he American Public Transit Association, arguing that the nation's bus and rail systems are vital to economic recovery, has called for energetic lobbying in Washington to stop the Reagan administration's proposals to trim federal transit aid by a further 12 percent.

The call to arms against new reductions was sounded repeatedly during the association's annual convention here. But Arthur E. Teele, a Reagan appointee who heads the Urban Mass Transit Administration (UMTA), which distributes federal aid, told delegates in a speech that he believed transit could "live with" the cuts.

The proposed reductions come as public transit systems in many American cities are close to bankruptcy, caught between falling ridership and rising fares. About a quarter of all U.S. systems have raised fares since June, according to the association.

Federal grants rose through the 1970s and now cover about 14 percent of the systems' operating costs, as well as most construction and equipment costs.

In his address at the four-day conference, which ended Sunday, Teele invited the transit association, commonly known as APTA, to work with him to lessen the cuts' impact. But association officers said they would not give their blessing to the plan.

"Washington is asking, 'Which arm do you want to lose--your left or your right?' " APTA Executive Vice President Jack Gilstrap said." . . . We're saying we don't want it cut, period."

Anne Canby, chairman of the New Jersey Transit Corp., which is drafting a $750 million capital program for the state, echoed his thoughts: "I don't want any cut. I think a cut at this point is outrageous."

Federal transit funding was pared by 10 percent to about $4 billion in the first round of the Reagan cuts, federal figures show.

Gilstrap suggested that the proposed new cuts would strike hardest at cities of 50,000 people or less and could force many systems there to shut down. Transit systems in medium and large cities, meanwhile, would have to raise fares and reduce service--again--to make ends meet, according to Gilstrap.

Under the first round of Reagan cuts, UMTA planned to take most of the money out of capital grants. They fell 15 percent to $2.7 billion, or $500 million less than levels of FY 1981. However, administration officials contend that capital financing is a legitimate role for Washington and promise that this spending will rise again when the economy improves.

Meanwhile, system managers were told that operating assistance--the other major aspect of transit aid--would be phased out altogether over four years. However, it would be held steady for the first year to ease the transition. Administration officials contend that this aid has fostered low productivity and excessive labor costs. Transit systems, they argue, should lower their costs and get whatever help is still needed from state and local governments.

In an interview, Teele said that in spreading around the new 12 percent cut he would favor keeping operating subsidies close to current levels for the coming year, as round one of the cuts planned, but speeding up the phase-out. The money would be saved by cutting capital funding disproportionately for the initial years.

In general, small cities depend more heavily on federal operating aid than do the big cities. For example, these grants currently account for 23 percent of Indianapolis' operating expenses and 39 percent of those in Lansing, Mich., according to UMTA.

The big cities, meanwhile, are more worried over cuts in capital programs. Washington, Philadelphia, New York and Boston are pursuing extensive modernization or expansion programs that are financed almost entirely by federal grants. These programs are considered key to attracting new riders.

Teele said his plan for the new 12 percent cut would allow continuation of crucial capital projects. But UMTA would not approve funding for new starts on major construction, such as bus maintenance facilities, in the coming year, and would approve new bus and rail car purchases only on a case-by-case basis. (New starts on rail projects already have been suspended.)

After the first Reagan cuts, Washington's Metro transit authority emerged with $315 million earmarked for construction and equipment purchases. That sum would cover the first year of a four-year program that aims to have the full 101-mile subway system finished or under construction by 1985. Only 37 miles are operational now.

Heavy capital cutbacks, such as those being proposed by Teele, could push Metro's funding down to around $250 million, according to Metro General Manager Richard Page. Prince George's County and the District of Columbia worry that further postponement of ground breaking on Green and Yellow Line track planned in their jurisdictions could mean it will never be built.

In his address to the convention, Teele defended the cuts as necessary for the Reagan administration's attack on inflation. Easing inflation, he said, could do more for transit's financial troubles than federal aid.

APTA leaders denounced Teele's plan as unacceptable. The cuts will create unemployment in firms manufacturing transit equipment and could drive some permanently out of business, according to a resolution passed Sunday by APTA's board of directors. (The country's two major bus producers, General Motors and Grumman Flxible are both seriously short of orders.)

Many officials fear that when congressional horse-trading is finished, UMTA may be saddled with more than a 12 percent cut. Other agencies within the U.S. Department of Transportation--the Federal Aviation Administration, for instance, now rebuilding from the air controllers strike, and the Coast Guard, with its defense mission--may get priority for DOT funds, it was suggested.

Transit officials also contested administration claims that federal subsidies can be replaced by state and city governments. Many of these bodies are already running serious deficits, the officials said.

APTA officials also complained that while reducing grants, Washington had retained cumbersome regulations in administering the grants. Foremost are provisions that in effect require labor union approval for federal grants, which APTA officials say gives unions unfair leverage in contract talks. Teele promised to seek a way to simplify regulation.

APTA President Leonard Ronis said in a speech that the United States is lagging behind many foreign countries. Bus and subway rides in Vienna average 25 cents; in Paris 35 cents, he said. In Rome, a new rail line recovers 15 percent of costs from the fare box, as compare with the U.S. average of 39 percent.