White House budget documents show that the budget deficit will rise in fiscal 1989 to $167 billion -- $31 billion more than the ceiling set by law -- if the economy performs as private forecasters predict.
This projection suggests that despite the recent budget agreement between the president and Congress, the deficit probably will grow in coming years, rather than shrink as the Gramm-Rudman-Hollings budget law requires.
The documents obtained yesterday contain the highlights of President Reagan's budget being prepared for submission to Congress in mid-February. The draft budget envisions federal spending in fiscal 1989 of $1.104 trillion and a deficit of $136 billion, the Gramm-Rudman-Hollings target for that year.
The draft's official projections, based on the administration's economic forecast, show a deficit narrowing from the $148 billion level recorded in fiscal 1987, which ended Sept. 30. The deficit will be $146 billion in the current fiscal year, according to the White House projections.
But under the less optimistic scenario foreseen by most private economists, whose forecasts generally have proved more accurate than the administration's, the documents show the deficit would widen to $158 billion in the current fiscal year and to $167 billion in fiscal 1989, which begins in October. This projection is based on the Office of Management and Budget's projections of spending and taxes using an economic forecast prepared by Blue Chip Economic Indicators, which surveys many corporate and university economists and averages their predictions.
Year after year, the administration has based its deficit estimates on an economic forecast that is rosier than most private economists think likely. And even though the administration this year issued a less bullish forecast than it has in prior years, substituting the Blue Chip forecast still leads to a substantial worsening of the deficit outlook.
The fiscal 1989 draft budget adheres to the overall guidelines set by the recent White House-congressional agreement. It calls for $294 billion in defense spending, $513 billion in outlays for entitlement programs such as Social Security and Medicare, $169 billion for domestic programs that are subject to annual appropriations and $16 billion for international affairs programs such as foreign aid. It envisions federal interest payments on the national debt of $154 billion and offsetting payments from federal programs of $42 billion.
Gary Bass, director of OMB Watch, a nonprofit policy-analysis organization, said, "When we deal with realistic assumptions, we'll find that the deficits will exceed the $136 billion deficit targets, meaning difficult political decisions on the budget in an election year."
Following are highlights of the draft budget from the documents obtained yesterday. The documents reflect proposals by OMB that were sent to federal agencies Wednesday. Agencies have the right to appeal OMB's decisions to the White House.For the Department of Health and Human Services, OMB proposes to cut to $1.2 billion the budget authority for fuel assistance to low-income people, about $300 million less than in fiscal 1988. The Work Incentive Program, designed to help welfare clients register for jobs, would be killed even though the recent budget "summit" allocated it $95 million.
Funds for Head Start, the widely supported preschool program for disadvantaged children, would be merged into a single appropriation with about 30 other programs, but officials said that Head Start, which received $1.2 billion in 1988, would retain its separate identity, program level and general structure.
The Family Planning Program, which received $139.7 million in fiscal 1988 for grants to clinics providing contraceptive and fertility services to low-income women, would be cut to $100 million. There would be no funds for retroactive payments to children injured by vaccines.
OMB did not propose cutting Medicaid by $1.3 billion as had been earlier reported. It proposed $7.124 billion for the National Institutes of Health, including their $565 million share of the $1.3 billion for AIDS programs.
For the Environmental Protection Agency, the budget would increase outlays for the "Superfund" toxic-waste program to $1.2 billion from the $860 million appropriated in fiscal 1988. "The increase would prevent any delay in starting projects ready for cleanup and avoid an election-year controversy," the documents state.
At the same time, the budget would decrease new spending authority for waste water treatment grants by 35 percent, although outlays in fiscal 1989 would decrease by only $140 million, to $2.41 billion, because of projects already under construction. Overall, EPA's budget would total $5.1 billion.
For the Agriculture Department, the budget would cut spending to $51.5 billion from the $56.5 billion level of fiscal 1988. Some of that reduction is attributable to projected changes in crop prices, which affect farm subsidies. The budget would also cut funding for rural housing programs by 15 percent -- substituting a rental-voucher system for some of the current grants and loans.
For the Education Department, the budget would provide an increase, to $20.28 billion, from the 1988 level of $18.4 billion. It would increase spending on compensatory education grants to states, which help fund remedial education for educationally disadvantaged students, to $4.31 billion from $4.02 billion in 1988.
For the Energy Department, the budget would cut research and development programs on fossil fuel, solar and renewable energy and conservation to $573 million from the 1988 level of $639 million. But the budget would continue to increase spending on the supercollider, a Reagan initiative to build the world's most powerful atom smasher. Spending on the $5.3 billion project would total $230 million in 1989, up from the $18 million spent last year, the project's first.
For the Department of Housing and Urban Development, the budget would cut spending authority for subsidized housing by 19 percent, although the administration contends that an additional 108,000 families would receive housing assistance because of the use of rental vouchers instead of traditional housing programs. HUD outlays would rise to $18.88 billion from a 1988 level of $18.5 billion.
For the Interior Department, the budget would save $156 million by postponing land acquisition for the National Park Service. There would be "no significant adverse effects on park visitors," according to the budget documents.
For the National Aeronautics and Space Administration, spending would rise to $10.89 billion from $9.39 billion in the current year. Outlays for the space station would increase more than 75 percent, to $736 million. Outlays for space transportation would be $4.48 billion, up from $4.24 billion. "This increase will allow NASA to continue efforts to return the space shuttle to safe flight," the documents state.
For the Department of Transportation, spending authority for mass transit grants would be cut nearly in half. But DOT outlays would stay about the same, at $26.66 billion, partly because of an increase of $115 million for air traffic control facilities and equipment, which would total $1.032 billion.
For the Treasury Department, spending would rise partly because of an increase in the budget of the Internal Revenue Service, which would see its outlays rise to $5.12 billion from $4.93 billion in 1988.