Maryland officials yesterday projected the state will amass a $925 million budget surplus this year as a result of a strong economy that has pushed tax revenue up and unemployment rates down.

The good news comes as state legislatures across the nation prepare to convene next month awash in money. In Virginia, lawmakers have begun to tussle over an estimated $1 billion in new revenue over the next two years that has not been earmarked for programs. The District has a $150 million surplus.

In Annapolis, state officials had been predicting a windfall. But yesterday's announcement was even more than had been anticipated as state officials finished the figures Gov. Parris N. Glendening (D) will use in preparing his annual budget proposal.

The extra money already has set off a frenzied call for increased spending from local governments and some lawmakers. State Budget Secretary Fred Puddester said he expects more spending on capital projects, such as school and transportation construction, than has ever been proposed in state history when the General Assembly convenes Jan. 12.

"This is an extraordinary opportunity to make investments in the future of the state," he said. "This is a remarkable period of time to be in government."

To offer some perspective, Maryland's surplus equals 10 percent of the current state operating budget of about $9 billion. State law limits how much the operating budget can grow from one year to the next, forcing lawmakers with extra funds to cut taxes or spend on capital projects.

Republican legislators have called for more tax cuts, but Glendening said he prefers to pour the money into school construction, transportation projects and other one-time needs that would not overextend the state if the economy sours.

"It would be easy to say, 'Make further tax cuts.' It feels good," Glendening said. But he said those cuts have to be weighed against the opportunities the surplus offers. "We have to be careful with what we do with this money."

Leaders of the Democrat-controlled legislature have agreed, calling only for abolishing Maryland's inheritance tax. Glendening supports the proposal, saying the inheritance tax "has outlived its need here in Maryland." That would mean a loss of $50 million in tax revenue.

Puddester said nearly half the surplus would be plowed back into the state's reserve funds to provide a buffer if the economy sours and to help pay for the final phasing in of a 10 percent income tax cut approved three years ago.

Of the $925 million, $475 million would be available for programs, projects and tax cuts. Glendening said that tomorrow he will announce plans for construction projects on several state college campuses, including a new technology center for the University of Maryland Baltimore County.

Glendening also plans to direct about $150 million of the surplus to school construction and about $75 million toward Maryland's share of the Woodrow Wilson Memorial Bridge replacement. The rest will go for other projects, including myriad small items on legislators' wish lists.

William Donald Schaefer knows how quickly boom times can go bust. He was elected to his second term as governor in 1990 just as the national economy was cooling. The ensuing recession had him overseeing severe cuts in state spending. Now state comptroller, Schaefer (D) said: "You want to show some caution in how you spend money. That's something we have to watch."

But State Treasurer Richard N. Dixon (D) said he sees no signs of the economy's cooling over the next several years, noting that interest rates, inflation and unemployment are all low.

Glendening agreed: "In some areas, we're the best we've been since records have been kept."

The strong surplus is being driven by a surge in income tax revenue, the largest single source of money for Maryland's budget. Low unemployment and the strong stock market have helped boost personal incomes in Maryland to the point where state officials now expect $330 million more than they estimated in March. They said yesterday that they expect $4.7 billion from the income tax, an increase of nearly 9 percent over last year.

In Virginia, Gov. James S. Gilmore III (R) is scheduled to release state financial projections on Friday that will be used to frame his budget proposals. The state operates on a two-year budget cycle.

Legislative analysts have projected that the General Assembly will be dividing about $3.4 billion in new money over the next two years, a result of projected surpluses and rising revenue. All but $1 billion of that, however, is already dedicated by law to programs, according to a legislative analysis issued last month.

Finance Secretary Ronald L. Tillett called those estimates "in the ballpark" but declined to be more specific.

The General Assembly will spend much of the two-month legislative session tinkering with Gilmore's budget proposal. New spending on transportation, education, the state's university system and pay raises for state employees will be among the costly priorities of lawmakers.

"There are a lot of demands. There are a lot of initiatives," Tillett said of the budget proposal.

Gilmore made promises during the election season to boost transportation funding, hire new teachers and launch other initiatives that would cost $600 million more to fulfill, according to the analysis made for the Senate Finance Committee. Approximately $1 billion a year is needed to fulfill Gilmore's pledge to repeal the car tax.

"There's a heck of a lot of needs that that money could be used for and should be used for," said state Sen. Richard L. Saslaw (D-Fairfax), a Finance Committee member.

Staff writer Stephen C. Fehr contributed to this report.