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Budget 'firewalls' debate will heat up Washington's winter.

The White House last week pledged an additional $645 million in new U.S. aid to the former Soviet Republics to help in their process of economic conversion, but indicated to the House and Senate Republican leadership it would oppose any new reinvestment in America's communities as part of any American economic recovery or conversion.

The decision came as the Speaker of the House, Rep. Tom Foley (D-Wash.), and a key Senate leader made clear their strong support for re-writing the 1990 budget agreement to permit cuts in defense spending to be invested in economic conversion in communities across the nation.

The annoucements came amid a spate of developments affecting the nation's cities and towns as the 102nd Congress reconvened in Washington in preparation for the President's State of the Union address and budget this week.

The White House pledge was made by President Bush at an international conference in Washington, D.C. to coordinate relief for the former Soviet Republics (see related story on p.). If Congress approves the additional aid as requested by the President, it would bring total U.S. taxpayer assistance to the republics up to $5 billion.

The administration also testified before Congress that it would be seeking $55 billion in additional federal borrowing to bail out the nation's S& Ls.

In contrast, the President's Office of Management and Budget has quietly advised senior Republicans in the House and Senate that the administration has decided to cut defense spending next year by about $4 billion, but will oppose any transfer of those savings for domestic programs. The administration intends to oppose any modifications to the 1990 budget agreement, including eliminating the "firewall" between defense and domestic spending.

In a speech last Thursday, House Speaker Foley said he would be leading efforts to remove the "firewall" that prevents the transfer of defense savings to domestic spending. The Speaker said the United States had one of the most "decrepit" infrastructures in the industrialized world, while its taxes on energy are among the lowest.

While noting that the end of the Cold War dictated reinvestment at home and conversion from a Cold War to an economically competitive economy at home, the Speaker said he would oppose efforts to eliminate the pay-as-you-go requirements of the 1990 budget agreement. Those requirements -- basically the budget requirements of every city and town in America--cover federal entitlement and tax expenditure spending, unlike programs to invest in America's communities which are capped or absolutely limited.

Some Republicans and Democrats have suggested waving the rules in order to pay for massive middle income tax cuts, or to amend the budget agreement to siphon funds out of defense spending for tax cuts instead of reinvestment in domestic programs.

At the same time, former Senate Majority Leader and current Senate Appropriations Committee Chairman Robert Byrd (D-W.V.) took issue with a number of leading Democratic senators in opposing the use of any defense cuts or peace dividend to pay for tax cuts. Byrd said all defense cuts must be targeted to domestic investment:

"I can think of no better way to find a quick, effective stimulus to the economy as plowing investment into the nation's highways, bridges, waterways, water and sewer systems, and housing."

Byrd warned that it would take additional investment of at least $60 billion in communities to keep pace with inflation over the next 3 years under the current budget agreement.

Byrd's comments were also echoed last week by Federal Reserve Governor Edward Kelley, who told business leaders in a speech in Florida that federal spending to meet transportation, environmental, and other infrastrucutre needs must be increased as part of any long-term economic growth plan.

Congressional Budget Office Says

State and Local Aid Is Most Effective

Recession Remedy, But Cautions

About Federal Debt

In testimony before the House and Senate Budget Committees last week, Bob Reischauer, the Director of the nonpartisan CBO, said that providing unrestricted aid--like revenue sharing--to communities to halt spending cutbacks, layoffs, and tax increases would be one of the most effective ways to spur quick economic growth. He suggested that Congress consider a counter-cyclical revenue sharing program such as the one enacted under former President Nixon during the 1974-78 recession.

But Reischauer warned Congress against massive tax cutting war to prop up the economy in the short term. He said that eliminating efforts to control federal deficits would cause long term harm to the ability of the nation to compete and would drive up interest rates.

Reischauer noted that CBO projected interest on the national debt was the fastest growing area of federal spending and that it was slowly, but steadily crowding out more important discretionary programs dealing with human and physical domestic investment.

"Deficits create a vicious cycle of more federal borrowing and higher debt service costs, which in turn make it still more difficult to reduce the deficit."

Congress Set to Move Quickly on Extended

Unemployment Benefits

Meanwhile Congress set the stage for early action on another extension of jobless benefits last week when the White House reversed its position and said it would support such an extension.

The move came as House Minority Leader Bob Michel (R-Ill) joined House Ways and Means Committee Chairman Dan Rostenkowski (D-Ill) in testifying in support of the $4.5 billion extension to provide a 13-week extension of unemployment benefits.

Rostenkowski indicated he would support having the President declare the money "emergency" assistance, thereby exempting it from the pay-as-you go rules. Michel testified that the extension ought to be paid for, but offered no suggestions gestions as to how. He appeared to lean in favor of a proposal by Rep. Fred Grandy (R-Iowa) to take the unemployment compensation trust fund off budget--which would have the same effect of exempting the cost of the extension from the pay-as-you-go budget rules.

Michael also indicated, however, that the White House and House Republicans would oppose an extension of jobless benefits except as part of an "economic stimulus" package--apparently referring to middle and upper income tax cuts expected to be proposed by President Bush Tuesday evening.

The White House last week disclosed that President Bush will re-submit a proposal in his budget to Congress this week to consolidate some $15 billion in state and local education, health, housing, and justice programs and turn the money over with no strings attached to the states.

A similar proposal last year was strongly opposed by the National League of Cities, the National Association of Counties, and the U.S. Conference of Mayors. It received lukewarm support from the governors and state legislators. It received no support in the Congress.
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Author:Shafroth, Frank
Publication:Nation's Cities Weekly
Date:Jan 27, 1992
Previous Article:City ideas that work.
Next Article:NLC members' opinions sought on legislation.

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