RICHMOND, JAN. 13 -- Gov. Gerald L. Baliles, taking advantage of Virginia's population growth and flourishing economy, unveiled a record $22.5 billion two-year budget today that requires no new taxes and offers no bold initiatives, but substantially increases spending for education and mental health programs.

"It's time to put the dollars where the people are," the Democratic governor said as he opened the 60-day session of the General Assembly with pledges of increased financial support for medical care for the poor and elderly, housing assistance for the working poor, cleanup funds for the Chesapeake Bay and continued emphasis on economic development, particularly in the area of international trade.

Baliles, outlining his spending priorities in an hour-long State of the Commonwealth address, also endorsed proposals to increase the speed limit on rural interstates to 65 miles an hour, use proceeds from the upcoming lottery for state construction projects, require an expanded sex education curriculum in public schools, and give pay raises of 8 percent to teachers and 5 percent to the state's 75,000 classified employees.

Despite a healthy government treasury that includes a $190 million budget surplus, Baliles cautioned the joint session of the state Senate and House of Delegates that "we cannot do it all."

"We cannot fulfill every worthy need, we cannot replace every dismantled federal program, we cannot embrace every good idea," Baliles said. "The government that seeks to do so raises many expectations, but fulfills few."

The biennial budget submitted today by the governor represents Baliles' only real opportunity to leave his imprint on government spending during his four-year term.

Leaders of the assembly's Democratic majority quickly embraced much of Baliles' program, while members of the Republican minority split over the governor's proposals.

House Majority Leader Thomas W. Moss Jr. (D-Norfolk) predicted that Baliles will win passage of "85 to 95 percent" of his legislative package.

Del. Robert E. Harris (R-Fairfax) said the governor offered an "excellent budget that addresses a very large array of issues." But Harris attributed that to "the luxury of considerable excess revenue. He's got the freedom of action now that recent governors haven't had."

Sen. Wiley F. Mitchell Jr. (R-Alexandria), sounding like a potential candidate for statewide office next year, said Baliles had failed to meet needs in housing, especially in Northern Virginia, and in the environment beyond the Chesapeake Bay. He said the budget also failed to provide tax equity for middle- and upper-income residents, most of whom began paying higher state income taxes Jan. 1 as the result of changes in the federal tax law.

Mitchell complained that Democrats had abused Senate rules in denying Republicans, who make up one-fourth of the Senate, their fair share of committee assignments.

Baliles, anticipating that Republicans -- and fellow Democrat Lt. Gov. L. Douglas Wilder, a likely candidate for governor in 1989 -- will seek to return some of the huge surplus to taxpayers, said that while "some may believe that we can reduce tax revenues and increase state spending at the same time . . . we cannot have it both ways."

Baliles proposed that profits from the lottery, which voters approved over his objection in November, be "collected and deposited" in state coffers, and appropriated beginning next year to finance "high priority state capital projects." The lottery's first game is expected to start this spring.

One of the proposed budget's largest new items, about $146 million, is earmarked for helping pay for the increased cost of medical care for the poor and elderly.

Although Baliles sounded no grand theme for the coming two years -- he set aside the last two for transportation and trade programs -- his 1988-90 budget offers improvements in a potpourri of services, including an additional $65 million for the state's community-based mental health boards. On education, the governor's spending plan tackles disparities between the richest and poorest school districts, without penalizing Northern Virginia's wealthy districts.

While Baliles carefully avoided any mention of pork-barrel politics in his speech, the official budget document released by the administration today was fairly bulging with political plums for the governor's staunchest political allies, including financing for new museums in the home districts of House Speaker A.L. Philpott (D-Henry) and Senate Majority Leader Hunter B. Andrews (D-Hampton).

In his speech, Baliles also endorsed:Following the lead of 38 states by raising the speed limit on rural stretches of interstate highways from 55 to 65 mph, "so long as you {legislators} retain the 55 mile-an-hour speed limit for trucks." He added that he will order state police to strictly enforce the higher limit, which he said is clearly favored by the public, which already is traveling at an average speed approaching the higher limit.

Requiring all school districts to adopt a kindgergarten-through-graduation family life, or sex education, curriculum, using either a plan approved by the state Board of Education or a locally developed program incorporating the state guidelines. In either instance, the state will pay the full costs. Parents will be permitted to have their children excused from the courses.

At a cost of $2.5 million, 49 people would be hired to locate those exposed to the AIDS virus. Another $1.9 million is included to provide the AZT drug to Medicaid patients with AIDS, and $500,000 for AIDS screening.

International education, often cited by the governor as a major unmet need, would be the target of several programs, including $71,000 for a summer school to teach Japanese to middle school students, $235,000 to add Russian and Latin studies to summer academies that offer French, Spanish, German and Asian studies, and $110,000 to finance, in cooperation with the National Geographic Society, the improved teaching of geography in public schools.

To promote literacy, a project in which the governor's wife Jeanne has taken a special interest, Baliles is recommending a $5.1 million program.

Baliles, having dubbed 1987 as his Year of International Trade, continues that emphasis in a recommendation that economic development programs get the greatest comparative increase -- 72 percent -- over the current two-year budget.

Baliles also wants to open a third foreign office for the Virginia Port Authority, in Seoul, and play host to a Southeast United States-Korea conference.

Using $10.5 million, available from oil companies that overcharged Virginia customers, along with $35 million in general funds, to help low-income and disabled residents buy homes with low-income loans, and providing $2 million for emergency shelters for the homeless.

The cleanup of the Chesapeake Bay will continue, with $10.6 million to be added to the current $42.5 million two-year financing, to expand sediment control and improve management practices; expand research and monitoring of toxic pollutants, and monitor nutrient levels.

The state police would get 55 more troopers and 34 support personnel, which still would leave the force 55 troopers short of the recommendations of a 1984 staffing study.

Baliles also provided for a 25 percent increase in the number of prisoners diverted to local communities from various penal institutions.

The "graying" of Virginia is reflected in projections that show that while the state's overall population will increase by about 25 percent between now and 1990, the number of people over 85 will grow by more than 70 percent. Nationally, 22 percent of those in that age group live in nursing homes, which get about two-thirds of their funds from public money, equally shared between state and federal agencies.

Those statistics, combined with federal cuts in Medicaid, prompted Budget Director Paul W. Timmreck to describe the need for $54 million for additional nursing home beds -- from the current 24,151 to 27,765 by 1990 -- as "the single most challenging program facing the state."

A pilot program, costing $100,000, will be established to study respite care for people caring for Alzheimer's disease patients.

Professors at the state's public colleges and universities are recommended for pay raises ranging from 4.96 percent at Virginia Tech to 8.97 percent at William and Mary. The goal is to put salaries at the state's 15 public four-year institutions in the top 10 among 25 peer institutions in the country.

A total of $109.4 million is recommended for various construction and planning of new facilities.

The legislature is given a comparative crumb -- $7.4 million -- for its pet projects. The rest is accounted for in spending proposals by Baliles and his agency chiefs. Staff writers Lee Hockstader and Sandra Evans contributed to this report.