D.C. Mayor Sharon Pratt Dixon proposed yesterday reducing the size of fire engine companies, cutting the summer youth job program and not hiring 200 additional police officers to help eliminate the city's mounting budget deficit.

The actions are intended to implement Dixon's recent decision to cut more than $130 million in city spending this year to cope with a projected $302 million budget deficit. The cuts touch virtually every agency and program in D.C. governmment, with the greatest impact on housing and economic development initiatives.

The cuts were announced the same day the District, Virginia and Maryland received mixed financial news from the Bush administration, which unveiled its budget proposal for fiscal 1992. {Story on Page B1.}

The president recommended increasing the federal payment to the District next year by $53 million, from $430.5 to $484 million. If approved by Congress, this would be the first time in five years that the federal government has increased its payment, in lieu of taxes, for services provided by the District.

But the increased federal payment would be more than offset by other budget proposals to phase out $55 million in funding for 700 police officers, public health initiatives and other special programs authorized by Congress last year.

The president has proposed increasing construction money for the Metro system, a marked change from recent presidential budget proposals. But local schools systems would be hurt by cuts in federal aid.

"It's an austerity budget that preserves the status quo," said Rep. Constance A. Morella, a Montgomery County Republican. "Money for everything is tight. But there are no major surprises."

Rep. Tom McMillen, an Anne Arundel County Democrat, said: "It's kind of a half-loaf budget. There are critical needs in a lot of areas, particularly domestically. But the president is constrained in what he can do by {last year's} budget agreement, and it's a very hesitant budget."

The president's budget would have no effect on the District's fiscal crisis. In addition to $136 million in spending cuts proposed by Dixon for the fiscal year that ends Sept. 30, the mayor has asked Congress for $100 million in emergency money and is trying to defer $63 million in pay raises for city workers.

At a news conference yesterday, Dixon said she tried to "minimize the impact on basic services," as well as programs for youth and the elderly, but she also indicated that the District could not afford to maintain agencies at current funding levels.

The programs targeted by Dixon for major reductions include some that are extremely popular with members of Congress and the D.C. Council. For example, Dixon proposed eliminating the D.C. School of Law, a move likely to precipitate a pitched battle with council member Hilda H.M. Mason (Statehood-At Large), leader of the Education and Libraries Committee.

In the police department, Dixon has proposed to halt a recent hiring program mandated by Congress and the D.C. Council to fight rampant crime and violence.

Congress appropriated money to hire 700 police officers, and the council added money for an additional 300, with an overall target of increasing the force to roughly 5,050 uniformed officers, officials said.

So far, the city has filled about 800 of those 1,000 additional positions, but Dixon said yesterday that plans to further increase the force represent "a commitment we can't afford to make at this time." Moreover, she said, the department might not replace 200 officers who are scheduled to retire in the coming months.

"We'll just have to do more with less," she said. "We can have civilians do a lot of the desk work that police are now doing . . . so more of those uniformed officers can be out on the street where we need them."

Dixon stopped far short of the recommendations of the Rivlin Commission, which called for scrapping the plan to hire 1,000 officers.

Yet her proposal drew complaints from union officials and a key council member for ignoring the mandate of Congress and the reality of street crime menacing city neighborhoods.

"I am very disturbed by this proposal," said council member Wilhelmina J. Rolark (D-Ward 8), head of the Judiciary Committee, which oversees the police department. "With the violence and all, we need the police officers."

Gary Hankins, chairman of the labor committee of the Fraternal Order of Police, derided as "a myth" Dixon's idea that putting more civilians in desk jobs would free officers for street patrol. "There's no fat left," he said. " 'Civilianization' has been a philosophy applied to us for over a decade."

Another proposal likely to spark controversy is Dixon's plan to close Fire Engine Co. No. 3 near Capitol Hill and reduce the staffing on all city fire engine companies. Instead of staffing companies with five firefighters and two trucks, Dixon wants to save money by using four firefighters and one truck, an arrangement similar to those of many other jurisdictions.

Former mayor Marion Barry repeatedly proposed such a move, but he was thwarted by the firefighters union, which successfully lobbied Congress to maintain current staffing levels.

The firefighters union vowed yesterday to derail the changes, but the outcome may be different this time. One of the firefighters' key allies, Republican Stan Parris of Virginia, lost his House seat last fall, and Dixon hopes other area legislators will be less prone to meddle in District affairs.

Dixon's proposed cuts will be presented to the council in March, as part of a revised spending plan for the current fiscal year. But the cuts already are being implemented by agencies. Among other changes sought by Dixon:Eliminating roughly $5 million in city spending on the summer job program. Barry previously guaranteed a summer job to every youth who wanted one. Under Dixon's plan, disadvantaged youths eligible for federal money will continue to be eligible, but 1,500 others previously eligible for city money will be cut from the program.

Dixon said she will try to replace the lost city funding with private money. No further applicants will be processed for the Tenant Assistance Program, which helps low-income residents pay their rent, and for the Home Purchase Assistance Program, which helps house buyers with down payments. A phase-out of funding for the D.C. School of Law, with an annual budget of $4 million. Law School officials said they intend to lobby the council to reverse this decision; Dixon said the city could not afford the expenditure given other pressing needs. Some programs originally slated for more dramatic cuts received a slight reprieve, including the Office of Latino Affairs and the D.C. Commission on the Arts and Humanities.

The Latino office's $2 million budget was cut $224,000, instead of $860,000. The arts commission, with a $3.5 million budget, was cut $827,000, instead of $1.8 million. City officials said those offices were spared the deeper cuts because of prior commitments that could not be broken. But those programs could be cut even more next year.