CHICAGO -- The Detroit City Council on Monday approved a $2.12 billion budget for the next fiscal year, but a dispute between the council and Mayor Coleman Young over one-tenth of 1% of the budget -- $2 million -- could land the two parties in court for a final resolution.

The disagreement between the mayor and the council might be the least of the problems facing the city's fiscal year 1992 budget, analysits said, because of the uncertainty on the level of state aid to the city and the use of some one-time revenues.

Mayor Young said the council overstepped its power by eliminating 10 civilian deputy police chief positions and by merging the Cable Television Commission into the Public Information Department. The resulting $2 million savings from the moves was then appropriated for other uses.

The mayor said, however, that the actions were illegal under the city charter, so the city is still required to fund the deputy police chief positions and cable commission, meaning the budget is out of balance by $2 million.

"The City Council has attempted to use the budget in an illegal manner to reorganize city government," the mayor said in a written statement. "In doing so, it has relied on illegal acts to produce revenue and has placed the budget out of balance.

Bob Berg, a spokesman for the mayor, said the administration's legal staff is researching the matter and the mayor could take the council to court.

John Marco, a budget analyst for the council, said council members' interpretation of the charter allows them to take the actions they did.

"It may well be a third party -- presumably the courts -- will have to decide this," he said. "The mayor can't set himself up as the judge on this."

Bettie Buss, a senior research associate with Citizens Research Council of Michigan, a watchdog group, said there is no clear court precedent on the dispute, but that it appeared the mayor's interpretation of the charter was correct.

"The council has the power to reduce or increase departmental budget requests, but it doesn't have control over specific line items in a department's budget," she said.

Ms. Buss said the council in the past has attempted similar budget actions that Mayor Young considered illegal, but that the council either backed down or a compromise was reached before the matter ended up in court.

Council President Mary Ann Mahaffey could not be reached for comment.

Ms. Buss said the spat between the council and the mayor is minor compared to other problems in the budget.

For example, total projected state aid for fiscal 1992, which begins July 1, is $292 million, a figure that Ms. Buss said is unrealistic.

"First of all, the state has its own revenue problems," she said. "Secondly, you have a governor [Republican John Engler] who does not see the role of the state in funding the city as past governors have."

Standard & Poor's Corp. in a May 6 credit comment on the mayor's proposed budget for next fiscal year warned of the possibility of reduced state aid.

"Any reduction in state aid funding will put greater pressure on detroit's budget," the rating agency wrote.

Standard & Poor's also said the city's long-term finances could be strained by the depletion of its rainy-day fund to help balance the current year's budget and the use of some one-time revenues in the fiscal 1992 budget.

One-time revenues include a $16.5 million interfund loan from the Capital Detroit Downtown Development Authority and acknowledgment under generally accepted accounting principles of $47.7 million of state aid before it is received.

"In short, the 1992 budget proposal, while addressing Detroit's short-term fiscal dilemma, may leave the city with even greater long-term financial troubles," the rating agency wrote.

Vladimir Stadnyk, a managing director at Standard & Poor's, said the rating agency had not received information from the city on the budget passed by the council, so he could not comment at this time.

Standard & Poor's rates $276 million of the city's outstanding general obligation debt BBB with a negative outlook. Moody's Investors Service rates $246 million of GO debt Baa.

Meanwhile, a city finance department official said the city still hopes to issue by the end of the month up to $175 million of pollution-control bonds, backed by the city's general obligation and its share of distributable state aid.

The new equipment would clear the way for a sale of the incinerator to a private party. The city relied in part on $54 million in federal tax credits that would be derived from the sale to balance its fiscal 1990 and 1991 budgets.

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