The Congressional Budget Office and the Office of Management and Budget today issued a joint forecast that makes the recently passed budget for fiscal year 1987 illegal. The forecast estimates a $201 billion deficit for FY87. Since balanced-budget legislation passed last year allows only $144 billion, sharp reductions in government spending are required.

Automatic spending cuts of $57 billion will be triggered in mid October unless Congress and the president act before then. The cuts will consist mainly of equal percentage reductions in the parts of the budget classified as "relatively controllable." Since these items make up only 40 percent of the FY87 budget, spending in this part of the budget must decline by 13.2 percent. Senior OMB officials expressed doubts that such severe cuts could be implemented by Oct. 15.

WASHINGTON, Oct. 15, 1986 -- Owing to the budget impasse between the president and Congress, automatic spending cuts under the Gramm-Rudman Act of 1985 will take effect immediately, the White House announced today.

"The president regrets that this drastic action could not be avoided," said spokesman Larry Speakes. "He is particularly worried that sharp cuts in the defense budget will impair military readiness." Aides said Defense Secretary Caspar Weinberger was fuming over the required cutbacks.

FORT BRAGG, Ky., Oct. 17, 1986 -- Paymaster Sgt. Bill Coe had never seen anything like it. Today, 13 percent of the pay envelopes he distributed to Fort Bragg's personnel included something unheard of in the military: pink slips.

Fort Bragg and other military installations have orders from the Pentagon to reduce payrolls by 13 percent without cutting wages. "This is the damnedest thing the Army has ever asked me to do," exclaimed Coe, who has seen combat but has never been in a budget war before. "The guys think it's a joke."

LOS ANGELES, Oct. 17, 1986 -- The check she picked up at the welfare office this morning was 13.2 percent smaller than the one she received last Friday, and Mary Howell wanted to know why. "Orders from Washington," answered clerk Scott Williams. "Some kind of crazy new law. I don't really understand it."

WASHINGTON, Jan. 28, 1987 -- The Reagan administration has revised its economic forecast downward, and now expects a weak economy in 1987. Economists say the main reason for greater pessimism is last fall's drastic round of cuts in government spending.

WASHINGTON, Feb. 4, 1987 -- President Reagan stunned Congress today by submitting a budget that would cripple most civilian programs while leaving the military untouched. "The president regrets the deep cuts, but he felt he had no choice," explained spokesman Larrry Speakes.

The Gramm-Rudman Act requires a deficit of $108 billion for fiscal 1988 -- $80 billion lower than the current projection. Only $3 billion of this can come from cost-of-living adjustments. "Given the cuts the Defense Department absorbed last October, the president felt that further cuts in defense would jeopardize our national security," said Speakes. "So the whole $77 billion must come from the civilian side of the budget."

Since discretionary nondefense spending for FY 88 is budgeted at $240 billion, a reduction of $77 billion requires a 32 percent cut. Congressional reaction to such large civilian cuts was vitriolic.

NEW YORK, Feb. 5, 1987 -- The stock market plunged today on fears that the huge spending cuts proposed yesterday by the president might precipitate a deep recession. The dollar also tumbled on world markets. Senior officials at the Federal Reserve hinted that monetary policy may have to be tightened to defend the dollar, despite the weakening economy.

WASHINGTON, Aug. 15, 1987 -- After months of bitter partisan wrangling, Congress adjourned today, unable to agree on a budget for the fiscal year that begins Oct. 1. Republican leaders were incensed. "The Democrats blocked action on the budget knowing that Gramm-Rudman would force large cuts in defense," fumed Sen. Robert Dole. "The president won't accept that. I don't know what happens now."

WASHINGTON, Sept. 1, 1987 -- As required by law, CBO and OMB today issued their joint forecast for the coming fiscal year. It projects a $195 billion budget deficit under current programs, $87 billion above legal limits. If Congress and the president fail to reduce the deficit to $108 billion by Oct. 15, automatic spending cuts of $87 billion will be triggered. The CBO estimates that $47 billion will come from defense.

SANTA BARBARA, Calif., Oct. 1, 1987 -- President Reagan announced today that he would not abide by the provisions of the Gramm-Rudman Balanced-Budget Act of 1985 because "I cannot in good conscience weaken our defenses any further." The president's refusal to enforce the law precipitates the gravest constitutional crisis since Watergate.

"It is with a heavy heart that I do this," a grim-faced president told reporters as a hush fell over the packed briefing room. "Though I have sworn to uphold the law, my first responsibility is to the security of this great nation. I cannot allow our defenses to be gutted by a mechanical formula."

Members of Congress who did not wish to be identified speculated that impeachment proceedings might now have to be started. "Why didn't someone in December 1985 tell us this might happen?" moaned one Republican senator. Reprinted by permission of Business Week.