Redevelopment agencies rated by Moody's Investors Service have not been hampered by a California requirement that they allocate a portion of their revenues to help fund public education, the rating agency said in a recent report.

To date, the 63 redevelopment agencies whose tax allocation bonds are rated by Moody' s "have been able to meet the [school funding] obligation through the application of funds on hand," the rating agency said.

If such tax increment transfers continue indefinitely, however, debt levels for the agencies might increase, Moody's said. In such a scenario, agencies might have to transfer funds from their low- and moderate-income housing set-aside funds, or borrow from their sponsoring city or county, Moody's said.

The rating agency's comments were contained in a report released Aug. 22 titled "Evaluating the Credit Quality of California Tax Allocation Bonds."

California, which has 375 redevelopment agencies empowered to issue long-term obligations, is the nation's largest market for tax allocation bonds, with more than $7 billion outstanding, the report said. Tax allocation bonds are the predominant financing tool used by redevelopment agencies.

Ratings on such bonds tend to cluster toward the bottom of the investment-grade rating scale, Moody's said.

"The debt of most redevelopment agencies in California is rated Baa or Baal, and the highest unenhanced rating on a redevelopment issue is currently an A," the report said.

The ratings are at the low end of the scale because of the limited size and scope of most redevelopment project areas. Also, the agencies have relatively narrow tax bases, Moody's said.

Brad Altman, Los Angeles

Long and short-term public debt issuance by state and local issuers in California totaled $18.5 billion during the first six months of 1994, a drop of 38% from the same period a year earlier, the California Debt Advisory Commission said.

During the first half of 1993, state and local issuers sold $29.9 billion of debt.

The main reason for the drop this year was a rise in interest rates that prompted a steep decline in refunding issuances, the commission said.

For the first half of 1994, refundings accounted for $5.4 billion, or 29% of total debt sold, while in the first half of 1993, refundings totaled $11.5 billion, or 38% of total debt sold.

California, along with its authorities, departments, and agencies, was the leading issuer of long- and short term debt during the first half of 1994. The state sold $6.3 billion of debt, a 28% decrease from the $8.8 billion issued at the state level during the same period in 1993. Because this year's figures are for the first six months, they do not include Californians $7 billion of short-term borrowings in July.

Virtually all types of debt issued by local governments also decreased from the previous year. For example, certificates of participation and leases totaled $1.6 billion in the first half, compared with $3.6 billion in the year-earlier period.

Redevelopment agency financings using tax allocation bonds fell 54%, to $855 million, in the first half of the year, compared with $1.9 billion in the first six months of 1993.

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