The $34 billion in spending cuts that President Reagan is considering for next fiscal year would curtail sharply the grants to state and local governments that make up more than a tenth of the federal budget and were a main budget target of Reagan's first four years.
The effect would be a continued shift of responsibility for social welfare and other major domestic programs from the federal to state and local levels.
The contemplated budget cuts are not just in the state and local sector; the president also is considering retrenchment in a variety of other areas, ranging from health care for veterans to subsidies for farmers. Nor were the state and local cuts lumped together in the documents that emerged from the White House Thursday. But some of the biggest budget cuts would come in some of the programs on which state and local governments most depend, from Medicaid through highway, sewer and community development grants to federal revenue sharing.
State and city officials reacted accordingly yesterday.
"We've already been pressed to the wall," said William Bechtel, director of the state of Wisconsin's office here, who described state and local governments as "reeling and staggering" under the newest budget proposal, which he said would be "devastating . . . especially in the Northeast and Midwest."
Many officials cited not only the prospect of a fifth round of cuts in their federal aid programs but also the tax simplification plan proposed by Treasury Secretary Donald T. Regan that would end the deductibility of state and local tax payments from federal income taxes, among other things.
As state and local officials described it yesterday, the problem is this:
Federal spending cuts put pressure on state and local governments to raise taxes to help compensate for the loss of federal aid if the localities want to keep programs operating at current levels. But loss of the federal tax deduction would make it more difficult to maintain or increase the state and local taxes.
In addition, what is lost in grants for one program must be at least partially made up by paring other locally funded programs. And the problem is compounded by the depth and breadth of the proposed cuts in federal grants.
Federal grants to state and local governments come to about $100 billion a year, and make up about a fifth of total state and local government revenues.
Some of the money is in direct payments such as the $4.5 billion revenue-sharing program for local governments.
Some is in federal contributions that are matched by state and local funds, as in the federal-state Medicaid program of health assistance to the poor, for which the federal government pays $23 billion.
Other sums help build sewers, staff schools, heat homes of the poor, finance libraries and buy milk for children.
With the exception of a few programs such as highway assistance, nearly all of the largest grant programs have been cut, frozen or kept below inflation levels over the past four years, resulting in loss of bilions of dollars to state and local governments. Nearly all these programs would be cut or frozen again under Reagan's provisional list of budget cuts for fiscal 1986.
For instance, revenue sharing, sewer grants and urban development grants would be terminated. Medicaid, welfare, subsidized housing and child nutrition programs would be frozen or cut.
"The combination of the tax proposals . . . and the $34 billion in cuts looks devastating for states and localities, particularly in the Northeast and Midwest," said Wisconsin's Bechtel.
"As I go through the list of proposed cuts, every agency of the state will be affected: vocational education, health, urban development, transportation, welfare," he said.
Judy Chesser, director of the New York City office here, made a similar point.
She noted that federal revenue sharing with local governments, which Reagan would end, helps pay for police, education and a variety of other municipal programs in New York.
The city, she added, has 165,000 households on a waiting list for subsidized housing, which Reagan would stop building for two years.
With 20 percent of its population on Medicaid, the city also would be hard pressed to pick up the slack from big new cuts proposed for that program, Chesser said.
Looking at education, for which the administration has proposed a freeze, Greg Humphrey, legislative director of the American Federation of Teachers, said the proposal amounts to a "freeze on top of a freeze."
He said the federal share of educational spending in 1980-81 was 8.5 to 9 percent and now it is below 8 percent.
"This will drive it down further," he said. Federal spending on education, now $17.9 billion, would have been $20 billion without the earlier cuts and $15.5 billion if Congress had not balked at some of Reagan's proposals, Humphrey said.
"Any more cuts would create a new fiscal crisis at the state and local level as schools would have to compete with other vital programs but with less dollars, and the poor would be the big losers," Mary Futrell, president of the rival National Education Association, said.
Robert Greenstein, director of the Center on Budget and Policy Priorities, which often criticizes Reagan budget policies, said some of the newly proposed cuts in programs for poor people are the "most significant . . . ever," eclipsing even those of 1981.
Reagan is proposing cuts in almost all the main programs for the poor, from Medicaid, the largest, through food stamps and housing subsidies, the next in size, through welfare for the needy aged, blind and disabled and mothers with dependent children.
An official of the National Governors' Association said the governors feel strongly there must be "no added cuts in basic safety-net programs, such as aid to families with dependent children, food stamps, the social services block grant, child nutrition and Medicaid," all of which have been targeted for retrenchment.
A number of the governors plan to meet with Reagan next Friday to lay out their concerns.
Barry Zigas, president of National Low-Income Housing Coalition, said there are waiting lists of up to 20 months and halting construction of new units "will make it worse." Some people are paying 60 percent of their income for rent, he said.
John Rother, associate director for legislation of the American Association of Retired Persons, said the proposed freeze on Supplemental Security Income for the low-income aged, blind and disabled would cost a couple with no other income $252 in the next fiscal year.
For programs other than state and local grants, the protests were equally strong.
Reagan's proposed termination of the dairy price support program, part of an overall effort to cut farm subsidies, probably would drive most of the country's 185,000 milk producers out of business, Pat Healy, chief executive officer of the National Milk Producers Federation, said.
Ultimately, he said, milk prices would "skyrocket."
Proposed cuts in veterans' benefits have created militant opposition on the part of the American Legion, which went along reluctantly with earlier cuts.
"You just can't take the guy who got shot in combat and ask him to sacrifice again," Robert Lynch, national director of rehabilition for the legion, said.
"If they go in this direction, they're going to have trouble with us."
As for the plan to impose a means test for medical care for all but disabled veterans, estimated to save $400 million by fiscal 1988, Lynch said it might be negotiable because it would have little, if any, effect.
"They won't get 1 percent savings because 99 percent of the people have no place else to go . . . the government will have to pay for them anyway," he added.