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.
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