Magazine article Nation's Cities Weekly

Analysis: Deficit Issues Loom Large for 1995

Magazine article Nation's Cities Weekly

Analysis: Deficit Issues Loom Large for 1995

Article excerpt

The federal government faces yet another budget crisis next year. How the President and Congress respond will directly impact local governments and local economies.

Will there be more buck-passing to state and local governments in the form of unfunded mandates and preemptions of local authority? Will the federal government become an even greater debtor - increasing borrowing costs for local governments and the private sector while slashing resources for cities and towns?

If the past is any guide, the outlook for solutions is grim.

The crisis will come to a head when the federal government reaches the national debt limit of $4.9 trillion and the government's authority to borrow money expires. Only action by Congress to increase the limit - or to halt the growth in the federal debt - will permit the federal government to operate.

The 80s Legacy

In the 1980s, federal tax cuts and defense spending increases produced the greatest and fastest-growing deficits, debts, and unfunded federal mandates the nation has ever known. Although Congress passed a series of measures, dubbed Gramm-Rudman laws, to insure deficit reduction and fiscal accountability, those laws didn't work well.

Despite severe cuts in aid to local governments during the decade, the federal deficit skyrocketed. Accompanying the federal disinvestment in local economies was the unwelcome enactment of over 180 new, federal, unfunded mandates during the 1980s.

The "Contract with America"

The "Contract with America" (see related articles, this page), signed with much fanfare by Republican office holders and candidates several weeks ago, may be more of the same old budget shell game. The Republican staff of the House Budget Committee say the contract will require $190 billion in new federal tax cuts and tax subsidies over the next five years and a $60 billion increase defense spending. The plan also calls for a balanced federal budget by the year 2002.

But when it comes to paying, the "contract" is silent. If tax increases are off limits, there will be no choice but to propose cuts in federal entitlement programs: the "political untouchables."

Under current federal budget laws, any increase in defense spending would have to be offset or paid for by cuts in domestic programs affecting state and local governments. Any tax cuts or tax subsidies must be paid for either through offsetting tax increases or cuts in federal entitlement program like Social Security and Medicare.

Clearly, any credible effort to balance the federal budget will require cutting entitlement spending. As the non-partisan Congressional Budget Office reported last month: "Given the size and growth of entitlement spending, substantial reduction of the nation's deficit will almost certainly require bringing that spending under control. …

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