In the face of growing financial crisis, the District of Columbia government has gone ahead and signed a lease to rent from the Pennsylvania Avenue Development Corp. the now-vacated Lansburgh's department store for city office space and for subleaseing to city arts groups.

The city will pay, on the average, a little more than $1 million a year to occupy Lansburgh's over the course of the six-year lease.

The decision to sublease to arts groups at a low rate -- a plan in the making for a little over a year -- sets up an unprecedented, though limited, helping hand for arts groups in the city. It also came Wednesday, the same day that a House subcommittee approved a $33 million cut in badly needed federal funds for the city.

In fact, Carroll Harvey, directer of the D.C. Department of General Services, shocked at the news of the House subcommittee decision, only signed the lease after PADC agreed at the last minute to an "escape clause" which lets the District government get out of the lease on three months' notice.

"It was tough," said Harvey of the decision to sign the lease. "There's always that question," he said, referring to whether or not the District government will be able to continue payments. "It's a real concern. We wouldn't have signed the lease without that escape clause."

The district has a six-year lease, effective now, which -- over that period --calls for an average payment of $10 per square foot per year. This takes into account the costs of renovation the district is doing to bring the building up to fire code standards.

Each of the arts groups will pay the very low rate of $1.50 per square foot for its space. Art groups have long lamented the lack of inexpensive space in the city. Even the city's $10 rate in Lansburgh's is less than what they might pay elsewhere for good office space, according to Harvey. "Developers are talking $20 a square foot for office space next year," he said.

"This represents a milestone for PADC, the city, and the community," said PADC executive director Andy Barnes. "We're bringing life to the downtown area."

The 26 art groups are composed of a variety of local dance, art and theater groups -- like the Miya Gallery, the Dance Exchange, Centro Grafico, and the Sign of the Times Cultural Workshop and Gallery. Their move will in effect create a city arts center downtown, complete with theaters for drama and dance plus studio, rehersal, gallery, and office space for the groups.

The arts groups have received a $250,000 challenge grant from the National Endowment for the arts for major renovations. As a condition for the grant, they must raise three times as much money.

"It's important for people to understand we're not stopping with Lansburgh's," said Vernard Gray, director of the Miya Gallery. "Lansburgh's is important, but it's 26 arts groups and God knows there are a lot more arts groups than that."

Lansburgh's sits in an area of downtown which the PADC Plan of 1974 earmarks for housing units. Barnes stressed that PADC has not made a decision about what to do with Lansburgh's at the end of the lease, but it has been widely thought the building would be torn down.

"Obviously, there's going to be a major lobbying effort to keep it up," said Mildred Bautista, executive director of the D.C. Commission on the arts, who favors keeping Lansburgh's standing.