House Panel Hands Bush Setback on S&L; Bailouts : Administration Warns of Veto; Proposal Would Set Aside Gramm-Rudman, Add $50 Billion to Deficit

Times Staff Writer

The House Ways and Means Committee dealt a major blow to President Bush's savings and loan rescue plan Wednesday by voting for a financing proposal that would add $50 billion to the federal budget deficit.

Administration officials immediately warned of a veto and said the committee's action would virtually destroy the fiscal discipline of the Gramm-Rudman law, which requires that the budget be balanced by 1993.

"The result of today's vote in the House Ways and Means Committee is a mistake," Treasury Secretary Nicholas F. Brady said in a statement. "If adopted, this action could force us to go back to square one on both the budget and the savings and loan plan. It could mean months of stalemate.

This is not the way either to lower interest rates or solve the savings and loan crisis." Before the vote, Brady met with committee members for more than an hour in private session, trying to persuade them to support the Administration's proposal.

The panel voted 25 to 11 for a plan that would give the S&L; crisis special treatment by waiving the Gramm-Rudman restrictions on spending. Two Republicans, Willis Gradison of Ohio and Raymond McGrath of New York, joined the panel's 23 Democrats in approving an amendment to the House S&L; plan that would use special Treasury bonds to raise the funds to close or sell hundreds of insolvent S&Ls.;

Most of the $50 billion would be spent to pay off the insolvent firms' depositors, whose accounts up to $100,000 are insured by the federal government. Under Bush's plan, a new agency outside the federal budget would sell a special bond issue without adding to the formal deficit.

But the committee voted Wednesday to make the new agency part of the federal budget and have the Treasury sell bonds to raise the $50 billion. Treasury bonds, as the safest investment issued by the government, carry the lowest interest rates. Using Treasury financing instead of a special new agency would save $4.5 billion over the 30-year life of the bonds and thus place a lighter burden on future taxpayers.

The amended House plan adopted Wednesday--a preliminary one that could be overturned next week when the committee formally votes on a savings and loan rescue package--would allow Congress to raise the $50 billion without violating the stringent Gramm-Rudman law. Rep. Bill Frenzel (R-Minn.) said similar waiver tactics could be used again and again to evade the budget-balancing law. "You can breach it for toxic waste or homelessness or whatever else comes down the pike," he said.

But Rep. Sander M. Levin (D-Mich.) said the thrift crisis is "a unique situation" requiring special action.

Committee members brushed aside warnings that their move could bring a presidential veto and thus delay the date when funds are available to close crippled S&Ls.;

"There will be no delay unless the Administration wants a delay," said Rep. Robert T. Matsui (D-Sacramento). Congress, he said, will present a bill "in a timely fashion."

Ways and Means has a hand in the legislation because the bill contains tax provisions. The main panel moving the bill is the House Banking Committee, which has already voted in favor of the Bush financing method.

When the bill goes to the House floor, the members could select the Banking Committee version or accept the Ways and Means method adopted Wednesday. Once the full House acts, its bill must be reconciled with the Senate version in a compromise product.

The bailout legislation, estimated to cost $157 billion over 10 years (including direct outlays and interest charges), is needed to make good the promises of the federal insurance fund for deposits. Because the fund is broke, there is no money to close crippled institutions and pay off their depositors.


Regulators are seeking $24 million in damages in connection with the failure of a San Diego County S&L.; Page 8

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