Maryland Gov. Harry Hughes today submitted a $5.1 billion budget for next year that calls for the smallest spending increase in nearly two decades, but sends very little of the massive state surplus back to the people in direct tax relief.

In his budget and annual "state of the state" message to the General Assembly, Hughes proposed that major portions of the $229 million surplus be spent on expanded welfare programs increased aid to public schools and improvements in the state prison system.

This marked a shift in the administration's priorities away from the tax relief measures that were the keystone of the budget and legislative program last year. Hughes' only tax relief proposal this time would lower income taxes by a maximum of $15 for persons earning less than $11,000 a year.

"Maryland is, whether we like it or not, an increasingly congested and urbanized state," Hughes told the assembled legislators in explaining his new program, "a role which places great pressure on our human service agencies and our welfare, education and corrections systems."

The governor's speech and budget failed to address the single most important issue for suburban Washington legislator -- funding for the Metro system and other transportation projects. Instead, saying that "transportation is an issue of such importance that it demands special attention," Hughes said that he would soon submit a separate message on transit funding.

Along with the budget, most of the new legislation that Hughes presented to the legislature in his message emphasizes urban and social problems. Most significantly, Hughes said he will ask that the state's unemployment benefits be increased from the current maximum of $106 a week to $125 a week.

Hughes said he will also submit to the legislature measures to create a state board to control the disposal of hazardous wastes, consolidate and expand agencies, governing environmental and minority issues, promote pollution control through tax benefits, and provide $22 million for the renovation of Baltimore's Memorial Stadium.

In contrast to the hefty fund increases for social programs, Hughes' budget provides relatively small increases -- less than 3 percent in most cases -- for other parts of the state bureaucracy.

Overall, the budget would increase state spending by 6.7 percent, compared to a 10 percent increase this year and 11 percent last year. Even the legislature's staunchest conservatives could find little to quarrel with in the modest spending increase. "Maybe we should bring Hughes into the Republican Party," said Senate Minority Leader Edward Mason (R-Cumberland).

Legislative Leaders generally praised the thrust of Hughes' fiscal programs, while adding that they had ideas of their own on some of the specific plans. "I'm very pleased," said House Speaker Benjamin L. Cardin (D-Balitmore). "It's a fine budget -- a modest budget, which is what the legislature wants and the citizens want."

The governor, for his part, suggested that he would not be disturbed if some of his programs were changed by compromises with legislative leaders. "It has been suggested that we will be in conflict," Hughes told the Assembly. "Frankly, this administration is secure enougth not to be concerned with pride of authorship." Education

In an effort to address what he called "longstanding disparities" in the amount local jurisdictions can spend on education, Hughes proposed raising state aid from $780 to $940 per pupil.

That amount is substantially higher than Hughes had originally planned for his budget. But pressure from the legislative leadership and new projections for even higher than expected 1981 revenues combined to bring about the last-minute change in the governor's thinking.

Hughes' basic per-pupil proposal, along with other changes in educational funding, would yield an extra $10 million next year for Prince George's County. Montgomery County would gain about $100,000 under the plan.

The governor also proposed channeling $8 million to some of the state's poorer counties or those that have made the greatest financial efforts in the educational area. Neither Montgomery nor Prince George's counties would benefit from this plan.

The $8 million in extra funds was in part an attempt to answer the concerns of a lawsuit filed against the state by Baltimore city and three of the state's poorest rural counties. They argued that the current system of financing education in Maryland discriminates against poor schoolchildren.

The entire package represents a $67 million increase in educational funding.

Hughes also called for a $7 million boost for programs to educate handicapped children and a $10 million increase for pupil transportation programs. Prisons

Many of the governor's new spending plans are for the state's prison system, which has suffered from understaffing and antiquated facilities and is under a court order to reduce overcrowding.

Hughes proposed that the state spend $42.5 million to build a 500-bed maximum -- and medium-security prison in Jessup and a 250-bed minimum-security facility in Baltimore near the state penitentiary. In addition, the budget contains staff and operating funds for another 500-bed prison in Jessup -- now under construction and scheduled to open in March 1981 -- and a 400-bed reception and diagnostic center under construction in Balitmore.

The two new prisons in Jessup are to be part of a three-prison complex designed to replace the House of Correction, an aging structure from which 30 prisoners engineered a mass escape in August.

Hughes' decision to finance these projects is seen in part as an attempt by the governor to accommodate the legislature, which has shown a reluctance to go along with the administration's thinking, which is moving away from building new prisons and toward developing more community rehabilitation centers.

In concert with that movement, Hughes' budget includes $10 million to build community rehabilitation centers in five counties.

The budget also provides funds for 137 new correctional officers at the prisons in Jessup, Balitmore, and Hagerstown. The additional guards would mean there would be one staff member for every 1.9 prisoners -- compared to the present ratio of one guard for every 3.4 inmates -- at Jessup, and similar changes in the guard-inmates ratio at Balitmore and Hagerstown.

The annual cost of corrections for each inmate would rise from $8,226 this year to $11,072 next year under the Hughes proposal.

The state's prisons -- which face a June court deadline for reducing over-crowding -- would house 7,132 inmates in 1981 under Hughes' plan, a drop of 277 inmates from this year and 441 from last year. Meanwhile, parole of inmates would increase by 11 percent, and the number of parole and probation staff would remain the same. Welfare

In the area of social services, the governor proposed an 11 percent increase in welfare payments, which would raise the maximum grant for a family of four to $326 per month.

Hughes said the boost, coupled with a 10 percent increase budgeted this year, represents "an unprecedented state effort to confront the longstanding gap between welfare grant levels and the need of low-income families for minimal, decent subsistence."

Maryland now ranks 36th among all states in the level of its welfare payments, and a special governor's commission on welfare grants last year recommended that a family of four would need $600 a month for a "minimally decent life."

The governor also recommended liberalizing Medicaid eligiblity standards, making it possible for a person with an income of $2,900 a year to apply for the medical benefits. The present eligibility cutoff is a maximum income of $2,600. Construction

Along with his operating budget, Hughes submitted a $160 million capital budget to pay for 137 state construction projects and purchases. This year's capital proposal contains 45 fewer projects than Hughes recommended in his first budget last year but calls for 20 percent more spending. Highlights of this capital budget in addition to the proposals for new prisons, include:

$33 million in additional funding for eight new district courts and government buildings around the state. The original construction money for four of these projects was added to last year's budget in a period of 20 minutes by members of the House Appropriations Committee who represent the areas where they will be built.

$13.5 million for the construction of a new headquarters for the state Department of Agriculture. Hughes originally included funds for this project in last year's budget, but later agreed to drop them.

$8 million for building a five-story addition to the School of Social Work at the Balitmore City campus of the University of Maryland.

$10.4 million for projects at the University of Maryland at College Park, including planning funds for a proposed $20 million expansion of the university library.

$687,000 for renovation of two cottages at the Boys Village juvenile home in Prince George's County and for repair of the institution's dilapidated sewer system and leaking roofs. Salaries and Taxes

The budget calls for a 7 percent salary increase for the state's approximately 70,000 workers -- a proposal that already has met with threats of pressure tactics from the state's two main employe groups. In addition the governor proposed higher salary increases for about 6,000 state employes, ranging from low-salary highway and institutional workers to judges and some top administrators.

Hughes' modest tax-relief proposal will be challenged by many legislators who would like it to be expanded.

Under Hughes' plan, the standard income-tax deduction would be raised from $1,300 to $1,500, returning $4.8 million to residents who make less than $11,000 a year. The measure would effectively complete the tax package proposed by Hughes last year, when the governor asked that the deducation be raised to $1,500, and the legislature limited it to $1,300.

Hughes will also face a challenge on police aid, which became a highly policized issue in the legislature last year after rural senators stopped several million dollars in police aid from going to Balitmore City.

This year, Hughes has included $4 million in police aid for the state, with only $800,000 going to Baltimore city. The city's delegation is asking for $4 million, and is likely to battle hard for it.