THE CITIES now have a very great stake in the way that Congress chooses to cut the budget. One central choice lies between the community development block grants and the newer urban development action grants (UDAG). Because the action grants are more closely focused on the cities that need them, our own preference lies there. But another side of the case is offered in a letter we publish today from former secretary of housing and urban development Carla A. Hills, and readers can weigh the two views for themselves.

Several brief points: When we spoke of 300,000 permanent jobs created by UDAG and $11.5 billion in private investment, those were not simply "hypnotizing numbers" from "a UDAG project proposal," as Mrs. Hills supposes, but rather the figures reported by HUD as representing private funds and permanent jobs in projects already completed or under construction or, in a few cases, firmly committed in projects about to begin. The job figure did not include over 230,000 temporary construction jobs created during the projects' development nor an estimated 116,000 jobs retained in cities as the result of the projects. And even in the case where the projects are not yet completed, there is an important difference between UDAG proposals and the normal wishful thinking included in grant proposals. UDAG projects are commercial enterprises to which private investors are, on average, committing over $6 for each dollar the federal government provides. The financial and job creation estimates in the proposals are based on the same detailed analysis required to persuade the private investor to undertake his much larger risk. And the proposals are binding legal commitments on both the local government and the private investor. If the jobs don't materialize, HUD won't pay.

Mrs. Hills claims that community development block grants, which she prefers, provide about 300,000 jobs per year. This may be true. But the block grant program spends over six times as much as UDAG annually.

Incidentally, contrary to Mrs. Hills' assertion, we did not say that thousands of cities and counties were as affluent as Montgomery County. We said that, like Montgomery, thousands of communities with little poverty had been able to qualify for block grants. They have.

It's quite true that action grants have financed hotels. But unlike block grants, those action grants must be matched by private investment. Hotels provide a lot of employment for semi-skilled people. If it can be said that two-thirds of the community development block grant money has gone to neighborhoods in the low- to moderate-income range, it can also be said that evidently fully one-third went to neighborhoods that were able to show little need for it. That's our objection to the block grants. Certainly Lubbock and Little Rock understand their local needs better than Washington does. Local tax revenues serve local needs. Federal money ought, ideally, to serve national needs -- one of which, surely, is the encouragement of private investment in cities with high unemployment.