GOP Goal to Balance the Budget Likely to Pinch States’ Pockets : Spending: Democrats warn that the proposed amendment will require deep cuts. But some Republican governors say they’ll tighten their belts.

During the early weeks of the 104th Congress, governors such as Connecticut’s John Rowland have formed the principal cheering section for the sweeping initiatives of the new Republican majority on Capitol Hill.

Rowland, for six years a Republican congressman himself, roared his approval when his former colleagues placed tough limits on “unfunded federal mandates”--federal programs that require action by the states but give them no money to carry them out. He hailed plans to give the states greater control over welfare and anti-crime programs. He welcomed the promise of tougher enforcement of immigration laws.

Now it’s crunch time. About to intrude on this love feast is a potentially divisive Republican initiative: a constitutional amendment requiring a balanced federal budget.

The amendment, which has been passed by the House and is being debated in the Senate, would require deep spending cuts if, as it requires, today’s nearly $200-billion annual federal budget deficit is to be whittled down to zero in seven years.

Democratic leaders are warning that many of the cuts would inevitably slash deep into the aid that Connecticut and the other states now receive from Washington. They are pressing the Senate to clearly lay out how Congress would require the budget to balance--and to detail what impact that would have on funds to the states.

How the Republicans meet the Democrats’ demand--if they choose to meet it at all--could be crucial to what promises to be a very close vote on the Senate floor. Because passage of a constitutional amendment requires a two-thirds majority of each house of Congress, the 53 Senate Republicans must win the support of at least 14 Democrats.

And if the strategy works in the Senate, it may backfire at the next stage of the process of amending the Constitution. Amendments require the approval of three-quarters of the state legislatures, which may balk if they know in advance just how much federal aid the balanced-budget amendment would cost them.

“This is going to be a wake-up call” to the states, said Sen. John B. Breaux (D-La.), who has joined Democratic leaders in calling for a detailed accounting of how the budget would be balanced in seven years. “It’s not just a theory in Washington anymore. This is going to affect our states directly in the areas of taxation, state services, highways, Aid to Families with Dependent Children, Medicare, Medicaid. That’s real stuff.”

Breaux cited a Treasury Department estimate that the balanced-budget amendment could require yearly cuts of some $71 billion in federal grants to states and another $176 billion in direct aid to individuals.

Louisiana’s share of those cuts, he said, would come to about one-third of the annual state budget. He said California would sustain a hit of the same magnitude.

Breaux, a past supporter of balanced-budget amendments, charged that Republicans were prepared to pass a bill that would “stick it to the states, and do it in the dark. If the balanced-budget amendment is good enough to pass, it ought to pass in the daylight. We’re not telling the states what it really means.”

“No one can guarantee that aid to states and localities will not be cut,” warned Senate Minority Leader Tom Daschle (D-S.D.). “In fact, I can just about guarantee the exact opposite: Direct aid, such as payments for highway paving, and indirect aid that is spent by residents of states and cities will be cut.”

A recent study by the liberal Center on Budget and Policy Priorities has estimated that by the year 2002, the states would lose a total of $96 billion yearly in federal aid--the equivalent of one-quarter of projected revenues from state sales taxes, personal income taxes and corporate income taxes combined.

Under the most favorable conditions, California would stand to lose a whopping $7.7 billion a year in federal grants, according to the Treasury Department. The cuts would hit Medicaid programs ($3.9 billion in annual cuts) hardest, with education, job training, environmental protection and housing taking cuts of $2.4 billion and Aid to Families with Dependent Children losing $960 million.

To compensate for those losses, the state would have to hike its own income taxes by 9.2%, says a Treasury Department report sent to governors in mid-January.

But many governors, including Rowland, are trying to cut taxes, not raise them. In December, the National Conference of State Legislatures identified 22 states where tax cuts are likely, and another eight where officials have developed tax-cut proposals. From California to North Carolina, state legislatures are responding to a public outcry for tax relief.

Rowland, the first Republican to sit in the Connecticut governor’s office in 20 years, has been more ambitious than most: He has vowed to cut state income taxes by 20% in his first year and to eliminate state income taxes during his tenure.

But under the balanced-budget amendment, Connecticut stands to lose $1 billion in federal revenues over the next seven years. If the state were to try to make up for that loss, it would have to boost state income taxes by 11.2%.

John Chapin, Rowland’s communications director, said, “Of course, we’d like the level of federal funding to stay the same or increase. But we cannot have an ever-flowing fountain of favors here.”

Chapin said Rowland expected to support ratification of the balanced-budget amendment by Connecticut’s Legislature. “But the devil is in the details,” he said. “And if they cut funding and keep the states’ level of flexibility at the same obnoxious level, then there will be problems.”

That conditional support for a balanced-budget amendment is typical of Republican governors.

“I compare it to a person who is coming off an addiction,” said Utah Gov. Mike Leavitt, a Republican. “Not only has the federal government been addicted, but the American people have been addicted to federal spending. The withdrawal will be painful and prolonged, but it has to be done. It’s a trade-off between pain and assured crisis.”

In Washington, Republicans who support the constitutional amendment are playing down the pain that states would endure and emphasizing the pleasures of a future free of such “addiction.” Freshman Sen. Fred Thompson (R-Tenn.) called the threat that state and local governments would take budgetary hits “scare tactics” that would not frighten states from the right course.

“It’s a balance between the short term versus the long term,” Thompson said. “The (Democrats) want to talk about the short-term sacrifice that anybody will have to make, and we point out that if we don’t do something, we’re going to bankrupt our kids. It’s just that simple.”

Sen. Orrin G. Hatch (R-Utah), who is leading the Senate fight on the balanced-budget amendment, scoffed at the notion that states would feel a significant pinch.

“An awful lot of the money that comes through this bureaucracy in Washington is spent right here,” Hatch said. “By the time it gets back to the people, it’s a small percentage. Some have estimated social spending sometimes is as small as 28% of the money that’s sent from Washington. I think people in the states know that. They’re not stupid.”