FROM THE discussion in the D.C. Council chambers the other night, you could get the idea that the city is sliding down the identical slope and toward the same fiscal morass that now engulfs Philadelphia and other direly endangered cities. "We are having a considerable amount of trouble getting people to buy our notes," said John Wilson, chairman of the council's Finance and Revenue Committee and a recognized expert on the city's fiscal affairs. "Banks at this time do not want to loan us any money any more," he added, "because cash-flow problems at the end of the fiscal year will be worse than this year."

City fiscal officials dispute this, but Mr. Wilson's concerns are on point. The purpose of the council's session the other night was to pass emergency legislation to meet new and potentially more expensive terms set by the banks that guaranteed the District's $300 million tax revenue anticipation notes. And the council had to swallow the conditions; otherwise the city couldn't meet the October payroll and pay several overdue bills, including a past-due Metro payment.

The District's cash-flow problems get worse each year. So do the deficits -- more than $90 million this year and a projected $200 million next year, according to Mr. Wilson. And the borrowings to cover cash-flow shortfalls are getting larger. The city paid $264 million Sept. 21 to cover last year's borrowing and will have to repay an estimated $320 million one year from now to cover the funds raised Sept. 20. Mr. Wilson cites overspending by city agencies, shortfalls in revenue projections and pay increases to a bloated work force as key reasons for the deficits, none of which has escaped the attention of investors. Moody's Investor Service gives the city the lowest investment grade rating of "Baa," making the District a below-average credit risk and placing it among the lowest six of the 25 largest cities in the country, only two rating notches above Philadelphia's "B" rating.

Yet the District of Columbia is not a hopeless case -- far from it. The strengths of this city are significant: a firm institutional base, a bright and competent new generation of political leaders and a special fiscal and mutually beneficial relationship with the federal government. All these and more suggest that this city, with proper management and direction, can and will reverse the course on which it was set not just by the mayor but by both indulgent branches of local government in recent years.