Judges Strike Down Key Part of Gramm-Rudman

The core of the new law forcing automatic spending cuts to balance the federal budget by 1991 was declared unconstitutional Friday by a special three-judge federal court.

The court said the Gramm-Rudman act violates required separation of powers between the President and Congress.

But the decision allows the first $11.7-billion round of spending cuts under the law to take effect March 1, pending the outcome of an appeal to the Supreme Court.

Within hours of the ruling, a formal notice of intent to appeal to the Supreme Court was filed with the district court on behalf of Charles A. Bowsher, a central figure in the case by virtue of his position as comptroller general of the United States. It could take several days for the actual appeal to reach the Supreme Court.

The Gramm-Rudman law calls for a deeper, second round of cuts to take effect Oct. 1 at the start of the next fiscal year if Congress fails to reduce the deficit--now an estimated $208 billion--to $144 billion.

The court’s ruling leaves intact the deficit-reduction targets of the Gramm-Rudman law, but it removes the automatic-cutback feature as the main enforcement mechanism if Congress fails to to meet those targets.

Tremendous Pressure

Many congressional leaders said that as a result of the ruling, Congress will still be under tremendous political pressure to meet the Gramm-Rudman targets, even without the threat of automatic cutbacks.

President Reagan said the decision “does not invalidate” the law “nor does it diminish the determination of this Administration--or the responsibility of Congress” to meet the deficit-reduction targets.

“This court ruling is no excuse for walking away from our responsibility to bring federal spending under control,” the President said in a statement issued by the White House.

“We made an agreement--let’s live up to it. We’ve given the American people our word. We cannot let them down,” the statement said.

‘A Lot of Teeth’

White House spokesman Larry Speakes, asked if the decision removed enforcement power from the act, said: “Our hammer is the need for deficit reduction and the American people demanding deficit reduction and the Administration submitting a budget that meets the Gramm-Rudman targets.”

John Carley, legal counsel of the Office of Management and Budget, added: “If you mean by removing the teeth from the law taking out the legal sanction, I have to concede that; if you mean it has no teeth whatsoever outside of a legal context, I think that’s for others to say, but stepping aside from my lawyer’s role and into a citizen’s role, I think it has a lot of teeth.”

In overturning a central provision of the law, the three-judge court said: “Our holding today eliminates the automatic deficit-reduction process.

“It may seem odd that this curtailment of such an important and hard-fought legislative program should hinge upon (a) relative technicality,” the court said. “But the balance of separated powers established by the Constitution consists precisely of a series of technical provisions that are more important to liberty than superficially appears.”

Congress Vote Required

The court left intact a “fallback” provision of Gramm-Rudman that requires Congress itself to vote “yes or no” annually on a spending-cut figure to meet the law’s deficit-reduction goals.

But the panel said it is unconstitutional to hand the job of ordering those cuts over to the comptroller general, who is appointed by the President to a 15-year term and only can be removed by Congress.

The comptroller general heads Congress’ General Accounting Office, an auditing and watchdog agency for federal programs.

“The powers conferred upon the comptroller general as part of the automatic deficit-reduction process are executive powers which cannot constitutionally be exercised by an officer removable by Congress,” the court said.

Dow Jones Dips

The ruling apparently helped cause an immediate, albeit temporary, dip in the Dow Jones Industrial Average by heightening fears that a stalemated Congress will be unable to curb the deficit. That could bring higher interest rates, which hurt the bond and stock markets, analysts said. But, by the end of the day, the market had recovered and the Dow closed up nearly 13 points.

Rep. Mike Synar (D-Okla.), who led the attack on the law in a suit with 11 other members of Congress, said the decision means “Congress can run but it can’t hide from its responsibilities. With or without Gramm-Rudman, the Congress faces some tough choices over the next few years.”

Senate Majority Leader Robert Dole (R-Kan.) agreed. “The Pressure will still be on Congress. And Ihope we will not worry about Gramm-Rudman and put together a budget we can all support.”

Sen. Phil Gramm (R-Texas), one of the chief sponsors of the law, said: “Gramm-Rudman is as much in effect today as it was yesterday.”

‘Total Vistory’

But Rep. Silvio O. Conte (R-Mass), who was one of the 12 challengers to the measure, said the ruling was “a total victory” over what he said is “a monster.”

The law also was challenged by the National Treasury Employees Union representing retired federal workers who already have felt the Gramm-Rudman sting.

The court said the law improperly suspended January cost-of-living increases for federal civilian and military retirees. But, again, the ruling allows the suspension to remain in effect pending the outcome of the Supreme Court appeal.

The decision was a mixed bag for the Reagan Administration.

Arguments Rejected

In striking down the role of the comptroller general in Gramm-Rudman, the court agreed with the Justice Department.

But the court rejected Administration arguments that members of Congress lacked legal standing to bring the suit against the law.

The court also turned back a more sweeping attack that Congress unconstitutionally delegated powers under the law to non-elected bureaucrats.

The court said Congress is free to assign the task of setting budget-cutting goals to its Congressional Budget Office and the Office of Management and Budget, an executive agency.

The ruling was signed by all three members of the special panel: Judge Antonin Scalia of the U.S. Circuit Court of Appeals here and U.S. District Judges Norma Holloway Johnson and Oliver Gasch.