D.C. mental health officials told a congressional subcommittee yesterday that the city's newly created mental health commission is nearly ready to take over the responsibilities of the federally run St. Elizabeths Hospital, but critics insisted that plans for the homeless mentally ill are inadequate.

St. Elizabeths, the 131-year-old federal mental hospital in Southeast Washington, will be incorporated into the District's new $156 million mental health system on Oct. 1. The transfer comes, however, amid criticism that the city's existing mental health services are poor.

Robert A. Washington, commissioner-designate of the city's redesigned mental health department, assured Del. Walter E. Fauntroy (D-D.C.) that the new system emphasizes "continuity of care" through case managers who will steer patients to a range of outpatient services. However, he said more federal money would be needed to train psychiatric doctors and nurses and to renovate the old buildings at the hospital.

The hearing was called by the House District subcommittee on fiscal affairs and health, of which Fauntroy is chairman. He and Rep. Thomas J. Bliley (R-Va.) were the only members to attend the session, which may produce recommendations for Mayor Marion Barry.

In an interview, Washington said the goal of the new plan is to release about half of the hospital's 1,500 patients into community settings. Social workers will funnel those people, along with adults who are already outpatients, into services to be provided at four locations around the city.

Separate outpatient services and caseworkers will be available for children, Washington said. Only the very disturbed who need constant supervision will remain inside the hospital, he said.

At the hearing, Washington said that until more community housing is found, about 150 patients will live in temporary residences on the hospital campus.

Elizabeth Jones, a representative for the Mental Health Law Project that monitors the city's compliance with a 1980 order to provide quality care in the least restrictive atmosphere, said at the hearing that campus residences do not qualify as "community living." She also said the new plan fails "to provide more intensively supported residential options" for people who are unable to live independently.

However, Hanna Schussheim, of Friends of St. Elizabeths, testified that her group supports residences on the campus. Deinstitutionalization, she said, is "abandoning patients and their families," forcing many chronically mentally ill people to fend for themselves on the streets.

About 15 ministers and shelter operators who deal with the mentally ill on the streets gathered outside the hearing room and protested their exclusion from the proceedings.

"We were all very offended that we weren't asked to speak because we are the ones who are providing the primary care for these people," said Ann Baxter, who runs the Calvary Shelter for women in Northwest Washington. "We don't always have positive things to say."

Baxter said city officials have done a poor job of finding homes and providing psychological care for an estimated 3,000 mentally ill people in the city who are homeless.

"I think their estimate of homeless mentally ill is a little high," Washington said after the hearing. He said he is not sure of the actual numbers, but added that 200 homeless people have signed up for mental health services, and he said he expects social workers to reach 450 more.