FINANCIAL CRISIS has dimmed the prospects for the Lansburgh's Cultural Center, heralded at its start as one of the most innovative arts projects in the country. The foundation that has run the 7th Street center since it opened almost two years ago turned the management over to the artist-tenants. Last week it drew up papers to dissolve.

The foundation leaves behind a $178,000 debt, which it has promised to pay off, and an empty bank account for the tenants now in charge. In a press release, the foundation said the lack of a long-term commitment from the Pennsylvania Avenue Development Corp., owners of the building, had made fund-raising virtually impossible.

At Lansburgh's, the project that offered artists large amounts of affordable space, renovations have not been completed, planned theaters are nowhere near being built, and a National Endowment for the Arts challenge grant--which requires a three-to-one match with private funds--has been matched only once so far. Still, the foundation that ran the center spent over $800,000.

What went awry? The foundation's executive director, Philip Ogilvie, blames PADC; the PADC chairman, Max Berry, blames Ogilvie; the artists in the building aren't sure and the D.C. government faces the decision of whether to bail out the project by paying the debt.

"Everybody is at fault for where we are today," said Mildred Bautista, executive director of the D.C. Commission on the Arts and a member of the center's board.

The idea was to provide space to District arts groups plagued by escalating rents and a dearth of studio, gallery, rehearsal and performing space. Under the plan, PADC would rent the Lansburgh's building to the city for $10 per square foot and the District would sublease some of that space to the D.C. Foundation for Creative Space for the cut-rate price of $1.50 per square foot. The foundation, in turn, would sublease it to arts groups at the same price.

Philip Ogilvie, a staffer in Mayor Marion Barry's 1978 campaign, was drafted as executive director of the foundation, which was to manage the space and act as landlord to the arts groups.

Initially, 26 arts organizations--dance groups, visual arts groups, workshops, galleries--were to occupy 100,000 square feet of space in the basement and on the first and sixth floors. On the several remaining floors, the District government was to set up offices.

Currently, about 20 groups occupy Lansburgh's, with leases running through October 1985. After that, the arts groups face the possibility of losing their spaces. Despite the undecided long-term future of the building, the arts groups were willing to move in. "This is more stability than most of these groups had ever had," said Bautista.

The plan called for renovating the floors and building several theaters: a 200-seat theater, a 100-seat experimental theater, a 100-seat film theater for multimedia use and an informal performance space. The projected cost, according to studies by architects: $2.2 million for the whole package. "PADC asked if we thought we could raise it," said Ogilvie. "We said yes."

What they raised, based on financial records provided by Ogilvie, was $374,819. The bulk of it came in during fiscal 1981. In addition there was the NEA grant of $250,000, which required a match of $750,000 in private funds. Additional funds that the foundation used came from rental income (over $27,000), interest and raffles.

At the beginning, fund-raising looked promising. "We had foundations talking about $100,000 grants with us," said Ogilvie. "Most recently, IBM."

The reason those prospects faded is hotly disputed. According to Ogilvie and others on the foundation board, the cause was the new PADC Eastern Sector proposal announced last November. Under the plan--which has yet to be voted on by the PADC board--the Eighth Street portion of the Lansburgh's building will remain, while the Seventh Street part will be torn down. Fifty thousand square feet--as opposed to the current 100,000 square feet--will remain for arts usage, but not necessarily the same space the groups occupy now.

"When the PADC tentative plan came out," said Ogilvie, "funding was turned off like turning off a tap." He said the grant from IBM, which the foundation hoped would be $100,000, turned out to be only $5,000.

Said foundation board member Stephen Harlan, a local businessman: "You're trying to get somebody to put up a bunch of money when there's a question about the future of the project--they just don't do it.

"Two years ago, there was a big push to raise money," said Harlan. "Prominent people gave receptions . . . People would say, 'I'll take a flier on it the first year,' and then when the future was still uncertain the second year, the money didn't come through."

But PADC board chairman Max Berry denies that PADC is to blame. "I'd like to see all these people who said 'we were asked and we're not going to give because of the plan,'" said Berry. "Phil hasn't produced anything."

Berry said the new plan changes little for the artists. "The plan merely reiterated the lease," said Berry. As for the cut in space, Berry said that the cultural center is only using about 50,000 square feet now.

Berry said the fault lies in the foundation's fund-raising: "It was a disorganized, slipshod effort."

Ogilvie, Berry claimed, "ran this thing out of his back pocket, and then it got into trouble and he looked for other things to blame."

Asked about Ogilvie's management of Lansburgh's, Berry said, "Maybe it was just too much for one person."

The National Endowment for the Arts has not yet decided how to respond to the foundation's inability to match its challenge grant. "We've never had a situation quite like this before," said Robert Wilson, assistant director of the challenge grant program. "It's not even feasible" to ask Lansburgh's to give the money back, he said. "If they have a new group interested in taking on fund-raising, that would be fine. We haven't brought this to the chairman's attention, but we will. It's really a shame. This was a model . . . No one wins in this."

Another subject of controversy was the allocation of the funds that were available.

Ogilvie "put money into architectural studies as if the space were going to be around for a while," said Vernard Gray, owner of the Miya Gallery in Lansburgh's and president of the new tenant-run Lansburgh's. "The approach was a grandiose one . . . First, when he needed heavy bucks, he ran into problems . . . Instead of changing plans and saying, 'Let's look at this as an interim project,' he stayed with his grand scheme."

Said Ogilvie: "It was no more grandiose than the groups asked for. In fact, we cut back some. Of course, they asked for the moon. I remember some were upset because they wanted a turning stage.

"Everything we asked the architects to do came from the tenants at the meetings. They asked for it."

Cherry Adler of Library Theater concurred. "We were approached and asked what Lansburgh's should have to serve our needs . . . The plans I saw did have plans for theaters and plans for making the building look good. What was so grandiose?"

According to Ogilvie and the foundation's records, among the expenses were:

* $100,000 in rent,

* $160,000 in salaries for Ogilvie (who earned between $35,000 and $40,000 a year), a secretary the first year, and then in the second year: a development staffer, publicist, three clerical staffers, a part-time visual arts coordinator. Another $33,000 was spent for fees to lawyers, accountants and consultants.

* About $500,000 in building renovations, including construction, plumbing, heating and air-conditioning and studies such as: architectural plans by Anderson, Notter, Finegold (for $72,776.74), mechanical plans by Glassman, LeReche and Associates ($25,000), and structural engineering studies to measure any damage to the building as a result of Metro construction (about $1500)..

The building, said Ogilvie, "was worse than a shell. There were walls that had to be torn down: dressing room walls, curtain walls across windows. It was a department store. We had to tear down all the things that were appropriate for a department store but inappropriate for a cultural center."

Some of the work was necessary for occupancy: "You can't get an occupancy permit unless you have a building permit and you can't get a building permit unless you have plans. There just isn't any other way to do it."

Could it have been done more cheaply?

"From an artist's perspective, this is crazy," said choreographer and dancer Liz Lerman, artistic director of the Dance Exchange. "We the tenants would have done it differently . . . We probably wouldn't have gone after the permits and the studies which, in Phil Ogilvie's position, he had to do. I respect that."

Artists, pinched by lack of funds, often make much out of little funds and materials. Down Seventh Street from Lansburgh's, is one example, the Washington Project for the Arts. WPA has a fraction of the space (15,000 square feet) that Lansburgh's has. Al Nodal, the director of WPA, put together a theater, gallery space and offices for what he estimates was $50,000, including $20,000 worth of in-kind services. His group did electrical work, designing and procuring of permits. "We cleaned the building, figured where the walls should go, drew plans and took it from there," he said.

At Lansburgh's, some of the arts groups weren't concerned about how much money was being spent. "I couldn't have cared less what the architects were being paid," said Adler. "Well, everyone felt the foundation was taking care of it."

However, it quickly became evident that things weren't getting done smoothly. "The first-year pamphlet put out by the foundation said that construction on the sixth floor was virtually complete," said Lerman. "We wanted to send down a bowl with an egg, some flour and a teaspoon of vanilla and say, 'Here's a virtually complete cake.' "

Said Vernard Gray, "If you have 10 performing arts groups with 10 different needs, yes, you would have catwalks and all that. But you have to look at it more realistically . . . How do you get something up and running as fast as possible? . . . If the mind-set had been that originally, maybe the performance spaces might have been done more quickly."

Lansburgh's today is a massive space, white-walled and high-ceilinged. The sixth floor is airy with large expanses of windows that look out over the District. But the floors need work. Wires hang down from the ceilings.

The tenants, now in charge of the place, will be taking a scaled-down approach to fixing it up. "Artists are so used to poverty and so creative in it," said Lerman. "We get by on so little."

"It won't be a first-rate facility," said Ogilvie. "But there will be a facility to serve the public."

If the project does survive after 1985, the new lease will probably have a new price tag for the arts groups. "Fifteen dollars per square foot is what it will be in 1987 when most office space goes for $50 per square foot," Max Berry predicts.

The D.C. government may become involved in the problems left by the foundation. "The District government is making every effort to be cooperative," said Bautista. "That includes the debt."

Tenants, who are optimistic about the project, say they can continue fund-raising. "The people now running it have a vested interest in it," said Harlan. "If anything happens there, it will be because they caused it to happen, as opposed to a bunch of people who don't live there every day."