WASHINGTON -- House and Senate conferees yesterday approved a $660 million federal payment to the District of Columbia and agreed to require cuts of $140 million in the district's operating budget for fiscal 1995.

The federal payment is $8 million less than the House-approved amount and $12 million more than the appropriation passed last month by the Senate. The House originally sought $150 million in cuts, while the Senate had called for $75 million in cuts from the proposed $3.4 billion budget.

The conferees also called for a study of options for financing the district's escalating water and sewer capital needs, including creation of a separate water and sewer authority to issue tax-exempt revenue bonds.

In addition, the conferees agreed to a provision that prohibits the district from spending more than the revenue it takes in. If a forecast by the General Accounting Office of a $200 million budget shortfall next year materializes, the district could be forced to find cuts beyond $140 million.

The legislators dropped a Senate instruction to close the district's subsidized school of law, but they required cuts of 2,000 full-time city positions in fiscal 1995.

The federal government's annual $52 million payment to the district's pension fund was left intact.

The conferees' action came four days after Kelly unveiled a multiyear spending-cut plan in response to the congressional demands for budget cuts. Under the proposed emergency legislation, Kelly calls for only $102.6 million of cuts in fiscal 1995, which begins Oct. 1.

Kelly's plan also calls for $20 million in savings through an employee buy-out program and additional savings through privatization of various services, including $750,000 in savings through privatization of a local waste facility.

City administrator Robert Mallett said at a news briefing earlier in the week that privatization is the wave of the future for city governments, and the district stands ready with a list of eligible services.

Mayor Sharon Pratt Kelly also proposed collecting sales taxes from the federally owned Smithsonian museum complex that would add $7.6 million in revenues over five years. The district council, which is in recess, is under pressure from the mayor to act on the cuts on an emergency basis before the Sept. 13 mayoral race primary.

Heather Ann Hope contributed to this article.

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