State Department negotiates with Congress. WRESTLING WITH BUDGET CUTS

The State Department is resolved to improve relations with Congress, which reopens for business next week. The reason goes beyond good-neighborliness. Although the State Department has already resigned itself to a budget shortfall of $80 million to $100 million for the next fiscal year, it hopes to gain some concessions in the areas where Congress has some leeway.

The State Department budget was going to fall $84 million short this year, but the cuts were reversed in the last-minute spending bill Congress passed before Christmas. The down side of the compromise that brought the State Department a reprieve from cutbacks in personnel and operations is that next year's budget increase will be limited to 2 percent.

One way Congress can ease the State Department's budget crunch is by making trade-offs with the Justice and Commerce Departments' budgets, a senior State Department official says. Another concern for department officials is the extent to which Congress will earmark funds. For example, the 1988 budget had included a provision, eliminated in the end, to establish an undersecretary for terrorism.

The effort to smooth over State-congressional tensions has already begun: Ronald Spiers, undersecretary for management, is currently traveling with House members on a trip through Asia. And when Congress resumes, State department officials and advocates plan to spend more time with key aides.

``Now that there's this reprieve - which demonstrated Congress's awareness - we intend to do what we can on the Hill,'' says Perry Shankle, president of the American Foreign Service Association. ``We will thank the congressmen who helped us out. We will also try to galvanize our constituency - the CEOs of corporations, for example, who call on the government to take actions overseas. It boils down to this: Are we a major power or not? While we plan cutbacks, the Russians are making a diplomatic push.''

The measures that were considered for 1988 and are still being discussed for '89 include the closing of two embassies (in the Comoros Islands and Equatorial Guinea) and 13 consulates, elimination of 1,270 jobs, and the combining of some offices. The State Department has already agreed to cap the salaries (including bonuses) of chiefs of mission to around $90,000.

Some in Congress have said the State Department could avoid such a large personnel cut by trimming back in other ways. But department observers point out that diplomacy is labor intensive, and that after several years of austerity, it is jobs that remain to be cut. The department hopes to achieve the personnel cuts through natural attrition and early retirement offers.

Department officials also point out that while they've been forced by the federal deficit to make do with tight budgets, the department's duties have expanded to include such issues as narcotics, refugees, and AIDS.

It took intensive lobbying by Secretary of State George Shultz and other high-level officials to stave off what some called the most dramatic cutbacks in department history.

Tensions between Capitol Hill and State go back years. ``At the root is a breakdown - starting with the Vietnam war - in bipartisan foreign policy and between the executive and Congress,'' says Mr. Shanker. ``Congress has taken to micro-managing. You see it in aid to the contras and in the Gulf reflagging operation.''