He would tour Virginia's highways in a green Cadillac furnished by the state, a short man with big ears, a soft voice and the power to face down the governor.

For 13 years, Virginia Highway Commissioner Douglas B. Fugate ruled the agency that once formed the backbone of the Byrd organization. Fueled by a massive and virtually unregulated budget, fed by millions of dollars in federal interstate funds and a state gasoline tax earmarked exclusively for highway construction, Fugate's highway commission forged an alliance with road builders, truckers, developers and rural lawmakers. That coalition dominated the legislature, distributed more jobs and dollars than any other state agency and controlled the third largest road system in the nation, from one-lane dirt roads to the Capital Beltway.

"There was an aura about the institution like it was the FBI," said Patrick McSweeney, a Richmond lawyer who directed a state commission that in the mid-1970s tried, without success, to reorganize and rein in the independent agency.

Today scandal has dimmed the highway commission's aura. Its money is running out, and with it the power of the commission and the department it oversees. Gov.-elect Charles S. Robb, who will take office Jan. 16, twelve years after a governor tried and failed to fire Fugate, faces a very different problem: to rescue and restore a department that has fallen from 50 years of grace.

Fugate is gone, resigned of his own volition in 1976, and the 10-member highway commission--an all-white, all-male panel of businessmen, bankers and orchardists that once directed the flow of the state's development as it laid out roads--has undergone an unprecedented shakeup. Three of its members resigned this fall after admitting violations of the state's conflict-of-interest law.

A federal bid-rigging probe, still gathering steam, has brought convictions of or no-contest pleas from 11 paving firms and 17 executives, disrupting generations-old ties of friendship and trust between the department and the road-building industry.

For details of the federal investigation into highway bid-rigging in Virginia, see Page A14.

Fugate's current successor, a former federal bureaucrat named Harold C. King, has a tenuous hold on his job as Robb takes office. King must take his plea for a funding bail-out this winter to the legislature, many of whose members do not share the reverence for the agency that marked Fugate's reign. Power in the General Assembly has shifted from rural areas to fast-growing suburbs such as Northern Virginia, whose leaders have long felt shortchanged by the department.

King agreed in a recent interview that the highway program is "at a major crossing," but he said the department already has become more accountable. "Times have changed," King said. "You just can't conduct business as you had in the past."

Fugate's road-building empire was born in the Great Depression as rural Virginia's largest public works department, controlled by then-U.S. Sen. Harry F. Byrd Sr. and his courthouse loyalists across the state. A proud cadre of engineers from Virginia Military Institute, Fugate's alma mater, and Virginia Polytechnic Institute managed thousands of office workers and laborers, a bureaucracy that critics charged was bloated by patronage.

While Virginia ranked close to the bottom nationally in money spent on education, welfare and mental health, the highway department always thrived. "It's a funny thing, but roads have historically had a more sacred place in the hierarchy of state government that schools," said J. Harvie Wilkinson III, a University of Virginia political historian.

Fugate himself spent 50 years in the department. He was present during the boom years of the Eisenhower era, when the interstate system was created and Washington poured in 90 percent of its cost. As highway chief in the 1960s he developed a system of his own, criss-crossing the state with "arterials" often wider than the interstates themselves.

"It was a time of big money and you went out and built big roads," recalled Shiva Pant, a former state highway employe who is now Fairfax County transportation director. "Every damn two-lane road was four-laned."

Those roads in what Pant called "the wilderness" angered Northern Virginians whose aging, farm-to-market roads were cracking under commuter pressure. Fugate kept his backers elsewhere happy through judicious use of a gasoline tax trust fund that rolled up surpluses each year and that by law could be spent only for roads.

The limited efforts of the General Assembly to control that fund often were ignored by highway officials. The department, according to a study released earlier this month by a legislative commission, diverted $304 million from urban and county projects the legislators mandated to interstate construction.

"They didn't have to answer to anybody and so they didn't," said House Finance Chairman Archibald A. Campbell (D-Wythe). "They didn't have to come to us for money; they just had the money."

Occasional disclosures of how the department spent some of its money tarnished its cherished image of integrity. A 1964 federal audit charged that the department spent more money on private attorneys' fees for land purchase work than any other state.

The money, up to $900,000 each year, went almost exclusively to Democrats, including several influential legislators. Among them was Martinsville Sen. William F. Stone, whose law firm was collecting highway fees while Stone was chairing a legislative commission studying the department.

Every time the commission approved a new interstate or arterial, some landowners received windfalls and others lost out. The late Rep. Howard W. Smith, legendary chairman of the House Rules Committee, was said to have personally penciled in six interchanges for Interstate 66 in Fauquier County, his home. Smith also is credited with providing an interchange on Interstate 95 in what was then a desolate spot in Stafford County where a close friend owned a restaurant.

In 1967 a Tidewater highway commissioner, Richard S. Holland, was forced to resign by then-Gov. Mills E. Godwin--the only such casualty until this year--because he held stock in a firm that bought property along the route of the Norfolk-Virginia Beach Toll Road, a state highway.

Richmond Mayor Henry L. Marsh raised a similar issue while fighting an interstate beltway around his city. Two influential state legislators and two former county officials stood to profit from landholdings near its interchanges. Fugate, who declined to be interviewed for this story, and his successors denied any wrongdoing.

"There were some of us who muttered that things weren't altogether right, but that wasn't very Virginian," said Mary Sherwood Holt, a Newport News city council member and president of the Virginia Association of Public Transit Officials.

Those who did criticize usually got nowhere. Del. Campbell recalls that he and a few other legislators suggested an investigation of the department's management in the early 1970s.

" House Roads Chairman Lewis McMurran was absolutely horrified," Campbell said, "and that ended that." A 1975 study of the trust fund purportedly conducted by General Assembly staff turned out to have been prepared by the highway department itself.

Fugate relied on McMurran and his other friends in the legislature to defy governors, and just as readily turned to governors to overrule the legislature. Linwood Holton, Virginia's first Republican governor, took office in 1970 determined to bring the department under his control, but he managed only to delay Fugate's reappointment for a year. Fugate retained his job--and then beat back Holton's efforts in the General Assembly to channel more road funds to mass transit. "Holton tried to show Fugate who was boss, but as soon as he was reappointed, Fugate showed Holton," said lawyer McSweeney.

A few years later the General Assembly, prodded by an angry Northern Virginia delegation, finally voted to give a $10 million share of the highway budget to Metro. The commissioner, backed by contractors from the Virginia Road Builders Association and a stream of rural supervisors, persuaded his old friend Godwin to veto the funds.

That triumph capped an era for the department. The week of Godwin's veto, Fugate, then 69, announced his retirement. Within a few years gasoline consumption, which had risen steadily for decades, began to decline, dragging with it the tax that fed the highway trust fund.

By 1978 the department's ledger books unexpectedly showed red. The department needed the legislature, but it was running out of the money that kept the lawmakers happy.

Many Northern Virginians watched the transition with morbid satisfaction. "Fugate used to keep most people happy by giving them roads," Fairfax's Pant said. "Now a lot of places feel screwed the way Fairfax always felt screwed."

Gov. John N. Dalton, backing a 4 percent gasoline tax increase in 1980, badly underestimated legislative hostility toward the highway department. King arrived at the Capitol without the county-by-county road lists that Fugate had used with such lobbying success, and he was mauled by Campbell's contentious Finance Committee. Two weeks after making his proposal Dalton backed off, eventually settling for a 2-cent stopgap increase.

As criticism of the department mounted, the 10-member commission--eight district and two at-large representatives charged with guiding the agency in their spare time--continued to operate much as it always had. Leaders of Virginia's rural power structure--fast-growing Fairfax, population 600,000, is today represented by a cattle breeder and retired undertaker from Culpeper, population 10,000--the commissioners rarely discuss policy issues in public.

They talk business in exclusive Richmond clubs on the eve of their monthly meetings, they meet behind closed doors in unannounced executive sessions. Almost all their votes are unanimous, and the press releases reporting those votes are routinely printed before the meetings begin. "They have a big rubber stamp that takes ten people to lift and drop," said Dexter Williams, a transportation planner for the Richmond suburb of Chesterfield County. "I think it's always been that way."

Behind the scenes, however, the commissioners are powerful as local construction czars. They use their posts to help themselves or their friends, often against the recommendations of department engineers.

William B. Wrench had been Northern Virginia's highway commissioner only three months when he was able to overrule the resident Fairfax engineer on one of the highest-stakes zoning cases in the county.

It was June 1978 and Wrench's political patron and lawyer, the influential developer John T. (Til) Hazel, had run into trouble with the Board of Supervisors over Tysons II--a proposed $50-million shopping mall that a Hazel client wanted to build. Five days before the scheduled vote, the engineer seemingly had doomed the project with a letter predicting disastrous traffic jams if it were built.

Wrench saved the project on the morning of the vote. He walked into the board room with a letter that overruled the local engineer, urged the mall's approval and pledged state highway funds to alleviate the traffic problems. The board approved the mall, since abandoned for economic reasons, that afternoon.

"Things just happened pretty damn fast," recalled Fairfax transportation director Pant. "It was the first time a letter came superseding the normal line of communications."

"He the resident engineer has a right to his opinion and I have a right to mine," Wrench said recently. "There's no question I was an activist."

Another activist commissioner was T. Ray Hassell III of Chesapeake. He lobbied hard from 1978 to 1980 to steer highway funds to a road project his engineering firm was hired to design. When a mid-level official objected that Hassell was bending commission rules to speed the funding, Hassell intensified his lobbying efforts.

Hassell's role in that project is currently under criminal investigation by the state attorney general. Hassell has declined to comment on the case.

When one of Winchester Commissioner H. Delmer Robinson's relatives complained last year about traffic on what had been his company's private road, Robinson persuaded the commission to allocate $100,000 for a new access road that would relieve the traffic. The department's Winchester engineer had quashed the project two years earlier--before Robinson was named to the commission--by labeling it "a gross misuse of public funds" in an internal memorandum. Robinson could not be reached for comment.

This year the commissioners lost their status as untouchables. Northern Virginia's Wrench was the first to go, pushed out by Dalton for voting for the Springfield Bypass project that would run near Wrench's property and put a full cloverleaf on land partially owned by Hazel, his lawyer.

Then Hassell was pushed out, for what Dalton called the "technical violation" of the conflict-of-interest law of failing to disclose his highway post to other agencies with which his firm did business. Hassell's lobbying for his own firm's project, as well as his business relationship with a Portsmouth paver later convicted of highway bid-rigging, were revealed after his resignation.

Robinson quit this month when it was disclosed that an equipment company of which he is president and a gas firm of which he is vice president had sold $5,000 worth of goods to the department while he served on the commission.

The resignations give Robb a chance to name three commissioners and gain clout in the department early in his administration. "I think Gov. Robb has just a golden opportunity to transform that department," said Republican Fairfax Supervisor Marie Travesky. "And I hope he doesn't make the same mistakes all his predecessors made."

Robb has yet to indicate what his plans for the agency are, but his first challenge may lie with the legislature, where the department will once again seek a major gasoline tax hike. This time King has prepared a wish list of projects that the departments says are necessary, but it hinges on the assembly's giving the department an extra $1.7 billion over the next six years.

Legislators are certain to demand major changes in the department's management; some have even suggested abolishing the trust fund. King's own future is uncertain, as many legislators urge Robb to replace him with someone more attuned to mass transit while his supporters in the road-building industry lobby for his reappointment.

Whoever leads the department, the days of unlimited money and power are over. "In the past, it always had enough money," said Mary Sherwood Holt. "That may be something that should never happen to any department of government."