Reagan and the 50 governors: what price budget cooperation?

The nation's governors are wary that their states will have to absorb a third of President Reagan's proposed spending cuts without the spending and taxing freedom to offset the loss.

They see Congress as the leading villain in the keeping strings tied to the federal money flowing to the states.

They doubt whether Mr. Reagan will be able to achieve his longtime goal of a new federalism, taking advantage of what many experts see as a new readiness of state governments -- with more expert staffs, longer legislative sessions, and, in general, a greater professionalism -- to manage government tasks such as schooling and road building.

Reagan told the governors meeting with him at the White House this week: "My dream has always been . . . not federal grants, but turning back tax sources to the states." And he said he was going to form a "coordinating task force on federalism."

Many governors feel states have become unequal partners to a federal giant in the modern federalism. And they would like nothing more than a direct share of federal tax resources. When Office of Management and Budget Director David A. Stockman raised the prospect of a 2-cent-a-gallon share of federal gasoline tax, to use on state road and bridge programs, there was a flurry of excitement among state officials.

"That's good news to us," said one National Governor's Association (NGA) budget expert in response to the Stockman suggestion."We've been waiting for tax-sharing ideas to surface from the Reagan administration. This is obsolutely the first one."

But there was a quick denial from the White House of any intent to levy such a tax.

Most of the governors feel that Reagan is likely to delay his philosophical goal of restructuring the federal-state balance of power. They believe he will have to use his White House clout first to attain his immediate economic goals in Congress.

On balance, the governors appreciate the overall effort -- the cut-everywhere approach -- in the Reagan economic package. But they worry many costs will be transferred from the federal budget to the states.

Some Democratic governors spoke out sharply against key parts of the Reagan plan. "It's an ill-conceived tax program," said New York Gov. Hugh Carey. The Reagan personal tax cuts would be highly inflationary, he said. Governor Carey favors "capital gains tax reduction, because it creates jobs."

As if in preview of a 1984 presidential bid, Carey drew attention to New York's success in easing inflation and unemployment in recent years, partly due to his tax and fiscal strategies.

Carey charged Reagan was "wholesaling his program through the media" to get the public to buy it and put pressure on Congress. "Congress," he says, "is still in postelection shock, feeling any opposition to Reagan many be dangerous."

California Gov. Edmund G. Brown Jr., another possible '84 Democratic contender, acknowledge: "Reagan's going to get a lot of his spending cuts -- maybe more than half."

He thinks Reagan will get only a one-year tax cut.

Mr. Brown, however, thinks the Reagan package may serve the public's mood more than its needs.

"Investment, not hacking away at current programs, is what's needed," Brown says.Investment in resource development, training workers to compete with cheaper third-world work forces, high-speed rail transit, should be parts of a new deal for this decade, he said."Elect me president," he told reporters, "and I'll do it myself."

Most governors looked more to the job at hand: surviving with as little loss in federal funds as possible and trading what loss there is for greater flexibility in using the money.

"We're concerned about what Congress will do," a governors' spokesman says. "We're very much afraid they'll buy the cuts and not the flexibility. Congress has not been so free with flexibility. They tried to cut state revenue sharing two years ago and succeeded the past year, before Carter cut it."

Congress actually has turned block grant programs like CETA and LEAA in recent years into very categorial grants.

Instead of $100 billion in federal grants-in- aid anticipated under the Carter budget, state and local governments are told to count on $87.6 billion in Reagan's plan for fiscal 1982.

Defense and social "safety net" programs will grow, and federal debt interest will hold steady for the next couple of years, as the states see it. Spending for all other purposes in the federal budget will drop from 30 percent of outlays in fiscal 1982 to 18 percent in 1984, pointing to greater reductions in aid to states.

In fiscal 1982 alone $12.5 billion of the $34.7 billion in Reagan spending cuts proposed so far (with another $6.3 billion to come) would affect state and local programs. however, Reagan would switch 5 percent of the categorical programs to block-grant status to give states a little more spending flexibility.

Transportation and medicaid head the governor's list of federal aid cuts.

Through 1986, Reagan would cut $12.6 billion in highway spending and $6 billion in mass-transit money from "current policy" levels, the governors' budget analysts claim.

"In some states the roads are in such bad shape, states can't cut spending," one NGA official says. The President's budget cut team wants to slow construction of low priority highway projects. But they cannot identify the priority of these projects at the moment, so they are cutting major areas instead.

The Reagan "cap" on medicaid could prove much more costly than it appears, the governors warn. reagan added 5 percent to the Carter budget request for medicaid for 1981 and called that the cap for 1982. But for several years, the original budget estimates for medicaid have proved too low, and more funding had to be approved in spring supplemental action.

Other state worries: that Reagan's proposed CETA cuts will leave high-unemployment states with too little federal jobs aid, and that cutbacks in loan programs for farm and rural services will fall to the states to make up.