Warning that President Reagan's tax cuts will cost states about $2.3 billion in lost revenues next year, the National Governors Association said yesterday that the administration must move quickly to identify sources of fiscal relief or face a rebellion on its future budget-cutting plans.
In a statement issued on the eve of today's opening of the governors' annual meeting in Atlantic City, Georgia Gov. George Busbee (D), the association chairman, declared, "Federalism must be a two-way street." Unless the administration identifies tax sources for transfer to the states, he said, "further efforts to shift new responsibilities to state and local governments will meet with firm resistance from the states."
The warning is similar to that voiced last week by the National Conference of State Legislatures. Bushbee's statement and the report by the association's staff were not formally approved by the other governors. But they were significant because the NGA and the NCSL gave bipartisan support to Reagan's first-round budget cuts over the opposition of organizations of mayors and local officials.
The analysis distributed with Busbee's statement said states would lose at least $2 billion in fiscal 1982 because 35 or the 45 states with corporate income taxes use the federal definition of corporate income. More generous depreciation tables in the tax bill awaiting Reagan's signature will reduce that income -- costing the states taxes.
Additional revenue losses, the statement said, will result from the partial or complete piggybacking of personal income taxes on federal taxes in more than half the states. Further, state borrowing costs are expected to rise as a result of the new "all-savers certificates" exempting some savings from federal taxes.
Aides at the governors' association said they believed the $2.3 billion in revenue costs was "a minimum estimate and it could be much higher."
The tax loss could be partially offset if the Reagan package stimulates economic activity, but the statement pointed out that state revenue systems are less flexible than the federal income tax.
The revenue losses come at a time when most states have little if any elbow-room in their budgets. The governors' statement estimated that reserves or surpluses have declined from $11 billion in fiscal 1980 to $4.7 billion in fiscal 1981. A separate survey by the NCSL found most of those surpluses are concentrated in about a dozen energy-producing states and that most states have less than a 3 percent reserve.
Busbee noted that about one-third of the $35 billion in fiscal 1982 federal budget cuts came in grants to states and cities and that only $2.3 billion of grant funds was shifted from categorical to block grants, thus giving the states the flexibility they wanted. Continuation of this pattern, he said, "would place even greater fiscal stress on the states."
In calling for the administration to "quickly outline its future plans for returning programs and tax sources to the states," Busbee was recalling a pledge made by Reagan to state and local officials. He told those groups that block grants would be only an interim step to a return of program responsibility and revenue sources to states and localities.
The administration has an interdepartmental task force looking at such options but officials have said privately that any major shifts of revenue sources to states and cities would be unlikely in the next year or two.