Mayor Edward Rendell of Philadelphia is hoping the city's debt will reach investment-grade status after he meets with rating agency officials early next month.

Investors generally expect an upgrade, although no one knows how they will react if the credit agencies don't move in unison.

Rating agency officials say they want the city to demonstrate that Rendell's fiscal reforms are here to stay so that the city will not revisit the budget crisis of 1991.

Speaking at a reception in Philadelphia sponsored by Municipal Bond Investors Assurance Corp., Rendell discussed the city's fiscal overhaul and the implications for Philadelphia of the new Republican majorities in Congress and Pennsylvania's legislature.

The Republicans, who already held Pennsylvania's Senate, gained a one-vote margin in the state's House this week when Rep. Thomas Stish left the Democrats to join them.

Rendell, a Democrat, said the shift mattered less for the city than the new Republican Congress did. First, he said, the majority is razor-thin, and second the legislature has a history of consensus-building. So even though a big deficit is projected for the state's fiscal year 1996, Rendell said the spending cuts "will be painful in a bipartisan way."

Jay Abrams, a vice president at Standard & Poor's Corp., said Rendell's fiscal reforms may give him more standing in the eyes of state Republicans. "That would be my guess," he said.

Standard & Poor's rates Philadelphia BB with a positive outlook, and Abrams said the rating agency is looking for the city to demonstrate that fiscal reforms have been embedded. "We're waiting to see how institutionalized their reforms are," he said.

Paul Devine, vice president and assistant director at Moody's Investors Service, agreed. "Clearly, there has been improvement financially," Devine said. "We are looking for indications to be able to make the judgment that new management practices have been institutionalized." Moody's rates the city Bn.

As for the Republican Congress, Rendell said that in some ways the new leadership was probably more open to giving cities some of the breaks that they have been requesting for years.

For example, he said, conservative Republicans appear more receptive to relieving the burden of unfunded mandates, which, he said, "are killing the city" by diverting local resources from programs that encourage jobs and investment.

A cut in the capital gains tax was another area where he saw the chance for common ground. "I am for a 100% exemption in the capital gains tax for investment that produces jobs," he said.

An exemption aimed at encouraging investment in distressed urban areas, coupled with Philadelphia's being designated an empowerment zone would greatly aid the city's efforts to attract business, he said.

President Clinton is expected to announce which cities will be designated for empowerment zones sometime in December. The zones were passed as part of the big tax package enacted in 1993.

Rendell also suggested that the federal government develop a capital budget for repair and infrastructure, or raise the gasoline tax to subsidize a trust fund for such purposes.

Promoting a massive infrastructure program would put sizable numbers of people hack to work, Rendell said.

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