Newsday (New York, NY)

December 2, 2001 Sunday ALL EDITIONS

SECTION: MONEY & CAREERS, Pg. F02

ECONOMY WATCH; There's Not Enough Money to Go Around

By James Toedtman; CHIEF ECONOMIC CORRESPONDENT

WASHINGTON

MITCH DANIELS, the Bush administration's budget chief, doesn't get much respect these days. But he is saying something to keep in mind as long as the anti-terrorism war continues: "With a little imagination, almost anybody's pet project can be described under the very welcoming heads of War or Recession or Emergency."

Those are the only conditions set by President George W. Bush that would justify future budget deficits. As director of the Office of Management and Budget, Daniels is astounded at the imagination he has seen, and now concludes that a return to federal budget deficits is at hand. There's a reason people aren't listening to Daniels. He has been at the helm as the federal budget has been diverted from four years of surplus and federal debt reduction back into the sea of red ink. Since January, the forecast for the 2002 fiscal year that started Oct. 1 has shifted from a $313 billion surplus to a deficit of at least $50 billion if the House version of the economic stimulus legislation is passed.

With the exception of Sen. John McCain (R-Ariz.) and a handful of budget conservatives in the House, Daniels also has managed to offend practically every member of Congress, starting with his fellow Republicans. In a widely quoted remark to Wall Street Journal editorial writers, Daniels dismissed lawmakers: "Their motto is, 'Don't just stand there, spend something.' This is the only way they feel relevant."

House Appropriations Committee Chairman Bill Young (R-Fla.) refused to take his phone calls for three weeks until Vice President Dick Cheney intervened. The senior Republican on the Senate Appropriations Committee, Sen. Ted Stevens (R-Alaska), snapped that the best way for Daniels to improve his relationship with Congress was to "go back to Indiana."

Instead, Daniels has widened his targets, adding his own administration to the field. Last week, he fired off "passback" letters to agency heads telling them that the budget picture had changed and their spending requests for next year were too high. Since the Sept. 11 terrorist attacks, Daniels has been swamped with funding requests.

No longer constrained by campaign pledges to protect the surplus and the Social Security Trust Fund, "the first escapees were representatives of our own administration who promptly flooded my office," he said.

Their requests of $120 billion to $160 billion far exceeded the $40 billion limit Bush set. For example, Daniels said, "there are a lot of government buildings that need to be secure, but we don't need to secure every building in every state."

From his vantage point, Daniels has given the numbers closer scrutiny than anyone. The cost of the war is approaching $1 billion a month, the economic slowdown is steeper than first feared, the emergency costs are compounding even before homeland security czar Tom Ridge has completed his first assessment.

Daniels also knows that the cost of last spring's $1.3 trillion tax cut begins climbing in future years as it takes full effect. Then baby boomers start retiring and Social Security costs skyrocket.

He forecasts budget deficits for the next three years, at the very least. Getting a handle on federal spending this year, he insists, "will determine whether we will ever see another surplus." THE NUMBER As the year has progressed, recession, tax cuts and terrorism have eaten into projected federal budget surplus for 2002. Economic stimulus plans being debated in Congress would throw the budget into deficit.