Panetta Is Crusader for Deficit Cuts : Transition: California lawmaker is said to be Clinton’s choice as budget director. His selection may signal tough measures to restrain spending.

Perhaps no other politician--not even Ross Perot--has done more preaching about the dangers of the federal budget deficit than the man President-elect Bill Clinton is said to have chosen as his new budget director: Rep. Leon E. Panetta.

If Clinton appoints the Carmel Valley congressman as director of the Office of Management and Budget, as he is expected to do Thursday, it is likely to be seen as a signal that the new Administration intends to take stern measures to restrain federal spending.

As chairman of the House Budget Committee since 1989, Panetta has been a tireless voice for deficit reduction--even when his fellow Democrats were pleading for more spending.

“Leon is passionately committed to deficit reduction,” observed Rep. Howard L. Berman (D-Panorama City), who serves with Panetta on the Budget Committee. “He doesn’t believe that we’ve done nearly enough about it.”

As such, Panetta’s appointment would be cause for rejoicing for fiscal conservatives on Wall Street. But he will be greeted with much less enthusiasm by governors and municipal leaders who are counting on the Clinton Administration to lift restraints on federal spending to stimulate the economy and fund many programs that were trimmed in the Reagan-Bush years.

“The guy is deadly serious about deficit reduction, and he’s not going to go along with spending money for the sake of spending money,” said Frank Shafroth, federal relations director for the National League of Cities. “It is going to disappoint those who expect that under Clinton some mystical floodgates will open up and money will come rushing out.”

In fact, Panetta’s commitment to deficit reduction far exceeds the emphasis that Clinton has sometimes put on it. During the recent election campaign, he was the only leading Democrat to criticize Clinton openly for failing to fully recognize the seriousness of the nation’s deficit-spending problem.

Nor will Panetta be entirely in sync with Clinton’s other economic advisers.

In addition to Panetta, sources said, Clinton has chosen Sen. Lloyd Bentsen (D-Tex.) as Treasury secretary, Robert E. Rubin, co-chairman of Goldman, Sachs & Co., as White House economic security adviser and economist Lawrence Summers as chairman of the Council of Economic Advisers.

Bentsen, for one, espouses an economic philosophy that differs from Panetta’s. Instead of emphasizing deficit reduction, Bentsen, now chairman of the Senate Finance Committee, argues that the government must do more through tax policy to stimulate private investment in the economy.

Yet despite these differences, Panetta impressed Clinton when the two men huddled for two hours recently at the governor’s mansion in Little Rock, Ark. “By all accounts,” said Thomas Mann, analyst at the Brookings Institution, “they just really hit it off well.”

In Panetta, Clinton has found many of the qualities that he said would be important in his top-level appointees.

A Republican-turned-Democrat, Panetta comes with the bipartisan credentials that Clinton has been seeking. An eight-term congressman, he commands enough respect on Capitol Hill to effectively sell the Administration’s program in Congress.

Moreover, Panetta has something that Richard G. Darman, the current OMB director, has been criticized for lacking: an affable personality. While Darman’s abrasiveness has sometimes created enemies, Panetta’s likability makes him an effective consensus builder.

“He always seems to be reasonable and sensible,” Mann said.

In addition, Panetta combines an intuitive political sense with a mastery of arcane budget issues, skills that will be valuable to Clinton when the new President sits down to map out the details of his economic program.

A Republican in his youth, Panetta, 54, began his political career working for such party officials as former Sen. Thomas H. Kuchel of California, President Richard M. Nixon and former New York City Mayor John V. Lindsay. But after being fired by Nixon for being too aggressive as chief of the Administration’s civil rights office, he became a Democrat.

Perhaps as a result of his GOP past, Panetta has never been viewed as sufficiently partisan by some of his liberal Democratic colleagues in the House. Just last year, he angered other Democrats by refusing to go along with a proposal to move money from the defense budget to transportation projects simply to demonstrate his party’s commitment to increased domestic spending.

Even in his personal life, Panetta is known as frugal. For the last decade, he has occupied a tiny rented house near the Capitol with four other congressmen; he finances much of his official travel with frequent-flyer credits, and his wife, Sylvia, receives no pay for running his congressional office in California.

As Budget Committee chairman, Panetta has struggled to bring the same frugality to the federal budget. Each year, Berman said, the chairman showered committee members with “wastebaskets full” of options for deficit reduction that were never adopted.

A California colleague, Rep. Robert T. Matsui (D-Sacramento), said Panetta often knows more details about the budget than officials of the Congressional Budget Office. “He can give numbers that many members would think were too obscure to be interested in,” Matsui said.

In 1990, Panetta played a key role in negotiating the budget agreement between Congress and President Bush. In the end, Bush went along with the argument put forth by Panetta and others that new revenues were needed. That pact broke Bush’s “no new taxes” pledge.

Philosophically, Panetta does not share the view of many Democrats that entitlement programs should be off limits from budget cuts. As Clinton’s budget chief, he is expected to argue for raising taxes on Social Security benefits and for a means test for Medicare benefits.

If Clinton proposes a quick-fix economic stimulus package, as he has promised, his associates said that the new President will support increases in a few carefully selected programs that promote long-term economic growth, but only if they are combined with a plan for deficit reduction.

If the new Administration adopts Panetta’s views, many analysts think Clinton will succeed in enacting his economic program.

“In fact,” said Ellen Nissenbaum, legislative director for the Center on Budget Priorities, “the only way to get an economic stimulus package passed by Congress is to couple it with deficit reduction.”