POLITICALLY SPEAKING, the mere word "cities" has become a code word. "Cities" means: the poor, the racial minorities, the liberal Democrats, the ethnics and the exotics and the broken down and the busted (both people and plant) and a whole lot of other things that those who don't live in cities don't want to help. Conversely, the term has become almost sacramental for champions of the needy and oppressed. To be for or against more federal aid for the cities is, for them, an up or down test of moral worth. It is against this background that the debate over President Carter's effort to get Congress to add $500 million for revenue sharing to cities in the FY81 budget will be played out. The background, it must be said, does nothing to clarify what is already a confusing debate.

The confusion is this: the cities, states and federal government have developed over the last three decades a very snarled (and often snarly) set of relationships. Some services, such as police, fire and sanitation work, have traditionally been the obligation of the localities. Others, like education have been largely mixed local and state affairs. The federal government has become involved over the years in varying ways because there was seen to be a national interest in how the states and localities were conducting some of this business. Maybe it was a worry that local police departments couldn't deal with riots and increasing crime in general or that poor black children were being shorted on education or that unemployment was too high. In statutes meant to deal with these concerns, federal funds rarely go straight to the afftected people. Instead, in the vast majority of social programs, the feds give the money to the states or localities, which in turn run the programs at least partly from these funds.

In this fashion an uncomfortable, but economically important connection has developed between the cities and the federal government. And, as adolescent children all over the world have discovered before them, the cities have found that the money is fine but the rules for spending it are burdensome and demeaning.

It was for this reason that the New Federalism of the Nixon administration was so much more to cities' liking: the federal government began sending money to states and localities with no strings attached (general revenue sharing) or with general instructions about the area in which it should be spent (block grants).

These direct federal subsidies of what the cities would do anyway are passed out uniformly, with little regard for the seriousness of the social or economic problems in that community. So a little goes to everyone, and each can use it any way (almost) it pleases. States have passed some of that revenue-sharing money on to the cities, and this is the money that now is in danger of being eliminated from the current budget -- and which the president and some Democrats are trying to compensate for. Their intention is to ease the effect of the cuts on cities' operating budgets by spreading out half a billion dollars among them for the next two years.

The trouble is that the revenue-sharing mechanism is terribly inefficient in getting funds directly to people in need. It was never designed to do that, and this $500 million proposal is no exception. Expecially when you consider that, spread evenly to the cities -- some of which are in much more acute need than others -- the money is hardly enough to make a difference. In skimping times like these, the very poor should be the center of federal concern. Money is too scarce to be spread around in the hope that some of it will find its way to people who really need it.