General Manager Theodore Lutz has recommended to the Metro board of directors that the transit authority continue to operate and manage area service rather than contract it out to a private operator.

Lutz's recommendation was contained in a memorandum to area governments. It surfaced yesterday at a meeting of the Prince George's County Council. The Metro board is scheduled to decide the issue at its regular meeting Thursday. The issue has been vigorously debated among area jurisdictions.

Metro has been negotiating with a Cincinnati firm. ATE Management and Service Co., Inc., which manages bus systems in 32 cities, including Baltimore and Richmond. If it wins its bid to operate Metrobus, that would be its biggest system.

Lutz is anxious to get a decision from the Metro board so he can fill key staff positions he has been holding open.

The push for contract management service came after the Bicentennial fireworks because promised area residents were stranded on the Mall for hours after the Bicentennial fireworks because promised buses did not show up and because of poor coordination with police in handling traffic and crowds.

Lutz was hired after that event and has concerntrated on improving Metrobus operations as well as expanding subway service.

Prince George's County Executive Winfield M. Kelly Jr. told the Council he would have favored turning Metro over to contract management after July 4, 1976, but said he has changed his mind because of Lutz's "energy and efficiency."

He recommended that Metro continue operating the buses for another year but keep negotiations open with ATE.

In his memo, Lutz set goals for improvements to the bus service and in every case they're just a little bit rather than what ATE would have been," Kelly said.

Lutz, contacted after the council meeting, said he recommended that Metro continue operating the buses because "I think we can save money, improve performance and assure an integrated bus-rail transit system."