Washington's Labyrinthine Ways By Otto J. Hetzel President and Congress on a Collision Course at the End of a 44 Day Respite. By November 13, 1995, it will be apparent whether a federal government crisis will take place on November 15, resulting in the closedown of all but essential services by the federal government. The thirteen budget bills appropriating funds for the federal government, under current timetables, were scheduled to be enacted by Congress and signed by the President by October 1st each fiscal year. While some delays are not unusual, this year only two bills were passed in Congress, and only one of these was signed by the President, a measure dealing with military construction. He has vetoed another which would have provided funds for operation of Congress, suggesting the whole federal government, including Congress, should be under the same deadline. The remaining bills had not yet completed necessary Congressional action in conference committees to resolve differences in House and Senate versions and had not been submitted to him by late October. Continuing Budget Resolutions Postpone The Showdown. Just before the October 1st deadline, the President and Congress reached a temporary accommodation resulting in a "continuing resolution" permitting the federal government to continue operations for fourty-four days, through November 14. While in the past these resolutions simply continued funding at the prior year's levels, this time the Republican Congress reduced funds for many departments even for this forty-four day period, ranging between 5 or 10 percent from the prior year's funding levels. Clearly, the Republican Congress was signaling that it intends to impose substantial cuts on many areas of government spending. The President's Veto Strategy And Accomplishments. Thus far, the President has only exercised his veto powers sparingly to force Congress to shape revisions in legislation he opposes. What is not clear is how far he will go in requiring changes. The Democratic minorities in both houses are probably sufficient to uphold his vetoes. However, his use of his veto powers are likely to be circumscribed by the appearance he wants to give and how he wants to position himself for the 1996 elections. For instance, his subsequent approval of the first measure he vetoed, the 1995 recision bill deleting about $17 billion in prior appropriations, was obtained with only modest reductions in the rescissions demanded by Congress. The changes he demanded appeared more cosmetic than policy-oriented. The revised version he signed still authorized almost the same level in cuts in expenditures since he required less than a billion in rescissions be dropped relating only to specific programs he had personally championed. His next veto rejected an attempt by Congress to override his arms embargo on Bosnia, clearly a policy issue. The third veto was somewhat tit for tat, imposing some inconvenience on Congress itself. He vetoed the bill appropriating funds for Congress' own operations, indicating he had no policy objections to the amounts while suggesting that Congress should be treated the same as the Executive Branch whose funding was still to be determined. As to the other 11 spending bills still being considered in Congress in late October, the President also has announced his intention to veto current versions of 8 of them because of disagreements with Republican policies embodied in these bills. The Climax Of The Battle Is Likely to Occur over the Budget Reconciliation Bill. Congressional procedures call for reconciliation of various budget bills through one act, and therefore only one vote, that re-allocates expenditures to keep them consistent with an overall budget policy. Starting with President Reagan's Director of the Office of Management and Budget, David Stockman, this process was perverted starting in 1980 to reimpose Presidential policy on prior Congressional appropriations. It was used by the Clinton Administration in such a fashion, and, for example, was the vehicle by which the Empowerment Zone authorization was enacted. Rather than requiring separate votes and the accompanying intense pressure from lobbying groups concerned with each policy area, the reconciliation process involves only one vote. This year, in a turnabout, it is being used by Congress against the Administration to make major policy changes. Thus, this may be the first time that it fails to provide the means for such monumental policy redirections as now being proposed, if it becomes the Xmas tree, on which every proposal for change is attached. That process can also generate significant opposition from all those who object to various parts of the whole, perhaps sufficient to strike down the attempt. With a battle of "brinkmanship" underway, Republican Congressional leaders have announced a strategy and are threatening to attach all the remaining individual budget bills along with the authorization to exceed the current $4.9 trillion national debt limit to the Omnibus Reconciliation Bill that they will consider in late October. By this tactic, they would try to force the President to accept their policy changes and drastic reductions in federal government expenditures in one package, or risk not only closing down all but essential governmental services because of lack of funds, but also repudiation of $62 billion in federal Treasury securities that come due 8:30 a.m., November 15th. In effect, causing the government to default on the full faith and credit obligations of the government. Given the alarm sounded by financial institutions about this course of action, failing to act on the debt limit seems unlikely, but with such a game underway, one can never be sure the unthinkable won't occur. The Battle For The Public's Hearts And Minds. We can be sure there will be threats and counter-charges hurled back and forth until shortly before the deadline, with the President and Congress each trying to assess blame on the other. The fight between the President and Congress over policy while jockeying for the high ground with voters has been and will continue to take place until election time. In fact, beginning this summer, the President has been on an election campaign footing, with literally daily sessions to organize his message to allow him, and not the Republican Congress, to define the issues. Budget Bills Providing Substantive Changes. One interesting facet in this fight between Congress and the President, with the Budget process as the battleground, is that Congress has put aside much of the normal competition between authorizing and spending committees, and contrary to past practice, substantive legislation has now become part of many of the budget bills. Since this is a new Congress with a new majority, turf battles between the normally jealous authorizing and appropriating committees have not been as intense as they were under long-term Democratic control. Chairmen have generally been willing to defer their own prerogatives in order to confront the common enemy, the President. This has occurred to take advantage of the leverage engendered when a veto rejecting Republican policies would have to cut off all funds to the agencies involved. That's like challenging the President to cut off his nose to spite Congress' face. The Democratic minority is only relevant to the extent that the President acts to exercise his veto, ensuring that his actions will not be overridden, and when the Republicans cannot hold to their, sometimes controversial, party line. Cracks Showing in the Solid Republican Front. To some extent, however, the solid Republican front has already faltered. For instance, budget bills for Interior and Defense, compromises between each house's versions reached in conference committees, were thereafter rejected in the House because of policy differences that split GOP ranks and allowed Democrats successfully to oppose the bills. The Interior bill, for instance, contained a provision that continued to permit leasing of federal lands for extraction of minerals at $2.50 per acre that had resulted in windfall profits to firms taking advantage of the low rates to obtain mineral fields estimated to yield tens of millions of dollars. The Pentagon funding bill was rejected on the opposition of Democrats who felt too much money was still being provided the military when the domestic side was experiencing draconian cuts joined by Republicans displeased by failure to impose complete prohibitions on abortions at overseas military hospitals. Profound Changes Underway In Washington, D.C. in Government's Role. While the House of Representatives passed much of its touted "Contract With America," little of it was meaningful unless the Senate concurred. That has not yet happened, except for two measures dealing with Congress, itself. Nevertheless, years of bi-partisan national policies, across the board, are under siege by the newly empowered Republican Congress. With substantial party line control in Congress, Republicans can dictate most policy positions there and they are attempting to impose them through the budget legislation, recognizing that their leverage with the President is most effective in that area. The Budget Reconciliation Bill: A Blazing Xmas Tree of Policy Changes. With an omnibus reach including the policy products of a number of Congressional committees bent upon putting a Republican stamp on national policy, in reducing the federal budget deficit by the year 2000, and in achieving tax reductions, the likely policy changes in the Reconciliation Act that would be rolled into one up or down vote are truly profound. Many programs would be turned back to the states to administer. Lack of long-term guarantees of federal funding and problems of the poor moving to states with higher benefits are obvious problems in current versions. The prior safety net would be removed from many of the poor over time, immediately in the case of drug addicts, alcoholics, and non-citizens. The magnitude of the changes being made make it hard for the public to grasp the enormity of the changes that will affect them. When they do, watch out. The current versions of some of these provisions include, along with anticipated savings over the next seven years: Reductions in Medicaid and in Food Stamps: To achieve savings of $182 billion, federal contributions would be made through block grants to states who would be able to vary benefit provisions and who and what medical services would be covered. Those who could work would be required to do so. Food stamp allotments would also be the source of some $23 billion in savings. Supplemental Security Income (SSI) providing benefits to 6.3 million blind, disabled and needy recipients would be cut $11 billion. Support for disabled children would be reduced, targeting only the most severely disabled. It has been estimated that over 200,000 children would lose benefits. Medicare Costs to Recipients Would Rise Along with Structural Changes: Savings of over $270 billion as well as providing funding for Republican sponsored tax cuts would be achieved through reductions in payments to doctors and hospitals, encouragement to the elderly to move off to private provider plans, raising the annual deductible, and making better off retirees pay more. Severe Welfare Cuts to Take Place: To achieve budget reductions and tax increases, the major area for reductions will occur in support for the poor. Federal guarantees for needy families would be terminated; block grants to states for tailoring to local conditions would be substituted. Benefits would be limited to five years in a lifetime! At least one half of recipients would be required to be at work by the year 2002. Funds for states would be frozen at current levels for the next five years. School lunch and nutrition programs would also be given to the states to run, determine benefit levels, and who would be served. One result may be increased need for public housing agencies to make up the shortfall as rents to tenants are reduced as their incomes drop from loss of welfare benefits. The President has signalled that he would accept the only somewhat less drastic Senate version, thus fulfilling his campaign promise to end welfare as we knew it. And, how! Federal Employee Pension, Health Care And Parking Benefit Reductions: Savings of about $10 billion are being sought by reducing federal contributions to employee pensions, capping health care costs, and charging for employee parking. Tax Savings: Savings of $245 billion for business and individuals are the objective. A $500 per child income tax credit (meaning it is more valuable to those in higher tax brackets) will be made available to families with incomes under $110,000. In addition, one of the most significant programs for the working poor, the earned income tax credit would be significantly reduced by $43 million. Pension benefits requirements for corporations would also be reduced. Taxes on wealthier Social Security recipients would be terminated. Deductibility of IRA savings accounts would be provided and capital gains taxes on stocks, bonds, real property and other assets would be reduced by one-half. Profits subject to tax would also be reduced through indexing. Reductions in Student Loans: To achieve $10 billion in savings that will transfer such costs to students and their families particularly impacting state supported institutions of higher learning, direct lending from the institutions recently instituted would be returned to banks and lending agencies. Increases in interest charges to student borrowers would also occur. Federal Savings and Loans Would Be Eliminated: S&Ls would have to become either federally chartered or state banks by 1998 and would incur an immediate assessment to fund their insurance account to cover potential failures. Community Reinvestment Act Coverage Would Be Reduced: Protections against discrimination of borrowers in their community would be curtailed for smaller banks that form the greater part of the banking community in the country. COPS Funding That Provided Support for Police on the Streets to Be Converted: The promised 100,000 extra police provided during the last Congress would be restructured into block grants to states which would not be required to devote funds to additional police. Assessing the Reconciliation Package. It would appear that so many policy issues that are anathema to the Clinton Administration are included in this provision, that a veto would surely occur. Whether tying all these provisions together really makes sense can be questioned. The provisions appear to provide Democrats with major issues concerning imposing higher costs of health protection on the elderly (who vote!), reducing support for law enforcement, and reducing environmental protections, all of which can be exploited effectively in 1996. Stay tuned for events; this is a volatile situation, undergoing daily changes. HUD Responds to Calls for Reductions of Regulations. The President in 1993 by Executive Order asked federal agencies to cut their regulations in half within three years. In 1995, by memorandum, he noted some agencies have not acted swiftly, and requested at least obsolete regulations be deleted. HUD has recently acted to do so this Fall. HUD has issued regulations deleting a number of obsolete regulations from 24 Code of Federal Regulations thereby reducing the numbers of trees required to produce regulations for its various programs. In deleting 43 parts, 11 sub-parts, and 8 appendices in the CFR, about one-half of the provisions HUD threw out related to discontinued HUD programs. Perhaps the most interesting deletion was the provisions in 24 C.F.R. Part 11, authorizing and adopting the HUD Departmental seal. We are anxiously awaiting the clarifying guidance from HUD on proper use and even the continuing viability of HUD's seal, a picture of which will no longer grace the Code of Federal Regulations. One suspects, however, that much of what will occur is that HUD will put what was in the regulations into some form of "guidance" later on. Part 3, now deleted from HUD's regulations involves delegations of authority for positions no longer in existence. Good show gang! An Interesting Legal Issue for HUD Arising Out of the Rescission Bill. The major brunt of the rescission fell on housing expenditures, with almost $7 billion rescinded, including substantial funds previously appropriated for public housing authorities. Much of that had already been distributed by HUD to housing authorities in responding to their requests for funds. In turn, in many cases, the funds had been expended or were under contract by the authorities with third parties and, therefore, were legally obligated. This was a major repudiation of a federal contract, so HUD was faced with a difficult situation. Its decision was to recalculate the amounts and to advise each recipient of its lower authorized allocation. HUD also then created a fund to fill in for those authorities already bound by their commitment of funds to others, to relieve any hardships. The only problem was that tapping the fund meant losing an equivalent amount of next year's allocation of federal funds. It could make a grand class action. Gingrich Likely to Be Distracted Shortly By Ethics Inquiry and Appointment of Counsel. It has been reported that the House Ethics Committee, although appointed by Speaker Newt Gingrich, will shortly announce a Special Counsel to conduct an investigation of a number of charges regarding his use of funds and other conduct. One issue relates to use of his PAC funds, from GOPAC, which is charged with using funds raised for state elections in federal ones. Another is pricing for bulk sales of his book. Certainly former Democratic Speaker Jim Wright may be thinking turn-about is fair play. Gingrich was instrumental in forcing Wright out of the Speakership and Congress through similar proceedings. How carefully the Counsel's role will be delineated in scope may be crucial for Gingrich, as Wright found out. Former HUD Secretary Kemp Proposes D.C. as Federal Tax Free Zone. A great proponent of enterprize zones that combined tax reductions with economic development, Reagan Administration HUD Secretary Jack Kemp has proposed making D.C. a federal tax free zone to increase business activity and encourage higher income individuals to move back into the City. Its an intriguing suggestion, and it could save considerable transportation costs for federal workers as well. The Head in the Lion's Mouth Award. In what can only be described as the ultimate act of bravery, HUD Assistant Secretary for Public and Indian Housing, Joe Shuldiner, resigned to take over direction of the Chicago Housing Authority, which a few months earlier he took over in his capacity as HUD Assistant Secretary. In fact, he did this even after a Government Accounting Office report came out painting a dim picture for any real success. HUD Inspector General Charges Empowerment Zone Selections May Have Involved Politics. Could politics have influenced selection of six empowerment zones out of seventy-eight applicants providing $100 million and other tax advantages to those selected? The HUD IG isn't sure, but certainly she has some suspicions. I wonder if anyone looked into the selection of the $900 million super collider during the Bush Administration that not surprisingly went to Texas in a national competition among the states. In an Audit issued August 31, 1995, the HUD IG charged that it was not clear how the Secretary's own assessment of the capabilities of the applicants was applied to determine those selected. She also questioned the validity of basing selection of some recipients for Enterprise Community designation on the statute's authority to consider geographic dispersion, in that some fourteen applicants previously categorized as "weak" in the review process were included in the sixty-five selected. The basis for limiting selection to only six recipients of Economic Development Incentive funds, going to strong rated Zone applicants, giving some as high as $125 million (for Los Angeles), was also challenged by the IG as violating provisions of the HUD Reform Act. The IG charged that the Reform Act mandates procedures for competitive selections, but it was not followed. That was not the opinion of the HUD General Counsel, however. The Secretary obtained an opinion before he acted from his General Counsel who advised him the Reform Act did not apply in the particular circumstances. The HUD IG criticized the Secretary for not waiting until the IG's own counsel had interpreted the provision, particularly since he disagreed with the opinion of the HUD General Counsel. The Secretary responded in a reserved manner, as set forth in the Audit Report, that it was inconceivable that he would have to clear all his General Counsel's opinions first with the IG's counsel or be subjected to criticism. To do so certainly would create an interesting conflict let alone delays. Your Correspondent Otto J. Hetzel is a professor of law at Wayne State University and also practices law in Washington, D.C., with the firm of Pepper, Hamilton & Scheetz.