The Metro subway system, which already has taken a financial drubbing under the Gramm-Ruddman-Hollings balanced budget measure, gained the distinction yesterday of throwing the Congressional Budget Office and the Office of Management and Budget into a legalistic tizzy.
At issue is a plan to lop $2.2 million off the federal government's annual $51.7 million interest payment on bonds issued by Metro to help build the rail system. This might satisfy the federal goal of trimming spending by 4.3 percent, officials said, but it hardly would satisfy the bondholders.
In theory, the proposed interest squeeze ultimately might trigger a default on the bonds, floated during the 1970s for nearly $1 billion. But by cutting interest payments that are due in July, officials warned, the federal government also might be cutting its own throat.
"The secretary of transportation has guaranteed the principal and interest of $997 million in borrowing," the two budget agencies said in a report released yesterday.
"If the federal government defaults on its obligation to pay its interest share by reason of a sequester a spending cut , the government nevertheless would remain liable for the full payment under the guarantee, a liability which CBO believes is enforceable by claim against the United States."
The federal government apparently would have to reimburse the bondholders because of its own default. Virtually no one believes such a paradoxical default will occur.
"There's a lot of water to go under the bridge before somebody's going to miss a check," said one federal official.
But this "conceptual issue," one of many thorny problems raised by Gramm-Rudman-Hollings, has put the two budget agencies at loggerheads. Both offices agree that the bond payments should be spared from cuts. They differ over whether cuts are required under the balanced budget measure.
The congressional agency argues no reduction is necessary, citing the bonds' federal guarantee and provisions of the balanced budget law that exempt existing contracts from cuts. The Office of Management and Budget disagrees, contending Congress failed to list Metro's bonds among 46 exempted issues.
"OMB believes that an exemption . . . should have been added to this list, but it was not," the report said.
The dispute may be settled soon by the General Accounting Office, officials said. If necessary, they added, some new remedy may be devised to prevent a default. One option, officials said, is a move by Congress to revise the contested Gramm-Rudman-Hollings clauses.
For Metro, the quarrel appears to have stirred considerably less concern than other proposals stemming from the balanced budget law.
Because of Gramm-Rudman-Hollings, federal officials have threatened to halt all spending for Metro construction after the current fiscal year. This would disrupt plans to expand the rail system to 89.5 miles by the early 1990s.
Yesterday, the two budget agencies proposed cutting Metro's current appropriation by $9.8 million to $217.2 million, the lowest level since the 1970s.