Like a lava dome building in the crater of Mount St. Helen's, the anger has been bubbling up among Washington state's lobbyists for weeks, creating an unusual bond between the Red Cross and the Aerospace Industries Association, Common Cause and the Chamber of Commerce, and the liberal Alliance for Justice and the National Association of Manufacturers.

The focus of their hostility is the Office of Management and Budget's proposed rule--and companion proposals from the Defense Department and the General Services Administration--to strengthen prohibitions against the use of federal grant or contract funds for political advocacy. OMB's rule would cover nonprofit organizations, the DOD and GSA rules would apply to other federal contractors.

So far, hearings have been scheduled by congressional committees--House Government Operations (March 1), Senate Governmental Affairs (March 7) and House Judiciary (March 9). Dozens of strategy meetings have been held to devise ways to submarine the proposal; reams of paper have been devoted to anti-OMB polemics. "My secretary just walked by with two armfuls of letters and I'm taking 75 phone calls a day," said John J. Lordan, chief of OMB's Financial Management Branch.

Two weeks ago, at a contentious meeting of OMB officials and business and association representatives, the business representatives argued that the proposal was a piece of theoretical tomfoolery that would wreak havoc with their operations and accounting. They threatened to take their case against the proposal and its belligerent and beleaguered author, OMB general counsel Michael J. Horowitz, to the White House.

According to three persons in attendance, Horowitz responded with a two-word barracks vulgarism questioning their legitimacy, after which a few business representatives stood up and walked out.

The outcry on the other end of the political spectrum, including many nonprofit charitable and service organizations, has been just as vociferous. Some say the proposal is part of an administration campaign to cut off federal funds to liberal groups.

"I'm everything they don't want," said one local attorney, who gets two-thirds of his salary from a local law school and one-third from an Education Department grant. "I get money from the government and represent a bunch of poor people against the government. Corporations get to deduct their lobbying expenses from their taxes. Poor people can't do that."

The American Civil Liberties Union says the rule and its penalties--ranging from the required repayment of grants to temporary banishment from government eligibility lists--are unconstitutional. "What OMB wants to do is censor speech," said ACLU attorney David Landau.

No one has exact figures on how much government money or how many organizations are involved. Estimates of federal grants and contracts to nonprofit organizations range from $8 billion to $20 billion or more annually. An estimated $75 billion in Defense Department "cost-reimbursable" contracts would be covered by the companion DOD proposal.

Trying to contain the attack from all fronts, OMB is planning to extend the comment period on the proposal past the current March 9 deadline and promises revisions and a lenient approach to "technical" violations in the first few years, if the rule takes effect.

Even Horowitz now says he would rather do nothing at all than go ahead with the rule in its present form.

"If the only choices open were the proposal or nothing, the clear preference is nothing," Horowitz said this week. "We have got to refine these things. It's a complicated area . . . . I don't minimize the dislocations that would be involved in some of these requirements."

Among the provisions generating the most opposition:

A prohibition on any "advocacy" by executives of nonprofit firms--including congressional lobbying, organizing opposition to regulations and preparing "friend-of-the-court" briefs in legal cases--if any portion of that executive's salary is financed by federal grants.

A prohibition on charging any overhead expenses--for such equipment as computers and duplicating machines--to a federal grant if the equipment is used for advocacy more than 5 percent of the time.

Requirements for the physical separation of personnel involved in program activities and advocacy activities, if an organization receiving federal funds is involved in both.

Some groups have interpreted this last provision as prohibiting an executive of a charity that runs a government feeding program from discussing pending legislation with a Washington-based trade association.

"We want to make very clear that providing information to umbrella organizations like trade associations and providing information within a company are okay," Horowitz said. "We want to clarify the regulation to say providing information to trade organizations is not a political activity." He also said that colleges and universities would not be covered by the rule.

But all the talk of revisions does little to mollify critics. "We oppose the rule in its present form," said Mark Schultz of the Chamber of Commerce. "We're willing to work with them to see if the rule can be made flexible. But we disagree with the procedure. Rather than running this up the flagpole to see who would salute, they should have done some checking around first."

"It can't be fine-tuned," said Bob Smucker of Independent Sector, an association of nonprofit and philanthropic organizations. "The instrument is grossly out of tune. This issue can't be resolved unless the proposal's revoked."