Key Democrats Imperil Accord on S&L; Bailout

The savings-and-loan rescue bill won a firm endorsement from President Bush Friday after a veto threat nearly scuttled the measure a day earlier, but it ran into trouble in the House as four Democratic committee chairmen united to oppose the latest compromise.

Backers of the compromise spent much of the day trying to round up enough support to propel the bill through the House and Senate so that Congress could adjourn for its August recess. Meetings were continuing into Friday night, and the outcome remained uncertain.

Calls for GOP Support

Bush, who had threatened to veto the bill in the form that it was passed by the House Thursday, lobbied Republicans to support the new version. “Final passage remains critical to the stability and solvency of the financial system,” Bush said in a letter to congressional leaders.

And House Speaker Thomas S. Foley (D-Wash.), parting company with the four committee chairmen, urged Democrats to vote for the compromise even though he acknowledged misgivings about it.

“The bill needs to be passed,” Foley said. Bankrupt but still-operating S&Ls; are accumulating additional losses estimated at up to $20 million for each day that they stay in business.

But especially in the House, opposition stiffened to the compromise that House and Senate negotiators had reached Thursday night. Advocates of the compromise worked until Friday afternoon just to get a bare majority of the 55 House and Senate negotiators to sign the agreement and send it to the full House and Senate for final consideration.

The bill, which would authorize the largest federal bailout in history, would provide an immediate $50 billion to close hundreds of insolvent S&Ls; and make good on federally insured deposits. The bill also would require S&Ls; to maintain at least 3% of their assets as cash and prohibit them from investing in high-risk, high-yield “junk bonds.”

At issue remained how to raise the necessary $50 billion. All sides favored a bond sale, but they disagreed over whether the $50 billion should count toward federal budget deficits.

Generally, Democrats sought to make the $50-billion part of federal budget deficits for this year and the next two--and to exempt it from the constraints of the Gramm-Rudman deficit-reduction law. Many Republicans, by contrast, wanted an off-budget federal agency to sell the bonds.

The compromise called for counting the first $20 billion in bond sales toward the deficit for fiscal year 1989 but considering the next $30 billion to be separate from the federal budget.

House Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.) led the Democratic opposition to that approach. He and three other chairmen--John D. Dingell (D-Mich.) of the Energy and Commerce Committee, Leon E. Panetta (D-Monterey) of the Budget Committee and John Conyers Jr. (D-Mich.) of the Government Operations Committee--circulated a letter opposing the bill.

Panetta predicted that the bill might fall to defeat on the House floor, thereby necessitating yet another effort by the House-Senate conference committee to craft a new compromise.

House Majority Whip William H. Gray III of Pennsylvania also predicted that the measure might fail in the House unless more Republicans supported Bush. “If the Republicans will not carry the President’s water, why should we?” Gray asked.

When the House passed the earlier version of the bill on Thursday, 132 Republicans voted against it and only 40 supported it. Bush opposed that version because it would have added the entire $50 billion in bond sales to federal budget deficits.

Foley conceded that he was unhappy that Democrats had to compromise on a bill that had already cleared the House.

“This is a compromise that we didn’t prefer to make,” he said. “The bill wasn’t as good as it could have been.”