A special commission headed by Mrs. Griffin B. Bell, wife of the attorney general, denounced the nation's $2-billion-a-year foster-care system yesterday as "an unconscionable failure, harming a large numbers" of the 500,000 children it serves each year.

"Money is misspent. The seeds of welfare dependency, medical and psychiatric illness, even criminal behavior, for which we all pay, are being sown by the failure of the present system of foster care," said the 20-member National Commission on Children in Need of Parents. The commission was financed by a private charitable grant from the Edna McConnell Clark Foundation.

The commission said some states pay less for care of a child than kennels charge to board a dog.

"A surer system for harming children was wasting money could hardly be invented than that which has grown up, like a pernicious weed, in the operation of foster care," the report charged.

There are about 2,400 children in foster and group care in the District of Columbia, about 9,900 in Virginia and about 8,400 in Maryland, according to officials of those jurisdictions.

The commission said about $1.5 billion of the money spent on foster care comes from the states and federal government, the rest from private and charitable sources. Half the public money goes to the salaries of social workers.

"The commission does not advocate any increase in the present total spending for foster care," the report said.

Instead, it favors major structural changes in favors major structural changes in local and federal laws to encourage adoption and prevent children from being shifted from one foster home to another without the chance to develop permanent relationships.

When a child can't remain with its parents, the commission said, the best substitute is a permanent, long-term adoptive relationship in which the child becomes part of a new family.

"If a child is separated from his biological parents, but is able to develop a permanent relationship with another mother and father, there may be no long-term damage done," said the commission report, quoting a psychiatrist.

"If, instead, the child is moved from one foster home to another, a variety of harmful consequences may occur. He may develop pseudo-mental retardation, or learning problems including delinquencyu, criminality and sexual perversions and varying degrees of self-defeating behavior."

Instead of encoraging permanence, however, the foster-care "system," which really isn't a system but a holge-podge of different practices and rulings, actually works in other direction, the report said, citing cases in which some children changed foster homes at least 18 times.

The report identified three major sources of impermanence:

Reluctance of the courts to allow children to be premanently severed from their biological families, no matter how unfit, so they can be permanently adopted. "The faintest 'flicker of interest' often deters judge from severing the rights of persons who for years have demonstrated unfitness, disinterest or an inability to be responsible parent.s" The report recommended that state governments adopt a model statute to speed up "termination of parental rights" so children can be placed more easily in permanent adoptive home.

Inadequate support payments to foster parents-as low as $90 a month in Texas-and $32 a week in Connecticut, or lower than the $35 a week normally charged "in most areas" by kennels for care of a dog. The resulting high turnover could be reduced by more adequate payments, the report said.

Rule allowing federal cash welfare payments to be spent for foster care but not for adopting, thereby discouraging the very permanence most helpful to the child. A Carter administrations proposal allowing welfare cash payments to families adopting hard-to-place children should be passed, the commission said, as well as laws to allow Medicaid treatment for such children even after adoption.

In addition to Mrs. Bell, others on the commission were Atlanta attorney Charles Kirbo, a friend of President Carter; Mrs. Charles Duncan of Houston and Washington, D.C.; J. Henry Smith, former chairman of Equitable Life Assurance; former New York governor Malcolm Wilson; and a number of officers of major corporations.

The commission estimated that if 10,000 hard-to-place children were given permanent adoptive homes by payment of $1,200-a-year adoption subsidies, instead of being kept in foster care at the present average cost of $3,600, the cumulative savings over 10 years would be $1.3 billion-and the children would be better off too.