ANNAPOLIS, FEB. 1 -- Maryland Gov. William Donald Schaefer today delivered a state budget with the smallest percentage increase in 46 years and challenged the General Assembly to join in "new thinking" about state priorities.

With his state in the throes of a recession, Schaefer also offered lawmakers an alternative to the lean $11.6 billion budget: increasing taxes on gasoline, income, sales, boats and automobiles.

"When it became necessary to cut back, I had to develop new thinking about our priorities," Schaefer said in his budget message. "I have rearranged the spending priorities of prior years and spread the remaining reductions as fairly as I could."

Legislative leaders, still expressing skepticism about Schaefer's tax proposals, said the budget is a starting point for negotiations.

"We have to have a freewheeling debate about what government ought to be and ought not to be. And this budget certainly touches that off," House Majority Leader D. Bruce Poole (D-Washington) said.

Yet Sen. Laurence Levitan (D-Montgomery), chairman of the Senate Budget and Taxation Committee, said, "I think we can put this budget together without tax increases."

Although the budget does not rely on tax increases, Schaefer plans to make separate proposals that would increase taxes by $800 million, about half of which would be diverted to Baltimore and poor counties largely to aid schools and transportation. In addition, the governor has asked the General Assembly to extend the state's 5 percent sales tax to gasoline to finance a five-year, $1.5 billion transportation program.

The fiscal 1992 budget, rising only 1 percent from the current year, would provide $138 million more in aid to the 23 counties and Baltimore, an 11 percent increase.

But Schaefer delivered a pointed warning to local leaders. "If local elected officials do not believe the services supported by state programs are important enough to warrant financial contributions from them, then we will think again whether the state will continue to fund the program," he said.

Most of the budget's new spending would go to cover the cost of a soaring prison population, medical assistance, education and welfare programs. Many state functions, particularly road and mass transit programs, are targeted for cutbacks in the budget year that begins July 1.

Charles L. Benton Jr., Schaefer's budget secretary, said the state is "really rolling the budget back about two years," because it does not even keep pace with inflation. He noted that at least 1,600 state jobs would be eliminated -- more than in any other budget in state history -- and state workers would not get raises.

In Schaefer's budget, a $10 million cut in a state-funded welfare program would deny monthly benefits to an estimated 6,200 people with temporary disabilities. Because of cutbacks, university classes are likely to contain more students.

And for at least part of the year, a dozen state parks will be closed to save money.

"All of us will have to do more with less," Benton said.

Legislators almost universally criticize the governor for seeking to transfer $76 million from the transportation fund to balance the general fund, a move viewed by lawmakers as pressuring them to raise gasoline taxes. Maryland now taxes gasoline at 18.5 cents a gallon.

Transportation Secretary James Lighthizer said that without new revenue, highway and mass transit construction programs will remain stalled for at least 18 months. "If there's not new revenue, the consequences will be dire," Lighthizer said. "It's a question of how rapidly we move backward."

Despite the tightness of the budget delivered by Schaefer, legislators question whether he is being too optimistic about revenue. Some analysts predict that revenue will be down as much as $135 million, forcing further reductions in state spending or new taxes.

Benton, however, said he is comfortable with the projections, adding that a new revenue outlook will be delivered this month. "Any further cuts would have a serious impact on state services," he said.

Levitan and others said they see areas in the budget that could be trimmed. In particular, Levitan questions giving schools an additional $131 million, much of which would be devoted to teacher pay raises.

"Is it really fair, when state employees and most of the private sector are looking at pay cuts or freezes?" Levitan asked. "I frankly have some real serious problems with that."

Del. Charles J. Ryan (D-Prince George's), chairman of the House Appropriations Committee, said cutting the budget to live within current revenue could be painful. "We can't do it without impacting local government, cutting {items such as} schools in Prince George's and police aid in Baltimore," he said.

Officials in Prince George's and Montgomery counties, already slashing their spending, said they couldn't stand reductions in state aid.

"Any cuts from the state will just mean layoffs for county employees. That's the bottom line," said Gene Lynch, chief assistant to Montgomery County Executive Neal Potter.

Schaefer's budget also could serve as a battleground in the legislature's campaign to oust Adele Wilzack, secretary of the Department of Health and Mental Hygiene. Wilzack has come under fire because of allegations that officials in her department misspent thousands of dollars intended for the Maryland State Games.

"Unless the secretary . . . resigns sometime in the near future, some obvious cuts will be the $500,000 or $1 million for drug and alcohol programs that they've been misappropriating and spent instead on pleasure junkets," said Senate President Thomas V. Mike Miller Jr. (D-Prince George's).

The largest single slice of the budget would go to the Department of Health and Mental Hygiene for an expanding Medicaid program and assistance for the developmentally disabled.

The mainline welfare program, Aid to Families With Dependent Children, is expected to drive up costs in the Department of Human Resources. Welfare caseloads will go up by 27,600, officials projected.

Prisons, too, will take up a major share of budget increases. The state forecasts an average daily prison population of 20,258 in the upcoming year, an increase of 1,676. The request also calls for more than 400 employees for prisons set to open next year.

The Metrorail system in the Washington area would get $61.5 million in operating funds, an increase of $5 million, and $35.5 million in construction funds, a $4.4 million jump.

Here are highlights of the $11.6 billion budget that Gov. William Donald Schaefer sent to the Maryland General Assembly:

Education -- $2.15 billion, up 6.1 percent, including $11 million for Prince George's County magnet schools and $7 million for a statewide dropout prevention program.

Local Aid -- $2.7 billion, up 11 percent. Prince George's County would get $388 million; Montgomery, $285 million; Anne Arundel, $223 million; Howard, $95 million; and Charles, $72 million.

Public Safety and Prisons -- $684 million, up 5.9 percent, to cover an average daily prison population rising to 20,258 and added payments to local jails.

Transportation -- $1.64 billion, down 18.6 percent. The beginning of new construction projects has been halted because gasoline tax revenue has declined sharply.

Environment -- $114.6 million, down 19 percent. A total of $3.8 million was requested to plan for new controls on growth in the Chesapeake Bay region.

Agriculture -- $40.3 million, down 16 percent. The state would abandon its meat and poultry inspection program, which would be taken over by the federal government.

Welfare -- $930 million, up 4 percent, to help cover an expected 15 percent caseload increase.

Health -- $2.4 billion, up 13 percent. Medicare costs expected to increase $360 million. Community programs for the developmentally disabled would be increased by $9 million.

Colleges and Universities -- $1.57 billion, up 1 percent. Nearly 190 jobs to be eliminated.