Nearly $1 million earmarked to renovate small businesses along riot-damaged H Street NE has been virtually untouched because of problems in organizing the community group that will distribute the money.

The three-year-old fund, which is supposed to be spent to improve the appearance of H Street, has sat unused as the city government has tried repeatedly and unsuccessfully to spur redevelopment of the once-popular shopping corridor that was badly damaged during the 1968 riots.

"I've heard so much about what they were going to do to help the merchants who have been hanging on here for years," said Walter Ross, who has owned a reupholstering shop on H Street since 1961. "I don't know. I'm just waiting."

Half of the money has come from the Hechinger Company in the form of repayments on a $13.3 million federal Urban Development Action Grant loan that the company received to build the 40-store Hechinger Mall, located a block east of the H Street shopping area. The company pays $156,000 a year.

Those payments, which now total nearly $500,000, have been matched by the Local Initiatives Support Corp. (LISC), the local arm of a nonprofit group based in New York, which agreed to match the funds with an additional $156,000 per year for three years and assist the community organization chosen to receive the funds.

LISC was organized four years ago to help about 100 community groups around the country to revitalize urban neighborhoods by learning to work with developers, bankers and city officials to bring housing, shopping centers and other projects to their neighborhoods.

The H Street Community Development Corp., which is to administer the loan fund, was organized nearly a year ago but has been beset with internal problems.

So far $107,000 of the $1 million has been spent, with $73,000 going to pay the salaries and operation of the small CDC office.

Of the remaining amount, $21,000 went to the Children's Museum at Third and H streets and $8,000 to the Northeast Group Ministry for a marketing survey to determine the kind of new stores the neighborhood wanted on H Street.

In the meantime, Joanne Jackson, the first executive director of the CDC, resigned in December, charging that the CDC's board frustrated her efforts to use the money to benefit the business owners.

"I can't get a feel for how they want to spend the money," Jackson said. "You have a whole lot of people sitting on a whole lot of money."

William Barrow, a consultant in economic development and lawyer, has been appointed CDC acting executive director.

Dr. Arthur Williams, a dentist with an office on H Street, who is president of the Community Business Advancement Corp., an organization of H Street store operators, and chairman of the 20-member CDC board, would not comment on the problems.

Board members and city officials said the delay has been necessaary to make sure the money is spent properly.

They pointed to the H Street Businesses Community Association, which received $223,958 in federal funds from the city to renovate facades of businesses along H Street.

The city took the now-defunct local organization to court a year ago seeking repayment of the funds, which officials say were improperly used. In its brief, the city said the business association and its three principal offices had failed to account for $65,966 of the funds.

"It's a very time-consuming, taxing process to try to put an organization together," said Daniel Russell, director of development and property management for Hechinger's and vice chairman of the CDC board.

"A lot of different things have been tried on H Street, and all have failed," he said. "It took two years to put our organization together, while it took 15 years to do nothing."

Mayer, of LISC, agreed. "To expect a group like the H Street CDC to hit the ground running is unrealistic," Mayer said. "It was formed with city councilmen, citizens associations and merchants saying, 'We've never worked together but we're willing to try it.' . . . Whatever comes out of the CDC is positive."

While the loan fund languishes the CDC is trying to become a developer. The group has asked the city for the rights to build a supermarket and several smaller stores on the block located between Sixth and Seventh streets.

The city is considering the proposal for the block, which is the largest city-owned parcel on H Street.

In the past year H Street has had both good and bad news.

The Safeway store at Sixth and H closed last summer, but but the long-awaited High's store opened in September and the Standard Drug store moved into a larger space.

A small office building is under construction on the Southeast corner of Fifth and H streets, and a group of developers is negotiating with the city to build a cluster of small shops that could include a drugstore, restaurant and auto parts store on the block between Eighth and 10th Streets.

Princess Shops, a Baltimore-based apparel shore, has asked for and received tentative approval from the city to build its first Washington store near the busy crossroads of Eighth and H.

The city also recently ripped up the concrete sidewalks in the 800 block and replaced them with red bricks. All the sidewalks in the 12-block-long shopping strip are scheduled to be replaced as part of the face lifting.