Nation's governors take aim at deficits in Reagan's budget

Emboldened by the spread of red ink across the pages of their state budgets, the nation's governors have asked President Reagan to get the federal budget in order.

''The economy is trying to emerge from the worst battering it's had since the 1930s,'' said Illinois Gov. James R. Thompson, a Republican and chairman-elect of the National Governors' Association, before a White House meeting of the governors with President Reagan.

''The economy at home is so tough, things are so austere, that governors have come to Washington,'' said the current NGA chairman, Gov. Scott M. Matheson of Utah, afterward.

The message was bipartisan and plain: The threat of huge federal deficits running through the next four or five years could keep interest rates high and choke recovery. Mr. Reagan should consider policy actions in all major budget areas, the governors said, to pare yearly deficits down to $90 billion by fiscal 1988.

Real growth in military spending should run no more than 4 to 6 percent for the next two years - half Reagan's planned military buildup - and an average 3 to 5 percent from 1984 to '88, the governors said. In response to that demand, the President ''came out swinging'' in his session with the governors, Governor Matheson reported, arguing ''the defense budget he proposed is absolutely essential.''

Defense, however, wasn't the governors only target.

They also broadly endorsed the recent social security reform proposals, which would trim $24 billion from the expected $211 billion social security outlays in 1988. They approved marginal cuts in benefit programs such as welfare, food stamps, jobless insurance, and guaranteed student loans. Federal aid to state and local governments should increase at only three-fourths the inflation rate in coming years. And Congress could curb growth of benefit programs that lack a financial-needs test - such as medicare, social security, and disability insurance - saving at least $15 billion from 1988 spending alone.

The governors' pitch to the President was subject to revision in details by the full NGA assembly March 1. Democrats, who now hold a majority with 34 of the governorships, were expected to press more critically on Reagan's role in the recession.

But the governors' problems cut across party lines. Faced with deficits of their own, they find dramatizing Reagan's deficits useful in selling their own tax hikes and spending austerities back home.

In the past year alone, state taxes jumped more than $4 billion, reports the Tax Foundation Inc., a public-interest tax study group. Despite such increases, the states face $2 billion to $4 billion in deficits by July 30, when most current state fiscal years end, reports the NGA.

Michigan's deficit alone will total $900 million. ''We must rescue the State of Michigan from bankruptcy,'' says Michigan Gov. James J. Blanchard. ''If I laid off every single state employee for the next seven months we would be barely half way to solving the problem.'' In his first weeks in office this year , he froze state hiring and delayed payments to colleges, school districts, and local governments.

In Ohio, Democratic Gov. Richard F. Celeste, a newcomer like Mr. Blanchard, has startled his party's leaders by requesting a 90 percent increase in the state's personal income tax. This would raise $246 million. But even with another $54 million more from higher public utilities taxes, Ohio would still fall short of erasing the $500 million deficit projected for this fiscal year.

Illinois's Governor Thompson has proposed a $1.6 billion tax hike for his state. ''I've cut as far as I can cut,'' Thompson says. ''I've had to propose the first tax increase [in Illinois] in 14 years.''

The states' budget squeeze comes mostly from the recession, the governors acknowledge. For some states, like California, recent tax reforms that started with California's Proposition 13, have made them more vulnerable to the economic slowdown.

Many governors also would like to position themselves for higher spending in fields like job training and education, which they see as central to competing for high technology or service jobs, as few anticipate full recovery in their older industrial jobs sectors.

Reagan's New Federalism is no longer on the table with the governors. ''That has been a bipartisan rejection,'' says Thompson of New Federalism's demise.

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