Massachusetts' Battle of the Budget. A battered Dukakis seeks $735 million in new taxes as his approval rating plummets. WHAT MIRACLE?

MASSACHUSETTS may be better off than many of its sister states, but it's certainly not the near-utopia it was touted to be during Gov. Michael Dukakis's presidential campaign last fall. While some close to the scene still dispute whether there was a real ``Massachusetts miracle,'' there is little disagreement that the state's economy is not performing as well now.

And there is mounting concern among Bay State residents and among its business and community leaders. This is underscored by a recently statewide opinion sampling in which the public said it felt that the quality of life in Massachusetts has been deteriorating.

Much of the concern appears to stem from the state's ongoing financial woes, along with a cooling off of what had been a bustling economy, which showed unprecedented growth in state revenues from 1983 into 1988.

The state's financing woes have increasingly beset the Dukakis administration over the past 5 months. Trouble began in late summer when officials had to borrow an initial $100 million through short-term notes to keep the ship of state afloat.

With fiscal 1989 now well past the halfway mark, the governor and his aides are battling to close a projected $131 million shortfall in the state's nearly $12.4 billion budget, which was enacted by lawmakers only last July.

To address the funding crisis:

The state's more than 80,000 work force is being shaved by 1,740.

State agency heads are being asked to make whatever savings they can in their programs.

Increases in state license fees totaling $46 million are being imposed this year. Driver's licenses will go from $25 to $35, and auto registrations, from $24 to $40.

The centerpiece of the Dukakis budget-balancing formula, however, is a proposed boost in taxes. The measure is expected to net the state $735 million in added revenue over the next 16 months. It would be the largest single tax-package increase in Massachusetts history.

The measure, now awaiting legislative action, calls for raising capital-gains taxes, substantially boosting several excise taxes, and broadening the 5 percent sales tax to cover long-distance communications equipment and construction materials used by utility companies.

The current 11-cent-a-gallon gasoline tax would rise, with an immediate 6 cent hike and further 2 cent increases over the next two years. The 26 cents-a-pack state tax on cigarettes would be raised by 4 cents and liquor taxes boosted by 50 percent.

Many lawmakers, including some in key posts, like Democratic Rep. John Flood, the House chairman of the Joint Legislative Taxation Committee, say they want no part of any tax boost, at least at this time. Instead they urge the governor to lay off more workers and come up with other ways to hold down spending.

THE Dukakis proposal for a record $13.4 billion state budget for fiscal 1990 seems certain to be scaled down and perhaps altered considerably in the coming weeks.

Particularly in jeopardy is a $120 million expansion in aid to cities and towns, to be paid for in part through the state tax increases.

Late last month Dukakis, who some Bay Staters still expect to make a second try for president in 1992, announced he would not be a candidate for a fourth term as governor next year.

Further contributing to the uncertainty of the Massachusetts economy was the recent General Motors decision to close its 2,100-worker assembly plant in Framingham next August, and the pending mergers or takeovers of several companies, including those in the increasingly competitive computer field.

These challenges to Mr. Dukakis come at a time when his wife, Kitty, has been hospitalized for treatment of an alcoholism problem attributed to a postelection letdown.

The fading of the ``Massachusetts miracle'' has been accompanied by a decline in Dukakis's popularity since the election.

One poll conducted this month for another state official found that the governor's public favorability rating was the lowest since he first took office. Fifty-two percent of those queried gave him an overall negative performance rating.