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CBO Says Government Will Have to Tap Social Security Surplus

Aired August 27, 2001 - 17:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
JUDY WOODRUFF, CNN ANCHOR: This is INSIDE POLITICS. I'm Judy Woodruff in Washington. A new budget report for Congress is contradicting the White House and ratcheting up the political debate.

JOHN KING, CNN SENIOR WHITE HOUSE CORRESPONDENT: I'm John King with the president in Texas. I'll go over those numbers and the bottom lines for Social Security's unofficial (UNINTELLIGIBLE) box.

WILLIAM SCHNEIDER, CNN SENIOR POLITICAL ANALYST: I'm Bill Schneider in Washington with new poll numbers on the shrinking surplus and the political fallout for the president.

BOB FRANKEN, CNN NATIONAL CORRESPONDENT: I'm Bob Franken in Modesto, California, where an attorney for a flight attendant is asking a local grand jury to indict Congressman Gary Condit.

ANNOUNCER: Now, Judy Woodruff takes you INSIDE POLITICS.

WOODRUFF: Thank you for joining us. Before we get under way, just a word about those fires in Southern California. We are monitoring them. They are mostly in northern Los Angeles County. As developments take place, we will report them to you, and we'll keep an eye on them.

But for INSIDE POLITICS, we begin with those congressional budget numbers leaked a day before their official release and the political punch they carry. In contrast to White House projections, the CBO says the federal surplus has shrunk so much that the government will have to dip into Social Security funds.

This is our new poll shows one-third of Americans say they hold President Bush, quote, "very responsible" for the diminished surplus. About a fourth say that same thing about congressional Republicans; 15 percent put the greatest blame on Democrats.

Our Bill Schneider has more on that poll, and our John King has the latest budget numbers. First, let's go to John, who's near the western White House in Crawford, Texas -- John.

KING: Well, Judy, this more pessimistic outlook from the Congressional Budget Office guarantees this: Those tax cut checks in the mail this summer will be a major debate, a major point of contention in the budget battle this fall.

(BEGIN VIDEOTAPE)

KING (voice-over): The Congressional Budget Office estimates the government will be forced to tap at least $9 billion in Social Security money to pay its bills this year and twice that much, $18 billion, in Social Security money two years from now. "I told you so" is the refrain of Democrats who for months argued the Bush tax cut was too big.

REP. JOHN SPRATT (D-SC), BUDGET COMMITTEE: We're very much at the stage, if I can borrow the phrase from "Apollo 13" and saying, "Houston, we've got a problem." Except maybe now, we should say, "Crawford, we've got a problem."

KING: The White House disputes the new congressional estimates. The administration projects a modest $1 billion non-Social Security surplus this year.

MITCH DANIELS, WHITE HOUSE BUDGET DIRECTOR: Please note how very close these numbers are. These differences of a few billion dollars measured against $2 trillion of federal revenue are way under one percent. And really, nobody's crystal ball is so good to know with anymore precision than that.

KING: The different surplus numbers stem from differing predictions on the strength of the economy and government tax receipts. The White House predicts the economy will grow at a rate of 3.2 percent next year. Congressional experts predict only 2.6 percent growth.

The government has tapped into Social Security money before. If it had to do so again, there would be on effect on benefits. This is much more a political calculation when the surplus was growing, Mr. Bush was part of a loud bipartisan chorus promising to leave Social Security money alone.

(END VIDEOTAPE)

KING: And so the Democrats now are trying to make the case that voters should blame the president and his fellow Republicans if the government indeed does tap Social Security. The administration's line is this: That if Congress has discipline when it comes to spending, there won't be a problem -- Judy.

WOODRUFF: All right, John King reporting from Crawford, Texas.

(INTERRUPTED FOR LIVE EVENT)

WOODRUFF: And just a quick update now on those fires we were showing you a little earlier on CNN. We're told that about 150 acres have burned so far. They are now threatening -- these fires now threatening several homes in the north Los Angeles County area. Of course, this is in southern California. There are at least 75 fire personnel on the scene. CNN will continue to monitor this. You can see that is a live picture of a home burning there in Los Angeles County. We'll will continue to monitor this story and bring you developments as we have them. "INSIDE POLITICS" will be right back. (COMMERCIAL BREAK)

WOODRUFF: Once again, these are the pictures in -- coming out of southern California. This is an area of north Los Angeles County where we are told some 150 acres have already burned. There are a number of houses that are burned. We just a moment ago saw live pictures of a house almost completely swept away by fire. We are told there are at least 75 fire personnel in the area, firefighters fighting this fire, which is moving through northern Los Angeles County.

WOODRUFF: CNN will keep an eye on this story and bring you more throughout the hour. Now back to "INSIDE POLITICS." A little more than half of the people questioned in our new poll say they believe the federal government will have a budget deficit next year. And nearly three-fourths describe the decrease in the federal surplus as a serious problem.

Our Bill Schneider is here now with more on public opinion and the budget surplus -- Bill.

SCHNEIDER: Well, you know, neither party really has an advantage on the issue of budgeting. Historically, Republicans were the party of fiscal responsibility, but under President Clinton, Democrats tried to compete for that title. So right now, when we ask Americans which party would do a better job handling the federal budget, it's virtually a tie: 45 percent say Democrats, 44 percent say Republicans.

One of Clinton's major achievements was balancing the federal budget, which he did in collaboration with the Republican Congress.

WOODRUFF: So do people now believe that achievement is at risk?

SCHNEIDER: Well, they do. When we ask people: What do you think is more likely to happen to the federal budget next year? Will it be in surplus or will it be in deficit? As you indicated, a majority say the budget will be in deficit.

Now the administration insists that's simply not true. President Bush told his audience in Independence, Missouri last week, the federal budget will have the second largest surplus in history, which is correct if you count the Social Security surplus, which of course, was common practice until a few years ago when both parties agreed to put that Social Security surplus in a quote, "lock box," and use it to pay down the national debt.

WOODRUFF: So who's going to pay a price for violating that lock box? Is it Democrats or Republicans?

SCHNEIDER: Well, there's some danger here for President Bush. The public is actually closely split right now over whether President Bush deserves to be reelected. Among Americans who believe that the budget will still be in surplus, two-thirds say, yes, President Bush does deserve to be reelected. But by two to one, people who predict the budget's going to be in deficit say President Bush does not deserve to be reelected. Now Democrats are going to claim -- they already are claiming that by rating the lock box to pay for his tax cut, President Bush has returned the country to deficit spending. Now President Bush has to convince people that the surplus is still there, even if it's Social Security funds that he agreed not to touch. The most important thing, most important thing that President Bush needs to do is reassure Americans that the diminishing surplus does not mean that the Social Security system is going to become insolvent or that benefits are going to be cut.

WOODRUFF: All right, Bill, we want you to stick around, but we want to bring in Ron Brownstein, a familiar face to "INSIDE POLITICS" from the "Los Angeles Times."

RON BROWNSTEIN, CNN POLITICAL ANALYST: Judy.

WOODRUFF: Ron, how do all of these new numbers coming out of the White House last week, now coming out of the Congressional Budget Office, change the whole debate over the surplus?

BROWNSTEIN: Well, they may have different legislative and electoral implications. Legislatively, probably a problem for both parties. I mean, both the Democrats and President Bush want new spending in different areas. President Bush wants it on defense. They both want it on education. The Democrats want a big increase in prescription drug benefits.

In the short run, what the CBO and the OMB are telling us is that there's not a lot of money out there, because both sides, as Bill suggested, are going to be very reluctant to go into the Social Security trust fund. So legislatively, a problem on both sides.

But in the long run electorally, I think that President Bush does not want to have to run for reelection saying, in effect, that he squandered a surplus that at one point loomed to be at -- put money at $100 billion a year in the on budget portion of the budget.

WOODRUFF: Well, as we pointed out a minute ago, you got a contradiction here. You've got the White House numbers on the one hand saying the surplus is bigger. The CBO numbers saying it's way down; you're already eating into Social Security. Does it matter whether the public believes one set of numbers or another?

BROWNSTEIN: Well, ultimately, there will be in fact a result. I mean, we will see a final budget tally that tells us whether we went over the line on Social Security. You know, for the administration, there's a very tight, fine line here, because President Bush does not want there to be a big on-budget surplus. His view is that all the debt you can pay down can be paid down with the surpluses and Social Security. So if you have money left in on the on-budget account, there are only two thing really you can do with it. You can spend it or you can return in tax cuts. He obviously prefers the latter. But what they've got is a situation where they almost have a little too much success and they're now so close to the line that they can fall over into tapping into that Social Security trust fund, which I think politically more than economically they just don't want to do. WOODRUFF: All right, Bill, I want to ask you about this and Ron as well. Let's show you right now an ad that the Republican National Committee is running. They're running just it in three places: in Washington, D.C., in Missouri in Dick Gephardt's home state and in South Dakota. Let's watch.

(BEGIN POLITICAL AD)

ANNOUNCER: ... the second biggest surplus in history. But Democrats who for years supported budgets that spent all Social Security money and left no surplus are now launching partisan, misleading attacks on President Bush.

(END POLITICAL AD)

WOODRUFF: Now Bill, is this going to work for the Republicans to go after the Democrats for going after the president?

SCHNEIDER: Well, what they're saying is "Look, there is no lock box." They can't come out and say that but the fact is between you and me, there really isn't any lock box. It's a convention that was politically expedient for both parties to agree to set aside the Social Security surplus when the government was rolling in money. But what the Republicans want to argue is it doesn't much matter if you spend a billion here, a billion there. In government figures, that's loose change. What they're saying is there is plenty of money there to protect Social Security and provide for benefits. So don't worry too much about the lock box.

WOODRUFF: Is that an effective argument?

BROWNSTEIN: My sense is that this debate is likely to function like most of the things we've seen this year, which is to reinforce the lines that were drawn in 2000. In that poll when you had Bush's reelect at 46 percent, 44 percent said give somebody new a chance, in effect, he is stuck where he started. Basically, the people who voted for him like him; the people who didn't vote for him, he really hasn't converted. And my sense is that by arguing that the real threat here is excessive spending, that's likely to prove a pretty effective argument with his base, his voters. I suspect it's less moving to the people on the other side, and so you tend to reinforce where we already are, which is with this lasting division.

WOODRUFF: Now let me read just quickly, Zell Miller, the conservative Democratic senator from the state of Georgia, former governor, wrote a letter to the "Washington Post" today. Among the things he said in the letter, "When he, Terry McAuliffe," -- he's referring to the chairman of his own party, the Democratic Party -- "puts out statement after statement railing against the tax cut, whom does he think he's hurting? Those 18 moderate Democrats who voted for the tax cut. That's who?" And Miller went on to say, "Every time he," meaning McAuliffe, "speaks, it still sounds to me like fingernails across a blackboard, and he's making more and more moderates see red, the color that dominated that 2000 election map."

Bill, what are we to make of it? SCHNEIDER: Well, we make one thing of it, which is Zell Miller was the governor and now the senator of Georgia, which was a red state. It was a Bush state. He has to survive in very Bush friendly territory. That's one reason why he defends the tax cut and voted for it. And indeed, I think it was 12 Senate Democrats voted for the tax cut; 28 House Democrats I believe was the figure. And they to -- you know, it was done with some bipartisan support. Democrats can't really say, "We oppose the tax cut." And, you know, there's another trap. They can't say, "We want a lot of new spending either." So they're kind of in a bind.

BROWNSTEIN: Well, Zell Miller, I think explains why Tom Daschle is a lot more temperate in his comments about the tax cut than Terry McAuliffe is. I mean, he really understands that there are not votes there to go after it even if they wanted to. I saw that John Spratt, the leading Democrat on the House Budget Committee, was also more measured today than he has been earlier. Democrats do not, I think, at this point, have a consensus that they want to go after the tax cut.

And as Bill says, that leaves them in a little bit of a box. If you accept the fiscal parameters that Bush has set, you're basically playing by his rules. Then you only have so much money to spend. But the other side is the likelihood that the Republicans and the president would effectively criticized him if they went after it in the short term.

WOODRUFF: Mentioning the tax cut but not going on at great length and attacking those who voted for it.

BROWNSTEIN: Yeah, exactly right. I think they more want to put the squeeze on Bush and try to force him to come up with some kind of solution. The problem they have is he doesn't accept that there's a problem. He doesn't think that there's a problem that has to be solved here. A narrow surplus is really what the White House wants. They don't want to go into Social Security, but they don't want there to be a big surplus either.

WOODRUFF: All right, fascinating. Ron Brownstein, Bill Schneider, thank you, both, gentlemen. See you later.

And right now, we want to go back to that ongoing story there in Los Angeles County, California. We have on the telephone with us is Edward Osorio, who is the Los Angeles County fire superintendent.

Superintendent, Osorio, just give us a -- bring us up to date now on just how serious this situation is. We're looking at some pretty terrifically terrible pictures from southern California.

INSPECTOR EDWARD OSORIO, LOS ANGELES COUNTY FIRE DEPARTMENT: Well, as you can see, the fire looks like it's blazing out of control at this time. Apparently, it does look like one home has been consumed. Unfortunately, we haven't had any confirmation from any one of our units on the scene. From what I'm seeing on your footage here, definitely looks like we've lost at least one structure. As of yet, we haven't received any further update. We are still at about 150- plus acres with over 200 firefighters on scene with four water- dropping helicopters trying to assist to extinguish the blaze.

WOODRUFF: Over 200 fire fighters on scene. How quickly did all of this come on?

OSORIO: This came about very quickly. The incident commander initially reported 15 acres upon arrival within about the span of 20 to 30 minutes. He did a follow-up report and reported approximately 75 to 80 acres.

WOODRUFF: And now, it's over 150 acres.

OSORIO: Exactly. Over 150 acres, and that was at last count, the last update that we had about an hour ago. So it may be even more than that.

WOODRUFF: Superintendent -- we're talking with Edward Osorio who's the fire superintendent for the Los Angeles County. How does this compare to other fires that you have seen in this area with these sort of climatic conditions where it's dry, it's hot, you don't have rain in the forecast?

OSORIO: Well, California is predominantly known for being the Sunshine State. We don't have a whole lot of rain every year. In fact, in the last few years, we haven't had too much rain at all. Santa Clarita is a very dry area, it's a very hot area with the eight- to-10-mile-an-hour winds that we are experiencing this afternoon. All those help to make this a very difficult fire for our firefighters. Even though it may seem like the winds are cooperating, they can easily shift causing ambers to fly in different directions and thus creating spot fires throughout the area.

WOODRUFF: Describe, if you would, the geography of this area where the fires are concentrating?

OSORIO: Well, we have some hills in the area. We have pretty much medium to heavy brush throughout. And as you can see with the wind fanning the flames and the preheated temperatures of the terrain, it makes it very difficult for our firefighters to get a handle on this fire. Two hundred fire fighters. They seem like a lot, but when you think of fire this size, it really isn't. We've had -- we've put in requests within assisting agencies for some more water-dropping aircraft. As of yet, with all of the other fires that we have in the northern part of the state, it makes it very difficult to acquire these aircraft on a split -- on short notice.

WOODRUFF: And how many other homes nearby? I mean, are you -- are we looking at an area where there is -- which is very heavily residential?

OSORIO: No, luckily, it's not very heavily residential. As you can see from the shot, there aren't too many homes close together. Most of the people who live up here like the area because it's secluded; they like their privacy. And luckily for us, there aren't too many structure. As you can see, if we had another structure, located just adjacent to that one, it could easily catch fire and thus having two structures on fire. WOODRUFF: All right, we're talking with Edward Osorio, who is the fire superintendent for the county of Los Angeles. And we've been looking -- thank you very much, Mr. Osorio.

We've been looking at live pictures of this area of north Los Angeles County, where a number of homes have already been destroyed. As much as 150 acres are engaged. And again, updating the number of firefighters, we've been telling you 75. We just heard the superintendent saying it's 200 firefighters and climbing. "INSIDE POLITICS" will be right back.

(COMMERCIAL BREAK)

WOODRUFF: While many members of Congress are gearing up for a budget showdown when they return to Washington, Gary Condit has a very different kind of political fight on his hands. And today, he has a new legal complication as well. Our Bob Franken has an update from Modesto, California.

Bob, bring us up to date.

FRANKEN: Well, Judy, every day this controversy seems to spread. The latest development, an attorney for Anne Marie Smith, the flight attendant, who claims she had a relationship with Congressman Gary Condit and that he asked her to lie about it under oath, a relationship that Condit says they did not have. The attorney went to a grand jury directly today seeking an indictment of Congressman Condit. We're told by officials in the prosecutor's office it's unlikely that this personal approach will work. More likely that, if they want something, they should file a local police report here in Modesto County.

And one of the associates of James Robinson, the attorney, was also harshly critical of the Washington, D.C. police department, which has not been successful in finding Chandra Levy.

(BEGIN VIDEO CLIP)

ERNIE NORRIS, "JUDICIAL WATCH": The Washington, D.C. police are ridiculous. Any good homicide detective under the evidence that they have against Gary Condit would have him as the number one suspect. And they wouldn't look at anybody else until they would have eliminated him.

(END VIDEO CLIP)

FRANKEN: Now we have a reaction from the assistant D.C. police, Chief Terry Gainer, who says, "He doesn't have all the facts we have. And he's not in a position to judge who's a suspect and who's not. That's the reaction from the assistant police chief D.C., Terrance Gainer.

Now back to James Robinson. And the help that he's been getting in this case is a familiar organization, Judicial Watch, which, of course had so much of a role in fighting lawsuits during the Clinton administration. Robinson talked about this association. (BEGIN VIDEO CLIP)

JAMES ROBINSON, SMITH'S ATTORNEY: I brought in Judicial Watch. Until two weeks ago, I had no contact with Judicial Watch. I don't know Judicial Watch until two week ago. This is not a part -- this is murder, and murder's not a partisan issue.

(END VIDEO CLIP)

FRANKEN: While Condit has gone into a variation of seclusion right now after his media blitz, the controversy continues even without him -- Judy.

WOODRUFF: All right, Bob Franken reporting from Modesto, California.

A difficult moment for Californian Governor Gray Davis. Just a short time ago, during a news conference, he answered questions about his friend, political ally and fellow Californian, Congressman Gary Condit. Davis said it is not easy for him to give his opinion about Condit's actions in the Chandra Levy investigation.

(BEGIN VIDEO CLIP)

GOV. GRAY DAVIS (D), CALIFORNIA: I think you know that Gary Condit's two adult children work for me and have been doing a wonderful job. All of you know that I've known Gary and work with him for many, many years. And so what I'm about to say doesn't bring me any joy whatsoever.

I didn't see the interview, so my information comes from news accounts and the transcript of the interview. But I'm disheartened that Congressman Condit did not speak out more quickly or more fully.

(END VIDEO CLIP)

WOODRUFF: Governor Davis' comments come as polls taken over the weekend show Congressman Condit's political future in great jeopardy.

Following his media interviews last week, CNN surveyed registered voters in the congressman's home district on Friday and Saturday. One of the questions, Would you vote for Condit if he runs for reelection? Only 29 percent said yes, 61 percent said no.

In California, it is time to redraw congressional and legislative district lines, including those for Gary Condit's seat.

Well, joining us now to talk about the impact, from San Francisco, Democratic Party chairman Art Torres, and from Los Angeles, GOP consultant Allan Hoffenblum, who is also publisher of the "California Target Book," which analyzes political races in the state.

Art Torres, to you first. Is Gary Condit history as far as his congressional district is concerned?

ART TORRES, CHAIRMAN, CALIFORNIA DEMOCRATIC PARTY: Only he can determine that, quite frankly, Judy, and obviously he has until December 7 to do that. But there is serious concern raised by leaders that I have spoken to throughout California, both in the Congress and in the legislature, that are very, very concerned about what the future holds for Gary. y But again, knowing that he has to make up his own mind in terms of what he wants to do, but there's no question there's going to be a primary challenge, and clearly a very tough general election, if he seeks reelection.

WOODRUFF: That sounds like a pretty tepid endorsement on your part.

TORRES: I'm sorry?

WOODRUFF: That sounds like a pretty tepid endorsement on your part.

TORRES: Well, the temperature -- the temperature here is that in the primary, we're not going to endorse any candidate in any district in California. We're going to wait for the people to decide in each of the districts and determine who their nominee is. And at that point I think we have to make decisions come November.

WOODRUFF: Allan Hoffenblum, how precarious do you think Gary Condit's situation is?

ALLAN HOFFENBLUM, "CALIFORNIA TARGET BOOK": Well, listening to Art Torres, it sounds like it's getting more precarious every day. I mean, it's unprecedented that the political party does not endorse an incumbent nominee of their own political party.

But I think Gary Condit, first of all, he has short-term problems and long-term problems. The short term is whether or not he's going to be able to hold onto that seat and not have to be forced to resign. Now, the Democrats are hoping he can at least hold on until December, because if he holds on until December, then the governor will not be forced to call a special election.

But if he resigns any time before then, they will have to have a special election, which will be under his current district, not the gerrymandered district that they're busily trying to redraw right now. And that's a district, by the way, that George W. Bush carried over Al Gore last year.

WOODRUFF: Well, we don't have any reason to think, do we, Art Torres, that he is going to resign early, or do we?

TORRES: No, I don't think that's the case at all, and I've certainly not heard that as a recommendation, because it doesn't make sense to do that. Why spend all that money to have a special election when, if he decides not to run, the election comes around in the primary in March of 2002 and the general in November? It doesn't make sense economically for the taxpayers for Gary Condit to resign. It does make sense if those were the two options that he has available to him, to seek reelection or decide not to. WOODRUFF: Torres, just quickly, you mentioned party leaders being concerned. Is Gary Condit hurting other California Democrats?

TORRES: I think right now it's too early to tell. But I do think that there was serious concern about his candidacy in the campaign that he might wage prior to the interview. Post-interview, that concern has raised in decibel considerably among leaders of -- in the Congress and the legislature that I've spoken to, and mayors throughout the state of Congress.

WOODRUFF: Allan Hoffenblum, what do you see the prospects for redistricting the 18th Congressional District, which is Condit's district?

HOFFENBLUM: Well, we haven't seen any lines yet. As I said, they're being drawn right now in Sacramento by the Democratic state legislators. But the sources that I've been listening to who have some kind of insight into what they're doing, is what they're basically doing, they're going to probably create a district that includes downtown Stockton in the new congressional district. And what you'll find is probably the most Democratic precincts or neighborhoods in Modesto going up north, finding the most Democratic portions of Stockton.

Now, the Democrats have to be concerned if they move into Stockton, because the mayor of Stockton, Gary Podesto, is a very popular one, and he happens to be a Republican. So the Republicans do have a very strong potential candidate. But what I think you're going to find is that the district will be drawn in such a manner that most of Gary Condit's base is eliminated, put in adjoining districts. And he'll probably end up with some very tough Democratic opponents, most likely from the Stockton area.

WOODRUFF: Art Torres, are you seeing it the same way there?

TORRES: No, not at all. Quite frankly, I don't think you can increase a district in terms of Democratic numbers that much, because the population doesn't justify it, especially with surrounding congressional districts. You are going to have some increase in Democratic registration -- I think that's -- that was always the plan for that district -- but not substantial.

Where you're going to have the movement is in southern California, and clearly a new congressional district, probably in the Riverside-San Bernadino area.

WOODRUFF: Well, what do you see happening in the 18th, Art Torres?

TORRES: I see some addition, as I said, of some Democratic precincts, which is -- which makes sense, but that was on the drawing board before Gary's problem, and quite frankly, can be moved without substantially affecting the other districts in the area.

WOODRUFF: And how does that square, Allan Hoffenblum, with what you believe? HOFFENBLUM: Well, I do know that some of the Republican consultants who have fun with the, you know, with the computers and the maps, they were able to draw a congressional district that Bush dropped from 53 to 43. So the Democrats know how to do it if they want to. Just depends upon whether or not they believe they can get the votes out of the state legislature and what kind of reactions they would draw such a district.

TORRES: Well, I -- but...

HOFFENBLUM: But in my opinion -- but -- Go ahead, Art.

WOODRUFF: Go ahead, finish your point.

TORRES: I'm sorry, I didn't want to interrupt my old friend. Go ahead, Allan.

HOFFENBLUM: But the -- you know, but the point I'm making is, I think it's highly unlikely that Gary Condit will ever face a Republican. I mean, either he's going to be forced to resign as a special election when eh won't even be on the ballot, or he doesn't seek reelection, or he's going to be seriously challenged by a Democrat in the primary. And looking at the poll numbers that you just released, I think it's highly unlikely that Condit will be renominated by his party.

TORRES: What I, what I wanted to say...

WOODRUFF: Art Torres -- go ahead.

TORRES: ... Judy, was that I don't see a 10-point spread. I see more like a 5- or a 6-point increase at the most.

WOODRUFF: And that final prediction from Mr. Hoffenblum, what do you think about that? Art Torres?

TORRES: Yes, I -- what I said was, I don't see a 10-point spread occurring as Allan thinks it might be. I think the most you'll probably see is maybe a 5 or a 6 percentage point increase, simply because the population doesn't merit or justify, constitutionally or legally, that much of a change in that district.

WOODRUFF: But, I mean, his final point, that he doesn't think Gary Condit's ever going to face a Republican opponent because either he won't run or he'll be defeated by a Democrat.

TORRES: Well, that's a very good possibility, given the numbers that you've cited. And clearly that's up to Gary to make a decision as to what he wants to do. As I said from the outset, before the interview even took place, and quite frankly, about almost a month ago, we're going to have a tough race in that district, and I think that Gary has to decide just what the variables are in terms of what he wants to do and what he needs to do.

And I think he's going to have to have very serious discussions with Dick Gephardt and other leaders in the House to determine whether or not there will be the support for him, even in a primary.

WOODRUFF: All right, Art Torres, Allan Hoffenblum, thank you both. Gentlemen, good to see you. We appreciate it.

TORRES: Good to see you too, Judy.

WOODRUFF: And this programming note. Tonight on "LARRY KING LIVE," Larry's guest will be the son of Congressman Gary Condit. Chad Condit works, as we said a minute ago, in the office of California Governor Gray Davis and is already involved in state politics. That's tonight on "LARRY KING LIVE" at 9:00 Eastern.

As Bill mentioned, Bill Schneider mentioned a little while ago, there are some big changes in the CNN evening lineup. Starting tonight, "LOU DOBBS MONEYLINE" moves to 6 P.M. Eastern. CNN's "FIRST EVENING NEWS" follows at 7:00, and at 7:30, it's "CROSSFIRE," as usual.

It's a problem in a number of states affecting people of all ages, and politicians too. Still ahead, the ABCs of state budget crunches and the delicate dance to keep revenues and spending in balance.

And later, my conversations with party officials about the challenges they face as they reach out to women voters.

(COMMERCIAL BREAK)

WOODRUFF: This is the scene right now in southern California in north Los Angeles County, where firefighters fighting a fire that has taken over at least 150 acres, 200 firefighters there working. We know that at least one home has been destroyed so far.

In that picture you just saw, firefighters pumping water out of a swimming pool to use that water to help in fighting these fires that have -- as we talked earlier with the fire -- Los Angeles County fire superintendent, he said that just a matter of a few hours ago, they had only 15 acres involved, and within just a very short period of time, the fire jumped, it spread, and now they're looking at at least 150 acres.

You can see the ferocity of these flames as they move across north Los Angeles County in southern California.

And of course we'll bring up updates on that story as they come along.

Back now to INSIDE POLITICS.

Well, the weakening economy is causing big budgetary problems in a number of states. In North Carolina, for instance, a $1.5 billion tax cut just a few years ago has contributed to a whopping budget shortfall today. And that's leading to major spending cuts and possibly a tax increase.

CNN's Brooks Jackson traveled to Raleigh to explore the dilemma that many states are facing.

(BEGIN VIDEOTAPE)

BROOKS JACKSON, CNN CORRESPONDENT (voice-over): Raleigh, North Carolina, the Happy Face Preschool Center, where Chrissy Jaquis and her 3-year-old daughter, Carly, may soon become statistics in a state budget squeeze.

A single mom working for low wages in a doctor's office, Chrissy gets $382 a month from the state to subsidize Carly's daycare. But that program is being cut 22 percent this year, and officials say hundreds of parents are going to lose those payments.

CHRISSY JAQUIS: I would have to look for another job and maybe just do the home thing. But right now, you know, I work nights and hope that there's a school that would take her at night. But even with that, it's still hard to, you know, on one income, to actually send her to preschool.

JACKSON: North Carolina legislators already have agreed to hundreds of millions in spending cuts, but it's not nearly enough. Democratic Governor Mike Easley is on statewide television calling for a one-cent increase in the state sales tax.

GOV. MIKE EASLEY (D), NORTH CAROLINA: We're facing a financial crisis unlike any our state has seen in recent history.

JACKSON (on camera): And it's not just here. Many other states are going through the same budget meat grinder as North Carolina.

SCOTT PATTISON, STATE BUDGET OFFICERS ASSOCIATION: States across the country, particularly in the Southeast and the central and Midwestern areas, are seeing a decline in revenue growth, fairly significantly, as a result of a weakening economy.

JACKSON (voice-over): North Carolina is just one of 16 states forced to make cuts in this year's budgets after they were passed. Revenues are falling short because of higher unemployment, falling corporate profits, declining capital gains profits, weakened retail sales taxes.

And state surpluses, which fattened during the boom, have shrunk markedly. North Carolina's billion-dollar rainy day fund was blown away entirely, mostly by spending to relieve victims of two hurricanes. Manufacturing layoffs hammered the state's once-booming economy. Barely tow years ago, North Carolina's unemployment was only 3 percent, an historic low. Now it's 5.3 percent.

Corporate profits are falling too. Midway Airlines, headquartered here, just declared bankruptcy.

DAN GERLACH, NORTH CAROLINA BUDGET AND TAX CENTER: So we were caught with no money in the bank, with revenues falling and our spending going up. And so that's really caused a problem here in North Carolina today.

JACKSON: Like other states, North Carolina cut taxes during the boom by more than a billion dollars, and increased spending even more.

Cost of Medicaid for the poor was pushed up by double-digit increases in wholesale prices of prescription drugs and more liberal standards for paying benefits.

MIKE JAMES, OWNER PERSON STREET, PHARMACY: You know, we have probably 1.1 million people in North Carolina on Medicaid, so the numbers have raised, and then the individual prescriptions for those people has gone up also.

JACKSON: The state daycare program, which subsidizes Chrissy and Carly, didn't exist before 1993 but grew to $267 million last year, subsidizing one-third of the students at the Happy Face Preschool and even paying for new playground equipment. Owner Joyce Roberts says cutting now will hurt.

JOYCE ROBERTS, OWNER, HAPPY FACE PRESCHOOL: Some of the children that are enrolled here, what they're getting here is probably the best that they are getting.

JACKSON: Mike James's pharmacy may also be squeezed. He now gets $5.60 on top of his costs for each Medicaid prescription he fills.

JAMES: Now the legislature is looking at that, saying, We need to reduce that and take a less figure. And in North Carolina, we're talking about $4.

JACKSON: Liberals say there's no room left to cut. Tax increase is inevitable.

GERLACH: There have been tuition increases at our public universities. There have been cuts in a wide variety of spending, even some threats of closing down some of our mental hospitals. So I think the appetite for cutting is about exhausted.

JACKSON: Conservatives say the state just overspent.

JOHN HOOD, JOHN LOCKE FOUNDATION: When times were good, politicians got used to spending pretty much as much as they wanted and giving tax cuts to people to keep them happy. North Carolina had tried to be both a liberal big-spending state and a conservative tax- cutting state. And now we've got to decide which one we are.

JACKSON: A tough decision, one other states could be facing too.

Brooks Jackson, CNN, Raleigh, North Carolina.

(END VIDEOTAPE)

WOODRUFF: And that's a story we're going to keep an eye on.

Jesse Ventura is looking for some company, and he's hoping to find it in New Jersey. That story when INSIDE POLITICS returns.

(COMMERCIAL BREAK) WOODRUFF: Jesse Ventura says he is lonely being one of only two independent governors now serving in the United States. So the Minnesota governor attended a fund raiser in New Jersey today for independent gubernatorial candidate Bret Schundler. Schundler needs to raise about $130,000 more in order to receive taxpayer funding and to participate in two debates.

(BEGIN VIDEO CLIP)

GOV. JESSE VENTURA (I), MINNESOTA: Make sure he's in the debates, because at the point many people are going to say he doesn't have a chance to win. Well, they said that about me too. He can't win, is all we heard, that voting for a third party's a wasted vote. Well, I'll tell you what a wasted is. A wasted vote is not voting your heart and your conscience. Then you've wasted your vote.

(END VIDEO CLIP)

WOODRUFF: There are New Jersey Republicans who fear that Schundler may take votes away from GOP gubernatorial candidate Bret Schundler rather than from Democrat Jim McGreevey.

Checking some other headlines from the campaign trail, in the Virginia governor's race, a new poll shows Democrat Mark Warner leading Republican Mark Earley by 11 points among likely voters. With 10 weeks to go before the election, the "Washington Post" poll shows Warner is ahead in every region of the state.

And former attorney general Janet Reno says she is one or two weeks away from a decision on whether to run for the Democratic nomination for Florida governor. During a weekend appearance in Minnesota, Reno said education would be a major part of her platform if she seeks to challenge incumbent Jeb Bush.

We'll be back in a moment with an update on those fires spreading in Los Angeles County, California. We'll be back.

(COMMERCIAL BREAK)

WOODRUFF: These are the live pictures we've been showing you from southern California, north Los Angeles County. This fire burning out of control, according to a spokesman for the Los Angeles County Fire Department. It started about two hours ago involving just a few acres. It is now involving more than 200 acres. At least one home has been burned. There are more homes threatened, more than 200 firefighters on the scene.

And I'm quoting now a spokesman for the Los Angeles County Fire Department, who told anyone in their homes in this area to remain inside until fire crews can get there. The spokesman said many of the roads in the area just big enough for one car, and if people clog the roads, it could hamper firefighting efforts. He went on to say, "This is the perfect time of day for the winds and the heat to line up to make firefighting at its worst."

Firefighters say at this time of day, they're normally will be helped by burning, by the heat, the overhead sun, but it till it gets later on in the day, the firefighters are going to have their hands full. Again, quoting Ed Martinez, a spokesman with the Los Angeles County Fire Department.

We'll be back with INSIDE POLITICS in a moment.

(COMMERCIAL BREAK)

WOODRUFF: Once again, those fires in southern California, CNN monitoring that story. We will bring you up to date on whatever information we have. These are live pictures out of north Los Angeles County, more than 200 acres engaged. Over 200 firefighters fighting this, at least one home has been burned up completely. You can tell this fire is fast moving. Firefighters say it is out of control.

That's it for this edition of INSIDE POLITICS. I'm Judy Woodruff in Washington. "LOU DOBBS MONEYLINE" coming up next. And CNN will continue to monitor this story in California.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com

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