CONGRESS

It's Mr. Budget's Time

by Lawrence J. Haas

Saturday, Aug. 13, 1988


The House's powerful Democratic committee chairmen were balking at the new demands thrust upon them. They'd spent their professional lives designing, creating and expanding social programs, using the federal government to provide equality of opportunity, if not results. Now, spurred by President Reagan's 44-state electoral mandate that bolstered his antigovernment ideas, Congress in May 1981 adopted a $771 billion budget resolution that called on the same chairmen to produce $36 billion in so-called reconciliation cuts.

Speaker Thomas P. O'Neill Jr., D-Mass., perhaps convinced that resistance could backfire politically, cajoled the Democratic chairmen along. In meeting after meeting with them, he'd sit with Budget Committee chairman James R. Jones, D-Okla., and a third-term Democrat from Carmel Valley, Calif., who found himself unexpectedly thrust into a key position.

"Obviously, you had deference for these guys because they were chairmen and because they worked on these programs," recalled Leon E. Panetta, who, as head of the Budget Committee's reconciliation task force, kep track of whether other committees were making the required cuts. "But their questions to me were almost in the form of 'What is it that they want,'" he said, bursting into laughter as his rising voice mocked their anger. "What is it? What is reconciliation?"

If he had a key role only fortuitously -- reconciliation had only been accomplished once before, and not in such grand fashion -- Panetta didn't waste the opportunity. Since then, he's served on the House-Senate conference committee that drafted the original and revised versions of the 1985 Balanced Budget Act. He was one of just two rank-and-file House Members to participate in last fall's budget summit between White House aides and congressional leaders (and other participants were party leaders and committee chairmen).

Among members of both parties, Panetta is considered a master of the budget process. He knows the rules, which have grown more technical in recent years, and he understands their implications for policy making. A House Republican aide dubbed him "Mr. Budget."

Well, Mr. Budget's time has come. As a capstone to his decade of trench work in the annual fiscal wars, Panetta almost certainly will be picked as the next Budget Committee chairman, beginning in January. His two announced challengers dropped out about a year ago, and though the committee's rule on rotation of chairmen theoretically makes the race an open one, nobody expects a new opponent to emerge.

But if his new position is assured, almost nothing else about the job is. Panetta -- 50, a former Republican, cerebral, intense, demanding, earthy, good-natured -- faces the old problem of deficit reduction that may be more intractable than ever.

He'll work with, or against, a new President. He'll confront a new senior Republican on the House Budget Committee. (Recent House Republican rule changes that will influence the selection make this a wide-open contest.) With the impending retirement of Lawton Chiles, D-Fla., he'll face a new chairman of the Senate Budget Committee.

Aside from the personnel changes, Panetta will take over at a time when the Budget Committees have reached a crossroad, according to some Members and aides. The 14-year-old budget process over which they preside, while never popular on Capitol Hill, seems to be growing more despised by the day. Proposals to reform it continue to spring forth. Many lawmakers would just as soon abolish the Budget Committees, although House Majority Leader Thomas S. Foley, D-Wash., said that he and House Speaker Jim Wright, D-Texas, are committed to their vitality.

At the same time, the committees' power to recommend total discretionary spending levels as part of the annual budget resolution was usurped this year when the budget summit set domestic and defense levels for fiscal 1989. When House and Senate conferees deadlocked anyway over a final 1989 budget resolution, their power was further diluted. Under pressure to move quickly on 1989 spending bills and avoid an omnibus end-of-session continuing resolution, the Appropriations Committees didn't wait for a final resolution before drafting their bills.

Besides, even under the best of circumstances, the budget chairmanship isn't necessarily an enviable post, except for the obvious news media exposure it affords. Panetta will head a panel of fiscal guardians who spend their time trying to balance the books with tough choices. They recommend tax hikes and spending cuts, but the natural inclination of lawmakers is to enact just the opposite. Success in cutting the deficit could be painful. Failure could be humiliating.

"There's no question about the challenge," Panetta said during a recent interview in his office. "If you handle the job right, if you can put coalitions together and if you can get budget resolutions through, then, I think, Members accept the fact that these are tough jobs. And they may not like what you do from time to time, but they will respect the fact that you're willing to do it and that you have the ability to try to get the job done....

"To the extent that you can identify priorities and establish, hopefully, some policy trends, it does give you the opportunity not just to be negative but to be positive. And that's perhaps the one thing that I see in the budget process, developing some policy lines for the future in terms of where we are going as a nation. I don't think it can be just a numbers-crunching operation. I think it's got to be something beyond that. And if you do that, then I think it's not just a question of saying, 'no, no, no.'"

POLITICAL JOURNEY

Notwithstanding future attempts at bipartisan deficit cutting -- perhaps piggybacked on the forthcoming report of the National Economic Commission -- budgeting is perhaps the most political of exercises. Budgets separate the parties on the most fundamental question: What should the federal government do?

In that sense, Panetta's odyssey to the chairmanship is not your everyday story. A Republican through the 1960s, Panetta viewed himself as a descendant of Hiram Johnson, Earl Warren and other symbols of California Republican progressivism. He supported many of the expansions of federal services during President Johnson's Great Society, but his Republicanism was rooted in a conservative outlook on fiscal matters.

During the Nixon years, Panetta sandwiched work in Washington for Senate Minority Whip Thomas H. Kuchel, R-Calif., and in New York with Mayor John V. Lindsay around a controversial stint in the Nixon Administration. After serving briefly as special assistant to Health, Education and Welfare Secretary Robert Finch, he directed the department's civil rights office from 1969-70. His aggressiveness in that job, he says, led to his firing, which he learned about in a newspaper story.

Bitterness lingered. In "Bring Us Together: The Nixon Team and the Civil Rights Retreat" (J. B. Lippincott Co., 1971), a book he co-authored, Panetta said: "The first question was how to 'resign.' Should I say I had left for personal reasons, to find a new and challenging career in the practice of law? Should I merely confirm (Nixon press secretary Ronald L.) Ziegler's confirmation and slink quietly away? Or should I say the sons of bitches fired me, and tell why I think they did it?"

That experience, along with disgust at what he called the Nixon Administration's "targeting" of moderate Republican lawmakers for defeat, spurred Panetta's party switch in 1971. After several years of practicing law with his brother, he was approached about taking on Rep. Burt L. Talcott, a conservative Republican who had been softened up by close reelections. In 1976, Panetta jumped in and won.

If his political past generated doubts that he'd be a Democratic loyalist, later events removed them. His six-year tenure on the Budget Committee (1979-85) was marked by a close relationship with Democrats Richard A. Gephardt of Missouri, Norman Y. Mineta of California and Timothy E. Wirth of Colorado. They were the "gang of four," who briefed each other on budget issues and pushed for more domestic and less military spending.

According to some accounts, he was suspected by Democratic leaders of having ambitions that could threaten their authority, and when he attempted in 1984 to change House rules to allow him to run for Budget Committee chairman, he was thwarted.

Within months, he was embroiled in more serious controversy. Chosen to head a task force to recount votes from a hotly disputed House election in Indiana between Democrat Frank McCloskey and Republican Richard D. McIntyre, his decision that McCloskey won opened the floodgates to partisan anger, prompting Republicans to walk out of the House and attack Panetta by name. Rep. William M. Thomas, a California Republican who served on the task force with him, accused Panetta of political "rape."

For a lawmaker who prides himself on practicing bipartisanship, it was an odd predicament. And it could affect him as Budget Committee chairman next year, although probably only at the margins. Ask rank-and-file Republicans about Panetta and most speak quite highly of him. Other Republicans, however, volunteer their concerns about his role in the electoral dispute as a reason to monitor his actions closely.

Nevertheless, he's worked well with Republicans. "He's a pro," said Ralph Regula of Ohio, the senior Republican on the reconciliation task force in 1981. "He's a legislative pro.... He's very intelligent. He understands the issues and he's very effective in articulating his position. He does his homework. And he knows what he's talking about."

Willis D. Gradison Jr., R-Ohio, who has worked with Panetta on health issues such as medicare, said, "I've come to respect tremendously his knowledge of the budget issues, as well as his ability to work with people of diverse views."

DEFICIT POLITICS

Panetta will need all the legislative skills at his disposal. Although the nation's fiscal situation, on paper, seems to have improved, there's plenty of reason for skepticism. The deficit remains high, and Congress now also faces new questions about the budget's components and whether some programs should be treated preferentially.

When William H. Gray III, D-Pa., the current Budget Committee chairman, took the post in early 1985, the deficit was headed for more than $200 billion that year and the next, making it more than a whopping 5 per cent of the gross national product (GNP). Estimates by the Congressional Budget Office (CBO) showed it hitting nearly $300 billion by 1990. Under the CBO's latest estimates, Panetta will have to contend with a more modest deficit -- more than $150 billion through 1992. As the economy grows, according to these estimates, the deficit will sink to near 2 percent of GNP, which many economists consider manageable.

But the lower deficit estimates rest on rising surpluses in the nation's trust fund accounts, principally the annual social security that's projected at nearly $100 billion by 1993. Because social security, medicare, military and civilian retirement and other trust funds are earmarked for certain purposes, some believe they don't really contribute to balancing the nation's books. When trust fund surpluses are set aside, the deficit is estimated at about $250 billion this year and is projected to approach $300 billion in 1993.

With those surpluses receiving more attention in policy-making circles, there's more talk of removing them from the calculations and balancing the non-trust-fund budget -- a huge task. Panetta doesn't necessarily share that position. "I always come from the direction of a comprehensive federal budget that reflects what's going on inside that budget," he said. "The problem I always have is that once you develop this one approach of isolating trust funds, or isolating those other areas, that there are at least 100 others that will try to follow that path. And we begin to set a dangerous precedent in terms of the over-all budget by doing that."

Cutting the deficit under any circumstances would be hard enough. Simply put, the easy choices are gone, on both the spending and revenue sides. Any politically acceptable cuts have already been made, as Reagan found when Congress rejected his same domestic proposals year after year. Because defense hasn't received an increase in after-inflation dollars for several years, lawmakers are reluctant to cut much there. And since the 1986 Tax Reform Act became law, policy makers eyeing revenue increases have fewer tax loopholes that they can close and face strong opposition to raising income tax rates.

"We have been using up some of the available options just to stay even with the board," said Carol G. Cox, president of the Committee for a Responsible Federal Budget. "If anything, the challenge is even more difficult. The size of the problem is just about the same, and you don't have the full array of options to attack the problem."

As for the politically sensitive question of entitlements, which many consider an essential element in serious deficit-cutting efforts, Panetta hasn't shied away from taking them on. He's talked often about how their share of the budget is growing and how they must contribute to deficit reduction.

In 1985, Panetta was one of just 41 Democrats (and 56 House Members over all) to vote for the Leath-Slattery-MacKay amendment to the House's fiscal 1986 budget resolution -- an attempt to save $75 billion by, among other things, eliminating cost-of-living increases for one year for recipients of social security and other retirement programs.

In a letter this spring, Panetta told his constituents of his efforts, in last year's budget summit, to push through a "limited freeze on all spending, matched by revenue increases." "It is clear," he wrote at another point, "that defense and entitlement spending must be more effectively controlled and sufficient revenues raised to pay the bills. Again obvious, but certainly not easy."

Whether Washington will be ready to tackle the deficit next year is an open question. Some are optimistic. "I think that there's something absolutely incredible happening," Cox said. "We all accept, as an article of faith, a window of opportunity at the beginning of a new Administration," the so-called honeymoon period, when the President tends to have more success getting his program enacted. "If you have met anybody in Washington that has anything on the agenda for the first 100 days that isn't deficit reduction, then I haven't met them."

Translating concern into action, however, could be another matter. Much of Washington seems bored by the deficit. The economic calamity that it was supposed to bring hasn't arrived. And while still large, the deficit has shrunk as a portion of GNP.

"I think you're probably hearing about three or four different things," said John C. Dill, who was counsel to former Budget Committee chairman Jones. There are people still committed to deficit reduction and others who would come along with a serious effort. But, Dill said, others are "exhausted" by the issue and still others are more interested in talking about new spending.

Nor, as Panetta pointed out, is the cause being helped by this year's presidential campaign. Democratic candidate Michael S. Dukakis's emphasis on tax collections as a tool of deficit reduction is only slightly more helpful than Republican candidate George Bush's ever-more Shermanesque declarations against future tax increases. Panetta said that he was "bothered" by the candidates' pronouncements on the deficit to date. "I guess my hope is that as the campaign proceeds, both candidates can stay a little loose on this," he said. "I guess I don't expect them to lay out a strategy for dealing with it (the deficit), but at the same time, I hope they at least protect their options to confront it when they have to."

The problem won't be easy to ignore next year. Panetta's first budget, for fiscal 1990, faces $100 billion deficit ceiling under the Balanced Budget Act. Current projections indicate that about $50 billion in savings might be needed to meet it. "You're looking at one of the largest deficit reduction packages that we've had to deal with," Panetta said.

Should Congress try to accomplish that? "Nothing in this place is every locked in stone," he said. But, "assuming that the economy stays roughly where it's at, or perhaps improves slightly, then I think we ought to try to stick to those targets as best can be."

If that becomes too difficult, a further revision of the 1985 act to ease the targets seems likely. Next spring, Congress will have to adopt a bill to raise the nation's debt limit, a must-pass measure to which such a revision could be attached. The act's first two versions, in 1985 and 1987, were attached to debt limit bills.

PANETTA'S BOTTOM LINE

While the fiscal realities are difficult, Panetta brings some advantages to the challenge. Widely respected, he's built particularly close ties to several important Members. One is Foley, the House Majority Leader and a former colleague from the Agriculture Committee whose style is often likened to Panetta's.

"I think he's one of the 'men for all seasons' in the House on the Democratic side," said Foley, who has worked with Panetta on budget, food stamp, nutrition and other issues. "He's not unique, but he is extremely prominent in a group of people that you think about in any job responsibility or undertaking that would be important, perhaps more so when the job is difficult."

Another important colleague is Ways and Means Committee chairman Dan Rostenkowski, D-Ill., who's gotten to know Panetta through one of Panetta's housemates in Washington, Rep. Marty Russo, D-Ill. Panetta, Russo, Rep. Charles E. Schumer, D-N.Y., and Rep. George Miller, D-Calif., room together in Miller's Capitol Hill townhouse.

Not only do Panetta and Rostenkowski get along, they also seem to agree on the need for tax hikes to help reduce the deficit. Whether they'll remain on good terms when Panetta's Budget Committee sends deficit-cutting instructions to Ways and Means -- including not only tax increases but cuts in major entitlements -- is an open question.

Also important is Panetta's relationship with Pete V. Domenici, R-N.M., who will remain as the Senate Budget committee's ranking Republican -- or its new chairman, in the unlikely event that the GOP regains control of the Senate in November. The two men, close by virtue of a shared Italian heritage and a moderate political outlook, speak often by telephone, using each other as bellwethers for deciding whether each one's proposals would be well received in the other's chamber.

"There's a lot of times that Domenici just wants to feel for something, and he'll pick up a phone and call Panetta, and vice versa," said a person familiar with their relationship. "There's a certain closeness in that regard."

If Gray, the current House Budget Committee chairman, has served the Democrats' public relations purposes by articulating their priorities during a highly partisan period, Panetta brings other strengths to the job. His intensity, attention to detail and knowledge of the budget process is expected to serve him well, whether Congress can work in a bipartisan manner or Democrats are forced to go it alone.

Although demanding of his staff, Panetta doesn't mind rolling up his own sleeves. In 1981, when monitoring the reconciliation process, aides recall that at daily 6 P.M. meetings in which they were supposed to brief him, Panetta generally knew more about what the committees had accomplished that day than the aides did.

Budget Committee aides expect that when Panetta arrives, they'll be asked to do more studies, a prospect that excites some and concerns others who worry about the workload. Some expect more meetings with outside sources, such as think tank scholars and academics, to provide advice on policy decisions.

As committee chairman, Panetta might be in an improved position to streamline the budget process, particularly by pushing his longtime proposal for two-year budgeting. He has also expressed interest in avoiding the politics of economic forecasting, such as Reagan's "rosy scenario" for fiscal 1982, by making forecasting a shared task of the White House, Congress and perhaps the Federal Reserve.

If Panetta's ascension has prompted any concern among Democrats, it's from liberals who fear that he's almost too engrossed in the budget process. Budget rules, after all, are constraints. The Budget Committees were set up in 1974 because the Appropriations Committees could no longer serve as "guardians of the public purse."

If Panetta were to enforce the rules strictly, as some expect, he would probably slash with those who want to reassert the federal government's role in addressing the nation's social problems. Others fear that he will be so concerned with rules that he will miss the forest for the trees and lose sight of the larger questions of public policy.

"I think he sometimes goes into the water too deeply," a former House aide said. "I watched during some of the (House-Senate) conferences. He would kind of go off the deep end into the process and just get lost," the former aide said. And sometimes he'd make a mistake. And the staff would have to say gently, 'It doesn't work that way.'"

Panetta sees the risks. "When you're involved in process issues, that is one of the dangers," he said. But, he added, "I know the name of the game here. And the bottom line is, you need to get a budget resolution adopted, and you need to be able to enforce those numbers. My goal is to ensure that we're able to achieve that bottom line."

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