LOS ANGELES, FEB. 3 -- "Decency and respect": Do those two small words simply invest a bureaucrat with a reasonable amount of discretionary power, or do they open a Pandora's box of government control over freedom of expression?

That was the issue in the final phase of Finley et al. v. National Endowment for the Arts, as judges heard oral arguments today concerning the constitutionality of the "decency and respect" standard for federal arts funding. The case began in 1990 when four performance artists challenged the agency's grant allocation process, but later broadened to become a flash point for debate over free expression.

The current phase is a Justice Department appeal of a 1992 federal court decision; in that ruling, the judge struck down a 1990 statute requiring that NEA grants comply with "general standards of decency and respect for all the diverse beliefs and values of the American public." The judge found the language excessively vague.

Karen Finley, Holly Hughes, Tim Miller and John Fleck -- performance artists whose sexually explicit material had caused controversy -- sued the NEA in 1990, claiming they had been illegally denied grants for political reasons. Later, as several artists organizations and the American Civil Liberties Union signed on as additional plaintiffs, the suit was broadened to include a constitutional challenge to the decency clause.

Although the artists and the NEA settled out of court last June for $252,000, the Justice Department filed an appeal to have the decency language reinstated to the grant authorization process. The clause was instituted by Congress in 1990.

In today's hour-long, sparsely attended appeals session, held at the 9th Circuit Court of Appeals in Pasadena, attorneys for the Justice Department argued that in the context of the clause, the application of "decency and respect" is tangential to the grant authorization process, and therefore represents no effort to control speech.

"The fact that the statute is vague is irrelevant," argued Justice Department attorney Alfred R. Mollin. "It is not self-executing. ... Concerns of decency will be taken care of as long as there is diversity on the panel."

"If the evil is in inappropriate government intervention," countered Judge Warren Ferguson, one of three judges hearing the appeal, "then it seems to me we're simply giving that power to a larger group of people."

Although the appeal originally was filed under the Bush administration, the Justice Department under the Clinton administration moved to continue the appeal. This startled numerous arts activists who perceived it as contradictory to the president's campaign pledges. "I can't for the life of me understand why the Clinton administration is pursuing this appeal," John Frohnmayer, former NEA chief, said today.

David Cole, volunteer attorney for the Center for Constitutional Rights, which originally challenged the decency statute, argued that the vague wording opened the door to excessive government control of speech.

"This is not an abstract case," Cole said. "When artists apply for funding, knowing they are subjected to these vague standards, they are chilled in their freedom of expression. The ultimate effect is for artists to back away from anything controversial."

"To allow government to use words like 'decency' as a basis for allocating money for speech is very dangerous," Cole said in an interview. "It could allow the government to control the content of books in libraries, and the content of public TV shows. ... The current chair may not use it that way, but the next one might."

A decision on the appeal is not expected for several months.