THE PAIN of budget cutting can be made a

good deal more tolerable if the cuts are sharpest in areas where the fat is thickest. Standing in the way of such fine surgery is the congressional tradition that when money is to be spent, there must be something for every district, whether it needs it or not. That time-honored principle is at work in committee action on the municipal sewage system grant program now.

The amount of money to be spent is not the big issue. The administration has made clear its intention to restrict the federal commitment for sewage treatment to about $23 billion for the future and not more than $2.4 billion for the coming fiscal year. That's far short of the amount states say they need to meet clean-water standards, but with the prospect of more budget cuts ahead, any firm commitment for money looks good right now. But the administration also wants certain program reforms. Without them, it has threatened, the money will stop entirely on Oct. 1.

The administration would focus remaining federal dollars on areas where treatment facilities are already inadequate--and for good reason. In the past much of the available federal aid has gone to building excess sewage capacity in anticipation of new suburban development in rapidly growing areas. That means local planning decisions don't take account of the full costs of urban sprawl. Operating costs for these overly large systems, moreover, often exceed local ability to carry them. The administration would stop funding for excess capacity development and use the money instead to help older industrialized areas facing the enormous costs of updating antiquated plants.

This sensible strategy doesn't sit well with legislators and governors from the fast-growing Southwest and West, who stand to lose much of their present stake in the sewage grant program. Many of the same statesmen who supported social program cuts that fell most heavily on parts of the country other than their own are pushing amendments that would return the sewage program to the good old days of something-for-everyone.

Some of the compromises being worked out in the committees are needed--transition provisions, for example, to continue aid to projects already under way. States and localities that must now pay most of the cost also deserve to be given more flexibility in deciding how best to spend their money to reach federal water standards. But the important question is whether political or environmental criteria will direct the flow of funds from Washington. The prospect of further rounds of budget cuts will look bleak indeed if Congress retreats in disarray from the first real attempt to focus scarce federal dollars where they are needed most.