Office of Management and Budget Director James C. Miller III yesterday abandoned optimistic predictions about next year's deficit and said it now appears most likely to exceed earlier projections by at least $10 billion.
Miller's "rough, preliminary, seat-of-the-pants" estimate would produce a fiscal 1987 deficit of $154 billion or more, enough to trigger across-the-board spending cuts under the new Gramm-Rudman-Hollings budget control law.
But Miller said he thinks the cutbacks will be averted because Congress will either cut spending to come within the ceiling or refuse to order the required cutbacks. If the deficit for next year appears most likely by late summer to exceed the law's $144 billion target by $10 billion or more, Gramm-Rudman-Hollings requires cutbacks to reach the target.
Only a few hours before Miller's statements, House Speaker Thomas P. (Tip) O'Neill Jr. (D-Mass.) said he thought Congress would approve spending cuts to meet the target.
Miller attributed the worsening deficit outlook to a decline in anticipated government revenues because of slower economic growth and lower inflation than were anticipated in both presidential and congressional budgets. "We've had some bad news, bad economic news," he said.
Miller's new assessment brought his estimate in line with the prevailing view on Capitol Hill, where key lawmakers from both parties have been saying for some time that the fiscal 1987 deficit picture was more bleak than what was being officially portrayed.
Only a few weeks ago, Miller was suggesting that the deficit for next year would probably fall well below the target, even though this year's deficit is rising well beyond expectations. He said last week that the 1986 deficit would probably exceed the $212 billion record of fiscal 1985. He said yesterday that it could reach $220 billion.
The bad news on the deficit came as Congress returned from its July 4 recess faced with a Supreme Court ruling last week that threw out a key part of the new budget law. The court ruled unconstitutional the so-called "trigger" mechanism that requires the comptroller general to automatically institute across-the-board budget cuts if spending would result in a deficit higher than specific targets in the law. The new law sets declining deficit targets aimed at hitting a balanced budget by 1990.
Joining the widening debate over how to restructure the law to overcome court objections, Miller suggested that the authority for ordering cutbacks in the event of deficit excesses be put in the hands of OMB, as an executive-branch agency.
The original law empowered the comptroller general, as head of the General Accounting Office, to order the across-the-board cuts. But the Supreme Court last week held that was a violation of constitutional separation of powers.
To remedy the situation, Sens. Phil Gramm (R-Tex.), Warren B. Rudman (R-N.H.) and Ernest F. Hollings (D-S.C.) have proposed new legislation that would repeal Congress' powers to dismiss the head of the GAO, putting that agency in the category of major independent regulatory commissions.
But the proposal appears to be drawing increasing opposition, most recently from the current comptroller general, Charles A. Bowsher, who has called about 15 key lawmakers, including O'Neill and Senate Majority Leader Robert J. Dole (R-Kan.), to state his opposition.
"Because we are so firmly convinced that the General Accounting Office should remain the congressional watchdog and continue its independent and objective audits, we oppose any change in the appointment and removal authorities for the office of comptroller general," Bowsher said in a statement in response to press inquiries.
O'Neill also said he did not think Congress "should surrender the GAO after all these years." He indicated it might be preferable to transfer authority to OMB, as Miller proposed later in the day.
But O'Neill acknowledged that the GAO change could pass if, as Gramm, Rudman and Hollings have proposed, it is attached to legislation that Congress must pass by late August to raise the federal debt ceiling.
In proposing to take over authority for the cutbacks as head of OMB, Miller said he was not making a "power grab" but rather trying to avoid further court litigation. Anything short of transferring authority to the executive branch would be "unconstitutional and unacceptable," he said