The Thrift Fund Fix and Budget Reconciliation

WASHINGTON - The Senate and the House banking committees are both looking to fold the rescue of the Savings Association Insurance Fund into budget reconciliation legislation.

But why are the two seemingly unrelated issues linked? And what is "budget reconciliation?"

First, a little background.

The House and Senate each have to produce budget resolutions, which in the past has mandated how much congressional committees were allowed to spend.

However, with a Congress adamant about balancing the budget by 2002, things are a little different. "The process is completely out of whack this year," said Karen Shaw Petrou, president of ISD/Shaw Inc. "It used to be 'your committee gets to spend X,' but now it's 'your committee has to save Y.'"

Whether Congress is spending or saving is where "reconciliation" comes in. The term originated in the 1974 budget act, which created a way for Congress to "reconcile" - or make changes to - mandatory spending laws in such a way as to meet the limits imposed by budget resolutions.

"Mandatory spending is a baseline, an assumed level of spending that extends through the future," said Chris Ullman, press secretary for the House Budget Committee. "It's like a spaceship - it keeps on going in a certain direction unless you nudge it in another direction. That nudge is reconciliation."

So this year, the budget resolutions have handed each committee a savings target - part of the "nudge" to lessen mandatory spending. The House and Senate banking committees have to do their part by Friday, coming up with recommendations for saving $2.4 billion over the next seven years.

And according to estimates made by the Congressional Budget Office, the thrift fund rescue plan would provide a sizable chunk of those savings.

The one-time assessment charged to thrifts on Jan. 1, 1996, to capitalize the industry's insurance fund is expected to bring in about $900 million in government revenues over seven years.

While the one-time fee would cost thrifts about $6 billion, the budget office took into account potential bank and thrift failures when estimating how much money the government would actually gain.

The budget office came up with a final tally of $5 billion in revenue after the first year, $2.1 billion after five years, and $900 million after seven.

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