EDITORIAL : WELFARE REFORM - AT LAST CLINTON'S DECISION TO SIGN GOP BILL WILL REDUCE FEDERAL ROLE. STATES FACE CRITICAL CHALLENGES.

PRESIDENT Clinton, to the surprise of many Republicans and the consternation of a goodly number of Democrats, has promised to sign the latest welfare-reform bill drafted by the GOP majority in Congress.

Characterizing the system as ``broken,'' Clinton said Wednesday that the bill ``is the best chance we will have for a long, long time to complete the work of ending welfare as we know it, by moving people from welfare to work, demanding responsibility and doing better by children.''

The bill is far from perfect. Clinton objected to its cuts in food stamps and ban on most forms of aid for noncitizen legal immigrants. Others, including California Gov. Pete Wilson, said the bill didn't go far enough in removing federal mandates on the states. Some of those points are valid.

The key change ends welfare as a federal entitlement. It also shifts much of the decision-making authority from Washington to the states.

Those were things that needed to be done, but they are only the beginning. How all of this will work out in practice will depend, to a large degree, upon how the states respond to the challenges - and opportunities - that have been presented to them.

In California, the first job will be to prevent welfare reform from bankrupting the state's counties. There's a real danger that unless the state steps in, the counties will be overwhelmed with requests for general relief by people who are being removed from welfare roles. Los Angeles County, with its large population of noncitizen legal aliens, is especially vulnerable.

Meanwhile, Washington must be attentive to the states' problems and be prepared to fine-tune the law if it becomes apparent that some of its provisions won't work or will create extreme hardships.

Finally, it must be kept in mind that the goal here isn't to punish poor people. The object is find a better as well as less costly way to help those in need. Decision-makers must approach their task with compassion, remembering that they are dealing with real people, not simply numbers.