CREATIVE BUDGETING

CREATIVE BUDGETING
Washington Post: When the House and Senate wrote their budget resolutions last year, members had a comfortable cushion: a projected surplus said to be ample for tax cuts, military spending increases and the future needs of Social Security and Medicare too. This year most of that surplus has evaporated, but Congress still wants to cut taxes, spend more -- and be congratulated for fiscal prudence. No problem; just ratchet up the bookkeeping creativity along with the spending on homeland defense.
Republicans on the House Budget Committee showed how to do it last week, passing a budget resolution that supports President Bush's defense spending requests, protects the tax cuts passed last year and yet is "balanced." Oh, except for the $43 billion cost next fiscal year of the stimulus package enacted earlier this month -- that money, they admit up front, they're just not counting. And, oh, yes, those Social Security receipts that were absolutely, positively off-limits for anything but Social Security? The committee will just have to dip in for a quick $200 billion of those. And the analysts in the Congressional Budget Office are such killjoys, insisting on realistic revenue and spending projections; the House Republicans found the White House budget estimates far more congenial. "If you don't like the weather report ... you might as well change the channel, and that's what we're doing," Chairman Jim Nussle, R-Iowa, said of the switch in numbers.
Storm brewing: It's true that long-term economic estimates from all sources have seemed about as reliable as long-term weather forecasts lately. But if there's really a storm brewing, changing the channel isn't going to help. The combination of spending increases, tax cuts and the looming health care and retirement demands of the aging boomer generation clouded the horizon even before Sept. 11. The costs of responding to the terrorist attacks only magnify the pressure.
The logical response would be to freeze the tax-cut package, holding off the reductions that have yet to kick in. But don't look for that realistic a reaction. President Bush wants to go the other way, making the cuts permanent instead of phasing them out after 10 years. The House Budget Committee proposal leaves room for some additional tax reductions in the next five years.
ANDERSEN'S FIGHT
Chicago Tribune: It would be foolhardy to suggest that an accounting giant the stature of Chicago-based Arthur Andersen should welcome a Justice Department accusation that it obstructed justice by destroying Enron documents.
But the indictment does give Andersen a chance to fight for its future. Justice's action Thursday carries Andersen closer to making its case on the central question that layers of investigations have raised. For several months now, Andersen has been tarred with an extraordinarily broad brush. Yes, by now we all know it's not nice to shred documents frantically by the truckload. But what hasn't been answered is whether that shredding was the work of a cluster of rogue Andersen employees -- or the progeny of a corporate culture that tolerated, even encouraged criminal activity.
The government essentially argues the latter -- a charge Andersen fiercely denies. The company said Thursday that document destruction "was confined to a relatively few partners and employees of the firm and was almost entirely limited to the Houston office. None of the destruction occurred with the knowledge, much less the consent, of senior firm management."
Gaping question: We'll see. But getting resolved the gaping question of who knew what will go a long way toward determining whether Andersen can survive for the long haul. The more pressing question is whether it can survive for the short haul.
Before the indictment, Andersen's reputation and business prospects were already imperiled by the Enron scandal. Andersen had signed off on Enron's books certifying the soundness of the energy trading giant's financial prospects even as Enron kept billions of dollars of ultimately fatal debt off those books.
Since Enron filed for bankruptcy late last year and Andersen's document shredding became public knowledge, the firm has been bleeding clients -- Merck, Federal Express and Household International are just some of the companies that have decided to take their business elsewhere. In the wake of Thursday's indictment, more may follow -- although it's significant that some major clients, unwilling to write off all of Andersen's tens of thousands of employees, are taking a wait-and-see approach.
What those clients should keep in mind is the fact that Andersen is innocent until proven otherwise -- and that, in the opinion of some accounting experts, the government will have a tougher time making its case stick than blaring headlines might suggest.
Thursday's action by Justice gives Andersen a chance to fight for its life -- though only as long as its clients will tolerate. The coming days are a test for them as well. Those who equate an indictment with a conviction won't have qualms about abandoning Andersen.