Maryland Gov. Harry Hughes announced today that the ever-expanding state surplus has made it possible to fund the Washington region's Metro system and other transportation projects without increasing the annual vehicle registration fee.

Hughes' abandonment of his proposed registration fee increase, the only element of his transportation proposals to meet legislative opposition, virtually assures enactment of his plan, which provides $23.2 million in grants to Washington's Metro next year and meets the congressional mandate to find a stable, long-term source of financing for the subway.

Hughes said that, in light of newly computed state revenue projections that have pushed Maryland's expected surplus well above the $300 million level, "We do not now see the need for an increased registration fee on autos."

Instead, he said, he would set aside an additional one percent of the state's corporate income tax to meet the state's transportation needs, effectively making up the $20 million in revenue that the new registration fees would have provided.

The news of Hughes' decision brought broad smiles to the faces of the presiding officers of the House and Senate, since it almost certainly eliminated a series of time-consuming and contentious debates over a plan to seek new revenues when the state's treasury seemed to be bulging with surplus money.

"It's marvelous to find out that you don't have to fight for something that's tough," said Senate President James Clark Jr. "We could have passed [the registration increase]: if he had to, but I'm glad we didn't have to."

"I think that takes care of the transportation issue," House Speaker Benjamin L. Cardin said shortly after Hughes' announcement. "I'm very pleased with the final outcome. I think it'll pass the legislature without any difficulty."

Hughes, who got word of the new revenue projections from his staff director Ejner J. Johnson Monday night, said today that the unexpected addition of $35 to $45 million in new revenues has also given him the opportunity to explore proposals for tax relief, something he has not dealt with so far this year.

"We will be looking at some measure of tax relief," Hughes said, mentioning that he would exmaine the options of expanding the existing homeowners' tax credit program or giving additional relief to Maryland's income tax payers.

However, the governor added "we are giving tax relief when we shift money into" the fund that provides financing for most of the state's transportation needs. House Speaker Cardin later agreed, saying, "A great deal of the transportation money goes back to local governments, which allows local property tax relief."

At his press conference, however, the governor acknowledged that he was somewhat concerned about the state's long-term financial picture, given the current uncertainties in the state and national economies. Inflation rates that far exceeded predictions have produced the expanding surplus, he said.

By assigning 3 percent of the corporate income tax for transportation needs -- instead of the 2 percent he had originally proposed -- Hughes effectively eliminated a future source of general state revenues, money that may be needed for other purposes, if the economy falls into a recession, and sales and income tax receipts declines.

"Frankly, I am worried about that," the governor said. "Our revenues react quicker to inflation that our expenditures do . . . it is something we're concerned about."

Hughes added that the proceeds of the state's lottery, which provided $14 million more than expected for the Maryland treasury this year, would likely be reduced if the District introduces its own lottery and takes business away from Maryland.

But whatever the worries about siphoning off general revenues for a specific purpose, they were outweighed by the political difficulty of generating new revenue while millions in unexpected revenue is still coming in.

"There's more to this than just funding a major capital project," explained Judson P. Garrett, the governor's counsel. "You're also talking about people's attitude to state government.

"There are times when you have to put aside a long-range solution to your needs because you've got short-term problems," he added, referring to the state's current embarrassment of riches.

The first news of the increase in the state's surplus -- the second major increase in the figure since it was pegged at $229 million last December -- came from the Maryland budget secretary, Thomas Schmidt, who sat down Monday with the latest information from his staff and the latest national figures on inflation, then refigured the state revenues.

Based on the latest information, he decided that the total surplus would be $80 million to $90 million higher than the December figure. He passed the word along to Hughes' aide, Johnson, who called Hughes at the national governors' conference to tell him the news.

The news was a mixed blessing for the governor, who now had the flexibility to back off a politically unpopular proposal but who also has to find new answers for the scores of state bureaucrats and lawmakers who have thought up new ways to spend the money.

At his press conference Hughes cautioned that much of the new revenue has already been pledged to meet a variety of state needs. Thus far, if the legislature enacted the major administration spending proposals, the surplus would be divided as follows:

$59 million for transportation needs including money for the Washington and Baltimore subway systems and funds to build and improve roads in the rural areas of the state.

$18 million for increased aid to local school districts.

$2.7 million to help Baltimore City increase the salaries of its police officers next year.

Today, while testifying at the House Ways and Means Committee hearing on the transportation proposals, House Speaker Cardin said that he and Senate President Clark had decided to link the passage of the transportation aid package and the education aid proposal, so neither of the two popular programs would win approval without the other.