From the days of Woodrow Wilson's governorship until the early 1960s, much of New Jersey's public business was conducted here under the golden dome of the 1791 statehouse. The governor met with his cabinet once a month, legislators came to town perhaps twice a month, and citizens did their daily business with the treasurer, the health department, even the rabies clinic, on the third floor.

Over the last two decades, however, a quiet revolution has occurred in Trenton. New agencies have appeared to deal with hazardous waste, drug abuse, energy conservation, consumer protection, subsidized housing, bilingual education and mental health. New taxes were imposed, new laws written, new employes hired, and soon new office buildings were springing up along State Street.

The very definition of state government has changed in the last 20 years, transforming it into one of the nation's growth industries. From Trenton and Tallahassee to Albany and Austin, state capitals have become places of intense bureaucratic activity, outpacing even the more publicized expansion in Washington.

The scope of the changes is hard to exaggerate. In 1957, New Jersey's entire budget came to $323 million. Twenty-five years later, it costs $900 million, nearly three times as much, just to run the state's Medicaid program.

"It was very easy to add all these programs," said Gov. Thomas H. Kean. "The federal government supplied the money for the salaries and people took the jobs. Everyone that got hired needed an assistant, and soon they both needed a secretary."

In an earlier era, the states were widely viewed as backward, parochial obstacles to change. It was a time when "states' rights" was a code phrase for resistance to school desegregation. But a generation of social upheaval and civil rights protests forced most states to take far more responsibility for their poorest citizens. People began to expect state officials to do more.

As Congress issued a series of sweeping mandates -- clean up the waterways, feed the hungry, educate the handicapped -- it was the states that had to create and often carry out these programs. While federal employment as a percentage of the population dipped from 1964 to 1980, state and local payrolls swelled by 74 percent. The states have become more professional, more compartmentalized, more like 50 little Washingtons.

No state has been untouched by this growth, but some have expanded far faster than others. Oil-rich Alaska spends the most per person, more than five times as much as Missouri, which ranks last. Forty states have tripled their budgets over the last decade, and four others have quadrupled them. Colorado has created 36 new agencies in the last five years alone, from a gasohol commission to genetic screening for infants.

Other states, such as New Hampshire, remain fiercely conservative. With only 9,000 state employes, New Hampshire ranks 45th in state spending per person, 50th in tax collections and 49th in per capita aid to local schools. After Gov. Hugh Gallen was defeated last month, his aides blamed it on his refusal to take "the pledge," a ritual vow not to impose a sales or income tax.

"You know, New Hampshire is really a great place to live -- unless you want your kids to get an education," said one lobbyist. "There aren't many taxes, but there isn't much else, either. It's every man for himself."

In many states, better-informed legislators have helped erase the rustic image of years past. After the Supreme Court's "one man, one vote" ruling in 1964, sparsely populated rural areas lost their stranglehold on some legislatures while growing suburban areas gained new clout. Higher status and higher salaries have lured thousands of well-educated and experienced professionals into jobs that once had little attraction.

Two weeks ago, Minnesota legislators bravely risked their political necks by voting to raise taxes for the third time this year rather than allow 35,000 public employes to be laid off because of mounting budget deficits.

But not all states are so blessed. Two years ago, Massachusetts lawmakers let Boston's bankrupt transit system shut down for more than a day as they kept squabbling about how to bail it out.

"Running for state office in Massachusetts is like slopping the hogs," said Rep. Barney Frank (D-Mass.), a state legislator for eight years. "There are still some people who aren't bright enough to handle the complex questions, but they vote the way the leadership tells them, and the leaders are elected by dispensing the pork. You get a hockey rink or a junior college addition for your district and some patronage for your supporters."

Other statehouses still gang up periodically on big cities. When Seattle tried to annex some land that included Boeing Co.'s headquarters, for example, the Washington legislature took away the city's annexation powers, and later added to the insult by freezing Seattle's business and utility taxes.

But most states are changing. Forty have gone through major reorganizations or revised their constitutions over the last two decades, and a majority now pay more than half the tab for local schools. Wisconsin spends 242 percent more on education than it did 10 years ago, easing the burden on regressive property taxes by pouring more money into the neediest school districts.

Many of the changes that have occurred in state government are typified by New Jersey, whose expansion has been somewhere in the middle range. The state's payroll has grown from 36,000 employes to more than 66,000 in the last 15 years. Federal aid, which now makes up nearly a quarter of all state budgets, grew from $330 million to $1.7 billion. New Jersey even opened a 12-person lobbying office in Washington to protect its interests.

But the increasing flow of federal dollars has begun to dry up, and President Reagan has been pushing a "New Federalism" plan that would turn over dozens of programs to the states. At a time when most states finally have the experts and the skill to run these programs, they may no longer have enough money.

The tan bookshelves in Marvin Habas' small first-floor office here are lined with thick loose-leaf binders: "The Federal Grants Management Handbook," "A Guide to Federal Funding for Education," "The Federal Aid Planner," "The Title I Handbook," "The School Law Register," "The Catalog of Federal Domestic Assistance" and a 1982 Congressional Directory.

"This is an accumulation of all the things you have to know in the department," the white-haired veteran said. "I'm probably one of the few people that knows all of it."

Habas' job is to give out federal education grants to 611 local school districts. Ten years ago, this didn't amount to much; last year, $218 million passed through his office.

The hefty volumes underscore the extent here of the federal presence, which is so pervasive it has even managed to confuse the calendar. The federal fiscal year began in October, but the state fiscal year started in July and the local fiscal year began last January. That has left Habas unsure of how much aid the schools lost in 1982.

The regulations tell school officials how they must spend federal money for handicapped students, bilingual instruction, preschool programs, vocational education, even school lunches.

Some of the money is handed out according to a detailed formula that measures such factors as the wealth of the students' parents and whether their school has a desegregation plan. For other programs, such as Title I compensatory education for poor students, New Jersey uses a complicated "poverty index" to parcel out the aid.

"That program has its own specialists," said Habas' assistant, Ted Roback. "Even I don't understand that thing."

Across town at the state Transportation Department, Russell Mullen says he is using his $188 million in federal aid this year to manage about 2,000 "active" federal highway projects, even though most of them are long since completed.

"The road may have been built, the contractor may have been paid, but all the federal accounting hasn't been done," Mullen said. "It must be 'final-vouchered.'

"The federal procedures for administering this program fill about five big notebooks, each about 4 inches thick. These cover everything you have to do, from beginning to end. It does keep a lot of people busy."

All this greatly irritates planning director Gary Stein, who would like nothing better than to unravel the red tape that surrounds the state's $1.7 billion federal aid package.

"If they were to just give us a check for that $1.7 billion, I'd venture to say it'd be better spent," Stein said. "Right now you don't have a choice. The federal government says you should spend this money on that interstate link. You can't be idiots about it, you have to take the money and spend it on that road, even though it may be your 47th priority."

In the early sixties, New Jersey was still a state with no sales or income tax. "The state's budget basically went for highways, prisons and mental hospitals," said Alan Karcher, the Democratic speaker of the assembly. "Nobody knew what a day-care center was. There was no such thing as consumer protection."

Over the last decade, however, the Trenton lawmakers, like those in many other states, have tackled problems that state government once ignored or simply left to others. For example:

* They created the N.J. Transit Corp., which took over two big private bus firms that were losing money and dropping many night and weekend routes. The new agency used mostly federal money to fix up the nation's oldest bus fleet and to buy more than 1,800 new commuter buses.

* They started an energy department when the energy crisis reached its peak and federal money was available. The department, which gets half its $2 million budget from Washington, runs conservation studies, does energy audits and operates an energy hotline.

* They opened 21 day-care centers for neglected and abused children and funded clinics for 21,000 drug abusers. The plight of both these groups was widely publicized during the 1970s, and these centers now get $11 million a year in federal money.

* They appointed a public advocate who defends indigent clients and sues other state agencies on behalf of consumers. The 800-person office has taken on controversial causes that a governor wouldn't touch: fighting utility rate hikes, defending mental patients and challenging restrictive zoning laws that exclude low-income housing.

* They set up a criminal division in the attorney general's office. Embarrassed by a long legacy of local corruption, they gave the attorney general broad powers to conduct wiretaps, grant immunity, seek indictments and take over cases from county prosecutors, and nearly doubled his staff to more than 7,000. The result: More than 200 public officials have been indicted, and the office has expanded into such areas as white-collar crime, casino gambling, civil rights and Medicaid fraud.

* They established a sports authority and spent $435 million on a sports complex and racetrack in the Hackensack Meadowlands in an effort to put New Jersey on the major-league sports map. The state now has pro football, basketball and hockey teams.

* They catered to the fastest growing group of voters by adopting a "lifeline" program to provide $175 a year in utility credits to the elderly. They also started a pharmaceutical program to enable 60,000 elderly people to buy prescription drugs at low cost. This proved so popular that the legislators broadened the rules to include 300,000 senior citizens.

* They sought new federal money to beef up older state agencies. New Jersey's environmental agency once had only a half-dozen people worrying about toxic waste. But after Congress passed a law to regulate hazardous materials in 1976, the agency got enough federal aid to hire 80 more people, conduct midnight raids and shut down 13 companies for illegal dumping.

All told, the environmental agency gets about half its $48 million budget from Washington to test car exhausts, build sewage treatment plans, inspect factory discharges, check on pesticides, monitor drinking water, control wildlife and study coastal development, all areas governed by federal regulations.

Former treasurer Clifford Goldman, who worked in the statehouse that has become the focus of so much change, sees a darker side to all these grants. As the federal presence grew, Goldman said, his colleagues began to lose control of their own domain.

"All our cabinet officers were down in Washington all the time," he said. "It became the focus of state government. That was what these people basically did -- worry about Washington."

NEXT: Federal cutbacks