Moving power from Washington to city hall; Reagan goal will require 'leap of faith'

Looking beyond the headline issues of budget and taxes, the Reagan administration is beginning to concentrate on the more fundamental and potentially disruptive tenet of the President's political theology: a major shift in government power from Washington to state houses and city halls.

This devolution of authority -- something Ronald Reagan has been preaching for decades -- is likely to be much more difficult to obtain.

It will require a "leap of faith" by officials across the country, many of whom fear that the harm from cutbacks in federal funds will outweigh the benefits from increased flexibility and control. The White House also must break the "iron triangle" of mid-level bureaucrats, congressional committees, and special interests that have created much of what the President wants to radically alter, if not abolish.

A hint of how big the job will became a few days ago when congressional committees -- including some key Republicans -- balked at presidential plans to form "block grants" from many categorical programs of local aid.

With the exception of big-city mayors, groups representing most local officials as well as governors, state legislators, and county authorities "have not frontally attacked the President's budget cuts," as a White House official put it.

Yet there is increasing concern nonetheless.

"What hasn't been fully appreciated yet is that the cuts proposed over the next five years will be very deep," Wayne Anderson, executive director of the Advisory Commission on Intergovernmental Relations (ACIR), said in a speech at Rutgers University in New Jersey last week. "Grants to state and local governments, other than those like AFDC [aid to families with dependent children ] that go to individuals, are scheduled to drop from $57 billion in fiscal year 1980 to $45 billion in fiscal year 1986, a 55 percent reduction in purchasing power."

This is far more than the 25 percent initial reduction the administration is seeking or the 10 prcent cut that the National Governors' Association says it can absorb if block grants are enacted.

At the same time, the effects of California's Proposition 13 and its offspring in other places are just beginning to be felt as many states scramble to tighten budgets, cut services, and find new sources of revenue.

A study on municipal fiscal conditions issued over the weekend by the congressional Joint Economic Committee states: "The number and proportion of cities which reported deficits . . . surpassed even the most pessimistic projections."

"Because of the magnitude of the proposed federal cuts and the abruptness with which they will likely be implemented . . . an increasing number of cities will find themselves on the brink of fiscal collapse," the congressional study warns.

Meeting with 20 governors last week, the President said the block grants are an "imperative" part of his "new federalism." Earlier, Reagan told a group of county officials that block grants "are only the intermediate steps," that his "dream" is to turn back to local and state governments the tax sources.

While this is now being discussed in the White House, Washington probably will not begin giving up taxing powers "until there's clear movement on the economic program . . . probably 1983," said Richard Williamson, top presidential assistant for intergovernmental affairs.

At the same time, said Mr. Williamson, "We're optimistic that we'll end up with block grants close to where the President began. . . . I think you're going to see some prompt movement on them in June."

He also points to the 34 deregulatory actions taken by the administration thus far that will reduce state and local costs.

Many argue that federal programs evolved because local officials were unwilling or unable to provide for the needs of the politically less powerful.

Williamson thinks those problems (such as discrimination) have been largely overcome and that "tremendous growth of the infrastructure of state and local governments has created a greater sophistication and ability for problem-solving that just did not exist 30 years ago."

"Ronald Reagan does not believe that wisdom and compassion is a monopoly on the banks of the Potomac," he said. "He feels that state and local officials are closer to the people and therefore more accountable."

At the same time, Williamson acknowledged that "the President has never said that his budget cuts were hold-harmless initiatives. . . . All levels of government are in a tough situation."

As Mr. Anderson's comments indicate, the ACIR portends rough times ahead for state and local governments. Yet this highly respected, bipartisan group also has recommended for some time that government spending and taxing be decentralized and federal regulations trimmed much as Reagan plans.

In a political sense, governors and mayors are thus in a position analogous to individual taxpayers and supply-side economics. To go along with Reagan's "new federalism," they will have to accept the President's premise that it may hurt for the moment but be much better in the long run. If the President is as successful with devolution as he has been with the federal budget, they may have no other choice .