New federalism ideas in wake of revenue sharing. Welfare is one candidate for federal, state reallocations

In the summer of 1985 the Senate, House of Representatives, and Reagan administration all were trying to decide how to cut the federal budget. They disagreed sharply among themselves, except on one issue: Everyone conceded that revenue sharing could be eliminated once its authorization ran out on Sept. 30, 1986. After disbursing some $82 billion in 14 years, the revenue sharing program did, in fact, go out of existence at the end of last month. Efforts continue to be made to restore it.

But it is more likely that the next major efforts to shift the relationships between the federal government, on the one hand, and states and municipalities, on the other, will be through change in the nation's welfare system. Several study groups now are thinking through the issue.

One is an administration task force headed by Attorney General Edwin Meese; it is expected to make its recommendations by Nov. 1. The proposals are likely to include a phased turnover of much or all of the welfare system to the states, to be financed with federal grants designated for welfare expenses.

In addition, Sen. Daniel J. Evans (R) of Washington and other advocates will try to get the next Congress to make fundamental changes in the relationship between the federal government, the states, and the municipalities. Their proposal is an outgrowth of a study Senator Evans co-chaired with former Virginia governor Charles Robb. The plan would cause some jointly-administered domestic programs to be undertaken solely by the federal government, and others by states and municipalities alone, depending on whether the programs can most appropriately be conducted on a national or regional level.

It was not for want of effort by the states and cities that the revenue-sharing program expired last month. Throughout this year they fought an uphill battle in the House of Representatives to gain approval of a continuation of revenue sharing. In the end, however, the strenuous lobbying by the United States Conference of Mayors, the National Coalition to Save General Revenue Sharing, and other interest groups was in vain.

It can be argued that revenue sharing, almost since its inception, carried two seeds of its ultimate destruction. In order to gain broad political support, the framers of revenue sharing provided some funds to every state, city, and municipal government in the US, regardless of the recipient's own fiscal health. Consequently, the program became vulnerable to the charge (particularly effective in these times of Gramm-Rudman) that it wastes money on wealthy communities -- even though a complicated formula provided substantially larger funds to poor jurisdictions than wealthy ones.

The second intrinsic problem with revenue sharing was also one of its great attractions to city and state officials -- the program's flexibility. Whatever their unmet needs, officials could use the federal funds to meet them.

But the variety of uses prevented the program from building up a large and powerful single-issue constituency -- such as, for instance, the education community -- that might have saved it.

One other factor arose this year. Proponents of revenue sharing could not agree on where to find the approximately $4 billion to fund it. Had the Democratic-controlled House approved a revenue-sharing extension without coming up with a funding source, it would have handed Republicans a campaign issue.

What most bothers urban officials is the possibility that the defeat of revenue sharing this year may be a precursor to budget-cutting efforts next year to end other federal programs for cities and towns as a way to trim Washington's deficit.

One domestic program thatseems certain to receive plenty of attention in Washington next year is welfare reform. But Senator Evans hopes the discussion of domestic programs will be broadened well beyond welfare, to encompass a thorough review of all domestic social programs and how they are administered.

What Evans proposes, he says, is ``a dramatic series of recommendations'' that would reshape the relationship between federal, state, and local governments on social issues, and without causing any arm of government to have to pay a larger share of the costs. The Evans proposal grew out of the report last year of the Committee on Federalism and National Purpose, convened under the auspices of the National Conference on Social Welfare's Project on the Federal Social Role.

Evans starts from the premise, he told a breakfast group of reporters last week, that ``the federal government ought to take on those responsibilities that are essentially nationwide in scope, where there should be some kind of at least relatively uniform standards.'' He includes welfare, medicaid, and long-term health care in this category. He would reshape the first two programs, and is working on a proposal for long-term care.

On the other hand, Evans proposes returning to states and local governments those programs ``which are regional or local in nature, where there can be experimentation, where there can be differences,'' such as community-development block grants, mass transit, rural waste water grants, and vocational education.

Whether Congress or the President would go along with such a massive realignment of social programs is questionable. If they did, today's revenue sharing issue probably would be quickly forgotten. Otherwise, America's poorer communities may find themselves having to choose between levying higher taxes or lowering government services to levels their citizens may find unacceptable.

For officials in statehouses and city halls, having to make such choices is not an appealing prospect.