OMB REMAINS FIRM ON BUDGET, DESPITE CBO CONCERNS WITH NEXTWAVE
White House is sticking to revised budget projections, despite Congressional Budget Office (CBO) warning that estimates of FCC spectrum auction proceeds “continue to be volatile.” CBO this week made $6 billion auction-related reduction in previous FY 2002 govt. revenue estimates, part of agency’s overall estimate “that this year’s surplus will be $153 billion -- $122 billion less than it projected just a few months ago.” However, Office of Management & Budget (OMB) spokeswoman reiterated that Bush Administration wouldn’t change budget in midyear based on chance that Supreme Court would overturn U.S. Appeals Court, D.C., remand of FCC’s cancellation of NextWave licenses for missed payment (CD Aug 24 p2).
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OMB continues to assume that it will receive spectrum auction proceeds, presuming it will succeed in challenging D.C. Circuit decision, spokeswoman said: “Once we make our midsession review, those numbers” will remain firm. “Sometimes you just have to make a decision and stick to it.”
Response from Hill on CBO report’s reference to NextWave license cancellations hasn’t materialized, with members instead using CBO report to wage partisan battle over potential raiding of Social Security and Medicare trust funds. Senate Budget Committee staffer said that committee still was poring over details of CBO’s updated budget outlook. However, it’s “unlikely” that committee will weigh in on impact of NextWave case on govt. projections immediately, he said.
CBO attributed $6 billion figure not only to volatility of NextWave case, but to delay of upcoming spectrum auctions: “First, recent court rulings have cast doubt on the FCC’s authority to cancel and resell licenses held by companies that are in bankruptcy proceedings. As a result, the FCC’s recoveries on loans to such companies may be lower than the amounts already recorded in the budget. Second, an auction originally scheduled for September 2001 -- which was expected to bring in about $3.5 billion in receipts on 2002 -- has been postponed. CBO now expects proceeds from that auction to appear in 2003 and 2004.”
Investment growth in telecom and high-tech companies isn’t likely to resume in near term, CBO said: “The slowdown in [communications and computer investments] may be partly a result of some firms’ past overinvestment. Many of those firms were highly competitive companies in the information and communications sectors that had invested in emerging technologies in hopes of dominating their markets.”
Construction spending was “relatively strong through the first quarter of 2001,” partly because of “continued laying of fiber,” CBO said. But “possible excess capacity in fiber” contributed to sharp decline in 2nd quarter spending. CBO expects further drop in spending and outside investment in 2nd half despite “stimulus of lower interest rates,” it said: “The Federal Reserve’s actions have steadied financial markets and probably moderated the impact of the economic downturn… However, downgrades and default rates on corporate bonds have accelerated, and investors’ concerns about the risk of default remain high.”