Out Of Sight, Out of Mind

With this bill's substantial funding, we will begin, here and now, to eliminate the ongoing losses of the insolvent firms . . . I'm proud to sign this monster." So said President Bush last week as he stamped into law his long-awaited and much debated savings-and-loan bailout bill. The legislation, / which will rescue ailing thrifts at a cost estimated at $300 billion over the next 30 years, promises to transform the S & L business into a far smaller -- and potentially stronger -- industry. The law will also impose a sweeping reorganization on the Government's thrift regulators: the Federal Home Loan Bank Board, now independent, will become a Treasury Department agency called the Office of Thrift Supervision.

While the bailout has bold ambitions, its financing is based on a dismaying kind of budgetary sleight of hand that hides the real cost from taxpayers. Of the $50 billion that the Government will spend on the bailout in this fiscal year, $30 billion will be borrowed through bond sales and will be considered "off budget." It will not be counted as Government spending and will not exacerbate this year's federal deficit. The remaining $20 billion will be in the budget, but slipped in through a loophole in the Gramm-Rudman-Hollings law, so that the spending will not push the fiscal '89 deficit over the statutory limits and trigger automatic budget cuts. As a result, the '89 deficit will grow to about $168 billion, $30 billion over the target.

Congressional Democrats wanted to put the full $50 billion in the budget, but Republicans balked, accusing the Democrats of attempting to embarrass the Administration by overstating the bailout's immediate price tag. Putting $30 billion off budget, however, will increase the eventual cost of this year's bailout expenditures by an estimated $3 billion over the next three decades. That is because the off-budget money will have to be borrowed by the Resolution Funding Corporation, the Government agency responsible for restructuring the thrift industry, which will have to pay investors higher interest rates than the Treasury pays for on-budget borrowing. As a result, the S & L rescue's first installment is a case of bail now, pay later.