In Excel there isn't a "best way" to do this kind of manipulation. Excel isn't really built to do this kind of work, so your approach is like using a toothbrush to adjust your television... It might be possible, but it probably won't be a "best way" in anybody's opinion.
You may be able to do what you've described by creating formulas to construct a column that contains the text formatted to meet the state requirements. Once you get the column correctly built, you'll need to copy the contents of that column into a text editor like Notepad, then save the results. This will do the task you need done, but it won't be pretty!
Depending on how much work you want to do and how much learning you are willing to do there are other options. If you really need to reformat one flat text file into another text file format, then I'd strongly suggest investigating a free tool called
GAWK which is a simple tool designed to make mangling text files simple. GAWK doesn't have a
GUI, but it is the best fit for the problem you've described (least work to produce exactly what you want). Check out the printf() function and you ought to be on your way.
There are a number of reporting tools that can approximate what you've described. The report writer in MS-Access doesn't work well for me when laying out character based output like a file format, but I know some people that swear by it (while I swear at it).
-PatP