YELLOW STEEL scaffolding jams the interior of the National Theater, where seats and their backs have been removed from the iron stanchions set in cement when an auditorium was built in 1922. The golden curtain of the 1956 restoration is swathed in plastic sheets.

By May 16 and the arrival of "Annie," the National's walls and ceiling will have been transformed from dirty, peeling yellow to deep red. The reupholstered red seats will be back in the orchestra floor and top balcony, the first balcony having been re-seated a couple of years ago. There will be flecks of gold on the eagle atop the proscenium arch and the protective plastic will have been removed from the curtain.

All this - plus a new stage floor, light board and brass chandeliers for the newly painted lobbies - will cost about $270,000.

And in a couple of years it will be all gone: The National Theater, the fifth theater building to stand on the E Street site since 1835, will be torn down.

Don't ask for help from this financially strapped city government. There's not enough money for more basic needs.

Think, instead, of what could happen if those involved with the destruction of a theater in the name of progress would get together, use their imaginations and, with less private money than a new building would cost, consider the effect that 1,679 existing theater seats could have on reviving downtown life.

Think of what happened from the late 1950s, when the demolition of theaters for parking lots removed some 12,000 reasons for people to be downtown, or to park downtowm after dark. A half-dozen theaters in the area vanished in that period. Gradually - and few caught the connection - restaurants went, too. So did other emoulmetns. After the theaters went, downtown died.

Too late, some leaders woke up to the fact that what already was becoming the Kennedy Center might have been downtown. But during the crucial years of congressional hearings on what became the Kennedy Center, they had not been listening.

The National Theater is on land owned by the Bankers Life Insurance Co. of Nebraska. Architect Edmund Dreyfuss and Stanley Rosensweig ahve a 99-year lease on the insurance company's land. Dreyfuss and Rosensweig also own the building and have received a purchase offer on it from Washington's John Akridge Company, Inc.The building is under a lease, which has 17 years to go, to the Detroit-New York theater firm, the Nederlander family.Three years ago the Nederlands subleased the theater to the New National Theater Corporation, a Washington group. Its attractions are booked through the Kennedy Center.

The National property is part of City Square 254. The owner of the block's largest share of property is the National Press Club which, with Atlanta architect-developer John C. Portman, has announced plans for a complex to include a 1000-room hotel and about 600,000 square feet of office space.

That plan also includes the razing of the National Theater.

Portman last fall indicated "willingness" to include a new 1,000-seat theater in the projected complex. But 1,000 seats are not enough for a viable live theater. And Portman says someone will have to come up with the $10 million such a new structure is now estimated to cost. That will be like waiting for Godot.

A hopeful aspect is the Akridge offer, now in contract form. A Washington-based firm, Akridge is interested either in preserving the theater or financing a new one.

According to members of the New National Theater Corporation board, however, the powerful, congressionally-created Pennsylvania Avenue Development Corporation seems to have been giving an edge to the Atlanta-based Portmand firm.

Roy O. Harris Jr., of the National board, notes that "The Pennsylvania Avenue Plan, 1974," reprinted in April 1977, stated that "The National Press Club, the Munsey Building, the National Theater and the Loew's Theater (Palace) buildings could remain so long as their owners choose not to redevelop them."

"Less than a year later," harris points out, "that wording no longer appears in the prospectus. It seems to us a deft attempt to bypass the National's present activity and history in favor of the Portman plan's indefinite references."

Responds Jo-Ann Neuhaus, assigned by PADC Executive Director W. Anderson Barnes to manage its activities in Square 254:

"From the initial announcement by the Press Club, that tilt toward the Portman firm may have seemed true. But that simply is because the portman offer was the first received. There were on others. Now there are more people interested.

"We'll have to see how our prospectus is answered by our July 5 deadline. We look for proposal qualifications, the background and experience of developers, architects and design specialists.We are looking for concepts to facilitate development, affirmative action plans as well as a financial deposit."

Rita Abraham, spokeswoman for PADC, commented that "There are no easy answers to this. It's going to take a lot more time to reach a responsible solution."

The Portman venture involves condemnation proceedings for the building, an expensive procedure through which land owners, building owners, lessors and sublessors all would have to be recompensed by PADC.

Then, presumably, Portman investors would finance a new building.

Condemnation settlements, settlements, bound to be considerable, would be added to whatever the new office building would cost. Land in the area, according to Roger L. Stevens, is valued at about $150 a square foot, totalling about $1.5 million for plot 804, on which the National stands. Add another $7.5 to $8.5 million for the cost of any new building, according to the Portman firm's estimates, and you have a lot of dough to amortize.

The Akridge firm says that continuance of the site as a theater is the main thrust of its offer, either the present building or a new one.

One obvious solution would be to let the building stand as is. Why not build the new complex around it?

Given comparatively little money, the ground floor of the theater could be extended from west wall to east wall, affording lobbies and more box offices, which it's always needed and never has had. The mezzanine level also could be extened for lobby space and income-yielding bars. A building-long marquee, heated in winter, cooled in summer, could provide a sauntering place, even a rim of cafe tables. The building facade could be cleaned and brightened.

This would provide a lively place for all those anticipated thousands of hotel guests, not only from Portland's projected hotel but from the revived Willard and the projected hotel on the Garfinkel store site. Restoration and renovation is now being touted as superior to tearing down and rebuilding. Making the most of what exists would bring light and life to the old Avenue.

In the changing pattern of theater bookings, runs now are not for a week or two but for months. "Annie" will be here for half a year. Than "A Chorus Line" will get another big slice of time, with stell another musical anticipated for mid-1979.

The income from such a desirable theater building can be profitable. That $270,000 restoration cost was financed from profits of the past two years. How much money it can make for new buyers plus the lessors is a question. The Nederlander firm, which did poorly with its bookings, is guaranteed 1 percent of the theater's gross. When the building is dark, the Nederlanders get nothing, though they did receive $36,000 cash for sub-leasing the theater to the nonprofit New National Theater Corporation.

This was created by local theater buffs at the suggestion of the Kennedy Center chairman, Roger L. Stevens, who felt he had to keep hands off to avoid accusations of holding a Washington monopoly. The board consists of lawyer Maurice B. Tobin, president; playwright-professor Donn B. Murphy, secretary; arts activist Gerson Nordlinger, Jr., treasure, and includes Roy O. Harris, Jr., Aldus H. Chapin, Mrs Tobin and Sterling Tucker, of the D.C. City Council.

Alarmed that the Pennsylvania Avenue Development Corporation board had defeated a motion which would have given special consideration to the National Theater, Tucker last month wrote PADC Chairman Elwood R. Quesada, formerly of the L'Enfant Plaza complex.

"I believe it is important that the National Theater as a cultural institution be given the true historical consideration is deserves. To totally disregard its cultural and historic importance would, in my opinion, be counter to the development principals of the Corporation . . . I urge the Board and the Corporation to review this matter again." Tucker has not yet had a direct answer.

Making a case on the practical theater level is Stevens. Though his main concern is the Kennedy Center, the city's major theater authority also is a national real estate mogul. Thanks to his real estate income, much from Seattle, Stevens serves as Kennedy Center chairman without pay.

"We need not fewer stages, but more," says Stevens, who recently turned down works by three major writers because the Kennedy Center's Eisenhower Theater is so solidly booked. For some reason neither the Portman firm nor the National Press Club approached Stevens before their development plan was announced.

Whether that hurts his pride, Stevens doesn't say. For a time he seemed to pointedly avoid discussing the likely loss of the National. But now he says he's in favor of saving the National not simply for the site's history but as a matter of business.

"Given the present costs of a new office building," he says, "the National, on its way back to life, could still produce a substantial income. The cost of building a sixth theater on the site is simply prohibitive."

Backstage, two major changes are being made. A modern, more efficient light board is taking up one-twentieth of the space the huge old one took at stage left. New wood flooring will replace the 56-year-old stage planks.

This is necessary because the wood has hardened to the consistency of cement and lost the "give" that dancers, in particular, require. The old flooring was joined by the tongue-in-groove method, also used on the Opera House stage floor, of which ballet companies have been complaining. After only there are plans to replace it. The preferred system, which the National is getting, is the shiplap overlap, joined at the edges, not in the middle of each plank.

If there's any money left, maybe the performers' dressing rooms will get some coats of paint.

Only two other theater sites in America outrank the National's for longevity, Charleston's Dock Street Theater, built in 1756 and restored in 1937, and Philadelphia's Walnut Street Theater, opened in 1809 and still struggling after several reincarnations. For continuous operation the National's site is the oldest in the country.

There's a backstage ghost near the stone walls of the 19-century foundations, said to be the shade of a nameless actor involved in a feud with another, who shot him dead after a performance.

If he's as lively as some night watchmen have reported (one of them was actor Warren Beatty, then a teen-ager, another the present National manager, Richard E. Schneider), that ghost has seen all the visiting international performing greats and most of the country's presidents, statesmen and politicians of the past 143 years.

If ever an American theater merited an official historic landmark designation, it's the one which seems slated for oblivion. Getting that designation could be the first step in halting the destruction of the theater. CAPTION: Pictures 1 and 2, It's costing $270,000 to refurbisht the National Theater for the opening of "Annie," but the wrecking ball still waits in the wings., Top photo by Harry Naltchayan, bottom photo by Frank Johnston - The Washington Post; Picture 3, no caption; Picture, The interior of "America's most historic theater" is full of scaffolding, the walls are being painted red and the seats reupholstered, but in a couple years it'll be torn down., Photos by Harry Naltchayan - The Washington Post