CHICAGO -- The Detroit City Council reversed itself yesterday when it approved energy purchase contracts with Detroit Edison that the council had rejected twice within the last month.

Bella Marshall, the city's finance director, said the 6-to-3 vote in favor of the contracts meant the city would "pull out all the stops" to proceed with the planned sale of the Greater Detroit Resource Recovery Authority's incinerator to Philip Morris Capital Corp. for tax credits.

The city is counting on the proceeds of the $54 million sale to balance its budgets for the last two fiscal years.

City officials have said council approval of the Edison contracts was a necessary element for the sale to take place. That is because the incinerator sale is contingent on the city's ability to renew an agreement with Detroit Edison to purchase steam from the facility. Also, that agreement is contingent on the approval of the new energy purchase contracts between the city and the utility.

Last Friday, the council voted 5-to-4 to reject the contracts. The council also voted the contracts down on Aug. 5.

Teresa Blossom, a spokeswoman for Mayor Coleman Young, said with yesterday's affirmative vote, the council also waived reconsideration of the energy purchase contracts -- an action that will prohibit another council vote on the issue.

Ms. Marshall said while the city has to make up for lost time, she hoped the sale would be completed and the city would have the $54 million by the end of this month. She pointed out that the approval of the energy purchase contracts would resolve the issue of incinerator steam sales to Edison, with Edison rescinding its cancellation of the sale. A related sale of up to $175 million of bonds for pollution control equipment at the incinerator should take place within 30 to 45 days, she added.

Council President Maryann Mahaffey, who voted against the contracts on all three occasions, said she believed she voted correctly and that it was the effect of the contracts and not the incinerator that she was against.

"I think future generators are goin to suffer as a result of this," she explained, referring to the $278 million she said the contracts will cost Detroit over the next 18 years.

The council's previous rejections of the contracts led Mayor Coleman Young to warn that Detroit would be put on "the brink of bankruptcy" if the council persisted in not approving the contracts and causing the sale of the incinerator to fall through.

City officials also painted a doomsday scenario that had Detroit's ratings fall below investment grade, causing the sale of the pollution control bonds to be canceled. That in turn would result in the state pollution regulators to shut down the facility, which would force the city to find alternative revenue sources to pay debt service on the incinerator's $438 million of outstanding limited tax GO bonds.

The struggle between the executive and legislative branches of government over the Edison contracts raised some concerns with rating agency officials, who were looking for an quick resolution to the incinerator sale -- in the works for over a year.

Yesterday, Paul Devine, a vice president and manager of the Great Lakes Region at Moody's Investors Service, which rates the city's general obligation debt Baa, said while the council's latest action bought Detroit some time, the city still had problems.

"The city needs to get the sale past them to confront some very serious problems," he said. "There's a long-term financial imbalance to be addressed that has been manifested in [the city's] budgets in the last few years."

The city had tied the $54 million from the sale to the elimination of a $15 million deficit in fiscal 1990 and a $39 million deficit in fiscal 1991 that remained even after the city used its $76 mullion rainy-day fund to help balance the budgets.

Art Grisi, a senior vice president at Standard & Poor's Corp., said the agency could examine the city's GO rating of BBB with a negative outlook in conjunction with rating the pollution control bonds.

City officials have talked about issuing tax-exempt and taxable bonds, backed by the city's GO pledge and its share of distributable state aid, through its Economic Development Corp. in a deal that may be totally or partially insured.

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