Clinton Agrees to Cut Plans for U.S. Spending : Economy: Downsizing is in response to pressure from Congress. President would emphasize such programs as Head Start and nutrition, scale back public works.

President Clinton has agreed to scale back and delay key elements of his long-term domestic agenda, signaling his willingness to slash funds for transportation, public health, environmental and poverty programs in the face of congressional demands for further spending cuts, Administration officials said Tuesday.

In highly sensitive, closed-door negotiations with congressional leaders, Administration officials have made it clear that they will not fight congressional efforts to cut back spending on a wide range of programs that only a few weeks ago the White House considered central to the President’s long-term economic agenda.

Among the most controversial moves could be the Administration’s decision to drop its request for $161 million in new subsidies to help poor people pay their home heating bills. That decision comes at a time when--in separate negotiations with lobbyists and congressional leaders over the President’s tax proposals--the Administration has cut special deals that will allow some energy producers to avoid paying Clinton’s proposed energy tax. Included are the ethanol and methanol industries.

Leon E. Panetta, director of the White House Office of Management and Budget, has told congressional leaders that President Clinton’s top domestic spending priorities now are increased funding for Head Start; the Women, Infants and Children nutrition program; his national service initiative and further assistance for displaced workers from ailing industries like defense.

The White House has indicated that it intends to make those programs the core of a down-sized “investment agenda” that it will fight to protect as the President’s budget moves through the congressional committee process.

The President’s decision to emphasize such programs as Head Start and the nutrition program--while scaling back public works initiatives in areas like highway construction--raises questions about whether his package can still be characterized as a public “investment” agenda, since it will offer far less spending that might enhance the nation’s productivity and competitiveness. Instead, the changes seem certain to make Clinton’s long-term package look much more like a grab-bag of domestic spending programs.

“To the extent that all this gets whittled down, you are left with traditional Democratic programs and that becomes a much harder sell for Clinton,” warned Jeff Faux, president of the Economic Policy Institute, a liberal Washington think tank with close ties to the Administration.

Yet Clinton has had to jettison other so-called “investment” programs because of stringent budget ceilings imposed by Congress earlier this year for fiscal 1994. Clinton’s budget released in April exceeded those caps by $8 billion in new domestic spending, forcing the Administration into a showdown with congressional barons over spending priorities.

To find room under the budget ceiling for Clinton’s new initiatives, cuts in long-standing programs favored by key lawmakers would have to be made. Officials said that Clinton still wants such cuts.

To preserve at least part of the President’s agenda, the White House gave key committee chairmen a list of which domestic initiatives it wants the most and which it would be willing to sacrifice. Panetta presented the list last week to Senate Appropriations Chairman Robert C. Byrd (D-W.Va.) and House Appropriations Chairman William H. Natcher (D-Ky.). While the overall budget blueprint was approved by Congress in March, the Appropriations committees are just now beginning to debate whether to provide funding for specific programs.

In a delicate negotiating dance with Congress, Panetta’s list did not include funding levels that the Administration would be willing to accept for each program on the President’s agenda. Instead, the Administration simply urged full funding for those programs at the top of the list and indicated a willingness to compromise on the rest. The effect was to signal to congressional leaders that programs not at the top of the list are fair game for deep cuts.

Other provisions in Clinton’s original investment agenda were left off Panetta’s list entirely, indicating that the White House has decided not to try to save them from the congressional ax.

The subsidies to help low-income Americans pay their utility bills falls into that category, sources said. The decision on that program comes amid criticism of the President for granting special exemptions to industry in his energy tax proposal.

In addition, the Administration’s agreement to permit the energy tax to be levied on consumers directly--by allowing utilities to charge it as a line on home heating bills--also has raised questions about Clinton’s willingness to give in to special interests. Originally, Clinton had proposed that his energy tax be levied on producers at the point of production. But the President gave in to demands from energy producers and their supporters in Congress who were concerned that producers might have to absorb some of the costs and deal with the administrative headache of the tax’s collection.

The list of priorities given to the Appropriations chairmen last week also showed that the White House is willing to cut spending in virtually every other area of its domestic agenda.

For instance, funding for transportation and highway construction projects originally was seen by the White House as at the heart of Clinton’s pledge to reverse the long-term decline in government spending on the nation’s infrastructure. Although the Administration has not said how much of a reduction in that area it will accept, it mentioned some specific programs that it would be willing to abandon.

Head Start, the nutrition program for poor women and children, national service and other programs still at the top of the Administration’s wish list long have been favorites of both President Clinton and First Lady Hillary Rodham Clinton.

The displaced workers program, which also has been labeled a priority, is a favorite of Labor Secretary Robert B. Reich, who believes that expanded retraining assistance for workers who lose their jobs because of foreign competition is crucial to winning passage of the North American Free Trade Agreement, which would create a free-trade zone among Canada, Mexico and the United States.

The displaced workers program also is central to the Administration’s efforts to develop a broader defense conversion package, which would be aimed at regions such as Southern California that have been hit hard by defense cutbacks.