The District's ambitious plan for revamping its mental health system was met with praise and skepticism yesterday as public hearings opened on the city's blueprint for local takeover of St. Elizabeths Hospital by 1987.

The plan is "admirable in its objectives, but mind-boggling in the complexity and range of new services, new staff, new installations and new training programs that will be required to implement it," said Paula Echeverria, a member of Friends of St. E's, a citizens group. "These are brave plans, proposed without any explanation of expected costs."

The Mental Health System Reorganization Office, a new city unit that is holding the hearings, wrote the plan during the past 10 months after the federal government insisted the city take over the mental hospital.

The office's director, Virginia Fleming, said the reorganization would allow more of the $150 million now spent yearly by the city on mental health to be used for programs outside the hospital. Currently, 85 percent of the city's mental health money is spent on St. Elizabeths.

One money-raising plan the city is considering is to allow 100 acres on the 336-acre hospital's west side to be used for such commercial development as housing, shops and educational or research facilities. The federal government owns the land and will have final say on its use. But the city's development office is compiling ways to use the acres not now needed for mental health services.

This idea was opposed by those who want the land retained for possible future use for mental health.

"To propose commercial development on the site would be to pursue the crassest of fiscal priorities over the values of human life," said Echeverria.

Under the city's plan, the District's troubled Mental Health Services Administration would be merged with the management of St. Elizabeths to form a new city agency, the Commission on Mental Health. The commission would oversee the three existing community mental health centers, the hospital and a range of out-patient mental health services.

Gottlieb Simon, a member of the D.C. Mental Health Association, a group of citizens and social workers, asked, "Will this plan be more successful than the Dixon plan?" He was referring to a plan written in response to a 1975 court order to reduce the number of patients at St. Elizabeths. The city was unable to meet many of the requirements of the court order.

One resident of Ward 4 complained that he and his neighbors were never consulted by the city before a group home for former St. Elizabeths patients was given a recent occupancy permit.

"We are not opposed to people being rehabilitated, but we want to know," said Dan Harris, a printer and 31-year District resident. "The city hasn't consulted with the neighbors and they're getting ready to put people in that home . . . . St. Elizabeths' got accommodations that are a lot better than a building on Longfellow Street."

A representative from the American Federation of State, County and Municipal Employees urged the city to require private contractors to include minimum benefits and pay standards for the 3,348 St. Elizabeths' employes it will hire to work in proposed group houses.

Employes of St. Elizabeths also should receive severance pay from the federal government if they choose not to accept new jobs, said AFSME representative Peggy Brown.

About 1,000 hospital employes are being urged to take early retirement, and the 2,300 remaining workers should be absorbed into the city's new mental health system, according to the plan.

Residents will be able to comment on the preliminary plan until Dec. 1, Fleming said. The mayor is scheduled to present the plan by Jan. 1 to the City Council, which also will hold public hearings.