Budget Bind May Squeeze State’s Aid, Clinton Says : Recovery: During Southland visit, he warns of pressure for spending cuts and hears ideas for economic development. He announces $46-million grant for L.A.

President Clinton warned Southern California leaders Saturday that the Administration’s fledgling effort to help the state’s economy is threatened by growing political pressure for deeper budget cuts.

Chairing an economic brainstorming session at Rockwell International Corp.’s Canoga Park plant during his eighth presidential visit to the state, Clinton promised that the government will increase spending to invest in California “as we can.” He announced that as part of that effort, Los Angeles will receive a $46-million housing assistance grant.

But he said that increases are in aid to California are part of a delicately balanced spending and cost-cutting effort that could be upended by pressure for cuts in the federal deficit from the business community and other quarters.

Clinton called the pressure for more budget-cutting--including a balanced-budget amendment to the Constitution--”a real conflict that the American people have imposed on the Congress and me. . . . We don’t need to glaze it over.”

But he also said that California’s economic problems won’t be relieved if “political pressures force us to overlook the economic realities” that require more spending to develop new industries and retrain the labor force.

Clinton’s warning came near the first anniversary of his wide-ranging federal effort to help California, an initiative that has gotten mixed reviews from state leaders.

Styled as a sort of California economic summit, the 3 1/2-hour gathering at the aerospace company brought together the state’s two Democratic senators, Dianne Feinstein and Barbara Boxer, Los Angeles Mayor Richard Riordan, members of Congress, top state officials and legislators, and business and community leaders.

The meeting was billed as an effort to shake loose new economic development ideas, and the 32 speakers were more than willing to offer their thoughts on how Clinton’s cash-strapped government could help the state through its worst recession since the 1930s.

They urged an increase in transportation spending, job-training programs, loans for small business, export promotion and minority set-aside programs. Clinton was also asked to ease bank rules, add more police, use pension money for infrastructure spending and to pick Los Angeles as the site of the 1996 Democratic National Convention.

“Thanks for being specific,” Clinton said at the close of the meeting, which was modeled on the national economic summit he held a year ago in Little Rock, Ark., before taking office.

The meeting hall was a cavernous warehouse where the space shuttles’ main engines are assembled. Beneath 35-foot ceilings and flanked by Riordan and Commerce Secretary Ronald H. Brown, Clinton sat in front of a huge model of an engine adorned with the presidential seal.

Overhead were banners touting the company’s shuttle work, including one that read, “America’s Pride: The Journey Continues & Continues.”

After the meeting, Clinton addressed an enthusiastic gathering of about 2,000 employees of the aerospace giant’s Rocketdyne Division, which makes the shuttle engines.

Although it played a role in the Ronald Reagan-era “Star Wars” missile defense program, Rockwell has been trying for years to shift from defense to commercial business; thus, its selection allowed the White House to illustrate that such transitions can be successful.

Clinton has promised that economic help for the state would be a keystone of his domestic effort, in part because California’s economic recovery may be a necessary condition for a full national recovery. With its 54 electoral votes, the state is also crucial to Clinton’s political hopes in 1996.

Later Saturday, the President was to make his first public appearance since last spring in the company of Hollywood stars at a Democratic fund-raiser at the Creative Artists Agency headquarters in Beverly Hills.

The event’s guest list included Kevin Costner, Warren Beatty, Meryl Streep, Glenn Close and Whoopi Goldberg. Ticket prices ranged from $1,000 to $2,500.

Following that, a second, even more exclusive fund-raiser was scheduled at the home of business mogul Marvin Davis. Its 170 invitees--including Frank Sinatra, David Geffen and Steven Spielberg--were to pay $25,000 to $100,000 a plate.

Together, the fund-raisers were expected to raise $2 million.

To make his audience more receptive to his message Saturday, Clinton sprinkled in news of various new initiatives for the state, which has had an unemployment rate near 10% for most of the year.

The President announced the $46-million housing grant for Los Angeles that will put young people to work rehabilitating the Pico Gardens, Aliso South and Aliso North public housing projects. The sum is the largest grant given under the program to any city.

He also said the Labor Department will unveil next week a $14-million program to help retrain defense-related workers at GTE, Westinghouse, Lockheed, General Motors and McDonnell Douglas.

And Clinton repeated promises that the White House will soon announce an initiative aimed at retraining any workers who lose their jobs as a result of the North American Free Trade Agreement.

As Clinton headed for California on Friday, the White House announced $155 million in federal matching funds for a new round of research projects to develop peacetime uses for defense technologies.

The President mounted a vigorous defense of his Administration’s efforts for California, but also took pains to stress the limits of what he can do for the state.

He outlined initiatives that include a five-year, $19.5-billion defense-conversion plan; the lifting of restrictions on $37 billion in high-tech exports; efforts to expand trade with Mexico, Asia and Europe and the deficit-cutting program that--by lowering interest rates--should help California.

He pointed to signs of a national economic recovery, including a rise in housing starts and corporate profits, a decline in national unemployment and lower interest rates.

“We are coming back, and that will benefit the state of California and the people who live here,” he said.

But Clinton’s analysis also acknowledged that “there is no silver bullet. . . . We can turn it around, (but) it won’t happen in a day.”

The President discussed the economic costs of crime--a theme that has become a favorite of his in recent months--citing a recent article in Business Week magazine asserting that crime costs the nation $425 billion a year.

“If we had $425 billion to invest in this country, we could lower the unemployment rate by 3% in California within a year,” he said.

Clinton suggested that the federal government may be able to expand its “technology reinvestment project,” the segment of the defense-conversion effort that is seeking ways to find civilian applications for high-tech defense technologies.

Although some analysts and industry leaders are skeptical of the program’s payoff, Clinton said the Administration hopes “we will be able to find even more money for this process next year, and we will be able to do it again.”

He gave highly tentative support to a proposal from Boxer to tap the billions in pension funds to finance huge public works programs.

Boxer said there is $4 trillion to $6 trillion in such funds, and that such financial experts as New York financier Felix Rohatyn had agreed that such assets could be safely put to use.

“They’re sitting out there--we could put those dollars to work,” Boxer said.

Clinton said the idea deserves “very careful study,” noting that proposals to use retirement money make some people “very nervous.”

He said the proposals should be limited to using only a modest share of the assets of such funds. But he said that in an era of low interest rates, some companies’ unfunded pension liabilities had grown sharply higher, creating strains that could be relieved to some extent by higher-yielding investments.

The elected officials made various pleas for special relief.

Boxer argued that because California has already suffered greatly from defense cutbacks, the state should be spared any further military base closures.

“Please, Mr. President, tell your department to consider regional fairness,” she said. “I don’t know if we can absorb any more,” she said.

Feinstein told Clinton that he should embark on a targeted program of small-business lending. She argued that $100 million in new loans would generate 400,000 jobs nationwide.

She said she worried that California still faces defense cuts that have been approved but not carried out, including “$11 billion in Clinton defense cuts and $5 billion in (George) Bush defense cuts.” California would be hardest hit by them, she said.

The 2,000 Rockwell workers who showed up to hear Clinton had crammed into another rocket engine assembly room.

With cameras, binoculars, spouses and children, those workers present were picked by lottery and--like the rest of Rocketdyne’s employees--had heard rumblings of Clinton’s visit just a day before it was announced.

“There wasn’t much notice of it at all,” said Fred Friday, a 37-year employee who said he worked his way up from an assembly line worker to a product manager for the space shuttle engine.

Although he didn’t vote for Clinton and expressed skepticism about the President’s claims of an economic recovery, Friday said he was proud of Rockwell and welcomed the $2.6-million defense conversion grant that its Rocketdyne Division had won.

The money will be used to develop the “EcoScan” a portable device capable of identifying hazardous materials from a distance.

“Every little bit helps,” Friday said.

Others were less generous in their reactions, calling the technology reinvestment program award “a bone” and predicting that it would do little, if anything, to create jobs.

“It’ll go to R&D;,” shrugged toolmaker Kerry Gunther, meaning research and development.

Sally Jean Boors, a quality inspector who has worked at Rockwell for 14 years, said she was bitterly opposed to the defense budget cuts that have made job loss a constant fear.

“We need defense, not conversion,” she said.

“We don’t need Pearl Harbor again,” added Boors, who said she lost two uncles in the 1942 surprise attack.