CHICAGO -- The Detroit City Council delivered another blow to Mayor Coleman Young's plan to sell the city's waste incinerator Friday when the council for a second time rejected energy purchase contracts crucial to the sale.

The city is counting on the proceeds of the $54 million sale of the Greater Detroit Resource Recovery Authority incinerator to balance its budgets for the last two fiscal years.

However, the incinerator sale to Philip Morris Capital Corp. for tax credits is contingent on the city's ability to renew an agreement with Detroit Edison to purchase steam from the facility. And that agreement is contingent on getting new energy purchase contracts between the city and the utility approved.

Some council members, including Council President Maryann Mahaffey, who voted against the contracts in the 5-to-4 vote, had problems not only with the contracts, but also with the incinerator sale.

Ms. Mahaffey said the city should explore selling the incinerator to other investors that perhaps "would be willing to pay more to the city in return for these lucrative tax credits." She added that the energy purchase contracts with Edison would hurt future city budgets by costing the city more than $279 million over 18 years. She also contended that the contracts should be separated from the incinerator sale.

Mayor Young had no comment on the council's action, according to his spokeswoman Teresa Blossom. Bella Marshall, the city's finance director, would only say the city was "still speaking" to Philip Morris and to Detroit Edison officials. A spokesman for Philip Morris could not be reached for comment.

City officials have said in the past they needed to realize the revenues from the $54 million for fiscal 1991 by Aug. 30. The city's fiscal year ended June 30. Philip Morris is facing a Sept. 30 filing deadline with the Internatl Revenue Service in order to realize the tax credits this year.

Ms. Mahaffey contended the city has until next August to complete the sale and wipe the deficit off the fiscal 1992 books. In the meantime, she said measures could be taken to reduce the current $2.12 billion budget.

"We are willing and eager to sit down and look at the revenue projections to make the necessary adjustments," she stated.

Last Thursday, city finance officials put out a statement that said the $54 million deficity would be added to the current year budget unless the plant is sold. Yesterday, Ms. Marshall said Detroit could face an even higher deficity and that the administration was working on a deficity reduction plan.

The city council had rejected the Edison contracts at its Aug. 5 meeting, claiming the information provided by the administration was inadequate. Since then the mayor has claimed Detroit would be put on the "brink of bankruptcy" if the council persists in not approving the contracts causing the sale of the incinerator to fall through.

Ms. Marshall has warned that without the $54 million from the sale to cure the deficits, the city's Baa rating with Moody's Investors Service and BBB rating with a negative outlook from Standard & Poor's Corp. would probably be lowered.

In an Aug. 20 letter to the council, the mayor referred to a recent credit report from Moody's that said "failure to take expeditious action to approve the contracts would have severe negative implications for the city's credit rating."

"The sky is falling. The threat is real," the mayor said in the letter.

However, the mayor failed to get a quorum of council members at the Aug. 19 and 23 meetings. The full council convened a week ago in a meeting called by Ms. Mahaffey, but deferred voting on the contracts until Friday.

If the sale does not go through, city officials have outlined a chain of events that could take place. If Detroit's ratings dip below investment grade, the city would be unable to proceed with a planned sale of about $175 million of bonds to pay for pollution control equipment for the incinerator.

Without the equipment, the facility could face a shutdown by the Michigan Department of Natural Resources. If the incinerator is closed, the city would have to find revenue sources other than tipping fees and energy sales to pay debt service on the $438 million of limited tax GO bonds issued for the facility in 1986.

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