WASHINGTON - President Clinton is warning that passage of a constitutional balanced budget amendment, scheduled for a vote in the Senate next year, will result in greatly increased unfunded mandates on state and local governments.

In a letter sent late last week to House Speaker Thomas Foley, D-Wash., the President also said that the amendment, sponsored by Sen. Paul Simon, D-Ill., is flawed because it does not distinguish between investment and consumption spending.

Clinton said the balanced budget amendment would lead to more unfunded mandates because requiring states and localities to pay for federally mandated programs would be an easy way for Congress to circumvent the tight federal budgetary restrictions the amendment would impose.

"The likely outcome will be accounting subterfuge and gimmicks when the easy promise of a balanced budget amendment runs up against difficult political realities," Clinton said.

"A gridlocked Congress would encourage members to look for an easy way out - for example, by moving more federal programs off budget or by imposing more unfunded mandates on the states. Ironically, the amendment might encourage less rather than more fiscal responsibility," Clinton said.

"Under this balanced budget amendment, there is no distinction between cutting a dollar in waste and a dollar in a valuable investment in technology that could make us a richer and more competitive nation in the future. That is unacceptable to me," he said. "We must bring down the budget deficit at the same time we make progress on bringing down the investment deficit."

The President's letter appeared to endorse for the first time the idea of instituting a capital budget at the federal level much like the budgets used by the states. The state budgets allow the governments to go into debt to finance long-term assets like highways and sewage treatment plants.

Unlike the states, however, the President includes far more than public works projects in his proposed investment category. His letter says that federal spending on education, job training, and crime prevention should also be considered investments.

Clinton said he would continue to support efforts to cut the deficit through specific spending cut and tax increase proposals.

The balanced budget amendment is expected to come up for a vote early next year under an agreement between its sponsors and the congressional Democratic leadership. The agreement was forged in the closing days of the debate on Clinton's $500 billion deficit reduction package in August.

Originally, congressional leaders had promised a Senate vote on the amendment this fall. But Senate Majority Leader George Mitchell, D-Maine, said earlier this week that the vote is being postponed because the Senate does not have time to take it up before its scheduled adjournment just before Thanksgiving.

The amendment's principal sponsor in the House, Rep. Charles Stenholm, D-Tex., said in a statement that he regretted the administration's decision to oppose the amendment after much internal debate.

Stenholm did not specifically address Clinton's charges that the amendment would promote unfunded mandates and hurt investment spending. But he argued that it is needed to "raise the threshold of difficulty for deficit spending" and to help members of Congress "find the courage to make the tough choices necessary to balance the budget."

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