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PRESS
BRIEFING
BY
OMB DIRECTOR MITCH DANIELS
July 12, 2002
Room 450
Dwight D. Eisenhower Executive Office Building
2:33 P.M. EDT
DIRECTOR DANIELS:
I'll give a quick synopsis of the budget portions of the mid-session review.
I hope everyone will pay similar attention on Monday, when the entire
report comes out. It will have for the first time a full section on management
of the federal government, which has not been a feature of previous reports
and we hope you'll be similarly interested in that.
But I'll just brief
today on the budget sections, and then take any and all questions.
The report we're
issuing Monday will show, I think, some significant and interesting developments.
First, the economy has proven much stronger than we estimated in February.
Our projections in February turned out to have been far to pessimistic,
about .7 percent growth for this year, low by 2 full percentage points,
versus what we now see and what the consensus forecasts see.
Nonetheless, revenues,
tax payments to the federal government, which generally rise and fall,
historically have risen and fallen with the economy and with economic
growth, have been weaker than we expected. And this is due, apparently,
almost entirely to what I will call stock market related income: capital
gains and, to lesser extents, income from mutual fund distributions, options,
perhaps bonuses tied to stock performance.
And this is a new,
I think, important phenomenon we're all going to have to understand much
better. No one, as far as I know, really saw this coming. And as I say,
it has produced a new paradox in which we were too cautious about recovery
from the recession, about economic growth. But, still, receipts to the
federal government trailed significantly below what we saw even a few
months ago. Wage and payroll taxes are running close to our federal --
our February estimates -- sorry -- and above last year. But overall revenues
down very significantly.
It's now very clear
that the explosion in revenue to the federal government between '95 and
2000, which the federal government tax receipts grew by $600 billion --
more than 40 percent in five years -- it's very clear that was more closely
tied to the stock market run-up than perhaps was thought at the time.
And now we're seeing the mirror image effect.
So, as I say, this
is a new phenomenon we all have got to understand better. This chart here
gives you a rough sense of the close correlation and the dimension of
the change.
Now, looking forward,
the recession, milder than we had anticipated and the recovery more rapid
than we anticipated gives us the prospect of regaining balance in the
federal government perhaps by 2005. There's no assurance of this, it's
subject to the usual three big "ifs." The first is the economy.
We still are operating on conservative assumptions. Our forecast for this
year is below the private sector consensus, and we're essentially identical
with the blue chip consensus going forward.
We believe -- and
the revenue estimates we use come from Treasury, but we believe they are
also very, very cautious. We are forecasting much lower growth rates in
revenue than we've experienced in recent years.
The second big "if,"
the course of the war. The budget base line incorporating the President's
policies does include further increases in defense. But one cannot know
what the needs may be and what decisions the President may make.
And then the final
and largest "if" is the course of other spending. The most important
chart in the document is the one to my right, and it reflects the fact
that following the President's policy we will return, or could return
to balance in 2005 and experience surpluses thereafter. This doesn't --
as I said, this does contemplate some increases in spending for defense,
also for health care, the beginnings of prescription drug coverage, health
care tax credits for the uninsured being some of the bigger features.
But it also contemplates
real restraint in spending in the rest of the budget, and that's the biggest
"if."
It is very crucial
to get off the current trend line, or the recent trend line. And I've
illustrated that here by showing that in contrast to the path of the President's
budget, so-called base line path with the policy changes he's already
recommended, the difference between that and simply extending the 7 to
8 percent annual increase in discretionary spending that has been the
pattern of the last four or five years -- so not an extravagant assumption
at all, just simply continuing on a business as usual path. The difference
over the next 10 years is $2 trillion. It is the difference between surpluses
and large permanent deficits, and that's really the policy question facing
the country fiscally in the next few years.
So we are pleased
to bring this to you, on time delivery this year, in contrast to last
year, when the administration got a late beginning. And we appreciate
your attendance, and any questions you may have.
Q Can we interpret
from this that the income taxes paid on capital gains, including the stock
market effect, you're anticipating it falling to the neighborhood of $50
billion, from this year's roughly $110 billion, is that --
DIRECTOR DANIELS:
Well, we think that may well be the neighborhood. We draw those question
marks in the line that we think is most likely, and also the patterns
-- it follows the correlation, the rough correlation we've seen historically.
We won't know for a while. This data does trail. What we know most about
is non-withheld income, that is the part that is not held back from people's
payroll checks. That is dominated by capital gains, but there are a number
of other -- there are other factors in it, such as proprietorship income.
And so actually
understanding what capital gains versus, let's say, options income or
other specific pieces like that were, data tends to trail by more than
a year.
Q Can I just follow
by asking, how long ago given the volatility of the stock market and what's
happened -- how long ago was this projection -- I mean, what sort of S&P
level is this predicated on? What's the level for the Dow in these projections?
DIRECTOR DANIELS:
Well, the -- it's interesting. You know, I have, and the budget always
produces a sensitivity table, in which the model projects the effect of
various changes, an extra percent of GDP of 1 percent more or less of
inflation, unemployment and so forth on the budget. A factor which has
never been there, but one day may need to be, is some measurement of stock
market movement. We have no model at this time, and it will be very difficult,
I know, to produce one, but we need to try to understand this phenomenon
earlier. That was my message earlier.
We have, as you
know now, a tax system in which the incidence of income taxation falls
on the upper half. One percent of American taxpayers pay over a third
of the income tax, 5 percent pay over half, 50 percent pay almost all,
95 percent. And those taxpayers, in recent years particularly, have come
to receive more of their income in what I'll call stock market related
forms, as opposed to standard wages. And so we have some change here,
and it's particularly in a time when the market went up very fast and
came down very fast. We've had a real whipsaw that was hard, I think,
for anybody to see in advance.
Q Mr. Director,
this administration over the course of the last year or certainly this
year, since the budget came out, has proposed or has supported any number
of different tax cuts that have not been offset. Some would take effect
in the long-term, such as tax cut permanency, others in various bills
moving through Congress would have a more short-term effect. In light
of the fact that the deficit in the first couple of years is larger than
you previously projected, and the surpluses would be a little smaller
in the middle years, and in light of the fact that revenue is lagging,
as you just described, is there any chance that this administration would
then back away from its call for non-offset tax cuts in the future, and
urge Congress not to do that, for fear of increasing the deficit picture?
DIRECTOR DANIELS:
Oh, but I don't know which ones you're thinking of, but odds are not.
This is a fragile recovery still. It's very important that recovery occur,
or growth occur at at least the conservative levels we have projected.
And tax increases at a time like this we think would be a bad idea from,
first, the jobs and income standpoint, a pocketbook standpoint; and, secondly,
from the standpoint of the government's own situation.
There is no question our report will list a few of many, many economic
testimonies that the tax cut of last year -- in part, by luck -- was very
well timed and very well designed. These numbers would be a lot worse,
in my opinion, if there had been no tax cut last year.
Q Just to clarify,
you regard any offset as a tax increase?
DIRECTOR DANIELS:
Well, I take them up one by one.
Q One of the things
that these numbers seem to point out is just sort of how little control
you have over the fluctuations in the -- so, bearing that in mind, why
is the administration, you know, going to the mat on the current negotiations
on the supplemental over a billion or two dollars and then over $9 billion
for the '03 bill?
DIRECTOR DANIELS:
Yes, absolutely. This illustrates exactly the answer to your question.
At the size of the federal government has now attained, $2 trillion, the
compounding effect is very profound. That's exactly the point here. The
President's budget contemplates growth on the order of 3 or 4 percent
over time. The difference between that and 7.5 percent is $2 trillion.
So, also, when we
are trying very hard to get back to balance, every dollar counts. And
with this President -- this President never intends to spend a single
taxpayer dollar unnecessarily. But right now every dollar does count.
We're spending more than we really ought to be, and that's because a war
forced us to do that. But that ought not be a permanent state of affairs.
You know, I'm amused
when -- or bemused -- when people on Capitol Hill and elsewhere talk about
a mere $4 billion and a supplemental they'd like to add, a mere $11 billion
in the '03 appropriations bills. In Indiana, where I come from, people
don't use "mere" and "billions" in the same sentence
very often. And especially under the circumstances illustrated on this
chart, we can't afford to, either.
Q Can you talk about
the methodology that was used, whether or not you used dynamic scoring
and your reasoning behind that?
DIRECTOR DANIELS:
No dynamic scoring has been used -- again, in this report. There is no
agreement to do it. And, admittedly, it would be a very, very difficult
thing to know how to do it accurately and fairly. So there is no dynamic
scoring here. This refers, of course, to the question of what effect,
for instance, lower taxation might have on revenues, if it increased growth
it might partially offset its cost.
What I always say
about this is, we're using the one answer we know is wrong. Economists
debate whether you get back a quarter, a third or more of a tax cut because
of more people working and paying taxes. But no one that I know of thinks
that you get zero. But that's the assumption we use, so it's a very cautious
one.
Q And what's your
reaction that some Democrats --
DIRECTOR DANIELS:
The projections are as conservative as they can be. And, you know, the
real uncertainty -- the only uncertainty here is the one they have the
most to say about: how much will we spend? And we can work on that together.
We can produce a future and a fairly near-term future of balance, or we
can produce a future of permanent deficits, and we seek their cooperation.
Q On the defense
number, there's been a fairly public discussion about the possibility
of going into Iraq, as many as 250,000 American troops deployed in an
operation of unknown duration. Is that factored into your defense number
in any way?
DIRECTOR DANIELS: Well, no specific operation at all, anywhere, is factored
in. However, obviously this President has sought substantial defense increase
for this year. He has also sought a $10 billion additional reserve against
decisions he might make. And we have built in $10 billion additional growth
above base line growth for the next five years.
So to some extent,
we have provided for what may well be an ongoing hostile environment.
But I don't know how to go further until we know what decisions he makes.
Q To what degree
does the higher government borrowing that goes along with the forecast
so far -- deficits over the coming years -- lead to -- what impact is
that going to have on interest rates? And do you see any crowding out
of private investment as a result of higher government borrowing?
DIRECTOR DANIELS:
No, I really don't. You know, this has been said for recent years, over
and over, that lower deficits or surpluses were essential to keep down
interest rates. And the President believes that surpluses are important
and we want to regain them as quickly as possible. But in honesty, there's
no historical evidence at all of any correlation, or no curve that looks
like this for government deficits versus interest rates. And, in fact,
even though the recession has changed our fiscal picture, interest rates
are at nearly at all-time lows and have remained throughout this administration.
So just not an issue for the moment.
Q Mr. Daniels, in
this dispute over the -- about the supplemental, the appropriators are
accusing you of proposing shady accounting. This use of airline loan guarantees
as an offset. And that rather than setting an example for Enron and other
entities in corporate America, that you're showing them an example of
shady accounting.
DIRECTOR DANIELS:
Well, I'm glad you asked the question. You know, not to be impolite, but
this was their idea. We did not submit an offset based on the fact --
and it is a fact -- that we're going to spend, or put at risk of, through
the loan guarantee process, several billion fewer -- or billions less
in taxpayer dollars. That's a fact. The airline rescue package provided
for $10 billion in loan guarantees. The window closed last week. And if
every outstanding guarantee were granted, the money at risk would be only
$4 billion to $5 billion. So it's a fact that money appropriated will
now be recoverable.
But please note,
we did not propose that offset. The House of Representatives, the same
people who said some harsh things today, came up with it. We looked at
it and found it legitimate. It's real money. And so we -- frankly, with
the thought that we would help them get to a bill they could accept, we
said okay. And I found it a little ironic to be attacked about their own
idea.
Q Mr. Daniels, can
you tell me what you're assuming is going to happen with the stock market
and with capital gains receipts for next year, to get the revenue projections
that you're using for the '03 number?
DIRECTOR DANIELS:
Jonathan, we have very guarded assumptions about -- we make no specific
assumption about the market itself. But non-withheld receipts we expect
to grow from this low base they've been driven to, but only modestly.
We want to be very cautious about this, because no one really knows the
report -- when you read the report, you will see us point out that we
don't know the extent of non-realized -- unrealized losses that are out
there, and -- or carried over -- or losses that have been realized, but
will carry over to future years. So we're -- we've tried to be pretty
cautious about expecting any upside.
Q To follow that,
are you making any assumptions, dramatic assumptions on revenue changes
in income tax? I mean, what -- as you've seen, other projections for next
-- for the '03 are actually worse than '02, because they're assuming that
revenues are going to continue to be pretty bleak in '03.
DIRECTOR DANIELS:
Yes, we are, too. We're assuming modest growth. Over the whole time period,
we assume between 5 and 6 percent annual growth in revenues. And that
contrasts with seven and a half in the last decade. But this is a subject
we've got to work on very, very carefully. And, again, it points out the
need to be very, very careful about the thing we can control, and that's
government spending.
Q Can I just follow
up on that. Are you -- you said you're being cautious in predictions of
the market, but are you predicting almost a sustained market, or investor
malaise over the accounting scandals? I mean, are you assuming that investors
are going to continue to have this lack of confidence?
DIRECTOR DANIELS:
No, we make no explicit assumption, no budget ever has, about what the
market will do, let alone what investors are thinking. All we can attempt
to forecast is what the tax consequences ultimately will be. And there
we see a recovery from this very low point we've fallen into, but a slow
and gradual one.
> Q Director Daniels,
given that the market has had two lousy years, and nobody in February
was looking for a gangbuster year this year, why was this such a surprise?
I mean, it seems pretty common sense that capital gains would be going
down, and that you wouldn't be getting as much as you did in the go-go
years.
DIRECTOR DANIELS:
I guess I would say that the models that everyone has used historically
have fastened, as I understand them, principally on the link between economic
growth and tax payments. And that's become somewhat disconnected, because
of the new realities I was talking about earlier.
So as I said at
the very beginning, it's very important to note, we underestimated by
a very large margin economic growth. Many budgets have been criticized
for rosy scenarios. That always meant they forecast a stronger economy
than actually was going -- was likely to happen. We estimated a far weaker
economy and a slower recovery, and yet through this disconnect, revenues
were even lower than history taught us to expect.
Q I'm wondering
if you could sort of preview Monday for us? Based on this chart on your
right, can we assume that in the management section of your briefing that
you're going to target some programs that should be phased out, that are
poorly managed?
DIRECTOR DANIELS: This is -- this is one of the five principal objectives
of the President's management agenda, to begin to measure what works and
what doesn't in the federal government, and to move money to what works
and away from things that don't. And you will read about that in the report,
and you'll read a lot about that in the next budget. It debuted -- that
rather common sense concept debuted in this year's budget.
Q When you talk
about the disconnect and the desire to study that more, what specifically
are you doing as Director to leave some kind of -- are you talking about
something specific that you want to do internally?
DIRECTOR DANIELS:
Well, our friends at Treasury are the experts and the custodians of this.
And I trust that -- I know that they're working on it very hard. I think
that they've made a lot of headway and all I'm saying today is that I
think all of us need to come to understand it better. I don't think there's
a model out there that has correctly forecast and anticipated it. But
it's our folks at Treasury that we work with in the so-called troika process
that have the responsibility.
Q -- incorporation
of the President's next budget, are you expecting Treasury to debut something
in terms of modeling, are you expecting anything to be different by December
when he signs off on a budget?
DIRECTOR DANIELS:
All I can say is that this will be one of the questions we look at the
very hardest: have we been careful enough -- whatever history says about
receipts related to economic growth -- have we been careful enough about
this component of receipts?
Q As you noted,
federal spending has risen by 7 to 8 percent over the last four or five
years. It's not a terribly good record. What can you do differently this
year to actually rein in federal spending? One obvious solution is for
the President to come out and say spending bills that come in over the
ceiling will be vetoed. Are you ready to say things like that?
DIRECTOR DANIELS:
The President has said that the budget resolution passed by the House
of Representatives -- which is the only one, unfortunately, that passed
this year -- is acceptable to him, and that the levels that add up to
that budget will be acceptable to him. And it may be that he has to police
that.
But the answer to
your question is that circumstances compel a significant increase in spending
this year. The President asked for a greater increase, it's only fair
to point out, than this recent trend rate. Because we've got damage to
pay for, a war to fight and a homeland security apparatus to build. That
need not be the case, however, year on year in the future. And the answer
to your question is those things have to take the paramount importance
they deserve. Everything else that we have suggested can grow, but only
at 2 percent.
Let me point out
to you that the 50 states of this country collectively -- and many of
them facing difficulty now, too -- collectively are holding total spending
growth to 2 percent this year. And that's all we have asked the Congress
to do with respect to the other programs of government, not to freeze
them, not to slash them -- simply to restrain the growth to 2 percent.
That ought not be an unattainable goal. The 50 states just did it.
Q Is that 2 percent,
though, for the next five -- each of the next five years?
DIRECTOR DANIELS:
Well, I was referring to this year, but looking forward at the next few
years, it would be a number like that. It will depend on inflation assumptions,
for example.
Q -- policy, or
-- revenue, is the administration looking at any way of closing existing
tax loopholes for -- what is your view as far as the Ways and Means proposal
that came out yesterday, in terms of corporate inversion? And do you see
this as any possible source of revenue?
DIRECTOR DANIELS:
I don't think either the President or the Secretary of the Treasury has
spoken on that, we've not had -- so I won't either. But the Secretary
of the Treasury is looking, as you know, at a broad simplification agenda.
And this could comprise elements that you might find as loophole closers.
I don't know what he'll ultimately recommend.
Q What average annual
increase, percent increase are you assuming over the next decade for overall
discretionary spending?
DIRECTOR DANIELS: About three to four, Alan, all in.
Q (Inaudible.)
DIRECTOR DANIELS:
Well, let me say, I think it should be. There is a great deal of money
that the federal government spends now, which is spends poorly. And we
ought to -- if we ever get serious about isolating that and rotating it
to things that are more urgent and that work well, we have an awful lot
of room. As I pointed out, state governments find a way to do it; there's
no reason that this government couldn't, too.
And, lastly, I'll
just say that I see some other projections around that say that the deficits
will be even worse, let's say, next year, than we have. They assume spending
we don't assume, and we are not prepared to assume the defeat of the American
taxpayer just because there's been a recent pattern of spending a lot
of money.
Q The President
has endorsed the House's $350 billion Medicare drug bill. The first question
is, is that assumed in here? And the second question is, if it's not,
are we going to see higher deficits or do you want to see discretionary
spending reduced --
DIRECTOR DANIELS:
First, the President has not endorsed that bill, although he said it had
good elements to it, he thought it was a good idea if it moved forward,
it would advance the cause and the process of trying to reach Medicare
reform including prescription drug coverage. For that reason, it is not
here. We continue to assume $190 billion, which is the net cost of the
President's proposal, which includes a similar prescription drug coverage,
does include some reform features that at present the House bill does
not.
Q I'm sorry, if
I could just follow that up. Are you saying that he would not support
spending $350 billion for --
DIRECTOR DANIELS: I think the President wants to see what the process
provides. He'll continue, I think, to argue for real reform in Medicare
as we add prescription drug coverage. And for the moment, we're assuming
-- we're not assuming anything beyond the proposal that he has made.
Q Will September
11th related assistance to New York be affected at all by these new figures?
DIRECTOR DANIELS:
No. The President requested the last installment of the $20 billion --
and, actually, it'll be closer to $21 billion when you add together the
things that he has endorsed for New York City in the supplemental. And
we look forward to getting that accomplished, if not there, in some fashion.
But that absolutely is assumed in.
Q Well, what's going
to happen with the supplemental?
DIRECTOR DANIELS:
I continue to hope that -- and urge the Congress to pass this. We're in
an unfortunate situation. In an attempt to force on the President and
the taxpayer spending we don't need, they are withholding the spending
we do need. And we've done everything we could think of to make it possible
for that bill to pass and to be signed. But so far, without success.
It is a fact that
we have about 40 percent of the money appropriated in December still left.
It has -- we've been, try to be careful about how it was spent, and we
have spent it more slowly than was expected. So we still have something
like $15 billion unobligated. In addition, it's been 113 days since the
President asked for money to prosecute the war, defend Americans at home
and repair New York City. And in that time, we have first of all learned
that we don't need every penny of what he asked for, and secondly, there's
only 80 days left. And so we could not spend all of it if we got it all
today.
So we asked the
Congress -- or actually I should say, we offered to the conferees, first
of all, to take back and rescind some of the money that remains unspent;
secondly, to draw down, take out some of the money originally requested
by the President. And, frankly, this was to make room for things they
wanted, that the President had not found essential. And we're disappointed
-- I actually as of late last night thought that this might lead to an
agreement today, but sadly it didn't.
Q On that subject,
Mr. Daniels, the conferees were indicating that they might have actually
reached that agreement today, but Democrats, and particularly Senator
Byrd, is blaming you for intervening, saying the administration is meddling
too much in the process. If you could comment a little bit on that. And
he -- Mr. Byrd suggested that it was the veto threat that essentially
upset the final conferees meeting today.
And, secondarily,
if there isn't a resolution soon, we heard from the Pentagon today that
certain war-related programs will have to be looked at, and perhaps even
not undertaken. Can you talk about a fall-back position in the absence
of a supplemental in that regard?
DIRECTOR DANIELS:
For most departments of government, we could manage, as I said. We have
a lot of money left, more than we expected. But for a couple of the most
critical functions -- Defense and the Transportation Security Agency,
the bringing into being of better protection of Americans in the air --
the money has, from December has about run out. And, unfortunately, the
Congress' delay, attempt to hold hostage this bill, so they could compel
unnecessary spending, does put at risk certain activities.
And we are preparing contingency plans. Certain purchases at TSA might
have to be delayed. And in the defense area, some maintenance might have
to be proposed, some training exercises. And this is all so unnecessary.
So we would hope that, still, that the Congress would trim the fat and
send the bill. And failing that, as I said, we offered them billions in
offsets if it helped, so that they could have extras that they found important.
Q If I could just
follow up. Did you indicate again to them today a Presidential veto threat
that they say scuttled the meetings this morning?
DIRECTOR DANIELS:
No, and I don't even know what they're talking about there. The President
has made it plain for 113 days that the amount of money he asked for was
all he thought was necessary. And we've tried and tried and tried to accommodate
their interests inside that number. But nothing new was said, no conversations
about vetoes today.
Q What elements
of your original request were you willing to trim, in order to get it
down to an acceptable figure?
DIRECTOR DANIELS:
Well, we were -- we really asked them to have a look at many elements.
For instance, economic grants, national economic grants, which are aimed
at unemployment and training and so forth, there's not time left between
now and the remaining 80 days to get all those out the door. We could
-- they had already sought to trim that, we said that could be trimmed
still further.
The best example
is there's more money, by far, than can be spent on personnel and expense
-- and personnel related expenses, because many of the departments that
are growing in the homeland security area can't hire people fast enough.
And that money should be easy to cancel.
Q Mr. Director,
when you put out the numbers for the budget in February, if I understand
this correctly, the OMB set of numbers assumes the President's policies
being enacted, is that correct?
DIRECTOR DANIELS:
Yes.
Q One of the things
that you proposed in February with the budget was a total of $591 billion
worth of revenue measures. It doesn't appear that Congress is going to
enact such measures this year. Do your numbers still assume the President's
call in February for those kinds of revenue reductions, or do they not?
DIRECTOR DANIELS:
They do, Bud. They have very, very little effect any time soon. They are
at the end of the time period, but they do.
Q Coming back to
the supplemental, you mentioned that you may have to scale back some training
and maintenance at DOD. And TSA you may have to curb some of the spending
there. Could you be a little more specific on what could happen to that
agency?
DIRECTOR DANIELS:
It's in part a matter of some large contracts. They're trying to -- they've
done a fabulous job over there, trying to put together a large and complex
operation in short time, meet certain deadlines in the law Congress passed.
And there are some large contracts that have to be led along the way,
for hiring and also for equipment. And some of those may have to be postponed.
Q Would you have
to go back to Congress then and ask them to extend the deadlines, because
they're running up against November and December 31st deadlines to get
the equipment in place?
DIRECTOR DANIELS:
Well, we're not there yet. We don't know. I know they're still working
very hard to meet the deadlines. For other reasons, there are things about
the original law that probably do need to be adjusted. It was a good --
a great job of legislation under the circumstances, but we know a lot
more now than we did just a couple months after September 11th.
Q You said that
in Defense and TSA were the areas where you were close to running out
of money. What are the areas where you actually had more money than you
wanted to?
DIRECTOR DANIELS:
Almost everywhere else. There's money in almost every Department of government.
And we have -- let me explain it maybe this way: Defense, at the end of
May, had used 76 percent of its supplemental money from December. And
so something in excess of that by now. The rest of government had only
used 39 percent of the money. And many, many departments had used 10 or
20 percent. So it will not be possible to spend all that money by September
30th. And, again, in an attempt to be helpful and to make room for preferences
of the appropriators, we offered to rescind some of that money. It would
be real money, real savings to the American taxpayer and I still hope
it's something we could agree on.
Q Yesterday at the
White House briefing, Ari painted very dire consequences if this doesn't
happen. He talked about furloughs and even naval deployments that defer
-- resulting in some disruption in naval deployments. If this would result
in such dire consequences to homeland security, why wouldn't the President
do whatever it takes to assure that this isn't jeopardized?
DIRECTOR DANIELS:
Well, the President and the Secretary of Defense and Secretary of Transportation
and all other responsible members of the administration will do what it
takes to see that vital security -- national and homeland -- activities
move forward. We've done an awful lot already during the 113 days we've
waited.
But the President,
respectfully, does not intend to be held hostage for more spending, particularly
when we don't even need all that we originally asked for.
Q So he's willing
to have, like, the veterans not receive their disability payments and
baggage screeners not to be hired and several military personnel possibly
not to receive payments, furloughs -- he's willing to have all that happen
over $4 billion --
DIRECTOR DANIELS:
No, he's not willing to have that happen. He's willing to do it and take
other measures and maybe find other ways to see that it -- legislatively
to see that it doesn't happen, you know. But this is all, again, so unnecessary;
113 days, $27 billion, lots of money, should not have been necessary to
prove some sort of point and try to force the President to take $4 billion
or $5 billion extra.
Q How are you projecting
'03 revenues when compared to '02?
DIRECTOR DANIELS:
Up between 5 and 6 percent over the whole time period, I believe, Alan.
From 2002 to 2003 specifically, up by 8.7%.
Q So you're projecting
a 5 6 percent decline '01 to '02. What accounts for that turnaround?
DIRECTOR DANIELS:
Well, it's almost -- it's axiomatic in economic recovery that revenues
bounce back, and they usually bounce back much more sharply than that
following a recession. But here, too, again we have assumed a relatively
modest snap back for the reasons we've been discussing.
Q But along those
lines and in light of just the events of the last two to three weeks,
would you think that a re-examination needs to be taken now, since you
made that --
DIRECTOR DANIELS:
Well, I think we'll keep examining it all the time, Jonathan, absolutely.
Q A clarification
on homeland security. This document assumes no additional spending for
the Department, even though the administration has talked about transition.
DIRECTOR DANIELS:
Yes, on a net basis, that's right.
Q (Inaudible.)
DIRECTOR DANIELS:
Yes, with the new Department. I remind you that we've requested an enormous
increase for the -- between $10 billion and $15 billion -- for '03. There's
just an astonishing amount of new money. And I'll also tell you we're
already beginning to find what -- the first of what I know will be a long
list of duplications and economies. And within the next day or two, for
instance, we will be suspending or freezing temporarily a host of redundant
information technology investments all aimed at building communications
infrastructure. This new department should have one world-class infrastructure.
And on the books
right now are plans totalling between $1 billion and $2 billion. And so
a review board has been constituted to pick the best of those and to move
forward with one plan. This move alone will save hundreds of millions
of dollars. We have the same thing coming right behind it in financial
systems where, again, we don't need dozens but, rather, one.
And so the new Department,
when all is said and done, there may be some near-term transition costs
offset later, but there are going to be very, very large savings and also
an enormous amount of new money requested from which to fund transition.
Q Back on the sup
-- two Republicans today, Young and Stevens, said the President was being
ill-served by you. What's your response?
DIRECTOR DANIELS:
Oh? (Laughter.) One day soon, Alan, I think I'll bleed to death through
the tongue, I've been biting it so much, and I will today.
Well, I leave that
to their judgment. They're both excellent gentlemen; everybody involved
is. I just think it inheres in the job. I've told some friends lately
that I think the President chose the wrong nickname in my case, and that
he might instead have chosen pinata -- (laughter) -- because I think some
folks think if they can knock my head off, all the goodies in town will
fall out. (Laughter.)
I think it just
inheres in the job. And the real dispute here is between folks who I guess
sincerely believe much more money should be spent, and the President,
who feels there must be a limit, that we must bend this recent trend line,
that we must move back towards balanced budgets. That's the dispute. I'm
simply his instrument. But he has a 75 percent approval rating, and I
don't. And so in their shoes, I think I would aim my criticism at me,
too.
Q Director, I have
a sort of non-budget related question. In last night's Treasury-Postal
bill on the Senate side, they included a provision that said you can't
put any numbers to the competitive sourcing. Does that thwart your efforts
in the management agenda? Would you recommend the President veto that
bill?
DIRECTOR DANIELS:
Oh, I'm sorry, it's the bill that was offered the other day? Yes, we would
recommend a veto of any such bill. It's very important that we begin,
or begin again, to capture for the taxpayer both the better service and
the economy and efficiency that can come through competition for those
services that are suited to it. We're still, to too great an extent in
the federal government, cutting our own grass, doing our own laundry,
our own printing, and things that are available through the private sector.
And there ought to be a competition. We don't care who wins. It's fine
if the incumbent federal agencies win, as long as we get a better deal
for taxpayers. That's an important initiative, and we would oppose any
bill that attempts to stop it.
Q Do you see any
risk in your future that due to the aggravation of fiscal condition, the
long-term interest rate goes up and the consequently discourage the capital
spending and the rate the economy recovery?
DIRECTOR DANIELS:
I don't see that. It follows along the line of the question we had earlier.
Again, interest rates, mortgage rates all at historic lows right now.
And, in fact, the deficits we're looking at, whether you favor our projection
or even some of those that have a slightly higher deficit for the next
couple three years, are historically pretty low, measured against a $10.4
trillion economy, much lower than those that we've suffered in the past.
So even if -- and to date we don't have any evidence of this -- but even
if there is some causal relationship, I don't see any great risk.
Q Mr. Director,
as you know, the Senate has yet to spend an -- set an FY '03 spending
cap through a budget resolution or other means. A few weeks ago they came
within one vote of committing a vote on a cap that would have been higher
than what the administration has proposed. So there is some support for
that, apparently, in the Senate. Are there any negotiations underway with
Senator Conrad or others in the Senate where the administration might
agree to a number that's higher than the 759, but lower than the 768 the
Senate seemed about to -- ready to embrace, and which the Appropriations
Committee over there has embraced?
DIRECTOR DANIELS:
I've had many conversations with Senator Conrad about it, and appreciate
his continuing interest in finding a new or a renewed control mechanism.
The President agrees with that. Once again, the price tag was not acceptable
-- the price tag for controls that might have helped. It gave no guarantee
of control, but might have helped. The price tag was -- fairly measured,
was $20 billion, and that's hundreds of billions over the years. That
wasn't something that the President found acceptable.
Q Senator Lott had
indicated that he might support a 764-65 number. I'm wondering if that's
leading the way to the administration? Might you support a number that's
midway between the two, in an effort to get a Senate spending cap?
DIRECTOR DANIELS:
We'd like to see a spending cap at the levels that the House has voted
for already. That would also, by the way, ensure a quick agreement between
the bodies. Once again, at those levels, we are increasing spending 10
percent this year, due to circumstances. And I would hope that eventually
the Congress would agree that that's really all we should be doing, especially
in view of the difficulty we're having at the bottom line.
Q At those levels,
many of the House appropriators, your friends, say that they don't have
a schedule to move some of their bills because they don't believe they
can pass them, and they are seeing gridlock in September. How do you respond
to that?
DIRECTOR DANIELS:
Well, I never presume to tell them how to do their business. I can just
come back to the facts that the President has asked for money, he's asked
for healthy increases. He's not asking that they do anything that state
governments or U.S. federal governments during wartime before have not
routinely done. And so we hope that they will think harder about that.
Q Are you concerned
at all that they have no plans presently to advance bills like Labor HHS?
DIRECTOR DANIELS:
The one bill that the President has concerns about is the Defense bill.
It ought to be passed, we ought to have certainty. We ought to have the
assurance of funding. The House has moved. We thank Chairman Young and
the Speaker for that. And we do hope that the Senate will. And there seems
to be some intent to do that. That the President has very serious interest
in seeing happen quickly. And then we'd like to work out the rest, but
all in the proper order.
Q Earlier you were
talking about postponing some of the infrastructure buys at TSA. Then
you mentioned the consolidation of the IT infrastructure buys at the new
Department of Homeland Security. One of the big infrastructure buys at
TSA is their IT infrastructure. How will, if they have nothing -- how
does that fit together? How do you save the millions, if you have this
$1 billion buy plan?
DIRECTOR DANIELS:
Well, they're really independent questions. One is being forced on us
by circumstance for the moment. The other makes sense anyway, for the
reasons I gave. And it's important that, again, that TSA and the rest
of the new Department have the best possible communication. And there
needs to be, again, one network.
The worker at the
airport in LaGuardia ought to be able, if she needs, to immediately contact
someone at the Port of Los Angeles or at the border station in Texas or
at the agricultural inspection station in Canada, and so on and so forth.
And so you're quite right. They had a proposal on the street for a $1.4
billion investment over the next seven years. And, meanwhile, there are
high quality infrastructures available. And some of it is Customs and
INS and some other places. And this board needs to look and decide on
which platform to build, and obviously not continue building on several
at the same time.
Q Can you talk a
little bit about the board that you just mentioned, and any specifics
about what infrastructure they're leaning toward in the new Department
of Homeland Security?
DIRECTOR DANIELS:
I can only tell you these are IT professionals from some other departments
that are coming together to be teammates in the new department. And I
hope it will be the first of many good exercises for creating a new team
and a new unified department. But we can get you some more information,
it's early day.
END 3:23 P.M. EDT
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