MOST FEDERALLY funded activities are actually carried out by state and local governments under grant-in-aid programs. Suppose that a state or locality makes an honest mistake in interpreting federal guidelines for one of these programs, but the federal government doesn't notice the mistake for several years. Should the federal government then be able to reclaim the misspent money?

The Supreme Court decided a few weeks ago that the federal government could later seek repayment of money spent in activities that violated federal guidelines even though the federal law in question made no mention of such penalties. The court, however, indicated that the question of whether such recovery would be warranted should be decided on a case-by-case basis by federal appeals courts.

The decision gives the administration increased opportunity to tie up states and localities in an endless series of litigations involving all the various health, housing, education, job, training, welfare, community development and service programs in which they have participated over the last decades. This will be good for the lawyers. But what will it do for everyone else?

In answering that question, it is important to differentiate the relatively rare cases of outright, flagrant fraud from the far more commonplace cases in which states, cities and the various "community-based" organizations the law compelled them to deal with wandered into violation of some technical interpretation of the law. Also remember that many of those laws were vaguely written on purpose by a Congress that couldn't make up its mind how to mediate the conflicting demands of various constituencies at a reasonable cost.

The picture grows yet muddier when you recall that the executive departments frequently spent months and even years spelling out and amending regulations detailing the law's application in all the variety of unanticipated cases that the real world presents. The case considered by the court, for example, involved a state's way of dividing up compensatory education funds in a school district in which a busing plan was in effect--a matter not described in federal regulations at the time. And states and localities were frequently under enormous pressure to spend grant money quickly--as, for example, in the creation of more than 500,000 CETA jobs in the last recession.

The administration has talked a good deal about the development of a better federal system in which states and localities will have more discretion about how they spend their money. Streamlining regulations, putting good up-to-date audit systems in place and seeing that states and localities correct abuses promptly is an important part of a better relationship among levels of government. But chasing after ancient abuses is both a waste of effort and a serious impediment to the kind of good-faith partnership that is needed.