Deficit-Forced Cuts in Spending Feared : Can Be Avoided if Congress Enacts Pact, Darman Says

Bush Administration budget officials said today that the federal deficit is on a path that, if not corrected, will require $16.2 billion in automatic spending cuts during the fiscal year that begins Oct. 1.

However, Richard G. Darman, director of the Office of Management and Budget, said the automatic cuts can be avoided if Congress fully implements a budget agreement reached with the Administration in April.

“It remains my hope and my cautiously optimistic expectation that necessary legislation may be enacted prior to” Oct. 1 that would cut the deficit to the maximum $100-billion level specified by the Gramm-Rudman balanced-budget law, Darman said in a letter to President Bush.

Darman expressed that hope as his office made public a report gauging progress made in reducing the deficit. “We are cutting it very close,” he said.

That report projects a deficit of $116.2 billion in the 1990 fiscal year. The Gramm-Rudman law limits the deficit to $100 billion in that year but allows a $10-billion cushion before requiring across-the-board spending cuts. However, once spending cuts are triggered, the full $16.2-billion reduction would be required.

Those automatic cuts, known in Washington jargon as sequestration, would require a 5.3% reduction in most non-defense spending--but not Social Security benefits, for example--and a 4.3% cut in military spending.

The OMB report spelled out in detail how programs might be affected by the arbitrary cuts.

For example, it said, cuts could undermine the ability of the Drug Enforcement Administration to fight illegal drugs, significantly hamper efforts by the Public Health Service to prevent the spread of AIDS, require furlough of Federal Aviation Administration personnel for three days a month, and reduce grants for needy college students by $1 billion below the level recommended by the Department of Education.

The OMB forecast is based on economic projections that are more optimistic than those used by the Congressional Budget Office. CBO said last week that deficit-reduction efforts enacted so far would leave $141.5 billion of red ink in 1990--$25 billion above the OMB estimate.

Most of that gap is accounted for by the differing assumptions about economic growth and inflation, plus technical differences on how the recently enacted bailout for the savings and loan industry will be implemented.

In a separate report, the Treasury Department said today that the U.S. government spent $18.24 billion more than it received in revenues in July, an improvement of more than $4 billion over the deficit it ran during July last year.