The MacNeil/Lehrer NewsHour

MR. LEHRER: Good evening. I'm Jim Lehrer in Washington.

MR. MacNeil: And I'm Robert MacNeil in New York. After tonight's News Summary, we have a NewsMaker interview with Lloyd Cutler brought in by President Clinton as White House counsel during the Whitewater investigation, political analysts Mark Shields and Paul Gigot discuss that and other developments this week, and we have a report on Michigan's public school funding crisis. NEWS SUMMARY

MR. LEHRER: White House Press Sec. Dee Dee Myers said today Republicans were feeding a media frenzy over Whitewater. She said it's pretty clear there's a very organized effort to make a political issue out of this. She condemned news organizations for reporting rumors which she said were generated by Republicans. House Speaker Tom Foley said much of the Whitewater reporting reminded of tabloid magazine headlines at the supermarket checkout stand. Senate Republican Leader Bob Dole also talked about Whitewater coverage at a meeting of the American Newspaper Association in Washington.

SEN. ROBERT DOLE, Minority Leader: The American people have a right to know. That's why you write stories every day. That's why you publish the paper. That's why you try to get the facts, and nobody knows what the facts are. But there's one fact that I think a lot of us learned from Watergate. You don't convince the American people if they think you're stonewalling, if you're not telling anything, or you tell 'em when you have to tell 'em, or when it's too late, as happened in Watergate. So Whitewater is going to be around for a while. My view is that we ought to have hearings, not just my view. It's the view of the New York Times, the LA Times, the Washington Post, not known to be parts of the Republican National Committee.

MR. LEHRER: We'll have more on this later in the program. Robin.

MR. MacNeil: China arrested two more pro-democracy activists today as Sec. of State Christopher arrived for talks on human rights. Over the past 10 days, 15 dissidents have been rounded up. Today's arrest in Shanghai include two leaders who have promoted non-violent political reform. Christopher is expected to warn the Chinese they could lose trade benefits with the U.S. unless they improve their human rights record. China has called U.S. criticism of its human rights record irresponsible and said it shouldn't be linked to trade.

MR. LEHRER: U.S. retail sales rose 1.5 percent in February according to the Commerce Department. It followed a 1.6 percent decline in January. President Clinton today announced a western hemisphere summit for next December in Miami. It will be the first formal meeting of western hemisphere leaders since 1967. The major themes will be environmental issues and the possibility of expanding the North American Free Trade Agreement throughout the hemisphere. The only leaders excluded from the summit will be Cuba's Fidel Castro and the military ruler of Haiti, Raoul Cedras. The House of Representatives approved the Democrats' $1.5 trillion budget proposal for fiscal year 1995. The vote today was 223 to 175. The new budget would reduce the deficit to its lowest level in six years. The Senate begins working on its version next week.

MR. MacNeil: The leader of the black South African homeland of Boputhatswana today dropped his boycott of the upcoming national elections after a mass uprising threatened his rule. His compliance came less than an hour after a shoot out between homeland troops and white extremists. We have a report from Mark Austin of Independent Television News. Some of the pictures are graphic and viewer caution is advised.

MARK AUSTIN: In Boputhatswana, the chaos continued overnight, housed burned and shops looted, the people's uprising leading to a total breakdown in law and order. And this morning came a sinister turn. Thousands of heavily armed right wing extremists began patrolling the streets of the capital, Mobatu. They'd come, they said, to assist the lower factions of President Mangape's defense force, their aim, to restore order and enforce martial law, a development that terrified the local population.

MARK AUSTIN: Are they terrorizing the community?

SPOKESMAN: They are, of course, terrorizing the community, because they are shooting at, you know, harmless civilians.

MARK AUSTIN: For much of the day, shooting rang out across the capital. Here, a number of right wingers opened fire on civilians, and the Boputhatswana defense force turned their guns on the extremists.

UNIDENTIFIED MAN: That guy is wounded. Can you just get us some help, please? He's just wounded.

MARK AUSTIN: One was killed outright. Two others, who were wounded, were later executed by the troops. This afternoon, President Mangape did a U-turn and announced he'd recommend to his government that Boputhatswana take part in the elections.

PRES. F. W. DeKLERK, South Africa: This decision will not ensure also full cooperation on the side of the Boputhatswana government in the natural process.

MARK AUSTIN: At the same time, South African defense force troops were rolling into the capital, Mobatu, much to the delight of the local population. Initially they took up positions at the South African embassy, but this evening, they were reported to have entered the capital, and more heavy gunfire was heard across the city.

MR. MacNeil: There was a massive show of force today by Israeli police in Jerusalem. The action came on the last Friday of the Muslim holy month of Ramadan and two weeks after the Hebron mosque massacre. More than 1500 police patrolled the narrow streets of Jerusalem's old city. They sharply restricted Palestinians from entering the area and disarmed Jewish worshippers at the wailing wall. In the occupied Gaza Strip, there were more clashes between Israeli troops and Palestinians. Since the massacre in Hebron, most of the 2 million Arabs in the occupied areas have been barred from Jerusalem. In Tunis this evening, Russia's foreign minister announced that the PLO is ready to resume peace talks with Israel. Andrei Kozyrev made the statement after meeting with Yasser Arafat. The talks were broken off by the PLO after the Hebron massacre.

MR. LEHRER: London's Heathrow Airport came under another mortar attack today. Wednesday the Irish Republican Army claimed responsibility for a similar attack. We have a report by Howell Jones of Independent Television News.

HOWELL JONES, ITN: The terrorist mortar which brought a second day of disruption and danger to Heathrow. A crude but deadly device similar to that used in the first attack. That attack on Wednesday evening was launched from the car park of the Excelsior Hotel on the northern boundary of the airport. The mortars last night were fired from the Southeastern side of Heathrow from Woodland on the edge of the A-30 near Hattan Cross. They were found unexploded near Terminal 4. Less than four hours earlier, the queen's flight hadtouched down here carrying the queen home from the Caribbean. The authorities had already received six separate coded warnings that an attack was imminent. But the queen's plane and others were allowed to touch down. In the words of an RAF source to stop traffic every time there was a warning would create a shambles. The search for the site of the mortar attack widened along Heathrow's nine and a half mile perimeter. It was discovered just one thousand meters from the runway in rough Woodland. Arriving at the scene, the head of an anti-terrorist squad sensitive to accusations police had ignored warnings. Early flights were delayed or cancelled, the terrorists causing their own brand of chaos.

MR. LEHRER: Another Serb missile attack was reported last night in the Bosnian Muslim city of Maglaj. Reports said at least eleven people were killed and eight apartment buildings leveled. Bosnian Serb forces have surrounded the city and prevented U.N. monitors and relief convoys from entering since last October.

MR. MacNeil: That's our summary of the news. Now it's on to the new White House counsel, political analysis, and Michigan schools. NEWSMAKER - THE PRESIDENT'S COUNSEL

MR. LEHRER: We go first tonight to Lloyd Cutler, the man Democratic presidents call when they're in trouble. President Carter made the call 15 years ago. President Clinton did three days ago. Both times the job was officially called White House counsel but unofficially there was always much more involved. Mr. Cutler is here now for a Newsmaker interview. Mr. Cutler, welcome. It's only been three days. What have those three days been like?

MR. CUTLER: Well, they've certainly been short on sleep. And it's very -- when you come back into a thing like this -- it's very hard to define the shape of the elephant. It keeps changing every minute. But I'm encouraged. I'm an optimist. I think we'll turn things around, and I think this -- I like this President very much, and I think that the accomplishments in this first year and month have been remarkable when you think about a growing economy, the lowest deficit in some 10 years as a percent of GNP, a relatively stable world with no really serious foreign policy problem facing us at the moment, the passage of NAFTA, a major trade treaty, and the promise in the next year or two of serious health care reform. That's quite a record after 12 years of what we call divided government with a Republican President and a Democratic Congress tearing at one another.

MR. LEHRER: But you were brought in to take care of --

MR. CUTLER: I was brought in --

MR. LEHRER: -- something that you did not mention, which is, of course, Whitewater.

MR. CUTLER: Exactly. I was brought in because the so-called Whitewater crisis is developing. It's a name that's as catchy as Watergate, although the two couldn't be more different, in my judgment. And my purpose there, and I'm sure the President's purpose, is, as I said the day that I was announced, to make true the principle, George Shultz's principle, that trust is the coin of the realm in government.

MR. LEHRER: But it's been suggested how can one man come in from the outside and suddenly restore trust in the White House. Doesn't the trust have to come from a source other than the White House counsel?

MR. CUTLER: The trust obviously has to come from the President, but the President is very clear, as he said in these last two or three press conferences and meetings of the press, that he wants to show openness and maintain public confidence in the integrity of the government, and he intends to do that. And I'm there to do my best to help him.

MR. LEHRER: And are you confident that you can set up procedures and guidelines and all that kind of thing that will prevent people from doing "dumb things," which is what everybody has suggested has been happening up till now?

MR. CUTLER: There's no way to prevent people from -- no way to put in complete fire walls to prevent people from doing dumb things. But you can be very clear about what shouldn't be done. In point of fact, there were rules put in by the White House counsel at the beginning of the Clinton administration very similar to those in other administrations that covered this kind of a case and require that the White House counsel could be the only one who could initiate meetings with other government enforcement agencies involving individuals, particularly individuals relatively high up in the government, itself. Over time, those rules are like the rules you get about not going over 55 miles an hour, when you can eat in the White House mess, where you park your car. People just don't pay attention to those rules, and they need a little enforcement and a few reminders every now and then. And I think it can be done. Somebody noticed the other day that Sec. Bentsen was walking through one of those narrow, little White House corridors, and he passed a high White House official, and they wouldn't even look at one another, because they're so gun shy now about any kind of contact and what people might think it meant. People do learn their lessons.

MR. LEHRER: Yeah. Right. And you feel that you can make, make order out this, you can make this work?

MR. CUTLER: Well, I don't walk on water, but I'll certainly do the best I can, and there are some things that clearly can be done and will be done.

MR. LEHRER: Do you -- there are 10 high administration officials that have been subpoenaed to appear before this grand jury here in Washington. Is it your view that these people violated any laws, broke any laws?

MR. CUTLER: I'm still filling out my own personnel forms and financial forms. I certainly have talked to people there, and I have the impression, based on what I've seen, that the appearance of this particular set of meanings is much worse than the reality of what happened at the meetings. The reality of what happened in the meetings, as far as I can tell, is no more than initially a "heads up" to the White House that the RTC was taking and really had taken action to refer the, the so-called Whitewater case involving James MacDougal and the other bankers to the Justice Department for criminal prosecution and that one or two of the episodes which they wanted investigated related to Whitewater and peripherally mentioned the Clintons. This is not a case like Watergate, like Iran-Contra, in which a high government official is a subject of a criminal inquiry, in other words, that there's evidence that that person might have committed a crime. The Clintons just happen to be mentioned in the course of this. Some of the transactions for which other people are suspected of crimes happen to involve them. The later meetings that we know about are another story entirely. This involves the White House, itself, and there is the suspicion Sen. Dole was talking about that the White House was trying to tilt the machine to influence the course of an investigation, to stop it from happening. That is simply not so based on everything that I know. And Mr. Fiske is investigating. He's using a grand jury to take government officials and put them before a grand jury one by one, as promptly as he is doing it certainly assures the integrity of the inquiry. There's no overall defense counsel like me or anyone else who could organize all the stories together. Everybody's got to go in cold, and if he concludes, as we all hope he will, that there is nothing even remotely involving a violation of the criminal laws, of the ethical laws and what they did, I hope that will reassure everyone that this President and this administration are truly an administration that can and should be trusted.

MR. LEHRER: Sen. Dole also suggested today that Robert Altman, the No. 2 man in the Treasury Department who prompted some of these meetings, and Webster Hubbell, who's the No. 3 man at the Justice Department, should step aside until Watergate -- till the Whitewater investigation -- started to say it's in the air -- but until this investigation is completed. Do you think that would be wise?

MR. CUTLER: No, I don't think that would be wise. I think they should await the outcome of the investigation. Mr. Fiske is the Independent Counsel, now special counsel, for whom all the Republicans are clamoring, all the editorial pages were clamoring, let me him make the judgment. I remember very well that when Hamilton Jordan was first suspected or charged by a restaurant owners accused of tax evasion of sniffing cocaine in Studio 54 --

MR. LEHRER: That's a restaurant in New York, right?

MR. CUTLER: That's right. This is 15 years ago -- the question arose whether he, who was then a key aide to President Clinton, should take a leave of absence. I maintained he should not. We had an independent counsel that had been summoned by the then attorney general to look into this case, and the conclusion turned out to be the charges were entirely false. And when Roy Cohen -- the public still remembers Roy Cohen -- happened to show up as the lawyer for these two restaurant owners making the charges, the entire American press shifted sides. It wasn't: Is Hamilton Jordan a cocaine sniffer? It was: If Roy Cohen is on the side of those other fellows, then Jordan must be innocent. So I wish Roy Cohen were here right now.

MR. LEHRER: The -- there's a meeting of the Democratic National Committee going on right now in Cleveland. Several of the members were asked today -- and the Associated Press ran a story late today -- and they said, these are members of the Democratic Party leadership now saying that Mrs. Clinton should find some kind of public venue quickly to also answer questions about Whitewater. What do you think about that?

MR. CUTLER: Well, I'm going to stick to giving legal advice, if I can, but it's the kind of idea that certainly is under consideration. It is critical, it seems to me, that in dealing with a situation like this, the more that can be done to open up the facts, even if they're not 100 percent perfect, the better. Sometimes, as in something like Whitewater, an investment that the Clintons made some ten or eleven years ago, it is awfully hard to reconstruct all the facts.

MR. LEHRER: Are these kinds of questions like whether Mrs. Clinton should do this, or whether Mr. Altman should do that, or Mr. Hubbell, are these the kinds of questions that you're going to be involved in resolving for the President?

MR. CUTLER: Well, I will have a perhaps peripheral involvement in all those questions, because they all have legal aspects, but I am going to be the White House counsel. I am not going to be the chief of staff. I am not going to have any of those other responsibilities. I'll just stick to lawyering if I can.

MR. LEHRER: But of course, one of the reasons that was given, at least, for President Clinton asking you to take this White House counsel job is because you are an experienced Washington hand. Based on your experience, are you picking up the smell of blood in the air here on Whitewater? Is this thing really going to a very - -

MR. CUTLER: If you're asking me, is there something like a concealed set of tapes, is this going to turn out to be as serious in the sense of a true law violation, something that threatens the system of government, no, not in the remotest sense. Does it involve a law violation by the Clintons? I have no reason to think that it does. Perhaps there were errors in the payment of their taxes. I don't know anything about that. I'm very new in this game, and their private affairs, going back that far, are in the hands of their private counsel.

MR. LEHRER: But beyond that -- I mean, just the, the -- well, Dee Dee Myers called it the frenzy that's going on -- how does that - - I mean forget --

MR. CUTLER: That is part of the cynicism of the American public and the life of conspiracy theories. We all love conspiracy theories. If you think of the way the Vince Foster suicide has lived on and all the different stories that are being brooded about, it's going to be like the Zapruda of film and whether there was a single bullet that killed President Kennedy or not. People love conspiracy theories.

MR. LEHRER: And there's nothing not even Lloyd Cutler could do to stop that?

MR. CUTLER: It's very hard to prove negatives, but I'm certainly going to do my best for a President in whom I believe.

MR. LEHRER: All right. Mr. Cutler, thank you very much.

MR. CUTLER: Thank you. FOCUS - POLITICAL WRAP

MR. MacNeil: Now some end-of-the-week political analysis of the Cutler appointment and other matters. We get it from our regular syndicated columnist, Mark Shields. Joining him tonight is Paul Gigot of the Wall Street Journal. Mark, Lloyd Cutler sounded, as is his job to sound, very reassuring, and he was convinced personally, he said, this was not going to turn out to be a big deal, it was going to prove the Clintons innocent of any wrongdoing. He was very confident of that. Do you, do you share that confidence, that it's going to be, it's going to turn out to be a small matter when it's finally reviewed?

MR. SHIELDS: I honestly don't know. I could understand why the President would, would feel reassured while listening to Mr. Cutler, because, yes, he's a very reassuring presence. He brings to it enormous perspective, and he's a wonderful character witness, which I thought he was in the interview with Jim. But I honestly don't know. I mean, somebody suggested this week this could be the first time that a cover-up was a lot more serious than the crime or whatever the mis-step or act was that was being covered up. And when you end up with 10 people on the White House staff appearing before a grand jury, which means nothing in itself other than the fact that they testified before a grand jury, but that gives it a gravidas it didn't have before.

MR. MacNeil: Paul, what do you think about, about how this is going to turn out in the end?

MR. GIGOT: Well, like Mark, I don't think we really know how it is all going to play out, but the remark that seemed to sum things up for me this week is if it wasn't a cover-up that was going on, it sure was a good imitation of one. And they managed to, to persuade an awful lot of people, including reporters here in Washington, that they weren't being forthcoming. And I think that's what brought this relatively arcane matter from Arkansas into a, a real damaging bit of business for the Clinton presidency.

MR. MacNeil: The ABC/Washington Post Poll this week, Paul, shows Clinton's approval rating down from 58 percent to 52 percent. Is all the press coverage of Whitewater causing this, or do you see other causes?

MR. GIGOT: I think Whitewater has to be at -- ruled a part of this, because if you look at the economy, which is doing quite well, thank you, and has been now for about four, five, or six months, and a President in his first year, fourteen months in office, he should be higher than 52, I would think. He should be up in the sixties or seventies, given that there's really no other problem going on. And one Democrat I talked to, a big Clinton supporter, said that he -- he described it as the character drag on this President. And Whitewater feeds right at that problem, that maybe we're not getting what the public, I think, has, and it goes back to the campaign, that maybe we're not getting told everything that we think we ought to be told.

MR. MacNeil: How do you feel about that, Mark? Is that what's dragging the -- approval ratings were rising quite impressively for a while.

MR. SHIELDS: Rising dramatically, Robin. I think that that's solely and exclusively. If you look at just the internals in Paul's own newspaper poll published today, Americans feel better, as he pointed out, about the economy. They feel America's stronger than Japan. They feel, they really feel quite good about things and the progress that has been made. But that -- that reflection in the ABC poll I think is totally attributable to, to Whitewater, not only to Whitewater, but Whitewater has dominated the news to the point where it crowds out the good news. Today, for example, the House passed the President's budget. Now, remember what we went through last year, the historic Titanic epic struggle whether it would even get through. It passed. It isn't even used. Before the House goes home for Easter, there will be a health bill reported out from Pete Stark's subcommittee, and the Ways & Means Committee. In addition, there will be a crime bill passed by the House. There will be campaign finance reform, and yet this is crowded, and it's back somewhere in the "I will not be responsible" notices.

MR. MacNeil: Well, but it's not just we in the media who are preoccupied with this. For instance, Jim mentioned the meeting of the Democratic National Committee in Cleveland. Another part of the reports out of there say that, you know, they're all sitting around saying, we really want the White House to get this aside before the, before the campaign for the mid-term elections begins. How jittery is the party?

MR. SHIELDS: Well, they're jittery. They're jittery for this reason. They've gotten through the first year. It had been a tough first six months. Bill Clinton did not begin -- get traction really politically until the middle of 1993. And once he did, things moved. And by the end of the year, he was a lot better off. Paul's right about the economy. But he was seen as the dominant political figure. For the first time in the lifetime of 2/3 of the Democrats in the House and the Congress their fate, fortune, and future is tied to a Democrat in the White House. They were feeling pretty frisky heading into early 1994, because every non-presidential national election is essentially a referendum on the White House. So they were feeling, boy, Clinton was good, he was up at 60 percent in the numbers, and they were feeling, gee, this thing is going our way. You can see there was a Democrat Congressman named Fingerhart, a freshman from Ohio, who was getting some flack from this Republican opponent about the President and Whitewater. He pointed out -- he pointed out -- even though the President's at fund-raiser for him tonight in Cleveland, he, Eric Fingerhart, pointed out that he boasted that he had voted less with the President than any Democrat in the Ohio delegation. So you can see that jitteriness as they try and establish daylight, the dumbest political thing he could possibly do, but, nevertheless, he's trying to establish daylight.

MR. MacNeil: Paul, what can the President do about this besides what he's done so far?

MR. GIGOT: Well, obviously, one of the things he's going to try to do is change the subject. I mean, he wants to talk about health care. And I think we heard that from Lloyd Cutler earlier, listing the things that they have on their agenda and they want to accomplish and pointing to the things that they think they have accomplished. You hear a lot more about welfare and health care and so on. I think though that they also have to think very seriously about this issue of congressional hearings, because when I talk to a lot of Democrats, they're jittery very much about this notion that the Republicans and the Republican challengers are going to be able to pin a charge of trying to protect the President, of not being open. And really, the Democratic Party, when you think back to the seventies and Watergate, really was the party of the Freedom of Information Act. It has a tradition of openness. And to be seen as saying, we don't want -- we don't want congressional hearings is going to give some Republicans an issue.

MR. MacNeil: You, in a column today, you suggested that what the President should do is instantly pardon all the 10 people that have been subpoenaed. Was that facetious?

MR. GIGOT: Well, it was a bit of a facetious point to --

MR. MacNeil: Explain what you meant.

MR. GIGOT: -- run -- to make a serious point. I think that a lot of these disputes that we have going on now, and I include even some of the meetings at the White House, a lot of these things are political. They're essentially political matters. And they ought to be, they ought to be settled politically with openness in the Congress, with a free wheeling debate. And, instead, what's happened in Washington is over the last decade or two, is we've tended to criminalize policy differences the minute you make a little mistake, you go to a meeting you shouldn't have. We bring in a special counsel, and we start throwing around subpoenas. And to see the spectacle this week of people, Lisa Caputo, the deputy press secretary of the First Lady who apparently just took a phone call, of a heads up phone call from somebody in the government to have to hire attorneys and go before grand juries, there's something unseemly about it and not quite right. In a democracy, we ought to have congressional hearings, and we ought to mix it up on that level, and not start throwing people in jail.

MR. MacNeil: But the Democrats argue now, Mark, that to hold hearings now would just give Republicans a field day early in an election year. What -- what do you feel about Paul's idea?

MR. SHIELDS: I think the hearings are probably, some hearings are inevitable. Whether it will go to a special committee, certainly the special counsel, Mr. Fiske, this week strengthened the hand of those calling for hearings by saying he would be through most of the interviews he was talking about June, the hearings on the whole question of the, ofthe RTC.

MR. MacNeil: June is a long time to wait in an election year, isn't it?

MR. SHIELDS: Yeah. But if anything, it guarantees that the story stays alive. I think the Democrats on the Hill find themselves -- Paul's right -- in a defensive position, because of one word, "Silverado." Silverado is the savings & loan in which Neil Bush, President Bush's son, was a, a director, and his actions there earned him a reprimand. And the Democrats in the House held hearings at which they had Neil Bush there. I think there will be hearings. Whether there will be a special committee I think is open to doubt and open to question, but I think that, that there's no doubt that we will --

MR. MacNeil: How about -- how about the point Jim was discussing with Mr. Cutler, that there are a lot more calls -- they're not only coming out of the Democrats in Cleveland, from Mrs. Clinton to come forward now -- how essential is that? How should she do it?

MR. LEHRER: There have been discussions, political discussions on just exactly how it should be done, whether she should do "a Geraldine Ferraro." You'll recall when she was the nominee for vice president in 1984, there was a question, inquiries about her husband's finances. She held a long televised press conference where she seemed to answer everything except her hat size. Whether Mrs. Clinton should do that, whether the two of them, the President and Mrs. Clinton, choose a particular venue, this show I'm sure would be available, I would hope, but I mean, somewhere, we could certainly talk about it, but, you know, whether they go out together --

MR. MacNeil: You mean like they did on the "60 Minutes" show during the campaign?

MR. SHIELDS: The "60 Minutes." I was told this afternoon in Washington there were discussions going on just as best how to handle it. But I think the pressure is building for some sort of series of answers that even the Democrats, as you point out at Cleveland, the most stalwart supporters of the President, this is his National Committee, are suggesting that's going to be necessary.

MR. MacNeil: Do you think that would clear the air, Paul?

MR. GIGOT: Well, it would have potential to. You know, a lot of politicians have done that in the past, going back to Richard Nixon's Checkers speech, and if you give the public a sense of reassurance rather than confrontation or rather than -- that you're being forthcoming, you're trying to provide, put everything on the table, it, it could certainly help. And the thing that's been striking to me about the, these recommendations to the First Lady this week is that a lot of them are coming from our natural allies. They're not the people who might oppose her on health care. They're not just the Republicans or the conservatives. They are the certain liberal columnists, Anna Quinlan, for example, or Rudy Cohen of the Washington Post, they're saying, look, it's one thing to have this power, as you do in this White House, but if that's going to be the case, you also have to be accountable, and you, Mrs. Clinton, also have to answer questions. And I think at some point she is going to have to do that.

MR. MacNeil: Well, Paul Gigot, Mark Shields, thank you both. Jim.

MR. LEHRER: Still to come on the NewsHour tonight is a report on taxes in Michigan. FOCUS - MICHIGAN - PAYING QUESTION

MR. LEHRER: Finally tonight, financing public education. School systems across the country are struggling with new and better ways to raise money. Michigan is among those attempting to replace the property tax with other taxes as the principal means of paying for public schools. Elizabeth Brackett of Chicago public station WTTW reports.

UNIDENTIFIED MAN: And there's not enough time to recall these suckers. And that's what they are, suckers. They're a bunch of suckers who are sucking the life blood out of the state of Michigan.

MS. BRACKETT: The air waves in Michigan are full of such rhetoric. That's because Michigan voters face a tough choice on March 15th. After throwing out the property tax as the main funding source for their schools last year, they now have to decide if they want to replace it with a higher sales tax or a higher income tax, a choice that infuriates anti-tax advocate Mike Sussa.

RADIO SHOW HOST: How do you look at the March 15th ballot proposal? Do you think it's going to pass?

MIKE SUSSA: I want to tell you I don't think the plan is going to pass. I think people are pretty angry.

MS. BRACKETT: Voters are caught in this uncomfortable bind, because last summer Michigan decided to reform its school funding formula. Responding to voters' anger over ever-rising property taxes and widespread inequities from school district to school district, the state legislature dumped the property tax completely.

KIRK PROFIT, Michigan State Representative: It does not work when you base education on property wealth. I think it is the most un- American thing that we can do, to tell a child that you get educated if you have property wealth, but if you don't have property wealth, you're subject to prison, unemployment, and other third world educators. We need to throw this out and start fresh.

MS. BRACKETT: The hope was with the property tax gone, the inequities would go as well. No longer would school districts with lower property values get less funding. No longer would some Detroit schools slide by with revenues of $3,000 per student, overcrowded classrooms, and school buildings heated by coal furnaces, while nearby suburban Bloomfield Hills schools would spend over $10,000 per student, with enough money to build high- tech TV studios. The goal was with a new funding formula, the gap between rich and poor would close.

VIRGINIA BIGGS Detroit Parent: There's no difference in their kids than our kids. Our kids are smart like their kids. So really there's no -- hey, we want what's best for our kids like people in the suburbs want for their kids.

MS. BRACKETT: The question was: What would that new formula be? What tax would be needed to replace the $6 billion the schools lost in the property tax cut? The governor thought the solution was a 2 cent hike in the sales tax.

GOV. JOHN ENGLER, Michigan: I'm strongly in favor of the sales tax. You know, when someone from Michigan travels to Chicago, or goes out to New York, or even goes over the bridge into Canada, they pay sales tax as well in excess of 8 percent. What we're suggesting is the Michigan tax go from 4 cents to 6 cents. That would leave us below the regional average in the Great Lakes area, be right on the national average.

MS. BRACKETT: But the Michigan constitution says the sales tax can't be raised without voter approval, and for years, voters have turned sales tax hikes down. Worried that the same thing would happen this time, leaving the schools without funding, Democratic Gubernatorial candidate Lynn Jondahl wanted a fallback position. He led a bipartisan coalition in the state house that called for an automatic 2 percent race in the state income tax if the sales tax proposal lost.

LYNN JONDAHL, State Representative: If you look at patterns over a period of years -- by that I mean five, ten, fifteen, twenty years -- what you see is that the income tax has, has been a growing base of, of revenues, whereas, there are many more up and down turns in the sales tax, so that you see greater stability in the income tax.

MS. BRACKETT: After five months of wrangling in a twenty-eight hour marathon session that ended on Christmas eve, the legislature and the governor finally cut a deal. There would be a vote on the sales tax hike, but the anti-tax governor had to sign onto the income tax hike as a back-up. The deal left voters with no way out. A "no" vote for the sales tax hike would mean a "yes" for an income tax hike.

GOV. JOHN ENGLER: And I've called it the super bowl of taxation. It's the income tax versus the sales tax. And the sales tax is going to beat the income tax, because the people in Michigan understand everybody pays the sales tax, not everybody pays the income tax.

UNIDENTIFIED WOMAN: I say that both proposals that have been presented for the people of Michigan to make a choice between are both bad.

MS. BRACKETT: Stumping for the sales tax hike in Macomb County, home of Michigan's strong anti-tax movement, the governor didn't find many voters anxious to play in his super bowl. Instead, the governor, who built his conservative Republican credentials on his pledge to cut property taxes, found that voters have short memories. Forced to choose between the sales tax or the income tax, many had already forgotten the property tax cut.

GOV. JOHN ENGLER: What's the valuation of your house?

SECOND UNIDENTIFIED WOMAN: Thirty-two.

GOV. JOHN ENGLER: So you're going to pay 2 cents more on your sales, and let's say that you probably -- let's say you spend $10,000. The 2 cents is worth $200 on sales tax, extra. You save $1200 on property taxes. You paid $200 more on sales.

SECOND UNIDENTIFIED WOMAN: In the long run, I'm going to end up paying in another tax, am I not?

GOV. JOHN ENGLER: Yeah, $200 in sales tax. It works very well for you, because your savings are so significant on your house that no matter what the deductibility is or what you might be spending in sales tax, you're money ahead.

MS. BRACKETT: Not only are the anti-tax activists mad at the governor, parents in wealthy suburban school districts are mad as well.

NADA JUDGE, Bloomfield Hills Parent: I feel like this whole thing has been nothing but a political game. My kids are used as pawns in this game. The prize is the November election. And I'm mad.

MS. BRACKETT: They're angry about the way the fiscal reforms try to correct the inequities between rich and poor school districts. No matter which new tax the voters choose to fund the schools, a sales tax or an income tax, the basic grant the state gives each student will be higher. Every school in the state will eventually get a grant ranging between five thousand and sixty-five hundred dollars per student. Wealthy districts like Bloomfield Hills that now spend more than that will be allowed to keep using property taxes to maintain their current level of spending. But in order to continue to narrow the spending gap between districts, there is a cap on future spending by wealthy districts.

VICKIE ADLER, Bloomfield Hills Parent: I still don't get why other people can tell us what, what we can do for our kids. I mean, isn't there like some kind of a rule about being able to tax yourself? I mean, we want to tax ourselves to have good schools. It's a terrible crime.

MS. BRACKETT: The cap infuriates parents in Bloomfield Hills. They worry that a cap on growth will affect the quality of schools.

HOWARD ELLMAN, Bloomfield Hills Parent: It's -- my priority as a parent to get the best quality education for my kids, and I want to live in a certain area to do that. I am now being told it can only be this quality, and that's the best quality you'll ever have, because in Lansing, they're telling me I can't have better quality.

MS. BRACKETT: They say it's not just an issue of money; it's an issue of control. Bloomfield Hills Superintendent Robert Docking.

ROBERT DOCKING, Bloomfield Hills School Superintendent: In the past, virtually all of our revenue came from local sources. That's where it came from. We received virtually no money from the state. Under this plan, it's flipped upside down. I could show you six pages of new reports that we're going to have to do next year that we've never had to do before. The paper flow is going to be enormous, and if they aren't done by such and such a date, we don't get our revenue. It's an enter paradigm shift from what we're used to. And so talking about enhancing local control under this new model is just a folly. It's not going to happen. The control is going to go to the state where the money is distributed. That's reality. And to believe anything else is naive.

MS. BRACKETT: Docking and others accuse the Republican governor of taking control of the dollars to promote his own conservative view of education reform. When they blew up the funding formula last summer, all sides agreed that education reform was just as necessary as fiscal reform. The governor put his plan on the table in an October speech to the legislature.

GOV. JOHN ENGLER: [October 1993] Public education is a monopoly, and monopolies don't work. [applause] Why? Because in a monopoly, customers don't come first. Today I propose to state fund not the system but the students. [applause] Let parents choose the public school they want their kids to be attending and have a foundation grant follow the kids to the school they've chosen. The customer decides. That's the American way, and that will be the Michigan way.

MS. BRACKETT: The debate in Michigan mirrored the debate over the reform of public education across the country. Should the present system be saved, or should it be thrown out? Gov. Engler wanted much of it thrown out. Along with the money following the student and parental choice, he also proposed charter schools, public schools organized by parents, teachers, a corporation, or others who have been granted a charter from a public body. Detroit school board member Lawrence Patrick and former member David Olmstead see charter schools as more effective than the present system.

DAVID OLMSTEAD, Former Detroit School Board Member: Is the present system working? Does anybody truly think that the present system is working? Now our notion of charter schools there is essentially four freedoms. You know, freedom from the top-down control of the administration, freedom from union work rules which are systemwide, which are essentially geared to make sure that teachers don't work harder in one school than they do in another, and then the other freedoms are freedom against intrusive broad policies and intrusive legislation.

LAWRENCE PATRICK, Former Detroit School Board Member: Charters provide an opportunity for the market forces to work as David talked about. And when you have that type of freedom where people are being able to do the best that they can do to provide an outstanding service and folks are free to select that service for their children, you're going to get competition.

MS. BRACKETT: But many educators and most Democrats in the legislature were not ready to rip up the whole system in the name of reform. Democrats saw the choice and charter school proposals as an attempt to try and fund what were essentially private schools with public funds.

LYNN JONDAHL: It's a very elitist strategy and a very elitist concept. Schools of choice, charter, vouchers I see as code words for elitism, and that's not what we need. What we need is, is to be sure that every school is a choice school, and that we're putting the adequate resources into that.

MS. BRACKETT: The governor got only a watered down version of his charter schools proposal, but there were reforms passed that changed the system from within: a required core curriculum, a stronger school year, academic performance standards, and teacher retraining. But many in the education establishment are suspicious of the reforms they now have to carry out.

ROBERT DOCKING: They created a crisis, and in a very short period of time, less than a half a year, they made some hasty decisions that will take different forms as they find out that they don't work the way they thought they did. I give them high grades for coming up with a different tax structure than we had. I think that's good. I think that what they've done in terms of distributing the money differently is more equitable than it's been in the past, and I give them high grades for that.

MS. BRACKETT: Now the governor has to try and convince voters that education not just its funding has been reformed in Michigan.

GOV. JOHN ENGLER: There are other things that we want to do but the basics are all in place. If nothing else happened, we have enough now to assure that Michigan education by the end of this century will look very different than it looks today. And that, to me, is very exciting.

MS. BRACKETT: But when voters stand in the voting booth on March 15th trying to decide between an increase in their sales tax or their income tax, it may be cover, not credit, that the governor will be looking for. RECAP

MR. MacNeil: Again, the major stories of this Friday, the White House criticized the media for reporting unsubstantiated rumors about the Whitewater affair and charged Republicans with fanning the controversy for political gain. China arrested two more pro- democracy activists as Sec. of State Christopher arrived for talks on human rights. And the PLO agreed to resume peace talks in Israel after breaking off negotiations following the Hebron mosque massacre. Good night, Jim.

MR. LEHRER: Good night, Robin. We'll see you on Monday night. Have a nice weekend. I'm Jim Lehrer. Thank you, and good night.