PHILADELPHIA -- Mayor-elect Edward G. Rendell announced yesterday that Samuel P. Katz, a former political rival, will act as Philadelphia's chief financial adviser when the new administration takes office in January.

Mr. Rendell, a Democrat, said the selection of Mr. Katz, a Republican, and his firm, Philadelphia-based Public Financial Management Inc., signals his readiness to reach across party lines in solving Philadelphia's fiscal crisis.

Mr. Katz this year made a run for the mayor's office himself, but was defeated in the May primary. for the past three months, he ran the campaign of Mr. Rendell's chief opponent, Republican Joseph M. Egan.

Mr. Katz has been a vocal critic of the current administration, arguing that the policies of Mayor W. Wilson Goode have only worsened the city's fiscal standing.

Mr. Rendell said PFM has agreed to start work immediately in helping his transition team develop a fiscal strategy, adding that the firm will work for free until inauguration day on Ja. 6.

"I don't think there is anyone who knows the financial problems facing the city better than Sam Katz and John White," Mr. Rendell; said, referring to PFM's two co-chief executive officers.

PFM is the nation's leading financial advisory frim for municipal bonds, with $6.7 billion of new-issue volume to its credit in the first nine months of 1991, according to Securities Data Co./Bond Buyer.

The firm so far this year already is ahead of its total for all of 1990, when it earned the number one ranking for $6.5 billion in volume.

PFM's first order of business will be to help Mr. Rendell draft a five-year fiscal strategy that is required before the city's oversight board can sell an oft-delayed deficit bond issue.

Mr. Rendell said he spoke on Wednesday with Mayor Goode, who agreed not to submit his own five-year plan during the eight weeks remaining in his term.

Instead, Mayor Goode will work with the Rendell team on its proposals. Mr. Rendell said he hopes a plan will be ready for submission to city council by the end of the year, but he added that he does not consider that a final deadline.

In addition to the five-year plan, the deficit bonds also are being held up by another unmet requirement: approval of a power-sharing agreement with the oversight board, the Pennsylvania Intergovernmental Cooperation Authority.

Mr. Rendell said he has tapped Alan Davis, a former city solicitor, to help the transition team cope with legal issues blocking the agreement. Mr. Davis also has agreed to work on a pro bono basis until January, Mr. Rendell said.

A key problem with the powersharing agreement has been union opposition to a provision that would allow the oversight board a say in upcoming union negotiating sessions.

A major criticism of Philadelphia's fiscal policy has been its contracts with city unions, which independent analysts and several government officials said have been too generous. For that reason, members of the board are insisting on keeping the disputed oversight provision in the power-sharing agreement intact. But city council so far has been unwilling to comply.

Mr. Rendell declined to say whether he would insist on giving the oversight board the role it is seeking in labor negotiations, but he stressed that as it now stands, there are many aspects to the agreement that he would like to change.

The mayor-elect had antagonized some union representatives during the campaign by expressing support for the idea of privatizing certain city services now being run by municipal unions.

Mr. Rendell said PFM will immediately begin analyzing the city's cash flow, to see just how dire the crisis has become, Mr. Rendell said. Philadelphia officials expected to have the proceeds of a bond sale in hand by now but hae been forced instead to rely on high-cost short-term note borrowings to keep the city afloat.

The most recent of these closed yesterday but turned out to be a big disappointment for the city. Originally slated as a $150 million mix of taxable and tax-exempt securities, the city then announced it "had orders" for only $100 million.

As the deal progressed, that figure was scaled back to just $43 million, and Mr. Katz said yesterday that he believes the final amount will be "significantly less" than even that modest sum. He said it is unclear whether that will be enough to get the city to February, when tax revenues will begin to accumulate.

Mr. Katz criticized the city's decision to try to tap short-term markets in the first place, saying it helped erode confidence on Wall Street. The key to restoring that lost respect in the financial markets will be to demonstrate a new spirit of cooperation among the various divisions of government, especially between the mayor's office and city council, Mr. Katz said.

Mr. Rendell said he will work closely with city council, as well as the oversight board and city unions, to restore Philadelphia's lost reputation.

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