Panel OKs S&L; Rescue Funds, With Strings : Bailout: Congressional bill would provide $80 billion more, but on a controversial pay-as-you-go basis.

WASHINGTON —  A House panel Tuesday approved a bill that could provide $80 billion more for the savings and loan bailout, but through a controversial pay-as-you-go provision that is opposed by the Bush Administration.

The House Banking financial institutions subcommittee voted 20-16 to provide the Resolution Trust Corp. with at least $20 billion and as much as $80 billion. The agency has spent $80 billion and needs $80 billion more to finish the cleanup in two years.

But Deputy Treasury Secretary John E. Robson said he will recommend that President Bush veto the measure if it is adopted by Congress because it would disrupt the budget agreement worked out between Democrats and Republicans last year.

“We’re deeply disappointed by the action of the subcommittee and we want to get it corrected,” Robson said after the final vote for the package.

The bill recommends a deal between the President and Congress to pay for the thrift cleanup by raising taxes or cutting other federal programs. This method of raising $80 billion would “bust” last year’s bipartisan budget agreement with its strict spending limits, Robson said.

“If the (RTC) bill in this shape came out of Congress, I would certainly strongly urge it be vetoed,” he said.

Only one Republican, Rep. Thomas J. Ridge of Pennsylvania, joined 19 Democrats in approving the measure. Three Democrats and 13 Republicans opposed it.

Rep. Joseph P. Kennedy II (D-Mass.), who sponsored the pay-as-you-go amendment, said it would save the government billions of dollars in interest payments and force Bush and Congress to deal with the ballooning budget deficit, expected to top $350 billion in the fiscal year that began Oct. 1.

The amendment doesn’t require a particular method of financing the program, but it would instruct Bush and congressional leaders to devise a plan and submit it to Congress for approval.

“In order for the government to deal with the issue of the deficit, there has to be a stick over the head of the leadership, and this is a powerful stick,” Kennedy said.

The amendment, he said, forces Republicans to choose between supporting Bush or remaining true to their campaign rhetoric about fiscal responsibility.

Rep. Chalmers Wylie of Ohio, the panel’s senior Republican, argued that the amendment violated last year’s budget agreement between Bush and Congress.

That pact had exempted S&L; and bank bailout spending from pay-as-you-go restrictions that cover spending increases for other programs.

He said reaching agreement on how to raise $60 billion would be so politically difficult it would shut down the bailout program.

“I just think it’s impractical at this time. . . . I think it will be vetoed,” Wylie said.

In a statement, Robson called the bill “flawed and inadequate” and predicted that it would “delay the savings and loan cleanup and raise the costs to the American taxpayer.”

A last-minute motion by Wylie to strike the pay-as-you-go provision failed on a 16-18 vote. Four Democrats supported the Republicans, but two Republicans didn’t vote.

Another provision attached by Democrats, on an 18-12 vote, would require the RTC to sell at auction any property inherited from a failed S&L; and held by the government for longer than six months. Republicans said the agency should have the discretion to hold a property for a time to obtain a higher price.

The bill passed by the subcommittee somewhat streamlines the administrative structure of the bailout agency by severing it from its parent agency, the Federal Deposit Insurance Corp., and placing it under the direction of a chief executive.