Quick to Pick Up the Tab, Slow to Find the Savings

Congress and the White House are promising to find ways to pay the crushing costs of Hurricane Katrina, but they are already shooting down leading options that could help achieve that goal.

Washington is flooded with politicians calling on Congress to cover the cost of rebuilding with spending cuts and tax increases. But seasoned anti-deficit legislators doubt they will turn rhetoric into reality.

“There’s been a working majority for disregarding fiscal discipline,” said Senate Budget Committee Chairman Judd Gregg (R-N.H.). He added that he has been urging spending restraint among his colleagues, “but so far, it’s been a very small echo chamber.”

A proposal to take back thousands of recently approved highway projects -- the cornerstone of a spending-cut plan offered Wednesday by fiscal conservatives -- lacks support even among Republicans. A call by the fiscal conservatives for postponement of the costly new Medicare drug benefit has been swatted down by the White House and GOP leaders. And efforts to cut other domestic programs would probably fall far short of covering the full cost of the hurricane cleanup.

Some fiscal conservatives are hoping that the open-ended costs of rebuilding the Gulf Coast -- on top of burgeoning costs of the war in Iraq and the possibility of another powerful hurricane hitting Texas -- will be a tipping point that brings deficit reduction back in fashion.

“This could be one of those fiscal crossroads moments,” said Robert Bixby, executive director of the Concord Coalition, a budget watchdog group.

But for now, there is no consensus about whether to offset Katrina’s costs, let alone how.

Legislators have been assuming the cost of rebuilding the Gulf Coast could run as high as $200 billion. Late last week, Bush said he wanted to cut spending in other programs to pay these costs.

But when pressed for details, White House officials have simply reiterated proposals in the president’s annual budget -- $15 billion in domestic spending cuts and $137 billion in 10-year savings from entitlement programs -- even though most of those suggestions have been rejected or ignored by Congress.

For many disgruntled conservatives, the Bush years have left a legacy of big-spending benchmarks. These include the nation’s most expensive education, farm subsidy and Medicare bills, a 94% increase in international spending and an increase from 6,000 to 14,000 in the number of federally funded local and state projects, according to an analysis by Brian M. Riedl of the Heritage Foundation.

Republican leaders in Congress tried to turn things around in this year’s budget by including the first effort in eight years to slow the growth of entitlement programs, such as Medicaid and student loans. But that effort -- to make $35 billion in savings over five years -- pales in comparison to the $263 billion in savings Congress approved in its last budget-cutting exercise in 1997.

And the $35-billion target was quickly dwarfed by Hurricane Katrina’s effects. Congress has already spent more than $60 billion for immediate aid to victims and early recovery efforts. On Wednesday, the House and Senate approved an additional $6.1 billion in tax breaks for hurricane victims. Another funding installment is expected in mid-October.

The mood in Congress, meanwhile, has clearly swung from unquestioning willingness to provide aid to a wrenching discussion of whether to offset further costs or run up the budget deficit.

A leading option being discussed by GOP leaders is an across-the-board cut in other programs. Senate Finance Committee Chairman Charles E. Grassley (R-Iowa) told reporters Wednesday that he was considering such a plan. But he acknowledged, “It would be a politically difficult thing to do.”

It also would be hard to raise enough money to come close to the Katrina price tag -- unless Congress departs from its pattern of treating a big part of the budget as sacrosanct.

Stan Collender, a budget analyst at Financial Dynamics Business Communications, a public relations firm, calculated that if Congress continued its pattern of not cutting interest on the debt, spending on defense, domestic security and foreign aid, and Social Security and other benefit programs, only about $500 billion of the budget is left. Those programs would have to be cut by about 40% to offset the current estimate for hurricane-related costs -- “a ridiculous notion under virtually any circumstances,” Collender said.

The Republican Study Committee, a group of House conservatives, unveiled a list of possible spending cuts Wednesday that they said would total $500 billion over 10 years.

“Now is the time for us to begin to make the tough choices,” said Rep. Mike Pence (R-Ind.), the group’s chairman.

But many of the proposals are what a senior aide to the House Appropriations Committee dismissed as “oldies but goodies” -- budget proposals that Congress has repeatedly rejected.

For example, the plan called for eliminating funding for the Corporation for Public Broadcasting. In June, the House voted to increase its funding by a 284-140 vote, with 87 Republicans joining in support.

The biggest-ticket item advanced by the conservative group is a proposal to delay implementation of Medicare’s new prescription drug benefit, which takes effect Jan. 1, for savings of about $30.8 billion. It is an attractive target for conservatives because many of them opposed the measure in the first place.

But White House spokesman Scott McClellan rejected the idea, and House Majority Leader Tom DeLay (R-Texas) called it a “nonstarter.”

Little backing is evident for the other big proposal by Pence’s group -- repeal of $25 billion in local projects in the recent highway bill.

The highway bill was riddled with so-called earmarked projects that are important trophies for legislators to bring home to constituents -- even for conservatives such as DeLay.

“My earmarks are pretty important to building an economy in that region,” DeLay said.

Among Californians, House Democratic leader Nancy Pelosi told the San Francisco Chronicle that she would forgo up to $70 million of the $129 million earmarked in the highway bill for her district in San Francisco. But in Orange County, staff aides to Republican Reps. Dana Rohrabacher of Huntington Beach, Ed Royce of Fullerton and Gary G. Miller of Diamond Bar defended their share of highway projects as being essential to the local economy.

“There are other ways to cut the budget; let’s cut what’s wasteful,” said Miller’s spokesman, Kevin McKee.

Another budget option being considered by House and Senate GOP leaders is to expand the pending legislation to pare $35 billion from Medicaid and other benefit programs.

But Gregg, whose committee compiles the legislation based on recommendations from other panels, was not sure the Senate could meet the $35-billion target.

Gregg called it “unrealistic to think you’re going to expand” the $35-billion cut unless it was part of a broader, bipartisan deficit-reduction package like those passed in the 1980s and 1990s that included tax increases as well as spending cuts.

This year’s congressional budget also calls for $70 billion in tax cuts over five years. Some Democrats want to scale these back, but Bush and most Republicans warn of damage to the economy.

A key question is whether the burgeoning costs of Katrina and Iraq will dampen Republicans’ appetite for future tax cuts.

“At least members are talking about offsets,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget, a bipartisan, nonprofit group.

“Unfortunately, there’s not much talk about the area where offsets could be found most quickly: tax policy.”

Times staff writers Warren Vieth in Washington and Jean Pasco in Orange County contributed to this report.