Staying carefully within the boundaries of their mandate from Congress, the members of the Independent Commission on the National Endowment for the Arts have produced a judicious, diplomatic report that is bound to accomplish just what the commission's sponsors hoped: lower the temperature on Capitol Hill and thus end for a time the tempest in the NEA's teapot. What the report does not do, though, is what is still needed: address head-on the question of federal involvement in the arts and thus the question of the NEA's very existence.

It is in the nature of reports by government commissions to be conciliatory rather than confrontational -- "Come, let us reason together" is invariably their abiding philosophy -- and last week's was no exception. The NEA controversy has been stirred by fools, mountebanks and opportunists on both sides, but the members of the commission chose not to chide any of them in even the gentlest manner, leaving it to the reader with an eye for what lies between the lines to sense its impatience with various participants in the fray.

Chief among these no doubt are many of the people who have served, if "served" is the word for it, on the "peer review" panels by which the recipients of NEA grants are chosen. The commission notes at the outset that one of its two mandates from Congress was "to review the National Endowment for the Arts grant-making procedures, including those of its panel system"; it has accepted that responsibility with what might almost be called, were this not a government commission, glee.

That the members of the commission -- four appointed by the president, eight by Congress and not a loose cannon in the lot -- regard the NEA's grantmaking procedures as unacceptable is self-evident, if politely expressed. Their recommendations, which boil down to taking final grantmaking power away from the panels and placing it in the hands of the NEA's chairman, "are based on a judgment that the endowment is not, in setting policy and making grants, adequately meeting its public responsibilities at the present time."

Those responsibilities, as the commission sees them, are simply stated: "The National Endowment for the Arts is a public agency established to serve purposes the public expresses through its elected representatives." Urging that the preamble to the 1965 legislation authorizing the NEA be rewritten to make this clearer, the commission says:

"Lost in the current debate on the {NEA} is the recognition that the arts belong to all the American people and not only to those who benefit directly from the agency. The commission believes the preamble to the authorizing legislation should make this proposition clear. The preamble should also affirm that the endowment depends upon the expenditure of public funds and that it must take into account the nature of public stewardship."

The underlying problem at the NEA in recent years -- the problem Jesse Helms and others have turned into political capital -- is its indifference to the people whose tax money enables it to exist. Writing more pungently if less politely in the current issue of the New York Observer, the editor and art critic Hilton Kramer points out that "it is because of the extent to which the NEA had allowed itself to become the captive of its beneficiaries that its public support eroded so rapidly once the scandal and controversy became headline news"; by the time Andres Serrano and Karen Finley came along to focus attention on the NEA, it had become an instrument for back-scratching and palm-greasing within the artistic community rather than an agency for the impartial administration of public arts appropriations.

"It was a corrupt way to make decisions about the best way to spend the agency's money," Kramer writes of the peer review system, "and it had degenerated into a sort of political club in which certain insiders knew well in advance where the money would be going." That's strong language, but it's all too appropriate to the buddy system the NEA had turned into -- a system willfully contemptuous of the public interest and the public voice, a system dedicated to the subsidy of in-group art at the expense of the taxpayers whose money it was so freely spending.

So the commission's recommendations for reforms in the grantmaking process are more than welcome, as is the approval last week by the Senate Committee on Labor and Human Resources -- by an instructive 15-to-1 margin -- of a bill in which those recommendations are largely adopted. If that vote is any indication, Congress, or at any rate the Senate, is ready to bring the NEA to heel on grantmaking without at the same time eviscerating its authority to support legitimate programs for the advancement of the arts.

The Senate committee also followed the counsel of the commission on the other part of its mandate, "to consider whether the standard for publicly funded art should be different from the standard for privately funded art." The answer to that question, the commission found, is simple: Yes, because "to support art from public funds entails considerations that go beyond artistic excellence. Publicly funded art must take into account the conditions that traditionally govern the use of public money," which is to say that the will of the people, to such extent as it can be determined, must be respected.

That the will of the people is opposed to federal subsidy for what most regard as obscenity is a given; in the privacy of their own houses and with the expenditure of their own money many Americans may read or watch material that would be offensive on public display, but so far as they are concerned what the government does with its money is another matter altogether. That is why, in response to popular sentiment, obscenity has long been illegal; in turn, the existence of anti-obscenity legislation and legal judgments is, in the commission's opinion, protection enough against obscene art and reason enough for Congress not to encumber the NEA with anti-obscenity restrictions that surely would lead to "debilitating administrative and legal difficulties."

The Senate committee agreed; its bill imposes no limits on what art the NEA can support, though it does require -- hardly unreasonably -- that any artist supported by the NEA who is subsequently found guilty of obscenity be required to repay his grant money. The Senate bill also would reauthorize the NEA for only one year; if the House agrees, and that is far from certain, then next year we will be back at the same old stand, quarreling over the NEA specifically and public support for the arts generally.

Should that come to pass, Congress would be well advised to establish another commission and give it another mandate: to consider the desirability of public subsidy for the arts in a pluralistic, heterogeneous society. Is it indeed true, as this year's commission claims, that "the arts belong to all the American people," or do they belong only to those who produce and support them as private individuals? Is artistic expression a legitimate concern of government? Is art really public property? Do we really want the heavy hand of government to be felt in the high councils of art?

These are not frivolous questions, nor are they raised by a reflexive opponent of the NEA. I readily acknowledge that the commission's affirmation of "the value of the National Endowment for the Arts" is based in fact, not fancy. But it remains that after a quarter-century of the NEA, we have come to recognize its intrinsic shortcomings as well as its strengths; it is time to talk about them, now that the essentially peripheral questions of peer review and obscenity have been so intelligently addressed.