House Defeats Bid to Cut Spending by $90 Billion : Legislation: White House helps kill the five-year deficit-reduction plan. But a $37-billion trim passes.

WASHINGTON —  The Clinton Administration won a critical legislative victory Monday night when the House defeated a sweeping bipartisan budget-cutting proposal that threatened Clinton’s domestic spending agenda and could have undermined the White House health care reform initiative.

By a vote of 219 to 213, the House defeated the $90-billion, five-year deficit-reduction proposal. Instead, it approved a $37-billion package of spending reductions backed by the White House on a 272-163 vote. A third amendment to the budget-cutting bill would have added $14.4 billion in cuts to the Administration-backed reductions. It was defeated, 248 to 184.

The victory for the White House followed a furious last-minute lobbying campaign. The Administration had feared that many Democratic lawmakers would find it irresistible to vote for the deficit-reduction measure in hopes of insulating themselves from charges that they had supported higher taxes but not deep spending cuts.

The Administration argued that the bigger budget-reduction measure would have placed the government in a fiscal straitjacket for the remainder of Clinton’s term, making it impossible to pay for proposed spending initiatives.

More significantly, Clinton and his allies warned that the measure would make it nearly impossible for the Administration to count on savings from Medicare spending to help finance health care reform without proposing larger tax increases.

“We are going to need these savings for health care reform,” warned House Majority Leader Richard A. Gephardt (D-Mo.).

Clinton’s smaller package of $37 billion in spending cuts would go beyond what the Administration had initially hoped to cut from the budget. But the measure was introduced in an effort to divert support from the larger amendment, sponsored by Reps. Timothy J. Penny (D-Minn.) and John R. Kasich (R-Ohio).

But like Penny-Kasich, the $37-billion proposal requires the Administration to eliminate 252,000 jobs from the federal payroll over the next five years. That provision was proposed in the Administration’s “reinventing government” report unveiled in September.

The Senate still must act on the $37-billion budget-cutting legislation before it can be sent to Clinton for his signature, but action is not expected until Congress returns after the first of the year from its holiday recess. The legislation’s fate is uncertain in the Senate, which already has earmarked savings from cuts in the federal payroll for anti-crime purposes.

Despite his victory on the issue, the congressional debate put Clinton in an awkward position, forcing him to argue against deficit reduction and in favor of more federal spending. What’s more, it seemed clear that Monday’s vote would not curb the growing congressional momentum for more deficit reduction over the coming year.

That momentum seems certain to lead to another collision between lawmakers adamant about cutting the deficit and the Administration, which hopes to focus next year on health care reform. Similar legislation proposed by Sen. Bob Kerrey (D-Neb.) is expected to be considered by the Senate early next year.

“This will set up a showdown again on the budget next year,” argued Penny. That confrontation will “largely be focused on the natural tension that exists between those who want to do health care reform first and those who believe that the only way to do health care reform is to first prove congressional credibility on deficit reduction.”

The Penny-Kasich plan would have imposed sweeping cuts that could have significantly altered the structure of the federal Establishment.

“The Clinton plan . . . gives us a real deficit reduction of a big fat zero,” Kasich said in urging the House to pass the Penny-Kasich amendment.

Kasich charged that the Clinton plan “doesn’t save the government of the United States or the taxpayers of this country one single dime.

“It’s a fraud. It’s a fake. It isn’t real.”

Along with $35 billion in Medicare cuts and $21 billion in savings from reductions in the federal payroll, the Penny-Kasich amendment included more than 80 specific spending cuts in an array of federal agencies.

Among other things, it called for consolidating the Commerce and Energy departments, the National Aeronautics and Space Administration, the National Science Foundation and the Office of Science and Technology Policy into a streamlined Department of Science. It called for the elimination of a handful of military, agriculture and energy programs, while also issuing a congressional resolution demanding that America’s allies increase their share of the Western alliance’s defense expenditures.

Originally, the White House had hoped that the “reinventing government” plan would mollify Penny and others demanding deeper cuts than those included in last summer’s budget plan. To win the support of Penny and other moderate Democrats, Clinton had promised to propose further spending cuts this fall and to allow Penny and others to propose their own new cuts as well.

Congressional leaders warned that Penny-Kasich had been poorly crafted and represented a dangerous effort to speed massive spending cuts through Congress without thinking about the long-term consequences.

Rep. John D. Dingell (D-Mich.), chairman of the House Energy and Commerce Committee, noted that the bill would eliminate the Interstate Commerce Commission, despite the revenue it generates for the government, “because the people who wrote this bill didn’t know what they were doing.”

In an effort to kill the measure, the White House and the congressional leadership played tough with lawmakers, issuing explicit threats to cut off funding for projects in their districts if they voted for the legislation.

The Administration lobbying campaign was “old-fashioned, back room, good-old-boy pork-barrel politics at its worst,” charged Rep. Rod Grams (R-Minn.). Grams released a letter from Democratic leaders making a veiled threat to end funding for a water project in his district if he supported the measure.

“With these scare tactics, it’s no wonder people are cynical about Washington,” complained Rep. Jim Ramstad (R-Minn.).

Ultimately, the pressure from the leadership and the Administration worked. Only 57 Democrats joined 156 Republicans in support of the Penny-Kasich measure. Among California representatives, four Democrats and 21 of 22 Republicans supported the bill.

But the closeness of the vote, despite the fierce opposition from the White House and the House leadership, signaled how difficult it may be for Clinton to propose significant increases in domestic spending over the next few years. Clinton Administration officials are already working on the 1995 budget and are scrambling to find enough room under the congressional budgetary limits to pay for initiatives the White House favors.

“The drumbeat for spending cuts is loud and clear,” warned a California Democrat, Jane Harman of Marina del Rey.