D.C. Council member Betty Ann Kane (D-At Large), saying the city's residency requirement has created hardships for families and made it difficult to hire and retain city workers, issued a report yesterday that calls for softening the law.

Previously a supporter of mandatory residency, Kane recommended establishing a system in which applicants receive preference for jobs if they live in the city but are not required to live there.

Under the law, anyone hired since Jan. 1, 1980, must be a District resident within six months of being hired.

The change in position by Kane may signal a shift among council members on the residency requirement, which drew few complaints when it was proposed nearly 10 years ago and enacted in 1979.

"I am willing to rethink things when faced with the facts," said Kane, who is chairwoman of the council's Committee on Government Operations, which held two days of hearings in October on the residency issue.

Council member Hilda H.M. Mason (Statehood-At Large) has introduced a bill that would replace the law with a preference system, and council members Jim Nathanson (D-Ward 3) and Carol Schwartz (R-At Large) have voiced support for the change.

It was unclear yesterday how many council members support a change in the law. Council member John Ray (D-At Large) said he favors holding a nonbinding voter referendum on the issue in May. Council Chairman David A. Clarke, who has been a staunch supporter of the residency requirement, said he had not changed his mind after a cursory reading of Kane's report.

In the report, which recapped some of the testimony from the public hearings in October, Kane said the residency law has made it difficult to hire and retain city employes.

She said, in addition, that witnesses testified that the law poses similar problems for other employes, such as teachers, librarians, clerks and nurses.

A principal detraction of living in the District, witnesses testified, is the high cost of housing. Prominent among the witnesses were representatives of police and firefighter unions, who have complained frequently about the requirement.

Kane noted complaints that the residency requirement has sharply limited the pool of applicants for city jobs.

Kane expressed concern that the requests for exemptions -- from city agencies seeking to attract skilled employes -- have increased substantially lately. She said she did not want the exemptions, which the council is empowered to grant, to make "swiss cheese" of the mandatory residency policy.

D.C. Personnel Director Theodore E. Thornton Sr., who testified at the hearings in favor of the mandatory residency law, said that 7,888 of the 46,000 city positions are exempt. Of the 7,888, about 3,000 are positions the city acquired when it took over St. Elizabeths Hospital on Oct. 1. Thornton said the requirement is needed to increase tax revenue, reduce unemployment among D.C. residents and improve the quality of municipal services by ensuring that employes have a "firsthand stake" in what they do.

However, in her report, Kane said that only 25,650 city income tax payers, or 8 percent of a total of 320,000, are resident District government employes.

"It seems unlikely that a group that represents only 8 percent of our total income tax payers could be considered as the District's economic base," the report states.

Kane asserted in the report that the residency law has done little to reduce unemployment, citing a survey of new D.C. employes showing that 81 percent of new workers in a recent 20-month period had other jobs or job offers at the time they became District employes.