Clinton’s Budget Tops $1.5 Trillion, Reduces Red Ink : Economy: The plan cuts 115 programs and trims defense and domestic spending. It includes a deficit of $176 billion, down from projections of $302 billion.

President Clinton on Monday unveiled an austere federal budget for fiscal 1995 that calls for elimination of 115 long-established programs, significant reductions in defense and domestic outlays and only slight increases for the Administration’s top priorities.

The Administration’s $1.52-trillion budget is designed to advance the President’s agenda within the modest bounds permitted by tough new spending caps while still meeting the deficit reduction targets included in the economic plan passed by Congress in August.

Yet the funding shifts and program curtailments it proposes are certain to provoke bitter struggles among affected interest groups and their allies in Congress. Liberal Democrats already are accusing Clinton of failing to honor his campaign promises to reverse the effects of 12 years of Republican rule and reinvigorate social spending.

Clinton, speaking to a business group in Houston, said that the budget demonstrates that “we mean business” about bringing down the federal deficit. “It’s the toughest budget on spending cuts that Congress has yet seen,” the President declared.

The White House estimates that its budget will leave the government with a deficit of $176 billion in the fiscal year beginning Oct. 1, down from $235 billion this year. Next year’s projected shortfall is far below the $302-billion estimate made a year ago.

The numbers could change yet again: The budget reflects very little of Clinton’s health care and welfare reform initiatives, which will be dealt with in separate legislation. Those programs could significantly alter the spending and deficit outlook.

Leon E. Panetta, director of the White House Office of Management and Budget, said that the bulk of the reduction in the projected 1995 shortfall is attributable to passage last year of Clinton’s economic plan, which raised taxes and cut spending in an effort to improve the long-term health of the economy.

“This is the most consistent deficit reduction effort in 40 years,” Panetta said during a White House press conference. “This is a budget intended to keep the nation, our economic recovery, and the investment strategy the President began last year on track.”

Although the President and his lieutenants outlined their budgetary objectives in expansive terms, Clinton’s second budget really represents a standstill spending plan for a government caught in an ever-tightening fiscal vise. It proposes about $30 billion in cuts in discretionary domestic outlays in 1995, partly offset by $16 billion in new spending on other domestic programs.

For example, to find money for such priorities as the Head Start preschool program, the hiring of thousands of new police officers and an expanded job training and youth apprenticeship initiative, Clinton wants to reduce funding for mass transit systems by 25%, sharply scale back energy assistance for the poor and stop funding construction of public housing units.

Most of the net savings projected by Clinton’s budget would come from reductions in the defense budget as the Pentagon continues to adjust to the realities of the post-Cold War world. Domestic departments, in contrast, would use most of the funds generated by cuts in some of their programs to pay for increases in others.

Clinton has been forced by the spending caps in last year’s deficit agreement to draft a budget that calls for a slight decline in total “discretionary” outlays for defense and domestic programs. Discretionary spending, at $542 billion, accounts for roughly a third of the total federal budget. The remaining two-thirds, about $976 billion, is allocated to “mandatory” spending: benefits paid under Medicare, Medicaid, Social Security and other entitlement programs and interest on the national debt. Those outlays are not subject to the annual appropriation process and will continue to grow under Clinton’s spending plan.

In fact, Administration officials said their new budget provides fresh evidence that health care costs are now the main culprit in driving up the deficit, underscoring the need for comprehensive health care reform. They said that they believe the looming battle over health care reform will dominate the budgetary and economic agendas for 1994.

The Administration did not include the cost of its health care reform plan or its welfare reform initiative in the 1995 budget. Critics argue that once those big programs are passed by Congress, Clinton’s budget--and the federal deficit--will balloon.

Since the Administration is not proposing any broad new taxes, the budget battle in Congress is expected to be less brutal than last summer’s struggle over Clinton’s five-year economic plan. Still, the 1995 budget contains a few revenue-raisers: Clinton wants to quadruple the federal cigarette tax to 99 cents a pack to help pay for health care reform, and he is proposing $1.5 billion in new fees paid by gun dealers, national park visitors and other users of federal services.

Even if taxes do not dominate the debate, Republicans and moderate Democrats are sure to attack the White House for not imposing deeper spending cuts. Another vote on a balanced budget amendment to the Constitution is scheduled in Congress this spring.

Clinton has been hoping to shift gears this year from deficit reduction to new spending on long-neglected domestic and social problems, and his budget offers a road map of the ideas and initiatives he wants to pursue: education reform, job training and apprenticeship programs, Head Start and childhood immunization, and high-technology initiatives such as development of the “information superhighway.”

At the same time, almost all of the initiatives and ideas Clinton wants to emphasize fall short of his Administration’s initial goals, revealing what has become the central dilemma of his presidency: Each time Clinton has had to reconcile deficit reduction with “investment” spending, cutting the deficit has carried the day.

The Commerce Department is a good example: Forty-six small programs, mostly in the National Oceanic and Atmospheric Administration, would be eliminated or sharply scaled back. Yet the department’s budget would go up 18% to provide funds for the White House technology initiative, defense conversion and development of the information superhighway.

“I am one of the few Cabinet members with a smile on my face this morning, given the release of this budget,” observed Commerce Secretary Ronald H. Brown.

The caps imposed by last year’s economic plan will take a real bite out of federal spending next year. In fact, Clinton’s budget calls for an overall decline in discretionary spending deeper than the cuts imposed by President Ronald Reagan following his first year in office. From 1981 to 1982, the Reagan Administration reduced discretionary spending by $6.6 billion; Clinton’s budget shows a $17.7-billion decline in discretionary domestic and defense outlays from fiscal 1994 levels.

Panetta insisted that the Administration’s budget-cutting effort will be credible, with no “gimmicks or smoke and mirrors.” Still, to preserve some key initiatives while cutting spending, the government will have to engage in some questionable accounting practices.

For example, Clinton and Congress are so anxious to use the savings resulting from the elimination of 118,300 federal jobs in 1995 that they essentially have double-counted the money; the Administration counts it toward deficit reduction while the Senate says it should go to help pay for Clinton’s $2.7-billion crime initiative.

Here is a more detailed look at the direction the Clinton agenda will take over the coming year.

Health

The agency’s budget of $673 billion, up 6.5%, targets investments in three broad priority areas--health prevention, children’s programs and customer service--at the expense of other areas within the department, according to Secretary Donna Shalala.

Funding for Head Start would grow 21% to more than $4 billion. Childhood immunization would increase 28% to $888 million. Funding would jump 15% to more than $1 billion for child care and development block grants, which allow parents to work or participate in job training.

Outlays for the National Institutes of Health would increase 4.7% to $11.4 billion, with $2.7 billion targeted for AIDS research, prevention and treatment, a 6% increase.

Defense

President Clinton is trying to walk a tightrope with his 1995 Pentagon budget. He is seeking to speed up the planned cutback in defense spending without sacrificing military readiness.

The President’s proposal for $264 billion in military spending marks the start of a five-year Pentagon budget plan that cumulatively will slash $103 billion more than the one proposed by the George Bush Administration.

But while the budget for 1995 technically marks a slight increase from the current year’s figure of $261 billion, it actually amounts to a 1% cut after accounting for inflation.

Crime

The Justice Department is at the top of the list of budgetary winners, with a 1995 spending plan that grows by 24%, or $2.7 billion, to $13.7 billion.

The programs would put more police on the streets, place more violent criminals in prison, combat juvenile violence and develop “boot camps” for young offenders, along with other punitive and rehabilitative measures.

The budget provides $1.7 billion to hire police officers. When combined with local matching funds, the money would put 50,000 officers on the street, Justice officials said.

Science

The Administration is proposing $71 billion in research and development, an increase of $2.5 billion, or 4%.

The National Science Foundation, which supports university-based science and engineering research, would receive a 6% increase, to $3.2 billion. The Human Genome Project, a massive effort to decode the chemical building blocks of life, would receive a 21% increase, to $241 million.

Transportation

Transportation Secretary Federico Pena said that his department’s $39.7-billion budget, up 2% over last year, would shift funds to highway and transit programs. It proposes to finance, for the first time, a $1-billion Maritime Security Program aimed at revitalizing the U.S. commercial fleet.

While operating subsidies for urban mass transit systems would decrease by 25%, Pena said that $2.2 billion targeted for longer-term capital spending would provide state and local governments with an overall increase of $3.6 billion for capital programs.

Labor

The Labor Department budget includes more money for programs that the Administration believes will help young Americans prepare for a changing work force and help displaced workers find new jobs.

The department is requesting $150 million for its school-to-work initiative, up from $50 million in 1994. The new funds would be combined with another $150 million from the Education Department and used as seed money to encourage states and cities to create apprenticeship programs that combine on-the-job training with school-based learning.

Environment

The Administration promised to ensure renewed emphasis in the areas of pollution control, technology development and job creation.

The Administration’s budgets for the Environmental Protection Agency and the energy and Interior departments total $35.2 billion. That represents a boost of $1.6 billion, or about 5%, over fiscal 1994 levels.

Times staff writers Paul Richter in Houston, and James Bornemeier, Edwin Chen, William J. Eaton, Joel Havemann, Melissa Healy, David Lauter, Ronald J. Ostrow, Art Pine, Michael Ross, Elizabeth Shogren and Ralph Vartabedian in Washington contributed to this report.

* RELATED STORIES: D1

Where Your Money Goes

A look at the $1.52-trillion budget for 1995 that President Clinton sent to Congress on Monday

THE MONEY FLOW

WHERE IT COMES FROM Individual income tax: 39% Social Security Payroll tax: 32% Borrowing: 11% Corporate income tax: 9% Excise tax: 5% Other: 4% *

WHERE IT GOES Benefit payments: 48% National defense: 18% Grants to state and localities: 15% Net interest on the debt: 14% Other: 5% *

THE SHORTFALL (in billions)

WITH HEALTH PLAN NO HEALTH PLAN Revenue $1,354 $1,342 Spending $1,519 $1,518 Deficit -$165 -$176

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THE TRENDS

This look at broad categories of federal spending shows support programs have roughly doubled, interest on the debt has tripled, defense has barely held its own, and other domestic funds have actually declined. ($ billions, adjusted for inflation) ** Payments to individuals under Social Security, Medicare, Medicaid, government pensions, unemployment compensation, welfare and other programs.

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WINNERS AND LOSERS

GETTING MORE MONEY AIDS research: 6% Homeless programs: 60% School anti-drug programs: 40% National parks: 6% Mass transit grants: 40% Veterans programs: 3% *

GETTING LESS MONEY Low-income energy assistance: 50% Foreign affairs: 5% NASA: 2% Agriculture Department: 7% Nuclear weapons stockpiles: 19% U.S. travel and tourism promotion: 11% *

THE DECLINING DEFICIT

Thanks to a robust economy and last summer’s deficit-cutting package, the President projects next year’s shortfall at $176.1 billion, the best showing since the $152.5-billion gap of 1989. That is also $126 billion less than Clinton had expected for 1995 just one year ago. ($ billions)

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BUDGET PERSPECTIVE

THE DEFICIT AS A PERCENTAGE OF GNP U.S.: 5% BRITAIN: 5% GERMANY: 3% FRANCE: 1% CANADA: 3% Sources: Office of Management and Budget, World Bank