TWENTY-TWO STATES have already done it. Now California's Democratic Gov. Jerry Brown has joined the pack. Republic Sen. Richard J. Lugar on Friday urged the Indiana legislature to sign on, and Democratic Gov. James Hunt will make a pitch for it tomorrow in North Carolina. All are getting behind a movement urging Congress to call a constitutional convention to pass an amendment requiring a balanced federal budget.
The balanced-budget movement, begun in Maryland, Mississppi and North Dakota four years ago, in short, is starting to be taken seriously. There is only one problem: It shouldn't be. At least not in practical terms.
The movement certainly has symbolic effect, sending one more message to Washington -- as if one more were needed -- that voters are deeply concerned about inflation. But as for the prospects of the rigid, would-be budget balancers making a significant difference in the nation's economic well-being, don't count on it.
Even if the required 34 states were to pass a constitution-convention resolution, that wouldn't guarantee that a budget-balance amendment would emerge -- or, some suggest, that Congress would have to call a constitutional convention at all.
Even if a constitutional amendment requiring a balanced budget were adopted and later ratified by the states in who knows how many years, that wouldn't necessarily mean any great change in federal spending or taxing. On the contrary, what it most likely would result in are numerous legalistic evasions, including a redefinition of what a "balanced budget" is. In fact, by most state accounting standards, Washington's budget -- right now -- is already close to "balance."
Finally, even if there were significant spending or tax changes as a result of such an amendment, that wouldn't mean voters' economic pains -- if they are still feeling them by then -- would be eased. The movement, in other words, is built largely on illusions.
Consider what might result if a constitutional amendment requiring a balanced federal budget ultimately came to pass. To begin with, even many of its backers, including the National Taxpayers Union, which has been loosely coordinating he nationwide effort, acknowledge that Congress would have to have one clear out: It could declare an "emergency" by a two-thirds or a three-fourths vote and approve a deficit. "If Congress judged that there was a serious recession that required an unbalanced budget, there could be one," says David Keating, an NTU budget specialist.
So the amendment, to most of its backers, would not be the absolute dictum that it would appear. It would conceivably make it more difficult to have a deficit, but it would not really prevent one.
But, then, what's a "deficit?"
In Gov. Brown's second inaugural address last week, he declared, "The nation, no less than the individual states, must eventually balance its books." The NTU has been making the same point about state constitutional requirements for balanced budgets.
Yet conveniently overlooked by both Brown and NTU is the fact that using the same accounting arithmentic as most states do, the federal budget today is close to balance -- rather than more than $40 billion in deficit, as currently calculated. In fact, if state accounting methods were used, the new budget that President Carter will send to Congress next week likely would show a small surplus.
The catch? Most states actually have two budgets, one for day-to-day operating expenses, the other for such capital expenses as those for major construction projects. What every state except Connecticut and Vermont is required to balance is its operating budget -- not its capital budget.
As the National Governors' Association remarked in its latest annual report on state finances, "Although state governments operate on balanced general fund budgets, they may still incur debt by borrowing funds through the bond market and spending the borrowed funds through separate capital budgets."
What would happen if Washington kept its books the same way, as has been suggested at various times in the past? It would be President Carter's own balanced-budget dream come true.
Of the $382,4 billion the Carter administration proposed spending for civilian purposes this fiscal year, an estimated $32.2 billion was for outlays that states might include in their capital budgets. By state standards, then, nearly that much of the federal deficit would be wiped out.
In addition, the federal budget called for $2.2 billion worth of military public works, such as family housing and other construction. By state standards, most of that sum, too, would disappear from the federal deficit, bringing the total thus eliminated to well over $30 billion.
Moreover, the keepers of the federal books could justify cutting an additional $5 billion from their reported deficit by not counting such items as secured loans for farm commodities. Even a novice accountant could make a strong case that lending a farmer money on his corn harvest, with the government getting the corn if he defaults, isn't really spending.
Thus, with the practiced sleight of hand of a budget magician, one could balance the federal budget withoug spending any less or taxing any more -- merely by changing a definition or two. Worried Governors
WOULD THAT comply with a constitutional stricture for a balanced budget? Why not?
It certainly wouldn't be the first time that changing budget definitions has, by itself, changed the federal deficit. In 1967, for the most recent example, Washington for good reason lumped the separate trust-fund budgets it had -- most notably for Social Security -- together with its regular budget. Without that definition change, the deficit in this year's "unified" federal budget would be $14 billion deeper. Presto.
In fact, worried about the prospect of a constitutional convention, a group of governors, led by Pennsylvania's Milton Shapp, and several state legislators met quietly last November with the director of the Office of Management and Budget, James McIntyre. They pressed McIntyre to begin to consider the meaning of "balanced" in the context of the push to adopt the amendment.
In other words, get your loophoies in order now -- it might appear avasive to do so later.
What then-Gov. Shapp suggested, in particular, was that the federal government move to a capital budget. McIntyre was noncommital, according to a governors' conference source.
There are other ways for federal bookkeepers to circumvent any balanced-budget dictum. But if they ever ran out of ideas, a good place to turn for help would be the very states that are squawking about Washington's budget.
Many state constitutions, for instance, not only prohibit deficits; they also set unrealistically low limits on both state and local government debts.But that hasn't deterred imaginative state officials. Over the years they have invented independent new government units -- would you believe the mospuito control districts of Illinois? -- to slove the problem. Each newly invented unit can draw upon the same local property values and the taxes levied upon them in order to borrow money.
At the federal level, the counterparts of the mosquito-control-district syndrome are such off-budget agencies as the U.S. Railway Association and the Federal Financing Bank. If such agencies were included in the current year's regular budget, the federal deficit would be about $10 billion deeper. It is not too difficult to imagine additional units being put off budget to get around any constitutional restriction. That would reverse recents efforts to make the federal budget as comprehensive as possible.
In short, the more stringent any balanced budget amendment might prove to be in actual practice, the more devics would be found to circumvent it. Increased Taxes?
THOSE ARE just some of the illusions behind the budget-balancing bandwagon. Another important one is the mistaken notion that balancing a budget necessarily means reducing spending. Why not raising taxes?
Of course, none of the rhetoric or literature about a balanced-budget amendment suggests that raising taxes might be the answer. But even a leading figure of the fiscal conservatism movement, Republican Rep. Jack Kemp of New York, fears that possibility, and he will have no truck with a balanced budget amendment. The amendment, said Kemp after Brown's endorsement of it, "might mean a tax increase." He called the idea a static approach" and argued that there ought to be "some flexbility" in budgeting.
In present circumstances, Kemp added, if taxes were not increased, balancing the budget would require "draconian" budget cuts.
Perhaps the ultimate illusion, however, is that balancing the federal budget would automatically reduce inflation without at the same time plunging the nation into a severe recession.
However much deep deficits had to do with getting the current inflation rolling, they have had far less to do with keeping it going. Most economists believe that during the long recovery from the 1975 recession, cost pressures, not excessive demand pressures, have been pushing up prices. Except as it influences total demand in the economy, the size of the deficit has little, after all, to do with the size of union wage settlements or with the prices of oil or beef.
The deficit ballooned back in 1975 precisely because of the recession. In any recession, as individual and business income fall, their tax bills naturally fall, too, lowering federal income.
In such circumstances, federal spending never can be cut back as fast as revenues are dropping. If the government tried, it would only deepen the recession dramatically.
As the OMB's McIntyre sees it, it would be "practically impossible" to write a budget-balancing amendment to the Constitution that "would be totally effective" and still leave "flexbility to combat recessions and meet human and national security needs." Questioning the Mandate
ALL THIS assumes, of course, that Congress would respond to passage of balanced-budget resolutions by 34 states. It conceivably might not, expecially because of wording differences in the resolutions.
Many of those adopted so far, for example, call for Congress to be able to declare the previously noted "emergency" and allow a deficit by a threefourths vote. NTU's Keating, expects that any of the resolutions approved this year will set that requirement at two-thirds instead of three-fourths.
Keating says that Congress should take the resolutions simply as indicating the desire of states that a convention be called to consider only a budget-balancing amendment. Any suggested wording for the amendment itself included in the resolutions would not be binding on the convention, Keating believes. Therefore, he says, Congress ought to ignore such wording differences.
Congress, however, might not be of the same mind: Those differences could be grounds for declining to call a convention even if 34 states pass resolutions for it to do so.
All Article V itself says is that "Congress... on the application of the legislatures of two-thirds of the several states shall call a convention for proposing amendments" to the Constitution. Nothing else is specified.
An American Bar Association committee concluded in 1973, however, that it would be mandatory for Congress to call a convention if two-thirds of the states request it. The commission also contended that, based on the origins of Article V, Congress had the power to limit the subjects that a convention could consider -- as well as to set the terms for choosing delegates. In other words, a convention would be in control of the Congress, not the states that pass resolutions.
That might not please those who started the budget-balancing movement four years ago. The drive actually began in Washington's own backyard in 1975 when Maryland state Sen. James Clark, Jr., the Howard County Democrat who is now president of the Senate, pushed a version of the resolution through the Annaplis legislature.
At almost the same time, David Hallbrook, a member of the Mississippi House, got his legislature to approve another version. The North Dakota legislature acted that year, too. Each year since then, several states, mostly in the South and the Great Plains have followed suit.
The resolution backers certainly have been pleased, though, by Gov. Brown's sudden about-face. NTU consultant George Snyder, who visited California recently, says he came away with no hint of Brown's new sentiments.
"It was a complete turnaround for him. Last year at the national governors' conference he opposed it," says Snyder, a marketing consultant who formerly represented Hagerstown in the Maryland Senate for 16 years and who now lives in Sarasota, Fla.
Snyder adds," His endorsement should help in California and could have repercussions elsewhere." The former Maryland legislator regards Brown's flip-flop as "damned smart" because of the growing fiscal conservatism of the electorate. The Painful Choices
IF BROWN has now cloaked himself with the mantle of a fiscal conservative, he has done so in a way that avoids the real and painful choices that need to faced. "The issue, after all," says Alan Greenspan, the conservative economists who was chairman of President Ford's Council of Economic Advisers, "is spending, not the deficit. We have created a situation in which the rate of growth in federal spending will, in real terms, outstrip out ability to finance it. I reluctantly envisage the need to move to a constitutional amendment to correct that."
Greenspan's proposes that any amendment should somehow directly limit spending, not eliminate the possibility of a deficit. But he is not sure how one goes about doing that, either.
OMB director McIntyre attacks Brown for cncentrating just on deficits. Instead, he asserts, not surprisingly, that the Carter approach in preparing the fiscal 1980 budget is the right one. The budget should be cut by making hundreds of "well thought out, often unpopular decisons" on specific programs, he says.
Similarly, Otto Eckstein, head of the Data Resource, Inc., regards Brown's position as "partially dishonest. Every device, Kemp-Roth or a balanced budget amendment, they are all an attempt to do anything other than face up to the programs one at a time," says Eckstein.
Arthur Okun, a former CEA chairman under President Johnson now at the Brookings Institution, decribes the proposed amendment as "a throwback to the days of [President] McKinley, if not to the cave man." Okun offers what he cnsiders a fitting punishment for Brown for joining the amendment bandwagon: "Jerry Brown should be in charge of implementing it."