An article yesterday misstated the budgetary status of the cost of the savings and loan cleanup. Of the $50 billion made available for the thrift rescue last year, $20 billion was on the budget and $30 billion was financed off budget. No decision has been made about how to account for future appropriations. (Published 7/18/90)

The Bush administration's top three economic policy-makers yesterday conceded that they underestimated the federal deficit when making budget proposals in January and warned that automatic spending cuts "of totally unprecedented size" could lie ahead.

Office of Management and Budget Director Richard G. Darman said the government now faces a fiscal 1991 budget deficit of $168.8 billion, well above the $100.5 billion deficit forecast in January.

Darman had already raised deficit forecasts three times since January in testimony and talks with congressional leaders, but yesterday's official forecast was the highest yet.

If counted as part of the deficit, spending on the savings and loan cleanup would boost the 1991 deficit to $231.4 billion, nearly four times the deficit target set by the revised Gramm-Rudman-Hollings deficit-reduction law. However, spending for the S&L cleanup is not subject to the budget law. Originally the 1985 law called for a balanced budget in 1991.

At the mid-session review of the budget yesterday, Darman also mapped out in unrelenting detail the $100 billion in automatic spending cuts that would take effect if Congress and the White House fail to agree on a "credible" deficit-reduction plan before the new fiscal year starts on Oct. 1.

He said the consequences of such a failure would include: reductions of up to 1 million military personnel, cutbacks in the air traffic control system that would increase air travel delays by up to 600 percent, a halt in all new cleanups of toxic waste sites, the elimination or reduction of Pell grants for 3.4 million students, additional overcrowding of prisons, a cut of 200,000 4-year-olds from the Head Start program and a one-third reduction in research, prevention and treatment of drug addiction.

In an open effort to turn up the pressure on Congress to come up with a new budget package, Darman, Treasury Secretary Nicholas F. Brady and Michael J. Boskin, chairman of the Council of Economic Advisers, vowed not to shirk from enforcing the across-the-board spending cuts as mandated by the Gramm-Rudman-Hollings law.

"This is not some theoretical construct," warned Darman. "It is highly relevant to the current budget summit negotiations, and if those negotiations fail, it will have major implications for virtually everything the federal government touches."

While administration leaders tried to put the heat on Congress to cut the budget deficit, congressional leaders deflected some of that back to the Bush administration.

"I'm glad the administration now acknowledges the inaccuracy of their earlier estimates," said Senate Majority Leader George J. Mitchell (D-Maine).

Others, however, underscored the gravity of the numbers and the proposed cuts.

"The crisis, in short, is real," House Budget Committee Chairman Leon E. Panetta (D-Calif.) said in response to the administration announcement. "These numbers should hit the White House, the Congress and the {budget} summit like a fire alarm in the middle of the night."

Overall, a $100 million across-the-board reduction in government spending -- the size of the cuts needed to reach the Gramm-Rudman-Hollings law's deficit target for fiscal 1991 -- would cause a 38.4 percent cut in non-defense programs and cuts of 25.1 percent to 41.3 percent in defense programs, Darman said.

Normally, the consequences of automatic budget cuts, known as sequestration, are not outlined until August. But yesterday's early threat seemed to be an effort to prod Congress by showing that the economic -- and political -- consequences of not making a budget deal could be more dire than the fallout from the unpopular choices needed to reduce the deficit.

"The American people," Brady said, "will find out what these cuts mean, and when they do they will be in contact, I promise you, with their congressmen, and we'll get progress."

Some Democratic budget negotiators encouraged the administration to issue its early warning about automatic spending cuts. They suggested to Darman that he issue the report now in hopes of creating a sense of urgency in the talks.

"It's better that people see it now to try to build some impetus to get an agreement," said Panetta. "I'm hoping the magnitude of this sequester order will help establish the depth of the crisis we are facing."

The administration also might have Republicans in mind when it talks about getting Congress to face up to the deficit-cutting task. On Wednesday House Republicans will vote on a resolution declaring their opposition to "new taxes and all tax rate increases as a means of reducing the federal budget deficit." The vote would put members on record directly opposed to President Bush's recent statement that he would accept a tax increase in a deficit-reduction package.

OMB's reestimate of the budget deficit brought its projection in line with that of the nonpartisan Congressional Budget Office, which has been far less optimistic than the administration. Late last month, CBO projected the fiscal 1991 deficit at $164 billion, not counting the cost of the savings and loan cleanup, and $232 billion with that money added.

While lawmakers have focused on coming to grips with next year's budget, the deficit for the current fiscal year has continued to spiral, the new estimates show.

According to the budget plan reached by Congress and the White House last November, the deficit for the current year should have been no more than $100 billion. But OMB said yesterday that the actual figure, including the cost of the thrift cleanup, would be $218.5 billion, more than twice the target.

Even without $57.2 billion in spending for the cleanup of the ailing savings and loan industry, the government would have missed its deficit mark.

Staff writer John E. Yang contributed to this report.