In his first year as governor of Maryland, Harry R. Hughes acted in a strange and unprecedented manner toward the state's half-billion-dollar horse racing industry.

He told his top aides and cabinet members not to accept free passes from Maryland race tracks any more.

He curbed the tracks' time-honored practice of giving members of the state racing commission gifts of 50 free track passes a year. In the future, two would have to suffice.

He caused to be introduced in the General Assembly legislation that would prohibit members of the racing commission from betting at tracks in Maryland. The measure never made it out of committee, but Hughes received from the Attorney General's office an opinion suggesting, at least, that it was improper for commission members to wager at Maryland tracks while they were there on official business.

"Appearances count if you're in a regulatory function," said Ejner J. (Johnny) Johnson, staff director in Hughes' office. "It's inappropriate for commission members to wager, and it's inappropriate for commission members to visit the paddock area."

In Maryland, where horse racing and politics traditionally have gone hand in hand, such actions by a chief executive are virtually unprecedented.

A few highlights from Maryland's racing past:

In 1947, Gov. William Preston Lane, responding to pressure from the racing industry, ousted racing commission chairman George P. Mahoney after Mahoney-backed reforms offended powerful racing figures. Mahoney had forced Pimlico Race Course to stop diverting money from a fund intended exclusively for capital improvements; established detention barns to prevent tampering with horses before races; uncovered a conspiracy among riders to fix steeplechase races, and uncovered fraud in the laboratory where urine and saliva samples of winning horses were tested for evidence of drugging.

In 1965 racing commission Chairman R. Bruce Livie resigned under fire after it was disclosed his construction supply company was selling materials to the state's tracks.

In 1968 the choice racing dates, traditionally awarded to Pimlico, the largest money-producing track in the state, were shifted to Bowie. Bowie was represented by lawyer George White, a key figure in the election campaign of then newly elected Gov. Spiro T. Agnew.

In 1978 and 1979 the late Ann Mahoney, a maverick racing commissioner like her husband, George, claimed there had been improper bidding procedures at Maryland tracks, misallocation of funds intended for capital improvements and illegal closed-door meetings at which decisions were made to allocate money. Contrary to state law, no records were kept of these decisions, according to Mahoney.

A scandal involving the manipulation of racing dates brought down former Gov. Marvin Mandel and five codefendants on charges of political corruption. The former governor began serving a three-year sentence last month at a federal prison camp in Florida.

By long-standing tradition, a seat on the Maryland Racing Commission was reserved for the politically well connected or offered as a reward for years of service to the party in power.

The chairman of the racing commission is paid $4,000 annually by the state while each commissioner earns $3,000 a year.

"For years, the most important criteria in getting on the racing commission have been political connections," says State Sen. Melvin Steinberg (D-Baltimore County), chairman of the Senate Finance Committee. "It was always considered a very prestigious position."

It is also a long-standing Maryland tradition that the people who regulate the running of the horses at Maryland tracks, the stewards and judges, are paid by the associations conducting the race meetings.

"This creates an apparent conflict-of-interest problem, for while the stewards and judges are all appointed by the racing commission, their compensation is borne by the associations," observed a Hughes-appointed Governor's Commission on Racing Reform in its first report in December.

It may be true that appearances count to top aides in the Hughes administration, but historically in the close-knit world of Maryland racing they have mattered little.

J. Fred Colwill, the chief of racing steward for the state, and Dr. Davie Paice, the state veterinarian, both breed horses that run on Maryland tracks, but neither sees a conflict in that.

"I am a breeder and proud of it. It has never been a secret," said Colwill, who earns $172.50 a day for each day he puts in at the track.

When a horse that has been bred on his farm, Halcyon, not far from Baltimore's Pimlico Race Course, runs in a race that Colwill otherwise would officiate, Colwill steps out of the stewards' box, he says.

If the horse wins, he says, he always gives the breeder's share of the purse to charity.

He also boards horses for Ben Cohen, secretary-treasurer of the Maryland Jockey Club of Baltimore, operator of Pimlico Race Course.

"I do have some of Ben Cohen's mares, but I don't have anything more to do with Ben Cohen's racing stable than you do," Colwill told a reporter.

"I feel that over the years, I have been an asset to Maryland racing.As far as taking a number down (disqualifying a horse), I feel that even if they are my friends, if the number comes down, then it comes down. You can question my judgment but not my integrity."

Cohen said he sees no conflict in running his horses at Pimlico.

"My horses race in New York, New Jersey and in Maryland," he said. "What kind of conflict is it if I have nothing to do with it? I am not in the stewards' stand."

Paice, the state veterinarian who is assigned to certify all horses as fit before they run in a race, says he has raised and bred horses for 20 years on his farm near Hagerstown.

"My horses have won over $1 million in purse money," said Paice, who sells the horses as yearlings. "They have raced in California, they have raced in Florida and they have raced in Maryland.

"A man has a constitutional right to raise horses if he wants to, and to sell them."

As one of the major industries in Maryland, horse racing poured more than $20 million into state coffers during 1978 in daily license fees and taxes on pari-mutuel wagering. But that figure is only the top of the iceberg.

According to the Maryland Horse Breeders Association, the industry produces a cash flow of $261 million a year in the state including a yearly payroll of $52.2 million for 8,000 employes. Total horse racing industry investment in Maryland is estimated at $279 million.

But in recent years, racing in Maryland has fallen upon hard times. Average daily attendance fell by almost 20 percent between 1969 and 1978 while the average amount bet per day fell by 7.7 percent. While this partially was offset by an increase in the number of racing dates, the grim fact remains that in 1969 constant dollars the aggregate revenue to the state from horse racing was down by 17.3 percent between 1969 and 1978.

It was to reverse this trend that Hughes named the Commission on Racing Reform just over a year ago, and it was the commission's first report that resulted in the Hughes-proposed bill that would have, among other things, barred racing commissioners from betting at Maryland tracks.

What the bill would have done, in effect, was overhaul the entire structure of racing in Maryland, replacing the current thoroughbred and harness boards with a single unified board. An executive director with broad regulatory powers over the racing industry would serve at the pleasure of the board. Both the executive director and members of his family, plus the racing commissioners and members of their families, would have been barred from betting, owning or training race horses in Maryland.

While the measure failed at the last legislative session, the issue is far from dead, and a similar version is expected next time the legislature convenes.

"As it stands now, we have a part-time racing commission with minimal staff in Maryland," said Hughes' staff director Johnson.

"The state's responses to the problem of racing have been relatively minor. We haven't really addressed the basic underlying causes of racing's problems. It's a big industry in Maryland and it's tough to regulate on a part-time basis. We have to put the structure in place, and it must be one that has the confidence of everybody in racing and the confidence of the legislature."

The current chairman of Maryland's Thoroughbred Board is Robert W. Banning, a Democratic member of the House of Delegates from Prince George's County from 1967 to 1971, a twice defeated candidate for the state senate and a Hyattsville auto dealer.

The other members are Frank Cuccia, a Baltimore businessman; J. Neil McCardell, a former comptroller of the city of Baltimore and U.S. collector of customs; Robert W. Furtick, a Baltimore trucking executive, and Kenneth C. Proctor, a retired judge from Baltimore County.

Proctor is Hughes' only appointee on the panel. When he was appointed a year ago, Gene Oishi, Hughes' press secretary, hailed the appointment as a harbinger of change in Maryland racing circles.

"We think there's something wrong with the whole industry. There's a feeling of lack of confidence in the board," Oishi said at the time. Proctor declined comment on Oishi's statement.

Cuccia, named to the board by Mandel in 1977, is a self-described close associate of Irvin Kovens, a Mandel confidant and a codefendant with the governor in the political corruption case. Kovens also is serving time in Florida.

"I am proud of being a close associate of Irv Kovens. We've been friends ever since I came to Baltimore," Cuccia said.

Despite the suggestions of impropriety in racing commissioners wagering at Maryland tracks, Cuccia said, "I'm like anybody else. I go out there and put $5 on a horse, but I don't call that betting. There's no law prohibiting it. There is nothing to stop a commissioner from betting or sending someone else to place his bets."

Furtick is the lone Republican on the board, named by Mandel under a provision of the statute that requires at least one member of the minority party be on the panel.

"All appointments are political in the final analysis," said Furtick, who sold 10 $100 tickets to a Mandel testimonial after being named to the racing board.

"I hardly knew the governor when I was appointed. I had been a breeder and I own a fraction of two horses that don't operate in Maryland."

Clamping down on the distribution of passes to commission members, Furtick said, "was actually a favor. It's got to be a nuisance. People were calling up all the time asking for free track passes."

McCardell, who says he's been at the track every day for the last 20 years, got his appointment to the racing board through a friend.

"I served on the board of review of the Maryland Natural Resources Commission for eight years," McCardell said. "Jack Newman was the chairman of that board and he was a friend of Gov. (Blair) Lee. After serving together, Jack and I got to be pretty good friends and I mentioned to him I would like to be on the racing commission. A few days later the governor's appointments secretary called me in.

"When I go to the track on official business, I never bet. When I'm there on my own, I do," McCardell said.

As things stand, members of the governor's staff, the Commission on Racing Reform and key legislators including State Sen. Steinberg and Del. Tyras S. Athey (D-Anne Arundel), chairman of the House Ways and Means Committee, are working on legislation to revitalize the racing industry.

There seems to be virtually unanimous agreement that the sport needs it.