A revised version of President Reagan's "New Federalism" plan, which will be sent to Congress next month, would turn over fewer programs to the states and cities than originally planned and would promise them a stable level of funding for five years.
The proposal also puts off some of the most controversial decisions, such as which federal tax sources would be turned over to the states after 1988, when each governor could decide whether to continue the domestic spending programs or drop them.
A detailed draft of the legislation, a copy of which was obtained by The Washington Post, contains a number of political compromises designed to ease its passage through Congress.
For example, the most publicized part of Reagan's original plan--a federal takeover of Medicaid costs in exchange for states picking up the welfare program--has been shelved for the time being.
The plan also urges that money for traditional local aid programs, such as sewage treatment plants, be passed through state capitals to city governments.
And it no longer proposes to transfer to the states such major programs as child nutrition and handicapped education, which many wanted to keep at the federal level.
For governors and mayors, the trade-off in freezing spending levels for about $20 billion in federal aid programs is that they would lose ground to inflation during the five-year period.
In addition, spending would be locked in at the level of the fiscal 1984 budget, which Reagan will propose to Congress Jan. 31, meaning that many programs still could be cut from current levels in coming months.
"The serious problems have been taken care of," said presidential assistant Richard S. Williamson, who has discussed the plan with about 100 state and local officials.
"We're trimming the sails on a couple of things, but there's nothing in there we don't feel comfortable with. It's just not as big a step."
The plan would create three new block grants.
The largest one, designed for the states, would contain 21 programs ranging from vocational education and energy assistance to alcohol abuse and maternal and child health.
Beginning next October, a state could take 20 percent of the money from each program and spend it anywhere else within the block.
That flexibility gradually would increase until the end of 1988, when a state could spend all the grant money however it chose, even for purposes unrelated to the grant.
An exception would be made if a state traditionally turns over 90 percent of its child welfare aid, for example, to city halls. The same proportion of money still would have to be given to the cities.
John Gunther, director of the U.S. Conference of Mayors, said that cities still might not receive their fair share from the states, and that there is no way Reagan can assure that Congress will not cut the programs further in the next five years.
"It doesn't mean much," he said.
The second grant is to local governments and would cover two programs: general revenue sharing and community development block grants.
Gunther said the mayors' group also is disturbed that cities gradually would be freed of requirements that the community development aid be spent mainly to benefit low- and moderate-income people.
The proposals for a third grant for transportation are more tentative, but the plan now includes only secondary roads and bridges, urban roads, Appalachian highways and safety grants.
The major funding areas--mass transit, interstate highways, primary roads and airports--have been dropped.
Various federal agencies would decide how much money each state would receive during the five-year period, a decision that likely would become the focus of intense lobbying.
Reagan originally wanted to transfer some federal excise taxes to the states during a phase-out period between 1988 and 1991.
That would allow each state to continue the programs without raising taxes, to spend the money elsewhere, or to lower the taxes by dropping programs.
But some governors felt their states would be paying more in gasoline taxes, for example, than they would get back.
So the plan now is to name a commission to decide which federal taxes should be relinquished after 1988, or even whether the grants should continue to be funded from general revenues.
Reagan's underlying goal is to reduce Washington's control by giving local governments far greater discretion in running domestic aid programs.