Downgraded

Chicago: standard to poor

When Harold Washington was elected mayor of Chicago last spring, he boldly vowed to break the "ancient, decrepit and creaking machine" that has controlled the city for decades. In turn, the machine forces, led by Alderman Edward Vrdolyak, chairman of the Cook County Democratic Party, declared war on Washington.

The resulting wrestling match, focusing on the city's budget woes, has nearly brought the so-called city that works to the edge of chaos. And last week Wall Street, like a father weary of the squabbling of two siblings, stepped in with a stinging rebuke. The New York investment rating firm of Standard & Poor's Corp. downgraded the city's credit rating on certain notes and bonds from single A-minus to triple B-plus. That is an official assessment that is likely to cost the city millions of dollars in increased interest charges on new debt and spur higher interest costs for taxpayers. Moreover, it means a loss of prestige for Chicago, casting it into the same category as Cleveland and New York, cities that once flirted with bankruptcy.

Standard & Poor's said that Chicago "has exhibited chronic financial stress" since 1978, and added that the situation has continued to deteriorate under the Washington administration. It pointed out that the city's corporate-fund unreserved balance (essentially surplus cash available) has dropped from $29 million to $300,000. For his part, Washington issued a terse statement saying that the Wall Street action was a "disappointment." The mayor may have further letdowns in store for him: next month Moody's Investors Service will complete a review of Chicago's fiscal condition, which may lead to yet another downgraded rating for the city.

The city's financial image began to fray in 1979. Newly elected Mayor Jane Byrne reported that her predecessors had used creative accounting in order to make the city's bottom line look better than it actually was. But then Byrne, who was facing a bitter re-election battle, played a similar patchwork game with her 1983 budget.

Washington, who had declared during the campaign earlier this year that taxes would have to be increased to pay for those fiscal sins, made a desperate effort to stave off the financial branding from Wall Street. In July he made a television address, declaring the need for "immediate and drastic action" to prevent the city from going broke. According to the mayor's calculations then, the city was facing a $135 million deficit in its $1.9 billion budget.

Washington effectively pressured his foes, known as the Vrdolyak 29, to rescind a hefty portion of the $22 million in property tax cuts passed during Byrne's last year. (The Vrdolyak 29 represent a bloc on the 49-member city council.) He warned them that if the council refused, he would lay off 2,050 city workers, mostly fire fighters and police rookies and sanitation workers. After a boisterous meeting two weeks ago, where more than 1,000 fire fighters and their families marched and waved placards in angry protest, the council partly caved in to the mayor: it voted to take back $11.9 million of the tax cuts. In turn, Washington agreed to put the new layoffs on hold.

Armed with the tax compromise, the first sign that the mayor and his council can work together, Washington came to New York City this month in an eleventh-hour, unsuccessful effort to persuade the Wall Street arbiters that order could yet emerge from the chaos.

Chicago's business community had been braced for the jolt from Standard & Poor's. "With all the problems at city hall, Wall Street couldn't have confidence," said David Keller, president of Wieboldt's, a major department-store chain. "Once the city council and mayor start to work together, we'll be back to doing business." Initial signs are that the fighting factions may take that advice to heart. Vrdolyak has already offered an olive branch. "The mayor said he doesn't need the city council to run the city," says the feisty machine leader. "But he does need the city council and the city council needs the mayor. You can't be fighting city hall when you are city hall."

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In a bizarre aside to Washington's public troubles, Chicago police last week arrested Lawrence Oberman, 38, a flashy real estate broker, on charges that he offered $1 million to have Washington assassinated. The broker explained to police hat he was concerned that Washington's fiscal strategy would harm the city's real estate business. This file is automatically generated by a robot program, so viewer discretion is required.