A BASKETBALL brouhaha has caused the federal government to cut off all education funding to a county in Mississippi. What started as a typical Little League-type dispute between parents and coaches took on racial overtones, embroiled federal investigators and fact-finders for four years and is so confusing that it's hard to follow the litigation without a scorecard.

Here's what happened: the schools in Perry County, Miss., have an enrollment that is half black and half white. The schools are integrated and so are the teams. Of two high school basketball coaches, one was black and the other white. The problem arose because the best players on the basketball team were the black students. The white kids warmed the benches while the team piled up one victory after another. Suspecting favoritism by the black coach, the school board told him to let more of the white boys play--especially when the team was comfortably ahead. After a couple of years of declining basketball scores, reassignment of coaches, student protests and administrative hearings, both coaches were out of jobs on the grounds of insubordination.

At this point, the fall of 1980, the federal government entered the case, charging that the school board's action--requiring that the white players be put in more often--was, in fact, discriminating against both coaches and the black players. This, an administrative law judge found, is just the kind of behavior Congress had in mind when it enacted the civil rights laws and provided the drastic remedy of federal fund cutoff. No more money, said the judge, ordering the cutoff of hundreds of thousands of dollars, most of which would have gone to improve programs for black children.

After sitting on this order for a year, Clarence Thomas, the Department of Education's civil rights director, who is under some pressure from civil rights groups to discharge his duties more vigorously, notified appropriate congressional committees that the judge's ruling will be put into effect early next month. It should be noted that the proceedings in this case were initiated by Carter administration officials and that Mr. Thomas was simply executing a function as the law requires.

All this reminds us of a recent Cleveland case in which a court-appointed desegregation administrator decided that school basketball teams had to be at least 20 percent white while baseball teams had to be at least 50 percent black. We applauded the judge who declared the official out of bounds on that proposal. Someone with similar common sense should step into this hassle before the children of Perry County lose benefits that they need badly.

A group of moderate Republicans in the House has introduced legislation to reform and improve federal civil rights enforcement. Their proposal abandons the concept of fund cutoff as a remedy because it is so drastic that it is rarely used anymore. The bill proposes instead, a court action brought by the Justice Department to correct the specific civil rights violation in question. The Perry County case provides ample evidence that the bill deserves serious consideration.