The MacNeil/Lehrer NewsHour

MR. MacNeil: Good evening. Leading the news this Wednesday, Pres. Bush will call for deeper U.S.-Soviet troop cuts in his state of the union tonight. Soviet Pres. Gorbachev denied he plans to resign as Communist Party Chief. We'll have details in our News Summary in a moment. Jim.

MR. LEHRER: After the News Summary, we have some pre-state of the union words from Treas. Sec. Nicholas Brady [NEWS MAKER] and from our regular analysts David Gergen and Mark Shields [FOCUS - GERGEN & SHIELDS]. Then Betty Ann Bowser [FOCUS - TAXING EDUCATION] reports from Texas about another fight over taxes, next the story of a New Mexico town's [FOCUS - UNDER THE INFLUENCE] effort to end its special drinking problem, and we close with a Clarence Page essay [ESSAY - STYLE SUPREME?]. NEWS SUMMARY

MR. MacNeil: Pres. Bush will call for deeper cuts in U.S. and Soviet forces in Europe in his state of the union address tonight. Administration officials disclosed this after the President called Mikhail Gorbachev this morning to brief him on the speech. Reporters asked the President about the troop cuts at a cabinet meeting this afternoon.

PRESIDENT BUSH: The speech comes on at 9 o'clock tonight and there's going to be a lot of surprises there maybe.

REPORTER: About troop reductions?

PRES. BUSH: I'm not going to discuss in advance what I want to say. I want a surprise factor, let's put it that way.

MR. MacNeil: In Moscow, Pres. Gorbachev was asked about rumors circulating yesterday that he would resign the leadership of the Communist Party. We have a report from Moscow by Robert Moore of Independent Television News.

MR. MOORE: The rumors that Gorbachev was to resign as party chief came to an abrupt end this morning. At a meeting for the president- elect of Brazil, a bemused Pres. Gorbachev told reporters he had no intention of relinquishing his position as general secretary of the Communist Party. Gorbachev has been continuing his activities as normal, today with the Brazilians, yesterday with the East Germans, while preparing for next week's vital meeting of the party's central committee. At a press conference, the government spokesman again denied the report.

GENNADY GERASIMOV, Soviet Foreign Ministry Spokesman: There are a lot of rumors now in the world, if Gorbachev is going to resign, if he is going to survive; there's no grounds for it.

MR. MOORE: In the last nine months more and more power has been switched from the party to the parliament. Some observers felt Gorbachev might want to concentrate on his non-party position as president of the Supreme Soviet. The central committee gathers here on Monday and with regional elections approaching, Communist Party hardliners are feeling more vulnerable than ever before.

MR. LEHRER: There was news today about the U.S. economy. The Commerce Department said its main forecasting number was up. The Index of Leading Indicators rose .8 percent in December. It had risen only .1 percent the previous month. The Commerce Dept. also reported new home sales fell 9.6 percent in December, bringing the rate for 1989 down to the lowest in five years.

MR. MacNeil: A U.S. Coast Guard cutter opened fire on a Panamanian registered freighter today after it refused to stop for a drug search. It happened in international waters in the Gulf of Mexico. The Coast Guard said it fired several hundred canon and machine gun rounds to try to stop the ship, but ended the chase when the ship entered Mexican waters. The Coast Guard said it asked for and received permission from Panama to open fire. There were no reports of casualties. Cuba later said the ship was actually Cuban and that its only cargo was chrome.

MR. LEHRER: A car bomb exploded in the capital of Afghanistan today. It went off during the afternoon rush hour in Kabul. Six people were killed; more than 120 were hurt. Nobody has claimed responsibility, but the government blamed U.S.-backed Moslem rebels. The rebels have launched many attacks in Kabul since Soviet troops left the country one year ago.

MR. MacNeil: In London, British doctors said they performed the first successful heart operation on a baby still in its mother's womb. Surgeons at Guys Hospital completed the procedure in December on an eight month old fetus and announced it today. They corrected a heart valve defect by passing a catheter through the mother's womb and into the baby's chest. The baby boy was born prematurely and remains in critical condition.

MR. LEHRER: A new trial was ordered today in the McMartin child abuse case. A Los Angeles judge ordered a retrial for Raymond Buckey. He and his mother, Peggy McMartin Buckey were acquitted earlier this month on 52 counts of child molestation. They operated a nursery school in suburban Los Angeles. Their trial lasted nearly three years, the longest on record, but the jury deadlocked on 13 counts. The new trial will be on those 13 counts.

MR. MacNeil: Finally in the news, two revolutionary business stories of sorts. The first was today's announcement that China will allow Avon to sell its cosmetics in that country. The company said it expects to have 3,000 sales representatives in China within a year. The second comes from Moscow where consumers got a taste of American capitalism today. Tim Yuert of Independent Television News reports.

MR. YUERT: Eating out in Moscow can be no picnic. Menus reflect widespread shortages. Service very rarely comes with a smile. But the 600 staff at the new McDonald's were smiling hard today. They've been trained too and they know the competition's fierce. Twenty-five thousand people applied to work here. Outside their customers had been cuing for up to 2 1/2 hours, although not everyone knew why. This woman thought it was for ice cream. The hamburgers here sell for rubles, worthless outside the Soviet Union. But McDonald's have an eye on what they believe could be a bright new future for the Soviet economy.

GEORGE COHON, McDonald's, Canada: Of course, it's a risk for companies to come in, but I think the risk can be as great by not coming in now as it is by coming in now, and I think companies have to weigh that very carefully.

MR. YUERT: But there'll soon be a second McDonald's for foreign currency only and the company believes its processing plant nearby has export potential. The average Soviet has to work nearly three hours to earn enough for a Big Mac. Nevertheless, Moscovites clearly approved of their hamburgers today.

MR. MacNeil: The Moscow restaurant is McDonald's largest and will be one of 20 planned in the Soviet Union. That's it for the News Summary. Coming up, Treasury Sec. Brady, Gergen & Shields, funding Texas schools, alcohol addiction, and Clarence Page on style. NEWS MAKER

MR. LEHRER: Treasury Secretary Nicholas Brady is first tonight. He is one of the key players in the budget debate that started Monday when President Bush released his 1991 budget proposals. It will likely get a second wind tonight after Mr. Bush's State of the Union Address. Critics have called the Bush approach slide by warned over Reaganism that only nibbles at the nations problems. Mr. Secretary welcome.

SEC. BRADY: Good evening Jim.

MR. LEHRER: Were you all prepared for this severe criticism that has met the budget so far?

SEC. BRADY: Well I don't notice that a severe a criticism. Last year it seemed the tempo was about the same. The President's budget always is followed by exclamations it is dead on arrival and this and that but last year we got right into budget negotiations and I expect to start the same way this year.

MR. LEHRER: The severity of the rhetoric this time doesn't stun you or concern you?

SEC. BRADY: No I don't think so. It always starts with a bang and everybody gets to work. Lot of energy in the first part of the process.

MR. LEHRER: There was a story on the front page of the Washington Post this morning that summarized the criticism. Let me read that and then let's go through it. It said "critics said the first budget drafted entirely by the Bush Administration is essentially a recycled version of Reagan Administration budget proposals that relies on optimistic economic assumptions, spending cuts that Congress repeatedly has rejected, and a smattering of accounting gimmicks."

SEC. BRADY: Well let's just talk about the economic assumptions to start with because that is always the lead off criticism. I would only point to the fact at the mid session review this last July the Administration was closer to being right on economic assumptions than almost any other forecaster. We were much closer. So we projected a growth for the economy for 2.6 percent for this year. It turned out to be 2.4. That is pretty close. It is as close as any body gets. Warmed over programs. We certainly didn't approach them that way. The President has put forward the things that he thinks important, more money for education, more money for drugs, more money for space. Those are his selections. I don't think they are warned over.

MR. LEHRER: What about the general criticism the lack of boldness that the rhetoric going in, the rhetoric in the cover material from Budget Director Darman and others about the severity of the problems in the country is one thing but the proposals don't match that. The drug problems and the education problems and big words are used to use to describe the problems and yet the solutions don't seem bold or different?

SEC. BRADY: Well I think the increase in the drug program, many billions of dollars that is bold. The education program has increased as well. I think that it is one thing that you have to do in budget stringency is face up to the fact that we have an over all job to do which is to come up with deficit reduction. This budget I am sure you are aware decreases the deficit from last year in Graham Rudman terms from a 100 billion to 64 billion, So you have to do what you can do in that frame work. That is what people want most reduce the deficit.

MR. LEHRER: David Broder wrote a column the other day where he said the budget reflected the approach of President Bush which is that he is basically a nibbler at problems. Does that upset you when you hear that or read that?

SEC. BRADY: No I don't think so. I have known him for a long time and I don't think that is even close to true. I don't think the operation in Panama was a nibbling operation. I think that his initiatives with President Gorbachev which have led to freeing up of Eastern Europe and changes with in the Soviet Union. If that is nibbling I hope that he keeps doing it right as he has been doing it.

MR. LEHRER: Let us talk about a specific that you have very much to do with and that is the savings situation. The United States ranks last, seventh, in the list of the leading industrialized nations in the savings rate of the citizens. First of all tell me why that is a serious problem, or do you think it is a serious problem, and if so why is it?

SEC. BRADY: Jim I think that it is very serious? We have a cost of capital, the charges corporations have to pay for their money to start new plants to provide new jobs in this country. We have the cost of capital in this country that is roughly double what it is in Japan and the same is nearly true in Germany.

MR. LEHRER: Meaning when XYZ Corporation goes out to borrow money to build a new plant they have to pay twice the interest rate it would cost a Japanese Company to do the same thing.

SEC. BRADY: That is true. It is a little more complicated but you are fundamentally correct. And so when you are figuring out the cost of the product if you are building a car you have to add the cost of steel, the cost of labor and the cost of capital. If other countries over a long period of time have a lower cost of capital than we do their products can be produced more cheaply, they will take away world markets from us and the jobs in this country won't be increasing as fast as other countries. It is a very very serious problem.

MR. LEHRER: And how does the lack of savings effect that?

SEC. BRADY: Well if you had a big savings pool the capital charges would be cheaper. The cost of capital would come closer to approximating our main competitors.

MR. LEHRER: Simply because of supply and demand?

SEC. BRADY: That is right.

MR. LEHRER: Less money saved the cost of that goes up.

SEC. BRADY: Now can I tell you what we are going to do?

MR. LEHRER: That is my next question what are you going to do about it?

SEC. BRADY: Well the President is coming forward with a program called the Savings and Economic Growth Act of 1990 and it will include three parts. Capital Gains which was put forward last year. It will be capital gains it will be oriented toward the long term. If you hold it for three years you get beneficial rates. The two new pieces of the initiative are a family savings plan which is a seven year program as opposed to an IRA which is aimed at retirement. A seven year program which allows the person that does the saving to accumulate money tax free over a 7 year period and at the end of that period take it out without paying any more taxes.

MR. LEHRER: How much money can they accumulate?

SEC. BRADY: Well if you take a family that was able to save $2500 a year that is roughly a 100 a piece for husband and wife. Over a 15 year period they could take out at the end of that time by putting in 2500 a year roughly $73,000.

MR. LEHRER: And where is this money saved in a savings and loan, a bank?

SEC. BRADY: Well were ever they would like to do it. The Government will provide the vehicle if you want to do it at your broker fine, if you want to do it at a bank fine. You can choose your own place.

MR. LEHRER: How much of a problem would that part of it solve do you think? Have you been able to project that?

SEC. BRADY: Well we don't exactly know because it is impossible to guess at the savings rate. We know that from talking to people and polls and focus groups that it enormously attractive.

MR. LEHRER: Okay now there is another new piece?

SEC. BRADY: That is right the 3rd piece in the program is a change in the IRA where if you have an IRA you can take out up to $10,000 for a purchase of a first time home. A husband and wife can take out $20,000.

MR. LEHRER: And now you mentioned capital gains. Now capital gains is one of those things that the Congress has already voted down. Why is that back in there. Do you think there is some reason now the Congress will change its mind?

SEC. BRADY: Well they didn't vote it down.

MR. LEHRER: They didn't vote it down right. They rejected it?

SEC. BRADY: Well it didn't pass both Houses of Congress. It passed the House and although it didn't pass the Senate because of procedural arrangements it did not pass but it did get 51 percent of the votes. That plus the fact that Congressman and Senators have come back I notice enormously enthusiastic statements on their part that it is going to pass. People who were against it last year have talked it over with constituents and changed their minds.

MR. LEHRER: What is the big deal about capital gains for President Bush?

SEC. BRADY: Well it is part of the savings program. He thinks that it is going to be integral part of doing what we are trying to do. Reduce the cost of capital, create jobs, plants and new products. Everyone of our major competitors Japan and Germany, France, Italy all have a differential for Capital Gains tax and we are way behind them for the cost of capital.

MR. LEHRER: How does the development of the lowering of interest rates over seas, that of course is having an impact in this country, how does that figure in all of this?

SEC. BRADY: You mean the raising of interest rates?

MR. LEHRER: I mean the raising of interest rates.

SEC. BRADY: Well it has a short term effect on us in the sense that the rates go up and the Japanese and the German market the people in those countries are more likely to keep some of their money at home. It won't effect all of what they do but it will make some difference.

MR. LEHRER: And that means we are going to have less foreign investment does it not?

SEC. BRADY: It could mean in the short period of time yes but on the other hand this country has always had a place for foreign investors if trouble to starts to bubble around the World big right to the United States for their funds.

MR. LEHRER: Could it have the effect of raising our interests as well?

SEC. BRADY: It could, in the long end of the market, the 30 year bond because of the competition with rates in their country. I think that in the short end of the market it won't have too much effect.

MR. LEHRER: Is there anything that you are doing about this problem now?

SEC. BRADY: Well there isn't to much to do about it. We think that although interest rates may in the long end go up some we are going to have plenty of money for our Treasury auctions. So it is something that we have to contend with but it is not a mortal wound.

MR. LEHRER: It is not a crisis situation?

SEC. BRADY: No way.

MR. LEHRER: Speaking about a crisis situation the savings and loan. William Seidman FDIC Chairman was on the program a few days ago and he said that 50 billion dollars was not going to get it. They have not even began yet to scratch the surface. It is going to cost a lot more than that. he doesn't know how much yet. Why was it not possible to predict the cost of this bailout?

SEC. BRADY: Well I don't think that anybody knows that knows that it is a lot more or it is not a lot more. I hear a lot of projections from people who would like to raise the size of the problem. The bigger you make the problem you get to say after the fact that you thought is was larger but it was smaller and you were a big part of the solution. So there is no news in trying to say that it is smaller. I don't think we know yet enough about the problem to say.

MR. LEHRER: Now that is really what Mr. Seidman said. I don't want to misquote him. He didn't say it is going to be a tremendous amount of more money. He said he didn't know how much now because we still don't know what the problem is.

SEC. BRADY: Well we are only in the front end of the problem and we are resolving those institutions which are the most hopeless. So when you look at the ones that are the most hopeless you think that if they are all like this then we have a bigger problem but the truth of the matter is the curve is coming down as we get further in to problem. The ones that we are looking at now aren't as bad and I don't think that any body knows. Secondly we wouldn't be doing anything differently if we did know the problem was bigger.

MR. LEHRER: Why is that?

SEC. BRADY: Well because we can resolve so many of these institutions at a time and we have the money now to do what we have to do, in fact, we have enough to carry us through 1990 very very clearly.

MR. LEHRER: Money without going into the tax revenue?

SEC. BRADY: As you remember some part of the S&L solution last year was on budget and some part was off budget. So not changing that program we will get through 1990 just fine. If we get further through 1990 and if we see that it is bigger then maybe we have to do something about it but it is way early to say that and no point in saying it really because what we have to do is get to work get the job done and not speculate about how big the market is. That doesn't add anything.

MR. LEHRER: Mr. Secretary thank you very much.

SEC. BRADY: Thank you Jim.

MR. MacNeil: Still ahead on the Newshour Gergen and Shields funding Texas education, alcohol addiction and a Clarence Page Essay. FOCUS - GERGEN & SHIELDS

MR. LEHRER: We continue our look ahead to the state of the union message Pres. Bush will deliver tonight with help from our political analysts Gergen and Shields. David Gergen is editor at large at U.S. News & World Report, Mark Shields is syndicated columnist at the Washington Post. Gentlemen, Mr. Bush is not a man known for the big set speech. Given the way he prefers to communicate, how important is this for him tonight?

DAVID GERGEN, U.S. News & World Report: I think it's important in this sense, Robin. He's just had a budget come out that has been widely panned in the press and by many Democrats and even some Republicans as sort of a tenth year of Reagan. It's a stand pat kind of budget and I think what he needs to do in the speech is show that really what we're starting is the first real year of the Bush agenda, the Bush nineties, and to put forward an agenda, a vision if you would like of what he would like to accomplish in the country during the nineties.

MR. MacNeil: What is his political task tonight? After all, Mark, he's just licked the Congress in the first encounter of the new session when they failed to override his veto of the Chinese students' bill. The opinion polls show he has standing almost incredibly high for this stage of the Presidency based on his ordinary way of doing things and communicating, so what is his political task tonight?

MARK SHIELDS, Washington Post: I think his political task, I think David is right in the sense that George Bush is not the same man who gave the state of the union a year ago.

MR. MacNeil: Technically it wasn't a state of the union.

MR. SHIELDS: It wasn't the state of the union but he's not the same man who came before the nation in January of '89.

MR. MacNeil: Right.

MR. SHIELDS: He is now a President in his own right, as you point out with enormous popularity, having gone to Malta and met with Gorbachev, having been there while the Soviet empire, a longtime adversary, has crumbled. So he's got a chance to put his own stamp, this is where I want to take the nation, this is where I want to lead the nation, but in a political sense he has I think a more tricky mandate to make, and that is to lay before the American people why he needs a Republican Congress. He's got to make the case tonight. This is the best chance he has. He's got great credibility to it. This is the mission, and this is what I believe, not in those words, but he has to lay out the difference between the two parties.

MR. GERGEN: In effect, I think what Mark is saying is that he needs to nationalize the election that's coming up in 1990, later in the year, and at the moment most Republicans don't feel there is a single issue they can rally around and say that's why we need to elect Republicans. I might say that there's no single issue for the Democrats at this point either, with the possible exception of abortion.

MR. MacNeil: But given the confidence of Budget Director Darman who's been doing all the rounds on the Hill and on the program, you just heard Treas. Sec. Brady exude the same kind of confident look, this kind of criticism always come up. With Bush's popularity, is the budget, early budget criticism really a negative for him, or is the public going to end up blaming the Congress for all the bickering down the line?

MR. SHIELDS: I think the American public is listening to the budget brouhaha with barely disguised indifference. The urgency for doing something about the deficit which everyone thought was going to occur in 1990 has been removed by the peace, the break out of peace, the diminution in defense spending, the peace dividend that everyone's talking about, so that pressure has been released, and plus, quite frankly, the deficit itself is morally and ethically bothersome to the American people, but it hasn't touched any of us. Nobody has walked into a saloon anywhere in America, sat down next to somebody and had that person say hey, how about the deficit. So I don't think it has a political --

MR. MacNeil: Well, on your point about the agenda, the Christian Science Monitor says on its preview story on the state of the union today, there are few signs, "Few signs exist that Americans seek a more aggressive Presidential agenda."

MR. GERGEN: Well, I think it's true --

MR. MacNeil: It's just you guys who seek a more aggressive agenda.

MR. GERGEN: Well, we want something to talk about in the saloon. I think it's true that the country increasingly sees the politicians in Washington as irrelevant. When you go out and talk to them about how we're going to solve the education problem or the drug problem, they talk about their mayors or their governors or their local school boards or the like, but I think there is a hunger in the country for change. There is a sense in the country that somehow we're not doing as well as we should in all sorts of fields, education, the environment, in drugs, and the like. And I think the President if he were to stand pat too long would take an awful risk, a political risk, and that is he would be seen as no longer as an agent of change but as an agent against change. That's why Reagan said a budget might add this. Remember back in the Republican convention when this issue was out there and Dukakis was arguing this very favorably and Reagan went toward the people and said the Democrats say we need change. Well, let me tell you, we are the change. And I think there was a sense about the Republican Party that they were doing that and I think we're going to find in Bush, in the President's speech tonight, some of that. It will not go far enough to please his critics, but I do think we're going to hear some of that tonight.

MR. MacNeil: Yet, if the leaks are right, the dramatic news on all the domestic initiatives has already been revealed and the budget's come out, the new tax free savings plan that Mr. Brady announced yesterday, the, what else, the new drug program, the defense budget news, all that's come out, and the surprise in that speech, again if the leaks turn out to be right, is that he's going to go much further than he said he would even as recently as the summit meeting with Gorbachev in wanting to reduce conventional forces in Europe. So the surprise will be a foreign affairs surprise, not a domestic surprise.

MR. SHIELDS: It will be and I think it does put the Democrats who have been talking about a peace dividend back on the Hill somewhat but I think David touched on something very real, Robin, and that is there is a sense in the country while there isn't specific action that they want, the American people want, a sense that our leadership, our control of our own destiny is slipping away from us, whether it's in education or whether it's economically. Ten years ago in the world, the top two banks in the world were American. Now one out of the top twenty in the world. Now that isn't something that people are talking about in the saloon, but it is sensed by people that it's slipping away.

MR. GERGEN: Robin, if I could come back to this, I think you're right, I think the headlines are very likely going to be his troop announcement. There was some suggestion from the White House that there may be even additional foreign policy announcements tonight, so I do think the headline item will be foreign policy. If he makes that announcement, it will put the Democrats on the defensive about the defense budget, and I might say I think that all the recurrent rumors about Mr. Gorbachev and whether he's going to survive or not survive is where the strength in the President's hand in dealing with the foreign policy, is going to be a sense, well, we ought to be cautious about this. When all is said and done now, there is this long-term domestic issue of whether this White House, this administration has a domestic agenda. Many Democrats and some Republicans, Kevin Phillips, the Republican commentator said this week that the domestic agenda of the Bush administration was the strategic equivalent of a nudist colony. You know, that kind of remark is starting to cut, and I think it is important for this administration.

MR. MacNeil: Why is the President so popular if that sort of remark is starting to cut?

MR. SHIELDS: I think the President, David is right, he's been a status quo President and the status quo is good. I mean, he has been President for 12 months during which the cold war has come to an end. I mean, it's a rather remarkable achievement during which his domestic political opposition has been routed. The Speaker of the House who sat in that chair where Tom Foley is sitting tonight 12 months ago was Jim Wright. He's no longer in public life. Tony Coelho, the most effective Democratic strategist in the House is no longer in public life, so the Democrats have been scrambling and George Bush has been the beneficiary and the American people like him. American people want their presidents to succeed. Ronald Reagan, to his credit, made it okay to say you like the President again. We had 20 years of failed, flawed and tragically ended Presidencies, and I think that Bush benefits from that and I think his stewardship meets with the approval of the American people.

MR. GERGEN: Enormously likeable in foreign policy, he's managed very well in foreign policy, and the economy keeps rolling and that's the critical, critical element for a President's popularity. The question though, Robin, still remains, why do you want to be popular? You want to be popular so that you can get things done. The question is how do you spend your popularity in other words as President, what are you going to spend it on? And I think that question has not yet been answered. We'll have to wait and see tonight.

MR. MacNeil: There's a lot of publicity been given to the fact and for those who are interested in this kind of thing that the very colorful writer, Peggy Noonan, speechwriter, who gave him the phrases that have been, have defined the Presidency in a way, the thousand points of life, read my lips, no new taxes, kinder, gentler nation no longer works at the White House, and there are five almost anonymous speechwriters who contributed to this speech. Discuss the Bush use of rhetoric and how that contrasts with Reagan.

MR. GERGEN: There's --

MR. MacNeil: Tonight is one of the big set occasions for those kinds of phrases, isn't it?

MR. GERGEN: There is a very sharp contrast. You know, actually tonight, I remember Reagan saying once early in his Presidency that the only times he got butterflies was before he went into this hall for this speech it is such an important speech, it was such an importance speech in his view, one not only spoke to the country but spoke to the Congress face to face. With George Bush, he has rarely used speeches as a way to communicate, surprisingly enough. He is capable of it, as we saw in his acceptance address at the Republican convention last year.

MR. MacNeil: Which she wrote.

MR. GERGEN: Peggy Noon was the major architect in that speech. And I think the President did a very good job in delivering that speech and it helped to win the election for him. Since that time he has not frankly given many memorable speeches and he clearly from accounts of his staff and everyone else, he much prefers the press conference as the way to communicate. He has not seen speeches as important. There are indications in the White House that they would like to make this speech more memorable, more thematic, more inspirational.

MR. MacNeil: Do you have anything to add to that?

MR. SHIELDS: He's somebody who violates every rule and succeeds.

MR. GERGEN: That's right.

MR. SHIELDS: I mean, he's somebody who doesn't give a great set speech, his press conferences are not terribly memorable. I mean, Jack -- he's confident and he's conversational but still he'll lapse into that sort of Dink Stover Yale language of his.

MR. MacNeil: That's our time, gentlemen. David Gergen, Mark Shields, thank you. FOCUS - TAXING EDUCATION

MR. LEHRER: Next tonight the upheaval in funding the second largest school system in the country. A Texas court has said the legislature must reform that system this year. We have a report from Betty Ann Bowser of public station KUHT in Houston.

MS. BOWSER: It was the first time anyone around Houston could remember high school kids demonstrate for a better education.

STUDENT: My fifth period I don't even have books yet.

STUDENT: My classes, we don't have no books.

MS. BOWSER: Things were so bad at Steven F. Austin High School that by mid November many students still didn't have textbooks. Hundreds of students still didn't have firm class assignments.

STUDENT: Why do we have to take such drastic actions to get anything done?

MS. BOWSER: Teachers were assigned to teach subjects for which they held no state certification.

SPOKESPERSON: If you check every school across the city, you'll find the same thing.

MS. BOWSER: One student went to class on a Tuesday to find he'd been assigned to a closet, so more than 1,000 students held a day long protest. There have been several demonstrations like this in the Houston area ever since the Texas Supreme Court ruled that the state system of funding public education with property taxes is unconstitutional. The court said a new way must be found to pay for the system and it gave the Texas legislature until May of 1990 to come up with an alternative that will satisfy the state's constitution. In this 16 page decision, the high court said the system here in Texas creates glaring unconstitutional disparities between what rich and poor school districts can raise and spend on their children. It was a rare unanimous decision that brought Democratic and Republican justices together. It was written by Justice Oscar Mauzy.

OSCAR MAUZY, Texas Supreme Court Judge: The basic evil of the property tax as the foundation was that low income, low property wealth districts are locked into a cycle of poverty. They cannot expand their tax base. The property located in that district is all that they've got to base it on. The educational end result is not the same from one district to another in that the level of learning is not similar and that's inefficient by itself.

MS. BOWSER: Under the Texas constitution, inefficient also means unconstitutional, so the court ruled in favor of these children in San Antonio. Edgewood Independent School District was the lead litigant in the case. This is one of the poorest school systems in Texas. The student population of 15,000 is 95 percent Hispanic and the vast majority of them are so poor they qualify for the federal government's free lunch program. Even though the school system levies high taxes, real estate is worth so little that the district can raise only enough money to spend $3,000 a year on each child. That's well below the national average. Richard Bogenegra recently returned to Edgewood High School as principal after attending classes there in the 1960s as a student. He says not much has changed there since then.

RICHARD BOGENEGRA, Edgewood High School: The building is pretty much the same. It's still very hot. We don't have air conditioning, never had air conditioning, and it's extremely hot, when it's hot, and when it's cold weather, it's extremely cold.

MS. BOWSER: On the day we were there temperatures were in the 90s. A fan was going full blast in this classroom which felt like a steam bath. Paint was peeling on the wall. A TV set mounted above the blackboard hadn't been fixed in 10 years. The band rehearsed in the school parking lot because there is no football field, and the football team worked out in the rear schoolyard. Like other starting teachers in Edgewood, Jill Liao is making less than $20,000 a year. Still she is required to wear two hats as physical education and art teacher.

JILL LIAO, Frey Elementary School: They have to make a lot of changes. There are requirements that I am expected to teach I can't teach them because of the facilities that we lack. For example, I'm supposed to be teaching sit-ups and push-ups, but when all we have is gravel, I don't want the kids to get down and have themselves hurt by little pieces of rock or glass. Also I'm expected to teach gymnastics and we only have one mat for the entire school, so I don't think I'll be teaching very much stunts, very many stunts and tumbling things this year.

MS. BOWSER: Teachers' salaries in Edgewood are among the lowest in the state. Superintendent Jimmy Vasquez is constantly recruiting teachers and says if he could retain better teachers, maybe the school system's drop-out rate wouldn't be so high.

JIMMY VASQUEZ, Edgewood School District: When I go into the marketplace to buy teachers, I've never been able to compete. I've never been able to compete, because I don't pay the kinds of salaries that other districts do. So what I've had to do is I've had to plan a lot of trips to Ohio and Indiana and other places where they have a surplus of teachers. And we go up there and recruit them, bring them to San Antonio, train them. In a couple of years, they find out about these other school districts and the school districts know we do a good job in preparing them, so in a couple of years we lose them.

MS. BOWSER: Some move just a few miles away to a system where teachers are among the highest paid in Texas. It is the Alamo Heights School District, one of the most property rich districts in the state. The district has low taxes because real estate is worth so much more here. The annual school budget is $14 million for just 3,000 children. That means the district can spend $5200 a year on every child. In Alamo Heights, property taxes fund a wide range of enrichment programs, including Suzuki violin classes. Cambridge Elementary School has a 500 seat auditorium where children practice singing and the dramatic arts. The high school has three cheerleading squads and three football teams that practice on a well manicured football field. There is also a nationally ranked girls' tennis team. More than half of the teachers hold masters degrees. Average salaries are around $30,000 a year, but an experienced teacher can earn close to 40,000. Dr. Charles Slater is superintendent of schools.

CHARLES SLATER, Alamo Heights School District: One thing that I come back to again and again is our teachers. I mean, that is where we've put our money in Alamo Heights. We have a good salary schedule. We hire teachers who are experienced. They're the backbone of the system. If we didn't have outstanding teachers, we wouldn't have an outstanding school system. [DISCUSSION OVER SUPREME COURT DECISION]

MS. BOWSER: Many Alamo Heights parents say they support the Supreme Court decision, but they are also very concerned about what the Texas legislature will to do comply with the court order. Charles Lutz is chairman of the school board.

CHARLES LUTZ, Alamo Heights School Board: I would like not to see us consolidated with other school districts. I think my fear would be, and I think it's a very real consideration, that what we would achieve is a broader level of mediocrity as opposed to a higher level of excellence across the state.

MS. BOWSER: Edgewood Superintendent Jimmy Vasquez doesn't favor consolidation either, but like his colleagues in Alamo Heights, he says there must be new ways found to fund public education everywhere, not just in Texas.

MR. VELASQUEZ: The day of the tax is over. We just cannot handle the new demands on government because of its low yield and high tax effort with certain groups that own real property. We know from looking at what's happened at other states that the income tax at the state level has been a more progressive, a fair way of doing it, and a fair way of distributing the cost.

MS. BOWSER: In Texas, those are fighting words. The state has never had an income tax. Surveys show the voters don't even want to talk about it, but increasingly, state leaders are saying it is the only way out. Outgoing Democratic Lt. Governor Bill Hobby is strongly advocating a state income tax earmarked for education.

LT. GOV. BILL HOBBY, Texas: Texas is a low taxing state. We'll remain a low taxing state, we'll be a low taxing state for as long as you or I or anybody watching this program are still alive. That's in the political tradition of the state. So that's not an issue. The question is how do you equitably distribute that tax load, and I think an income tax as one part of the tax system supplementing a sales tax which is too high.

MS. BOWSER: The idea remains immensely unpopular but Hobby is getting some support. State Rep. Ernie Glossbrenner is a former teacher who chairs the House Public Education teacher.

ERNIE GLOSSBRENNER, Texas State Representative: We are getting too long in this state about oh, no, anything but the income tax. I always refer to it as "it". People don't want to use the "T" word and I just say maybe we need to talk about the "T" word and we may even need to talk about "it".

MS. BOWSER: Outgoing Republican Gov. Bill Clements says he will call the lawmakers into a special session at the end of February to consider options. But by then half of the state senate and the entire house will be gearing up for re-election. The gubernatorial primary is in March and political observers say that will make serious consideration of the unpopular income tax for public education even more difficult. FOCUS - UNDER THE INFLUENCE

MR. LEHRER: Now to one town's fight against a unique alcohol problem. The town is Gallup, New Mexico. The reporter is Mathew Smeden of public station KNME in Albuquerque.

MR. SMEDEN: The Indian capital of the world, until recently that has been Gallup's sole claim to fame, a border town, population 22,000, promoting tourism, native American arts and crafts and beautiful scenery. But a problem which afflicts many towns bordering Indian reservations, that of alcoholism, has finally caught up with Gallup. To many, it is a town under the influence.

CITIZEN: Do they think about us? Hey, we patronize this city. That's where the money is coming from.

MR. SMEDEN: There are so many drunks in Gallup, the vast majority being Indian, that Gallup has earned the name "Drunk City". McKinley County, where Gallup is the only municipality, ranks No. 1 in the U.S. on the Composite Index of alcohol problems. It has six times as many alcohol-related deaths as the national average, deaths resulting from traffic fatalities, exposure and illness.

MAYOR EDWARD MUNOZ, Gallup, New Mexico: Every day we find somebody frozen or somebody run over by a car, run over by a train, a vehicular accident, head on accident, roll overs, you name it, it happens here. After a while you just become hardened to it and you just think it's a way of life.

MR. SMEDEN: The drink of choice among the many alcoholics is the locally produced Garden De Luxe, an inexpensive concoction, part wine and part hard liquor. Many in Gallup blame the liquor industry for the alcoholism here. Gallup has twice as many liquor licenses per capita as anywhere else in New Mexico, and serving hours at many liquor establishments begin as early as 7 in the morning. But liquor dealers say they have been given a bum rap.

ABE GARCIA, Liquor Retailer: You know we are licensed by the state. We are probably more governed than any agency, any business in the states, and our position is hey, you know, if we're doing something wrong, punish us.

EARL TULLEY, Alcohol Counselor: The liquor industry has to have a place of accountability. They have to be accountable for what they are doing. They have to be accountable for the result of the action from substance that they are selling. They have to be responsible. If they are not responsible, then who is?

MR. SMEDEN: Drunk in Gallup has been a way of life for thousands of native Americans for generations since Indian prohibition was repealed in 1953. Historically, little was done to stop it, but in recent years, many Gallup residents have fought to combat the problem. On any given Friday or Saturday night, Gallup police round of hundreds of intoxicated native Americans and put them into protective custody holding cells to dry out for 12 hours. When released, they parade back into downtown to be fed by charitable organizations. Then they are back on the street panhandling money, selling their plasma or collecting aluminum cans for money to buy more liquor. It is a cycle which has become routine for many.

MAYOR MUNOZ: We pick up anywhere from fifty to two hundred people a night and we have a room that we put 'em in and there's no beds in there, there's no showers. Toilet facilities are limited. The people are literally stacked in there. They vomit over on each other, they vomit on the floor, they lay on it, they urinate on each other, and that's inhumane. The police department picked up 29,000 people for protective custody last year; in the whole state of Illinois which is several million people more than the city of Gallup with the 17,000, they only picked up 29,000. So that gives you an idea of the magnitude of it. It's an epidemic.

MR. SMEDEN: For those who want help, there isn't much available. Gallup currently has one three to seven day de-toxification center which has 28 beds, yet it is only funded to operate 16 beds. The one 28-day rehabilitation program has 42 beds, but is funded to operate only 12 of these and hence has a long waiting list. For many in Gallup, the lack of funding for the care of those who can't afford it is intolerable.

HERB MOSER, Rehabilitation Worker: From the state it's declined from about 1.1 million to 608,000; from the Navajo Tribe it's declined from about 400,000 to 200,000. We turn down five or six for every one we accept.

MR. SMEDEN: For three years, Gallup Mayor Edward Munoz who was elected on a clean up alcoholism platform has tried to gather enough community support to end the alcoholism cycle, but in October 1988, the mayor got more help than he had ever imagined. Help came in the form of an explicit, week long expose published in the Albuquerque Tribune called "The Town Under the Influence". The articles forced many in Gallup to come face to face with their community's long history of alcoholism, and many reacted sharply.

JOHN ZOLLINGER, Publisher, Gallup Independent: My response is it was bad journalism. In the last five years, the Tribune has lost 6 1/2 percent circulation. This tells me that the tribune and Mr. Tim Gallagher don't have the acceptance that he would like to do. So what he's done here is he's had a challenge either by his company in Cincinnati or himself that he's going to reverse this and he's chosen to hit Gallup with the full might of what he can do.

TIM GALLAGHER, Editor, Albuquerque Tribune: Never did we make an argument that while the Tribune's discovered this, all we said was we're going to put a human face on this and continue the coverage and create some sort of political pressure so that some meaningful reform might come.

MR. SMEDEN: Feeling the groundswell of public outrage, Mayor Munoz and other civic leaders pushed for reforms by inviting state legislative meetings in Gallup, but they received a less than enthusiastic response.

RAYMOND SANCHEZ, New Mexico State Representative: You're not going to wipe out the alcoholics in Gallup, in New Mexico, or in these United States, folks. Once you're an alcoholic, you're always an alcoholic, and it's generational. And you talk about it in terms of dollars. Throw all the money you want to at it, folks. Mayor, I commend you, and I, you know, everybody comes to us for money. I'm going to tell you right now we don't have it.

MR. SMEDEN: They next called their congressman, Bill Richardson, to Gallup to plead their case. Richardson who sits on the House Interior Committee which oversees the Bureau of Indian Affairs pledged federal support if the city could raise state and local revenues.

REP. BILL RICHARDSON, [D] New Mexico: It's an up hill battle but it's doable if we all work together. There has to be a partnership. The state has to participate, the city has to participate, the Congress has to participate, but the question is who's going to go first, and what we don't want is no one going first, and the problem continuing.

MR. SMEDEN: Beginning to feel caught between a rock and a hard place, Gallup residents took their show on the road. Residents of McKinley County marched 200 miles to the state legislature in Santa Fe. What started out as a march of dozens ended with nearly a thousand people united in their calls for reform on the steps of the Capitol building. The march culminated with an emotional appeal to the state senate by the mother of Jovita Vega, a three month old child killed by a drunk driver and to whom the march was dedicated.

KATHLEEN VEGA, Mother of Victim: We lost her. We lost her. We don't want this to go on no more. We are hurt enough. This is what I want. This is all I need right now. God bless you all.

MR. SMEDEN: Gallup's leaders pressured the state legislature for solutions to the problem. They asked for the power to increase liquor excise taxes, close drive-up windows and to decrease the number of hours alcohol could be served. The legislature approved the tax hike and the closing of drive-up windows, but only if passed by voter referendum. When the county commission moved to close drive-up windows, liquor store owners sued. The matter is still tied up in court. Voters passed a 5 percent liquor tax in November. Revenue raised by the tax will fund education programs and construction of additional alcohol treatment facilities. Those facilities, however, won't begin operating for nearly two years. Despite all of Gallup's efforts to end its alcoholism problems, critics contend that the source of the problem is on the reservation since 98 percent of the Indians placed in protective custody are not from Gallup, and more than 1/3 of them live in Arizona. They say that until the employment rate rises there along with the standard of living, these measures will treat symptoms and not causes. In 1989, nearly 90 people reportedly died of alcohol related causes in Gallup and McKinley County. At that rate, hundreds more will die before many of Gallup's solutions have been implemented. If that trend continues, Gallup residents find the name "Drunk City" difficult to shake. ESSAY - STYLE SUPREME?

MR. MacNeil: We close tonight with an essay. Clarence Page, columnist for the Chicago Tribune, has some thoughts about the place of style in our lives.

MR. PAGE: It's not always easy to define style, but we know it when we see it. Style sends messages about taste, wealth, power, whether you're a wealthy Wall Streeter or a struggling rap star. Style defines your public image, high style, low style. It's you as others see you. Style gives others a clue as to who you are and what you are and where you come from and where you're going. Sometimes clues are important. "He has style," someone might say admiringly. She has style. And half the battle is won. Sometimes we do judge books by their covers. Style helps us judge others. It also influences our judgment of ourself. If style is determined by the fashion of our goods, so then is our worth. Vanity displaces virtue sometimes to a tragic degree. Three Chicago teen-agers were stabbed this summer while fighting over a sports team jacket. A leather fashion jacket cost the life of another Chicago teen-ager last winter. Across the country, other big city kids are getting beat up or worse over sunglasses, or sneakers or some other hot fashion item, items valued not for what they're worth in money but for what they're worth in style. How did style become so important, important enough in some cases to kill for? The media are important arbiters of style. Advertising teaches us among other things to judge ourselves as others see it. Advertising teaches the idea that you are what you own, even if you have to lie or filch to get it. Music videos turn style into an art form of a highly inventive if remarkably brainless sort. Even while Paula Abdul sings I'm not impressed with your material things, her video impresses us with a dazzling array of material things. Rapid fire images pander to ever shorter attention spans. What was that you just saw? Never mind. Here it comes again. There it goes, forget it. It's old. Here comes something new and improved. Throw out the old, bring in the new. That's the video world where artifice poses as art. Artifice also replaces issues as television and television advertising play a larger role in politics. The image has often become the message because of the media and style often substitutes for substance. What is said becomes less important than how it is said. Style is quick. Substance takes a while. Style doesn't worry about tomorrow. When young people have no sense of tomorrow, they invest all their values in today. Some dress to kill. Others kill to dress. Either way, they have to do it quickly before it goes out of style. RECAP

MR. LEHRER: Again, the major stories of this Wednesday, Pres. Bush will call for deeper U.S.-Soviet troop reductions in his state of the union address later this evening. Soviet Pres. Gorbachev denied reports he will resign as Communist Party leader, and this evening a federal grand jury in Los Angeles indicted a former top Mexican police official in the murder of U.S. drug agent Enrique Camarina. Four others were also named in the indictment. The U.S. agent was murdered in Mexico in 1985. Good night, Robin.

MR. MacNeil: Good night, Jim. That's the Newshour tonight. And we'll be back tomorrow night. I'm Robert MacNeil. Good night.