Mayor Marion Barry's proposal to distribute $560,000 in 10 grants to cultural institutions met some opposition yesterday at a City Council hearing on the proposed budget for the D.C. Commission on the Arts. The mayor has proposed $45,000-grants for eight major cultural institutions, plus $100,000 each to Lansburgh's and the Ellington School of the Arts. With the increase, the total budget for the commission would be $1.4 million.

"You don't think this might create resentments from other groups?" asked Councilman John Ray, who is also running for mayor.

"From the feedback I've gotten from a lot of groups," said commission chairman Peggy Cooper Cafritz, "that's not true. We've gone through a great deal to make certain competition was not there."

"We are probably the only municipal or state arts council that has not supported its major institutions," said commission executive director Mildred Bautista, noting that when federal funds begin shrinking, major cultural institutions look to local funding sources. "The endowment National Endowment for the Arts has said they are looking to state commissions to pick up the slack."

Ray said he felt commission money should go to fund local institutions rather than those which "pursue national goals." He mentioned the Corcoran and Arena Stage, two prospective recipients of these grants. "I just think we ought to use this money for organizations involved in local issues," Ray said, "not those worried about their national reputations."

"This money has strings attached," Cafritz replied. " The groups cannot use the money to support anything other than local things and they must report to us on how the money is used."

Doug Wheeler of the Washington Performing Arts Society, another designated recipient, said the funds WPAS received would go toward professional musicians' "performances, workshops, master classes" in all of the D.C. public schools. Wheeler said WPAS-funded musicians give 600 performances a year in the schools.

Wheeler said his organization didn't ask for the funds. "We were just told about this in the last 10 days," said Wheeler. "It's always been our position that we didn't want to compete with local arts organizations." But, according to one commission official, some of the other large cultural institutions had applied for funds.

Also testifying before the City Council were several representatives from the financially troubled Washington Civic Opera; Alton Miller from the Washington Ballet; Peter Marzio of the Corcoran Gallery; Henry Fogel from the National Symphony Orchestra; Maurice Eldridge, the principal of the Ellington School of the Arts; Jewell Shepperd, director of Workshops for Careers in the Arts; Tommy Abney from the Lansburgh's Tenants Council; Iris Lewis of the Immaculate Conception Dance Company; Jaye Stewart and Lyn Dyson of the Rep Inc.; and Margaret Hoven of the Life Skills Center.