EDITORIAL : RIORDAN'S PROPOSED BUDGET.

Any government budget contains two parts. One deals with how the money will be spent. The other lists where the money comes from.

The spending side of the proposed $4 billion budget presented Friday by Mayor Richard Riordan to the Los Angeles City Council seems to have most of its priorities right. It provides more money for quality-of-life programs such as libraries and street maintenance, while continuing - albeit at a slower pace - the buildup of the Los Angeles Police Department.

This isn't to say it's an ideal budget. We would have preferred one that more adequately addresses the institutionally entrenched wasteful spending practices described in our series of articles last month titled ``Living beyond our means: A city at risk.''

But there is only so much Riordan can do when confronted with a City Council that's comfortable with the status quo. Real reform probably depends on the adoption of a new City Charter.

But there is no need to dilly-dally with two revenue provisions in the budget - the transfer of $15 million from the wastewater (or sewer systems) fund and $106 million from the Department of Water and Power to the city's general fund. The first should be rejected outright. The second should be scaled back.

Riordan wants to dip into the wastewater fund, which relies on charges based on water consumption, to reimburse the general fund for ``past investments in the system.''

This is fiscal sleight-of-hand. It amounts to turning what has long been a fee for a specific service into a hidden tax for the city as a whole. If the fee is generating more money than the city needs, it should be reduced. To do otherwise would set a dangerous precedent.

On the other hand, the DWP (or, to be more precise, the city's electric ratepayers) has long been the city's cash cow. But this is likely to change within the next few years with the advent of deregulation, which will force the DWP to compete with other utilities.

This means that the DWP will be forced to lower rates for its large commercial customers and increase artificially low rates for residential customers. That will reduce the surplus available for subsidizing City Hall spending.

It's time for City Hall to face up to that financial reality and begin the painful process of breaking its habit of turning to the DWP for budget bailouts.