Budget deficit falls below 2004 record

WASHINGTON — The federal deficit hit $319 billion for the budget year just ended, down from last year's record red ink though a surge in Katrina-driven spending threatens to drive it up again.

The improvement from the record $413 billion recorded in the 2004 budget year, which the Treasury Department reported on Friday, is largely due to a surge in federal revenues from an improving economy.

The figures were released three days before Congress returns from a recess and commences a struggle to cut $35 billion from federal benefit programs over the next five years to help defray hurricane recovery costs. Friday's deficit figures underscored that even if lawmakers agree to such savings, they would have a barely visible effect on the overall red ink figure.

Despite the improvement from last year's budget gap, the 2005 shortfall was still the third-highest ever recorded. The government's 2005 budget year ended on Sept. 30.

Because hurricanes Katrina and Rita hit in August and September, only about $4 billion of the $62 billion in emergency aid provided for the storms was actually spent in fiscal 2005, according to a senior Treasury official. Congressional analysts figure another $30 billion of those funds will be spent in the budget year that began Oct. 1, though more spending is likely to be approved in coming weeks.

The most recent White House estimate for the new fiscal year projects a $341 billion deficit, but that was issued before the hurricanes hit.

Republicans emphasized that the figure was an improvement from earlier deficit projections.

At the beginning of this year, the White House projected a $427 billion shortfall for 2005, which would have set another record in sheer dollar terms. The Congressional Budget Office forecast a gap of $365 billion, although both lowered their forecasts as the year progressed.

The improvements were due to a surge of 15 percent in federal revenues over 2004 levels. Meanwhile, spending went up 8 percent.

"Lower taxes and pro-growth economic policies have created millions of jobs and a growing economy that has swelled tax revenues over the past year," said Treasury Secretary John Snow. "While deficits are never welcome, the fact that we finished FY 2005 with a much lower-than-expected deficit is encouraging news."