Asset Sell-Off Pressed as Way to Trim Deficits : White House Counts on Red-Ink Fever to Achieve Reagan’s Goal of Shrinking Federal Government

After five years of railing against swelling budget deficits, the White House is now quietly counting on Washington’s red-ink fever to achieve one of President Reagan’s most cherished--and so far, elusive--goals: shrinking the federal government.

The strategy is called “privatization,” and it got prominent play in the fiscal 1987 budget that Reagan sent to Congress Wednesday. The document proposes to sell a batch of federal assets, ranging from the sprawling Bonneville Power Administration to Navy oil fields, to Earth satellites, federal lands and even a chunk of the government’s $200 billion in loans.

Although fiscal 1987 income from the sales would be modest at best, the Administration said that the take from a government “garage sale” could exceed $25 billion by 1991. And contracting for services now performed by federal workers could save billions more, it contended.

Grabbing for Easy Money

Administration planners hope that a Congress pressed to meet the 1991 budget-balancing mandate set by last year’s Gramm-Rudman law will grab for that easy money.

“I’m optimistic we can succeed now, if we get our strategy thought out,” said Thomas Gale Moore, a former Hoover Institution scholar who heads a White House task force on the effort. In the past, he said, congressmen opposing such cuts “have been able to thumb their nose at threats to cut subsidized operations, but, under Gramm-Rudman, their subsidies may actually be cut--and they’re now willing to take a new look at it.”

If Moore is proven to be right, the Administration will have done more than merely raise budget-balancing money. It will have erased part of the legacy of Franklin D. Roosevelt’s New Deal--and made headway toward a cherished goal of the political right, expressed in Reagan’s first budget message in February, 1981, of “restoring the federal government to its proper role in American society.”

In fact, some Administration officials say, the money-raising potential of selling government assets is a lure to win balky lawmakers over to the idea of a shrunken government. “Obviously, there’s some deficit reduction to it,” one Office of Management and Budget official said last week, “but the basic thrust of it is that the private sector is more important than the public sector. The amount of revenues you’ll see in this year’s budget from selling assets is small.”

‘Privatizing’ Plans

Indeed it is. The proposed 1987 budget sets in motion an array of the so-called “privatizing” plans, but many would produce no money at all and others would generate cash only as a byproduct of other going-out-of-business activities, such as paying off old loans to the Treasury. Among the plans are proposals to:

--Sell five federally run utilities, led by the huge Bonneville Power Administration in Oregon and Washington, which together operate 123 hydroelectric dams and provide 6% of the electric power sold wholesale in the entire nation. Selling Bonneville and the Western, Southwestern, Southeastern and Alaska power administrations would net $12.5 billion by fiscal 1991, the White House says, but only $162 million of that would be realized in fiscal 1987--and all of that by the repayment of old federal loans.

OMB spokesman Edwin L. Dale Jr. said the Bonneville network is so huge that it probably could be bought only by a regional public utility with the power to float revenue bonds. The four others might be sold to private investors, he said.

--Auction off the Navy’s Elk Hills and Teapot Dome oil fields. The government expects to receive $671 million this fiscal year from its long-established practice of selling some of the oil to private bidders; the White House says it would net $2.9 billion--plus future taxes--by selling the entire reserves to private oil companies.

--Dispose of “high value” surplus lands owned by the Veterans Administration, the General Services Administration and the Transportation and Defense departments, earning an extra $1 billion in the next two years and an additional $2 billion by 1993.

Disappointing Land Sales

Earlier claims of potential revenue from asset sales have proved to be more than a little optimistic. The Administration pledged to raise $9 billion by 1984 by selling surplus Interior Department property, but, because of a massive lack of investor interest and stiff opposition from Western ranchers and others who pay little for use of the lands, the agency fell about $8.6 billion short.

--Sell to investors $4.4 billion of the government’s $257-billion worth of direct loans--to farmers, small businesses, foreign governments, students and others. The Administration says it would make $1.7 billion in fiscal 1987 alone through the program, but most experts say that the government has no good idea what its loans would sell for on the open market.

The deficit-cutting benefit, moreover, would be short-lived. Although the Treasury would reap some immediate cash, it would forgo the steady stream of income that it now receives from loan payments.

--Pull the fiscal plug on Amtrak, the government’s money-losing but politically popular passenger railroad, by sending it into immediate bankruptcy and leaving essential train services to the states. The action would save the government $3.3 billion by 1991 but only $617 million in fiscal 1987.

The Administration later would cut the deficit billions more by revising the federal Export-Import Bank’s subsidized loan program, ending subsidies to five private Landsat satellites that scan the Earth, phasing out the Federal Crop Insurance Corp. and selling the Federal Housing Administration, which has accumulated reserves of $3 billion by guaranteeing low- and moderate-income home mortgages.

Unpaid Student Loans

The Administration will ask Congress for authority to sell to private debt collectors part of its $4.3-billion sack of federally guaranteed student loans that went sour. The government has paid off many of the banks that made the loans and now would seek to recoup part of its loss. Also, the Student Loan Marketing Corp.--a privately owned company known as Sallie Mae, which has reaped huge profits by selling loan “packages” to investors--will begin repaying $5 billion in borrowed federal money.

White House officials concede that their agenda is overly ambitious. “I think if we get half a dozen major items privatized I will be very happy,” Moore said. “The political problems of doing this are great.”

OMB officials apparently had planned to propose an outright sale of the FHA, for example, but were forced to abandon the plan when a news leak roused the agency’s legions of congressional and real-estate industry backers.