Spending Plan a Double-Edged Sword for State : Economy: Tax cuts would help California while defense reductions would hurt. Proposal is likely to be substantially revised in Congress.

President Clinton’s proposed budget for next year delivers some bad news for the California economy in the form of a nearly $8-billion cut in defense spending, but the plan also contains several nuggets of good news for the state, including a possible second shot at a job-creating “empowerment zone” for Los Angeles.

Otherwise, the budget is a grab bag of positives and negatives for the state, such as a proposed border-crossing fee that would help fight illegal immigration but could hurt international trade.

California’s recovering economy would probably benefit from proposed tax cuts that would put more money into the pockets of consumers, said Lynn Reaser, chief economist at First Interstate Bank. But much about the budget remains uncertain because no one knows what the Republican-controlled Congress will do to it, she said.

“The Clinton budget, of course, will be substantially revised and at this point can’t be read very literally for its impact on the state,” Reaser said.

The biggest potential hit is the proposed reduction in the Pentagon budget, said Richard A. Bitzinger, a defense industry analyst for the Defense Budget Project, a nonpartisan think tank in Washington.

However, many of the defense cuts, including the elimination of Northrop Grumman’s $13.3-billion program to build an advanced Stealth missile, were already largely known, he said.

“A lot of the pain has already happened for Southern California,” Bitzinger said. “A lot of these things have already been announced and the layoffs have already occurred.”

The elimination of Northrop Grumman’s contract for the tri-service standoff attack missile was announced in December, but 1,700 workers are still employed by that program in Hawthorne, spokesman Tony Cantafio said. Northrop expects to lay off those workers this year, he said.

One bright note that caught local officials by surprise was a request for two new empowerment zones at a cost of $100 million a year for the next five years.

In December, Los Angeles found out that it was left out of the lucrative new federal program to name six such urban zones, which provide a generous package of tax breaks and direct federal grants. Shocked city officials were told their application was not up to snuff. The city instead received a $350-million consolation prize of federal aid.

It was unclear whether Los Angeles would qualify for the new round of zones, and officials reacted cautiously.

“We are monitoring the situation,” said Noelia Rodriguez, spokeswoman for Mayor Richard Riordan. “We don’t want to get all excited over nothing.”

“It’s certainly worth taking a look at,” said Linda Griego, president of RLA, the group formed after the 1992 riots to rebuild the city.

A Clinton plan to charge $3 for each car and $1.50 for each pedestrian crossing the border into the United States is probably an attempt to show the Administration’s concern over illegal immigration, trade analysts said. The money would go to pay for additional U.S. Border Patrol agents.

But the fee “is so against the spirit of NAFTA,” said Leslie K. Browne Cazas, an international trade expert for the Arthur Andersen accounting firm, referring to the North American Free Trade Agreement passed by Congress in 1993.

“I think it’s ill conceived” and probably would tie up traffic at the borders, she said. Another proposal is to sell the Elk Hills Naval Petroleum Reserve near Bakersfield, which is mostly owned by the Department of Energy and operated by Bechtel Corp. Though some oil is sold on the open market, most is reserved to help lessen the nation’s dependence on foreign oil.

“It’s a little too early to know” how the sale of public interest in the reserve would affect the California oil industry, already awash in both California and Alaska crude, said Jim Simmons, a spokesman for Tosco Corp. The Stamford, Conn.-based company operates a refinery in Concord, Calif., that occasionally buys Elk Hills crude.

“But in general, our preference would be that Elk Hills oil continue to be made available to the market,” Simmons said, rather than being sold to an oil company that might just “absorb it into their system.”

The budget also proposes reducing subsidies and raising interest rates on Small Business Administration disaster loans, which have figured prominently in rebuilding after the state’s recent string of mishaps.

Times staff writer Michael Parrish contributed to this report.

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