The Reagan administration marks a historic turning point in social and urban policies. It is the nation's cities -- particularly big cities -- that are most affected. Three dates are critical for understanding this shift.

In 1981, right after Ronald Reagan was elected, the administration won enactment of a historic budget act that increased defense spending and cut social spending. These spending cuts were focused on people -- poor people, and particularly the working poor who were removed from welfare or who had their welfare benefits reduced. Reagan advocated a "safety net" concept to protect the "truly needy."

The second critical date is 1985. The budget for fiscal year 1986 again contemplates (especially in the Senate version) major cuts in domestic programs. This time, however, the cuts are different. They are not focused on entitlement programs for working poor people, but rather on operating and capital grant-in-aid programs that are particularly important to jurisdictions.

The third critical date is 1986. There is now emerging a strong possibility that a tax bill will be enacted next year that will remove the deductibility of state and local taxes from the federal income tax. Such a change would make it more difficult than it has been to raise tax funds for state and local public purposes.

These measures taken together hit hardest in the distressed areas of cities.

The problems of the urban underclass -- poverty, homelessness, crime, illegitimacy and welfare dependency -- are getting worse at precisely the time we are doing less about them.

What is needed again is a safety net concept for domestic programs. But this time it should apply to distressed urban and rural communities that face deeper needs than other places and would therefore be hit hardest by the budget cuts and tax changes that President Reagan has proposed.

Here's how such a system could work:

A "safety net grant fund" would be established. For every domestic grant program eliminated or deeply cut in 1985 and future years, some proportion of the amount cut -- say, one- quarter or one-third -- would go into this targeted-aid fund. Another part of this fund would consist of an amount of money to offset partially the loss of state and local tax deductibiity, if this proposed Reagan tax change were adopted in some form. For example, $8 billion in such a fund would represent his proposed FY '86 budget cuts in grant-in-aid programs for state and local governments.

The money in this fund would be distributed to local governments in a way that focuses on the most urgent community needs and could be used for a broad range of services -- schools, streets, police, jobs and training, fire fighting, public health, transit, water supply and sewers, aid to the homeless, economic development. The communities that would receive aid are located in every region of the nation.

State governments should be given the lead in distributing targeted-aid funds. The money would be allocated with the requirement that each state pass this aid through to its most needy localities, urban and rural. There would be a further requirement to distribute these funds to general-purpose local governments that, taken together, contain no more than one-third of the state's total population.

Such a state-focused distribution system for allocating funds fits with the times. The Reagan brand of "new federalism" emphasizes the role of the states.

I realize that winning enactment of such legislation under current conditions would be dfficult. Moreover, when the moment arrives that the safety net concept could be put forward in the legislative process, there is likely to be little time to work out the specifics of distribution. It would make sense, therefore, to create a commission of government officials and experts to propose a formula allocation system.

Such a targeting approach may turn out to be the best opportunity in this period for state and local governments and for organizations that care about domestic and social programs. It would concentrate the federal role on the communities that need help the most.