By Stan Collender, NationalJournal.com
© National Journal Group Inc.
Tuesday, June 13, 2006

The answer I give to the question I'm asked most frequently -- when is the federal budget going to become a big political issue again? -- is: "When people realize that the budget decisions being made in Washington are having a negative effect on their daily lives."

	Higher interest rates are only part of the negative effects of the current federal budget situation.
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Until recently, however, I haven't been able to give a good answer to the typical (and logical) follow-up question of when that is going to happen. That's no longer true: the negative impact is starting to be felt now.

This is happening in many ways.

The most obvious is rising interest rates. As "Budget Battles" pointed out a few weeks ago, the Federal Reserve's drive to increase interest rates to slow an economy it believes is in danger of overheating is being at least partially fueled by the stimulus created by the budget deficit.

U.S. monetary and fiscal policies are now sharply and incontrovertibly going in opposite directions. The first is putting the brakes on the economy; the other is keeping the government's foot on the accelerator.

The result so far has been higher costs for consumers on everything from home loans to credit cards. As a result, they are finding it more expensive to do anything. That is one of the biggest reasons a key predictor of near-term economic activity -- consumer confidence -- fell last month even though many other statistics show the economy to be doing quite well.

The federal budget deficit certainly isn't the only reason the Federal Reserve has been increasing interest rates. But a 2006 deficit that will range between $300 billion and $400 billion is not an insignificant amount of stimulus several years into an economic recovery and it has to be a concern.

Even more important, however, is that the Fed is likely looking down the road, seeing big budget deficits continuing for years to come, realizing that the fiscal stimulus will be continuing, and taking steps now to counteract it. Given the 12- to 18-month lag between when interest rates are raised and when the impact on the economy starts to be felt, it's hard not to conclude that the higher interest rates we will all be paying for the next few years would be less, perhaps even much less, if the deficits were lower than they are currently forecast to be and if the projected deficit was expected to fall.

But higher interest rates are only part of the negative effects of the current federal budget situation; virtually all federal activity is being affected negatively by what is happening.

Regardless of whether you care about tax cuts or spending increases, there can no longer be any doubt that the high deficit and continually growing federal debt are making it hard for Congress and the White House to respond to national needs. Even such pure public good activities such as basic research, homeland security and national park upkeep have been cut back or limited.

Anyone who has had to suffer through the security screening at U.S. airports has seen this at work. If you have ever wondered whether this is the best technology available, the best people we could have doing the screening, or the fastest way to get travelers through the checkpoints, you have experienced firsthand the impact of recent federal budget decisions on your life.

This has likely infuriated you, caused you to miss at least one flight, increased your stress level, put you in a terrible mood and made you think twice about taking the next trip. Fewer business travelers mean that airlines get less revenue. That causes flight reductions which reduce the number of frequent flier seats available for your next vacation. It also causes airline layoffs and bankruptcies.

This is not just happening on domestic programs. As has been obvious since the start of the activities in Iraq and Afghanistan, the Pentagon has also been forced to skimp in a number of important ways. The complaints about the lack of appropriate armor on vehicles in Iraq may be the best example and that has hurt recruiting and retention.

It's also not just happening on the spending side of the budget. Last week's effort in Congress to reduce or eliminate the federal estate and gift tax was thwarted in part by concern about its negative impact on the budget. The budget was not, of course, the only, or even the primary, reason the effort was stopped. But it was clearly enough to provide a few senators with an additional reason to be leery about supporting the plan and all that was needed.

Fiscal conservatives will tell you this was the plan all along: increase the deficit and change the politics of the budget so that there was more pressure on federal spending. What they likely did not anticipate, however, was that the impact would be the same on military as domestic programs and that tax cuts would be affected.

They also almost certainly did not anticipate the third way in which the federal budget situation has been having a negative impact: emotionally.

The stressed-out airline passenger is only one example. On a more macro level, the drop in consumer confidence is at least partially the result of a lack of belief in the federal government's ability or willingness to deal with whatever arises. The poor federal responses to past problems because of previous budget decisions seems to have created a feeling among many that Washington to respond adequately.

This federal budget-induced psychosis is not just because of a limit on dollars being spent or on taxes being reduced. It also stems from the budget process and budget politics, which over the past decade have too often been reduced to rubble.

The common wisdom is that no one cares whether Congress fails to adopt a budget resolution or is unable to enact appropriations by the start of the fiscal year. That's probably true. But Washington's now endemic unwillingness to comply with its own procedures, or to abandon them whenever that is the right politics, can hardly be giving anyone outside the Beltway great confidence that the federal government will be able to respond adequately if a crisis of any kind -- tornado, earthquake, drought, crime wave, terrorist attack or disease outbreak -- occurs. It gives them even less confidence that more mundane government activities, like border protection, can be done well.

Katrina is the best example. Poor federal planning and implementation, including many very bad funding decisions over a period of time, was followed by Washington ineffectively throwing substantial amounts of cash at the crisis after it occurred. But three-quarters of a year after the flood receded, affected New Orleans residents are still waiting for assistance and an "emergency" supplemental appropriation has been languishing in Congress for months.

The fact that the federal budget situation is now starting to be felt outside of Washington is not enough to make it into a political issue. What else has to happen? See next week's "Budget Battles."

Question Of The Week
Last Week's Question. Last week's question -- "Is there a difference between a 'supplemental' appropriation and an 'emergency supplemental' appropriation?" -- turned out to require both a philosophical and technical response. Technically, they are indeed both supplemental appropriations, that is, they both provide additional funds for something and, therefore, are basically the same. However, a supplemental appropriation that designates some or all of its funds as being needed for emergency reasons is exempt from many of the procedural restrictions and limits that would otherwise apply.

After consulting with a number of budget and appropriations experts, the judges have decided that the correct response is "yes." The judges have also decided, however, that two "I Won A 2006 Budget Battle" pennants should be awarded to provide positive reinforcement to all those who entered this week's contest.

The two winners, one of who was selected at random from those who said "yes" and one who was selected at random from those who said "no," are Donna Meltzer, senior government relations director for the Epilepsy Foundation in suburban Maryland, and Gregory Wright, public policy and legislative coordinator for the San Gabriel Valley Economic Partnership in Irwindale, California.

This Week's Question. Here's another yes/no question that will make it easy for you to send in a response and perhaps win one of these highly in demand and extraordinarily rare "I Won A 2006 Budget Battle" pennants. The question: Can a supplemental appropriation be enacted before the regular appropriation for the same department, agency, or program has been enacted?

Click here to send in your response, which must be received by 8 p.m. EDT Saturday, June 17, 2006. You must include a mailing address so we can send you an "I Won A 2006 Budget Battle" pennant if you win. If more than one person submits a similar winning response, the winner will be selected at random from that group.

Note to government employees: Because of security procedures at many offices and facilities, your home address will be the best way to make sure the pennant actually gets to you.

-- Stan Collender is a NationalJournal.com contributing editor and managing director at Qorvis Communications in Washington, D.C. A frequent speaker on the budget and the economy to audiences across the country, he is also author of "The Guide to the Federal Budget." His e-mail address is secollender@nationaljournal.com.

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