Prince George's County Executive Winfield M. Kelly Jr. said yesterday he plans to use millions of dollars in state and county tax money to win the race against the District of Columbia to build the Washington area's first major convention center.

Kelly described a complicated package of government subsidy and private investment with which developer William Levitt Jr. has agreed to build and operate a $35 million exhibition hall, a 600 room hotel, office buildings and a shopping center on 282 acres near the Capital Centre sports arena in Largo.

According to Maryland Senate President Steny H. Hoyer (D-Prince George's), Peter F. O'Malley, an active real estate lawyer and powerful county Democratic leader, was intimately involved in negotiations that led to the multi-million dollar financial package.

An as attorney, O'Malley has represented both Levitt, who presently owns the land where the convention center will be built, and Abe Pollin, who owns the nearby Capital Centre, who would be affected financially if the exhibition hall is constructed as now planned.

As a politicial leader, O'Malley is a close ally of Hoyer and other Democrats from Prince George's in the Maryland General Assembly, which would have to approve a key portion of the financial package.

At a press conference in Annapolis, Kelly outlined a complicated finanical package to build the suburban center that calls for Levitt to invest about $15 million, the state to put up $20 million and the county to provide $1.5 million a year in operating subsidies to Levitt, who will run the center for the county.

Kelly said Levitt has agreed to contribute money for any costs that exceed the center's present, $35 million price tag.

The Prince George's center will have a main exhibition hall with 250,000 square feetM only slightly smaller than a 200,000-square-foot convention hall that the District government is preparing to announce for downtown Washington.

The center the District intends to build, probably near Mount Vernon Square NW, is expected to cost about $100 million.

Kelly denied yesterday that Prince Georges was "on a collision course" with the District but he acknowledged that the Washington area cannot support two major convention facilities.

"We won't back off now," Kelly said. "It's very possible that the city of Washington will back off."

Despite Kelly's assertion, sources close to planning for the District's convention center said the city has no intention of scruttling its facility simply because Kelly has announced his plans to build one in Largo.

"I think there's a very high probability that the District's going to go ahead," this source said. "By location alone, the District will be forever competitive. Why would a convention want to be out in the middle of a piece of flatland?"

Kelly, on the other hand, recalled his county's successful effort several years ago to build a sports arena - later named the Capital Centre - that had originally been planned for the District.

Kelly said Prince George's delivers while other jurisdictions only "talk of showcases."

While Prince George's only needs approval from the Maryland legislature (for the $20 million worth of state bonds), the District must obtain congressional approval before it can proceed with its proposed center.

Rep. William H. Natcher (D-Ky.), chairman of the House District Appropriations Subcommittee, has dropped his opposition to a major new convention center in the city.

The District's proposal must still go through a process of congressional hearings and votes that will delay final approval. In addition, Natcher could decide against the District facility now that Prince George's is planning a competitive one.

As outlined by Kelly yesterday, the Levitt corporation has agreed to donate to the county the major part of a 282-acre parcel of land south of the Capital Centre. The land is worth about $1.34 million, Kelly said.

In addition, Levitt Industries will contribute $13 million toward contruction of the exhibition hall, which will be built by the George Hyman Construction Co.

For his part, Kelly needs approval by the Maryland legislature of a $20 million bond issue, the proceeds of which will be used for construction of the convention facility. The $1.5 million a year in operating subsidies will come from county tax receipts, Kelly said.

Both Prince George's and the District (which would also have to subsidize its center if the downtown facility is built) believe that additional tax revenues brought in by convention business will more than offset the subsidies necessary to operate their respective convention facilities.

The District has commissioned the consulting firm of Gladstone Associates to prepare an elaborate study of the economic feasibility of a downtown convention center and the D.C. Municipal Planning Office has been spending almost full time over the past several months evaluating various possible sites and other plans for the downtown center.

Kelly acknowledged yesterday that Prince George's has not undertaken such meticulous planning. Indeed, Kelly was unprepared to answer several questions asked by reporters at the press conference.

Nevertheless, Prince George's worked with developer Abe Pollin under similar circumstances to build the Capital Centre. The sports arena is built on public park land owned by the county.

O'Malley played a similar role in the Capital Centre deal as he now appears to have played in putting together the convention center proposal. O'Malley was - and still is - Pollins attorney and worked with the the developer-sportsman to secure the approvals necessary for the sports complex.

O'Malley has represented Levitt interests in Prince George's for years. The lawyers is also extremely powerful in the Prince George's Democratic Party, which controls nearly every local elected office. Indeed, O'Malley is often referred to as "the boss" of the Prince George's Democratic political organization.

As Kelly explained the convention center's financing yesterday, Levitt will donate land owned by one of his companies, Northampton, Inc., to the county. The county will then lease the land (which will be tax exempt) back to Levitt for a nominal sum.

Levitt will built the exhibition hall and then give it to the county. The county will then lease the hall back to Levitt, possibly for 99 years.

In addition, the county has agreed to provide Levitt with a $1.5 million yearly subsidy to cover operating deficits and other costs. Sources familiar with the economics of convention centers calculated that the $1.5 million is adequate to cover Levitt's principal and interest payments for the $15 million he will borrow and invest in the center.

These same sources estimated that the center proposed by Prince George's will exceed the $33 million budgeted for construction. "It's a phony figure," one source said.