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Published: Sunday, 10/28/2001

U.S. reels from cost of terror

BY ANN McFEATTERS
BLADE WASHINGTON BUREAU CHIEF

WASHINGTON - The economic cost of the terrorism that has struck America beginning with the deadly toll on Sept. 11 is staggering - equivalent to almost a third of the annual defense budget, or more than $100 billion.

And it gets worse every day.

As Congress struggled to get back to work last week - staff and members have been scattered around Capitol Hill while buildings were closed for anthrax testing - a dominant theme has been paying for the damage, new health precautions, cleanup and repair, and new security measures as well as military deployment, bombing, food for the Afghan people, and new laws.

At the beginning of the year, a budget surplus of $5.6 trillion was projected for the next decade, including the $160 billion surplus expected for this year just a few months ago.

But most of that evaporated well before Sept. 11 as a result of the economic downturn as costs rose for such things as unemployment compensation. The slowing U.S. economy has some economists thinking recession. Since Sept. 11, 529,000 workers have been laid off.

A month after the terrorist attacks, the nation's economic guru, Federal Reserve Board Chairman Alan Greenspan, told Congress that because of the Sept. 11 attacks, the U.S. economy may not recover the buoyant growth rate of the late 1990s that led him some time ago to warn against "irrational exuberance.'' He would not give the Joint Economic Committee of Congress any hint of when he thinks recovery might begin, and the stock market plunged again.

Almost every sector of the economy has been hurt.

For example, the general aviation industry is still not flying because of security threats. Rep. John Mica (R, Fla.), says the industry has lost $400 million since Sept. 11. In some areas, the hotel industry has experienced a 60 percent drop in bookings. The airlines are still not flying full flights - the world's biggest airline, American, announced losses of $414 million for the third quarter. Retailers are worried about sluggish Christmas sales. The auto industry has gone to zero financing to try to entice buyers.

Congress has spent $60 billion above its budget and is trying to deal with endless requests for more money. From $40 billion for the war on terrorism to the $15 billion bailout for the airlines, which both passed in record time, demands for funding have been nonstop.

Worried about the economy despite the tax cut that went retroactively into effect this summer, President Bush quickly asked Congress for a $70 billion, 10-year stimulus package. But in the House that turned into a $160 billion demand over 10 years for a wide array of tax cuts, ranging from $300 to $600 rebate checks to low-income workers to repealing the alternative minimum tax for corporations.

The size of the House package caused Treasury Secretary Paul O'Neill to blanch and say it was too costly - in effect, the stimulus plan was getting out of control. House Democratic leader Dick Gephardt of Missouri complained that 86 percent of the benefits would go to corporations and the wealthiest Americans.

But the bill squeaked through almost along party lines, 216-214, on Wednesday.

The bill next goes to the Senate, where Democrats oppose the size of the House tax cuts but have not weighed in on what they want. For example, the two New York senators, Hillary Rodham Clinton and Charles Schumer, have declared that the $10 billion allocated so far for New York is "not anywhere near sufficient.'' A group of Democratic senators interested in housing say $3 billion is needed for housing to stimulate the economy.

One action that Congress took that dumbfounded many conservatives was setting up a special fund for Sept. 11 attack victims without specific qualifications and restrictions, leading to concerns it could be abused. Some members were outraged, arguing that it eventually could cost billions of dollars. When many Republicans complained, House Speaker Dennis Hastert (R, Ill.), overruled them, saying it was going to be done.

The nation's mayors gathered last week in Washington demanding federal help. Washington's Mayor Anthony Williams told the mayors that lost revenue to his city alone, from the closing of Reagan National Airport for weeks after the attack and lost tourism, was $750 million. Las Vegas, heavily dependent on tourism, is trying to cope with 30,000 layoffs in less than a month.

The U.S. Conference of Mayors said a survey of 93 cities found that added security measures will cost $122 million at a time when tax revenues are down because of the economic slump. With 1,200 cities needing more security, the mayors estimated the cost of new security measures for just the cities will top $1.5 billion next year.

The states are no better off - nearly every state has financial difficulties or is bracing for them. Pennsylvania Gov. Mark Schweiker is considering raiding the $1.1 billion rainy day fund his predecessor, Homeland Security Director Tom Ridge, begged him not to touch. Florida officials say a $1.3 billion budget deficit could mean huge cuts in classrooms and health clinics. New York has laid off 5,000 state workers.

Maryland's Democratic governor, Parris Glendening, just announced spending cuts of $200 million and said more are on the way. Massachusetts' GOP Gov. Jane Swift says $750 million in cuts are necessary.

A new Standard & Poor's report on "The State of the States'' says that "weakened consumer confidence, higher unemployment levels and weak stock-market performance'' are putting the states on such a weak financial footing most will have to cut spending and borrow money in municipal-bond markets.

Mitch Daniels, a fiscal conservative and director of the White House Office of Management and Budget, has been trying desperately to keep his finger in the dike as funds pour out.

He approved $40 billion in emergency money because of Sept. 11 ($8.3 billion for domestic security, $18.6 billion for defense, and $11.7 billion for disaster recovery). Then he reluctantly approved $15 billion for the airlines. Finally, he approved spending $6 billion just to keep partisan rancor in check on the budget process. After the initial burst of funding, he has been steadfast in saying no more bailouts.

And that's been a "no'' to big power brokers. Mr. Gephardt wants to spend millions to federalize airline and airport security. Sen. Harry Reid (D, Nev.), who addressed the mayors last week, wants to spend $30 billion to improve transportation systems, in part to make them more resistant to terrorist attacks. Sen. Jon Kyl (R, Ariz.) wanted to give everybody a $500 tax credit to travel.

Sen. Bill Frist (R, Tenn.), the surgeon who has been out front as the Senate itself dealt with the presence of anthrax, thinks the government should spend $1.4 billion more to defend against bioterrorism.

Even federal agencies that need budget approval by Mr. Daniels before the President signs off on them have not been shy in asking for money. He said that at one point he had requests for $121 billion stacked on his desk. Most were filed in the wastebasket by a man who thinks $20 billion is "an astonishing amount of money.''

And now, the U.S. Postal Service, staggering because of the economy and such factors as increasing reliance by customers on e-mails leading to lost revenues, is saying the anthrax scare means it must ask Congress for as much as $2 billion in loans in addition to the $11 billion it owes the Treasury.

Citizens Against Government Waste says it has tallied all post-Sept. 11 spending proposals introduced in Congress and found that they total $312.4 billion. That compares with a total federal budget of $1.9 trillion.

But Mr. Bush says he is optimistic in the long run. Wednesday, cheerleading the stimulus package, he conceded in a speech at a packaging company in Glen Burnie, Md., "Make no mistake about it, September 11th affected economic growth.''

But he also said, "When the terrorists struck our homeland, they thought we would fold. They thought our economy would crater. That's what they wanted. But they don't understand America.

"They don't understand the entrepreneurial spirit of our country. They don't understand the spirit of the working men and women of America. They don't understand that small business owners all across our country are saying, 'We're not going to allow you to terrorize us.' "



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