Virginia's spending for the mentally disabled would be cut by slightly more than 5 percent -- with state institutions for the mentally ill and retarded taking the greatest hits and programs in communities the least -- under a plan developed by the department that runs the programs, sources said yesterday.

Of a target $41.4 million cut in the Department of Mental Health, Mental Retardation and Substance Abuse Services, $29.5 million would come out of the budgets of institutions such as Western State Hospital in Staunton, which serves Northern Virginians with long-term mental illnesses. The plan also calls for closing down geriatric wards at large facilities, including Western State, and consolidating them into one institution, the sources said.

Community services boards, which run local programs for the mentally disabled and substance abusers, were protected from the greatest impact of Virginia's budget crunch. Each of the 40 boards will receive a 2.25 percent reduction in state funding in the current fiscal year and none in the next, which one source called "very good news" for local programs.

The department's budget plan, to be considered today by the state Board of Mental Health, Mental Retardation and Substance Abuse Services, is part of a massive cost-cutting effort going on throughout state agencies as Gov. L. Douglas Wilder tries to make up for a projected $1.4 billion shortfall in state revenue.

Advocates for the mentally disabled, after arguing for years that community services were neglected in favor of funding for the large state institutions, succeeded in getting a large infusion of funds for local programs under former governor Gerald L. Baliles. The approach to this year's budget cutting suggests that the state plans to continue to put more emphasis on community-based programs.

Advocates have argued that this has become increasingly important as mentally ill and mentally retarded people no longer spend as much time in large institutions but generally live on their own, with family members or in special group homes throughout the community. These people continue to need the support services local boards provide, such as housing assistance, day programs and employment training, for example.

Even before learning the specific level of cutbacks, officials at community services boards had started making contingency plans that included significant reductions in services. Some indicated they would go as far as they could by delaying hiring for vacancies, while others anticipated that some lower-priority services might have to be eliminated.

In Arlington, for example, the services board recently started a program to help families deal with a mentally retarded adult living at home by giving them educational material, behavior modification training and respite services. That was one of the programs that had been considered vulnerable if large cuts were necessary.

The Fairfax-Falls Church board, the largest in Northern Virginia, anticipated having to slice $3 million to $4 million out of its $58 million spending plan because of cuts ordered by both the state and by Fairfax County, board executive director James Thur said before knowing the specific amount to come out of state funding. His board is unusual in the state, because Fairfax County provides 60 percent of the funding, even though local governments are required to contribute only 10 percent.

Thur said he probably will have to trim both personnel and whole programs, with day programs and outpatient services being among the most vulnerable. Group homes and other residential programs most likely would not be cut back, particularly because nearly 700 mentally ill or retarded individuals are waiting to get into those programs in the county. Thur could not be reached late yesterday to discuss the state's budget plan.