CNN - Progress seen on debt, spending - Jan. 25, 1996

Progress seen on debt, spending

U.S. won't default, administration says

January 25, 1996
Web posted at: 1:00 p.m EST

WASHINGTON (CNN) -- The Clinton administration said Thursday it is confident the United States will not default on its debts. And Treasury Secretary Robert Rubin said renewed bipartisan debate on the budget and debt ceiling, combined with a hint that the quality rating on nearly $400 billion in U.S. government debt obligations might be lowered, is "constructive."

Meanwhile, the House was to take action Thursday on a new temporary spending bill in hopes of avoiding another government shutdown this weekend. But the Democratic leader in the Senate warned that GOP's limited spending proposal would still force thousands of government workers to be furloughed for two to 15 days in the coming month.

"This nation will not default"

-- Treasury Secretary Robert Rubin

"I'm absolutely confident that this nation will not default on its obligations for the first time in its history," Rubin said in an interview on National Public Radio. And White House Press Secretary Mike McCurry said, "We don't believe that the United States government will face the prospect of default," adding that administration representatives and congressional leaders plan to meet on budget issues and the lifting of the federal debt ceiling.

Republican congressional leaders on Wednesday indicated more of a willingness to work with Clinton to end the long-standing impasse over the budget and raise the ceiling on the size of the federal deficit to ensure payment of government obligations. "We're encouraged" that the Republican-led Congress does not "intend to play games here," McCurry said.

Operating at reduced level

The new temporary spending bill under consideration in the House would keep the government in operation through March 1, although at generally lower spending levels. The spending bill passed after the shutdown that ended earlier this month expires Friday at midnight. Without an extension, about one-third of government programs faced a third shutdown.

But Senate Democratic Leader Tom Daschle said Thursday that even with an extension, the spending reductions proposed by the Republicans would mean thousands of workers would still be sent home. Daschle's office released figures from the Office of Management and Budget saying the Environmental Protection Agency would have to lay off 11,000 employees for about a week, the Veterans Administration's benefits processing center would lay off 13,000 for two days, and the National Labor Relations Board would shut its entire operation for 10 days.

Republicans previously had insisted on linking government funding to White House movement toward a balanced budget, including major government cutbacks. Now, however, they are ready to approve a spending extension in return for administration agreement to close about a dozen minor programs.

House insistence on inserting anti-abortion language could prove to be a stumbling block, however. Because of objections from the more moderate Senate, House Republican lawmakers dropped a provision from the bill that would have banned U.S. aid to overseas family planning programs. Instead, House leaders planned to include a ban on research using human embryos. It was not clear whether the White House would accept the research ban.

Debt ceiling

In the separate issue of raising the debt ceiling, Republican House leaders say they are willing approve an increase to avoid a government default in return for a "down payment" on balancing the budget. They hope to gain approval for a limited package of spending cuts that will amount to $100 million over several years.

House Speaker Newt Gingrich said he wants Clinton to agree to $29 billion in tax cuts, enough to provide many families with a $125 per child credit this year and a $500 credit next year. Republicans originally sought a $500 per child credit for each of the next seven years. In addition, Gingrich wants a cut in the capital gains tax, a move he said is needed to keep the economy from "sliding into recession."

Rubin said the administration is "prepared to work with them in any way that's constructive."

Responding to an announcement by Moody's Investment Service that it is considering a possible downgrade on approximately $387 billion in U.S. government debt, Rubin said: "I think in a sense it was a constructive move because it helped continue this process of focusing people on getting this problem solved."

Rubin has said the government will have exhausted all legal, prudent means to avoid exceeding the debt limit by either February 29 or March 1. But the Washington Post reported the U.S. Treasury may be able to dodge the default bullet even if Congress refuses to increase the debt ceiling. Citing an unnamed senior Treasury official, the Post said the crunch would be avoided if the Treasury could come up with enough cash to make a $5.8 billion interest payment due to noteholders on February 29. The official said "no more interest payments of any size are due during March." The Post said that coming up with the $5.8 billion in time is "likely but not certain."

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Associated Press and Reuter contributed to this report.