NEW ORLEANS -- The Department of Housing and Urban Development told local housing officials this week that finding and removing dangerous lead-based paint in public housing throughout the nation will cost as much as $500 million and that local agencies will have to bear the cost.

Regulations issued last fall require local housing authorities to test for and remove lead paint from federally owned public and Indian housing built before 1978. The federal government, however, will not provide extra money for the work, according to Janice Rattley, director of HUD's project management division.

Local agencies will have to use funds from operating subsidies or federal money originally intended for rehabilitating deteriorated public housing, said Rattley, who spoke at a National Association of Housing and Redevelopment Officials convention here.

The local officials said testing and removing lead-based paint will be a major financial burden for some public housing agencies. The cost will equal the total of "two or three annual budgets" for his housing agency, one official said.

HUD issued its lead paint regulations after the government lost a lengthy court battle over whether the department was adequately enforcing the Lead-Based Paint Poisoning Prevention Act in public and other federally associated housing. The lawsuit was filed by tenants in a Southeast Washington public housing project after then 4-year-old Aisha Lindsay was poisoned by lead paint in her Stanton Dwellings apartment.

Lead-based paint, the major cause of lead poisoning in children -- who sometimes chew or swallow paint chips -- can result in permanent brain damage, mental retardation and death. Even mild poisoning can cause learning disabilities, such as hyperactivity and short attention spans, according to a report distributed at the convention.

How best to protect children from lead poisoning is a controversial question because testing methods are expensive and often are inaccurate, and removing or encasing lead-contaminated surfaces is costly.

Critics say federal regulations endanger the lives and health of children. Under current HUD rules, directors of public housing and owners of subsidized or federally insured units do not have to test for lead paint or remove it until a child living in a unit is found to have elevated levels of lead.

Legislative proposals being discussed by a House and Senate conference committee would prohibit using children's blood levels of lead as the basis for testing and abatement of paint. Instead, the proposals would require the testing of painted surfaces in housing units. The proposals, contained in a major housing authorization bill, also would exempt housing occupied by elderly and handicapped persons from coverage, and would delay implementation of the law for Federal Housing Administration-insured single- and multifamily housing for two years in urban areas and three years in rural areas.

The bill, which would not provide funds for local authorities, would require HUD and the National Bureau of Standards to develop the most cost-effective ways to remove lead paint by testing the methods in some multifamily and single-family properties owned by the department.

No matter what the present regulations say, local public housing officials were told this week to be wary of using children to find units containing lead paint.

William Ballou, director of the Columbia, S.C., Housing Authority, said, "I had no idea the ... problem is as serious as it is" until two children there became ill and suffered permanent mental retardation. The resulting $2 million lawsuit was recently settled out of court for an undisclosed amount. Cleaning out the lead paint costs from $5,000 to $6,000 per unit, Ballou said.

The apartment where the children lived had been painted at least 10 times since the building was constructed in 1939, and "there was an awful lot of lead-based paint there," Ballou said.

Families were moved temporarily to other homes while the lead paint was removed or encapsulated in all the units where it had been found, and workers used protective masks and clothing, he said. Ballou advised removing the entire "window system" because heavy concentrations of lead are often found on the sills.

Rattley said tenants must be encouraged, but cannot be required, to have their children's blood tested for the presence of lead.

Persuading residents can be difficult, according to Ballou. "Many of my residents are chronically poor, they couldn't read or fully understand" the letters urging them to take their children for blood tests, he said.

"Although the HUD regulations don't say you have to do anything about a 7 1/2-year-old child" with elevated levels of lead, "you can still get sued," said Neal Freuden, deputy executive director of the Hartford, Conn., Housing Authority.

The current rules and the proposed legislation call for testing with X-ray fluorescent analyzers and sets lead-content standards for removing paint. Some experts say these machines are inaccurate as much as half the time. HUD said it also has "significant concerns" about the accuracy of the machines and has limited such testing to housing occupied by children with elevated levels of lead in their blood as a way "to minimize potential abatements in response to inaccurate readings," according to a report prepared by the convention.