The MacNeil/Lehrer NewsHour

INTRO

ROBERT MacNEIL: Good evening. There was more news of the kind to gladden the heart of a president about to run for re-election: the lowest wholesale inflation in nearly two decades. We hear how Mr. Reagan plans to budget for election year. We also look at just how hard the administration wants to press the Soviets on charges of cheating on arms control. Jim Lehrer is off; Judy Woodruff is in Washington. Judy?

JUDY WOODRUFF: Also tonight, we report from some state capitals about the state of our states. We hear about waste in the federal budget from the chairman of a commission that just finished its search for wayward dollars, and we visit with a special woman and a remarkable journalist -- Peggy of the Flint Hills.Arms Treaty Violations?

MacNEIL: The government said today that wholesale prices,an important clue to inflation, almost stood still in 1983. Figures for the whole year were released today and showed that wholesale prices rose only .6% in 1983, the lowest in 19 years. White House spokesman Larry Speakes said, "The figures showed we are making substantial progress toward achieving a permanent lower rate of inflation." Another slightly surprising statistic out today showed a very small rise in retail sales in December, despite all the reports of a consumer spending spree over Christmas. Only rising automobile sales helped to boost December retail sales to a slight increase of .1%. For the year as a whole, retail sales were up by just over 9%. December also showed the slowest increase in factory output in 11 months. Taken with the retail sales, economists said it showed that the pace of economic recovery was slowing down.

Judy?

WOODRUFF: U.S. Marines at the Beirut airport in Lebanon came under heavy fire today. They responded with a massive barrage of rockets, mortars and tank cannons to beat back Moslem Druse militiamen. It was the heaviest attack on the base in a month, and it forced the airport to close down to civilian air traffic for one hour. There were no casualties reported there or in another shootout between French paratroops and Shiite Moslem fighters. However, two civilians were killed by Druse gunners and four schoolchildren were wounded when snipers fired at their bus, all in the Christian sector of Beirut. Meanwhile, the leader of the Druse forces, Walid Jumblatt, arrived in Moscow for talks with Soviet officials. News reports there said he accused Washington of gross interference in Lebanon.

In Damascus, U.S. Special Middle East Envoy Donald Rumsfeld met with Syrian President Assad for the first time. Assad, who had declined to meet Rumsfeld on his two previous visits to Syria, said before the meeting that peace in Lebanon cannot be established under the American gun barrel. After the meeting, the official Syrian news agency reported that Assad had told Rumsfeld that Washington could play a positive role in the Middle East if it took a neutral position in the Arab-Israeli struggle. Assad referred to what he called "Israeli and Zionist influence in the United States," saying, "It is the unrestricted U.S. support for Israel that encourages it to carry out aggression and exercise occupation." The Syrian leader called again for the withdrawal of Israeli troops from Lebanon before Syrian forces. Rumsfeld left Damascus tonight for an undisclosed destination.

Robin?

MacNEIL: More information came to light today about the downing of the American helicopter on the Nicaragua-Honduras border. The death of the U.S. pilot marked the first American combat casualty in the area, and brought a strong protest by Washington yesterday that said the pilot had been killed after his helicopter was forced down by Nicaraguan fire. The Nicaraguan government claimed the plane had been forced down while flying over their airspace in an area of frequent flights by helicopters supplying anti-Sandinista rebels. A United Press International reporter interviewed soldiers on both sides of the border. Nicaraguan soldiers said they continued shooting for a few seconds after the plane came down and three men got out. They saw one fall. Honduran soldiers observing from their side told the UPI that the Americans came out of the helicopter with their hands raised, and the pilot was gunned down. The Nicaraguan soldiers said the helicopter carried no markings.

Judy?

WOODRUFF: The Reagan administration plans to charge the Soviet Union with three major nuclear arms treaty violations next week. Officials in Washington, who did not want to be identified, told the Associated Press that a report will be submitted in its classified form to Congress and that an unclassified version will be released to the public. Officials say the report charges, first, that the Soviets are building a radar unit that could be part of an antiballistic missile system; second, that the Soviets are developing more new missiles than they are supposed to; and, third, that they are encoding too much technical data from missiles during test flights -- another way of saying they're scrambling their signals so that the Americans can't read them.

All three charges, if true, would be violations of one or both of the strategic arms limitation treaties known as SALT I and SALT II. Press reports also say the administration will charge the Soviets with violating chemical and biological weapons bans and breaching a limitation on underground nuclear testing.

The administration is making the report because Congress voted to require it last fall under pressure from conservatives who argued that the Soviets couldn't be trusted to observe treaties without some sure method of verifying their activities. Ironically, the release of the study comes as administration officials are saying publicly they want to see an improvement in the frosty relations between the two superpowers.

One of the congressmen most concerned about allegations of Soviet treaty violations is Representative Jim Courter, Republican of New Jersey. Representative Courter was briefed today on the administration report by the head of the Arms Control and Disarmament Agency, Kenneth Adelman. Congressman Courter is a member of the House Armed Services Committee and chairman of the Military Reform Caucus. Mr. Courter, did you learn anything today that changed your mind about Soviet cheating?

Rep. JIM COURTER: No. Basically what we learned today in the briefing, and obviously, what was said is still confidential; I've been counseled not to report on it. But basically I can say that it corroborated and reconfirmed in my own mind my deep-seated belief that there is a pretty long pattern of Soviet violations of strategic arms agreements, and that is basically not good news at all.

WOODRUFF: Did you learn anything new today?

Rep. COURTER: Well, we learned of the administration's position today. We didn't learn about new allegations. They did not talk about violations that we had not heard about before, but we did learn about the administration's position relative to the allegations, but obviously I'm not permitted to talk about that. It's my understanding there will be a public briefing sometime later in the week or next week or the week after.

WOODRUFF: Well, we just, of course, listed some of the violations that have been alleged. Would you add anything to that?

Rep. COURTER: Well, the ones that you mentioned are accurate in the sense that there's been a great deal of conversation, a great deal of talk about those. It's impossible for me to say at this time and confirm that those were the exact ones that the administration wanted to talk about. But there'll be no surprises with regard to the types of allegations that are reviewed by the administration. I think the significance of the fact that the administration is taking or will be taking a public position as to how it perceives the evidence to be -- whether it be strong or weak or how it may be.

WOODRUFF: Well, I'll get to that in just a minute, but on the violations -- how serious are they? Are they technical, are they substantive? How would you characterize them?

Rep. COURTER: Well, first of all I think it's important in my mind to say that even if the violations are technical they're important, because it seems to me if the Soviet Union would cheat with regard to that which is only technical, they would have a greater incentive to cheat in those areas where it has military significance. That's number one. Number two, you talked in your preliminary statement about areas that have massive consequences, that have very serious strategic consequences, such as the encription of telemetry -- that is the blocking of information so we cannot monitor their testing; the production and deployment of intercontinental ballistic missiles that are prohibited under the SALT process; the use of chemical weapons. These are very, very significant, if indeed they were violations, and the administration will soon publicize their feelings.

WOODRUFF: Well, what does all that say to you, that the Soviets just can't be trusted and that we shouldn't be in the business of signing treaties with them at all?

Rep. COURTER: No, it means to me that we should be as serious about compliance as we are about arms control. We should be as serious about monitoring and drafting treaties that can be clearly monitored as we are about the process. We should not be so concerned about rushing to an agreement with the Soviet Union. We should not genuflect the process, but we should be concerned about the security of the country. I believe we should negotiate, but we should negotiate clear treaties that are verifiable and whose compliance can be monitored.

WOODRUFF: Just how much do you think the administration is going to publicize these? As you know, in the past they have downplayed them, the alleged violations, and there's been every indication until now that that's what they were going to continue to do, even in the President's speech next Monday.

Rep. COURTER: I think regrettably the administration will continue to downplay it. I think they have been very matter of fact, very low key. Ken Adelman was not at all gleeful in his presentation.He was very matter of fact. I would urge the administration to tell more, and my position is, if the American people have been deceived, they should know about it, and therefore I would urge the administration to tell as much as they possibly can without jeopardizing, obviously, the security of the country and the technical means we have of gaining this type of information.

WOODRUFF: All right, thank you, Mr. Courter. Robin?

MacNEIL: For another look at the alleged Soviet violations and their impact on U.S.-Soviet relations, we have John Steinbruner, director of foreign policy studies at the Brookings Institution in Washington. He's written extensively on arms control and U.S.-Soviet issues. Mr. Steinbruner, do you think the administration should make a public fuss over these alleged allegations?

JOHN STEINBRUNER: No, I don't think so. First of all, I have not seen the documents, so I don't really know what evidence is in it, but usually the public evidence is very close to what actually the government knows. On the basis of what we know in public about these episodes so far, they really sort into two categories: the ABM radar does appear to be on track, to be a clear technical violation. However, it's not yet completed, and until it actually operates it will not be a violation. But that's a very, very clear problem. The others are areas of real ambiguity -- ambiguity in our measuring and identifying what, in fact, is happening, and some ambiguity in the actual meaning of the treaties. So the one clear case is not yet a violation. It simply is clearly on the way. And the others are too ambiguous to really support full allegations.

MacNEIL: How do you think the administration should handle its knowledge of these incidents or this behavior?

Mr. STEINBRUNER: Well, I think that they should handle it in the diplomatically established way, which is to take the episodes to the standing consultative commission, which is a body of U.S. and Soviet representatives that meets to discuss them, and to essentially exhaust that process before they try to appeal to public. I don't think that process in fact has been exhausted.

MacNEIL: Why shouldn't the administration do as the Congressman suggests and tell the public, if the Soviets have been cheating, all they know about it?

Mr. STEINBRUNER: As a practical matter I think that the public has been told most of what we know about it, and certainly there will -- you know, there will be a document that reveals most of the evidence [unintelligible] kind of conclusions that can be reached. I don't think we have a problem in this country of not enough information coming out in public. By and large the public does know, if they care to read the newspapers.

MacNEIL: Do you believe that efforts by the administration, repeated by Secretary of State Shultz yesterday, to improve relations or to make a thaw, as he put it, with the Soviets would be jeopardized by publicizing and making much of these alleged violations?

Mr. STEINBRUNER: As far as the Soviets are concerned they certainly would be, and in all probability will be. The Soviets, as we know, have become very skeptical about the sincerity of the President when he talks about his interest in arms control and improved relations. So actions that allege violations and stir up public controversy about that are going to be treated as a signal of nefarious purpose by the Soviets.

MacNEIL: Well, to look at it the other way around, if the Soviets are cheating on agreements, should the United States be sweeping them under the rug so as to curry favor and achieve better relations?

Mr. STEINBRUNER: Certainly not. We shouldn't sweep any violations under the rug. Frankly, I don't think there's any danger that we'll ever do that. Our political process is acutely tuned to the issue of verifying these treaties and to determining any Soviet violation. We're deeply suspicious of them and we work very hard on establishing evidence where it seems that they may have transgressed. So I don't think there's any danger that we will do too little in that regard.

MacNEIL: Do you think the fact that the administration, under some pressure from conservative congressmen last fall, has produced this report, which was referred to earlier, is in itself going to damage the effort to improve relations?

Mr. STEINBRUNER: I think it's inevitable that this information come out and that conservatives who are particularly concerned about this will make a major public issue of it. I think the administration does risk doing serious damage, not simply because of this report but where it comes in the sequence of their interactions with the Soviet Union. It comes after a long series of very harsh actions, and it will be interpreted in that context, and it is going to send a signal, whether they like it or not, of a desire to stand in a rather confrontationalist posture against the Soviet Union.

MacNEIL: Thank you. Judy?

WOODRUFF: Mr. Courter, do you agree with Mr. Steinbruner's statement that putting this information out could do real damage to U.S.-Soviet relations right at a time when we're supposed to be trying to --

Rep. COURTER: No, I don't think so, Judy. I don't think there's a really good time to talk about violations. One can always say it's too early in the administration and therefore we'll poison the possibility of having good relations with the Soviet Union; it's too close to elections; it's just not appropriate. It's always awkward to talk about potential violations of arms control agreements. But I think you're dishonest if you withhold the information. We have a democracy in this country. A public policy is important to be determined after public debate, and that debate, I think, is impossible unless the facts are on the table.

WOODRUFF: Well, Mr. Steinbruner has just said, though, that most of the information in this report is pretty much already out, that the public already knows about it.

Rep. COURTER: Well, I think the public knows a little bit about some of the things, but I think it's important to, from an official standpoint -- it seems to me that people have read bits and pieces about allegations in the Wall Street Journal, The New York Times or The Washington Post, but there has not been an official administration position documenting the violations and, from a substantive standpoint, from an evidentiary standpoint, saying, "We conclude thus-and-so based on this information." I think there's a significant difference there, and that's what I would urge the administration to do. What is fearful about knowledge? It seems to me that we should have as much as we possibly can.

WOODRUFF: Mr. Steinbruner, what about that?

Mr. STEINBRUNER: Well, I do agree that the public should be involved in these issues, should know about them and should debate them. But what's going on here is a little bit more than that. The administration is going to the brink of making charges of violations and giving it some official stature before, I think, they have exhausted the normal dipolmatic means of establishing whether or not those violations have occurred. And, in fact, my own reading of the public evidence is that most of the allegations of violations are ambiguous. It is impossible to conclude it absolutely. And the one exception is something that is on track to being a violation but is not yet so; this is the ABM radar, until it actually operates, which will not be for several years if the public accounts are accurate. So that gives them a lot of time to sort that issue out.

WOODRUFF: All right, Mr. Courter, then, two points. Number one, what about Mr. Steinbruner's point that most of these allegations are really ambiguous?

Rep. COURTER: Well, I disagree entirely. I think a lot of them are quite clear. There is disagreement, and people will dispute. And there's different levels of confidence in the information. But I think if the public knew the same things that we in Congress are privy to, the same information, they could clearly draw and discern for themselves the level of confidence that they want to place on it. What I am suggesting here is the fact that, in my mind, it's totally clear that the Soviet Union has been engaged for a long period of time in a consistent pattern of violations, and that infornation is important to give to the public. I disagree with John in the sense that I think the evidence is quite clear.Clearly the treaties are ambiguous by their nature.

WOODRUFF: All right, and then what about his other major point, that we haven't exhausted all the diplomatic channels, that we haven't used the standing -- so-called standing consultative committee?

Rep. COURTER: We should at the same time bring our grievances, as we have heretofore, before that committee, but I think it's important to go beyond that. I think when you're looking at a history of -- as far as I'm concerned -- 35 to 40 years of violations, some with a great deal of confidence, some less, some more recent and some old, some being technical and some having a massive impact on the security of the country, you have to do more than just bring it to a consultative committee.

WOODRUFF: So he's saying diplomatic efforts are just not enough in this case.

Mr. STEINBRUNER: Well, I mean -- I agree with him that there must be a public discussion. It simply is not an issue that can be handled in private diplomatic channels only. I would disagree that there are violations that have had a "massive impact on our security." The allegations are not of a violation which gives them a military capability substantially greater than they're permitted to have.

WOODRUFF: Do you agree with that?

Rep. COURTER: No, I don't. I think they potentially can. If within the next two or three years, if the phased-ray radar, the ABM radar, is deployed, that perhaps could give them the capability of breaking out and having an anti-ballistic missile capability, which would totally alter the balance of power between the two countries. For one example, and I could go on, I think --

WOODRUFF: Let me just ask Mr. Steinbruner --

Mr. STEINBRUNER: Well, I think this is the most important example, and there are people who do worry that this radar may give them some ABM capability. I think it's fair to say that most technical assessments of that radar and its potential indicate that it gives them an early warning capability, which is legitimate. The positioning of it is not where it ought to be, but the function is accepted. And that it does not give them the other kinds of capability -- what is called battle management -- that would be prohibited by the treaty. Now, there will be disagreement about this. I'm just saying that most people consider this radar to be only a very marginal development in terms of military significance.

WOODRUFF: All right. Well, we'll be hearing much more about this issue next week. Thank you both for joining us. Robin?

MacNEIL: For only the first time in the history of the nuclear power industry, a review panel of the Nuclear Regulatory Commission has rejected an application for an operating license at a new power plant. The commission's Atomic Safety and Licensing Board turned down an application from Commonwealth Edison for a $3-1/3-billion plant near Bedford, Illinois. The board said Commonwealth Edison had a very long record of noncompliance with the commission's requirements. The company had planned to begin loading uranium into the plant next July and start generating electricity at the end of the year.

And we will be back in a moment.

[Video postcard -- Pigeon Forge, Tennessee]

MacNEIL: In Brussels, the European Common Market announced today that it will retaliate against American restrictions on buying European specialty steel by putting restrictions on the purchase of a number of American products. The decision means the 10-member Common Market will impose tarifs and quotas on chemicals, plastics, alarm devices and sporting goods made in the United States. That will affect an estimated $130 million a year in American exports.

Judy? State of Our States#TWOODRUFF: Today's good news that wholesale inflation has slowed down gave President Reagan a chance to crow a little about improvements in the economy under his stewardship. He was speaking to a group of 85 Republican elected women officials who were invited to the White House.

Pres. RONALD REAGAN: Now, I remember when our critics were insisting that our tax cuts would make inflation and interest rates soar, but just the opposite has happened. And of course we know that factory orders, retail sales, housing starts are up; the stock market has come back to life; and the American workers' real wages are rising, and that's the first time that that's happened in a few years. Unemployment is still too high, but it's dropping fast. Last year more than four million Americans found jobs. It was the steepest 12-month drop in unemployment in more than 30 years. Today, less than three years since we set our policies in place, our nation has one big program to help every American -- man, woman and child. It's called economic recovery.

WOODRUFF [voice-over]: When asked about the contents of his State of the Union message, the President said he would stress one of his favorite themes.

Pres. REAGAN: We will be talking about our program for the future and the deficits and how to control them. And I think the deficits are caused because the government is taking too big a share out of the general or the gross national product, out of the private economy, and government has got to be cut back to size.

WOODRUFF: It's traditional at this time of year in Washington for there to be a guessing game about just what the President is gong to do in his budget proposal, especially in an election year, when the budget becomes as much a political statement as a fiscal or economic one. In recent weeks the newspapers have been filled with stories speculating about whether Mr. Reagan would decide to raise taxes and how much he would try to cut back in federal spending, with the consensus growing that he probably wouldn't do much about either. Here to shed some light on what decisions the President may make is Paul Blustein, reporter for the Wall Street Journal. Mr. Blustein covers the economy in Washington, and he's been following the Reagan budget story.

Mr. Blustein, has the President pretty much ruled out a tax increase, as we have been reading?

PAUL BLUSTEIN: I think he pretty much has. Theoretically he could change his mind over the weekend, but he would have to -- I think he would have to have some sort of vision that would lead him to suddenly decide that he ought to have a tax increase after all. Effectively the decision is made.

WOODRUFF: So that includes even the kind of contingency tax increase that he had proposed in last year's budget?

Mr. BLUSTEIN: That's right. There'll be some relatively small revenue-raising measures in the budget, but those really won't diminish the deficit by very much over even a period of five years.

WOODRUFF: Isn't that going to make some of his very top advisers unhappy? I mean, we've heard that both David Stockman, the budget director, and Martin Feldstein, who is the chairman of the Council of Economic Advisers, have been pushing the President to raise taxes?

Mr. BLUSTEIN: Well, they definitely have. I mean, I guess you could say that they've lost the battle to Treasury Secretary Don Regan, who is pushing the President very hard not to have any kind of specific tax increase in this budget. That's true.

WOODRUFF: What about the budget cuts? I mean, has he made his final decision, say, on the defense budget?

Mr. BLUSTEIN: Yes. He's proposing about a $33-billion increase in the defense budget for fiscal 1985, which begins next October 1st. He's also made some decisions to pare back domestic spending, which he considers to be the big bugaboo, the big problem with the budget -- a rather small amount.

WOODRUFF: And those were what? We were reading last week, what? six-eight billion dollars in domestic spending cuts?

Mr. BLUSTEIN: Yes, that's for fiscal '85, and that's out of a total spending of about $930 billion, which really isn't much of a cut at all.

WOODRUFF: Well, now, some of the most publicized cuts, we had heard, were in the area of Medicare, but it's our understanding that today there may have been some changes in the decision to cut back on Medicare.

Mr. BLUSTEIN: I've heard the same thing, that the President's decided to retreat on and even not cut. I think that's right.

WOODRUFF: So are you saying, in effect, that really the President isn't going to do very much at all about this $200 -- huge $200-billion deficit?

Mr. BLUSTEIN: Well, he's going to kind of go to the American people and ask for an electoral mandate to cut spending. He's not going to really tell us how he proposes to do that once he's re-elected. I suppose you can argue that that's fair because probably a lot of his Democratic opponents, specifically Mr. Mondale, are -- well, they've also been criticized for not getting too specific about how they'd cut the deficit. But I think in fairness to the President, his argument, or that of his political advisers, is that he wouldn't be able to get much out of Congress this year, it being an election year, anyway. So he's decided that he'll essentially take a bye on the deficit this year.

WOODRUFF: But for political reasons? I mean, because he thinks he can get away with it?

Mr. BLUSTEIN: Essentially, I would say so. I mean what -- the news you were recounting before about how good the economy is, I think, is going to be his -- that's his trump card. He can point to all this progress we've had, economic recovery and so forth, and although he'll suffer some political damage as a result of the Democrats accusing him of being fiscally irresponsible, essentially he'll -- he should be in great shape politically.

WOODRUFF: And what about Wall Street? What will their reaction be? I mean, if the deficits are not trimmed very much?

Mr. BLUSTEIN: Well, I think if we were going to see any sort of reaction from Wall Street about this we would have seen it by now.I mean, the word has been out for several days now that the President wouldn't consider any sort of tax increase. I think Wall Street had assumed, even before all this news, that there probably wasn't going to be any major deficit reduction action this year, so there probably isn't much danger of the stock market falling out of bed or the bond markets falling out of bed. Again, he's probably pretty safe there. I think the risk, though, is that as the economy picks up steam in the second, third, fourth quarter -- well, second and third quarter of this year, that interest rates could begin to shoot up, or if the dollar falls precipitously, that, for a whole bunch of complicated reasons, could also make interest rates shoot up, and that would -- people would point to the deficit as the cause of that, and there would be a lot of point to it.

WOODRUFF: In fact, we had a quote today from Paul Volcker, the chairman of the Federal Reserve,who said that this huge deficit is standing in the way of interest rates coming down. One other thing. What about this budget commission that we're now hearing about? What would that accomplish if the President decides to -- what is it?

Mr. BLUSTEIN: Well, it wouldn't accomplish much this year. The President's advisers have urged him, in the absence of any concrete action that he's going to propose this year on the budget deficit, that he ought to consider appointing a commission that -- and the exact shape it would take, and even, in fact, whether he would appoint a commission, hasn't been decided yet. But there are a variety of forms that are being considered. One would be, you'd have a commission that would consist of a lot of heavyweight political types -- people in Congress and so on of both parties. There's talk that it might just be a lot of former government officials, former budget directors, people like that, but --

WOODRUFF: But the upshot would be --

Mr. BLUSTEIN: A lot of talk and no action, until after the election.

WOODRUFF: All right, thank you very much, Mr. Blustein, for being with us. Robin?

MacNEIL: Whatever Mr. Reagan may be planning for the 1985 budget, across the nation the individual states are still living with the consequences of earlier Reagan budgets and Reagan economic policies. A year ago most of them were in serious financial trouble. Today that has changed, in almost every case for the good. This is the time of year when governors make their state of the state reports. Since few are ever heard outside their own states, we thought it would be interesting to sample some state capital rhetoric this year. We first hear from California, where a year ago the unemployment rate was 11%, and that state was facing a $1 1/2-billion budget deficit. Today, unemployment is 7.9% and the budget is balanced. Governor George Deukmejian proudly pointed to the economic rebound in his state of the state speech.

Gov. GEORGE DEUKMEJIAN, (R) California [January 10]: Last year I reported to you that the state of the state was not very good. Today I'm very pleased to say that with your help, with the support and the confidence of citizens across this state, with the use of good common sense, that I'm pleased that I can say to you today that the condition of the state is much better.

When we gathered here last January our chief concern was saving the state from insolvency. Our challenge was to pay our bills and to be able to close a projected $1 1/2-billion deficit. I appreciate the bipartisan support that I received last February to give my 18-month fiscal rescue plan a chance to work. Well, it has worked, and by June 30th, the last day of this fiscal year, we will have our balanced budget. We will have paid off the deficit, increased aid to public schools, and we will have done it without raising the general taxes of the people.

MacNEIL: In the nation's second-largest state, New York, Governor Mario Cuomo also pointed proudly to the state economic rebound and to increased state spending on social programs.

Gov. MARIO CUOMO, (D) New York [January 4]: In 1983 we saw this state's government, I think, at its very best, preserving political differences but finding the subtlety and the intelligence and, indeed, even the strength to make principled compromises.And so an immense potential budget gap was closed. We balanced the budget on time for the first time in years without increasing our broadbased major taxes and without harming our business client. And we did it without denyingour basic obligation to those people who are unable to care for themselves -- the elderly, the homeless, the retarded, the victims of AIDS. Everywhere that people needed help, more help was indeed given.

MacNEIL: Despite a general trend of improvement, not every state is doing better. One in particular, Oklahoma, has gone from a balanced budget a year ago to a projected budget shortfall of some $150 million. Declining oil prices and the collapse of domestic petroleum production have led to the state's current budget crisis. Governor George Nigh pushed for new taxes to keep from cutting the state's education budget.

Gov. GEORGE NIGH, (D) Oklahoma [January 3]: Does anyone today really believe that God meant for Oklahoma to always have average as its goal? Jack Durland, the former president of Cain's Coffee, wrote that when you are average you are simply the best of the lousiest or the lousiest of the best. Is the goal of Oklahoma to be average? Is the goal of Oklahoma in education to be average? Do the parents of some 606,000 grade school and high school and junior high -- mid-school -- students each day send their 606,000 Oklahoma public education students off to school to learn how to be average? Almost 400,000 students that attend public education in Oklahoma should never be satisfied with the goal of being average, but should always strive for excellence.

I don't know about you, but for my kids I want the best. I know that you also and those of you in Oklahoma also across this state in all 77 counties want the best for your kids. Perhaps you and I didn't learn what we needed to learn; we don't know what we need to know, and it may be too late for us. But it's not too late for those who are coming behind us. No more excuses. Let's put our kids in first place in Oklahoma.

MacNEIL: Oklahoma isn't the only state considering new taxes. Several states that want to increase funding for education are also proposing tax hikes. One is South Carolina, where Governor Richard Riley chided the state legislature for its spending record.

Gov. RICHARD RILEY, (D) South Carolina [January 11]: For years you and I have talked about our support for public education, yet we have never given that support real meaning with the resources necessary to insure quality. The simple truth is that for years test scores in our public schools have trailed the national average. The simple truth is that we rank at or near the bottom in educational funding. We spend less per pupil than every other state save one. We also pay teachers less than most other states, and that gap widens with each passing year.

If we as a state say by our actions that education is not important, and we are saying that our children are not important today and that their futures are not important tomorrow, we're sending them into the world, you see, to be the victims of change.

MacNEIL: Support for education was, in fact, the single most popular theme of governors' addresses this year. Typical were the speeches given by the governors of Iowa and New Jersey.

Gov. TERRY BRANSTAD, (R) lowa [January 10]: Few issues present us with as good an opportunity to measure our progress as does education. My colleage, Lamar Alexander, the governor of the state of Tennessee, and a real champion for quality education, stated in a public forum in DesMoines last fall that his goal was to see his state of Tennessee where Iowa is today in terms of educational excellence. All of us can take pride in Iowa's educational system. But we should always seek ways to improve that system. With other states following Iowa's pace, we cannot be satisfied with the status quo. We must stay ahead of the curve, and we will.

Gov. THOMAS KEAN, (R) New Jersey [January 10]: For far too many years higher education has been relegated to the bottom of New Jersey's list of priorities. As you look back in budget after budget after budget, higher education has been asked to stand in line behind all the other departments. This policy has been foolish, and if it were to continue, it would severely damage our state's future. The relationship between new Jersey's economic well-being and the quality of its system of higher education is indisputable. To attract students, we must be able to attract jobs. To attract jobs, we must be able to attract students.If we are to prevent New Jersey's best minds from being lured out of state we must strengthen the bonds between higher education and private industry.

MacNEIL: A taste of the state of the states.

While most governors are looking for more money to spend this year, President Reagan is about to be advised on how to cut costs. On Monday the President will receive a report claiming that the federal government is run horribly and making sweeping suggestions on how to change it. Charlayne Hunter Gault has more. Charlayne? Wayward Federal Dollars

CHARLAYNE HUNTER-GAULT: The report is indeed critical. Prepared for the President by a group of private-sector businessmen, it found both the federal government and the Congress laden with inefficiency and headed for trillion-dollar deficits if spending isn't controlled. But it also makes cost-savings proposals. It said that if the recommendations are not heeded by the year 2000 the deficit would reach nearly $1,966 billion. The deficit is now $195 billion. If the recommendations are heeded the commission estimates that the deficits by the year 2000 would be only $37 billion. For taxpayers that would mean a savings of $1,929 billion.

Almost no department was spared. The largest area of savings would come in federal assistance programs like Social Security. The proposal is to treat all federal benefits as taxable income, a savings of $58.9 billion over three years. Bringing federal retirement plans more in line with the private sector would save an estimated $58 billion. Improving the Defense Department's purchases of weapons and machinery would save $44.8 billion. Capping federal health programs like Medicaid and Medicare could add up to some $28.9 billion. By turning over to the private sector programs like the subsidization of hydroelectric power would save some $28.4 billion. Smaller-ticket items include tightening up the federal sick leave policy, adding soybean extenders to ground beef in school lunch programs, and eliminating all military commissaries.

The man at the helm of this 2,000-person, two-volume report is J. Peter Grace, chairman and chief executive officer of W. R. Grace and Company, a chemical, natural resources and retailing company. Mr. Grace, did you find any surprises when you went through this study?

J. PETER GRACE: The biggest surprise was the fact that the computer systems throughout the entire government -- and they amount to over 17,000 -- were obsolete, and due to that fact there is a huge information gap. Masses of data, but no pertinent information.

HUNTER-GAULT: And the fact that the government, in your terms, was really run "horribly," was that a big surprise to you?

Mr. GRACE: It was a big surprise, not that it was run horribly, but they didn't have the information to stop the horribleness.

HUNTER-GAULT: Is there any branch or department that was worse than any other?

Mr. GRACE: I think the whole system of the HEW, where they have this huge budget and all these recipients.

HUNTER-GAULT: Excuse me. That's Health, Education and Welfare.

Mr. GRACE: It is. All these recipients -- and they have no idea how many recipients receive -- are the beneficiaries. First place, we could not find out in Washington how many social programs there are. We finally found there are 962 of them and, of course, the number of recipients runs up into 80, 90 million, but they don't know how many. They don't know how many are duplications. So you have massive waste and massive lack of information.

HUNTER-GAULT: But you also recommended targeting subsidies for people whose programs would be operated out of that department, like the poor and the elderly.

Mr. GRACE: We've recommended something like W-2 forms so that everybody can be traced, just like on taxes. As a matter of fact, if the computer situation was adequate, you never would have had to have this legislation which temporarily, and was knocked off the book in two months, temporarily put on withholding of interest and dividend payments, and it went off because there was so much objection to it. That wasn't needed, because if you had proper computer programs you could identify all that.

HUNTER-GAULT: You also recommended eliminating congressional pork barrels, without naming any of the congressional porkbarrelers. Does that have anything to do with the fact that you need the support of these people in order to get this program through?

Mr. GRACE: Not really, because nobody -- there's nothing in that report that wasn't generally known. It's just the sum total, putting it all together in one report -- it's 300 pages. When we originally wrote it it was 800 pages and we had 300 names there of representatives and senators. When we reduced it down to a workable size it was 300 pages and only 100 names, and we didn't think it was fair to name 100 and leave 200 who were doing the same thing out of it, so that's the [unintelligible] of that.

HUNTER-GAULT: But hasn't Congress already failed to act on similar proposals in the past, like reducing federal pensions? I mean, and now you've got an election year.What makes you optimistic that you're going to get a receptive hearing in the Congress?

Mr. GRACE: Well, I have a long sense of history, number one. I never worry about anything over one year. And I feel that since the economic forecast as such, no matter where you look, these deficit, because of revenues grow slower than the outlay, have to double every five to seven years. So the 200, 400, 800 [unintelligible]. No way they won't reach into the trillions in the '90s. So all we're doing, since the President asked us, tell us how we can save money. We've outlined 23,000 pages of savings, and whenever they want to adopt them, God bless them.

HUNTER-GAULT: But you do agree that this might be a difficult time to start doing something --

Mr. GRACE: Oh, yes, very difficult time for them, and maybe by the next election, if we can get this out around the country, it might be a very difficult time for them if they don't do it.

HUNTER-GAULT: How do you answer critics who say that the commission really strayed from its mandate of looking at and coming up with ways of cutting waste and got into making radical policy changes and going in policy areas like cutting federal domestic spending and so on?

Mr. GRACE: Well, my answer to that is the President said, "Pretend that you're going to merge with these departments and agencies and look at everything you'd look at if you were going to make a merger and find and root out inefficiency and waste just like hungry bloodhounds." He said that publicly. And my attitude is, yes, Mr. President. Waste is waste. I don't care whether you call it policy or what you call it. It's waste, and the median family tax in this country is $2,218, up from $9 in the late '40s. Multiply it by five to put it in '83 dollars. That's $45 to $2,200. Millions of families out there across the family paying these huge taxes, and they're talking about raising them again. They don't have to raise taxes if they do this, and I think the American people will be interested in that fact.

HUNTER-GAULT: Critics like Ralph Nader and his public interest group have charged that the commission with conflict of interest, saying, for example, that you put --

Mr. GRACE: What was that conflict? I'm still trying to find out what it was.

HUNTER-GAULT: Well, we called and asked him and he said, for example, putting people from chemical companies in charge of looking at the EPA and coming up with a recommendation that would defer standards for cleaning out polluted waters.

Mr. GRACE: Is that what he said?

HUNTER-GAULT: That's what he said.

Mr. GRACE: That's interesting because the top man on that commission was Ben Love, who was one of the top bankers in Houston, a man, probably one of the most widely respected men in Texas. And no way was there any conflict of interest. I still want to hear what recommendation in any way could help any chemical company.

HUNTER-GAULT: Well, for example, this one in which he says that the standard dealing with water pollution was delayed for a decade. That's the recommendation. And that that would redound to the benefit of a chemical company.

Mr. GRACE: How would it redound to them? I'd love to hear it.

HUNTER-GAULT: That they wouldn't have to implement it.

Mr. GRACE: Oh, I see. And how much would that save them?

HUNTER-GAULT: I don't have any idea.

Mr. GRACE: No, I don't know, and I don't think Mr. Nader does, too. He's reaching --

HUNTER-GAULT: You're saying he's wrong.

Mr. GRACE: These fellows have to do that. They always have to say something. You come up with $424 billion in savings over three years, $1.9-trillion saving over 17 years, no increase in taxes for anybody, and somebody -- they always got to attack you, but I'm still waiting for the specifics. And I'll look into that recommendation. We made 2,478 recommendations. That's a very small recommendation. I'll look into it. I'm certain that there's nothing there because the management office that we had during the entire period of the investigation was in there looking for exactly what Mr. Nader is talking about, and I'm sure that nothing went through that net.

HUNTER-GAULT: Mr. Grace, we have just about 30 seconds left. I'd like to ask you if the President has told you that he plans to incorporate any of these recommendations into his own policies and legislation any time soon?

Mr. GRACE: If he told me that?

HUNTER-GAULT: Yes, sir.

Mr. GRACE: What is the question? Would I --

HUNTER-GAULT: Does the President plan to take your recommendations and put them into this --

Mr. GRACE: Oh, I have no idea. We only have -- we're not giving it to him until Monday.

HUNTER-GAULT: Do you have any idea that he might accept them and --

Mr. GRACE: I think he'll say, "We'll study them." In fact, I know theyare studying them. They have a Cabinet council that is doing all kind of work on them, and they've already implemented 85% of the few reports they've looked at.

HUNTER-GAULT: All right, Mr. Grace, thank you.

Mr. GRACE: Thank you.

HUNTER-GAULT: Judy?

WOODRUFF: A day of waiting and uncertainty for convicted murderer James Hutchins ended tonight with more waiting. Hutchins had been condemned to die in North Carolina for the shooting death of two sheriff's deputies. He had been sentenced to die today, but made one last appeal to the U.S. Supreme Court. Late this afternoon the Court turned down his appeal by a five-to-four vote. But under North Carolina law, a new execution date must be set once a condemned prisoner is granted a stay of execution, even if that stay is later denied, as was the situation today.

For the second time in five months, former TV anchorwoman Christine Craft has won her case in court. Today a federal jury in Joplin, Missouri, agreed with Ms. Craft that her former employers at a TV station in Kansas City operated fraudulently when they told her they were hiring her for her journalistic talent and not for her personal appearance. Ms. Craft was demoted from her job as a news anchor more than two years ago because her bosses said they didn't like the way she appeared on the air. Last August a jury awarded her half a million dollars after she took her former employer, the Metromedia Corporation, to court. However, a federal judge threw that verdict out saying it was excessive, and ordered a new trial on the fraud charges. Today the new jury of seven women and five men sided with Ms. Craft and awarded her a total of $325,000 in damages.

We'll be back in a moment.

[Video postcard -- Swinomish Slough, Washington]

MacNEIL: Again, these were the main stories of the day.

Government reports said the economy had the lowest inflation rate, as measured by wholesale prices, since 1964, along with major gains in retail sales and factory production.

The European Economic Community decided to strike back at American restrictions on imports of European specialty steel by imposing tariffs and quotas on American chemicals, alarm devices, plastics and sporting goods.

And Beirut saw its worst day of fighting in several weeks as Moslem militiamen shelled the Christian quarter and fired on American Marines, French paratroopers and Lebanese soldiers.

Those were the big stories today, but before we go we'd like to tell you about a newspaper writer who probably won't mention any of them in her column tomorrow. Charlayne Hunter-Gault has more. Charlayne? Peggy of the Flint Hills

HUNTER-GAULT: Some 50 years ago the Pulitzer Prize-winning journalist William Allen White paid a compliment to one of his colleagues. "It's people who look at things like Peggy does who really make this life worthwhile," he wrote. "A pair of eyes like Peggy's," he said, "are worth far more than a college education or a trip around the world."

The columnist White was referring to back then has long since been a journalistic institution in Kansas. She is Zulu Bennington Greene, but since she began writing in the Flint Hills of Kansas more than 55 years ago, she has been known to her readers as Peggy of the Flint

ZULU BENNINGTON GREENE, "Peggy of the Flint Hills": I don't think of myself as a prairie writer. I just think of myself as a writer without any special definition except my own self and my own feelings.

HUNTER-GAULT [voice-over]: At 88, Peggy of the Flint Hills is still writing six columns a week and still sprinkling the Kansas landscape with her special brand of Flint Hills wisdom. Among some of her more memorable lines, "Monogamy is like a cook's stove -- something invented by men for women." And, "It's hard to decide whether it is better to be a writer and have to know how to spell or a radio announcer and have to know how to pronounce." The folks of Kansas have always let it be known that they were glad Peggy chose to master spelling. Hundreds of fans, for example, showed up when the Topeka Capitol Journal threw a party this fall celebrating Peggy's 50 years with the paper.

1st READER: She writes with feeling. She covers a whole spectrum of writing, from little things, small people, great people.

2nd READER: She says what we all think and feel, and does it so well.

3rd READER: She's almost as much of a legend out in western Kansas as she is here in Topeka, and I found in my travels in Nebraska, in Missouri, they know Peggy of the Flint Hills.

PEGGY: I've been pleased that I'm writing a column about all kinds of things I want to write about. A good many columnists are political columnists or cooking or fashion or something of the type, but I've always written about anything I wanted to write about. It could go from the baby's tooth to the sunrise or something doing -- a woman, maybe, or a man who had been 100 or more years old, or a public matter such as maybe prohibition or taxes. Before I ever came to Topeka I was writing about women more and their right to do anything they pleased, you know. I grew up with a feeling of equality, and I wasn't really militant in speaking about women when I was -- because it was just my natural feelings about them.

HUNTER-GAULT [voice-over]: As a young woman growing up on a farm in the early 1900s, Peggy's impulse to write overcame the biases of her day.

PEGGY: There's nothing much that a woman did then except teach school, so I saw myself as a school teacher and I didn't think of writing as any paying career, but just something I would like to do. And, of course, I always thought I would marry. That's what everybody aspired to; that was the expected, you know. But I always wanted to write, and said I would write.

I think there's a feeling of people that journalists are maybe a little smart-alecky people that -- first, people have deferred a great deal to journalists. When you say, "She writes for the paper, he writes for the paper," that's a kind of a -- was kind of a sacrosanct thing, and I have a feeling maybe that journalism, journalists have presumed on that a little bit.

GIL STUENKEL, editor, Topeka Capitol Journal: I think her columns provide something for our readers that maybe they don't get in some other newspapers. Peggy is able to find relevance and importance in everyday events, things that people usually overlook as trivial, but she's able to point out how these things do matter. She talks to people. Just ordinary people. And, the way she writes about them, they're not ordinary. They're special.

HUNTER-GAULT [voice-over]: Whatever is in the news, it's going to be fair game for Peggy of the Flint Hills. A collection of her articles called Skimming the Cream, has just been published, and she is now laying the groundwork for still another.

PEGGY: I have never thought of retiring. I haven't wanted ever to retire and to stop writing a column. In fact, I've jokingly said to my friends I'd like to drop dead over the typewriter, but not right away. A long time in the future.

HUNTER-GAULT: Whether Peggy of the Flint Hills retires or not, she has already established her legacy. Like this observation she made during the Depression: "An old woman who had never had much was seeing the ocean for the first time. She sat down and folded her hands and looked at it. 'It's the first thing I've ever seen that there's enough of.'" Judy?

WOODRUFF: Thank you, Charlayne, and good night, Robin.

MacNEIL: Good night, Judy. That's our NewsHour tonight. Have a nice weekend, and we'll see you on Monday. Good night.