Virginia Gov. Gerald L. Baliles told the General Assembly today that the state's highway needs have become so urgent that Virginia must abandon its historic pay-as-you-go formula for funding road construction in favor of large bond issues and other fund-raising sources.

In what may prove to be a controversial start for his three-day-old administration, the new Democratic governor called for abandoning the system of paying for road construction from current revenues that was a cornerstone of the fiscal philosophy espoused in Virginia since the 1920s by Sen. Harry F. Byrd Sr. and his followers.

"The approach of the past is simply wrong for the future," he said.

Baliles said Virginia should adopt a new financing method that would for the first time include state bonds. He called for a special legislative session in September to deal with the issue, thus appearing to signal that he did not want the the legislature to deal with proposals for higher gasoline taxes during its current 60-day session.

"Let's get our transportation engineers to tell us how we can move people and build roads, rather than giving us reasons why we can't," he said to the loudest applause of his 50-minute speech.

Continuing the 50-year tradition of building and repairing roads only when the money has been collected to pay for it "will be inadequate," Baliles said.

"If we continue with business as usual with the way we pay for transportation, we could soon strangle the lifeline of our commerce," he added.

Baliles' first "State of the Commonwealth" address also called for spending $7 million more in the next two years than proposed by his predecessor, Charles S. Robb, including more funds for welfare mothers, infant mortality studies, and to reduce tuition at community colleges.

The governor also:

*Called for quick passage of a mandatory seat belt law.

*Endorsed stronger and mandatory penalties for first-offense drunk drivers.

*Pledged unspecified additional money for mental health.

*Urged providing "the most advanced research and instruction equipment" for the state's colleges and universities.

*Recommended a substantial increase in educational programs for prisoners, two of out of three of whom are functionally illiterate.

*Proposed creating two new cabinet positions, which he suggested during his campaign, for economic development and for natural resources.

*Reaffirmed Robb's call to add $376 million to the state's share for public schools in the next budget, saying the extra money should be used to hire elementary school counselors.

Baliles appeared to have succeeded in establishing his own image.

"It showed the difference in style between him and Robb," said Sen. Clive L. DuVal II (D-Fairfax), chairman of the Senate Democratic caucus. "Robb was less apt to charge out in front of his legislative proposals. This man wants to be out front and lead the charge."

"It was the best speech, from an oratorical point of view, I've heard in my years down here," said Sen. Wiley F. Mitchell (R-Alexandria), a 10-year member of the legislature.

Baliles, not known as an orator, evoked laughter when, paraphrasing Winston Churchill, he said: "Never in the history of the Commonwealth have so many Virginians taken so long to move so short a distance."

The transportation proposal appears likely to run head-on into legislation proposed today by Sen. Edward E. Willey (D-Richmond), the chairman of the Senate Finance Committee. His plan would immediately increase gasoline and other taxes to finance highway construction.

Despite Willey's contention that his plan is compatible with the governor's, several of his colleagues said they are likely to hold off on any tax plans until after the special session.

Del. Ford C. Quillen (D-Scott) said Baliles' package will lighten the legislature's agenda during the current session. "It means we don't do anything this year -- we hold the tax bill by Willey in abeyance until we look at the larger picture," he said.

Willey disagreed, saying he and the governor were aware of each other's plans and he insisted that they are not necessarily in conflict. The call for a special session "may be a little premature," Willey said.

Baliles went out of his way to recruit Willey to his side, asking him to serve as chief sponsor of a resolution that would create the "Commission on Virginia's Transportation Needs in the 21st Century," a panel that would report on highway needs to the special session. The governor said he wants the commission to be in operation by the end of the month.

He said he will ask all former governors to serve on the bipartisan commission, along with reprsentatives from the legislature, business and civic leaders and local government officials.

Its primary objective will be to determine what legal and structural changes are necessary to establish separate funds for highway construction and maintenance, and to recommend whether construction financing should be through general obligation or revenue bonds, and "whether the amount should be $250 million, $500 million or beyond the $1 billion mark."

Virginia formally abandoned pay-as-you go for a limited number of public improvement projects in the late 1960s and has financed some road projects through revenue bonds, which are paid off from revenues taken in by the facilities they finance. But the state has yet to approve massive statewide road construction financed by general obligation bonds, which are backed by the state's tax revenues.

The governor said all legislators have "shopping lists" of projects that should get priority," and he listed some that he considered most urgent, including widening Sully Road (Rte. 28) in Loudoun, Fairfax and Prince William counties, and completing a new section of the Round Hill bypass in Loudoun.

The commission also should study how to plan and finance road, rail, air and water transportation through the next decade, including mass transit, the outer beltway in Northern Virginia and the port of Hampton Roads.

The commission's report should be completed by Aug. 1, which would give the governor and legislators a month to study it before the special session.

A major problem with the present formula, the new governor said, is that inflation has caused the percentage spent on repairing roads to take an ever-increasing share of the total.

Currently, 53 percent of the highway spending goes for repairs, with that cost going even higher in the future, Baliles said.

Establishing separate funds for construction and repair will end competition between those transportation necessities.

"Priorities in one would not dictate priorities in the other," Baliles said. "Needs addressed in one would not compromise the needs identified in the other."