National Endowment for the Arts Chairman John Frohnmayer testified in a deposition yesterday the endowment might appoint local panels to determine whether a federally funded artwork violates community standards and may be obscene.

Frohnmayer, who has made only one public appearance in recent weeks, offered his testimony under court order in connection with a suit by the New School for Social Research. The school is challenging the constitutionality of a requirement that all NEA grant recipients pledge to abide by a congressionally imposed obscenity ban. The suit alleges that the pledge is unconstitutionally vague and violates the rights of free speech and due process.

Frohnmayer said the endowment has not settled on the local panel approach and has not developed procedures for creating such panels. The concept is "our best thinking on that point at this date," he said.

He also testified that he has never rejected a grant simply because it might be considered obscene or controversial. The NEA chairman, who recently rejected four potentially controversial NEA grant applications, said he could not identify any one reason that motivated him to reject a proposed project.

Those decisions are based on "many factors," including whether a project would enhance public understanding and appreciation of the arts, he said. Asked whether he is entitled to consider "political realities" in evaluating grant applications, Frohnmayer said, "I don't think it is a criteria in funding decisions."

Frohnmayer also said the endowment might release funds to successful applicants who delete a controversial anti-obscenity pledge from NEA materials as long as they also indicate that they are prepared to obey the law. "I would have to take that on a case-by-case basis ... but what we are looking for here is an acknowledgment of the law and willingness to abide by the law," he said. The pledge has set off a wave of protest, with several major arts organizations turning down NEA funding so long as the requirement remains in effect.

The legislation, attached to the endowment's fiscal 1990 appropriation, forbids the endowment to fund work that might be deemed obscene, including "depictions of sadomasochism, homoeroticism, the sexual exploitation of children or individuals engaged in sex acts."

Under questioning by noted First Amendment lawyer Floyd Abrams, Frohnmayer said he originally thought the ban might create confusion about what could be deemed obscene. But he said the endowment solved that problem by issuing guidelines in July stating that it would use standards set forth by the Supreme Court.

The Supreme Court in Miller v. California held that determinations of obscenity must be made applying "contemporary community standards." The court held that works may be considered obscene if they depict sex in a patently offensive way, appeal to the prurient interest and lack serious literary, artistic, political or scientific value.

Asked whether the endowment considers itself free to change the guidelines at will, Frohnmayer said he would have to consult with counsel on that question. He conceded that the endowment has not yet developed any procedures for determining what violates contemporary community standards and has not yet issued guidelines explaining the ban's application to certain categories of grants.

"This is a small agency with a limited staff, these are extraordinary times," Frohnmayer said. "So we're doing the best we can to get this guidance out."

Frohnmayer said he first dealt with the obscenity question last November at a meeting of the endowment's advisory council when some literary grants were under review. But the council concluded that the projects in question were of "substantial artistic quality" and the inquiry went no further.

Abrams asked whether Frohnmayer had ever denied a grant simply because a project might be considered controversial or troublesome. "The answer is no," Frohnmayer said. But he added, "One of the criteria that we use is, does this specific work promote understanding and better appreciation of the arts?"

Abrams asked whether Frohnmayer had ever rejected a grant because it did not promote better understanding of the arts. "Whatever grants have been denied have been denied on the basis of many factors and I cannot identify a single one in any case," Frohnmayer testified.

Abrams tried to establish that the obscenity ban is vague. In a protracted series of questions, he asked Frohnmayer to define key words used in the legislation, starting with "homoerotic."

But Frohnmayer balked. "Do you mean generally or within the context of obscenity?" he said. Abrams asked for a general definition. "The word has meaning only in context of {the Supreme Court's Miller ruling}," Frohnmayer replied. "... If you take the word apart, 'homo' means male and 'erotic' means erotic love."

Abrams pressed for a fuller explanation. "Understand that I did not write that word, Congress did," Frohnmayer replied. The way to interpret the word "would be to look at the legislative history," he said. Abrams asked Frohnmayer to define the term "sadomasochism," and to explain what type of sexual conduct should not be depicted by grant recipients. But Frohnmayer offered no specific answers.

"If a project has significant artistic quality and meets the other criteria which are significant in deciding how the ... taxpayers' money is used, {the obscenity ban} would have no further application," he said.

Abrams asked whether Frohnmayer thinks the endowment has the authority to prohibit funding obscene work even without an anti-obscenity pledge. "Yes, I would certainly hope so," Frohnmayer replied.

Frohnmayer conceded that he had testified previously before a congressional subcommittee that the obscenity ban had a chilling effect on NEA grant applicants. "I was having trouble at that time really getting a handle on whether there had been or not," Frohnmayer said. "... I can't remember at that time whether I had specific knowledge of a specific effect on a specific grantee."

Abrams asked whether the ban had an effect on the art community in general. "Certainly the presence of this law had elevated the visibility of obscenity and that had to have some effect. Whether it is a chilling effect or not I don't know," Frohnmayer answered.

After the deposition, Abrams said Frohnmayer's testimony had established that "the NEA is requiring all applicants for grants to certify with a statute which is hopelessly and irredeemably vague" and unconstitutional.

A hearing in the case is set for Aug. 13.

In a separate development, the endowment yesterday agreed to open a meeting of its national advisory council set for the weekend. The Los Angeles Times, New York Times, Washington Post and Philadelphia Inquirer had sought a court order preventing the endowment from closing parts of the meeting. The NEA agreed to make virtually all of the meeting public. The council is expected to discuss several potentially sensitive questions, including Frohnmayer's decision to reject the performance-art grant applications.