NEW YORK, JUNE 5 -- Plagued by prolonged scandals and a drop in donations, Covenant House, the nation's largest charitable organization serving runaway youth, is slashing staff and paring programs, including its fledgling effort to set up a shelter in the District.

The cuts will mean layoffs for the outreach workers who have cruised the capital's streets in a van each night for the last six months, offering hot chocolate and counseling to runaway adolescents, some of whom are prosititutes and drug addicts.

"I'm just disappointed," said James Kelly, director of Covenant House in Washington. "It takes some time to develop those relationships, and we were just beginning to make headway."

Kelly and other high executives have been caught up in a scandal that began six months ago, when a former Covenant House resident alleged he had had ongoing sexual relations with the organization's founder and former president, the Rev. Bruce Ritter. Four other youths made similar claims, and subsequent internal and news media investigations unearthed appearances of financial improprieties at Covenant House's highest levels.

Ritter left Covenant House in February, but New York State Attorney General Robert Abrams is investigating loans Ritter and others made to some board members and executives, allegedly without the knowledge of most board members. Covenant House spokesman Susan McLean said Abrams is investigating a $60,000 loan made to Kelly for a second mortgage on his home when he moved to Washington to start the group's center there.

Kelly called the loan "totally legal," saying, "It's a relocation mortgage. Universities do it, and hospitals do it all the time."

In the face of a projected reduction in contributions, the organization's national board of directors decided on the budget-tightening measures during several recent meetings in New York, to cut its budget by 12 1/2 percent, said board chairman Ralph Pfeiffer Jr.

At its height, Covenant House was budgeted to spend more than the federal government on shelter and outreach services for runaway youth. It raised $87 million last year and housed 25,000 youths at shelters in New York, Fort Lauderdale, Fla., New Orleans, Houston, Los Angeles, Anchorage, Toronto, Mexico City, Antigua, Honduras, Guatemala and Panama.

The sharpest cutbacks are slated for the group's main shelter in New York City, where 82 of 420 employees have received layoff notices, the first round in what could be as many as 224 cuts to be made through more layoffs or attrition.

Covenant House's annual $500-a-plate black-tie dinner tonight was marred by the news that Manhattan District Attorney Robert Morgenthau had reopened his investigation into Covenant House.

Actress Helen Hayes, a Covenant House supporter, called Ritter "a saint" unjustly accused of sexual improprieties. Of the financial wrongdoing, she said, "He probably didn't do the exact right thing . . . " but "I know a lot of good people so irresponsible about money."