Alexandria and the U.S. Department of Housing and Urban Developement are involved in a long and increasingly bitter dispute centering on whether the federal agency has the right to prevent the city from tearing down 74 deteriorating public housing units.

Although the number of units involved in the dispute is small and those diplayed by the demolition would be relocated in public housing elsewhere in the city, the controversy raises the issue whether localities can or should demolish public housing at a time when there is a shortage of subsidized units.

James Clay, the director of HUD's Washington area office, said the department is currently reviewing its policies towards the demolition of public housing units and added that a final decision on the Alexandria controversy will not be made until that study is completed. The city has appealed Clay's order that the units must be renovated and not torn down.

HUD's decision on the Alexandria project is in contrast to the agency's view on the Sky Tower public housing project in far southeast Washington. In that case, HUD decided to demolish the buildings because it said federal money would be better spent in relocating the families in other projects than in subsidizing the project at a cost of $200,000 a year.

The department also argued that demolistion of the project would reduce the concentration of low-income families in southeast and increase its attractiveness to private developers. HUD argued that there were enough vacant departments available for people living in Sky Tower.

Alexandria officials say that on a proportional basis the city has more publicly assisted housing than any other Washington area jurisdiction. In a June letter to HUD Secretary City Manager Douglas Harman quoted from the 1974 report of the North Virginia Planning District [WORD ILLEGIBLE] which said. "Alexandria have ways led the way in the suburban metropolitan Washington area in dividing housing for low-and moderate income families."

According to Alexandria's 1977 annual report, the city now has [WORD ILLEGIBLE] publicly subsidized housing units, with an additonal 51 units sheduled to completed next year.

The long disputen between HUD an Alexandria revolves around what the city says is a legally binding agreement between itself and its independent Alexandria Development and Housing Authority. In that agreement signed in June, 1974, the City Coucil agreed to permit the housing authority to build a 170-unit, high-rise public housing project for elderly residents if the 74 public housing units in the Cameron Valley area of the city were torn down.

Wiley Mitchell, who was on the Alexandria City Council at the time the agreement between the city and the housing authority was drawn up, said the Council would not have considered building the high-rise if it had known there would be a problem with the demolition of the Cameron Valley units.

"The agreement to demolish the 74 units was the quid pro quo of Council approval" of the high-rise, Mitchell said.

Clay, the HUD official, said that his department has the power to prevent the demolition of the units because it gives the city an annual grant to maintain the project.

Clay said that his office made a "technical judgement" based on the department's belief that the buildings could be rehabilitated and that it would be cheapeer to do so than to build new structures. He said the fact that the city never intended to replace most of those units did not enter into the department's ruling.

The matter is now in the HUD hierarchy. In addition, Alexandria Mayor Frank E. Mann is attempting to arrange a meeting between Alexandria officals and Harris in an attempt to break the deadlock.

In June, 1975, Harold Staller, then the director of the HUD Washington area office, said in a letter to the Alexandria Housing Authority that he foresaw no problem with the planned demolition. But in December, 1976, Clay, the new HUD area director, wrote to Harland K. Heumann, then executive director of the city's housing authority, that the demolition request had been denied and telling the authority to "develop a plan to rehabilitate these units."

Heumann, in what some Alexandria officials now say was a serious mistake, did not reveal the contends of the letter and it did not come to light until June of this year. Since then the city has been trying to persuade HUD to reverse itself.

Clay said that the language in the first HUD letter to the city only implies that the department would favorably consider the request to demolish the buidlings. "No prior commitmet was given," he said.

Alexandria City Manager Harman said that if HUD refuses to allow the demolition "it would be my recommedation to the City Council that we should challenge their legal authority in this matter."

Harman argued that the structures the city wants to demolish, which were built during World War II as "temporary" housing for workers emplyed in the war effort, have severe structural problems and frequently flood when it rains. The city manager said the estimated 200 people who live in the cinder block structures would be shifted to other public housing units that would become available once the high-rise building for the elderly is completed.

The high-rise, a $5-million project that will house about 200 residents, is scheduled for completion by next October.