Following are excerpts from the 145-page documents listing the Reagan administration's contemplated spending cuts.In most cases the budget cutters have set forth the rationales for their proposals and forecast the likely reactions in Congress and among affected interest groups. Listed cuts are from the so-called current services budget, which sets forth what spending would be in fiscal 1981 and 1982 under current law and economic assumptions, absent any changes in policy. All figures are in millions of dollars and in projected outlays -- money the government is expected actually to spend. Medicaid (TABLE) (COLUMN)1981(COLUMN)1982 Current Estimate(COLUMN)16,483(COLUMN)18,215 Proposed Savings(COLUMN)100(COLUMN)1,013(END TABLE)

Current Program: Medicaid is a program of grants to States to assist them in providing medical insurance coverage to the poor.

Potential Change: The savings identified above could be achieved if an interim cap were imposed on federal Medicaid spending while proposals for fundamental program reforms are developed. The cap would limit federal grants a level $100 million below the 1981 spending estimate, and allow a 5 percent increase in 1982, $1 billion below the current spending estimate. After 1982, federal spending would be allowed to rise only with inflation. States would be given additional flexibility to adjust payment rates for providers, to organize more cost-effective systems of care, to change covered services, and to adjust eligibility in order to live within their allocated share of the expenditure cap.

Medicaid spending has risen faster than 15 percent annually over the last five years. Only capping federal payments can produce significant budget restraint under present conditions.

The interim cap will allow each state to maintain its current real share of total federal Medicaid spending. The effects of the cap however, vary from state to state, depending on projected rates of expansion and the methods adopted to reduce program costs. Based on current state projections for 1982, all but 3 states will have reimbursements limited as a result of the cap. 1Nine states now consume 55 percent of all federal Medicaid dollars. New York and California alone generate 27 percent of all federal Medicaid costs. yThe increased state flexibility proposed . . . will enhance states' ability to improve the cost-effectiveness of the program and to make appropriate adjustments in eligibility. Nevertheless, some states are likely to respond to the cap by withdrawing needed services from the poor and by excessively constraining payments to providers.

Probably Reactions: Most states will object strongly to imposition of a federal cap on Medicaid, although welcoming the proposed increases in flexibility. In addition, provider groups, especially hospitals, may balk at limited payment rate reductions stimulated by the cap. These groups might add their voices to the normal welfare constituency in the Congress. In view of the current inequities in the program, it will be important to emphasize that the cap is a temporary measure while proposals for fundamental reforms are developed. Disability Insurance (TABLE) (COLUMN)1981(COLUMN)1982 Proposed Savings(COLUMN)125(COLUMN)600(END TABLE)

Current Program: Disability Insurance (DI) benefits are paid to disabled workers and their families. The costs of disability insurance have grown by leaps and bounds.

Potential Changes: (1) Improve administration to reduce payments to ineligibles -- Unpublished Social Security Administration (SSA) Pilot quality Control studies indicated a 15-20 percent DI error rate, with most of the misspent funds going to individuals misclassified as disabled.

A top-flight management team, starting immediately and operating under current laws, could produce sizeable savings starting in FY 82.

(2) Institute a "megacap" -- A megacap would limit related disability benefits so that they do not exceed a worker's prior after-tax earned income. The rationale is simply that individuals should not receive more while disabled than they were paid for working. The largest federal program offsetting DI benefits would be veterans compensation benefits.

Excluding veterans compensation benefits would markedly reduce the savings associated with a megacap.

Excluding state worker's compensation or private disability insurance benefits would also reduce the savings from a megacap. Reducing DI benefits for private insurance payments could be seen as taking private property from individuals who chose to insure themselves.

Provide a stricter recency-of-work test: Workers who had social security covered earnings up to 5 years ago but not since are eligible for social security disability benefits.

Opponents to this change would make emotional appeals about vulnerable people being excluded from benefits, such as the disabled, widows mothers and dependent children.

Probable Reaction: Congress may be reluctant to again reform disability insurance. The 1980 DI reforms focused on eliminating excessive benefits for the disabled. Seeking major cuts in disability benefits might be viewed by advocates as an assault on America's social insurance "safety net". Social Security Student Benefits (TABLE) (COLUMN)1981(COLUMN)1982 Proposed Savings(COLUMN)100(COLUMN)700(END TABLE)

Current Program: Full time students age 18-21 are entitled to social security benefits as dependents of retired, disabled or deceased workers. Approximately 800,000 students now receive benefits from this program. The average social security student benefit is $255 per month and ranges from a low of $20 to a high of $700.

Potential Changes: The students benefits program should end. New recipients should be prevented from entering the program, and existing recipients' benefits should be reduced by 25 percent over the next four years. Arguments for Ending Program:

The benefit is inappropriate for the social security program -- Social security protects against loss in income from risks (old age, disability and death) which are beyond the worker's control. Continuing the child's benefits past age 18 because of their choice to go to school should not be an insurable risk.

The benefit is poorly designed as educational assistance expenses.

Educational assistance is provided more equitably and efficiently under other programs.

The social security trust system can no longer afford this drain on its funds.

Program participation rates and costs have exploded since 1965 enactment.

Probable Reactions: Recommendations by the Carter administration to reduce or abolish these benefits have not even gained serious consideration on Capitol Hill. Service opposition by present and future beneficiary families, Social Security advocacy groups and the higher educational establishment can be anticipated.

The new Congress may be more responsive to trimming this program on merit particularly when the savings are needed to maintain the overall soundness of the social security system. Minimum Social Security Benefits (TABLE) (COLUMN)1981(COLUMN)1982 Proposed Savings(COLUMN)200(COLUMN)1,000(END TABLE)

Current Program: A minimum initial benefit of $122 per month is given to social security recipients who otherwise earned a lesser amount.

Potential Changes: Both GAO and various social security advisory councils concluded that the minimum benefit has outlived its usefulness and generates undesirable windfalls. It was originaly adopted to assure that benefits paid to retired workers were larger than welfare payments.

The original rationale for the minimum benefit makes no sense today. The Supplemental Security Income (SSI) program, enacted in 1972 for the needy aged, blind and disabled pays benefits which are about double the security minimum benefit ($240/month).

Because SSI benefits would be increased by the amount social security benefits were reduced, eliminating the minimum benefit would not affect truly needy recipients. Of the 3 million minimum beneficiaries, less than half would lose a single dollar if the minimum benefit were eliminated.

According to GAO, 74 percent of minimum income recipients do not "depend primarily" on social security benefits. This includes 15 percent who have federal government pensions averaging $900 per month and 10 percent whose working spouse earn at least $14,000 per year. Eliminating the minimum benefit tends to even out the income distribution among retirees by reducing incomes among the better-off without affecting incomes among the worst-off.

Probably Reactions: Doing away with the minimum benefit makes programmatic sense and has been recommended by GAO. However, those recipients who would lose a portion of their income would lobby fiercely against minimum benefit elimination. Eliminating the minimum could be painted as a first toward dismantling social security, resulting in heightened resistance to other social security reforms. Unemployment Insurance Extended Benefits (TABLE) (COLUMN)1981(COLUMN)1982 Propsed Savings(COLUMN)568(COLUMN)2,162(END TABLE)

Current Program: The regular unemployment insurance system pays benefits for up to 26 weeks (in most states) to experienced workers. Up to 13 more weeks of extended benefits become available ("trigger on") when either individual state unemployment rates or the national rate exceed certain levels. iThe national trigger has been on since summer 1980, and under current assumptions would remain on through three quarters of FY 1982.

Potential Changes: (1) Eliminate the national extended benefit trigger. When the national insured unemployment rate (the ratio between unemployment claimants and the number of workers covered under the program) exceeds 4.5 percent, extended benefits become available to workers in all 50 states, regardless of the unemployment rate in a particular state. Eliminating the national trigger would restrict extended benefits to states with high unemployment rates and demonstrated need.

(2) Change the mehtod of calculating the trigger rate.

(3) Increase state trigger levels. Currently a state must pay extended benefits when its insured unemployment rate is at least 4 percent and at least 120 perent of its experience in the prior two years. A state, if it wishes, can pay them when its insured unemployment rate exceeds 5 percent. These limits could be raised to 5 percent and 6 percent.

(4) Strengthen and enforce the work test. Unemployment insurance recipients are supposed to be available for and seeking work at all times. However, state enforcement of this requirement is very uneven.

Potential Reaction: The first three changes would require congressional action on substantive legislation; the fourth would require appropriations action. Lobbying against the proposals, particularly by organized labor, would be intense. Eliminating the national trigger and changing the trigger rate calculation have been discussed on the Hill before and do enjoy support, particularly in the Senate, which in the last session passed legislation eliminating the national trigger. Trade Adjustment Assistance (TABLE) (COLUMN)1981(COLUMN)1982 Proposed Savings(COLUMN)-(COLUMN)1,000(END TABLE)

Current Program: The Trade Adjustment Program pays benefits in addition to unemployment insurance to workers when increases of imports "contribute importantly" to their losing their jobs. Benefits are liberal (70 percent of prior gross earnings -- up to the average weekly manufacturing wage, now $269) and extended to 52 weeks. Workers over age 60 or in approved training can draw 26 additional weeks. TAA was enacted to gain approval of a less restrictive international trade policy by those concerned with the effect of imports on jobs.

Potential Changes: Implement GAO recommendations to limit Taa to people who have exhausted their unemployment insurance (UI) benefits; cap TAA benefits at UI benefit levels; and limit the duration of TAA and UI benefits combined to 76 weeks.

Or, same as above, but limit duration to 52 weeks. The hardship felt by workers eligible for TAA is no worse than for other unemployed workers, who are not subject to a 39-week benefit limit. For those with permanent problems, 52 weeks of TAA should provide sufficient time to get training, relocate, or find adequate new jobs.

Potential Reaction: Organized labor, particularly the Steelworkers and the UAW, will strongly oppose attempts to curtail TAA, particularly to reduce benefits for current claimants. Last year the House passed a bill expanding the TAA program. There is, however, considerable sentiment that something must be done to control this program which has grown far beyond expectations. Food Stamps (TABLE) (COLUMN)1981(COLUMN)1982 Proposed Savings(COLUMN)--(COLUMN)2,600(END TABLE)

Current Program: Food stamps subsidize the food purchases of low-income households. Each household meeting eligibility requirements -- an income test, an asset test and a work requirement -- receives stamps redeemable for food purchases. Stamp allotments vary by household size and net income level. fAllotments are annually indexed based upon changes in the Thrifty Food Plan, USDA's lowest cost plan for a nutritionally adequate diet.

Potential Changes: Savings would be achieved by adopting the following package of proposals:

Food stamp benefits would be reduced 35 cents rather than 30 cents for every dollar earned and gross income limits would be set on eligibility. Using gross household income instead of net income improves the low-income targeting of the program. Participation would decline by 2 to 3 million persons from these changes.

Liberalizing amendments scheduled to take effect in FY 1982 relating to adjustments and deductions would be repealed. Current recipients would not lose any of their present benefits and no recipients would be dropped due to this change. Food allotments for families with school age children would be reduced to take into account free school meals. Approximately 43 percent of food stamp households (3 million) would be affected.

Require income eligibility to be based on income in the prior quarter.

Probable Reaction: Enactment of the complete package is highly unlikely. Repeal of the scheduled 1982 liberalizations and increasing the benefit reduction rate with gross income limits are the most likely. Other proposals (school lunch offset, and quarterly retrospective accounting) may be more difficult. Aid to Families With Dependent Children (TABLE) (COLUMN)1981(COLUMN)1982 Proposed Savings (COLUMN)-(COLUMN)671(END TABLE)

Current Program: AFDC is often viewed as the primary federal welfare program (although SSI spends as much, and food stamps 50 percent more, for the poor.) AFDC is administered by the states with federal matching funds ranging from 50 percent to 83 percent.

Potential Changes: Advance payment of the Earned Income Tax Credit (EITC) -- which goes to families with low-income earnings -- would be assumed and counted against a family's monthly AFDC payment.

The income of step-parents would be counted in determining a child's eligibility and benefits for AFDC, in contract to current requirements which do not assume any financial responsibility on behalf of step-parent. This proposal would eliminate the anomalous situation of a child being an integal part of a household that should be expected to support her/him and at the same time being a public charge.

States would be required to determine each month's AFDC benefits based on the family's income and circumstances in the previous month.This would replace the current prospective procedure of estimating future income and family circumstances to calculate benefits, which can result in overpayments and undetected ineligility.

Currently, an AFDC family's earned income may be offset by an unlimited amount of reasonably attributed work-related expenses, including child care, in determining AFDC benefits. Standardizing disregards would encourage greater economy by AFDC recipients in their work expenses, which could effectively increase their income available for other expenditures ($86-plus million savings).

AFDC payments below $10 per month would be prohibited.

Probable Reactions: The likelihood of congressional passage of AFDC items in this package seems good, with leadership expected on most items from Senator Long and the Senate Budget Committee. Opposition from the welfare lobbies can be expected on all AFDC items and, with regard to the retrospective reporting requirements, will focus on up-front administrative costs associated with the proposed change. Health Planning (TABLE) (COLUMN)1981(COLUMN)1982 Current Estimate(COLUMN)172(COLUMN)184 Proposed Savings(COLUMN)-20(COLUMN)-75(END TABLE)

Current Program: The health planning program provides support for 213 local health systems agencies (HSAS) and 57 state health planning and development agencies (SHPDAS). The program has a dual charge: to assure equal access to quality medical care and to control costs; in practice, however, emphasis has been toward cost containment. The program's three primary methods of controlling costs are: 1) certificate of need rreview for new facilities construction or equipment purchase; 2) appropriateness review for existing facilities, and 3) proposed utilization of federal funds review for federal grant application.

Potential Change: This proposal would phase out federal support for the entire planning program over the 1981-1983 period. This policy action would be consistent with a two-year administration timetable for development and implementation of a pro-competitive bill for health financing reforms.

This proposal reflects three basic deficiencies of the current planning program:

Inappropriate regulation. The health planning program is intended to restrain costs by limiting the supply of facilities and services. However, this approach also inhibits market forces which are needed to strengthen competition and provide less costly services.

Lack of effectiveness. The planning program has functioned under serious liabilities of attempting to impose a federal structure incompatible with many state and local political processes and attempting to restrain costs without altering the financing system which is the main contributor to excess costs.

Federal/state/local responsibilities. The planning program is a highly visible example of the federal government seeking to impose national program, in exhaustive detail, on states and local areas. Continued support for the current planning program would thus appear to be a low priority in view of this administration's approach to returning responsibilities to appropriate levels of government.

Probable Reaction: Some dissatisfaction with the present planning program is evidenced by the 15 percent reduction in 1981 funding for local health planning. Nevertheless, absent a viable pro-competition alternative to cost containment, the current planning/regulatory approach has continued to maintain support. The strongest opposition to elimination of this program will come from the local health planning agencies and congressional supporters of a strenghened federal role in health care regulation. Some provider groups and Blue Cross, with stakes in the present non-competitive system, as well as states, may also oppose a complete end of funding. Most providers, however, will probably support program elimination. Comprehensive Employment And Training Act (TABLE) (COLUMN)1981(COLUMN)1982 Proposed Savings(COLUMN)946(COLUMN)3,708(END TABLE)

Current Programs: Prior to 1973, a number of categorical, federally controlled programs were authorized by the Manpower Development and Training Act (MOTA) and the Economic Opportunity Act (EOA). In 1973, CETA combined most of these programs into a single block grant and transferred responsibility for their administration to state and local governments.

Potential Change: The savings above reflect total elimination of CETA subsidies for regular jobs in the public sector, by the end of FY 1981. Because CETA funds are available for obligation for two years and may be expended for up to two years after the date of obligation, maximum savings in outlays in 1981 and 1982 require phasing out the program in 1981.

Probable Reaction: State and local governments can be expected to oppose phase-out. Termination will diminish services in most jurisdictions, and in communities which engaged in heavy substitution, considerable problems could result. Organized labor can be expected to argue against any reduction, citing PSE as a way to reduce the unemployment rate, preserve, and enhance job skills provide valued output, and prevent a decline in public services. Strong opposition can be expected from minority groups since virtually all PSE participants are disadvantaged and almost half are minorities. Recycling some of the PSE savings into training programs could ameliorate the criticism, but would reduce overall savings. Public Health Service Hospitals (TABLE) (COLUMN)1981(COLUMN)1982 Current Estimate(COLUMN)158(COLUMN)161 Proposed Savings(COLUMN)-(COLUMN)-100(END TABLE)

Current Program: The federal government operates a system of eight general hospitals and clinics primarily to provide free medical care for merchant seamen.

Potential Changes: This proposal would eliminate the merchant seamen entitlement, the general hospitals and the clinic system on the following grounds:

The merchant seamen entitlement to free medical care at public expenses is inequitable and unwarranted.

Only 40 percent of the PHS system's patient care is now for primary beneficiaries (merchant seamen).

Occupancy rates of the hospitals have been hovering at 60 percent since 1978 compared to national minimum standards of 80 percent occupancy.

All of the hospitals are located in overbedded areas; and

All affected cities have at least one other federal facility operating at less than 80 percent occupancy to care for non-merchant seamen patient load entitled to federal care.

Probable reaction: There will be strong reaction from members of Congress whose constituency is affected by reduction of 5,000 federal jobs, but objection is not likely from other areas. Former Senator Magnuson and former Congressman Murphy . . . were primarily responsible for continuance of the system. The remaining hospitals are in Seattle, San Francisco, Galventon (Nassau Bay), New Orleans, Norfolk, Baltimore, Staten Island and Boston. National Health Services Corps Scholarship, Placement Programs (TABLE) (COLUMN)1981(COLUMN)1982 Current Estimate(COLUMN)151(COLUMN)187 Proposed Savings(COLUMN)-3(COLUMN)-14(END TABLE)

Current Program: The NHSC provides federally employed physicians and other professionals to areas clasified by HHS as health manpower shortage areas (HMSAS).

Potential Change: This proposal would eliminate all new scholarship awards in 1981 and 1982 on the following grounds:

Rapidly diminishing access problems. Currently available date indicate that serious remaining problems of access to adequate primary care are rapidly being reduced and will probably be virtually eliminated with the next few years.

In addition, recent data indicate that physicians in general, and primary care physicians in particular, are voluntarily locating in smaller communities and that specialists in rural areas spend 30 percent or more of their time on primary care.

Costs -- Total program costs are very high. Federal costs now average $100,000 per physician for each year of scholarship obligated service. Alternative aid program would be more cost effective.

Probable Reaction: This proposal has a very good chance of gaining support from both Appropriations committees. The House committee has been highly critical of the NHSC placement process in recent years. There has been a higher and higher proportion of assignees placed with HHS grantees in urban areas as opposed to rural areas where the eventual establishment of a private practice is more likely. National Endowment for Arts, Humanities (TABLE) (COLUMN)1981(COLUMN)1982 Proposed Savings(COLUMN)-(COLUMN)39(END TABLE)

*3* Arts

1981 1982

Proposed Savings - 46

Program: The National Endowment for the Arts and the National Endowment for the Humanities were first authorized in 1965. Most recently, the endowments were reauthorized in December 1980 for a five-year period, through FY 1985.

Potential Change: Reduce the budget authority of the arts and humanities endowments by 50 percent. The proposed savings reflect a 50 percent reduction in funding for arts and humanities programs beginning in Fiscal Year 1982. From Fiscal Year 1984 on for the arts and Fiscal Year 1985 on for the humanities, the endowments would be held level at $100 million.

Reductions of this magnitude are premised on the notion that the administration should completely revamp federal policy for arts and humanities support. For too long, the endowments have spread federal financing into an ever-wider range of artistic and literary endeavor, promoting the notion that the federal government should be the financial patron of first resort for both individuals and institutions engaged in artistic and literary pursuits. This policy has resulted in a reduction in the historic role of private individual and corporate philanthropic support in these key areas. These reductions would be a first step toward reversing this trend.

Moreover, even in those areas where federal financing does not wholly supplant private philanthropic means of support, it constitutes a low priority item. Given the need for fiscal retrenchment across the full range of human federal programs that meet more basic human needs, low priority items must bear a greater differential burden if fiscal restraint is to be achieved in a balanced and compassionate way.

Probable Reaction: The arts and humanities endowments have broad and articulate public constituencies, ranging from university presidents to museum directors to individual artists and scholars. In addition, most artistic and cultural institutions maintain strong ties to business and corporations through honorary appointments on boards of directors. A proposal to halve the budgets of the endowments could generate strong opposition. Corporation for Public Broadcasting (TABLE) (COLUMN)1981(COLUMN)1982 Proposed Savings(COLUMN)-(COLUMN)43(END TABLE)

Program: The Corporation for Public Broadcasting is the primary vehicle for providing federal financial assistance to the 217 radio and 170 television stations that currently compose the non-commercial broadcasting system. Potential Change: Sixty percent of CPB's budget is comprised of block grants to local stations, [and] 24 percent of CPB's budget goes to national program production. The CPB board would have to decide how any cut would be distributed among CPB activities. If a 25 percent reduction in fiscal year 1982 was directed primarily at administrative costs and national program production, support to local stations could be held relatively constant. Given the necessity for funding restraint and the need to cut out low priority items in the budget, a 25 percent cut is reasonable for 1982. Additional reductions would be made in 1983 and 1984 so that the funding for CPB would level out at $100 million in 1985.

Potential Reaction: CPB support goes to 387 non-commercial radio and television stations. These will probably object to a reduction in CPB funding since their non-federal support is barely keeping up with inflation. In addition, public broadcasting has millions of viewers, many of whom are articulate and politically active. Child Nutrition (TABLE) (COLUMN)1982(COLUMN)1983 Proposed Savings(COLUMN)-990(COLUMN)-1,200(END TABLE)

Current Program: The child nutrition (CN) appropriation finances a variety of programs: school lunches and breakfasts, child care meals, summer meals, nutrition education, equipment assistance, and state administrative expenses. The lunch, breakfast and child care programs subsidize all meals served, but the subsidies vary in three tiers by household income level.

Restructure CN Subsidies: The Omnibus Reconciliation Bill made several changes to CN meal subsidies -- some permanently, others only for FY 81. The Carter FY 82 budget assumes that the FY 81 reductions will be made permanent.

Additional legislative savings that should be proposed are:

Reduce the base meal subsidy from an estimated 19.2 cents/meal to 9 cents in FY 82 and freeze it.

Reduce the commodity subsidy for all meals from 15.9 cents/meal to 8 cents in FY 82 and freeze it.

Reduce the special subsidy for students between 125 percent and 185 percent of poverty by 25 percent (from 74 cents to 55 cents in FY 82).

Eliminate subsidies for snacks served in child care and summer meal programs.

Require schools to verify the income eligibility of students on a 10 percent sample basis.

Eliminate meal subsidies to private schools where yearly tuition exceeds $1,500.

Probably Reactions: Outlook for continuation of the FY 81 Reconciliaion Act reductions is good. Further reductions will be difficult but not impossible to achieve.

CN advocates have had strong bipartisan support in the House Education and Labor Committee. If other cuts are not sought in their areas of interest, agriculture and education interest groups may coalesce to oppose these cuts. Social/Community Services; Health Program Consolidation (TABLE) (COLUMN)1981(COLUMN)1982 Proposed Savings(COLUMN)--(COLUMN)1,827(END TABLE)

Current Program: The federal government finances a multitude of social and community services and health programs. These programs often serve narrow target groups and finance duplicatory services (e.g., family planning is financed by more than one HHS health program and in the Title XX social services program).

Potential Change: The programs listed are potential candidates for consolidation into one block grant to the states for 1982 and subsequent years, with funding at 80 percent of the sum of 1981 current services amount for each program.

Probably Reactions: States will generally suport consolidation of several of these programs but will oppose major reductions in total funding (in fact, they will probably seek automatic indexing of federal funding -- some states may also seek redistribution of funds among states). Specific interest group (e.g., vocational rehabilitation), in addition to opposing the overall funding reduction, will strongly oppose the discontinuance of specific funding for services for themselves. They will fear states will not give them the same funding priority they have by having a separate categorical federal program. Those receiving direct federal grants (e.g., localities, community action agencies, community health centers, and other non-profit groups) will oppose this proposal since they would fear that other entities might receive grand funds that they themselves now have. Hill reaction will be mixed given the various committee jurisdictions covering the proposed programs to be consolidated. Elementary, Secondary Grants Consolidation (TABLE) (COLUMN)1981(COLUMN)1982 Proposed Savings(COLUMN)--(COLUMN)1,258(END TABLE)

The proposal is to consolidate the purpose of all or part of 57 separate federal elementary and secondary education programs -- one third of all Education Department programs -- into two "block grant" programs, which would be funded in FY '82 at 80 percent of the level represented by the sum of the components in FY '81.

Accompanying this consolidation, and offsetting the reduction in federal funding, would be a great increase in state/local flexibility, with respect to the uses of the federal funds, and slicing away of numerous regulations and requirements that create costs for state and local education agencies.

In particular, it is planned to seek changes in the Education for Handicapped Children Act (P.L. 94-142) and in Section 504 of the Rehabilitation Act of 1973, that would narrow the group of handicapped persons (with respect to whom federal requirements are imposed and funds made available) to those with severe disabilities and to limit the "related services" that must be provided.

Residual programs not included in either of the two block grants are of three kinds:

1. Several large programs are (e.g, Impact Aid, Vocational Education) where separate legislative initiatives are planned.

2. Programs and activities that are not suitable to inclusion in a state or local block grant. These include Indian education, assistance to the Virgin Islands, evaluation activities, media services, "deaf-blind" centers, educational research and dissemination, and the gathering of statistics.

3. Programs and activities not fundamentally related to elementary and secondry education, such as rehabilitation services and all the postsecondary programs.

Probably Reaction: This proposal sketches a nearly-complete overhaul of federal elementary and secondary education policy. It will be popular with many, especially those who believe that the federal role is to supply resources, not to specify what must be done with those resources. It will also appeal to school boards and others now laboring under the burden of detailed regulations, service requirements, maintenance-of-effort clauses, and the like.

Disapproval can be expected from each separate group or interest that now has one or more separate programs it identifies as "its own" and that under this proposal would have to compete for resources with other groups at the state or local level. The proposal would be characterized by opponents at a backing-away from the "historic" federal responsibility for assisting each group and meeting each need separately. Civil rights groups can also be expected to be disquieted.

The reception will further be dampened by the reduction in aggregate funding for a set of activities that have experienced little or no increase (hence a decrease in real terms) in the past two years.

The proposal will also be analogical to President Nixon's 1973 proposal for "special revenue sharing" in the field of education, which met a swift death in the 93rd Congress, and to President Ford's 1976 consolidation proposal, which fared no better. Student Loans And Pell Grants (TABLE) (COLUMN)1981(COLUMN)1982 Proposed Savings(COLUMN)-89(COLUMN)-914(END TABLE)

Current Program: The Guaranteed Student Loan (GSLs) program facilities borrowing from private lenders by graduate and undergraduate students (and their parents).

The National Direct Student Loan (NDSL) program provides participating institutions with capital contributions for student loan funds which the institution must match with 10 percent from non-federal funds. These institutional loan funds them make 4 percent loans to needy tested students.

The Pell Grant (formerly BEOG) program is authorized, under the new law, to provide a maximum award of $1,900 in 1981 and $2,100 in 1982. The percentage of educational costs covered increases from 50 to 60 percent when the maximum award reaches $2,100 in 1982. the grant a student receives takes into account the family income less specified deductions and a student's educational costs.

Potential Change:

Provide student GSLs only for need remaining after other sources of aid counted, eliminate the in-school interest subsidy, and charge market rate on parent loans.

Reduce the funding of NDSL Federal Capital Contributions by 25 percent per year. This approach will phase-out new federal capital in this program in four years. However, schools' revolving funds totaling approximately $3.5 billion would continue to provide loans to eligible students.

Impose a $25,000 income limitation for participation in the Pell Grant program.Limiting participation in this program to families with the median national income or less (projected to 1981 this would be approximately $25,000) would reduce the number of participants by an estimated 286,000 in both 1981 and 1982.

Probably Reaction: College costs are a major concern to middle-income families who would react negatively to any reduction in federal support for higher education. Higher education institutions whose students receive substantial amounts of federal student assistance benefits would also protest strongly. Rural Electrification Administration (TABLE) (COLUMN)1981(COLUMN)1982 Proposed Savings(COLUMN)699(COLUMN)1,945(END TABLE)

Current Program: The Rural Electrification Administration of USDA makes direct and guaranteed loans to advance the construction and operation of electric and telephone utilities in rural areas. Direct loans are made on highly favorable terms. Since the mid-70s, the REA has increasingly relied on the Federal Financing Bank as the originator of many of these guaranteed loans.

Potential Change: The savings projected above would result from a major retrenchment in REA activity designed to (1) increase the reliance of REA borrowers on private sources of capital and (2) focus REA activity on those areas truly requiring federal support.

The changes are:

Effective April 1, 1981, stopping further FFB originations of REA guaranteed loans.

Elimination of 2 percent loans for electrification and telephone construction programs.

Elimination of all loans for power supply purchases. The REA was intended to facilitate utility construction, not to provide operating subsidies.

A 25 percent reduction in the principal amount of direct loans disbursed annually.

This last proposal, as well as all the others, is based on the premise that the REA has largely accomplished its purpose -- to provide the investment capital necessary to construct electric and telephone infrastructure nationwide. The bulk of lending is now for power generation and system upgrading, functions that should be borne by system users.

In the absence of restraint, REA would continue to expand the reliance of rural utility companies on federally provided and sponsored credit.

Probable Reaction: The affected utilities, of course, will not be pleased to have to bear financing costs more reasonably related to the true cost of funds. The need for short-term rate hikes to support private borrowing market rates will also offend customer of REA-financed utilities. Congressional delegations from the regions in which these utilities operate will be sensitive to these concerns. Export-Import Bank (TABLE) (COLUMN)1981(COLUMN)1982 Proposed Savings(COLUMN)155(COLUMN)560(END TABLE)

Current Program: The Export-Import Bank provides a wide range of credit support activities on behalf of sales of American goods and services overseas.

Potential Change: The savings estimate . . . reflects three major changes in the bank's level of operations:

A 25 percent reduction in new direct loan originations below levels planned for the five-year period;

A prohibition against interest subsidies in guaranteed loan transactions.

Elimination of discount loans.

Probable Reaction: The Boeing Corp., which consumes the lion's share of the 42 percent of Export-Import Bank direct loans that support aircraft sales, might lose sales in those instances (roughly 20-30 percent of Bank/Boeing activity) where Boeing comes head to head with subsidized foreign producers. Other major bank users, among them many Business Roundtable members will be forced to find buyers with access to private credit. While the opinion of the business community is divided on the Export-Import Bank due to the heavy emphasis it places on overseas aircraft sales and construction projects, both present and potential users would feel constrained to object strenuously. Farmers Home Administration (TABLE) (COLUMN)1981(COLUMN)1982 Proposed Savings(COLUMN)30(COLUMN)105(END TABLE)

Current Program: As the agency's title suggests, the Farmers Home Administration (FmHA) was started as a means of providing credit assistance for family farm operations and the construction of housing in rural areas, which were left after the rash of bank failures in the early 1930s with severe credit shortages.

Since that time, FmHA has been expanded to the point where it duplicates virtually every other federal lending and lending assistance effort. Through three major funds, the FmHA now makes loans for housing, community development, farm operation, hospital construction, sewer and waste treatment facilities, ad infinitum. In FY 1981, in addition to far-flung loan guarantee operations, FmHA will make $14 billion in direct loans from these three funds.

Proposed Changes: The savings estimates comtemplate a 25 percent across-the-board reduction in new direct lending by the agency.

Probably Reaction: The FmHA is a favorite means of dispensing largest to constituents in rural areas, and congressional offices are heavily involved in the process of securing FmHA grants and loans for local farms, businesses and government subdivisions. While funding reductions would not prohibit congressionally assisted grantsmanship, they would severely restrict its scope, particularly if the reductions were achieved, as suggested above, the targeting remaining funds to lowest-income borrowers.