SEN. PATRICK J. LEAHY (D-Vt.) has has struck a compromise. The chairman of the Senate Appropriations subcommittee on the District is proposing that Congress limit its part in local financial affairs to setting the amount of the federal payment -- the money the federal government pays the city for occupying tax-free land and using local public services. Under the senator's plan, Congress would no longer take part in a line-by-line review of public spending in the District. Congressmen would no longerr question department heads as to why they spend money on more police uniforms, let's say, instead of more policemen. That budget review responsibility would be left to the District Council and the mayor, as it is in most cities. Congress would act only to oversee the city's general spending.

The compromise lies in the fact that the District would not get the complete autonomy from Congress that it wants. The possibility would remain that Congress would reassume full control of city spending if there were evidence of misuse of money or mismanagement of programs. The city also would not get the formula it has long desired for the federal payment A formula could end the yearly debate about how much the federal government owes the District. That annual argument confuses all attempts to set a budget for the city because it is never clear how much money the city will have to work with.

A formula for the federal payment is desirable, as is complete home rule for the District. But at the moment neither looks imminent. Even legislators who favor full voting rights and independence for the District report that the votes are not in hand now to legislate increased home-rule powers for the city or even to approve a formula-based federal payment. The politics of the moment suggest that the city may get something short of a formula -- but better than waht exists now.

Sen. Leahy's plan provides that something. Only two parts of the city budget would be left subject to direct congressional review: first, no private borrowing without congressional approval where the city would pay off interest on the loan later and, second, Congress would require some cutback in the error rate on welfare payments. While those elements of congressional control would remain, there would also be freedom for District residents from yearly battles with Congress over whether the police force is too large or too small, whether local money can be used for abortion, whether there should be two campuses for the university or whether the city should have a convention center.

The senator's idea must be studied in light of his four -- not always friendly -- years overseeing the city as chairman of the subcommittee on the District. He is putting forward a politically feasible proposal that removes Congress from almost all aspects of District financial affairs while still acknowledging Congress' absolute control over the city. His proposal would lessen the headaches of the Congress-local government relationship without making any radical change. It sounds to us, at first sight anyhow, like a good idea.