Statement of Administration Policy: S. 1357 - Budget Reconciliation Act of 1995

(Senate)
(Domenici (R) New Mexico)

If this budget reconciliation legislation — with its extreme spending cuts and huge tax cuts flowing disproportionately to people who don't need them — were sent to the President in its current form, he would veto the bill. The reasons are set forth in the attached Office of Management and Budget letter of October 23, 1995 to Chairman Domenici.

October 23, 1995

Honorable Pete V. Domenici
Chairman
Committee on the Budget
United States Senate
Washington, D.C. 20510

Dear Mr. Chairman:

I am writing to transmit the Administration's views on the actions that Senate committees have taken to comply with their budget reconciliation instructions.

You should have no doubt about the President's position; If reconciliation legislation were sent to him with the extreme spending cuts and huge tax cuts called for in the budget resolution, he would veto the bill. The President has stressed the importance of (Hiding common ground with Congress on a budget plan that will best serve Ac interests of the American people.

As you know, the President shares with congressional leaders the goal of balancing the budget. But, as the President and his senior advisors have repeatedly noted, the Administration has profound differences with the overall approach that Congress has adopted to reach that goal:

• The President's plan: The plan, which the President announced in June, would protect Medicare until 2006 and retain Medicaid as an entitlement; Invest in education and training and other priorities; and provide for a targeted tax cut to help middle-income Americans raise their children, save for the future, and pay for postsecondary education.
  
  To reach balance, the President would eliminate wasteful spending, streamline programs, and end unneeded subsidies; take the first, serious steps toward health care reform; reform welfare to reward work; cut non-defense discretionary spending (other than the President's investments) 22 percent in real terms in 2002; and target tax relief to those who really need it
  
  
• The Republican plan: The Republican plan — as reflected in (he committee reconciliation provisions - seeks to balance the budget while providing a huge tax cut whoso benefits would flow disproportionately to those who do not need them.
  
  To reach balance, the Republican plan would cut deeply into such mandatory programs as Medicare, Medicaid, student loans, and food stamps, and would raise taxes on millions of working families by slashing the Earned Income Tax Credit (ETTC). By extending the discretionary Caps at Republican-proposed levels, the Republican plan would force deep cuts In virtually all discretionary programs, including education and training, science and technology, environmental protection, and other priorities.

The President believes strongly that, while his approach reflects the common ground that Americans share, the Republican plan reflects an extreme and unwise approach that will hurt average Americans and help special interests. He has repeatedly urged Congress to work with him on a more reasonable path that will help raise average living standards in the future.

The Republican majority, however, has shown little inclination to move to a more responsible path. The Finance Committee, for instance, has passed deep, unwarranted cuts in Medicare that would raise costs for beneficiaries and sharply cut payments to providers, jeopardizing access to, and the quality of, care. In addition, Finance would convert Medicaid into a block grant which is unacceptable. Under the Finance Committee approach, states would face untenable choices: cutting benefits, dropping coverage for millions of beneficiaries, or reducing provider payments to a level that would undermine the ability to adequately serve beneficiaries. Furthermore, Finance would end standards needed to protect residents of nursing homes, and would not ensure coverage (Or some of the most vulnerable Americans — poor children.

The Republican tax plan hurts working Americans. The Finance Committee would raise taxes on 17 million working families by cutting the EITC. And it would make unwise changes to pension fund asset reversions — making it easy for companies to withdraw "excess" pension assets — threatening the retirement benefits of workers and increasing the exposure of the Pension Benefit Guaranty Corporation, which guarantees these benefits. In addition, the Governmental Affairs Committee would raise Federal employee retirement contributions — which is tantamount to raising employees' taxes.

The Finance Committee has included the Senate-passed welfare reform bill in the reconciliation bill. Overall, food program and EITC cuts elsewhere in reconciliation, together with other low-income program cuts, arc excessive. For welfare reform to succeed, it must save money by moving people from welfare to work, not by merely cutting them off or shifting costs to the states. The cost of excessive program cuts — to working families, families with small children. low-income immigrants, disabled children, and the elderly receiving Supplemental Security Income - would be grave. The Administration proposes a more acceptable level of cuts, coupled with strong programmatic reforms.

Other committees Me making cuts in programs that would adversely affect millions of students and their families, children, the poor of all ages, farmers, and the environment

The Senate Labor and Human Resources Committee would raise college loan costs to middle- and low-income students and parents, and tax colleges and universities. In particular, the Committee would cap the Direct Student Loan Program, reversing the program's significant progress and ending the participation of over 600 schools and hundreds of thousands of students. These actions hurt middle- and low-income families, make student loan programs less efficient, perpetuate unnecessary red tape, and deny to students and schools the free-market choice of guaranteed or direct loans.

The Agriculture Committee would cut farm spending over three times more than the President, reducing farm income and jeopardizing recent record gains in U.S. farm exports. Also, it would cut food stamps too much — even more than the Senate welfare bill — threatening the nutritional safety net of children, the elderly, and working families.

The Energy and Natural Resources Committee would open the Arctic National Wildlife Refuge (ANWR) to oil and gas drilling, threatening a rare, pristine ecosystem, in hopes of generating $1.3 billion in federal revenues — a revenue estimate based on wishful thinking and outdated analysis. Moreover, the potential for long-term damage to this biologically-rich wilderness is simply too great The Administration, Instead, supports efforts to protect the refuge's coastal plain permanently.

Already, the President has made it dear that he will veto any reconciliation bill that Includes Medicare and Medicaid cuts of the size that the budget resolution calls for. Also, as I wrote to the Energy and Natural Resources Committee on September 21, the President will veto any reconciliation bill that opens ANWR to oil and gas drilling. But our serious concerns do not end with the specific veto threats that we have issued. For the wide array of reasons discussed in this letter, this bill remains unacceptable to the Administration and to the American people-

This nation was founded on the dream that all families should be given the opportunity to improve their lives and the future of their children. The Republican plan undermines that dream and promotes the wrong set of priorities for the nation.

Attached is a more detailed review of our concerns.

Although we have major differences with Congress at this point, we hope to work with you to find a common path to balance the budget in a way that will improve the standard of living of all Americans.

Sincerely,

Alice M. Rivlin
Director

Attachment

Identical letters sent to Honorable J. James Exon,
Honorable Robert Dole, and Honorable Thomas Daschle

CONCERNS WITH SENATE RECONCILIATION PROVISIONS

SENATE AGRICULTURE

Farm Policy

The Administration objects to the $13.4 billion cut in farm program spending over seven years — well over the $4.2 billion in seven-year savings in the President's balanced budget plan. Cuts of the Senate's magnitude would unacceptably reduce U.S. farm income and damage U.S. agricultural export opportunities in the world economy.

The bill does not direct funding to those who most need it, and would punch holes in the safety net for family farmers; while it would significantly protect large-scale (arming, it would not significantly protect small-scale fanning.

Moreover, farmers would no longer have to participate in the Federal Crop Insurance Program as a condition of receiving farm program benefits, potentially undoing the major reforms only recently achieved in that program.

The bill would cut international trade promotion and market development assistance. It would cut the Export Enhancement Program by 20 percent a year, and the Market Promotion Program by 32 percent a year, diminishing our ability to compete in international markets — in stark contrast to our competitors who continue to subsidize their farmers substantially.

In addition, the bill would cut incentives for voluntarily accomplishing conservation goals. It would cut the Conservation Reserve Program in half (costing about 15 million acres of resource protection) compared to the Administration's baseline. It would prohibit the Wetland Reserve Program from offering permanent easements, thus requiring USDA to pay multiple times for the same piece of land in order to protect wildlife and water quality. Especially at a time when regulatory controls for wetlands protection are under attack, Congress should not cut incentive-based programs so drastically.

Food Stamps and Child Nutrition

The committee's proposal includes the Senate welfare bill's food stamp provisions and other provisions. All told, the committee would cut food stamps by $31 billion — $4 billion more than the Senate welfare bill. The President's balanced budget plan includes a preferable funding level, saving $19 billion over seven years but preserving uniform, national eligibility for most of those now entitled to the program. We must preserve the national nutrition safety net, which assists about 27 million low-income children, elderly and working families.

While, generally, Senate-proposed changes to nutrition programs improve on those in the House welfare bill — such as by rejecting Modi grants for child nutrition programs and WIC — the Administration strongly opposes the food stamps Mock grant option, which the Senate welfare bill includes. By not requiring that all assistance go for food, the Senate would endanger the national program and move toward abdicating the federal role in combating hunger. Especially if Congress creates an AFDC Mock grant, wo must preserve a national food stamp entitlement program; a national nutrition program helps put food on the table for low-income families who may lose their cash assistance, and it helps agricultural producers.

Moreover, the Administration strongly believes that all food stamp spending should go for food assistance, not just 80 parent as the Senate block grant option would permit. Federal nutrition programs have produced measurably better health among the many people who get food assistance. National nutrition standards and a funding mechanism that lets the programs expand to meet greater needs in times of national or regional economic hardship are essential to feasible welfare reform.

SENATE ARMED SERVICES

The Administration is pleased that the Senate chose not to break faith with our service men and women by changing the method (Or computing military retirement pay, but instead chose to allow increased sales from the National Defense Stockpile to offset defense mandatory program increases

The committee also proposes to sell the Naval Petroleum Reserves, as the President proposed. The Administration urges Congress not to rush the sale, enabling the federal government to receive fair market value for the assets.

SENATE BANKING, HOUSING, AND URBAN AFFAIRS

Banking Insurance Fund (BIF)/Savings Association Insurance Fund (SAIF)

The Administration strongly supports the Committee's action to deal with the financial problems of the Savings Association Insurance Fund (SAIF). It is essential to eliminate the perverse incentives created by a premium differential between SAIF and the Bank Insurance Fund (BIF). The bill would do so through a one-time special assessment on SAIF-insured deposits and by spreading Financing Corporation payments pro rata over all FDIC-insured institutions. In addition, we believe that the legislation should unambiguously provide for the SAIP's merger with BIF; which is essential to assuring that SAIF's structural vulnerabilities cause no further problems. While the Administration supports an ultimate merger of the thrift and bank Charters, the difficult issues involved in the charter merger (including tax issues) should not interfere with enactment of a comprehensive solution to SAIF's financial problems that includes merging the deposit insurance funds. The Administration is also concerned that future congressional action to trigger Ac fund merger may carry a budgetary cost, creating an obstacle to it

HUD Rental Subsidy Annual Adjustment Factor

The Administration is concerned about the equity of limiting the 1 percentage point cut in HUD's annual adjustment factor for subsidized rents to only one form of Section 8 rental assistance — tenant-based certificates. The Administration prefers the House approach — consistent with the Administration's 1995 and 1996 budget proposals — of extending this reduced adjustment to all forms of Section 8 subsidies, including tenant-based certificates and subsidies attached to projects. Congress enacted this approach for one year only as part of the 1993 VA/HUD Appropriation Act, and will likely enact it again in the 1996 Appropriation.

SENATE COMMERCE, SCIENCE, AND TRANSPORTATION

Spectrum Auction

The Administration commends the Committee (or including legislation to raise funds from spectrum auction, and believes the Committee's spectrum language is preferable to the House Committee's, Unlike the House provision, the Senate provision provides (or paying (from auction proceeds) the costs that federal agendas bear in migrating Hum one portion of the telecommunications spectrum to another. This provision could be particularly important for the Departments of Defense and Justice and the Federal Aviation Administration. We should not require agencies to absorb these costs in their discretionary appropriations.

Rail Infrastructure

The Administration objects to the Committee's decision to spend $70 million over seven years to make available up to $100 million a year in guaranteed loans under the Federal Railroad Administration's Section 511 program. Railroads are financially healthy and have access to substantial financing through the private capital markets. In this era of declining discretionary budgets, subsidized loans to private, profitable corporations are objectionable.

The Administration also objects to spending $75 million to revive the Local Rail Freight Assistance program. The Administration proposed to terminate this program in the 1996 Budget, and both House and Senate appropriators chose to eliminate it as well. The federal government should not be in the business of handing out grants to private corporations.

SENATE ENERGY AND NATURAL RESOURCES

Arctic National Wildlife Refuge

As noted above, the President will veto any reconciliation bill that opens the Arche National Wildlife Refuge (ANWR) to oil and gas drilling. Exploration and development activities would bring physical disturbances to the area, unacceptable Tides of oil spills and pollution, and long-term effects that would harm wildlife for decades. Moreover, the estimate that ANWR will generate $1.3 billion in federal revenues from oil and gas leasing is wishful thinking, based on projected oil prices in the year 2000 of above $30 per band — even though the Energy Information Agency now predicts prices will only be about $19 per barrel The estimate also fails to consider new geological information showing lower recoverable oil estimates and Alaska's claims that its Statehood Act entitles it to 90 percent of all revenues — not 50 percent, as the estimate assumes.

Hardrock Mining Reform

The Administration is concerned that the Committee's proposal to reform the antiquated 1872 hardrock mining law would, in fact, leave it largely intact Most notably, the proposal essentially retains the notorious patenting provision whereby the government transfers billions of dollars of publicly-owned minerals at relatively little charge to private interests. The proposed 'net' royalty on proceeds from minerals production on federal lands has excessive deductions, and would raise only a small amount of money to compensate taxpayers or fund the cleanup of abandoned mines that are degrading water supplies and otherwise banning the environment.

Additional Concerns

The Administration opposes the proposal to sell an additional 32 million barrels of Strategic Petroleum Reserve (SPR) oil, beyond the seven million proposed in the President's 1996 Budget and included in the 1996 Interior Appropriations Conference Report The Administration is pleased with provisions which advance prospects for selling the United States Enrichment Corporation (USEC) although we are concerned about Senate provisions that would transfer exclusive rights to gaseous diffusion technology from the Energy Department to USEC and believe some changes are needed to successfully implement the Russian uranium agreement In addition, while we appreciate inclusion of the Alaska Power Administration Bale to current customers — as the Administration has proposed — we believe that all Power Marketing Administrations, except the Bonneville Power Administration, should be sold to their customers.

The Committee also has chosen to use the reconciliation bill as a catch-all for various objectionable policies, many of them having nothing to do with balancing the budget. The oil and gas royalties proposal includes a number of provisions that would make royalty collection far more difficult and costly for the federal government The Ward Valley (CA) Land Transfer (which the Administration supports in concept) includes no environmental conditions. The Communication Site Fees proposal would prevent the National Forest and Bureau of Land Management (BLM) lands from implementing a fair market value fee schedule that they developed over the past three years, reducing and delaying revenues to the Treasury and to states and counties where the sites are located. The aircraft services proposal would raise the Interior Department's federal procurement costs and reduce efficiency. The Reclamation Reform Act proposal would unjustifiably allow large landowners to prepay, at a discounted rate, the highly subsidized debt they owe the U.S. for their share of capital costs of Bureau of Reclamation irrigation projects. The Collbran Project Transfer proposal, by delaying the transfer until 2000 but not adjusting the price tag or covering the power debt, would provide an unwarranted triple subsidy to the project's water district conservancy.

SENATE FINANCE

Medicare

The Administration strongly opposes the magnitude of the proposed Medicate cuts — $270 billion over seven years. While Republicans say we need cuts of this size to "save" the Medicare Part A Trust Fund, in Act we need only about $90 billion in Part A savings to ensure the trust fund's solvency for the next 10 years. The rest of the Republican Medicare cuts would finance the Republican tax cut

Further, the Republican plan imposes almost $70 billion in new financial burdens on beneficiaries. Most of it comes from setting the Part B premium to cover 31.5 percent of program Costs. This increase is excessive. The Republican plan also more than triples the Part B premiums for some higher-income beneficiaries. For all beneficiaries, the Part B deductible would more than double by 2002. The Republican plan then compounds these direct new burdens on beneficiaries by imposing many hidden cuts that will force them, over time, to pay much more for their health care services.

For example, the Senate's new "Medicare Choice" option actually gives beneficiaries less choice. Though it promises to give beneficiaries free choice between traditional Medicare and all the options under Medicare Choice, the legislation applies distinctly uneven rules to Medicate and Medicare Choice, making the former much less attractive to providers than the latter. These incentives, along with a provision that applies the so-called "budget expenditure limiting tool" (BELT) of more cuts only to the traditional program, would reduce providers' willingness to serve beneficiaries in traditional Medicare. This will restrict beneficiary choice, not enhance it Medicare Choice, as structured in the Republican plan, also would promote adverse risk selection that could Increase costs for (ha traditional program. The Administration does not support efforts to use Medicare beneficiaries to experiment with untested concepts that could weaken the program.

The Medicare Choice "choice" is also a bad one Ay beneficiaries because they will lose protection from "balance billing," whereby providers charge beneficiaries more than Medicare approves. Medicare permits no balance billing by hospitals and only limited balance billing by physicians. Medicare Choice plans, however, will widely permit it. Physicians, and possibly other providers such as hospitals and skilled nursing facilities, in fee-for-service Medicare Choice plans will be able to charge patients whatever they want.

The same will be true for patients electing the catastrophic or medical savings account (MSA) plans. For managed care plans, the Senate hill appears to let each private plan decide whether to offer beneficiaries any protection from unlimited provider charges. There would be no Federal protection for beneficiaries in these plans. Whenever parents receive non- emergency care outside of the plan — even if the plan authorizes such care — beneficiaries would not be protected from excessive charges by physicians. Given the very tight caps that this bill would impose, provider pressures to balance bin will grow. If providers begin to move to Medicare Choice plans to escape balance billing limits, beneficiaries will face the choice of following them and paying more, or remaining in traditional Medicare where fewer doctors and hospital: are able to care for them.

Medicaid

The Administration strongly opposes both the magnitude of proposed Medicaid cuts — which would cut federal payments to states by $182 billion, or 20 percent, below current law — and the conversion of Medicaid into a block grant, eliminating guaranteed coverage to millions of Americans. By 2002, the cuts would amount to a 30 percent reduction below CBO's estimate of the cost to maintain current services. To reach these savings, per capita health care spending growth under Medicaid would have to Ml to an average of 1.4 percent a year over the next seven years; by contrast, per capita spending in the private sector is projected to grow by 7.1 percent a year over this period. Given such a low rate of growth, states would face untenable choices: cutting provider payment rates, cutting benefits, or dropping coverage for millions of beneficiaries.

Furthermore, in converting Medicaid into a drastically smaller block grant program, the Committee bill reduces the guarantee of coverage on which millions of low-income families have depended. Over 36 million Americans — individuals with disabilities, children, pregnant women, elderly nursing home residents, mentally retarded children and adults, mentally ill persons, and others — who cannot pay for their own health care are now assured access to a package of basic services. Because this guarantee is eliminated, millions of children and many other vulnerable Americans could lose access to health care.

Although the Chafes amendment purported to "guarantee" coverage to certain groups, it does not define coverage. For example, it leaves the definition of who is disabled and, thus, eligible for guaranteed coverage entirely to Ac stales. Further, given the sire of proposed Medicaid cuts, the level of benefits that the states could guarantee could be minimal.

The Senate bill jeopardizes the income, homes, and cars of nursing home residents and their spouses. Under current law, federal Medicaid eligibility standards, which (he Senate bill would repeal, protects these residents and their spouses from losing their homes and cars. Also under current law, spousal impoverishment provisions protect a minimum level of income and assets, not including the home and car. Because the Senate bill leaves both eligibility requirements and spousal impoverishment protections up to the states, the federal government would no longer assure that the income, homes, and cars of Medicaid recipients will be protected.

The bill also repeals federal nursing home quality standards Air Medicaid and directs states to adopt whatever standards they choose. With an enormous cut in federal financial assistance, states may not be able to afford to develop and enforce standards to ensure a high quality of care and quality of life.

The bill also repeals protection for low-income Medicare beneficiaries under Medicaid. Currently, an estimated 5 million individuals receive Medicaid assistance with their Medicare premiums, deductibles, and other cost sharing. The need was so great that congressional Democrats and Republicans came together to create the Qualified Medicare Beneficiary (QMB) program. President Reagan signed legislation to create the program; President Bush signed a bill to expand it These beneficiaries are doubly hit by Republican proposals. First, Republican Medicaid proposals eliminate guaranteed coverage of Medicare cost-sharing, potentially leaving beneficiaries ultimately liable. In addition, Republican Medicare proposals will exacerbate the hardship by increasing the premium amounts they must pay.

The Administration is concerned that the Committee bill repeals the Vaccines for Children Program (VFC), a 100 percent federally-funded entitlement for Medicaid-eligible, uninsured, under-insured, and Indian children. Although the bill requires states to cover immunizations for Medicaid-eligible children, thousands of uninsured, under-insured, and Indian children would lose coverage. Further, in converting Medicaid into a drastically reduced block giant, federal funding dedicated to immunizing children would decline, threatening our efforts to insure that 90 percent of all children under age 2 are properly immunized for the initial, and most crucial, doses of vaccine.

Earned Income Tax Credit (EITC)

The Administration strongly objects to the Committee's proposal to cut the ETTC by $43.5 billion over seven years, raising taxes on 17 million households. The changes would affect nearly 24 million children.

By partially repealing the indexing of the ETTC, Ae Committee's proposal would generate creeping tax increases each year. Working families would see their taxes rise by $302 in 1996 and by $471 in 2005 (in 1996 dollars). Families with two or more children would fare the worst under the proposal. In 1996, taxes would increase, on average, by $410 for over 7.4 million families with two or more children. Their taxes would increase by $644 by 2005 (1996 dollars). By 2005, 22 percent of all families with children eligible for the ETTC under current law would lose that eligibility.

Under the proposal, I million BMC recipients would be taxed on their full social security benefits, increasing their taxes by an average of $859. The proposal also would repeal the ETTC for very low-wage workers who do not reside with qualifying children. For these workers whose adjusted gross income is less than $9,500, average taxes would rise by $173.

The Administration believes strongly that Congress should not raise taxes on working families to finance tax breaks for (he well-off. It should limit its changes to the compliance improvements (hat the Administration has proposed.

Tax Cuts

The Administration strongly opposes the Committee tax cut; it is fiscally irresponsible and would provide a disproportionate share of benefits to high-income families. At a time when Congress seeks to cut over $1 trillion to balance the budget, adding another $245 billion to the deficit through lower taxes forces more drastic cuts in public services and benefits for lower- and middle-income families. Without this huge tax cut, Congress would not need the drastic cuts in Medicare in the budget resolution, including (he increase in premiums for the elderly at all income levels.

The tax cuts provide large benefits to those who need them the least. The capital gains cut, among other provisions, is overly generous and disproportionately benefits upper- income families. Overall, about 48 percent of the benefits from the Finance tax MU will accrue to families with incomes over $100,000 (die top 12 percent of families). At the same time, the combined effects of the tax cuts and cuts in the ETTC will raise taxes on families with income under $30,000.

Pension Reversion

The Administration strongly opposes the "pension reversion" provision that would permit companies to withdraw "excess" pension assets. As the Pension Benefit Guaranty Corporation's board members stated in their October 17 letter to Chairman Roth, the Senate provision would "result in the removal of billions of dollars from the pension system, endangering workers' retirement income for the purpose of paying current expenses. This would increase the risk of loss for workers, retirees and the pension insurance system. Despite the nominal restrictions imposed ..., the proposal would effectively allow companies to remove assets from retirement plans and use these funds for any purpose... This is not the intended use of funds that have accumulated with the aid of the valuable tax incentives explicitly designed to promote pennon savings for workers.

Such reversions risk a repeat of the pension raids of the 1980s, when reversions helped fuel corporate takeovers and buyouts. This short-sighted provision risks undermining our private retirement system. We must increase our savings for retirement and enhance, not diminish, public confidence in our pension system.

Health Benefits for Retired Unionized Coal Miners and their Families

A 1992 law combines federal and Company funding to finance the health care for retied coal miners and dependents that was promised them in collective-bargaining agreements. A proposed amendment would release Certain coal companies from their obligations, including those that signed an agreement to pay future costs for their former employees. The resulting lack of revenue Could threaten the health Care of nearly 100,000 retired coal miners and their families.

Child Support Enforcement

The Administration has significant concerns about a Committee proposal mandating that, in order to recoup administrative expenses, States collect an amount equal to a $25 application fee and a 10 patent fee on all non-AFDC child support collections. Such a fee, amounting to a cut in income, would withdraw vital support Air children, unduly burdening low- and moderate-income families and possibly forcing some back on AFDC.

Welfare Reform

AFDC, Work, and Child Care. The Committee included the Senate-passed welfare reform bill in its reconciliation package. The Senate bill is significantly preferable to the House welfare bill in promoting work and protecting children, but the bill nevertheless raises important issues:

• The Administration strongly supports the bipartisan Senate improvements to provide the child care that people need to move from welfare to work. Without sufficient child cart Raiding, welfare reform will prove an enormous unfunded mandate on states. The Administration recommends that Congress improve the final bill by adding more child care money, not less. The Administration strongly supports the Senate child care provisions that gives states a separate funding stream for child care and provide services to help families stay off welfare.
  
  
• The Administration is pleased that the Senate has included maintenance of financial effort provisions in the bill. Congress should clarify these provisions, however, to tighten the definition of allowable expenditures.
  
  
• Congress should provide states with greater protection in a serious recession by strengthening the Senate's contingency grant Rind. From 1989-93, AFDC caseloads grew by 32 percent and AFDC spending by $$ billion. But the Senate welfare bill's contingency fund provides only $1 billion over seven years.

Foster Care. The Administration has strong reservations about the bid's proposed cap on foster care administrative costs. At a time when sharp changes in welfare policy may affect foster Care caseloads substantially, the proposed cap would restrict states' ability to safeguard the well-being of abused and neglected children.

Supplemental Security Income. Both the House and Senate bills go too far in the changes they would make to the SSI children's disability program. In general, As Administration favors the Senate provisions over the House bill's deep cuts, which go far beyond what's needed to correct the program's recent growth. The House bill would eventually prevent nearly a million disabled children who could be eligible under current rules from receiving cash. We support the bipartisan Senate decision to continue to provide SSI cash benefits for all eligible children. We strongly urge Congress to reduce hardship to disabled children now on SSI by exempting them horn these new, stricter eligibility rules. If Congress applies these rules to current SSI recipients, however, the Administration recommends only applying them to children eligible as a result of maladaptive behavior.

The Administration also recommends the deletion of a Senate provision that would gradually raise the age requirements to elderly poor applying for SSI from 63 to 67, paralleling the rising age requirements for Social Security. The apparent consistency of this Change masks an important difference between these two programs: Social Security recipients can retire early and get benefits, and most do so, but no early eligibility age exists (or SSI. The Senate added this provision at the last minute without adequate public scrutiny and debate; Congress should drop it.

Benefits to Immigrants. Both the House and Senate bills go too far in cutting benefits to legal immigrants, and shifting costs to states with high numbers of immigrants. The Administration supports holding sponsors who bring immigrants into this country more responsible for their well-being, but Congress should make these changes equitably. The House bill bans benefits for over a million immigrants who are now enrolled in SSI, Medicaid, or food stamps. The Senate bill's benefit restrictions, however, distinguish between immigrants with and without sponsors (except for purposes of SSI). Focusing benefit restrictions on immigrants with sponsors Is a more sensible approach than the House bill. The Senate bill, however, should include the immigrant exemptions of the House bill.

The Administration strongly opposes the Senate provision that would discriminate against U.S. citizens by denying benefits to legal immigrants even after they became naturalized citizens. We cannot have two categories of citizens, and a provision that treats naturalized citizens less favorably than the native born raises serious constitutional concerns. Equally objectionable is the Senate provision that would establish a class system for American citizenship by requiring sponsors' income to exceed 200 percent of poverty. Working families who are U.S. citizens should not have to pass a wealth test to be reunited with a family member. In addition, fairness dictates that Congress adopt the House provisions that exempt from benefit cut-offs those over age 73 and those too disabled to complete the naturalization process.

Several further changes could make the legislation more acceptable to the Administration. Immigrants who become disabled after entering the country should be able to get SSI. In addition, benefit restrictions should not apply to discretionary programs and such mandatory programs as student loans and the social services block grant; the administrative burdens on these programs of verifying everyone's citizenship is significant, and the budget savings are negligible. Refugees and others who came to the U.S. to avoid persecution should get adequate time to naturalize before being subject to benefit restrictions. Finally, the Administration has serious reservations about the bill's application of these provisions to Medicaid.

SENATE GOVERNMENTAL AFFAIRS

Civil Service Retirement

The Administration is concerned about the Committee's proposal to raise employee retirement contributions, which is tantamount to raising employees' taxes. We should not raise taxes on federal employees at a time when wo arc reducing their numbers and asking those that remain to provide the American people with a government that works better and costs less.

Also, the Administration is concerned about a Committee proposal to delay the cost of living adjustment (COLA) from January to April for federal civilian retirees. Unlike private and military retirees, most current federal Civilian retirees are not Covered by Social Security, making them entirely dependent on their retirement benefits to maintain an adequate standard of living.

SENATE JUDICIARY

Patent and Trademark Office (PTO) fees

The Administration is concerned about the Committee's proposal to extend the patent surcharge fund, and to deny PTO full access to its fees without discretionary appropriations. This withholding of fees increases patent pendency and delays the deployment of new technology to the marketplace. The President's budget supports the elimination of the patent surcharge fund beginning in fiscal 1999 and the PTO's full access, without appropriation, to all fees.

SENATE LABOR AND HUMAN RESOURCES

Student Loans

The Committee would get over 60 percent of its $10.8 billion in savings by cutting educational assistance to students and parents, and taxing colleges and universities. The Administration strongly opposes all of these provisions.

The Presidents direct lending program has been a great success, saving money and increasing access to education. Thus, the Administration strongly opposes the Committee's proposal to cap it The program is easier for institutions to administer than the guaranteed loan program and gives students more flexible repayment options, including income- contingent repayment By capping the program at 20 percent of total federal student loan volume, the Committee would eliminate up to half the institutions that are participating in this streamlined loan program. It also would prohibit other institutions from participating, including those that have already applied.

The Administration strongly opposes the Committee's proposed end to the federal subsidy of interest payments that Stafford loan recipients receive during the 6-month "grace period"; these undergraduate students' costs could rise as much as $700. In addition, the Administration strongly opposes the Committee's increase in the PLUS loan interest rate, as well as its tax of 0.85 percent of total federal loan volume on institutions of higher education, which would penalize institutions in which a high proportion of students take out loans.

The Committee proposes huge cuts in the administrative funding needed to effectively manage the guaranteed student loan program, and to avoid student loan fraud and abuse. These cuts would seriously weaken AC Education Department's ability to ensure that taxpayer funds are properly used and accounted for. The Administration also opposes the Committee's proposed changes which would severely weaken the department's ability to oversee guaranty agencies and to protect federal assets under their control.

SENATE VETERANS' AFFAIRS

GI Bill

The Administration is concerned about the Committee's proposed increase in the GI bill contribution rate, which would effectively cut the base pay of most first-year enlistees by 3.5 percent. The GI bill is a valuable recruiting tool of the Services; an increase in the required contribution could have an adverse effect on military recruitment.