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Finance Crisis Eased; Balanced Budget Is Voted

October 10, 1985|PAUL HOUSTON | Times Staff Writer

WASHINGTON — The Senate Wednesday approved legislation that would ostensibly balance the budget by 1991 while, in a related move, the Treasury Department arranged for emergency borrowing that will prevent government checks from bouncing this week.

As a result of the two actions, the mini-crisis over the government's borrowing authority is temporarily suspended and the fate of the Republican budget-balancing plan is likely to be worked out by a House-Senate conference committee.

In legal terms, raising the federal government's borrowing authority is a relatively simple legislative task--one Congress has been compelled to perform regularly in recent years.

Faced with rising public concern over the huge size of the deficit and its potentially grave impact on the economy, however, both Democrats and Republicans this fall have tried to use the debt ceiling measures as vehicles for sidestepping blame for raising the deficit and convincing voters they are at last tackling the problem. The budget-balancing plan passed by the Senate could be altered or repealed by future congressional action.

Vote Is 75 to 24

The Senate voted 75 to 24 for the controversial budget-balancing plan, attaching it to a bill that would extend the government's borrowing authority for about a year. But House Democratic leaders, arguing that the Treasury action ended the debt ceiling crisis at least temporarily, maneuvered to derail or substantially modify the balanced-budget plan.

Earlier, in a deal struck between Senate Republican and Democratic leaders at 3 a.m. Wednesday, the Democrats had dropped a week-long filibuster on the bill in exchange for Republicans' agreeing not to push the House to take immediate action on it. Instead, the Senate leaders--unaware of Treasury's impending action and believing that government checks would bounce if Congress did not at least pass a short-term borrowing bill--arranged for approval of a measure that would run until Oct. 18.

Hours later, after the Treasury action, House Democratic leaders refused to take up the Senate's stopgap bill, claiming that there was no longer a crisis. Rep. Dan Rostenkowski (D-Ill.) said that Treasury's decision to borrow $5 billion from the Federal Financing Bank on Wednesday--with $10 billion more available--made it unnecessary for Congress to raise the debt ceiling for another week or two.

Besides, Rostenkowski said, passage of a stopgap bill that expires Oct. 18 would restrict the amount of time that Democrats would have to develop an alternative to the Senate's balanced-budget plan.

Senate Republicans, backed by President Reagan, had sought to force quick congressional approval of their balanced-budget proposal by attaching it as an amendment to "must" legislation extending the government's borrowing authority for about a year.

The budget plan would require Congress to trim $36 billion a year off federal spending until 1991, when the deficit would be eliminated. If Congress failed to do so, the President could act, although Social Security and contractual obligations would be exempt from cuts.

Democrats Stall

But Democrats used stalling tactics, protesting that the plan would give the President unprecedented powers, including the ability to cut social programs far more than defense.

As the stalemate ground on, the Treasury Department warned that it would be unable to meet payrolls and pay bills unless the ceiling on federal debt was raised by Wednesday.

Eventually, Senate Democrats agreed to allow an immediate vote on the balanced-budget proposal if Republicans would permit passage of a separate bill that granted a short extension of borrowing authority. The idea was to give House Democrats more time to scuttle or modify the budget plan when a Senate-House conference meets to resolve differences on a long-term debt bill.

Subsequently, the Republican-controlled Senate passed the stopgap measure. Assured early Wednesday that both houses would pass the measure, the Administration went ahead with a midday auction of $5 billion in Treasury bills.

But, as a hedge against the possibility of congressional inaction, the Treasury Department retired $5 billion in Federal Financing Bank bonds to "cover" the sale of Treasury bills. It was that action to which Rostenkowski referred in declaring that there is no longer any crisis.

Long-Term Borrowing

In the meantime, the Senate tacked the balanced-budget amendment onto a long-term borrowing bill that would raise the debt ceiling to $2 trillion from $1.8 trillion. The amendment, sponsored by Sens. Phil Gramm (R-Tex.), Warren B. Rudman (R-N.H.) and Ernest F. Hollings (D-S.C.), was adopted with broad bipartisan support after an alternative backed by Democratic leaders was rejected, 59 to 40.

At the White House, spokesman Larry Speakes said that Reagan "applauds the vote as a step in the right direction."

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