New law seen making issuing GO debt easier in Washington state.

LOS ANGELES -- Issuing non-voter-approved general obligation debt should be easier and cheaper for Washington State municipalities beginning this week, Moody's Investors Service said.

A new state law taking effect on Thursday allows municipalities to double the limit of non-voter-approved GO indebtedness to 1.50% of assessed property valuation. The former debt limit capacity was 0.75% of assessed valuation.

The new law does not change the requirement that municipalities hoping to exceed the 1.50% cap must win voter approval by a 60% margin.

The legislation could cause a decrease in the number of lease financings in Washington State, said a credit comment by Nikolai J. Sklaroff, a Moody's assistant vice president.

The Moody's report said the legislation is "expected to reduce, if not eliminate, the need to use certificates of participation by Washington municipalities" because issuers will probably take advantage of their new ability to issue additional limited-tax GO bonds.

In recent years, municipalities that borrowed in excess of the 0.75% cap would typically issue certificates of participation.

But structuring a COP financing is more complex than a GO issue, which meant issuers who sold COPs paid "increased costs of issuance," Moody's said. Consequently, COP issuers "were reportedly paying higher interest rates due to market penalties associated with certificates of participation."

However, overall issuance of non-voted GO bonds "will not necessarily increase dramatically as a result of the statutory change," the rating agency said. Frequency of issuance depends on how close a municipality is to reaching the 1.50% non-voted GO debt limit and the property tax rate limit, Moody's said. The tax rate for cities is $3.60 per $1,000 of assessed valuation.

"As growth in assessed valuation has slowed dramatically in recent years in many parts of the state, a number of municipalities are approaching those limits already," Moody's said.

Despite the new law, Moody's said the credit quality of outstanding COPs "remains unchanged." Moody's rates 14 municipal leases in Washington State.

If municipalities increase their level of debt payable from the limited-tax revenue stream, "taxing margins could be eroded and security could diminish," Moody's said. Such a scenario might hurt an issuer's credit quality because greater pressure would be placed on these limited repayment sources.

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