Grace Commission findings won't go far enough to reduce US deficit, study says

Taking big chunks out of the federal budget deficit will be much harder than a presidential commission made it look last year. That's the outlook from the Congressional Budget Office and the General Accounting Office, which yesterday released a joint study of recommendations made during the last several months by the President's Private Sector Commission on Cost Control.

The commission, headed by businessman J. Peter Grace, was set up in 1982 to find ways to raise the efficiency and lower the cost of the federal government.

Questions over the dollar value of the commission's recommendations are more than bickering between accountants. From the White House to Capitol Hill, the commission's proposals are an element in several deficit reduction plans.

''The CBO-GAO analysis reveals that the Grace Commission has not found an easy solution to the federal deficit problem, although it has helped to focus attention'' on government costs, the joint report says.

After 18 months of work that resulted in 47 reports and a 650-page summary, the Grace Commission outlined 2,478 specific recommendations that it said could save $424.4 billion over an unspecified three-year period.

The GAO and CBO took almost 400 of these suggestions, concentrating on those the Grace Commission said were worth at least $1 billion. These 400 ideas accounted for roughly 90 percent of the potential savings from the commission's recommendations.

The CBO weeded out about a third of these 400 proposals as too vague or lacking sufficient detail to permit accurate budget estimates. That left 274 suggestions - saving $298 billion, according Grace panel figures.

But when the CBO estimated the savings on these remaining recommendations, they amounted to $98 billion - only about one-third of what the Grace panel had estimated.

''It is CBO's judgment that the Grace Commission estimates of possible savings that could be derived from its recommendations during the next three years are overstated,'' CBO Director Rudolph G. Penner told the Senate Budget Committee yesterday.

Mr. Grace told a Capitol Hill press conference that his reaction to the study ''was one of incredulity.'' He contends that ''there is no way that in one month or five weeks that the GAO and CBO could possibly analyze'' his report in a comprehensive manner.

There are a number of reasons why the CBO's savings estimates are lower than the Grace Commission's. One is the kind of economic assumptions that were made. For example, the Grace panel assumed a 10 percent interest rate and a 10 percent inflation rate. The CBO estimated inflation at 5 percent and interest rates at 8 percent over the next three years. The CBO assumed Congress would act on the suggestions this year. The Grace Commission recommendations had either varying or unspecified effective dates. Finally, the CBO calculated the savings in the technical terms used in federal budget accounting, while Grace Commission's estmates did not always use such terms.

Other flaws in the Grace numbers, in the CBO's view, were less technical and more substantive. For instance, some of the Grace Commission proposals had no budget impact, while others actually added to costs. Many of the suggestions carried higher savings estimates than the CBO found justified.

Grace responded that the CBO and GAO had reviewed relatively few of his commission's findings. And by focusing on savings in the next several budget years, the CBO ignored large potential savings in pensions and other items that would have their largest effect in future years.

''They didn't count those because the bookkeeping is crazy'' in government, Grace says.

In addition to checking the Grace Commission's numbers, the GAO weighed the merits of the suggestions based on its background as the investigative arm of Congress. Of the 400 recommendations the GAO examined, it believes three out of five have some merit. Roughly one of five have no merit and on about the same number GAO says it has no basis for comment.

The Grace Commission's recommendations were among the items President Reagan says White House and congressional negotiators should consider as they try to hammer out a $100 billion deficit reduction down payment. The negotiations resumed Tuesday.

Also on Tuesday a group of House Republicans led by Rep. William E. Dannemeyer (R) of California unveiled a plan to trim the deficit based on the Grace Commission's proposed savings. In each of the next five budget years, an increasing percentage of the savings would be used. As a result, Representative Dannemeyer's group estimates, the deficit would dwindle to $21 billion in 1989.

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