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Office of the Press Secretary

For Immediate Release July 12, 1994
                            PRESS BRIEFING
                    ALICE RIVLIN, DEPUTY DIRECTOR 

The Briefing Room

11:25 A.M. EDT

MR. RUBIN: I'm Bob Rubin. I assistant the President in Economic Policy. I'm going to make a few comments on the -- sort of introductory, if you will -- to the budget presentation, and Leon and Alice will make the presentation.

As you know, today Leon and Alice will be presenting the numbers, new deficit numbers of the mid-session review. And it is for Leon his last official presentation as OMB Director and it will make the beginning of Alice's tenure as Acting OMB Director. And of course, once confirmed, officially OMB Director.

We were talking about this this morning, and it reminded all of us of the first meeting we had with the President-elect in January of 1992, in Arkansas. We sat with him for six and a half hours and we talked about his economic plan. Leon and Alice presented five scenarios and he, after this full process, opted for the one that involved the most stringent deficit reduction.

What he said was, that there had been great disbelief that Washington would ever deal with the deficit and that he was bound and determined to do so because he felt that our fiscal house had to be put in order if we were going to get back on the right track economically. And it is on that track, with respect to deficit reduction, that we have remained steadfastly ever since.

He also insisted that we have honest, realistic numbers that were both honest and also seen by the markets and the public as being honest -- in other words, integrity in budgeting.

Leon took on the leadership and has lead the economic team through this process and throughout that leadership and throughout that process absolutely insisted, as the President directed, that we never fudge on the numbers. We could have policy debates; we could have policy arguments both within ourselves and with the public and Congress. But one thing we would never compromise on was the integrity of the numbers under Leon's leadership.

Passage of this plan had a number of ramifications, the very least of which is: there is no question in my mind that it is absolutely indispensable with respect to creating the solid recovery that we are now experiencing -- I can remember in the years that I was in the private sector, and I was very much involved in running trading operations, there was an almost universal belief that this political system didn't have the discipline to deal with the deficit, and the consequence was that you had a deficit premium, particularly

in long-term interest rates, but throughout the interest rate structure, and that was very much a deterrent to solid, sustained growth. And it was toward eliminating that premium that the President's program was directed.

One of the questions we had was: Would the market react to our program and believe it, or was the skepticism so enormous, and was the belief that this system simply could not have the discipline to work it's way through deficit reduction and would therefore only get out of the deficit, or attempt to get out of the deficit to inflation -- was so deeply ingrained that you couldn't overcome it.

And the answer, much to the good fortune of this country, was that when a serious program was put forward, and when the numbers were honest and real, they would seem to be honest and real, and the markets reacted -- they believed, rightfully believed, in the integrity of our program. The markets did react. The deficit premium in interest rates disappeared, or in a very large measure disappeared. Long-term interest rates went down, and that, in turn, generated the recovery that we are all benefiting from today.

I think it's worth pointing out that even at the bottom of the recession in the last administration, long-term rates were over 8 percent, and the average something like 9.9 percent during the 12 years preceding this administration.

Interest rates are now, as you know, back up, but, in our view, that very much is a reflection of the growth that's taking place. It's kind of interesting to note that the long-term bond interest rate right now is about the same as it was when President Clinton was elected. At that time, on the new basis, there was 7.7 percent unemployment, and there was, for practical purposes, almost no growth. Today we have very solid growth, and, as you know, we have six percent unemployment.

Let me end with a comment or two on Leon and Alice, if I may. The President obviously played the critical leadership role with respect to this deficit reduction program and was willing to take on the enormous numbers of tough political judgments that were necessary to accomplish it. But having said that, Leon was the leader of this process, once the president set the direction, and he will clearly be remembered as the OMB director who finally dealt with the deficit and put in place the serious process of deficit reduction.

There is now going to be a changing of the guard at OMB. Alice will take over. But what will not change is the enormous commitment to budget integrity, deficit reduction, and reprioritization of spending in order to accomplish the President's investment objectives. Alice worked with Leon throughout this entire process, and, as you all know, knowing Alice, she is every bit as much a fierce advocate of deficit reduction and integrity in numbers as Leon.

Alice was a former CBO director, head of economic policy at the Brookings Institution, and now has been deputy director at OMB, obviously extraordinarily well-equipped to carry on in Leon's tradition.

Finally, let me say that I think that, more broadly, we have worked exceedingly well as an economic team, and I do think that it would have been very hard to accomplish the kinds of very tough decisions that this political process has not made for at least 12 years, if we hadn't all worked very well together. I know at the beginning of this a lot of people said that teamwork doesn't occur in White Houses in administrations; it simply isn't going to happen. I think it has happened. I think it's been a group of people who have enjoyed working with each other, and I think that's contributed

greatly to what's been accomplished, and I have confidence that that will continue in the future.

With that, I will turn the podium over to Leon Panetta.

DIRECTOR PANETTA: Thank you, Bob. What we want to do is to summarize for today the deficit side of the mid-session review, and then on Thursday Laura Tyson and Lloyd Bentsen and others will summarize the economic results of that mid-term review.

On February 17, 1993, the President presented to the country his economic plan to try to address what he saw as fundamental economic problems within this country -- rising budget deficits, a weak economy, slow job growth, inadequate investment in those areas that he felt were important to the future of this country, for the future of our economy, and, most importantly, to the future of our people.

On Thursday we will release the annual mid-session review. This review, for those of you who are not familiar with it, basically updates the estimates on budget deficits as well as our economic projections for the economy. I think that report makes very clear that the President's economic plan is not only working, it is working beyond our greatest expectations.

We are reducing the deficits, cutting the deficit to GDP ratio in half. We are trimming close to $700 billion from this country's national debt. Close to $700 billion will be trimmed from our country's debt. We are reducing the federal workforce to a level that we have not seen in 30 years in this country, bringing the federal workforce to a level that existed at the time of the Kennedy administration. We are obviously increasing jobs in this country, almost 3.8 million jobs at the last report, and we are continuing to target investments in those areas that we think are important for the future of this country.

We intend, as I said, to basically summarize the deficit side. On Thursday the economic team will present the new economic forecast and will discuss the progress we've made on those fronts as well. I think it suffices to say that what we have in this country right now is an investment-led economy with low inflation, and we haven't seen that for 30 years in this country.

Let me discuss, if I can, the situation with regards to budget deficits. Before the plan was enacted last August, this country faced deficits that were virtually headed towards $300 billion annual deficits, as one of my predecessors said, "As far as the eye could see." What you had was a situation in which essentially we were looking at $300 billion -- deficits in excess of $300 billion, actually, this was about $309 billion. It started to go down a little bit, down to about $305 billion, $302 billion, and then hits a point here in our projections where we were looking at about $298 billion, still around $300 billion in terms of deficits.

Then it shoots up, and, as you can see, it shot up, not only to $300 billion-plus, but approached almost $400 billion by '98, close to $500 billion by the end of this decade, and our estimates had us, in fact, reaching almost $600 billion annual deficits as we entered the new century. So the line goes straight up in terms of deficits, and that's what we were facing as an administration when we came into office.

Today we are reporting that the President's deficit reduction plan, obviously combined with the economic benefits that have resulted from it, along with other factors, have brought the projected deficit down significantly.

And let me just summarize, if I can. For '94, beginning in '94, we were looking at a budget deficit for '94 of $305 billion. What our projection was is that we thought we could bring it down to about $235 billion. We have actually brought it down to $15 billion below that. So that the mid-session review estimates that our deficit for 1994 will be $220 billion, or $85 billion below what we had projected as the deficit for '94, where we were headed.

For '95, we had projected a deficit of $302 billion, again slightly less because it was dipping a little bit here, but about $302 billion. We had estimated that we would be able to get the deficit down to $176 billion. The mid-session review will estimate that we will have a deficit of $167 billion, almost $135 billion less than what we had projected at that time.

The bottom line is that over the five years covered by the President's original plan, the deficit has been reduced not just by the $500 billion that we had passed by the Congress last year in the deficit reduction plan, but a total of almost $691.7 billion, close to $700 billion, that we will have reduced the deficit by.

For historical purposes, I would just remind you that the Panetta era goes from here to here, okay, just for the record (laughter).

Let me now talk about the rest of the lines here. As you can see, what our projections were, in terms of current projections, is that the deficit begins to flatten out. I mean we're still, obviously, in terms of deficit to GDP ratio -- don't forget we were looking at -- in the '80s we saw the deficit to GDP ration go as high as 6.3 percent. We're in about the 5 percent area. We're looking now at bringing it down almost to 2.4 percent and continuing to have the deficit to GDP ratio pretty much flatten out to about 2.4 or 2.2 percent. So we really have a very good line in terms of at least the deficit to GDP ratio.

On the numbers themselves, as you can see, it begins to flatten out, and then about '98 the current projections begin to increase again. And our concern, obviously, is that the main cause of that -- although some of the smaller increases that you see in our numbers, based on our projections, are due to the interest rate increases that we've seen. The largest increase is going to be due to health care cost increasing. And I've pointed this out in the past. It bears repeating because, as you can see, if you in fact enact health care reform with cost controls, the kind of cost controls we think are absolutely essential to health care reform, you can continue then to drive the deficit reduction line downward.

And that, obviously, is the message of the chart here that while we continue to hold deficits in roughly a stable line through '98. If we don't deal with health care costs, that line begins to escalate again and goes up. This is a point I've made before but it bears repeating.

In these next five years, almost 90 percent of federal spending will be in three areas. One is interest on the debt, the second is Social Security because of the increase in the age population. But the third area is health care costs and the biggest villain is health care costs. Almost 50 percent of the increase in the deficit will be due to health care cost. So that's why it's extremely important that we enact health care reform as part of this package.

Let me, before I turn this over to Alice to continue to talk about the other charts that we have here, let me say this: The reason we have been able to achieve this success is because the President was willing to make tough decisions and the Congress had the courage to basically back up those decisions and put a very tough deficit reduction plan in place. This would not have happened were it not for putting that economic plan in place. It reduced deficits. It has increased investment. And I think it's, in the end, presented the American people with the truth about where we are in terms of deficits and numbers and where we need to be with regard to our budget and our economy.

Let me make this point, too, with regard to the appropriations side of it and the investment side of it: We have pretty much stayed on track there as well. On appropriations, just to kind of update where the House is, last year we cut over 300 programs below their '93 levels. This year the House Appropriations Committee and the bills that have passed -- and the only one that hasn't passed so far is the D.C. bill. Every other appropriations bill has passed -- they have cut a total of 395 federal programs below the '94 level. Three hundred ninety five, almost four hundred federal programs were are cut below the '94 level. Thirty-six are eliminated. There was a time when the real test of whether you were serious about deficit reduction was the number of programs that in fact had been eliminated. Thirty-six are eliminated by the House of Representatives in the appropriations process.

At the same time, in terms of the investments that we care about, we are getting about 60 percent on the budget authority side of our investment category, about 76 percent on the outlay side. Most of you, hopefully, understand the difference between budget authority and outlays. Outlays are what we in fact will expend in the '95 year. The budget authority is obviously the commitments not only for '95 but beyond that as well. But we're getting 60 percent of the budget authority we wanted, 76 percent of the outlays.

Some of the key investments are: in homeless we're getting 70 percent of what we asked for, WIC about 73 percent, in community policing about 77 percent, renewable energy about 100 percent, immunization is 100 percent, obviously the space station 100 percent of what we had asked for.

We have some disappointments, there's no question. Head Start was lower than what we wanted. They were at about 30 percent. Although, I should point out that in Head Start we have achieved in increases in the Head Start area between '93 to '95, almost a 27 percent increase in Head Start funding between '93 and '95. If you look at National Service, which is also another program that, very frankly, we felt ought to be increased more than what the House did. We've increased that almost 249 percent from the '93 levels. And so we are making significant progress compared to '93. We'd like to do better in '95. So there were some programs there that need to be helped.

Let me conclude by saying that it has been, I think, a moment of great pride for me to work with the team that is here in the White House on the economic side -- Bob Rubin, Lloyd Bentsen, Laura Tyson, and of course Alice Rivlin, and the others, many others, staff as well as the individuals that are involved in these areas -- that I think have presented this country not only with a remarkable team, a good team put together to deal with economic issues, but it shows in the numbers that we're showing here not only in terms of deficit reduction but also in terms of economic recovery -- and ultimately the President who was able to provide leadership in using that economic team to our best for this country and for our children.

Let me turn this over to Alice. Alice has played a central role as deputy director of OMB. Just to make clear, I'm not leaving this process. I will continue to oversee it from a new position. And obviously, the White House will be much more sensitive to the concerns of OMB in that process, and I intend to follow it from that perspective. But I just want to say that Alice I think will be a great director of OMB. She brings an awful lot to that job, as many of you know. She's been around working on the numbers for a long time and now she has the potential, obviously, to bring it all together in the Office of Management and Budget. So it's with great pride that I introduce her.

DEPUTY DIRECTOR RIVLIN: Thank you very much, Leon. Working with Leon has been a pleasure. I took the job of deputy director in part because I wanted to serve the President and work with this economic team but in part because I knew Leon Panetta, knew that we would work well together. We have, and this team is going to continue.

As Leon has pointed out, the deficit picture is very encouraging. We have made more rapid progress than even the optimists, who sat around that table in Little Rock eighteen months ago that Bob referred to, even the optimists hoped for. In February, 1993, we did not project a deficit going below $200 billion without further action beyond the President's plan. And now we confidently project that it will be well under $200 billion next year.

Now, that success is not just because the revenues are going up in a growing economy. That helps, but it is also because we are holding the line on spending. Of the five-year deficit reduction plan of a half a trillion dollars that we announced 18 months ago, about half was spending cut and the other half was tax increase. And as Leon pointed out, we have more than delivered on that plan.

Of the spending cut, there were the usual two pieces. We were cutting some mandatory programs $100 billion over five years. Medicare was cut. Medicaid was cut, farm programs, some veterans programs, and both civilian and military retirement. And we continued the pay-as-you-go rules on mandatory programs.

The other piece were the caps on discretionary spending which were serious, hard-freeze, no-growth caps. It is those caps, in part, that make the budget job so difficult. And it is one that anybody moves into with trepidation.

But the result of holding the line on spending is that spending as a percent of our GDP is going down. The government's share of the economy is shrinking, as you can see very well in this chart. And this is a considerable achievement. It is despite floods and other disasters, despite the continued growth in health care costs, which, as Leon pointed out, we don't have under control yet, but the overall outlays of the federal government, the federal government's share of the economy, is declining rapidly.

If you look at discretionary spending, the reduction is even more impressive. Discretionary spending as a percent of GDP was 9 percent in 1992, and it will be down to 7.3 percent in 1995. That's a lower share of the total economy devoted to discretionary spending of the government than at any time since OMB began making those calculations in 1962, when it was 13 percent. And domestic discretionary spending is fallen as well, and is lower now than it was before the beginning of the Great Society.

Now, how are we doing this? It's a general tighteningup on government programs and a reduction in lower priority spending, but perhaps the most dramatic example of how we're going about reducing the size of government is the commitment that is now written into law to decrease the level of the federal government's employment by at least 272,000 people by 1999. This will bring the number of full-time equivalent employees below 2 million for the first time since the Kennedy administration more than 30 years ago.

There's been a lot of rhetoric in the past about reducing the size of government, making it smaller, making it more efficient. I think we're really doing it. This administration is engaged in serious re-engineering, as they say, of government processes. We're taking out layers of bureaucracy, we're taking out steps that it takes to get permits and do all kinds of things that the government does. We have impressive reductions in the workforce, in departments ranging from Labor to Agriculture.

Now, clearly, the story of economic success and of controlling deficits does not end here. As Leon pointed out, if we're not to have increases in the Rivlin era to match the decreases in the Panetta era we absolutely have to control health care costs. That means passage of a comprehensive health care reform with serious controls on costs. It also means looking at the rest of the budget, at the entitlement side of the budget.

The President's bipartisan commission on entitlement reform, the Kerry-Danforth Commission, has begun meeting to discuss potential savings in entitlement programs. They will report in December, and we look forward to seeing their recommendations.

Thank you very much, and I think we're all available to answer your questions.

Q Brief mention was made that interest rates -- costs of financing the deficit are going up. Would you elaborate on what your expectations are on that part of the budget, and also on whether those interest rate changes also will impact on economic growth and, therefore, on revenue from that end.

DEPUTY DIRECTOR RIVLIN: We will have specifics on the new economic assumptions that underlie these numbers on Thursday, but it will surprise no one to discover that our interest rate projections, based on what's actually happened, are higher than they were in February, and that will increase the deficit somewhat in the out years. In the near term the increases are offset by increasing revenues from higher economic growth and from some lower expenditures. In the out years there will be modest increases in the deficit over what we said in February.

We do not think this will injure economic growth. As Bob said earlier, the economy is now growing faster than we thought it would, and the higher interest rates are a response to that.

Q You show in your chart total federal spending declining as a percent of GDP. Do you achieve that by taking health care reform off budget, or are you reflecting the pass through from the mandate?

DIRECTOR PANETTA: No, it's a reflection of total federal spending. We basically applied the same standard. We have not reached this by taking health care off budget.

Q Specifically, to what do you attribute the improved numbers between now and February?

DIRECTOR PANETTA: In terms of the deficit?

Q Yes.

DIRECTOR PANETTA: I think the primary areas -- look, we thought that we were targeting about $500 billion in deficit reduction over the five years. We're now looking, as I said, close to $700 billion. Of that $200 billion, a good portion of that comes from revenues that are flowing in above our expectations because of economic performance, as well as the growth numbers themselves, which are also providing, I think, additional impetus in terms of the revenues coming in.

We are, as a result, getting some impact as well directly on federal spending in some areas. Particularly, I think, in the health care area, we've gotten some smaller costs there as well. Alice?

DEPUTY DIRECTOR RIVLIN: Yes, on the spending side, the good news items are that Medicaid is not rising as rapidly as we predicted it would, although Medicare is still going up a little faster than we thought it would. But the other item is -- deposit insurance in the near term has a positive effect on the deficit.

Q Speaking of Medicaid and Medicare, a couple of years ago, Mr. Panetta, when you were the House Budget Committee Chairman, I remember you brought in a pie chart about three or four years ago, or maybe only three years ago, and the thrust of that news conference in the studio of the House Gallery was, "We have to cut entitlements. There's no two ways about it. We've got to do the dirty work, and this session -- we've got to do it." And it didn't happen, at least as big as you had foreseen that year.

Now that you've got a lot more power and influence in the position you're in, can you make those changes?

DIRECTOR PANETTA: You're asking for a hell of a lot of power to take on that stuff. I don't think any of the numbers have changed, in the sense of where you've got to continue to go in terms of controlling future deficits.

We have made a very significant impact, obviously, with regards to discretionary spending. We've basically frozen discretionary spending for five years, and, clearly, the numbers show that. And all you have to do is talk to a few appropriators and you'll know, in fact, what's happened on the discretionary side. It's a very tight situation for them as well.

So we have very good control, I think, on the discretionary side. We've established some good control on the entitlement side by virtue of the pay-go tool as well, because essentially there is no entitlement that can really be expanded unless the Congress is prepared to pay for it, unless we're prepared to pay for it. And that's not always an easy challenge. So, that, itself, performs some restraint.

So even, whatever we do on healthcare, whatever we do on welfare reform, whatever we do in other areas, it has to be paid for, and not increase the deficit. It is a good tool for control.

Thirdly, as I've indicated, while we've achieved some deficit reduction in the entitlement area, almost $100 billion, largely taking on not only healthcare, but veterans' issues, student loan issues, as well as reductions that impacted in the Social Security area. All of that was part of the plan adopted last year, don't forget. We took on a lot of very tough constituencies.

The next step has to be healthcare. That is a major challenge. And part and parcel of healthcare reform, and I've said this before and I'll say it again, it is not sufficient to have healthcare reform without cost control. That has to be part and parcel of the effort on healthcare reform -- universal coverage plus cost controls.

So healthcare reform is the next challenge because that's really the area of entitlements that is the worst villain at this point, in terms of increasing the deficit. Beyond that, as Alice pointed out, we are going to continue to work with the Kerry Commission in term of it's recommendations, and hopefully look at proposals there to deal with it further.

Q A number of other analysts, both in the private sector and some in such as Jim Blum at CBO, suggests that the deficit for fiscal '94 may be as low as $200 billion rather than $220. Are you being super conservative here again?

DIRECTOR PANETTA: I'll let a former CBO person speak to that.

DEPUTY DIRECTOR RIVLIN: Well, if those rumors are right, we certainly hope that the deficit will come down faster than we predict. This is our best guess at the moment, and that's, I think, about all we can say about it. We have to call it as accurately as we can. Although accuracy in economic forecasting is not something you can be terribly certain about.

Q Where does the decision-making stand on GATT funding? When will you be sending that to the Hill, and what, if any, decisions can you tell us about that have been made?

DIRECTOR PANETTA: We are having continuing negotiations on the various options for pay-go on GATT. I've had meetings on the -- on both the Senate and House sides, with both Republicans and Democrats. Those meetings are continuing today as well as the rest of the week. We are, in fact, discussing a set of broad options, getting their views, their concerns, their recommendations. And we're making good progress on it.

I can't give you a firm date as to when all of this is going to be nailed down, other than to say that we're making good progress on it. And our hope is that we can get GATT adopted by the Congress before the August break.

Q May I follow up? Did you meet with Senator Domenici yesterday to discuss this?


Q Can you tell us something about what his concerns were, what obstacles you might have to face as you prepare to present this package?

DIRECTOR PANETTA: Two italians had a very interesting discussion on various options.

Q Can you be a little more specific? (Laughter.)

DIRECTOR PANETTA: We don't want to tax salami. (Laughter.)

Q What is the latest thinking on the extent to which the five-year reduction of the federal work force by 272,000 will require firing employees beyond buy-outs in the Treasury?

DEPUTY DIRECTOR RIVLIN: We're examining the agencies' streamlining plans now. And there will probably be some buy-outs next year. We have the authority to do that. But I can't give you a specific answer right now as to exactly what will happen.

Q May I follow up that?


Q As I understand it, the law that was passed does not provide any leeway for expansion of employment associated with temporary programs, including the Census and BLS's update of the Consumer Price Index, which BLS says in the long run will lead to

reductions in permanent personnel but only when they're done. How are you going to handle that?

DIRECTOR PANETTA: We have an overall number we're trying achieve. Obviously, as you walk through these decisions, you've got to be able to work with the agencies to be able to shift FTEs in a way that focuses on the areas that are important and have to have the manpower to be able to do the job. That's not easy to do because, obviously, every agency feels like they're doing the most important thing in the world. And so we've got to go through some very tough decisions over these next few months, particularly as it relates even to the '95 budget, to make some of those decisions.

The worst thing that could happen, very frankly, is to have the Congress enact floors in various areas so that Congress begins to interject itself in this process and basically say, "This is an area we think ought not to be included in any reductions." Because once that happens, then I don't know where you draw the line. If somebody wants to do it in veterans affairs, somebody else is going to want to do it in health care, somebody else is going to want to do it in law enforcement, somebody else is going to want to do it in some other area.

So our goal right now is to ask the Congress to give us maximum flexibility so that in fact we can achieve the target that they, themselves, have put in place. We've got 272,000 we've got to reduce over five years. The most important thing we need right now is the flexibility to work with these agencies to achieve that goal.

Q Have you done any kind of a updated analysis of the deficit projections of some of the other health care proposals? For instance, universal access or universal coverage is certainly an iffy proposition. Have you looked at what kind of deficit numbers you would be seeing without universal coverage in some of the health care plans?

DIRECTOR PANETTA: Well, we're in the process, obviously, of analyzing all of the options that have come out of the committees and that are moving to the floor, plus working with the leadership in terms of where we think areas need to be strengthened. It's always been the case that if in fact you want to provide universal coverage with cost controls, that you've got to implement not only mandates to try to assure universal coverage but you've also got to implement ways to try to control costs.

And if people are talking about something less than universal coverage, then ultimately while they can probably establish some mechanism to try to control federal cost -- and they're making an effort at that. I'm not sure how successful that is. We're analyzing that right now -- what you're still going to see is tremendous cost-shifting that's going to go on, particularly to the middle class in terms of premium increases.

The goal here was to try to control cost not only at the federal level but control cost to the average citizen out there in terms of health care cost. I think what you're going to see in some of these proposals is that while they may make an effort at trying to control the federal side of the cost -- which is what we've been trying to do, frankly, in Medicare and Medicaid for a long time every time we've implemented DRGs and those kinds of tools. The problem is there is cost-shifting that goes on. And some of these proposals I think make the same mistake.

Q Leon, since you're moving on, I wonder if you could share some of the projections that you're taking to your new job to make it as successful as you the one you have now.

DIRECTOR PANETTA: As I've said, I think there's a tremendous amount of talent here at the White House as well and the people I've worked with -- Bob Rubin is a good example of that, Bob and the team that works for Bob, outstanding people, outstanding individuals. And I intend to continue to work with them. And that's true in other areas as well.

I think my biggest responsibility right now is to try to make the best use of the talent that's here. There is obviously going to be some reorganization. There is obviously going to be some tighter lines of authority that have to be established. I think everyone feels that we've got to put in place tougher discipline to be able to better serve the President.

We were able to have that at the Office of Management and Budget because that institution, by its very nature, is designed that way. We've got a very professional staff and they do the work and the lines of authority are very clear. I'd like to take some of that and reflect that in the White House operation as well. I think we can do it and I think we can do it successfully.

Q When can we expect to see you start?

DIRECTOR PANETTA: I haven't really formally taken that office, although I feel like I'm taking some of those responsibilities already, obviously. But I hope to be able to move officially in the later part of this week and then, over the period of the next few weeks, continue to make recommendations to the President.

Q Are you looking specifically at the press office?

DIRECTOR PANETTA: I, right now, have looked at every area within the White House and talked with everyone in the White House to get a feel for how their operation works, where they think the weaknesses are, where the strengths are, and what needs to be done to improve it, and that includes all areas.

Q Let me ask you one more question about interest rates. We've still got a lot of deficit reduction ahead. In the last year-and-a-half you've had declining interest rates to compensate for that in a way. You don't have that now. If we continue with interest rates at this level, how can that avoid having some sort of drag on the economy?

MR. RUBIN: Let me give you a partial comment, but I think Laura really will deal with this on Thursday. What you basically have now is, you have real momentum in the economy coming from many sectors, and it's that momentum which -- our view is, and I think it's a broadly held view, as Alice and I both said -- the Business Week survey, the Blue Chip consensus, and comments by Chairman Greenspan about a week ago -- or about two, three weeks ago, when he testified, all are to the same effect, that you've now got a momentum that should enable this economy to continue going.

You know, if you look back at post-war recoveries, what you find is, they continue, because they develop a momentum of their own, unless interest rates choke them off, and our objective in getting the deficit down is to try and prevent that from happening.

Q Where is the choke-off point?

MR. RUBIN: Well, let me say this. The Blue Chip Survey came out with interest rates at roughly these levels, the Business

Week survey was done with interest rates at roughly these levels, and Alan Greenspan testified with interest rates at roughly these levels.

Q When you talk about drags on the economy, I'm wondering if you could comment on possible disaster aid to Georgia, and also a possible invasion of Haiti.

DIRECTOR PANETTA: It's always those contingencies (laughter). It's one of the things, as budget director, that I'm going to hand to Alice here. Look, obviously, right now, just in terms of those two areas, with regards to disaster assistance, at least at this point in time, we feel confident that the resources we've set aside for disaster assistance are more than able to meet the needs there at this time.

Of course, you still have to look at damage evaluations. We still have floods cresting in some areas, so we're still having continuing damage in that area. So I think we've got to wait until we get a full analysis.

But at least at this point, based on our roughest analysis, we think we've got sufficient resources to be able to do it without the need for a supplemental. But, again, that determination will await further damage assessments.

With regards to Haiti and any contingencies there, obviously, we're dealing with those within the budgets that we have, both in the Defense Department as well as the Immigration Service, that also is working in that area. And, again, we feel that it's adequate to meet those needs. Any additional contingencies in the future we'll have to look at at that time.

Okay. Thank you very much.


12:10 P.M. EDT