As part of an out-of-court settlement, the Labor Department has proposed downgrading allegations of safety violations filed against the former owners of a Galveston grain elevator where a 1977 explosion killed 18 workers and injured 22. Under the tentative agreement, the firm would pay $8,000 to settle the remaining citations--down from the $126,000 Labor originally sought.

If the tentative settlement between the department and Farmers Export Co. of Kansas City is accepted by an administrative law judge and an independent federal commission, nearly four years of civil and criminal prosecution of the firm and its managers would be ended. The fines originally proposed were among the highest ever sought under the Occupational Safety and Health Act.

Earlier this year, a criminal prosecution of the elevator's Galveston managers ended in a hung jury.

The terms of the tentative agreement will not be made public until they are ratified, but two attorneys familiar with the case confirmed the $8,000 figure. The recommendation was sent to a federal administrative law judge the week before Christmas.

The powerful explosion tore the elevator apart while the dust-collection machinery was being repaired, an Agriculture Department official said at the time. Earlier that same week, accumulations of volatile dust in three other grain elevators led to explosions; in New Orleans, 35 were killed.

(The New Orleans case was settled out of court; Continental Grain Co., which owned that elevator, paid fines of more than $40,000, according to Occupational Safety and Health Administration spokesman Mike Volpe. No criminal charges were brought in that case, unlike the case involving the Galveston elevator.)

Asked if OSHA administrator Thorne Auchter had approved the proposed settlement, Volpe said that he could not discuss a pending case but that "OSHA's goal is neither to make money nor to punish employers but to abate a hazard as quickly as possible."

Max Warwick, a solicitor in OSHA's Dallas regional office, explained that the decision to downgrade the citations from "willful serious" to "serious" was made by the agency's regional administrator, based on "a re-analysis of the facts and a number of other considerations." He would not elaborate and referred further questions to his superior, James White, who refused to discuss the tentative settlement.

Asked to comment on the proposed settlement, Allan Bioff, the attorney for Farmers Export Co., declined, saying only that "we're still in the process of seeing what will happen."

All the civil citations against the company had been held in abeyance for three years while the Justice Department, on Labor's recommendation, directed a grand jury investigation of the case and won a 36-count indictment against the company's managers. The trial, held in Galveston last summer, was an emotional one, with labor, management and federal witnesses disagreeing on everything from the amount of grain moved through the elevator to the depth of dust on the floors.

The trial ended in August with the jury deadlocked 7 to 5 to convict the elevator's manager and 8 to 4 to convict its supervisor.

At the request of the Justice Department, a federal judge in Dallas dismissed the indictment in November. "The biggest consideration was there were four votes the other way," said James Powers, who heads the criminal division of the U.S. attorney's office in Houston. "If we didn't do much better than that the first time around, there's not much chance of doing better than that the second time . . . and it cost a lot of money to try it the first time."

The closing of the criminal case allowed OSHA to proceed with the civil citation. The original 1978 citation charged the firm with 12 "willful serious" violations--each carrying a $10,000 fine--and six "serious" violations carrying a fine of $1,000 each.

Farmers Export Co. sold the elevator earlier this year; it still operates an elevator in Ama, La.