns would grow into subsequent years. There would be year
issues. participation in the war on drugs in order to preserve a focus on essential criminal tax fraud no
United States Customs Service
A sequester would eliminate all 1991 initiatives, including staffing for the southwest
canine enforcement teams, money laundering investigations, and financial integrity. Additionally, border,
34
staffing cuts of roughly 50 percent would be required, with commensurate declines in enforcement
and commercial program effectiveness.
In practical terms, a sequester would mean fewer cargo container inspections (36 percent less
than 1990), a 120 percent increase in delays in releasing cargo, lost tariff revenues, and fewer drug
seizures. The protection afforded domestic industry by Customs enforcement efforts would erode.
Investments in the labor saving Automated Commercial Systems (ACS) program would be postponed.
Longer passenger processing delays would occur at border crossings and airports. Many of the smaller
ports along the northern border and other locations could be closed or face curtailed service hours.
An estimated $1 billion in revenue would be lost due to lack of adequate processing controls.
Contraband entries would expand and the war against drug imports would be severely hampered.
Department of Veterans Affairs
A sequester, compared with the 1991 request, would:
Require significant reductions in purchases of medical and other supplies and equipment,
prevent the opening of new facilities, cancel 1991 initiatives (e.g., increases for drug abuse
treatment, quality assurance, physician and nurses pay), reduce medical care staff years by
15,600 or eight percent, and reduce the number of incidents of care (e.g., hospital stays and
outpatient visits) provided to veterans by 2.0 million;
Reduce operating staff associated with the Veterans Benefits Administration, the National
Cemetery System, and administrative activities, forgo scheduled computer upgrades and ac-
quisitions, and delay interments in many of the smaller national cemeteries. Staff reductions
in regional offices would be inevitable and would reduce the timeliness and quality of benefits
claims processing and the servicing of delinquent guaranteed loans below 1990 levels;
Reduce bed levels (by 350) and clinical services in all proposed construction and renovation
projects (medical centers, regional offices, and cemeteries). Project redesigns caused by reductions
in the size and scope of these projects would delay planning and construction by at least a year
and nine months and hamper the provision of quality health care to eligible veterans; and
Disproportionately reduce the contributory Montgomery bill program (because over half of the
educational programs for disabled veterans' dependents and vocational rehabilitation are ex-
empt) affecting annual benefit payments ranging from $1,300 to $2,200 to nearly 125,000
veterans and service persons.
Other Agencies
Commodity Futures Trading Commission (CFTC)
A sequester would have a devastating impact on enforcement actions, especially in light of the
recent trading abuses in the Chicago futures markets. This would permit only 79 enforcement actions
to be completed compared to 124 in 1989, a reduction of 64 percent. Market surveillance would be
reduced by 25 percent at a time when additional surveillance is needed to protect hedging and pricing
functions of these markets. There could be increased commodities fraud as no new enforcement actions
would be undertaken. The result would be a less competitive market environment with less protection
for market participants. For example, family farmers who forward price their products with county
grain elevators would be exposed to greater market risks. CFTC's overall program output would be
reduced by one-half, reversing actions to increase and strengthen CFTC's regulatory capacity.
Environmental Protection Agency (EPA)
The major impacts of a sequester would be:
Severe reductions in State environmental programs, which typically receive half their funding
from EPA grants;
Cancellation of EPA's wetlands initiatives;
35
A decreased level of corrective actions undertaken at operating hazardous waste facilities at a
time when EPA will be responsible for an expanded universe of regulated facilities and hazardous
substances;
Delays in the development of regulations and inability to meet court-ordered deadlines for
various regulations;
Reduced information made available to the public because of reductions in automated data
processing funding;
Severe limitations on EPA's ability to implement the new Clean Air Act amendments. EPA
probably could not meet the first year deadlines in the Clean Air Act amendments and technical
and financial assistance to States to implement the amendments would be severely restricted;
Halting all new Superfund cleanups, undermining the public's confidence in Federal clean-up
efforts; and the Government's leverage to make the polluters pay. Decreased enforcement and
fewer cleanups funded by responsible parties, and more fund-financed cleanups. Lower cost
recoveries would prevent the fund from being replenished;
Severe slippage in numerous Clean Water Act requirements, including monitoring of water
quality, issuance of National Pollutant Discharge Elimination System (NPDES) permits, and
development of water quality criteria;
Serious delays in the cleanups of specific bodies such as the Great Lakes, the Chesapeake Bay,
and the 17 estuaries in the national estuary program;
Reduction of 50 percent in air pollution enforcement activities such as stationary source in-
spections, notices of violation, administrative orders, and civil and criminal litigation; and
Curtailed analysis of Toxic Release Inventory (TRI) reports, delay availability of the TRI data
base to the public, reduce resources available for data quality assurance, and eliminate en-
forcement actions against non-reporters.
Judicial Branch
A sequester would have the following effects:
30 percent of Federal defenders' cases and 100 percent of panel attorney cases would be dismissed
for failure to provide counsel, or counsel would be appointed without compensation;
3 percent of the estimated payments committed to pay panel attorneys for prior year case
assignments could not be paid;
Inmates filing new death penalty habeas corpus petitions would not have their cases reviewed
by a Federal court, or counsel would have to be appointed without compensation;
Funds would not be available for fees of jurors for civil trials, denying the public their right to
a civil jury trial;
Funds would not be available for fees of jurors for approximately two months of the year for
criminal trials;
The community supervision programs of the probation system would suffer the burden of
personnel shortages; 52 percent of the offenders in these programs would not have their
supervision enforced;
Testing and treatment of 19 percent of drug offenders would be terminated; and
Expansion of home detention (electronic monitoring) of offenders could not be accomplished
resulting in increased jail costs.
A sequester would cause a major restructuring of all NASA activities. The Space Station would
be canceled (with a termination liability of about $600 million). In space science, technology and
aeronautics, the Moon/Mars Initiative and Mission to Planet Earth would be deferred and two to
36
three major science projects under development would have to be canceled (e.g., Comet Rendezvous/As-
teroid Flyby, Advanced X-Ray Astrophysics Facility). In addition, reductions would have to be made
in the operations support for spacecraft (e.g., Magellan mission to Venus). With the exception of critical
safety-related items, all facility construction and renovation would be stopped.
The 10 planned Shuttle flights during 1991 would be postponed or canceled. The eleven missions
planned for 1992 would also have to be postponed or canceled, effectively suspending Shuttle operations
until 1993. (Recovery from this suspension would entail a re-hiring and recertification of the contractor
work force.) The purchase of critical spare parts, the development of the Advanced Solid Rocket Motor,
and the procurement of expendable launch vehicles would be terminated. All planned safety improve-
ments to the Shuttle would be deferred. Additional terminations or postponements would include all
shuttle engine ground testing, all orbiter modifications, all planned Shuttle equipment upgrades, and
all procurement of upper stage rockets and payload operations. Engineering laboratories and on-line
Shuttle facilities would be placed on a "caretaker" status.
National Science Foundation (NSF)
A sequester would terminate support to roughly 28,000 individuals, including senior investigators,
graduate and undergraduate students, pre-college teachers, and high school students. In addition, it
would defer or terminate all new initiatives and many existing programs, including Science and
Technology Centers, Engineering Research Centers, precollege education programs, graduate fellow-
ships, and global change research. It would shut down the U.S. Antarctic program for 1991 operations
and defer or terminate any remaining activities in the economic competitiveness and human resources
areas.
Office of Personnel Management (OPM)
A sequester of OPM's civilian retirement obligation limitation would: (1) increase existing backlogs
in death claims, refunds, and initial annuity payout processing (currently, the initial annuity payment
can take as long as six to nine months and lump-sum refunds about 3 months to process) and would
likely extend by three to six months the processing of initial annuity and lump-sum payments; (2)
stall design and development of the automated Federal Employees' Retirement System (FERS) project
that is meant to automate FERS retirement processing and definitely push into 1992 or beyond the
major start-up activities for the FERS automated record keeping system. This would result in the
continuing build-up of paper records for the FERS system similar to what exists for the Civil Service
Retirement System.; and (3) force cutbacks in essential processing staff training and quality assurance
activities.
OPM would eliminate all 1991 initiatives including funding for the Public Policy Scholarship,
training for front-line workers, and the Commission on the Public Service. The Presidential Manage-
ment Intern Program would not be permitted to double in size as was authorized by Executive Order.
It would eliminate OPM's ability to implement pay reform, would cut current staffing levels, and
require the consolidation of area offices and the deferral of the acquisition of new computer equipment.
The backlog of National Agency Checks and Investigations would increase by about 32,000 cases as
OPM would not be able to provide timely investigations for agencies.
OPM would lose oversight and evaluation capacity and staffing research and development.
OPM's retirement and insurance functions would probably not possess the level of resources for
account maintenance activities, to carry out its fiduciary responsibilities, or to provide a minimally
acceptable level of services to its beneficiaries.
Civilian retirement claims processing reductions would put in jeopardy the timely payment of
monthly annuities to 2.2 million Federal civilian retirees. The typical annuitant receives a monthly
annuity of approximately $1,450 ($17,400 per annum) and may have no other source of retirement
income. Delays in the payment of annuities could prevent annuitants from being able to finance their
basic necessities.
37
Retirement and insurance processing times for interim payments, annuity cases, death cases and
refund claims would double and triple. Workload balances for annuity, death, refund and deposit
claims, annuity roll maintenance, and health benefits disputed claims would increase three- to ten-fold.
Congress and senior citizen advocates would strongly object to delayed processing of monthly
annuity checks. The lengthy delay in processing initial annuity payments would directly conflict with
an Administration goal and a President's Commission on Management Initiatives commitment to
expedite new retiree initial annuity payments.
Reductions in the Government Payments for Annuitants would prevent payment of the
Government's share of health premiums. A cut in enrollee payments might occur.
Front-line training initiatives would be eliminated. The time needed to fill agency job requests
would double or triple, and the Presidential Management Intern Program and other entry-level
programs designed to bring new talent into the Federal Government would be eliminated.
The time needed to process special rate requests would more than double and compliance activity
and work on classification standards would be cut by half. This would result in less qualified staff
Government-wide, thus severely degrading the quality of products and services.
OPM could not pay the Federal Employee Health Benefit carriers the Government share of
employee health insurance premiums. The result would be a cut in enrollee benefits. Reductions in
the Government Payment for Annuitants would result in the Government being negligent in meeting
its statutorily required payment on behalf of annuitants.
Railroad Retirement Board
A sequester would reduce railroad retirement supplemental annuities by $34 million. Supplemental
annuities are paid to roughly 200,000 rail retirees who have 25 or more years of railroad service.
Railroad unemployment and sickness insurance benefits would be reduced by $40 million from the
estimated $105 million. The reduction would affect the welfare of 60,000 railroad workers dependent
on unemployment and sickness benefits.
Small Business Administration
A sequester would force as many as 40 field offices to close. Small Business Assistance and
Advocacy programs, including programs for the promotion of minorities, women and international
trade assistance, would be sharply curtailed. Lending and surety bond program levels would be
reduced by more than $2.1 billion.
38
VI. POTENTIAL EFFECTS OF $100 BILLION SEQUESTER
If the Budget Summit negotiations do not produce a satisfactory deficit reduction program, a
large sequester will ensue. With that possibility in view, this section discusses the sequester calculations
and the potential effects of a 1991 sequester of $100 billion.
For purposes of determining the sequester amount, it seems reasonable to assume the continuation
of the food stamp program, and a return to normal operating levels for the Census Bureau. Spending
from the Resolution Trust Corporation (RTC), however, including administrative expenses and interest
payments to the Federal Financing Bank, is excluded from the baseline totals at this point-in part
because current law limits total RTC spending and in part because many believe that RTC expenditures
should be excluded from G-R-H sequester calculations. Under these assumptions, the adjusted baseline
deficit would be $168.8 billion in 1991, $104.8 billion above the $64 billion deficit target required by
the G-R-H law. Thus if no additional policy actions were taken to reduce this adjusted baseline deficit
before the initial sequester report is issued on August 25th, the President must issue an order to
withhold roughly $100 billion effective October 1st. If no policy actions were taken before the final
sequester report is issued on October 15th, a sequester of roughly $100 billion would be required. (If
RTC were authorized to spend more, and if such expenditures were included in the sequester calculation,
the likely sequester would exceed $150 billion.)
Sequestration Calculations
Reductions associated with a $100 billion sequester would be determined using the following
steps, as shown in Table 11.
Table 11. MID-SESSION REVIEW:
SEQUESTRATION CALCULATIONS FOR 1991
(Outlays in billions of dollars)
Outlays
Required deficit reduction (assumed as of July 15, 1990)
100.0
Defense (military personnel sequestered): 1
Total required reductions
50.0
Estimated outlays associated with across-the-board
sequesterable budgetary resources
198.8
Uniform reduction percentage
25.1%
Nondefense:
Total required reductions
50.0
Estimated savings from automatic spending
0.1
Estimated savings from special rules
1.8
Amount remaining to be obtained from uniform percent-
age reductions of budgetary resources
48.1
Estimated outlays associated with across-the-board
sequesterable budgetary resources 2
125.3
Uniform reduction percentage
38.4%
MEMORANDUM
Defense (military personnel exempt): 1
Total required reductions
50.0
Estimated outlays associated with across-the-board
sequesterable budgetary resources
121.1
Uniform reduction percentage
41.3%
1 Function 050, excluding FEMA programs.
2 Includes $5.7 billion in estimated 1992 outlays for CCC.
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First, one-half of the required deficit reduction, $50 billion, would be assigned to defense programs
(budget accounts in the national defense function, 050, excluding the Federal Emergency Management
Agency) and the other half to nondefense programs.
Second, savings from eliminating automatic spending increases in three specific programs (the
National Wool Act, the special milk program, and vocational rehabilitation) would be applied to the
required reduction in outlays for nondefense programs. Savings from eliminating these adjustments
would be $58 million.
Third, the amount of outlay savings to be obtained by applying four special rules would be
calculated. These special rules are for guaranteed student loans, foster care and adoption assistance,
medicare and certain other health programs. The estimated savings from these special rules, $1.8
billion for 1991, would be applied toward the required spending reductions in nondefense programs.
The reductions in defense programs and remaining reductions in nondefense programs would be
taken on a uniform percentage basis, computed separately for each category. Under the adjusted
baseline estimates, the uniform percentage reductions would be 38.4 percent for nondefense programs.
For defense programs, the uniform percentage reduction would be 25.1 percent if military personnel
accounts were sequestered and 41.3 percent if these accounts were exempted by the President from
sequestration.
In the event that a sequester is required, not all programs will be subject to reductions. For
defense and nondefense programs combined, about 67 percent of total outlays are associated with
budgetary resources exempt from sequestration. The burden of sequester falls on programs that
comprise the remaining 33 percent of budget outlays. Of these outlays, defense programs account for
47 percent, special rule nondefense programs for 25 percent, and other nondefense programs account
for 28 percent.
Programmatic Impact of a $100 Billion Sequester
In addition to the sequester effects described for individual programs that follow, most, if not all,
Federal agencies would be forced to reduce staff costs through reductions-in-force, furloughs, and
hiring freezes.
Reductions-in-force are required to be implemented in an orderly way, generally using the criteria,
within Federal job classifications, of abolishing positions, thereby terminating the employment of the
most junior and non-veteran employees first. Severe reductions-in-force (of the size necessary under
this sequester) also can affect senior employees whose jobs are abolished. These employees may then
"bump" more junior employees in other job classifications for which the senior employee is qualified.
Furloughs involve telling employees not to come to work for a certain length of time and then
not paying them for that time period (e.g., involuntary leave without pay). By law, military personnel
cannot be furloughed.
Hiring freezes result in the random loss of employees and frequently the loss of the most critical
specialties and the creation of imbalances within an organization.
Legal requirements, the regulations of the Office of Personnel Management, and labor-management
agreements must be followed in administering both reductions-in-force and furloughs. In order to
yield any savings, the reduction-in-force process should begin at the time of the initial sequester
report on August 25th or not later than the issuance of the final sequester report on October 15th.
Termination expenses (payments for unused annual leave, return of retirement contributions, unem-
ployment compensation payments, etc.) offset the savings made possible by discontinuing employment.
Separating a person at the beginning of the year on average saves only $11,500 or 35-40 percent of
compensation and benefits during the first year after a reduction-in-force. In subsequent years, the
former employees' full compensation and benefits would normally be saved. On this basis, the separation
of 100,000 employees through a reduction-in-force would save only $1.1 billion in 1991. Many thousands
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of dependents, businesses, and creditors who depend upon the income and purchasing power of Federal
employees would be hurt by these actions.
Agencies also would reduce travel, training, printing, contractual services, and supply and equip-
ment purchases. Those employees who remained would be hampered in their efforts to enforce the
law, carry out agency missions mandated by law, and supply previous levels of services not only
because of the reduced number of personnel, but also because of organizational disruptions created
by adverse personnel actions and by the lack of non-personnel resources.
While the description of the effect of the sequester by program that follows is extensive, it is not
comprehensive and is intended for illustrative purposes only.
Department of Agriculture
Commodity Credit Corporation (CCC)
A sequester applies to CCC cash deficiency payments and commodity loan programs by crop year.
Based on projected 1991 crop year cash deficiency payments of $7.1 billion, a sequester would require
a reduction of $2.7 billion in deficiency payment outlays in fiscal years 1991 and 1992. The value of
1991 crop loans estimated in fiscal years 1991 and 1992 is $6.0 billion. Checks written during harvest
time to farmers who place crops under loan would be reduced by about $2.3 billion in 1991 and 1992.
Reductions 1992. in CCC outlays, net of loan repayments would be $3.9 billion during fiscal years 1991 and
To illustrate the wide-spread impact of a sequester, note that approximately 300,000 commodity
loans and 9,000,000 deficiency payments are currently issued through the CCC. For 1989 crop
programs, the following number of farms received cash deficiency payments for crops:
Cotton
100,000
Feed grains
1,100,000
Wheat
435,000
Rice
18,500
In addition, an estimated 175,000 dairy producers would face large assessments on their milk
marketings (the assessment of 10.4 cents per hundredweight of milk markets would reduce cash
receipts of dairy farmers by approximately $150 million), and 40,000 peanut farms and 424,000 tobacco
farms would be affected through loan proceeds reductions.
The average deficiency payment for the 1989 feed grain crop was $4,363, and the average for all
commodity loans was $13,771. A sequester would reduce the average deficiency payment by $1,658
and the average commodity loan by $5,233.
Conservation
The 1985 Food Security Act (FSA) established the Conservation Reserve Program. People who
agree to retire highly erodible land for 10 years receive an annual rental payment and financial
assistance in establishing a permanent cover on the land. Under a sequester, annual rental payments
due under the nearly 334,000 conservation reserve program contracts with farmers could not be paid
in full.
The FSA also established several new conservation initiatives that require Soil Conservation
Service (SCS) technical assistance. Under the law, SCS is responsible for defining highly erodible
lands (HEL) and wetlands and for helping farmers develop and install conservation plans that
producers will need if they are to continue receiving program benefits from the Department of
Agriculture. While conservation planning and HEL determinations have been completed, only about
30 percent of the measures have been installed. The law requires that producers install the approved
conservation systems by December 31, 1994. The "swampbuster" provisions of the FSA require that
SCS also conduct wetland determinations and inventories to help farmers recognize wetlands and
prevent unintentional conversions. The target date for completing the wetland determinations is
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December 31, 1991 with wetland inventories being scheduled for completion by the end of 1992. In
addition to these efforts, SCS must provide technical assistance for the conservation reserve program,
for any necessary revisions to FSA plans, and for compliance reviews to ensure that conservation
plans are properly installed.
A sequester would require that SCS emphasize meeting the provisions and deadlines mandated
by FSA at the expense of other conservation operations such as the water quality initiative, soil
mapping, and plant center renovation, which are authorized but not subject to statutory deadlines.
Even with best efforts to meet the highest priority needs, it is unlikely that many of the FSA
conservation targets could be met. Continued assistance to the nearly 3,000 conservation districts
would be jeopardized and service would be reduced at most SCS field offices. Watershed planning
and construction would be delayed or terminated for many projects that address high priority national
problem areas such as local flood control, emergency assistance, land treatment, and water quality.
Cost sharing projects would be stopped or slowed down.
Cooperative State Research and Extension
Under a sequester (that must be applied uniformly), higher priority projects could not be preserved
by applying larger reductions to (or canceling) lower priority projects. Across-the-board cuts would
reduce USDA's National Research Initiative (designed to use competitive research grants to enhance
production efficiency, food safety, and environmental quality). One important component of this ini-
tiative is an effort to map the genomes of plants to permit scientists to explore more fully the genetics
of plants. Other research that would be cut could contribute to the design of more economical production
practices and to dealing with pests and disease in ways that protect the environment. A large number
of special interest research grants and construction projects would also be affected.
Farmers Home Administration (FmHA)
A sequester would impair efforts to service FmHA's portfolio of almost $59 billion in outstanding
debt. This would reduce borrowers' chances of success in meeting their loan obligations and increase
losses to the Government. In particular, efforts to restructure about $5 billion in delinquent farm
loans. loans would be delayed, causing borrowers undue hardship and reducing the recovery value of these
Federal Crop Insurance Corporation
A sequester would reduce the funds available for commission payments on insurance policy sales
made by private insurers, causing a suspension in sales when funds run out. The reduction in the
amount of insurance sold would also reduce the premiums paid to the Government.
Federal Research (Including Buildings and Facilities)
Under a sequester (that must be applied uniformly), higher priority projects could not be preserved
by applying larger reductions to (or canceling) lower priority projects. Such reductions would reduce
USDA's Food Safety Initiative and the collection of food safety information. This information is
expressly intended for further use in setting Federal food safety policies and regulations. Other
research, such as water quality research projects included in the Water Quality Initiative and federally
sponsored human nutrition studies, also would be constrained.
The layoff of Federal scientists and technicians would impede the delivery of new technologies
to improve agricultural competitiveness and address environmental issues. Reductions in research
programs at 59 agricultural experiment stations, as well as at other colleges and universities, would
impair the ability of States to continue a full range of research to address local and regional concerns.
Most adversely affected would be the historically black 1890 colleges and Tuskegee University that
receive nearly 100 percent of their research funding from the Federal Government.
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Foreign Agricultural Service
A sequester would compromise the execution of trade policy responsibilities, including those
related to the Uruguay round during the most crucial stage of this multilateral trade negotiation.
Reductions in our overseas presence, including attaches and counselors, would impair the collection
and reporting of agricultural intelligence and the administration of export and market development
programs. Some overseas cooperator offices would have to be closed and some smaller cooperator
organizations would have to end participation in the program. Since agriculture is the one major
"positive" in U.S. trade, these reductions would have a detrimental effect on the balance of trade.
Forest Service
A sequester would severely affect the ability of the Forest Service to maintain projected targets
for recreation, wildlife and fish habitat management, and timber sales. Timber sales could decline to
below eight million board feet. Timber preparation work would be greatly reduced, reducing 1991 and
out year sales. Receipts to the Treasury and to States and counties would decline significantly.
Economic effects, particularly in the West, would be substantial.
Certain campgrounds and other recreational facilities would be closed. Services at remaining
sites would be significantly curtailed. Efforts to protect and improve habitat to achieve recovery goals
for endangered and threatened species would be substantially reduced.
No seasonal hiring would occur, further inhibiting quick response to fire fighting emergencies
and significantly curtailing services (e.g., garbage pickup and rest room cleaning) at the recreational
facilities that remain open. Road maintenance and most other field work would all but cease, resulting
in the deterioration of roads and facilities and ultimately road closures for safety concerns.
Meat and Poultry Inspection
The Federal Meat Inspection Act (P.L. 90-201) and the Poultry Products Inspection Act (P.L.
90-449) require carcass-by-carcass inspection by Federal inspectors in establishments slaughtering
food animals. All plants engaged in further processing of meat and poultry must also be inspected by
Federal inspectors, Since meat packing plants cannot operate without these Federal inspectors, the
meat and poultry slaughter and processing industry would be forced to limit or curtail production by
the same extent that inspectors are not available. The meat and poultry industry is one of the largest
in the country. It employs over 400,000 people at 7,800 meat and poultry plants and has an annual
retail value of more than $100 billion. Many thousands more people are employed in the breeding,
raising, transportation, storage, and distribution of food animals. The economic loss from any shut
down due to a sequester would result in the loss of billions of dollars to the American economy. In
addition to the economic disruption, the limited inspection coverage would erode the high level of
safety of the nation's meat and poultry products.
A sequester would result in the absence of inspection services (and the shutting down of meat
and poultry slaughter and processing plants) for about 140 days.
Quarantine and Inspection Activities
A sequester would defeat recent progress by the Animal and Plant Health Inspection Service to
eliminate pseudorabies, brucellosis, and the Russian wheat aphid. Emergency eradication of the
Mediterranean fruit fly and grasshopper would be defeated. All 39 quarantine and inspection activities
would be reduced. This would result in serious delays in import shipments of plants and animals as
well as baggage inspection for international travel. Extensive delays or disruption of service could
cause significant losses of plants and animals in quarantine or awaiting inspection. It would also
drastically reduce the number of inspections and thus increase the risk of introducing serious animal
and plant diseases and pests into the United States. Implementation of the pending regulations on
animal welfare might not be possible.
The Federal Grain Inspection Service would totally eliminate contractual research including
aflatoxin research outlined in the Administration's farm bill proposal. The Agricultural Cooperative
21
Service would not be able to conduct research studies in support of farmer cooperatives and the Office
of Transportation would not be able to assist in solving transportation problems related to agriculture.
Department of Commerce
National Oceanic and Atmospheric Administration (NOAA)
A sequester would severely impair several high priority research programs, in particular, NOAA's
contribution to the interagency U.S. Global Change Research program and the Coastal Ocean Science
program. Several major system procurement actions supporting the modernization of the Weather
Service would be canceled or deferred including such safety programs as the NEXRAD doppler radars
(that detect severe weather patterns) and the next generation of geostationary weather satellites.
It would severely reduce fisheries stock assessments and research, thereby requiring an extremely
conservative fisheries management regime including closure of certain grounds to commercial fishing.
Operations of the NOAA research fleet and air wing would be reduced to the minimum required to
support hurricane reconnaissance responsibilities. These actions would be required to ensure that
NOAA would be able to provide weather warnings and, on a less frequent basis than normal, weather
forecasts.
Department of Defense-Military
Military personnel exempted.-The President can exempt up to 100 percent of the military personnel
accounts from sequester. If he chose to do this, force readiness would be severely degraded. Because
a sizeable portion of operation and maintenance expenses are relatively fixed in the short term (e.g.,
hospitals and other required medical costs and bases that cannot be closed according to the G-R-H
law), readiness related activities (training, flying, steaming, and maintenance) could be cut by more
than 50 percent. Substantial cuts in operating rates would result. For example, the flying time for
Air Force pilots would be reduced to less than 10 hours per month (compared to the current 19.5
hours per month that is considered the minimum necessary for adequate readiness). Navy steaming
time for the deployed fleets could be reduced to less than 25 days per quarter from the normal rate
of over 50 days per quarter and many ships would rarely leave their home ports. The operating rate
reductions would require substantial adjustments in naval deployments and operations, reducing the
President's flexibility to deploy forces where needed, including drug interdiction missions. It would
also require reductions-in-force (RIFs) or furloughs of up to 80 percent of the requested level of 1.1
million civilian employees. Contractor personnel also would be reduced significantly. Roughly $8 billion
of equipment maintenance and $3 billion of real property maintenance would have to be deferred.
Modernization programs would be delayed and quantities planned for purchase would be cut.
For example, about 115 fighter aircraft could be cut from the 276 requested, six major combatant
ships could be cut from the 15 requested, and about 250 Army fighting vehicles could be cut from the
600 requested. Similar cuts would be made in all other procurement programs. Unit production costs
would increase. Research and development programs would be disrupted, resulting in delays in new
weapon programs, including high priority strategic systems.
Military personnel not exempted.-Not exempting military personnel could result in a reduction
of up to 1.0 million military, about one-half of the force. A sudden force cut of this magnitude would
severely weaken our ability to react to any major crisis-Morale and force readiness would be severely
degraded. Force structure cuts would include up to eight Army divisions (16 requested in 1991 versus
18 in 1990), the equivalent of one Marine Corps division and air wing (3 divisions and wings requested),
twelve requested). Air Force tactical air wings (24 requested), and seven aircraft carrier battle groups (14
Force readiness would be severely degraded. Because a sizeable portion of operation and main-
tenance expenses are relatively fixed in the short term (e.g., hospitals and other required medical
costs and bases that cannot be closed according to the G-R-H law), readiness related activities (training,
flying, steaming, and maintenance) could be cut by over 30 percent. Substantial cuts in operating
rates would result. For example, the flying time for Air Force pilots would be reduced to less than
14 hours per month (compared to the current 19.5 hours per month that is considered the minimum
22
necessary for adequate readiness). Navy steaming time for the deployed fleets could be reduced to
less than 35 days per quarter from the normal rate of over 50 days per quarter and many ships would
rarely leave their home ports. The force reductions in conjunction with the operating rate reductions
would require substantial adjustments in naval deployments and operations, reducing the President's
flexibility to deploy forces where needed, including drug interdiction missions. It would also require
RIFs and furloughs of up to one-half of civilian employees (requested level is 1.1 million). Contractor
personnel also would be reduced significantly. Roughly $6 billion of equipment maintenance and $3
billion of real property maintenance would have to be deferred.
Modernization programs would be delayed and quantities planned for purchase would be cut.
For example, about 70 fighter aircraft could be cut from the 276 requested, four major combatant
ships could be cut from the 15 requested, and about 150 Army fighting vehicles could be cut from the
600 requested. Similar cuts would be made in all other procurement programs. Unit production costs
would increase. Research and development programs would be disrupted, resulting in delays in new
weapon programs, including high priority strategic systems.
Department of Defense-Civil
Army Corps of Engineers
The effect of a sequester on the civil works program would be twofold: substantial reductions in
personnel in labor-intensive activities, and contract delays and cutbacks in the construction and
operation and maintenance of water resources development projects.
A sequester would require reductions-in-force (RIF) affecting some 3,300 positions. A RIF of some
980 work-years is likely for the Regulatory program and General expenses accounts. Such cuts would
require delays in some, if not all, non-cost-shared preconstruction engineering and design studies;
and handicap new partnership arrangements with non-Federal cost-sharing project sponsors.
A RIF of 450 staff years would be required in the Corps labor intensive Regulatory program
under which the Corps administers Section 404 permits for dredge-and-fill activities in wetlands and
other waters, and for section 10 permits construction and other activities in navigable waterways.
These RIF's would adversely affect support for the environmental initiative to improve permit en-
forcement and compliance.
Construction contracts on non-cost-shared projects, including seven Inland Waterways lock and
dam projects, would be delayed and in some cases terminated. Work would be postponed for previously
funded, cost-shared new starts for which a local cooperative agreement had not been executed. Some
continuing contracts for cost-shared construction projects would be terminated.
The Operation and maintenance program would experience reductions in service delivery and
increased backlogs. Specifically, the use of seasonal labor would be minimized, the recreation season
shortened, recreational and other dredging deferred, and the number of shifts employed for the
operation of the locks on the Inland Waterways System constrained. Moreover, there would be
insufficient funds available to retain the number of employees needed to safeguard public safety and
health and to assure the integrity of project operations and work placement. Recreational facilities
would be closed and maintenance for flood control and navigation projects would be cut. Revetment
(repair of embankments) of the navigation channels of the Mississippi River and its tributaries would
be reduced by over 60 percent. Reductions would be imposed on the supervision and inspection of
work placement and the engineering and design of follow-on construction contracts. Additionally, new
programmed maintenance would be deferred, including channel and harbor dredging, lock and dam
repairs, and hydropower maintenance.
Department of Education
Pell Grants
In the major discretionary student aid program, Pell grants, the 1991 request would provide an
average award of $1,443 to 3.4 million students. Under the Pell law, the reduction in the appropriation
23
is translated into award reductions in accord with a specified "linear reduction" schedule that protects
awards to the poorest students. However, a sequester above 24 percent would reach the awards to
the poorest Pell grant recipients (those with expected family contributions of $200 or less).
If these students are not protected, then a sequester would eliminate grants to 1.2 million students,
at an average grant of $1,000, and reduce all remaining grants (2.2 million recipients) by $320 each,
or 22 percent of the average grant under the 1991 request.
Department of Energy (DOE)
Atomic Energy Defense Activities
A sequester would require a delay in cleanup activities, deferral of operational safety improvements,
a decimation of the ability of DOE to support future nuclear weapons production, and a serious
detriment to our nuclear deterrent. As an illustration only, the cut would require:
A 12-month delay in cleanup activities at contaminated sites.
DOE would not be able to meet the terms of agreements with States for obtaining compliance
with environmental requirements.
Deferring the operating safety and environmental measures that are now being instituted for
assured safe operation of the tritium production reactors.
Deferring work on safety improvements at weapons production facilities and suspending pro-
duction of new nuclear weapons.
Placing all plutonium processing facilities on standby at the very time we are returning weapons
to be reprocessed due to successful START negotiations.
Deferring indefinitely all design and construction activities for new facilities, which include
improvements for environment, safety, and health deficiencies found by the DOE Tiger Teams.
Substantially reducing nuclear weapons testing, and cutting research and development by about
25 percent, which will severely imperil initiatives to enhance nuclear weapons safety.
To effect the savings, contractor employees at the shut-down and deferred facilities would have
to be laid off. Significant numbers of personnel would have to remain, however, to ensure safety and
security of facilities. The maintenance of facilities in safe and secure conditions (even with no production)
could be somewhat compromised. Rehiring of employees after such a major disruption would take
years.
This would, in essence, force the Defense Weapons complex to proceed expeditiously to shut down
all operations, and place them in as safe a standby position as possible.
Energy Conservation Grants
A sequester would reduce the number of low-income homes weatherized through the Weatherization
Assistance program from approximately 125,000 to approximately 85,000 homes. This decrease would
place increased burdens on State and local governments in the colder winter months and would create
a hardship for many poorer American families. The number of grants to schools and hospitals for
weatherization activities would be reduced by 250. Grants to States for energy conservation planning
and extension activities would also be reduced. Because a sequester must be applied uniformly, higher
priority research and development projects could not be preserved by applying larger reductions to
(or canceling) lower priority projects.
General Science Program
A sequester would force the cancellation or delay of facility upgrades at several sites by at least
a year. Start up of the Continuous Electron Beam Accelerator Facility in Virginia as well as construction
of the Relativistic Heavy Ion Collider facility at Brookhaven National Laboratory would also be
delayed. Operating levels of high energy facilities (Fermilab, Stanford Linear Accelerator Center, and
24
of the Los Alamos Meson Physics Facility) would be reduced by 50 percent or more. The impact of layoffs
highly skilled staff would take years to reverse.
accelerator Brookhaven, and the Stanford Linear Accelerator Laboratory) and at one or more of the Fermilab, smaller
It would severely reduce research productivity at all the major national laboratories (e.g.,
funding. and research facilities. University research programs would experience large cuts in
Superconducting Super Collider (SSC)
of the Superconducting Super Collider.
A sequester would severely affect the basic ongoing research programs as well as the construction
Virtually all site work, research and development on detector designs, and purchase of
from equipment for detector systems would cease. Design activities would have to be scaled back significantly capital
1990, causing personnel layoffs.
and award would be delayed at least one year. This action would increase the total cost of the magnets contract
Implementation of the magnet industrialization plan would be impossible. The magnet
significantly delay the project.
the commitment of the United States to the project and would jeopardize their participation. about The
Cuts of this size would send a strong negative signal to potential international collaborators
the sequester United would almost certainly result in no foreign contributions to SSC construction. In this event,
States would have to assume the full costs after the Texas contribution.
Department of Health and Human Services
Alcohol, Drug Abuse, and Mental Health Administration (ADAMHA) Drug Abuse Programs
to eliminated. Prevention programs for high risk youth and pregnant women would development, be unable
ment-would would be be reduced by over one-third. All new research, including medications treat-
Activities that address the demand side of the war on drugs-research, prevention, and
percent. support new grants, and the number of continuing grants could be reduced by approximately 20
of treatment slots far below Administration goals.
The Alcohol, Drug Abuse, and Mental Health Block Grant would fall sharply, reducing the number
Centers for Disease Control
disease clinics, childhood immunization grants, research on occupational safety and health, health
A sequester would cut the Preventive Health Care block grant, grants for sexually transmitted
statistics, and HIV/AIDS grants.
over 50 pertussis. Other effects include: (1) decreased support for block grants could diphtheria, eliminate
who tetanus, and not be vaccinated for polio, measles, mumps, rubella, haemophilus influenza b, children
A would sequester would sharply reduce service to the public, including approximately 1,000,000
(2) efforts percent to of States' prevention programs in tuberculosis, smoking, nutrition, and chronic
in the incidence fewer persons would be tested for chlamydia; (3) the number of births monitored gonorrhea, for and
persons 1,000,000 would be examined for syphilis, 2,500,000 fewer persons would be tested for
prevent the spread of sexually transmitted diseases would be hampered: 300,000 diseases; fewer
would of birth defects would decrease by 60,000; and (4) approximately 200 disease outbreaks changes
not be investigated.
Food and Drug Administration (FDA)
A sequester could (1) lengthen the drug review process, (2) suspend efforts to make
therapies available to patients with no therapeutic alternatives, and (3) reduce inspections experimental of foods,
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270-858 0 - 90 3 ; QL
drugs, devices, and imports. The expedited review proposed for AIDS drugs would be slowed and field
inspections and product-related research would be reduced. The number of new orphan drug grants
awarded, laboratory equipment, and automobiles necessary for field inspections would be substantially
reduced. A sequester also would eliminate proposed enhancements for seafood and generic drug
inspections.
HIV/AIDS
A sequester would seriously cripple the Public Health Service's (PHS) efforts to prevent HIV
transmission and conduct research into therapies and vaccines, reducing funding below 1989. Fewer
promising therapies could be tested, fewer education and prevention programs could be supported,
and fewer research initiatives to develop cures and therapies could be pursued. Specifically, about
400 fewer AIDS research grants could be supported, and instead of hiring the 300 additional PHS
staff requested in 1991 for fighting AIDS, staff levels probably would be reduced.
Maternal and Child Health Block Grant-Health Resources and Services Administration
A sequester would reduce these block grants $114 million below the 1986 level, and could require
the States to reduce sharply perinatal health services for pregnant women and their infants. Perinatal
services provided by the States and the ability of States to carry out new requirements contained in
the Omnibus Budget Reconciliation Act of 1989 would be severely limited. Cutbacks in perinatal
health care will have a direct effect on infant mortality and low birth weight, and will severely hamper
State efforts to establish case-management and community-based services that are accessible to the
most needy. The number of Special Projects of Regional and National Significance (SPRANS) could
be cut by a minimum of 150 (from 445). SPRANS grants focus on improved services to high risk
groups, promotion of early and continuous prenatal care, reduction in neonatal mortality, and reduced
behavioral risk activities in pregnant women.
Research at the National Institutes of Health (NIH) and the Alcohol, Drug Abuse, and Mental
Health Administration (ADAMHA)
A sequester would threaten the Federal Government's substantial commitment to pursuing new
scientific opportunities and searching for new cures and therapies and seriously curtail efforts to
invest in the nation's future health. A sequester could reduce by over 9,000 the number of Public
Health Service-supported research grants (from a total of 28,000) and cut by over 4,200 the number
of scientists receiving Federal research training assistance.
Social Security Administration (SSA)
A sequester in SSA's Limitation on Administration Expense account would force SSA to postpone
new hiring and training, defer most work not directly related to paying and processing benefits (such
as issuance of Personal Earnings and Benefit Statements to young workers and reconciling discrepant
wage records of young workers), slow down contract payments and other deferable payments, and
postpone nearly all automation system upgrades. All of these steps would affect service over time,
but not immediately.
After taking these initial cost savings steps, SSA would be forced to slow down or divert staff
resources from non-payment related services. For instance, SSA might be forced to focus resources
on taking initial applications for social security benefits and to close portions of the 800 number
telephone service for a period during the year. SSA would also cut back significantly on monitoring
of the benefit rolls (such as evaluations of continuing disability and eligibility for Supplemental
Security Income-SSI) which would increase overpayment of benefits that may be difficult to collect.
Even with these cost savings steps, SSA would be forced to develop priorities for claims related
work, perhaps trying to get benefits first to those most in need (SSI applicants) while deferring or
slowing down claims by persons with other means (high income retirement applications).
Timely payment of Social Security and Supplemental Security Income benefits to some new
applicants could be threatened. SSA would likely be able to continue to pay benefits to currently
26
entitled persons, although any post-entitlement changes, such as new addresses, would probably be
monthly checks.
deferred or significantly slowed. New applicants, however, might have to wait longer to get their first
In addition to reducing Federal staffing available to process work, a sequester of this size would
force a significant reduction in the administrative budget available for State agencies determining
disabilities for SSA. These agencies, which are budgeted to receive $800 million in 1991, make all
decisions. initial disability determinations. A reduction in their resources could slow their processing of disability
Social Services
A sequester would result in: (1) a reduction of $715 million from the budget for Head Start (this
(2) a reduction of $163 million from the budget in grants to support meals for the elderly (this would
would fund the enrollment of 208,400 fewer poor four-year-old children from the planned 548,400);
fund 106 million fewer meals from the planned 258,740,000); and (3) a reduction of $1,065 million
from the budget for the Social Services block grant that would require States to decide whether to
make across-the-board cuts, redistribute reductions among all service areas, or eliminate certain
service categories and maintain others at current funding.
Department of Housing and Urban Development (HUD)
A sequester would:
Reduce funds available for the extension of expiring housing contracts to a level that might
cause some low-income families to lose their housing assistance and possibly become homeless.
Cut the number of new subsidized households assisted from 82,000 in the budget to 45,000
after the sequester.
Force some public housing agencies (PHA's) to discontinue their efforts to eliminate drugs in
public housing, defer regular maintenance on the housing stock, increase future modernization
costs, and possibly threaten the health and safety of residents.
Delay and hamper efforts to help end homelessness. Funding would be below 1990 and far
below the levels authorized in the McKinney Act. Long term solutions to aid the homeless
would be prevented.
Delay efforts to assist tenants adversely affected by prepayment of HUD subsidized mortgages.
Eliminate proposed improvements in the oversight and monitoring of HUD funds and jeopardize
multi-billion dollar HUD programs.
recent improvements. These improvements are aimed at reducing waste, fraud, and abuse in
Impair management of HUD's programs because of a lack of staff-instead of focusing on
improvements staff in monitoring and internal control systems, HUD officials would need to
furloughs to stay within constrained funding. Such furloughs would increase further manage the
risk of waste, fraud and abuse in these multi-billion dollar programs.
Delay the approval of housing construction projects due to insufficient staff.
Department of the Interior
Bureau of Indian Affairs (BIA)
A sequester would reduce funds from the 1991 request for BIA elementary and secondary school
operations by $2,200 per Indian student. At least half (about 80) of BIA's schools would close and the
school year would have to be shortened for the remaining schools.
One of BIA's two post-secondary schools would close entirely. The remaining school would have
deferred. to operate with a shortened school year. All capital expenditures on facilities improvements would be
Aid for post-secondary education would be unavailable for 6,100 Indian students (a 44
27
percent reduction from the 1991 request). Vocational education training would be denied to 1,300
Indian students.
Funding for the BIA general assistance (welfare) program would be reduced by $20 million below
the request. This would prevent the BIA from making assistance payments for almost five months
during the year to an estimated 50,000 needy individual Indians.
Bureau of Land Management (BLM)
A sequester would curtail on-the-ground management of public lands, including inspection and
enforcement of mining and mineral leasing operations, grazing, timber, recreation, wilderness, and
wildlife programs. Reduced inspection of mineral leases would result in reduced revenues from Indian
and Federal leases. A major automation initiative, the Automated Land and Mineral Records System
(ALMRS) that is part of BLM's integrated Modernization effort, would be postponed, and hazardous
materials management inventory and cleanup efforts would be drastically reduced on 270 million
acres of public land managed by BLM in 28 States. Also, discretionary fire fighting pre-suppression
operations. activities would be cut back, possibly increasing the ultimate cost of emergency fire suppression
The America the Beautiful initiatives for BLM, including Recreation 2000 and Wildlife 2000,
would effectively be shut down. BLM's increased drug eradication and interdiction program could not
be supported. Land acquisition, maintenance and construction projects would be cut in half. The
ability to offer allowable cut timber volumes in western Oregon would be greatly reduced, thereby
significantly reducing receipts and payments to Oregon and California counties.
Bureau of Reclamation
A sequester would result in no new contract awards to continue work on water projects currently
under construction and no major rehabilitation or improvement work at existing projects. Further
adjustments would be required, including the termination of contingent construction contracts (with
payment of penalties) for existing projects. This would lead to delays in the completion of projects,
the realization of project benefits, and, in some cases, the initiation of project repayment.
Routine preventive maintenance efforts at dams, pumping plants, canals, and other project
features would be curtailed, as necessary, in order to continue the operation of project facilities. This
might result in higher project maintenance and repair costs in future years. Operations at some
existing projects might be curtailed due to a lack of funds for repairs or required maintenance to
ensure safe operation of project facilities.
Fish and Wildlife Service (FWS)
A sequester would not permit nine new National Wildlife Refuges to open in 1991 as planned,
100 refuges would be placed in caretaker status, law enforcement activities associated with drug
control on FWS lands would be severely curtailed, funding for FWS America the Beautiful land
acquisition and resource protection initiatives would be drastically reduced, and the North American
Waterfowl Management Plan (that provides the focal point for the restoration of North American
waterfowl populations) would not be implemented.
Other examples would be: (1) planned acquisition of water rights to help restore the important
Stillwater National Wildlife Refuge in Nevada would not be implemented; (2) FWS would not meet
its planned target of restoring some 13,000 acres of high priority wetlands; (3) at least 15 national
fish hatcheries would have reduced operations and curtailed production, and several hatcheries would
be closed; (4) the environmental contaminants program would be adversely affected, resulting in
reduced contaminant clean-up on FWS lands; and (5) substantial funding to States would be delayed
for one year for the Wallop-Breaux and Pittman-Robertson fish and wildlife programs.
28
Geological Survey
A sequester would adversely affect operation of the Global Climate Change Research
the National Water Quality Assessment program, designed to determine the status and trends program; of the
Nation's and ground and surface waters, and which would not become operational in 1991 as planned;
cartographic data collection, analysis, and presentation system.
the Advanced Cartographic System (ACS), an effort to develop and implement a new, state-of-the-art
including important studies in earthquake and volcano hazards and energy resources assessments.
Ongoing programs adversely affected would be geologic and mineral resources investigations,
The collection and analysis of water resources data would be lessened, possibly resulting in voids in
various databases or delays in research dependent on such information.
Operation of approximately 675 water quality streamflow stations would be discontinued in
and Federal Data Collection and Analysis program. Approximately 3,000 water quality streamflow the
Cooperative Data Collection and Analysis program. The grant to each of the 54 State Water Resources
as many as 180 cooperative investigations would have to be discontinued in the Federal-State gauges
Research Institutes would be significantly reduced.
Historic Preservation fund
A sequester would translate into smaller grants to State historic preservation offices and
be National Trust for Historic Preservation. Some grants might be eliminated. Fewer properties would to the
State nominated to and placed on the National Register of Historic Preservation; efforts to
public local visitation to National Trust properties might be curtailed. Efforts that now help to ensure that
and local development planning and permitting recognize historic values would be reduced; ensure that and
planning and permitting recognize historic values would be eliminated.
Minerals Management Service
A sequester would cause major reductions to the auditing staff and reduce the of
to collections of royalties from minerals production on Federal lands. Revenues would accuracy be reduced revenue
of inspection staff and helicopter support needed to enforce safe and environmentally sound
an inability to audit royalty collections effectively. In addition, there would be a reduction due in
of outer continental shelf oil and gas operations. Revenues would be reduced due to the cancellation operations
curtailed, leading to further delays in off-shore leasing.
new off-shore oil and gas leasing. Environmental studies and lease preparation activities would be
National Park Service (NPS)
A sequester would severely and adversely affect NPS's ability to keep parks safe and
has visiting public. Park operating funds would be reduced to levels available in the mid-1970's. open to the
units been significant expansion of the park system since that time. Many of these newer and There
be Canyon) cut to remain open to the public. Funding for regional repair and rehabilitation Grand would
would be closed to permit the "Crown Jewels" (e.g., Yellowstone, Yosemite, and the smaller
in to focus only on emergencies. Resource protection efforts would be continued at programs suitable
some areas, while other areas would be essentially closed until greater resources became a available. level
be furloughed. All back country areas would be closed to hikers and campers because there would would
Seasonal hiring would be eliminated and hundreds of park rangers and maintenance staff
be no one to patrol the areas. Park Police efforts in urban parks, including drug law enforcement, be
and substantially curtailed. Discretionary ecological research projects, such as the effects of acid would rain
aircraft noise studies, would be suspended.
recreation enhancement would be severely curtailed.
The America the Beautiful initiative for NPS covering land acquisition, resource protection, and
29
Office of Surface Mining Reclamation and Enforcement (OSM)
A sequester would lead to reduced inspections for surface mine land reclamation activities and
oversight of State inspection activities. Reductions in State regulatory grants would endanger the
primacy of State oversight programs. OSM's ability to respond to emergency reclamation needs through
its emergency reclamation program would be limited. This could lead to increased risks to the health
and safety of miners and communities experiencing emergency reclamation requirements.
Payments to States by the Minerals Management Service
A sequester would delay a portion of the payments due to 27 States (primarily in the West) until
1992 and disrupt planned activities. States might not have adequate funding for schools, roads, and
emergencies.
The impact on the six largest payments would be:
(In millions of dollars)
1991
Post
Budget
Reduction
Sequester
Wyoming
$202
-$77
$125
New Mexico
101
-38
63
Utah
61
-23
38
Colorado
37
-14
23
California
28
-11
17
Montana
23
-9
14
21 Other States
31
-12
19
Total
483
-184
299
Department of Justice
Drug Enforcement Administration (DEA)
A sequester would eliminate 1991 program enhancements, thereby crippling this element of the
President's drug strategy. Across-the-board reductions to domestic marijuana eradication programs,
State and local task forces, foreign cooperative investigations, domestic enforcement programs, and
intelligence activities would also be required. Training for State and local police officers and imple-
mentation of the Chemical Control and Trafficking Act would also be curtailed. Further, planned
purchases of investigative and automated data processing equipment and some major computer
contracts would be canceled.
In some cities and rural areas, DEA would simply have no presence. Foreign support would be
spread so thin that cooperative efforts with foreign governments would be hindered and the security
of our agents would be at great risk. All State and local programs such as task forces, training, and
laboratory support would be eliminated. The result might be increased drug trafficking because drug
dealers are quick to notice the level of effort expended by the Federal Government on law enforcement.
Federal Bureau of Investigation (FBI)
A sequester would leave all 1991 program enhancements unfunded. Funding for the President's
Financial Fraud and Crime Initiative packages implemented in 1990 would be reduced. Prosecution
of those who have perpetrated savings and loan institutions fraud would be slowed. New investigative
programs such as white collar crime investigations aimed at procurement fraud, and investigations
of Asian organized crime would be severely impaired. The foreign counterintelligence and drug
programs would be diminished substantially. Specifically, the anticipated completion of white collar
crime investigations would likely drop by 25 percent (1,000-plus fewer convictions) from planned 1991
levels. The FBI's efforts directed at Asian groups would not advance in 1991 while current investigative
efforts would be cut in half. Investigations into La Cosa Nostra and other major organized crime
30
for State and local officers would also be curtailed.
the fingerprint automation and field office management system programs would be canceled. Training
groups would be cut by 20 percent from planned 1991 levels. Major equipment purchases affecting
Priority investigative programs and those in which the FBI has sole law enforcement jurisdiction
would be affected. As all equipment purchases would be foregone, agents would be inadequately
equipped to use the sophisticated investigative techniques required for complex cases. Continued
of obsolete protective equipment would expose agents to possibly dangerous situations. The FBI would use
be unable to provide adequate support for automated data processing and telecommunications
ations integral to information collection and analysis in support of investigative operations. All State oper-
and local programs, such as the Uniform Crime Report publications, laboratory analysis of evidence,
and fingerprint identification work, would be halted. It is also likely that crime and foreign intelligence
activities would increase during this period as the deterrence factor decreases.
Federal Prison System (FPS)
A sequester would prevent newly constructed prisons with 3,315 beds from becoming operational,
overcrowded facilities, increasing overcrowding to well over 89 percent from the current level of about
and force FPS to move 6,595 prisoners out of non-Federal contract facilities and into its already
70 percent. It would eliminate the staff increases (2,000 work years) necessary to address inadequate
staff levels, and require furloughing 5,600 employees. This would eliminate staff training, greatly
inmate security, and inmate supervision.
reduce FPS's administrative efforts, and reduce the quality and amount of food and medical services,
Virtually every program available to inmates within the prisons (e.g., rehabilitative and educa-
idleness, violence, and court intervention.
tional) would be eliminated, thereby causing FPS to "lock down" all institutions and inviting inmate
Immigration and Naturalization Service (INS)
A sequester would prevent INS from hiring 200 new-Border-Patrol staff and building new traffic
checkpoints to intercept drug and alien smugglers that are important elements of the President's
travelers across our land borders, and efforts to deter illegal immigration through detention of aliens
drug strategy. Such a funding level would hamper INS's border enforcement activities, processing of
influxes of illegal aliens that were common prior to the enactment of the Immigration Reform and
and enforcement of employer sanctions. Such massive cutbacks would be likely to lead to major
Control Act in 1986.
Even basic operations would be seriously impacted. Reductions in enforcement activities
immobilize and operations and seriously jeopardize the ability of the INS to stem the flow of illegal would aliens
the ever-increasing flow of illegal drugs. The ability of INS to detain and process criminal aliens
apprehended by the Border Patrol would be constrained because of a lack of detention officers and
funding to operate detention facilities. Investigations of major alien smuggling operations would be
refugee and asylum applications as well as adjudication requests would be inevitable.
seriously reduced. Major backups would be experienced at ports-of-entry. Backlogs in processing of
U.S. Attorneys' Office
Reduced staff resulting from a sequester would prevent litigation of any cases that would have
been litigated as a result of increased resources provided for the crime and financial institution fraud
initiatives and in 1990. Specific areas that would be affected are prosecutions of narcotics cases, bankruptcy
procurement fraud cases, and other criminal fraud prosecutions.
to obtain criminal convictions against violators of substance abuse, immigration and civil rights laws,
U.S. Attorneys would be forced to abandon almost 25 percent of all ongoing litigation designed
organized criminal groups, and tax evaders. Attorneys would slow down efforts to recover monies
for from failed institutions resulting from saving and loan and bank fraud violations. All ongoing activities
collecting monies owed to the Government would be limited. Litigation designed to defend the
Government from substantial monetary losses as a result of other types of fraud would be reduced.
31
Department of Labor
A sequester would have the following effects on Department of Labor (DOL) programs, compared
with the 1991 request:
Some 8,000 work years would be lost across all DOL agencies, requiring reductions-in-force in
all enforcement programs. Among other effects, some 29,100 fewer work places would be
inspected by the Occupational Safety and Health Administration, 27,400 fewer mine inspections
would be initiated, increases for improving pension oversight as well as some base funding
would be eliminated, and DOL's ability to maintain its core national labor force statistical series
would be in jeopardy.
In the DOL State grant programs area, States would close 250 or more of the 1,900 local offices
that process walk-in unemployment insurance claims and provide employment services. Staff
at remaining offices and operating hours would be reduced. Claims delays would be univer-
sal-taking up to five days in some areas; States would divert any remaining resources from
program integrity efforts and devote them to processing claims. The quality control program
would be abandoned.
For the Job Corps, the sequester would mean reducing the program by up to 15,600 slots. This
could require closing about 39 of the existing 107 Job Corps centers, reducing the number of
centers to 68. Work on acquiring and operating the six new centers mandated by Congress
would have to cease if current centers have to be closed. As a result, no funds would be available
to operate the two new centers scheduled to open in 1991, while plans to open two new centers
in 1992 and 1993 would be postponed or curtailed. The Job Corps anti-drug initiative would
be canceled.
Some 141,000 fewer participants would be served in the President's Job Training Partnership
Act (JTPA) training program for severely disadvantaged adults and 260,000 fewer low-income
young adults would be enrolled in the new initiatives targeted on this at-risk group. Participation
in each program would drop by about 38 percent. Implementation of the President's new JTPA
initiative would be curtailed. About 91,000 fewer displaced workers would receive readjustment
assistance in JTPA's dislocated worker program.
Approximately 21,500 fewer subsidized job slots for low income persons age 55 and older would
be financed in the Older Americans Employment program, representing a 38 percent cut in
program participation.
Department of State
Under a sequester in operations accounts, large infrastructure related projects, such as construction
of the new Foreign Service training facility would stop, and procurement and maintenance would be
eliminated. Maintenance at over 2,200 Government-owned and long-term leased properties overseas
would fall below minimum levels, and the Department would be forced to defer the foreign affairs
community's high priority telecommunications enhancement (DOSTN) as well as important consular,
procurement, accounting and finance computer upgrades. In addition, nine embassy construction
projects at high threat posts planned to begin in 1991 would be put on hold because of a lack of
construction security funds, and plans for new construction projects would be eliminated. Major
rehabilitations of four high priority posts would also be deferred.
The Department of State would be required to either close, or significantly reduce staffing in,
the majority of its over 240 overseas missions. Except in a few critical instances, most diplomatic
reporting and representational activities would stop. Public oriented activities such as consular and
visa services and trade promotion programs would either cease or be limited to only emergency
situations. Services to the public from Washington and other domestic offices in areas such as passport
issuances, munitions licensing, Freedom of Information requests, and export promotion would either
cease or be reduced to unacceptable levels.
The security of the Department's personnel, property, and classified information would be threat-
ened by reductions in physical and technical security programs. The multi-billion dollar inventory in
overseas properties, anti-terrorism equipment, and information management systems would be left
32
vulnerable to both technical and security failures because of the lack of funds for required maintenance
would be eliminated.
and repair. Overseas inspections, including those of the newly-established Office of Security Oversight,
The State Department would be unable to meet U.S. treaty obligations for our assessed share of
the budgets of international organizations, thereby increasing total U.S. arrearages to over $1 billion.
This would likely result in the loss of our vote in some of the UN-affiliated and other international
organizations. In addition, U.S. effectiveness would be hurt in shaping the agendas of multilateral
organizations that manage programs such as nuclear energy safety, AIDS research, and the peaceful
resolution of armed conflicts in important regions of the world such as Central America and Middle
East. It would also reduce the U.S. ability to participate in the critical Conference on Security and
the fundamental changes occurring in East-West relations.
Cooperation in Europe (CSCE), "Open Skies", and other conferences that are aimed at influencing
Anti-narcotics efforts associated with the National Drug Control Policy in the Andean nations of
South America, overseas humanitarian assistance, and funded refugee admissions into the United
States, particularly from the Soviet Union, would be reduced. Efforts to improve anti-terrorism
programs designed to prevent the reoccurrence of disasters like that of Pan Am 103 would be hindered.
Department of Transportation
Federal Aviation Administration (FAA)
Under a sequester, the hours of operation at virtually all airport control towers and, therefore,
the number of flights between cities, would be reduced. The air traffic control system would turn into
chaos. Reductions of this magnitude would unquestionably require the airlines to cancel numerous
scheduled flights with negative financial consequences for the airline industry. Major cutbacks in the
air traffic controller work force would produce service interruptions far more extensive than those
experienced after the 1981 strike. Delays to air travelers would increase by: 400-600 percent. Even
due to recovery problems.
worse, a major FAA cutback and disruption in 1991 would affect air travelers for at least three years
There would be extensive closure of facilities, including all contract towers. Over 100 control
towers would have to be taken out of service or the hours of operation drastically reduced. Imple-
and hiring for the future air traffic control computer system would fall three years behind schedule.
mentation activity and training for modernization of the airspace system would be curtailed. Training
Delays in repairing navigational aids would cause time-consuming rerouting of aircraft and
Federal air marshals, would result in fewer scheduled inspections of aircraft and airports.
intermittent closure of some airports. Reductions in safety inspector and security staff, including
schedules would be canceled or renegotiated. This would add several years to the schedule for
Many major computer and radar contracts that are approaching the peak year of their delivery
modernization the air traffic control system. Contract penalties due to stop-restart requirements of
the sequester would exceed $500 million. Critical technical skills would be lost for several years.
FAA also would have to postpone: (1) the replacement of various facilities, such as airport control
towers planned for San Diego, Chicago Midway, Kansas City, and Los Angeles and stall construction
already underway at Chicago O'Hare, St. Louis, and Newark; (2) upgrading computer software and
hardware used by controllers to separate aircraft, which could exacerbate the problem at some facilities
of information disappearing from controller radar screens; (3) joint development of long radar
replacements used to ensure safe operation and separation of aircraft; (4) establishment range of voice
communications system required for the sector suite system; and (5) maintenance of a FAA
buildings and facilities, which would delay FAA work to strengthen buildings in earthquake many risk
and to extend the service life of buildings built in the 1940's that house electronic systems. Cuts areas of
expansion at Dallas/Fort Worth.
this size would also postpone installation of equipment needed at the new Denver airport and continued
33
Installation of approximately 400 items of national airspace system equipment procured in prior
years would be delayed. This would jeopardize the safety of the air transportation system and result
in further delaying modernization of the system. Such delays would include the upgrade of radar,
communications, weather information, automated data processing, and tower and en route center
equipment.
Critically needed airport improvement and capacity enhancement programs related to providing
new capabilities directly aimed at reducing congestion in the national air system would be deferred.
This would include a slowdown in the interim plan to support the airspace system until modernization
is completed.
The FAA would be unable to follow-through with current efforts to expand its overseas security
presence and full implementation of the recommendations of the President's Commission on Aviation
Security and Terrorism would be slowed. Also, FAA would delay implementation of anti-drug activities
required by the Drug Control Act of 1988.
Select research and development contracts would be canceled or delayed. Progress on numerous
FAA research and development programs that are directly tied to safety and capacity improvements
for air traffic control computers would be delayed by more than a year. Progress on new explosive
detection technology research would continue but at a much slower rate. The President's Commission
on Airline Security and Terrorism recently urged acceleration of this research.
Federal Railroad Administration
A sequester would result in a 40 percent reduction in scheduled safety inspections of railroad
track, bridges, equipment, and operations. In addition, DOT's automated track inspection vehicle
would have to reduce planned operations from a planned 28,500 miles to 20,500 miles on passenger,
hazardous materials, and other priority routes. Federal oversight of the railroad industry's actions
to eliminate drug and alcohol usage among railroad workers would be interrupted.
Department of the Treasury
Internal Revenue Service (IRS)
A sequester would primarily affect revenue-generating enforcement activities with an estimated
revenue loss of $8.5 billion. The indirect effects on voluntary compliance produced by the perception
of a faltering IRS enforcement presence would be even greater. Taxpayer service would fall precipitously
and taxpayers would find it more difficult to complete their returns; 15 million fewer taxpayers would
receive assistance and busy signals for those seeking assistance by telephone would increase expo-
nentially.
All computer investments, including the critical Tax System Modernization project, would be
deferred, increasing the chance of a returns processing breakdown in the future. Returns processing
work would demand top resource priority but there would be delays in refund checks. If it takes IRS
longer than 45 days to process a refund, interest must be paid to the taxpayer. The impact of the
sequester would greatly increase these interest payments. Tax processing errors would increase as
fewer employees, struggling to meet workload, would not be able to exercise proper care and attention
to their work.
The projected loss of 9,000 workers in returns processing would prevent a closure of filing season
work (e.g., returns processing for one year would not be completed before returns for the next year
arrived). Inventories of unprocessed returns would grow into subsequent years. There would be no
IRS participation in the war on drugs in order to preserve a focus on essential criminal tax fraud
issues.
United States Customs Service
A sequester would eliminate all 1991 initiatives, including staffing for the southwest border,
canine enforcement teams, money laundering investigations, and financial integrity. Additionally,
34
and commercial program effectiveness.
staffing cuts of roughly 50 percent would be required, with commensurate declines in enforcement
In practical terms, a sequester would mean fewer cargo container inspections (36 percent less
than 1990), a 120 percent increase in delays in releasing cargo, lost tariff revenues, and fewer drug
seizures. The protection afforded domestic industry by Customs enforcement efforts would erode.
Investments in the labor saving Automated Commercial Systems (ACS) program would be postponed.
Longer passenger processing delays would occur at border crossings and airports. Many of the smaller
ports along the northern border and other locations could be closed or face curtailed service hours.
Contraband entries would expand and the war against drug imports would be severely hampered.
An estimated $1 billion in revenue would be lost due to lack of adequate processing controls.
Department of Veterans Affairs
A sequester, compared with the 1991 request, would:
Require significant reductions in purchases of medical and other supplies and equipment,
prevent the opening of new facilities, cancel 1991 initiatives (e.g., increases for drug abuse
treatment, quality assurance, physician and nurses pay), reduce medical care staff by
outpatient visits) provided to veterans by 2.0 million;
15,600 or eight percent, and reduce the number of incidents of care (e.g., hospital stays years and
Reduce operating staff associated with the Veterans Benefits Administration, the National
Cemetery System, and administrative activities, forgo scheduled computer upgrades and ac-
quisitions, and delay interments in many of the smaller national cemeteries. Staff reductions
in regional offices would be inevitable and would reduce the timeliness and quality of benefits
claims processing and the servicing of delinquent guaranteed loans below 1990 levels;
Reduce bed levels (by 350) and clinical services in all proposed construction and renovation
in projects (medical centers, regional offices, and cemeteries). Project redesigns caused by reductions
and the size and scope of these projects would delay planning and construction by at least a year
nine months and hamper the provision of quality health care to eligible veterans; and
Disproportionately reduce the contributory Montgomery bill program (because over half of the
educational programs for disabled veterans' dependents and vocational rehabilitation
veterans and service persons.
empt) affecting annual benefit payments ranging from $1,300 to $2,200 to nearly 125,000 are ex-
Other Agencies
Commodity Futures Trading Commission (CFTC)
A sequester would have a devastating impact on enforcement actions, especially in light of the
recent trading abuses in the Chicago futures markets. This would permit only 79 enforcement actions
to be completed compared to 124 in 1989, a reduction of 64 percent. Market surveillance would
functions reduced by 25 percent at a time when additional surveillance is needed to protect hedging and be
of these markets. There could be increased commodities fraud as no new enforcement actions pricing
for would be undertaken. The result would be a less competitive market environment with less
market participants. For example, family farmers who forward price their products with protection
grain elevators would be exposed to greater market risks. CFTC's overall program output would county be
reduced by one-half, reversing actions to increase and strengthen CFTC's regulatory capacity.
Environmental Protection Agency (EPA)
The major impacts of a sequester would be:
from Severe reductions in State environmental programs, which typically receive half their funding
EPA grants;
Cancellation of EPA's wetlands initiatives;
35
A decreased level of corrective actions undertaken at operating hazardous waste facilities at a
time when EPA will be responsible for an expanded universe of regulated facilities and hazardous
substances;
Delays in the development of regulations and inability to meet court-ordered deadlines for
various regulations;
Reduced information made available to the public because of reductions in automated data
processing funding;
Severe limitations on EPA's ability to implement the new Clean Air Act amendments. EPA
probably could not meet the first year deadlines in the Clean Air Act amendments and technical
and financial assistance to States to implement the amendments would be severely restricted;
Halting all new Superfund cleanups, undermining the public's confidence in Federal clean-up
efforts; and the Government's leverage to make the polluters pay. Decreased enforcement and
fewer cleanups funded by responsible parties, and more fund-financed cleanups. Lower cost
recoveries would prevent the fund from being replenished;
Severe slippage in numerous Clean Water Act requirements, including monitoring of water
quality, issuance of National Pollutant Discharge Elimination System (NPDES) permits, and
development of water quality criteria;
Serious delays in the cleanups of specific bodies such as the Great Lakes, the Chesapeake Bay,
and the 17 estuaries in the national estuary program;
Reduction of 50 percent in air pollution enforcement activities such as stationary source in-
spections, notices of violation, administrative orders, and civil and criminal litigation; and
Curtailed analysis of Toxic Release Inventory (TRI) reports, delay availability of the TRI data
base to the public, reduce resources available for data quality assurance, and eliminate en-
forcement actions against non-reporters.
Judicial Branch
A sequester would have the following effects:
30 percent of Federal defenders' cases and 100 percent of panel attorney cases would be dismissed
for failure to provide counsel, or counsel would be appointed without compensation;
3 percent of the estimated payments committed to pay panel attorneys for prior year case
assignments could not be paid;
Inmates filing new death penalty habeas corpus petitions would not have their cases reviewed
by a Federal court, or counsel would have to be appointed without compensation;
Funds would not be available for fees of jurors for civil trials, denying the public their right to
a civil jury trial;
Funds would not be available for fees of jurors for approximately two months of the year for
criminal trials;
The community supervision programs of the probation system would suffer the burden of
personnel shortages; 52 percent of the offenders in these programs would not have their
supervision enforced;
Testing and treatment of 19 percent of drug offenders would be terminated; and
Expansion of home detention (electronic monitoring) of offenders could not be accomplished
resulting in increased jail costs.
National Aeronautics and Space Administration (NASA)
A sequester would cause a major restructuring of all NASA activities. The Space Station would
be canceled (with a termination liability of about $600 million). In space science, technology and
aeronautics, the Moon/Mars Initiative and Mission to Planet Earth would be deferred and two to
36
three major science projects under development would have to be canceled (e.g., Comet Rendezvous/As-
teroid Flyby, Advanced X-Ray Astrophysics Facility). In addition, reductions would have to be made
in the operations support for spacecraft (e.g., Magellan mission to Venus). With the exception of critical
safety-related items, all facility construction and renovation would be stopped.
The 10 planned Shuttle flights during 1991 would be postponed or canceled. The eleven missions
planned for 1992 would also have to be postponed or canceled, effectively suspending Shuttle operations
until 1993. (Recovery from this suspension would entail a re-hiring and recertification of the contractor
work force.) The purchase of critical spare parts, the development of the Advanced Solid Rocket Motor,
and the procurement of expendable launch vehicles would be terminated. All planned safety improve-
ments to the Shuttle would be deferred. Additional terminations or postponements would include all
shuttle engine ground testing, all orbiter modifications, all planned Shuttle equipment upgrades, and
all procurement of upper stage rockets and payload operations. Engineering laboratories and on-line
Shuttle facilities would be placed on a "caretaker" status.
National Science Foundation (NSF)
A sequester would terminate support to roughly 28,000 individuals, including senior investigators,
graduate and undergraduate students, pre-college teachers, and high school students. In addition, it
would defer or terminate all new initiatives and many existing programs, including Science and
Technology Centers, Engineering Research Centers, precollege education programs, graduate fellow-
ships, and global change research. It would shut down the U.S. Antarctic program for 1991 operations
and defer or terminate any remaining activities in the economic competitiveness and human resources
areas.
Office of Personnel Management (OPM)
A sequester of OPM's civilian retirement obligation limitation would: (1) increase existing backlogs
in death claims, refunds, and initial annuity payout processing (currently, the initial annuity payment
can take as long as six to nine months and lump-sum refunds about 3 months to process) and would
likely extend by three to six months the processing of initial annuity and lump-sum payments; (2)
stall design and development of the automated Federal Employees' Retirement System (FERS) project
that is meant to automate FERS retirement processing and definitely push into 1992 or beyond the
major start-up activities for the FERS automated record keeping system. This would result in the
continuing build-up of paper records for the FERS system similar to what exists for the Civil Service
activities. Retirement System.; and (3) force cutbacks in essential processing staff training and quality assurance
OPM would eliminate all 1991 initiatives including funding for the Public Policy Scholarship,
training for front-line workers, and the Commission on the Public Service. The Presidential Manage-
ment Intern Program would not be permitted to double in size as was authorized by Executive Order.
It would eliminate OPM's ability to implement pay reform, would cut current staffing levels, and
require the consolidation of area offices and the deferral of the acquisition of new computer equipment.
The backlog of National Agency Checks and Investigations would increase by about 32,000 cases as
OPM would not be able to provide timely investigations for agencies.
OPM would lose oversight and evaluation capacity and staffing research and development.
OPM's retirement and insurance functions would probably not possess the level of resources for
acceptable level of services to its beneficiaries.
account maintenance activities, to carry out its fiduciary responsibilities, or to provide a minimally
Civilian retirement claims processing reductions would put in jeopardy the timely payment of
monthly annuities to 2.2 million Federal civilian retirees. The typical annuitant receives a monthly
annuity of approximately $1,450 ($17,400 per annum) and may have no other source of retirement
basic necessities.
income. Delays in the payment of annuities could prevent annuitants from being able to finance their
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270-858 0 - 90 4 ; QL 3
Retirement and insurance processing times for interim payments, annuity cases, death cases and
refund claims would double and triple. Workload balances for annuity, death, refund and deposit
claims, annuity roll maintenance, and health benefits disputed claims would increase three- to ten-fold.
Congress and senior citizen advocates would strongly object to delayed processing of monthly
annuity checks. The lengthy delay in processing initial annuity payments would directly conflict with
an Administration goal and a President's Commission on Management Initiatives commitment to
expedite new retiree initial annuity payments.
Reductions in the Government Payments for Annuitants would prevent payment of the
Government's share of health premiums. A cut in enrollee payments might occur.
Front-line training initiatives would be eliminated. The time needed to fill agency job requests
would double or triple, and the Presidential Management Intern Program and other entry-level
programs designed to bring new talent into the Federal Government would be eliminated.
The time needed to process special rate requests would more than double and compliance activity
and work on classification standards would be cut by half. This would result in less qualified staff
Government-wide, thus severely degrading the quality of products and services.
OPM could not pay the Federal Employee Health Benefit carriers the Government share of
employee health insurance premiums. The result would be a cut in enrollee benefits. Reductions in
the Government Payment for Annuitants would result in the Government being negligent in meeting
its statutorily required payment on behalf of annuitants.
Railroad Retirement Board
sequester would reduce railroad retirement supplemental annuities by $34 million. Supplemental
annuities are paid to roughly 200,000 rail retirees who have 25 or more years of railroad service.
Railroad unemployment and sickness insurance benefits would be reduced by $40 million from the
estimated $105 million. The reduction would affect the welfare of 60,000 railroad workers dependent
on unemployment and sickness benefits.
Small Business Administration
A sequester would force as many as 40 field offices to close. Small Business Assistance and
Advocacy programs, including programs for the promotion of minorities, women and international
trade assistance, would be sharply curtailed. Lending and surety bond program levels would be
reduced by more than $2.1 billion.
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