When the Pennsylvania Avenue Development Corp. two years ago chose Florida developer Stuart Golding to renovate and reopen the Willard Hotel, the project was hailed as a model of capitalist cooperation between the government and private enterprise.

The government had stepped in to save from the wrecking ball that grand old hotel on Pennsylvania Avenue NW, and now it was turning the job of rebuilding the Willard over to Golding. He would lease the Willard and the vacant lot next door from the PADC for $800,000 a year, and would share profits from the refurbished hotel with the government under a formula that assured Uncle Sam would be repaid with interest..

Nobody said a word about federal subsidies.

Not until a few weeks after the contract was signed. Then Golding asked PADC for $5 million in historic preservation funds to restore the building.

When that didn't work, Golding hit Mayor Marion Barry for a $20 million Urban Development Action Grant for the Willard and persuaded the mayor to seek federal assistance.

Now Golding says he can get along with $15 million in government help.

But no federal aid is needed to renovate the Willard, insists Washington developer Oliver T. Carr, who has told the mayor he is prepared to redo the hotel with private capital.

Calling the federal grant "unconscionable" in light of the city's other needs, Carr said the subsidy "is a major departure from a fundamental premise of the Pennsylvania Avenue plan to provide for the restoration of Pennsylvania Avenue by private enterprise with private funds and private financing."

Carr was deeply disappointed when PADC chose Golding over him to handle the project. Carr's complaints about Golding's bid for federal funds has produced a bitter feud between the two millionaire developers.

The transformation of the Willard from symbiosis to subsidy is only one of the weeds that have sprouted as Pennsylvania Avenue NW begins to flower.

The first two new private buildings along the avenue now are nearing completion. Work on two more major projects is ready to begin. Half a billion dollars worth of Pennsylvania Avenue work is expected to get under way within the next couple of years.

Yet the PADC is facing its greatest difficulties since it was created by Congress in 1972.

Golding has been given a June 7 deadline to obtain financing for his project, and despite his assurances to the contrary, there is concern that he will not make it. If that happens, PADC with have to reopen bidding for the project, delaying it for months.

Also behind schedule is renovation of the old Post Office into a modern Mixed-use facility with tourists attractions, restaurants and shops on its lower levels. The General Services Administration promised to choose a private developer for the Post Office by last September but still hasn't done so. It is unclear whether the new administration is committed to the project.

Also in doubt is a massive housing project planned to occupy four blocks at the eastern end of the avenue. The original plan to build an apartment complex atop an underground annex of the National Archives has been scrapped. PADC recently hired three consultants to restudy whether it is economical or practical to build the housing as planned.

Western Plaza, PADC's first major public improvement project along the avenue between E, 13th and 14th streets NW, has been completed. But is has been universally condemned as a disaster of urban design -- a result of half a dozen different agencies insisting it be modified to their liking.

Another monument likely to cause controversy suddenly has been dropped in PADC's sap -- a plan to build a U.S. Navy Memorial on Pennsylvania Avenue. By the time the private memorial commission of former seamen, Navy brass and the same federal and city agencies that watered down Western Plaza are finished, planning for the memorial could become a major naval battle.

All these problems beset an agency that is going through a greater upheavel than the rest of the federal establishment.

After the sudden death of PADC Chairman Joseph Danzansky last year, international lawyer Max Berry was thrust into a new job as head of the District's most active renewal agency. Since July Berry has been working virtually full-time on the avenue.

PADC's board of directors, too, is in turmoil. The board has met only once in the last six months. Four of the 15 voting members were appointed in the last few months of the Carter administration and have yet to attend their first meeting. City Council Chairman Arrington Dixon has been aboard for only one formal meeting. Four new Republicans representing Reagan Cabinet officers haven't been appointed yet, nor has a new representative been named by the General Services Administration.

When the board meets next month, it will have to review plans for several private developments on the avenue, to begin discussions on the Navy memorial and to consider two other proposals by Berry.

Looking ahead to the time when emphasis on the avenue shifts from construction to continuing operations, Berry wants to organize a Pennsylvania Avenue Foundation, privately financed and independent of PADC. The foundation, he explained, would raise money for arts on the avenue.

Berry, whose international law practice has given him a taste for European-style street life and who is a consummate fan of cities in general, envisions Pennsylvania Avenue becoming a kind of permanent Fourth of July block party or Main Street U.S.A cum the Champs Elysses or the Via Veneto.

He hopes the foundation can collect contributions for a major work of sculpture to symbolize the revitalization of the avenue and its importance to the nation and the capital. A similar idea for a sculptured monument was advocated last month by a business group working on revitalization of downtown Washington. Private funds also could pay for performing arts, Berry suggests.

"I want people to say, 'What's going on on the avenue this weekend.' I want to walk down the avenue and hear musicians playing and see jugglers and artists," says Berry.

To provide a place for performing arts, Berry wants to install a Victorian cast-iron bandstand on Pennsylvania Avenue. The bandstand is available: It belongs to Washington businessmen Stewart Long, who owns several restaurants, and Jeffrey Cohen, the real estate and bank investor. Long and Cohen tried to donate their oversized antique to the District, but the city wasn't interested in assuming responsibility for installing and maintaining it.

Berry wants PADC to take the bandstand and put it temporarily on the vacant lot facing the avenue between Fifth and Sixth streets NW. The Canadian government plans to build a chancery complex on that site, but not for several years. When the Canadians need the land, Berry would move the bandstand to another Pennsylvania Avenue park.

The avenue will get a much bigger site for band concerts if the drive for a Navy memorial commission is chaired by J. William Middendorf, a former secretary of the Navy. Middendorf is a band fan and writes marches as a hobby. His idea for the memorial is to make it a permanent home for the U.s. Navy Band. The concept being discussed is some kind of nautical bandshell, probably with underground practice, dressing and instrument rooms. Outdoor seating for a few thousand people is envisioned.

Nobody has started drawing plans yet, but "you can bet they will feature water" says PADC's executive director, W. Anderson Barnes. Barnes said PADC is talking of locating the Navy memorial on the north side of Pennsylvania Avenue between Eight and Ninth streets NW, just west of the headquarters of the Federal Bureau of Investigation. The long-range PADC plan designates a triangle there as "Market Square Park."

The same plan calls for construction of a housing complex just north of Market Square on a huge, four-city block parcel bigger than the gigantic FBI facility. Originally, a multi-story megaplex patterned on an Italian hill village was to be built atop an underground storage facility for the National Archives. Since PADC's board last met, the Archives has informed the agency that the costly storage center proposal is dead.

So, apparently, is the hill village concept. PADC recently hired three teams of consultants to review the economies and aesthetics of the housing project, and Berry insists some kind of housing will be built.

"You will have some very exciting housing in the area," he said. "We will make the economics work, and we won't ask the federal government for any great appropriation."

But it can't be housing for the disadvantaged," Berry said. "That property is just too expensive" for anything less than luxury housing, he insisted, although community groups challenge that judgment.

PADC made clear its commitment to housing in recent negotiations with developers planning an office-hotel-retail complex on a site bordered by the avenue, Seventh and D streets NW.

Westminister Properties, a B.F. Saul subsidiary, came in with plans calling for a limited number of housing units in conjunction with their planned hotel and were told to go back and add "a significant number of housing units." Now they're talking about 250-plus apartments.

Berry said keeping PADC's commitment to create a major downtuwn housing complex is one of three major challenges facing the agency. The other two are rehabilitation of the Willard and the old Post Office.

As a GSA project, the Post Office is out of PADC's control. The government housekeeping agency has spent all of its original $19 million appropriation on rehabilitating the Post Office, regarded by some architecture aficionados as the best building on the avenue.

Congress recently authorized GSA to spend another $11.7 billion on the project. The agency has asked for a $4.8 million appropriation for work this year and also is seeking permission to reprogram some of its funds for use on the building.

Once scheduled for demolition, the old Post Office is being revitalized according to a plan by Washington architect Arthur Cotton Moore. Government offices will occupy the upper floors of the building, which surround a nine-story atrium topped by a new glass roof. The lower floors are supposed to become a tourist attraction, with shops and restaurants developed by a private contractor.

Although GSA once promised to open bids for the development last fall, the agency now says it can't turn the building over to a developer until construction is completed. Developers, however, say they usually start trying to find tenants for such projects long before construction work is done -- sometimes even before work is started.

Gsa is needlessly delaying the job, PADC officials fear. With costs already more than 50 percent over budget, there is concern GSA will not get the funds to complete Moore's much-heralded plan.

Cost over-runs are also the problem at the Willard, though work there is just beginning. Rehabilitation of the old hotel will be far more costly than originally projected, as will construction of an addition to fill in the vacant lot between the Willard and the Washington Hotel, to say nothing of the interest cost, said developer Golding.

"What was going to be a $50 million project with conventional insurance company financing at 8 percent has turned into a $90 million job. The insurance companies have withdrawn from the market, and I don't know what the interest rates will be," said Golding.

That's why the $20 million Urban Development Action Grant was requested, Golding said, "but I may not need all that I asked for, probably no more than $15 million."

Even if the federal aid is rejected, "we're going to get the money," insisted Golding. "I've put two years of my life into this, and I'm not giving up." He said he has invested $2 million in the Willard already.

Golding said he has no intention of asking PADC to revamp the project. His plan is to put a relatively small but elegantly designed addition in the space between the Willard and the Washington.

Virtually all the other bidders for the Willard job planned to fill in the vacant lot with the biggest building permitted by zoning regulations, because a bigger structure produces more income.

The Oliver T. Carr Co., whose proposal was ranked second to Golding's by PADC, planned to put an office building next to the Willard and use it to subsidize the hotel renovation.

Golding's problem is not high interest or high construction costs, but his "uneconomical use of the infill site," Carr said in a letter sent to Mayor Barry opposing Golding's bid for federal aid.

"the proposal our company sponsored is economically feasible, can be financed privately and does not require additional government subsidy," Carr said. He called Golding's request for federal aid "a material breach of the proposal he submitted to PADC," which said the job could be done with private funds.

Golding responds that his hotel project is "much superior" to Carr's office building proposal. Carr is "just jealous," says Golding. He contrasts his own architecturally acclaimed plans for the Willard with Carr's office building, which he called the "same stuff he builds on K street."