PRESS BRIEFING ON THE BUDGET
BY
OFFICE OF MANAGEMENT & BUDGET DIRECTOR MITCH DANIELS
February 4, 2002
Room 450
Dwight D. Eisenhower Executive Office Building

1:02 A.M. EST

MR. DANIELS: We have presented to the Congress today the President's budget for fiscal '03. It's a budget to win a two-front war. As you've seen, it commits most of its new spending to the needs of national defense, the war against terrorism and to a doubling of spending on what we now term homeland defense.

It seeks then to keep total spending under reasonable control by holding the rest of the government to an increase of only 2 percent. Consistent with this budget, the President continues to advance his plans to enhance health care coverage for Americans, prescription drug coverage in this year and in the future for Medicare beneficiaries; to move forward with the education of our children, large increases for both special education and for Title I, for disadvantaged school districts.

The combination of these and the recession we have experienced means, as you know, that we forecast a small deficit for the next two years. I say "small" in the historical context. This will be the smallest recession era deficit in the post-war period. And the only one, of course, that has the additional burden of paying for a war at the same time.

The President seeks, as you also know, an economic growth package to put Americans back to work and return the nation to strong growth as soon as possible. That is our best long-term hope for a quick return to large surpluses.

I do commend to your attention new features of this budget which perhaps by now you've noticed, but it does attempt to break new ground and inaugurate a new era of accountability in the stewardship of taxpayer dollars, both by becoming serious about separating programs that work and strengthening those, and programs that don't, for which the dollars now spent could find a better return for taxpayers elsewhere.

It also attempts to take very seriously the job of managing day to day the federal government, something that is very easy, particularly for the political appointees of any administration to give short shrift to.

So we appreciate this opportunity to spend part of this first day of the new budget here with you and welcome your questions.

Q   You had your problems last year with appropriators who had a prickly relationship with you. Could you explain why you went out of your way in this budget to really hammer Congress on earmark, to a point of actually having some single projects -- like a wind sled in Ashland, Wisconsin, pictured in the budget? I mean, do you think this is going to help get things under control?

MR. DANIELS: We did say last year, we say again this year, that we think the long time practice of special projects and earmarking by Congress has gotten out of hand. It's multiplied eight times in the last four or five years. We now have entire programs of the federal government for which every penny has been earmarked for somebody's special pet project.

And so we're not naive about this, we're not extreme about this. We do believe that Congress ought to moderate its appetite for these programs. We're certainly not going to become party to the practice by repeating or renewing in the budget the projects the President never asked for and for which he thinks there might be a better use of the dollars.

Q  This is the first time, as you said, that you did this kind of management review. Overall, what's your conclusion about the state of management for the federal government?

MR. DANIELS: The federal government is not a very well managed enterprise. I don't think this is exactly shocking news. We don't have all the right incentives in place. And very honestly, this has not been a point of focus for most administrations in the past, of either party.

This President, our first MBA President, said as a candidate that he would take this seriously. He's asked his Cabinet to do that, and he's given us very specific instructions at the Office of Management and Budget, to take this part of our three-part assignment perhaps more seriously than it has been in the past.

So we've done that. We've identified five areas that we believe and scholars believe are perhaps some of the most problematic, where the opportunity for improvement is the greatest. And we've been trying to work every single day -- sometimes tediously -- with the departments to make some headway, and I think we're beginning to get some traction.

Q  Can you explain why, if we really are in a war, the President has not taken the same sort of leadership role that other Presidents took when we were in wars, and actually offered to cut parts of the budget that are not related to military spending? Isn't this really a guns and butter budget?

MR. DANIELS: I'll be pleasantly surprised if other people see it that way. My sense is probably many folks on the Hill will find the slowing down of the rest of government to a near halt at 2 percent growth to be too severe for their own taste.

We think it's the right balance. There are some very important programs in the rest of government that ought to go forward. And we can, as we have proposed to do, make some very substantial increases in areas like medical research and education, as I mentioned, if we are discriminating between the programs that work well and those that don't.

But if Congress wants to bring us ideas for places to cut still further, you know that we'll be receptive.

Q  You noted the increases in education in Title I and special ed. And, yet, the overall education budget growth is quite small -- I think it's only about .5 percent. Number one, how did you do that? Did you make cuts elsewhere in that Department? And, number two, how do you expect that to be received on the Hill?

MR. DANIELS: The Department of Education rose 37 percent two years ago, 24 percent last year. At that growth rate, it will eat the entire budget by 2010. So a deceleration is in order. Secretary Paige very much accepts and has stated the view again this week -- he's awash in money, it's results he doesn't have. And $50 billion is by far, of course, the largest request ever for the Department of Education.

As to the how, new little experimental programs have been proliferating like rabbits over there. We do propose that 39 of these be wound up, folded into block grants so that governors and local officials and school boards can decide how best to use those funds.

But Secretary Paige is -- this is his request, actually, not something we forced on him. And he's really going to be a leader, is a leader, in terms of trying to deliver accountability, trying to deliver results for the unprecedented billions of dollars that have been entrusted to him.

Q  Mitch, a general, and then sort of a specific question, totally unrelated. You said a moment ago if Congress wants to bring ideas where you can cut further, the question is, would the tax cuts enacted last year fall into that category. Is that something you'll listen to? And on a very specific point, what can you tell us about the aid level to New York City that you are proposing in this budget? Do you have an exact figure?

MR. DANIELS: Well, aid to New York will eventually total well over $20 billion. It's not going to be proposed that way in any one budget, because this is going to be a multi-year project. It's going to take years to rebuild infrastructure, subway, perhaps sea wall and other very expensive things. We won't know for a long time exactly how much it is.

It's very clear, though, that as we deliver on the commitments the President has made, unprecedented commitments, most of it at 100 percent federal funding to New York, that the total will run in excess of the $20-billion figure that was sort of a good-faith guess by New Yorkers at the outset.

And as to the tax relief, tax relief is a very, very small factor in this budget at present -- $38 billion in this year. And now that we know that we're in a recession year with a struggling economy, my only wish is that it were more. And I do hope, and the President hopes, that the stimulus package he continues to ask for will accelerate part of that tax cut so we can get more people back to work more quickly.

Ours is not an under-taxed society. After the tax relief that the President has passed, we will remain at very, very high levels, 19 cents on every dollar in this economy going to the federal government throughout this entire time period. It would be much higher than that, were it not for the tax relief of last year.

Our problem is not inadequate revenues; they're going up 55 percent over this time period, even with the President's tax relief in place.

Q  Your budget dips into the Social Security trust fund for the next 10 years. Is this a signal that this administration has given up on Social Security reform?

MR. DANIELS: We have no idea, of course, what's going to happen over 10 years. And we have every reason to hope and try to be back into large surpluses, surpluses as large or larger as those that Social Security generates, and maybe before too long.

But running large surpluses and paying down debt is a very important objective in this administration. It is simply the case that at the moment, there are two or three things that do come ahead, even of that goal. And those are: defeating terror, defending the lives of Americans, and getting the economy rolling again.

Q  It looks like the budget for the Executive Office of the President goes down. Can you explain, is the White House, itself, cutting its own budget, or what is that?

MR. DANIELS: Most of the year-on-year change for the EOP has to do with the completion of some capital projects that had been long-scheduled and were done last year over in the East Wing, as I recall, is where most of that is. But on an apples-to-apples basis, the budget for the Executive Office of the President will grow very slightly.

I can't resist pointing out to you that for the second year in a row, OMB will operate at a flat budget of zero percent increase.

Q  Could you talk about the projected 2003 deficit? What the components of it are? And when you say the tax cut, $38 billion this year, you mean this year, 2002, or the new budget?

MR. DANIELS: I mean 2002.

Q  How much of it is the deficit, for instance?

MR. DANIELS: About $94 billion next year. The composition of next year looks a little like this. You know, let me just point out to you we could have, easily, a surplus in '03. We could have a $51-billion surplus if we just sort of held things as they are.

But, of course, that's not acceptable. There is a war to fight and a homeland to defend, and those are -- those two things, taken together, will reduce that surplus to about 1 percent of revenues. And then we do have some growth in the rest of government, and that brings you down to balance, essentially.

All the rest is the growth package, the stimulus package that the President has requested. That accounts for $77 billion of the $80 billion we forecast to be in the red. And honest people can differ. There are folks saying to me, principally Republicans, let's forget the stimulus package, and we'll have a balanced budget; even in the midst of a recession and a war, it would be a rather astounding accomplishment.

But the President has made a different choice: to put jobs first. And frankly, that's -- long-term, that's the best way to get back into sustained surpluses, is to have a vigorous, early recovery.

Q  You were just saying that you have no idea what's going to happen in the next 10 years, and this budget talks about abandoning 10 year budget projections, because you think they're folly. What do you say to critics who would indicate that you're abandoning them so that you're not displaying bad news, like what's happening in Social Security trust fund, or the long-term implications of policy --

MR. DANIELS: I would say, read the budget. We display these long-term numbers for those who still find some use in them. They vary all over the place. You might not notice, but I would be happy to show you after, that this year's long-term "guesstimate" is the biggest in history, except for last year's.

If we had not done one last year, everyone would be astonished to be a $2.9-trillion long-term surplus forecast.

The fact is, we don't know. Next year, $5.6 trillion could be back, if the economy is back roaring strong again. We never saw numbers like that until last year. And I think we're just saying, let's get real. It is hard enough, as we learned last year, to be precise about how much money the federal government will take in one or two years out, let alone 10. And too much attention to these fantasy numbers, I think, sometimes leads us down some unproductive cul-de-sacs.

Q  Based on that line of reasoning, why make the tax cut permanent? The focus on that is the year 2011. If you're focusing on a five-year window, why not leave that for the future?

MR. DANIELS: You know, for those who believe that this is an under-taxed economy -- and the President is not one of those -- as I pointed out, we will be taxing at record rates, or near-record rates all through this time period, even if the tax relief stays in place.

But for those who -- most of its effects, of course, come years from now. So for those who believe that a good policy in a struggling economy that's already being taxed at very high rates, that a good policy is higher taxes, they'll have multiple chances to make that case.

Q  How have the five-year restructuring plans that agencies -- the work force restructuring plans that agencies are doing or have done, influenced their budget, this budget? And are all of the restructuring plans in?

MR. DANIELS: I think all -- we have plans in from each department. They are of mixed quality, as you might imagine. But at least we're beginning to get a handle on it. Before last year, the government didn't know who worked for it, how old those people were, how long they might be in place before retirement, let alone what skills they had, let alone whether those skills matched up with the needs of the new century.

Many of the very fine people in the federal government now hired on decades ago. So we're at least at the point now of understanding pretty well who works here, and having some idea about what kind of work force each department will need. But this is not going to be a one-year project. And this one -- this initiative is now driven by Kay James over at OPM.

Clearly, we've got to make some changes that bring more flexibility to the federal government, to hire the people it needs, pay them what they're worth; frankly, to excuse from duty people who aren't working, or aren't getting the job done, which is nearly impossible today. Until we get changes like this, the best work force plans we can write will be really hard to put into place.

Q  How are you going to keep Congress from taking spending even higher than your already large increase?

MR. DANIELS: This will be a matter to be worked out with Congress. But the President has been pretty clear that he wants his priorities funded, and he wants the rest of spending kept under control. We hope that will be a matter of bipartisan agreement, but if not, we'll work it out bill by bill.

Q  Yes, I just wanted to follow on that question. A lot of analysts think that that 2 percent is going to become 6 percent by the time everything is said and done. It being a reelection year, is the President willing to use a veto strategy to enforce that 2 percent on discretionary domestic spending outside of homeland security?

MR. DANIELS: The President is always careful not to talk about the "V" word, unless he has to. There were three occasions last year where he had to. And in all cases, his point of view prevailed. In all cases, last year, without his actually having to veto a bill. It may well come to that this year. We don't seek it, we'd rather work this out within the limits that the President has suggested by being flexible about the purposes to which the money is put, as long as his basic priorities are funded.

But if it comes to it, his will to lead in this area is nothing I'm in doubt about.

Q  On page 13 of the securing America's future, you say: our new war will be costly, some of this cost will not show up in the government's books. Number one, what does that mean? And, number two, how confident are you given that phrase that you can hold the deficit to $80 billion next year?

MR. DANIELS: Well, one footnote on the deficit figures for this year and for next year and for the indefinite future, I suppose, is that there may be additional war-fighting costs required. We've asked for a contingent amount, as you may have noticed, for 2003, because we have no way of knowing at this point what events may bring.

And it is important to remember that these numbers are prior to the quite possible increases that may be necessary to sustain operations like those going on in Afghanistan today.

Q  Can I follow up? What does that mean that some of these costs will not show up in the government's books?

MR. DANIELS: You know, without hearing the next sentence or two, I think I can give you the right answer and I think the point of that is that this will be costly in the private sector, as well.

One of the things that may well dampen slightly ongoing economic growth -- and this is in some models now. As you look forward some of the predictors have moderated their long-term economic growth in part because they sort of sense terror tax of indirect costs as we try to make ourselves safer against threats we didn't use to spend money guarding against.

Q  The budget shows non-defense discretionary. But what's the figure that you're using for non-defense, non-homeland security discretionary that you're keeping at 2 percent? And what would be the comparable growth of that body of spending over the last few years? How much are you bringing it down historically?

MR. DANIELS: It's $356 billion and growing, the part we have now termed "rest of government." Discretionary spending last year grew by 7 percent, so slightly less than that in non-defense, and probably slightly less than that for the part we're talking about, because there were some significant increases the President recommended even before September 11th in what we now call homeland defense. So probably coming down from the five or six range to two.

Q  First, I want to make clear, if I can, the $10 billion contingency fund is not accounted for in any of your numbers -- that is something you would seek as a supplemental if it were needed? And, secondly, you mentioned a supplemental, a possible supplemental this year for the war in Afghanistan. Do you have any sense of when that would be necessary and how much you would need?

MR. DANIELS: You're correct that the contingent money is not in the request for next year. We would like for Congress to vote it this year on a contingent basis, so we wouldn't have to scramble around and request and debate it if and when the President needs it. They had offered to do something like that during the last quarter of last year and, in fact, did in the one supplemental that we had.

As to the timing of any supplemental this year, can't tell you. But I think it's likely. There will be some needs definitely in defense and quite possibly in the homeland area to get between now and October 1, the next fiscal year. And I would say it would be in the early months of the year, if we ask.

Q  You propose an increase in funding for the agencies that compile economic statistics. Some people have said that part of the reason for that is the recession could have been avoided if we'd had better numbers about it before it was obvious. Is that part of the thinking behind that?

MR. DANIELS: In honesty, I can't say that I've heard quite that argument made. But it's true, the BLS, I believe, is one of those you may be thinking of, for which there's an increase. We simply think they do good work. It's an interesting question, whether better statistics, better understood might help us at least move more quickly in the future.

You know, it was very painfully memorable to me that at the time we were accepting economic forecasts, not just from our own people but from the 50-plus members of the blue chip index next year, a recession we now know was already ongoing. And of the -- it wasn't just the government's estimators and CBO's estimators -- 52 of the 54 in the Wall Street Journal, I think it is, index, also missed the recession.

So yours is an interesting question and, yes, anything that would help us get a handle on events more accurately and more quickly, that would be a lot of payback.

Q  Can you talk a little bit about the NASA budget, a 4 percent increase this year, would turn into a 1 percent increase next year. Does this indicate that there's a lack of support for human space exploration at NASA? And, if so, why?

MR. DANIELS: I think there's a lot of support for the space program. NASA is a $15 billion program, but it's had a lot of problems. It's had enormous overruns, for example, at the space station last year, and again this year. We suggest the reconfiguration of the space station. There may be opportunities to make the international space station even more international and involve other countries more fully.

My old sidekick, Sean O'Keefe, is over there now. We look for him to do a terrific job. But there are some management issues to address and, if they do that, we'll have a better space program without the overruns.

Q  Can you tell me the impact of a highway trust cuts that are made or formula changes?

MR. DANIELS: Yes. This of course is all pursuant to an act of Congress which mandated the use of a formula. We have no discretion in this area, we simply follow the formula. And it's a good idea. It tries to match highway spending to gasoline tax and other trust fund revenues. It used to be we took in more in the dedicated taxes than were spent. And it's worked. And we now spend what comes in.

But last year there was an overestimate because economists missed the recession, basically, and we spent $4.5 billion more than the formula, than an accurate estimate would have produced. So we, in essence, spent it ahead; now we're going to let revenues catch up. Over the two year time period, the same amount of money, essentially, will get spent. We ought to feel I suppose, good that in a recession year we pulled ahead and advanced $4.5 billion.

Now, I don't have a lot of sympathy for people who sort of love this formula when it overpays and don't like this formula when it corrects itself. You know, it's like playing Monopoly with somebody who draws the "bank error in your favor" card one time and thinks they ought to get it every time around the board. It doesn't work that way.

Q  I'm a little confused about the defense number. If defense is going up $38 billion and the $10 billion is the amount you may ask for, but you haven't asked for in this budget?

MR. DANIELS: Think of the base of defense going up $38 billion, 12 percent, and in addition -- in addition -- as Jim's question pointed out, a contingent amount of $10 billion that would be used if, and only if, called for by the President to deal with active hostilities next year.

Q  Would that be scored as emergency money?

MR. DANIELS: It would.

Q  Explain what the emergency response fund is.

MR. DANIELS: Emergency response fund refers to the $40 billion funded in the last quarter of last year, after 9/11. Incidentally, we still have -- as of about mid-January, we still have three-quarters of that money yet to go. We said it would last a while and it has.

Q  Can you explain the administration's philosophy in terms of reimbursing the states for homeland security costs and what the government thinks is acceptable reimbursement?

MR. DANIELS: One of the biggest increases in this budget will be dollars flowing to states, to fire departments, police departments, public health infrastructure, others in the so-called first-responder category. And there will be an additional $3.5 billion in the -- just the first-responder category alone. So states are going to be full partners in homeland defense.

And I really think the biggest issues we're going to face will be their speed in being able to absorb these funds. I think we're going to have to be very careful that we don't simply shower the states with money that can't be productively used when it arrives. And this would be particularly problematic at a time when a lot of states are strapped and might be tempted to use it for things that don't make Americans any safer. But Governor Ridge is on top of all these issues and I'm sure will manage them well.

Q  Sir, you talked about the tax cuts that are not going to be into place for many, many years and there will be plenty of opportunity for those who disagree with your viewpoint to change that. But I'm wondering if you could articulate one more time why you think -- calling for the stimulus as well. Why do you think putting the tax cuts in the stimulus will be stimulative now, when many of the tax cuts won't be going into place for many years and will be accelerated, but there will still be years out, even though they'll be sooner than they were already going to be? If you could articulate that again.

MR. DANIELS: Sure, of course. The tax relief in the stimulus -- at least in the package that was awaiting passage in December and that the President endorsed -- would have been immediate. The tax rate, it would have accelerated to the here and now the reductions in the rate for middle income taxpayers in the $30,000 and $40,000 brackets, roughly. And, of course, it would have provided immediate rebate style relief to people even lower in the income scale.

So that particular small, relatively small amount of tax relief would have had -- would have arrived immediately and had immediate effect.

Q  What's the philosophy behind the 2.6 civilian federal pay raise -- OMB's previous estimate for 3.6?

MR. DANIELS: There's a 2.6 percent recommendation, an increase in pay for civilian workers. And you didn't ask, but I'll answer that 4.1 percent for military. We do believe that a distinction can and should be made between people in harm's way at a time of war. And, therefore, feel it's entirely appropriate that there should be some additional compensation for uniform personnel.

And as to the civilian side, there's a rough equation, called the ECI, you must be familiar with, and it would have pointed to 3.6, but that's only a starting point. We decided that it would be fair and appropriate, at a time when many other Americans have seen their pay go to zero. And in the private sector, estimates for increases range from about 1.8 to maybe 3. For those who are employed, we thought giving back 1 percent or, let's say, taking 1 percent less than this sort of rule of thumb index was something that federal employees would feel is fair and I hope many will feel it's an appropriate thing to do.

Let me just remind you, this is increases at a time when the economy is in recession and many Americans are seeing zero increase or even a drop in pay.

Q  Last year, you and many others at OMB said that $4.5 billion for IT, you weren't sure if that was too much, if it was being used effectively. And now, in this, you proposed about a 15 percent increase in the IT budget. I mean, is that accounted for because of an understanding that it wasn't enough or is there more there?

MR. DANIELS: Okay. You may have mis-spoken, but I think you said $4.5 -- it's $45 billion last year and it will go to a little over $50, the way we add it up this year.

You know, I feel pretty good about the step forward in terms of IT. We have scrubbed down every IT project of any size in the federal government. And using authority Congress conferred on OMB a few years ago, in the Clinger-Cohen Act, have stopped certain projects that don't seem to have a good business case or that seem to make a bad situation worse by building brand new systems that can't talk to the systems we have now, that kind of thing.

We're in favor of IT spending if it's done well. One of the five management initiatives that we have selected, of course, is to use the tools of e-business to create e-government, make it much easier for citizens to work with their government, to pay their taxes, to learn information about what national parks are available and so forth; to apply for grants or even to learn that they're eligible in the first place.

So spending done well and spending that pushes us in the direction of a more efficient government that can work with itself and with the citizens it serves, great idea.

Yes, sir?

Q  I just wanted to ask you about the arm-twisting with New York over the Medicaid formula and where we stand now, based on this budget and where you see it going from here?

MR. DANIELS: Gee, I don't know. I'm not either a twister or a twistee in this situation. The federal government picks up 58 percent of all the costs of Medicaid now, national average, and we think that's about appropriate. And there is, at a time when states are strapped for cash, there is a push on to, in essence, get a little revenue-sharing by tampering with the Medicaid formula. We don't think that's a very good idea, and hope we'll find other ways to work with the states.

Q  There are a bunch of numbers in the budget at one level.

MR. DANIELS: There are a bunch of numbers in the budget -- (laughter.) I do not quarrel with you're --

Q  I'm just going to need a comment on that, and -- for terrorism. The Ag budget has terrorism money in it. How much money is dedicated in this budget proposal toward fighting terrorism? And can you split it between home and abroad?

MR. DANIELS: Using the definitions, it's an important question, because this is an area on the one hand which the President and Governor Ridge are determined to do everything that makes sense to do. It also, I think, will be an alluring target for people who would like to redefine their own projects as similarly essential.

So we have a very explicit definition in the budget. Governor Ridge will be the Noah Webster of this exercise. We may add items as we learn more and do more. But all in, about $37 billion associated with homeland defense, about $8 billion of that in defense, the rest -- the Defense Department -- that doesn't mean necessarily internationally; in fact, this is almost entirely spent here at home.

A lot of money, for example, to protect bases on American soil against the higher threat of terrorist attack. Then $29 billion, more or less, in the other departments. Don't be confused if you see increases that go from $13 in '02 to $25 in '03. That deletes about $4 billion, $4.7 billion of fee income -- airplane ticket fees, for instance, that then are spent on security. So we'll be spending about $29 -- the Department of Defense.

Q  Going back to the IT question, you mentioned e-gov initiatives, you mentioned the e-gov initiatives. How much -- when you broke down by agency -- and I don't mean to try to get so specific, but how much of those e-gov initiatives were put into the budget, funding for agencies to go forward with them?

MR. DANIELS: Well, there are 24 projects selected from a list of I think hundreds, initially, and those 24 each has a business case, each of them will be fully funded. Sometimes we pass the hat, sometimes a lead agency takes most of the burden. I don't have a number on the top of my head for what they come to in total.

But we did insist that they come at the front of the list, not behind all the preexisting projects, because these are the President's initiatives and we can -- we have to avoid the well-known phenomenon of the existing being the enemy of the new.

Q  Your stimulus proposal, so far as I can tell, is a little general, it's more general I think even than it was last fall. And could you comment on why that is? And also, could you just comment more on your revenue package, generally? Is there much that's new in there or significant?

MR. DANIELS: The definition of the growth package is kept general, because the President wants to remain flexible and try to work something out with Congress. We took, as a proxy, the exact, however, size and shape of the bipartisan compromise, which came so close in December. So that's $62 billion of tax relief and $27 billion of new spending in the first year, in '02.

But if there are new ideas brought forward that would get us to a truly stimulative package, one that actually promotes growth in jobs, the President remains open and willing to look at other ideas.

The one place where we are specific is, the President does renew the request for $4 billion in national emergency grants. These we think ought to be part of any new package. They're flexible, they're quick, and they allow states to respond in particular to the job training needs that a recession may aggravate.

In terms of other revenue items, probably the one that is the newest is a proposed tax credit for education for families who find themselves trapped in failing schools, and would like to attempt to have -- like to have assistance with transportation needs or to otherwise move to a better school district.

Q  On that issue, as far as the education tax credit, could you explain why there is so much more money set aside for the out-of-pocket classroom expenses for teachers, versus -- families --

MR. DANIELS: No. (Laughter.) Out-of-pocket classroom expenses?

Q  Right. I mean, we're talking about a substantially higher amount per year than allowing out-of-pocket --

MR. DANIELS: Oh, the tax -- I'm sorry, as a tax provision.

Q  Right.

MR. DANIELS: Yes. Well, I think this is not the first time that one has been proposed, and as to the estimate, I would direct you to Treasury if it looks to be a provision that would be used at a higher rate than we may have guessed in the past.

Q  Can you tell us what you are planning to do at OMB to turn all the red lights into green lights? And also, what's the difference between your management approach now on getting efficiency and so on in government, versus reinventing government in the last administration?

MR. DANIELS: The biggest issue at OMB is probably human capital. And a very good example that we've talked about a lot is that in order to do our duty in a new era of accountable government, we have to be better than we are today at evaluating and measuring program performance, and better than we are today at working with departments on their day-to-day management. So I would single that out the most.

We're not an operating agency, as the other departments are. And so some of the categories don't fit us very well. But we thought it was only fair to go ahead and hold ourselves to the same standards as they.

As to reinventing government, I took that to be a sincere effort to look for different ways to deliver service. One of our five chosen management emphases is competitive sourcing, which has certainly been a part of the reinventing government movement. This is the idea, of course, that government -- it's the duty of government to see that services are provided, not necessarily to provide them itself.

And this would be one, I think, point of commonality with what Vice President Gore was working hard to do.

Any first-timers? Yes, ma'am?

Q  The Pentagon has described that $10 billion contingency fund as a very conservative estimate, considering that the President has said the war is just beginning, can you explain why that's a good idea --

MR. DANIELS: It's a figure that we worked out with Secretary Rumsfeld and his people. I think they're being candid, as we've tried to be in the document, that we don't know what events may bring, we don't know what decisions the President may make, and so it's a large sum of money, admittedly, in a very active environment. It might not last more than a few months, but at least it would put some -- if Congress would work with us on it, it would put some money in place so that in the event that he had to at quickly, that we could at least get started.

Q  Does it reflect the ballpark figure that the war is costing about a billion dollars a month, and so it gets us through to October 1?

MR. DANIELS: Well, the $10 billion I think we're talking about here is an '03 number; don't forget that. We would deal with here to October 1 in another supplemental. But your question is a good one. We do take as a reference point what is the current situation costing, and $1 billion a month is more or less the neighborhood. And so that's how you could come up with a number like that, that's admittedly just an estimate.

Q  Senator Snowe and Senator Conrad are again talking about some kind of trigger mechanism that would link new tax -- future tax cuts and future spending increases to materialization of surplus or debt reduction or something like that. I'm wondering, with the expiration of most of the balanced budget provisions, if this kind of trigger is anything that the White House is willing to discuss with Congress?

MR. DANIELS: I'll have to see what they're talking about this time around. But probably not. I think that Chairman Greenspan, last week, talked about a trigger that would in essence make a reexamination of spending and taxation, I guess a privileged motion or something, that Congress would look at it again. Congress always has the opportunity to do that. They can do this anytime they want.

And as I indicated earlier, with three-quarters of tax relief coming only in years four through 10, 60 percent coming in years six through 10, they'll have -- those who believe we need higher taxes on an already very heavily taxed economy will have all kinds of chances to make that case.

Q  Mitch, can you describe the President's general style in putting together this budget, his first full budget? How many meetings did you have with him, personally? Did he take any appeals from -- from any departments or agencies? And how involved was he in all of --

MR. DANIELS: The President was very involved from the beginning at the level that I would call presidential. He gave very clear instructions, as he always does, about what his priorities were, and about the need, given this is a war, not to stop short. And as I've sometimes said, that led us in dealing with both fronts of this war to break ties in the direction of yes. So if there was any proposal linked to defeating terrorism or to making Americans more safe at home that had even a reasonable case for it, we agreed and rolled it into the budget.

The President also said he wanted an economic growth package, that he was not prepared to leave that to chance. And, finally, that as should happen at a time of war, that lesser priorities would have to be looked at even more clearly. So that was plenty good marching orders. We took it on and met with him multiple times so he would know how things were coming together, showed him some of the potentially controversial items.

There was an appeals process available, but in the end, our very collegial and teamwork-oriented Cabinet resolved all its problems. A few went to the group on which the Vice President and the Secretary of the Treasury and Andy Card and I and Larry Lindsey sit, but that's where they all stopped.

Q  -- how many?

MR. DANIELS: Four or five.

Q  What departments --

MR. DANIELS: I think we'll maintain the confidentiality of that.

Q  Last year, you and the President complained a lot about congressional priorities. But your overriding concern seemed to be that they stick to the numbers, the overall spending numbers. To what extent is that going to be the case again this year? You know, for example, if they start passing appropriations bills on the domestic front that make it clear they're going to go way over the number on the defense bill, how will you respond to that?

MR. DANIELS: The President respects the role of Congress as the keeper of the purse, and on matters whether they're budget-oriented or otherwise, I think you've seen is always open to compromise and flexibility.

Now, that said, I think he will adopt much that same posture as to the $356 billion in the rest of government category. But if there are attempts to raid defense for lesser priorities, or to raid homeland security for lesser priorities, then we'll resist that, and I think pretty strongly.

So I think that's the difference between last year and a wartime era.

Q  Could you address the Democratic criticism that by maintaining fidelity to the tax cut, the President is essentially jeopardizing the Medicare and Social Security trust fund in ways they would not be, had the tax cut not been passed, first of all? And then, because there has been some chatter on Capitol Hill about Enron, I have an Enron question that relates to you, to follow up.

MR. DANIELS: Well, as I told one of your colleagues earlier, by now its opponents have blamed the tax cut for everything except mad cow disease. The long-term stability and safety of Medicare and Social Security really have nothing to do with tax relief, except that tax relief, by making a strong economy more likely, is a very good step, if you are worried about Social Security and Medicare.

By running up larger surpluses, we don't change anything about the Medicare or Social Security trust funds. The same number of benefits go out, as they will this year. Trust funds grow by exactly the same amount as they would otherwise. And all we do with that extra money, of course, is pay down more debt. It's a good idea, but it won't solve the long-term problems of either Social Security or Medicare.

If we don't reform those two programs sometime over the next few years when the post-war generation retires, it won't matter how much debt we pay down the meantime, we will not be able to borrow our way or tax our way into keeping those promises. So reform and economic growth in the meantime are what really matters.

I'll bet you've got another question.

Q  I have a follow-up. Senator Hollings, just a few moments ago up on the Hill, in talking about Ken Lay's decision not to testify, said this is a cash-and-carry government, specifically referring to the White House and all of its relationships with Enron and Ken Lay. He mentioned your name specifically as someone who had been a paid advisor to Enron. I'm not even sure if that's true, I haven't seen that -- I wanted to give you a chance to respond. He also mentioned Larry Lindsey and some others.

MR. DANIELS: Oh, thanks. (Laughter.)

Q  There's the softball, Mitch. Please swing.

MR. DANIELS: I was never an advisor at all, never paid at all. I had nothing to do with Enron, ever. Never discussed Enron's business with anybody. You know, I ought to say it this way. I don't think the fact that a big majority of the members of the Budget Committee on which the Senator sits, took political contributions from Enron, impeaches their judgment at all. I don't believe that for a minute. I think it would be nice if they extended the same courtesy to others.

Q  The President's budget calls for $190 billion for Medicare reform. Senate Democrats were told it would cost at least $750 billion over 10 years for just prescription drug benefit. How are you planning to deal with those numbers?

MR. DANIELS: Well, that's the biggest number I ever heard, and they used to throw around numbers like $300 billion. Listen, I can write you a really lousy Medicare reform for any number you want. The difference between those numbers and the number that is in the President's suggestion is, his is actually based on a very carefully thought-out plan that includes prescription drugs, coverage for drugs, but also reform of the program, which we desperately need.

Medicare is broken. And in many ways, it endangers patients. And it needs to be fixed. Now, prescription drug coverage is one of its biggest, perhaps its biggest defect, but it's only one of many. We can do a very thorough and major improvement of Medicare for about $190 billion, and we hope that Congress will seriously engage with us soon, stop just throwing around kind of round numbers that sound good, that don't have an ounce of real policy behind them.

Q  In what way does Medicaid and Medicare endanger the patients?

MR. DANIELS: Well, many patients, you know, are seeing multiple doctors. It's not a system that has a lot of good systems at work in it, multiple, sometimes, medications, and by patients who are not under what we would call sort of integrated or comprehensive care.

A program like the Federal Employees' program, which is a pretty good rough parallel for the one that the President's reform recommends, would lead to more patients in plans where their care would be monitored from all angles.

Q  I'm going to fumble a little bit with the wording here, but a lot of the Republicans who are up in the House -- and there's such a narrow majority in the House right now for the Republicans -- what are the early comments coming in? I mean, they've been elected based on balanced budgets and not going into deficit, and, you know, small government. And now the White House is coming out with this budget. Are there any early comments or how is the White House planning on working with these Republicans?

MR. DANIELS: We've spent a lot of time when them in the run-up to today, including a lot of time at a couple of their sort of off-campus retreats last week. And the comments are, in general, very positive. These people, like their Democratic colleagues, took an oath that starts with preserve and protect the government of the United States and the people here.

I think there is a lot of commitment to doing what it takes to win a two-front war. And they understand that this President is right with them in his commitment to being careful fiscally, and that we're going to be careful about spending for things that don't involve the public safety, and we're going to get back to economic growth and big surpluses just as fast as we can. And I think for most of them, that's just what they wanted to know.

I'll take one or two. Yes, go ahead.

Q  If House conservatives succeed in their goal to pass a balanced budget, what does that tell you about their support for your budget, and is that a split between the House conservatives and the White House?

MR. DANIELS: I just don't expect -- it's a hypothetical question, and I think probably a pretty remote one. I think there will be a lot of support for the direction the President's leading, and we appreciate their concern that we get back to balance as soon as possible. And with economic growth, that will happen.

Thank you very much.

END	1:58 P.M. EST