The Reagan administration is considering a plan to convert the country's largest cash welfare program into a system of block grants to the states, perhaps next year, officials confirmed yesterday.
At the same time, Treasury Secretary Donald T. Regan hinted strongly in an interview that it may be years before the administration has budgetary room to make good on President Reagan's frequent promise to transfer federal revenue sources to the states.
Both developments increase the likelihood of a political collision between the administration and the nation's governors. The governors wound up their annual meeting Tuesday by urging that specific tax sources be identified for transfer and by flatly opposing any move to make block grants of Medicaid or the main cash welfare program, Aid to Families with Dependent Children (AFDC).
Yesterday, Richard S. Williamson, the president's assistant for intergovernmental relations, Robert B. Carleson, a White House domestic policy adviser, and Edwin L. Dale Jr., spokesman for the Office of Management and Budget, confirmed that Georgia Gov. George Busbee was correct when he said in his valedictory address as the governors' chairman, "I am convinced a major effort will be made in the very near future to transfer responsibility for income maintenance programs to the states."
All three said a decision on Medicaid was tied up in a broad review of health-care policy now being undertaken at the Department of Health and Human Services. But they said the question of a basic change in AFDC, which costs the federal government nearly $8 billion a year and the states almost as much, is under active consideration.
Carleson, the specialist in this area for the White House policy planning staff, is a long-time advocate of state control of welfare. He said yesterday that "the general decision" to convert to a block grant has been made, "but the timing and the form depend a lot on the budgetary situation and they are very important."
Dale said that "many objections" to the change have surfaced in discussions among budget specialists. Referring to Busbee's statement that such a transfer will be attempted "in the very near future," Dale said, "He's not fantasizing but he's being a little bit more alarmist than he needs to be."
Under AFDC, states are free to set most of their own rules, such as income cutoffs for eligibility, and these vary enormously. The federal government reimburses the states for anywhere from 50 to 77 percent of their costs; the higher percentages go to states with low per capita income.
In 1981, 10.8 million people (two-thirds of them children, the remainder parents caring for them) were on the AFDC rolls, and total federal-state program cost was estimated at $14.2 billion; the U.S. share was 55 percent.
Carleson has repeatedly said that the open-ended federal commitment to reimburse each state for half to nearly four-fifths of its outlays puts little pressure on the states to eliminate waste, improve administration and keep benefits within reasonable levels; the state knows the government will keep reimbursing it no matter how high costs go.
In 1979, he drafted for Sen. Robert J. Dole (R-Kansas) and Reps. Barber B. Conable Jr. (R-N.Y.) and John H. Rousselot (R-Calif.) a block grant plan imposing a cap on federal AFDC reimbursements. Each state was to get as a base payment whatever it was getting in 1979. Thereafter, its federal reimbursement would rise only enough to match inflation, population increases and unusual increases in unemployment.
The bill provided further that after five years, the federal government would start reducing its payment to each state by 2 percent a year; states that failed to hold down costs would have to pay the extra out of their own pockets.
Critics charged these provisions would keep states from improving benefits, which in some cases are now quite low.
But Carleson said that by good management he had succeeded, as Reagan's welfare chief in California, in saving so much money previously wasted that benefits for the genuinely needy were raised.
Part of the 1979 bill, a version of which lost on the House floor by only five votes, 205 to 200, would have given the states even more power than they have now to set the basic rules for their own programs, for example, allowing them to force people to work for benefits.
A cap on federal AFDC contributions coupled with wider latitude for the states to set their own rules appears certain to be the heart of the new block grant proposal; but whether the new plan will include automatic inflation increases or not isn't clear.
Busbee said in a telephone interview from Atlanta that the kind of proposal under consideration amounted to an effort "to dump welfare on the states."
The governors have opposed that as an organization, just as they fought this year against an administration effort to put a cap on federal expenditures for Medicaid --the program for the needy that is the largest of all federal welfare programs -- which would have in effect made a block grant of that program.
Instead, the governors have proposed a full federal takeover of welfare and income-support programs in return for state assumption of all costs of education, transportation and law enforcement.
Aides to the governors' association said that the organization believes that once federal payments are determined by a fixed formula, as they are in a block grant, rather than on the basis of individual entitlements, as is the case currently with AFDC and Medicaid, there are certain to be inequities among the states and among individual claimants.
As for a shift of revenue sources to the states, Regan's comments in an interview cast doubt on the likelihood of early administration action on that implied promise of the president.
Reagan has told governors and local officials in a number of meetings this year that he regarded block grants as an interim step in the shift of authority from Washington to the states and local governments but looked forward to a transfer of program responsibility and "revenue sources" to support it.
A sub-cabinet task force has been designated for the project, but Regan said the group has held only one meeting so far and would be making its first suggestions in the fall.
Asked when the program might be proposed, the Treasury secretary said, "I would assume that in fiscal 1983 you'll see more working toward block grants, and still more in l984. The revenue-source transfer will depend on our economic condition and our budget balance position."
The administration is projecting a balanced budget in fiscal 1984, but that plan does not envisage any transfer of revenue sources from the national to the state and local governments.
Regan noted that the new tax bill calls for indexing federal income taxes starting in 1985 and implied that would leave room for the states to raise their taxes.
Regan said that the likeliest taxes for the federal government to forgo would be some of the excises --telephone, alcohol, tobacco or gasoline. "It's that type of thing, without being totally precise, we're thinking about," he said.
Williamson said that Regan's caution about relinquishing any tax sources before the federal budget is balanced is understandable, but said, "I think the president is looking forward to earlier action, but that remains to be thrashed out."