Philadelphia’s Plunge Tied to Political Ill Will : Finances: The city must raise $206 million by Dec. 1 or be driven into bankruptcy. ‘This is it, this is Armageddon,’ one official says.

This city of handsome Colonial architecture and cutthroat political rivalries is facing its worst budget crisis in recent history unless it can stage a Rocky-style comeback in the credit markets.

Pennsylvania’s governor, state legislators, local politicians and banks must unite to help raise $206 million, or the nation’s fifth-largest city will run out of cash by Dec. 1. The result could be unpaid salaries for police officers and firefighters and draconian cuts in municipal services.

“This is it, this is Armageddon,” said Philadelphia’s Controller Jonathan A. Saidel. “When you run out of cash, you run out of cash.”

Unlike New York City’s financial crisis 15 years ago, Philadelphia’s plight is more the result of political paralysis than profligate spending.

Rivalries among local politicians and historic animosity toward the city by some state legislators complicate the situation in a city battered by a shrinking tax base and the flight of a half-million residents to the suburbs in the last decade.

How fractious can Philadelphia politics be? Some civil servants caught up in the budget crisis offer a tongue-in-cheek plot for another version of Rocky, the Sylvester Stallone movies that are set in Philadelphia: Put the champ in the ring with a bunch of Pennsylvania’s bickering politicians. That really would be a fight.

“Historically in Pennsylvania, Republicans and Democrats outside of Philadelphia get elected to the Senate or the House by stating in their brochures, ‘I promise never to help the City of Philadelphia as long as I live,’ ” Saidel said.” . . . Those rivalries go back beyond Abraham Lincoln when the city was Republican and the suburbs were Democratic.”

Saidel’s caricature is designed to drive home a point. Many Philadelphia politicians believe that relations between the Capitol and City Hall are much closer in other states, notably New York.

“The flow of population and jobs to the suburban rings means that political power has shifted from the central cities,” said Anita Summers, professor of public policy at the University of Pennsylvania’s Wharton School. “Legislatures don’t look upon the cities so kindly. Philadelphia has had a larger exodus than most and the cooperation of the state Legislature has been more difficult (to obtain) than most.”

Compounding the Philadelphia-Harrisburg split are relations between Mayor W. Wilson Goode, other elected municipal officials and an often bickering 17-member City Council.

“I think it is a management problem,” said Hyman C. Grossman, managing director of Standard & Poor’s Corp.’s municipal bond department. “By management, it is a combination of the executive and the City Council. They haven’t developed a credible financial plan for the last three of four years.”

During his more than six years as mayor, Goode, a graduate of the Wharton School, has worked to maintain municipal services while providing for Philadelphia’s poor. But the situation has steadily worsened until a quarter of Philadelphia’s residents are at or below the poverty level.

Against this background, the city is forced to finance 85% of local governmental expenditures--including many tasks that receive state aid in other parts of the nation.

Some financial experts believe that the imbalance is made even worse by an antiquated tax structure that does not reflect the growth of service industries, financial institutions and insurance companies in Philadelphia.

“We have a tax system that was perfect for Philadelphia in 1950,” said Betsy C. Reveal, the city’s finance director, “when we were basically blue collar wage earners, small businesses and manufacturers and we got our money from wage taxes, from homeowners who were at the peak of their wage-earning years. Now they are retired on fixed incomes and the manufacturers are gone.”

Even some of Goode’s staunchest supporters say that the mayor’s political credibility still has not recovered from the May, 1985, assault by police on the fortified headquarters of MOVE, a local radical group. Police fired more than 10,000 shots into the structure and finally dropped a bomb on its roof. Eleven people inside the house were killed and 61 houses in the neighborhood were destroyed by the explosion and fire. For a time, a grand jury considered bringing criminal charges against the mayor and his advisers.

The perception of indecisiveness in the MOVE crisis has lingered, hampering Goode’s leverage in Philadelphia’s financial emergency, politicians sympathetic to the mayor admit.

Last month, Standard & Poor’s, the powerful credit rating company, dropped the rating of the city’s $1.3 billion in general obligation debt to CCC, the equivalent of junk bonds. It said the city faced both an immediate cash crisis and a longer term loss of investor confidence.

It warned that unless Philadelphia can raise cash, other debt service payments “appear to be at grave risk.”

“Philadelphia’s credit deterioration has occurred over time, as a result of lack of a diversified and stable revenue base,” the rating company said.

It said that social service costs mandated but not fully covered by the state, coupled with decreased federal aid and lack of political consensus on what action should be taken all contributed to the problem. The rating firm also said that the failure of Philadelphia’s elected leaders was compounded by disagreement among business executives about the city’s direction and reluctance of state officials to respond to the city’s financial decline.

The long-simmering crisis came to a boil Sept. 12 when plans to sell $375-million in short-term loan notes collapsed after the Swiss Bank Corp. withdrew its backing for part of the deal. Suddenly, the prospect of running out of money by December loomed.

In recent days, a search for consensus among city, state and business leaders has begun in earnest. Some financial experts believe progress is being made.

Pennsylvania’s Gov. Robert P. Casey, in a move designed to reassure investors, pledged he would never allow Philadelphia to slip into bankruptcy.

“Philadelphia is important to our state, and we have no intention of watching it disintegrate, financially,” said a spokesman for the governor, adding that “the fact Philadelphia’s leadership is beginning to explore consensus options is certainly an encouraging development.”

In comments accompanying the lowering of the city’s debt rating, Standard & Poor’s said consensus both inside and outside municipal government on measures necessary to restore financial health is vital.

It envisioned a financial oversight board similar to the one created during New York City’s fiscal crisis and raised the possibility of the city raising money through bonds guaranteed with a dedicated revenue source. It said that more state aid was necessary to reduce the difference between what the city pays for social services and what it receives from Harrisburg.

In a recent report, Philadelphia’s finance director Reveal suggested a package of possible remedies, including passage of a local sales tax authorization, loan guarantees for short-term notes or purchase of such notes by the state or by Pennsylvania’s pension fund.

Saidel predicts a special session of the state Legislature will be called after the November election to consider plans to help Philadelphia. And, reflecting the opinion of some other city officials, he is optimistic a solution can be found before cash runs out in December.

“We need a partnership with Harrisburg,” Philadelphia’s comptroller said. “If there are strings attached with oversight, then so be it. People have to set aside their egos in the hallway and not nitpick about who is going to take the first shot on the basketball court when they are locking the gates and we are not allowed to play.”