EDITORIAL : UNFINISHED BUSINESS WILSON'S BUDGET ADDRESSES WATER, FLOOD PROTECTION PROBLEMS.

THE portions of Gov. Pete Wilson's proposed $66.6 billion budget that received the most attention statewide last week had to do with welfare, education and proposed tax cuts.

Those are important subjects, for sure. But we suspect that millions of people who live in the sprawling Central Valley, from Bakersfield in the south to Redding in the north, had something else on their mind: water.

Thousands upon thousands of acres in the Central Valley were submerged by floodwaters that overwhelmed levees and, in some instances, dams. Many residents in that area now are looking to Sacramento for help, not only to recover from the current floods but for protection against similar disasters in the future.

Fortunately, Wilson's budget addresses some of their concerns. But that doesn't mean that this is strictly a Central California issue. What the state does in the agriculturally rich Central Valley will impact the rest of California in many ways as well.

About two-thirds of the people in this state, including many in the Southland, receive some or all of their water from rivers that flow through the Central Valley and empty into San Francisco Bay via the Sacramento-San Joaquin Delta. The Southland probably will rely more and more upon this water in the future, since its supplies from the Colorado River and the Owens River (the city of Los Angeles' primary water hole) are likely to be curtailed.

Wilson's budget begins implementation of Proposition 204, a $995 million bond issue approved by the voters in November to improve the delta, the source of the water that is pumped into the California Aqueduct.

Most of the money in the program - which really is just the start of a multibillion-dollar undertaking - is set aside for environmental improvements. But a substantial amount is earmarked for flood protection.

(The bay-delta restoration program is a major component of the Bay-Delta Accord reached by Sacramento and Washington. Congress has authorized spending $429 million over three years to help solve environmental and water supply problems in the bay and delta.)

It's encouraging, after many years of turf warfare (the federal government and the state operate separate water projects) to see Washington and Sacramento working in tandem.

But the situation would be even brighter if President Clinton revived a stalled initiative that was started during the Bush administration to turn the massive federal Central Valley Project over to the state. The CVP is a logical candidate for state control since all the water handled by the project originates in California.

We are pleased to see state officials, after years of squabbling, paying more attention to water resources and the need for flood protection. For example, environmentalists, white-water rafters and others waged a bitter campaign during the '70s to stop one of the last major water projects in California, the New Melones reservoir west of Sonora. Fortunately, the reservoir was completed and it helped reduce flooding along the Stanislaus River last week by containing 2.3 million acre-feet of water.

The New Melones reservoir is an example of what can be done to reduce the threat of flooding and improve the reliability of the state's most important water sources. Let's get on with the job.