Mayor William Donald Scheafer is smirking. The talk is of Chicago Mayor Jane Byrne's living in a housing project to find out what life is like there. Schaefer is not impressed.

"You know where I live," he says. "I've lived in that same row house for 50 years. I've seen that neighborhood and this city go through all the changes. . . . First the neighborhood was middle class and white. Then the blacks started coming in. White people would tell you to trust them, they're not moving, and they'd already signed the mortgage on the next house in the suburbs. Then came the renters who didn't know how to live in a house. I've lived on the same street with people who threw garbage out of the second-floor window. People growing chickens in the front yard."

Schaefer, 59, shifts forward in his chair.

"Now we've got homeowners back. . . . There was a time kids would automatically move to the suburbs when they got old enough to buy a house. That is not happening anymore."

Much of the reason that is not happening anymore is Mayor Schaefer.

"It is his execution," says a Washington lobbyist, who works for several cities. "Schaefer and his people will get the job done. . . . It's not all coming to Washington for money, either. He's got a nothing city on the upswing. He's got people visiting Baltimore for Christ's sake."

Finding opposition to Schaefer is difficult. Even blacks, who make up 55 percent of the city and who would prefer a black mayor, are quick to add that Schaefer is a very good mayor who does not play racial politics. Schaefer's only persistent critic is council chairman Walter Orlinsky, who attacks the mayor for having created an image that makes any attack on Schaefer an attack on Baltimore. It is not much of a rap.

What makes Schaefer successful is the image of success as much as anything.

Everything the city government here touches is emblazoned with a sign that tells what is being done by the city and usually announces: "Baltimore is Best -- William Donald Schaefer, mayor."

Schaefer has a manic appreciation of detail. On this morning he goes to Light Street to ask several department heads why work has yet to begin on two sidewalks he asked be widened.

"I don't think they understand how important this is to me," says the mayor, who is known to throw tantrums at aides and politicians who don't do what he wants right away. "This little visit will help them understand."

The engineer pulls out the blueprint for the project as the mayor stands on the street, but Schaefer stops him and points to the corner jewelry store. They take the plans inside and lay them out on the counter. Before the engineer can begin his presentation, the mayor tells the jeweler: "If you've got a problem with it, just stop him."

"I'm all for it," says the jeweler. "Just don't block the door." The mayor turns to his people and nods.

The next stop is the florist. Yes, the florist favors widening the street, too. "How's business here?" Schaefer asks.

"Fine," says the florist.

"The other store doing all right, too?" the mayor asks.

The florist smiles. The mayor remembers that he has another store.

"Yeah, its okay."

Schaefer is known for keeping an eye on businesses so that if they need help -- subsidized loans or anything else -- he can help. By doing so he keeps shops and industry thriving. If he can keep a business in the city by changing traffic patterns, increasing police protection or asking for a zoning change, he will do it.

"The average citizen doesn't care if you are building a bridge," Schaefer says. "It's the small jobs that take forever and don't get done. Its the alley that doesn't get clearned. If a street light in front of my house goes out, I want it fixed. I don't care if they are building a bridge."

Schaefer's other strategy for success is to go to community meetings and ask people what they want done, from new stop signs to better schools. His only requirement in helping a neighborhood, he says, is that the community people tell him what they will do to help.

"If I'm building a recreation center," he says, the political broker in him showing, "I want to hear that they're going to donate some work or make the drapes. If they are not going to do anything, then I can't help them. . . .

Some charge that Schaefer uses money and energy to create a spectacular downtown at the expense of neighborhoods. This is Schaefer's weak point. Baltimore's neighborhoods could use every dollar in the city treasury. But is building up the downtown a mistake when it attracts businesses, tourists and adds dollars to the tax base?

History is on the mayor's side. Baltimore was a dying city after the 1960 riots. And there were no expectations for Schaefer, a city councilman, then city council chairman with a quick temper, who still lived with his mother, Tululu.

But who can deny that the city now looks to be thriving, that Schaefer has exceeded all the estimates of his capability? Who could have imagined a convention center in Baltimore, major developers vying for vacant land and Edward Bennett Williams of Washington buying the Orioles but keeping them in Baltimore because of Schaefer's nonstop arguments and offerings?

Now Schaefer faces a new challenge: the loss of federal dollars. Schaefer's Baltimore was a showcase for federal grant programs under President Carter, so much so that Carter called Schaefer his favorite mayor. With Reagan in the White House, Schaefer is losing about half of his federal jobs programs, including 3,000 public service jobs. The summer jobs program is down from 16,000 children to 10,000.

To get jobs for some of the people losing CETA work back home, Schaefer tried to get local businesses to pick up some of the slack. So far, the city has found jobs for 150 former CETA workers; or, to put it another way, it has not found jobs for 2,850 people out of CETA jobs. Of these jobless, Schaefer says: "We don't owe those people anything. We feel a moral obligation to try and help them. . . ."

Schaefer's strategy has been to attack Reagan and especially the idea of block grants -- federal money that the state will parcel out. The mayor says that Maryland Governor Harry Hughes, who will control block grants, doesn't understand Baltimore. Schaefer and Hughes are an item at the moment. At a $125 a plate tribute to Schaefer earlier this month, 2,700 people sent a message to Hughes that Schaefer has the money, the base and the political network to challenge Huges for the governorship next year -- if he wants to.

"He's not going to run," says Bob Hillman, who ran Schaefer's last campaign. "But if Harry [Huges] keeps making stupid mistakes and getting him mad, then he'll run, and he'll kill him."

The mayor is on board the Libertad, an Argentine ship docked in the inner harbor, the crown jewel of Baltimore. An Argentine admiral, white pants, white shirt, blue braid on his shoulders, is down from Washington for lunch with the mayor. After he is introduced to the fatherly man with the Baltimore tie clasp and the worn seersucker jacket, the admiral's face freezes in hesitation, as if there is a thought in his mind that he cannot translate: "I do not want to be, how do you say, disrespectful," the admiral says to the mayor, "but when I came here on a ship many years ago this city was dirty, ugly, it was an industrial city. This harbor was, oh, a mess. Look at it today. You have done miracles, my friend."