Capital Commerce: Is Katrina a budget buster?
Luckily, New Hampshire Sen. Judd Gregg doesn't work for President Bush. Earlier this week the Republican chairman of the Senate Budget Committee suggested that Hurricane Katrina could end up costing the federal government as much as $200 billion. National Economic Council director Larry Lindsey, who did work for Bush, was axed in 2002 when he predicted the Iraq war would cost the same amount. (Lindsey will almost certainly be proved right: Some $210 billion has already been appropriated by Congress for Iraq, says Steve Kosiak, defense expert at the Center for Strategic and Budgetary Assessments, and $300 billion is very easy to envision.)
Yet, if Katrina's ultimate price tag is that much, will the hurricane, in addition to all the other horrible things it has wrought, also wreck the federal budget?
Probably not, predicts Richard Kogan, a budget analyst at the liberal Center on Budget and Policy Priorities. If the cost hits $200 billion, he says, "it doesn't change the mid-term or long-term budget picture substantially." Kogan guesses the bulk of that money, probably $150 billion, would be spent in fiscal year 2006, with the rest spent in 2005 and 2007. After that, it would cost $5 billion to $10 billion a year in interest payments.
Congress has already appropriated $10.5 billion in emergency assistance, and on Wednesday President Bush requested $51.8 billion more for recovery efforts. With FEMA spending a half billion dollars a day, everyone agrees that much more is on the way.
"This will not be the last request for the response to the disaster there," said budget director Josh Bolten after Bush's latest plea for money. "We anticipate that there will be a need for additional supplemental spending, especially in the process of recovery there in the Gulf area." To add insult to injury, Katrina will also shrink federal tax receipts because of its impact on national income and gasoline consumption, according to the Congressional Budget Office.
Still, at this point Kogan says it's way too early to guess what the storm's final cost will be, though he says it probably won't get out of hand "if Congress's response is limited to temporary relief and reconstruction." The danger, he warns, is that politicians and K Street lobbyists might use Katrina as an excuse to push their agendas, such as tax relief or spending programs unrelated to the storm.
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