The Department of Housing and Urban Development (HUD) is withholding more than $600,000 in community development block grants to Rockville because, according to HUD, the city has failed to use enough of the funds for projects that benefit minorities in the city.

In a letter to Mayor William Hanna, HUD area director Terry C. Chisholm noted that the city plans to use only 11 percent of the $1,021,000 in block grants for projects in the city's Lincoln Park area, where a large black community lives.

HUD, however, has released $580,000 of the total allocation so that some on-going activities funded through block grants may continue and so that costs for administering the city block grant program will be covered.

By withholding the rest of the funds, HUD has effectively held up work on public improvement projects, including the planned upgrading of Stonestreet Avenue and the Lincoln Park drainage system, as well as the construction of some recreation facilities, according to Sara Underwood, director of HUD's community block grant program.

Underwood said HUD will continue to withhold the block grant money until Rockville prepares a revised plan for allocating more of the funds to Lincoln Park.

Community block grant monies go toward housing or home rehabilitation grants and loans to low and moderate-income families. These funds are also used for improvements on parks, storm drains, underground pipes and recreational facilities.

Rockville City Manager Larry Blick said the city has prepared a written response to HUD that shows the city has not neglected its Lincoln Park community. The letter states that the city has used most of its community block grants to provide housing for low and moderate-income families, many of whom qualify as minority families.

In addition, the letter says, the city has spent several thousand dollars of its own funds to upgrade the Lincoln Park community, which has Rockville's only major, city-built recreation center.Blick noted that the community block grants earmarked for the improvement of Stonestreet Avenue will also benefit Lincoln Park residents, since that is one of the main streets in the Lincoln Park community.

HUD, however, maintains that the Stonestreet improvement will benefit mainly the businesses that front on that avenue, and not Lincoln Park residents.

Underwood also noted that Rockville has held up construction of a Lincoln Park gymnasium for which $110,000 in community block grant funds were allocated last year.

Blick said that since receiving those funds, the city has determined that the gymnasium will cost close to $163.000 because the Lincoln Park residents requested that the building have air-conditioning and a special floor.

He said that rather than seek additional community block grant money for the gymnasium, which would take funds away from projects planned for other neighborhoods, the city decided to hold up the project until it can obtain financial assistance from the state.