Budget Watch

A newsletter covering budget reform and the latest news and views on the federal budget, published by The National Center for Public Policy Research, 20 F Street NW, Suite 700 , Washington, D.C. 20001, (202) 507-6398, Fax (301) 498-1301, E-mail BudgetWatch@nationalenter.org Web http://www.nationalcenter.org and the Small Business Survival Foundation, 1320 18th St. NW, Washington, D.C. 20036, (202)785-0238, Fax (202)822-8118, Web http://www.sbsc.org.

Issue #32 * July 30, 1997 * David A. Ridenour and Karen Kerrigan, Editors

Hill Watch - Update on Budgetary Issues on Capitol Hill

House Rejects NEA Funding, But Fate of Agency Still Uncertain

The House took an important step in eliminating the National Endowment for the Arts by voting to cut off its funds in a 217-216 vote on July 10. But this victory for waste-cutters could be short-lived: The Senate Interior Appropriations subcommittee voted to retain the NEA's $99.5 million in funding and the full Senate is likely to vote to follow suit. The House can still prevail, however, when House and Senate negotiators meet to work out a compromise bill. House negotiators have considerable leverage in that NEA funding equals less than .08% of the $13 billion in Interior appropriations and this offers waste-cutters a win-win situation. Should Senate negotiators relent, the NEA will be abolished. Should they fail to do so, an impasse will result, holding up funding for a department that many members consider wasteful and abusive.

A few reminders why waste-cutters want the NEA eliminated:

1) NEA is a bloated bureaucracy. Since it was created in 1966, the NEA's budget has grown from $2.9 million to $99.5 million in 1997. At the same time, the agency's administrative expenses have grown from 12.5% of its budget in 1966 to 17% in 1997.

2) NEA subsidizes city dwellers at the expense of rural Americans. Most NEA grants fund projects in major cities. One-third of the nation's congressional districts have never received a NEA grant.

3) NEA subsidizes offensive material. Of the 800 movies funded by the NEA, 100 were offensive including several dealing with child sexuality.

4) NEA is unnecessary. The NEA accounts for just 5% of all government spending and equals just 1% of all private spending on the arts.

5) NEA is a tool of partisan politics. The NEA approved significantly more grants for projects in Democrat congressional districts than Republican ones. Democrats were favored by a factor of 3-1.

President and Congress Agree to Prop Up Failing Student Loan Program

As part of its budget agreement with President Clinton, Congress agreed to increase funding for direct student loans by $260 million over five years, an increase of 59% after inflation. This increase will come despite the fact that an overwhelming majority of schools reject the program: Seventy-eight percent of all schools choose to use privately-run loan programs exclusively while only 8% of schools choose to use the direct lending program exclusively. In 1996, just 32 new schools joined the direct lending program. Of that number, 10 had student default rates of 20% or more. Only 10 of the new program participants this Fall will be four-year institutions. The program has instead become popular with such proprietary schools as the Desert Institute of Healing Arts (Tucson, AZ), the Chic University of Cosmetology (Warren, Michigan) and the Hypnosis Motivational Institute (Tarzana, California). Taxpayers could save an estimated $1.5 billion over five years if the program were eliminated. Given that colleges have rejected the program in droves, it is unlikely to be missed.

House Pulls Plug on TVA Funding

The House approved a FY 1998 appropriations bill that cuts $106 million in non-power programs for the Tennessee Valley Authority (TVA). TVA critics say this taxpayer subsidy is used to prop up the debt-ridden federally-owned utility which provides electricity to a mere 3% of Americans. The TVA's massive financial problems have become the center of attention lately as the Congress begins to debate electricity deregulation. The 60-year-old organization receives some $1.2 billion annually in tax breaks not enjoyed by private utilities. But despite this huge competitive advantage, TVA has managed to rack up a $28 billion debt. The Senate reduced funding to $86 million and a House-Senate conference will decide the matter.

Nothing written here should be construed as an attempt to help or hinder legislation before the U.S. Congress. Reprints of material in Budget Watch is permitted provided that original source is credited. ###

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