FROM THE OFFICE OF PUBLIC AFFAIRS

Thank you for having me here today. It’s a pleasure to spend some time with the people who “safeguard the public purse!”

Every member of this group has weighty responsibilities, and I appreciate the goal of this organization to promote and encourage the highest ethical standards for its members.

Because when it comes to finance – whether it’s the public or the private sector – the element of trust is critical. And without ethical standards and honest behavior, precious trust is quickly lost, and very slowly re-gained.

We’ve seen that in recent years with corporate scandals and corruption, and we’ve made progress in reminding corporate CEOs and boards and others that no one is above the law.

Yours is a group that has helped in those efforts, and I want to thank you for what you’ve done to rebuild investor confidence, boost market confidence and protect shareholder value. Your voices are very important in this area, and we welcome your input and the example you set.

A key element in your jobs – and in mine – is always remembering that the money comes from the people, from their work and the sweat of their brow. The money in state and federal coffers it is not magically generated by the government. As long as we remember where it came from, we will always respect it.

Staying keenly aware of that fact is critical during the budget process. It’s also one of the things that makes it incredibly difficult.

As all of you know, there is never a shortage of demand for budget dollars. Our job as public officials is to “spend” those dollars responsibly.

I recently went to Congress to talk about and promote the President’s proposed Fiscal Year ’05 budget. One of my primary goals in doing so was to illustrate that the budget is a fiscally responsible one. It’s a budget that shows great restraint on spending the taxpayer’s money.

I know it may appear, to those of you who work in states where balanced budgets are required, that the federal government has a luxury when we are writing budgets. We aren’t required to be in balance, a situation that is sometimes envied by states that do.

I want to assure you that President Bush and I don’t see this as a luxury at all. We see budget deficits as an unwelcome problem – and one that must be fixed.

Is it true that we can live with deficits? Yes, but only if they are small enough to be manageable, to be reduced, to be paid down by a growing economy.

And that’s the situation we’re in today.

Our budget deficit is too large – any deficit at all is too large for my tastes. But the federal deficit is manageable, and we will bring it down, quickly. The President’s budget plan cuts the deficit in half over five years… which would bring it to a level that is historically low as a percentage of GDP.

Large and unwelcome as they are, the deficits are understandable. They are understandable in the sense that the President inherited a recession and an economy greatly weakened by the excesses of the late 90s. That situation required tax-cut incentives to give oxygen to the American economy through a very difficult period. And by the third quarter, those incentives were beginning to work.           

Then the unthinkable happened: September 11, 2001. It took the wind out of the recovery. Following the shock of the attack on our shores, we saw the continuing melt-down of the equity markets, the Nasdaq and the S&P – which had peaked in March of 2000. As a result, $7 trillion disappeared from the net worth of America. To put this in perspective, that’s an amount larger than the economies of the UK, France, Italy and Russia combined. It was a huge shock to our financial structure. The final blow was the corporate scandals which rocked investors' confidence in equity markets and in the system overall.

We also faced the necessity to secure the American homeland and wage the war on terror. We had to go after the Taliban in Afghanistan, and then Saddam Hussein in Iraq, all of which have taken their measure, their toll, on our economy.

Despite all of that, all of those incredible shocks, we came through it with only three quarters of negative growth and an economy now on a strong recovery path. It was the mildest and shortest recession on record.

But of course we’re not done yet. We need job creation and deficit reduction.

A couple of key factors must be held in place in order to shrink deficits: One, we must restrain federal spending. Two, we must not raise taxes… the tax cuts enacted by President Bush have stimulated our economy into recovery, and continued growth is necessary to increase Treasury receipts and therefore reduce the deficit.

The President’s budget holds all non-security-related federal spending to less than one percent growth. I think all of you appreciate that’s not easy to do. As I said before, there is never a shortage of demand for growth in spending. So the President’s budget demonstrates the kind of fiscal restraint that I have always promoted as a deficit hawk.

We also hope to encourage financial planning and savings among Americans. Family savings are at an all-time low, and encouraging savings through tax incentives will improve our economy as well – this is true for both state and federal programs, and I commend you for encouraging the people of your states to save for their futures.

We’re respecting the people’s money by keeping a close watch on outlays. But we still need to increase the Treasury receipts, and we’re looking to strong economic growth to achieve that goal.

We have every reason to be optimistic on the economic front, and I’d like to share some of that good news with all of you, because it impacts your budgets as well.

Just one year ago, the American economy was in a very different position than it is today. Then there was talk of a double-dip recession, with some commentators holding out the specter of deflation. Even those who saw the economy in pretty good shape characterized the recovery as at best wobbly, weak or anemic.      

Thanks to the actions which Congress took in passing the President's Jobs and Growth bill, the economy is now in a strong recovery, with a GDP growth rate of 6.1 percent in the last half of 2003 – the fastest six-month growth rate in nearly 20 years. Leading private forecasts are projecting growth of four percent plus for the 2004 year, well above historical growth rates.

Exports are up. The manufacturing sector is beginning to come back. The housing industry is very strong. Construction is very strong. Business confidence is up and business spending has rebounded. We are beginning to see some--too slow for the President’s satisfaction, but some--come-back in the labor markets.

By sustaining this growth going forward, I am confident that we will see good jobs pick up in the months ahead, as indicated by all the private sector surveys which indicate strong jobs growth over the course of the next year.

In light of all this progress, it is extremely important to make the tax cuts permanent. The cuts have been the lynch pin of the improving performance of the economy, and making those tax cuts permanent is the surest thing we can do to sustain the economy on a good, strong growth path for this year and for the years beyond. I am confident that if we do that, we are going to continue to have above-normal growth for the American economy for a good stretch of years ahead of us.

When I talk to business people and finance ministers from other parts of the world, those from Europe in particular, they are amazed and impressed that the United States' economy could have performed as well as it has in the face of the challenges, the shocks to the system that we saw in 2000 and 2001.

The reason our economy has performed so well is no secret: along with the resourcefulness and entrepreneurial spirit of the American people, our ability to recover and perform lies with the adaptability of our institutions, including the actions of the Congress in making sure that aggregate demand was strong enough to pull us through those rough spots.

Now it’s time to make those tax cuts permanent and let the strength of our entrepreneurial economy pull us forward.

The financial news in this country is really improving, and I believe it will continue to do so. I hope that our efforts to stimulate this great economy have helped out your state budgets, and I look forward to working in partnership with you as we let the tide rise, and lift all boats.

Thank you so much for having me here today, I hope you have a great meeting.