WASHINGTON - John White, a leading candidate to run Bill Clinton's Office of Management and Budget, said Friday that he supports creating a capital budget system for the U.S. government that favors spending on infrastructure.
"A capital budget focuses people's minds on what is real capital investment" in the economy, he said after speaking before the American Association for Budget and Program Analysis here.
White appeared to confirm reports that he is front-runner to become budget chief, talking confidently about his views on budget matters and alluding to his informal conversations with the President-elect and the transition team.
White became a budget adviser to Clinton this summer after his previous boss, Ross Perot, temporarily withdrew from the presidential race. A former Eastman Kodak executive, White was the architect of a tough $750 billion, five-year deficit reduction plan that became one of Perot's central themes.
A growing number of budget analysts and interest groups in Washington advocate White's idea of switching to a capital budget from the current cash accounting budget system. They say it would raise the importance of federal infrastructure programs while shielding them from budget caps and other restrictions.
The capital budgets used by most states and cities permit them to finance highways, water systems, and other infrastructure separately through long-term borrowing that is not subject to the same limits as cash operating budgets.
White did not specify how he would structure a federal capital budget. But Letitia Chambers, another speaker at the symposium who was hired last week by Clinton's transition team as a budget adviser, confirmed that Clinton wants to "orient the budget away from consumption and toward investment." She did not provide details.
White acknowledged that a capital accounting system could lead to some new abuses, such as attempts to inappropriately classify government spending programs as capital investments. He cited temporary jobs programs as an example.
"There are concerns about corrupting the process, but there are the same concerns with the current budget process," he said.
Paul Posner, director of the General Accounting Office's federal budget unit who spoke at the meeting, said the potential for abuse led that agency recently to back away from its endorsement of a federal capital budget in 1989. The GAO now advocates only highlighting investment spending within the existing budget, he said.
"There are definitional problems" with what constitutes capital spending, which would lead to "debate over putting marginal programs in the investment category," he said. It might also be difficult eventually to control spending on items included in the capital budget, he said.
Phil Joyce, a Congressional Budget Office analyst, also cautioned that classifying "investments" in a capital budget could be difficult, with as much as 30% of the $1.5 trillion budget being eligible under some definitions.
"Capital budget advocates will always have to carry New York City on their backs," Posner said, referring to New York's financial crisis in the mid-1970s, when it found it could no longer hide operating expenses in its capital budget.
He warned that any increased federal spending on infrastructure programs might also be delivered in "leaking buckets" by the states, which might see the increase in federal aid as a reason to defer their own infrastructure spending plans and simply replenish their rainy-day funds.
"You'd end up spending most of your money for state and local relief," he said, adding "that's fine, as long as you realize what you're doing."
But the biggest problem with implementing a capital budget, Posner said, is that it could distract the President and Congress from carrying out their vows to reduce the $300 billion budget deficit to manageable proportions.
"We have an investment deficit in this country," he said, but "the budget deficit is clearly the single most important" reason for the investment problem. That is because for a decade the budget deficit has been soaking up a huge savings pool that otherwise could have been used for investment, he said.
Posner urged the incoming administration to consider switching to a capital budget only after putting the deficit on a "glide path" downward.
White strongly agreed that eliminating the burgeoning deficit was of overriding importance. He even ranked it as a higher priority than passing a short-term economic stimulus package.
But White's endorsement of a capital budget was consistent with his call for broad changes in Washington's budgetary rituals. "We must face change, the new paradigm." he said.
