WASHINGTON — Last year when David A. Stockman was still President Reagan's budget director, he quipped that if the government were to be held to the same Securities and Exchange Commission financial rules that apply to corporations, "we'd all be in jail."
Nobody is going to prison, but as the Reagan Administration begins work on the budget for the next fiscal year, it promises to rely on a wider array of accounting gimmicks than ever before to bring the deficit ostensibly under the $108-billion target required by the Gramm-Rudman budget law.
With most of their choices limited by current political constraints, budget officials are being forced as a central element of this approach to expand dramatically their proposal in last February's fiscal 1987 budget plan to sell off, bit by bit, some of the government's assets from its vast loan portfolio, its naval reserve oil fields and its regional power agencies that provide low-cost energy throughout the West.
Although Congress went along this year with the idea of selling enough loans to raise $7 billion as part of its own convoluted ploys to satisfy Gramm-Rudman, lawmakers rejected most of the White House's other plans. Nonetheless, some Administration officials have suggested that "privatization" of the federal government can be carried a lot further by selling, for instance, government-owned defense plants; replacing government loan guarantees with private insurance; and even--in one scheme that was immediately rebuffed internally--auctioning off the U.S. Postal Service to the highest bidder.
"As long as Reagan refuses to raise taxes and Congress holds the line against any further domestic spending cuts," said John Palmer, a budget specialist at the Urban Institute, "the budget-making process will become increasingly irrational and filled with short-term gimmicks that really don't deal with the underlying dilemma."
Not all of the deficit-reduction schemes and changes in budget accounting being considered by the Administration can be dismissed as simply sleight-of-hand tricks, and analysts believe that some of them have considerable merit in their own right.
But budget officials acknowledge that dismantling the government one step at a time only temporarily staunches the flow of red ink and does practically nothing to reduce the deficit's drain on the nation's pool of savings. An asset sale eliminates the potential for future income, probably widening the deficit in later years. Even more seriously, such sales soak up capital just as government borrowing does, crowding out private investment just as much as Treasury bonds.
"Asset sales are a short-term answer that only makes the long-run budget problem even worse," said one top budget official. "It doesn't make much sense as a serious deficit reduction measure, but what choice do we have?"
Fiscal 1988 Projections
As it stands today, Office of Management and Budget estimates show the government running a deficit of $162 billion for fiscal 1988, which begins next Oct. 1--$54 billion short of the $108-billion Gramm-Rudman target. That deficit goal remains in force even though the Supreme Court struck down key elements of the law earlier this year.
Proposed spending cuts, modest increases in user fees, and more refined estimates are expected to narrow the gap before the budget is formally presented in February. The only solutions being seriously considered to fill the remaining void, however, are further schemes to dispose of government assets.
Perhaps the most dramatic plan involves selling future government loans--which average about $40 billion a year--to private investors shortly after they are made.
"You'll hear screams that we are holding a fire sale and that we are in collusion with Wall Street," Budget Director James C. Miller III said in a speech Wednesday that outlined the proposal. But many budget analysts inside and outside the government agree that the plan would be an improvement over the current system, because it would more accurately reflect the real cost of government loans.
"The advantage is that you immediately have information on the value of the loan subsidy," said Martin Phaup, a senior official of the Congressional Budget Office.
As a bonus, the plan also would provide a welcome tonic by slashing billions of dollars off the budget's bottom line. Under the government's current cash-based accounting system, the total cost of each federal loan is counted as an outlay as soon as it is made, ignoring future revenues expected from repayment and interest. By selling the loan quickly, the government would only have to include as an outlay the difference--or discount--between the face value of the loan and its selling price on the open market.
Some critics, however, are worried that such changes in government practices would still do little to repair the underlying erosion of the federal government's financial position.
"You can push the analogy too far, but if you saw any company selling assets to keep its head above water, you'd know it is in a very bad way," said James Grant, editor of the Wall Street newsletter, Grant's Interest Rate Observer. "And when you look at all the contingent liabilities the government is continuing to accumulate, as an ongoing enterprise it doesn't look very good."