AS IF SCAFFOLDING on the Capitol and fancy new hotels on Pennsylvania Avenue weren't enough, here's the latest: A perfectly good city block of downtown Washington is getting a new name. It's that stretch of asphalt between D and E in Northwest, better known to most of us as "Eighth Street."

This Sunday from noon to midnight, the Second Annual ADD ARTS Festival moves into the neighborhood, and turns that block into "Artists' Alley." Okay, maybe the name change is just for one day, but the folks putting ADD ARTS together have a theory: They figure if a little bit of Eighth Street can be transformed into a fount of creativity -- even for 12 hours -- then maybe all the would-be, might-be and could-be artists and art lovers who show up for the festival will be inspired to follow suit.

Actually, ADD ARTS '85: A Washington Celebration (ADD ARTS stands for Activities for Downtown Development in the Arts) will cover more than just one block. And it's free to the public. Coordinated by District Curators Inc., it's turning a floor of the Hecht's department store at Seventh and F streets NW into an art gallery for local talent; taking over the Martin Luther King Memorial Library for an all-day film fest; and setting up a stage at the Gallery Place Metro station to feature top- notch talent that includes the D.C. City Ballet, saxophonist Julius Hemphill and Sweet Honey in the Rock.

But Artists' Alley is a little bit different -- a place for those who want to be a part of Washington's celebration of the arts as well as enjoy it. Throughout the day, the Alley will be closed to traffic to make room for a participatory jazz dance class, a chalk-drawing exhibition on the street and an improvisational musical jam session. Organizers of these events are inviting all comers.

"The idea is that we get people involved," says Roberta Rothstein, who teaches jazz dance classes in the area and will be leading the jazz demonstration and lecture between 2:30 and 3. "We let them know that jazz is something they can do and not just watch on stage, TV or movies."

The event is open to adults, children, anybody who'd like to try. "You don't need to have dance experience in order to do this," Rothstein says. "Just wear comfortable clothes, and bring some water and something for your head if it's a hot day."

The chalk-drawing event is part competition, part free-for-all. There'll be a contest from 3 to 4 for children under 14, and winners will receive gift certificates. The rest of the day, everyone is welcome to take chalk in hand -- there'll be plenty available on the site -- and let those creative juices flow.

"Drawing on the street with chalk eases tension and helps people relax with their work," says Harriet Lesser, who teaches art at the Filmore Art Center in the District and will be a judge at the contest. "It's not a normal setting, so there's a playfulness about it."

Lesser sees the festival as a means for people to expand the way they think about art and use it in their own lives. "After all, art is not relegated to sitting alone with a piece of paper," she says. "It's a personal involvement with what's around you."

Local musician Joe Kennedy got the idea for this year's improvisational jam session at last year's festival.

"Basically what happened is several drummers started playing about three or four blocks from the main stage," says Kennedy. "I wandered over, another friend wandered over and it turned into a mini-event."

This year, he'll be setting up in the Alley from 4 to 7. He says he'll perform solo for about 20 minutes, then get together with some other musicians, then start asking people in the crowd who've brought instruments to join him.

"It will sort of be a jazz open forum," he says. "We'll be trying to break down those lines and get everybody involved, turn it into a celebration, a fiesta. There's no telling what will happen, and that's the excitement."

Other highlights of the festival include:

*An opening celebration at the Gallery Place Mainstage at noon, followed by the African Heritage Dancers and Drummers at 12:30. Ava/Teri Dancetheater performs at 5:30, and one of Washington's favorite acts, Sweet Honey in the Rock, takes over the stage for the festival finale at 10.

*An Artists' Invitational Graffiti Wall will be set up on the corner of Ninth and F streets NW. From noon to 8, invite d artists from around the area are going to splatter their collective creativity all over a 200-foot canvas mural.

*The film program at Martin Luther King Memorial Library features children's films at noon, including the Academy Award-winning short "Dr. De Soto." The "Washington Showcase" film series begins at 4:30 and features Marcel Taube's "All Out," Oscar-winners Paul Wagner and Marjorie Hunt's "Mermaids, Frog Legs and Fillets" and Michelle Parkerson's "But Then, She's Betty Carter." The cinema moves outside at 8:30 for a showing of John Sayles' "The Brother From Another Planet."

*The area in front of the library will be transformed into a literary arts stage for the day. Events include a preview of "Waiting for Godot" by the Source Theater Company at 12:30; a poetry recitation by Garth Tate and SA/SA (Starving Artists/Still Alive) at 3:30; and a "fashion theater" show by Scorpio in the First House at 5:30.

*The sixth floor of Hecht's on Seventh and F streets NW is open to visitors from noon to 5, and features works by more than a hundred area artists.

*Seventh Street will also be the scene of two other exhibits. The Washington Project for the Arts at Seventh and D streets NW features "Send a Message to Washington" by Group Material, an artists' collective from New York City, from noon to 6. The Washington Women's Art Center at 420 Seventh Street NW features "Reflections of Washington" from noon to 5.

The festival also includes two open-mike opportunities: one at D.C. Space, Seventh and E streets NW, from 3 to 6; the other at Open Studio on the sixth floor of 420 Seventh Street NW, from 7:30 to 11.

And finally, ADD ARTS, like any other festival worth its salt, will be brimming with food, drink, crafts and souvenirs for sale.

The Metro will be open until midnight. If you're taking it, exit from the Red or Yellow lines at the Gallery Place station. Rain date for the festival is Labor Day.