An inside look at Reagan's 'new federalism'

By , Staff correspondent of The Christian Science Monitor

In outlining his ''new federalism,'' Ronald Reagan has left no doubt that he is determined to dramatically change the fundamental relationships between Washington and state and local governments.

As revealed in the President's State of the Union speech and briefings by top White House officials, the administration proposal would change most social service assistance, many other government programs, and key forms of taxation in ways that could affect millions of Americans.

The cost of medicaid health care would be fully assumed by the federal government and ultimately changed to tighten up eligibility and reduce benefits. Welfare programs (including food stamps and aid to families with dependent children) would be turned back to the states. Currently, responsibility for these programs is shared by federal, state, and local officials. In its first full year (1984), the program swap would involve a total of more than $35 billion.

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Between 1984 and 1987, the federal government would turn back to the states more than 40 other programs totaling about $30 billion. These include federal money for education, child nutrition, non-interstate highways, airports, local mass transit and sewer treatment, vocational rehabilitation and education, and low-income energy assistance.

Administration officials argue that during this three-year period, state and local governments would actually benefit from the shift in responsibility because they would save more from medicaid than they would have to spend on welfare.

''We don't think we're dumping anything on the states,'' says Richard Williamson, White House adviser on federal relations. But Mr. Williamson concedes that there will be ''winners and losers'' among the states. States with high medicaid payments (like New York and California) would benefit, he says, while some of the poorer states - ''I'd rather not identify them specifically'' - could lose.

To make up for the increased costs to state and local governments during the transition, the President is proposing to pay ''super-revenue sharing'' from a ''transition trust fund.'' This would include general revenue sharing, federal excise tax income, and the ''windfall'' profits tax on domestically produced oil.

Beginning in 1987, however, these sources of income (including the very popular revenue-sharing program) would be reduced 25 percent a year until 1991 when they would be phased out entirely.

By then, it is assumed, states would have chosen to levy their own new taxes, cut back on certain programs, or be able to run them more efficiently without the extra level of government in Washington.

The President's success depends on his powers of political persuasion over thousands of mayors, governors, and legislators, many of whom already are critical of the administration's budget and tax programs.

''This is making federalism the heart of the domestic political debate in this country for the next several years,'' says National Governors' Association spokesman Joseph McLaughlin.

State and local officials will spend months analyzing the potential impact of the President's proposals, many of which will require federal legislation. They have been opposed to the state takeover of welfare, but no doubt will welcome the federal assumption of all medicaid costs. At a minimum, they are happy that a ''sorting out'' of state and federal responsibilities now is taking place.

Many governors (including prominent Republicans) have been highly critical of the White House effort to sharply reduce many domestic programs. House Speaker Thomas P. O'Neill Jr. (D) of Massachusetts says the President's new proposals will mean ''competition among states and higher property taxes.''

''I just don't believe, as I understand this federalization program, that we can make such a transfer,'' the speaker told reporters Jan. 26. He forecast a long process of hearings and debate ahead, saying that the House would not be rushed into approving the program.

Senate majority leader Howard H. Baker Jr. (R) of Tennessee, on the other hand, insists that local governments will have ''enhanced flexibility'' under the Reagan program. ''In every major social program, the basic essentials of food, shelter, and fuel -- in every one -- the poor will be better off than under the existing hodgepodge.''

But these are political judgments whose basis in fact will not be fully determined for months and even years

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