LOS ANGELES -- Local issuers in California relied more heavily on note sales this year than in 1990, reflecting concerns over budget constraints and state aid reductions, Moody's Investors Service said in a report scheduled for release today.

From June 1 to Aug. 31, the period when most note issuance usually occurs, Moody's said it rated 195 tax and revenue anticipation note deals in California. That is an increase of almost 17% from the year before.

"Provided with fewer revenues, a larger percentage of municipalities found the need to supplement monthly cash balances in order to meet operating needs," Moody's said.

By category, school districts accounted for the largest increase in note issues, with 19 more districts entering the note market this year than in 1990.

Uncertainty over the level of state aid at the time budgets were constructed helped bring more school districts into the note market, Moody's said.

Moody's also saw an increase in the dollar volume of short-term borrowings. Through Aug. 31, Moody's said it rated $3.07 billion of local notes, up from $2.45 billion the previous year. Counties accounted for the largest dollar volume increase, with average issue size up almost 12% from 1990.

In other trends, Moody's noted that the timing of note sales moved closer to the July 1 beginning of localities' fiscal years.

"They're definitely trying to maximize their interest earnings" to help offset reductions in traditional revenue sources, said Ron Junker, a senior analyst at Moody's who prepare the report with Michael Roberge, an intern.

Municipalities can maximize the spread between investment return and interest expense on note proceeds by increasing the length of time the funds are invested.

In 1991, Moody's said, 167 note deals were sold by July 15, up from 132 issues during the same period in 1990.

Moody's said pooled financings for notes continued to grow in popularity, with 27% of all 1991 note deals offered through pools, up from 23% the year before. Note pools can assist smaller issuers by increasing market access and lowering issuance costs through economies of scale, Moody's observed.

Rating quality on all the local notes remained generally stable, with 90.3% of the issues graded MIG-1 in 1991, down slightly from 92.8% in 1990. Moody's said it also reviewed the long-term ratings of 48 municipalities that issued notes in 1991.

None of those long-term ratings were lowered, which "illustrates that while a number of municipalities are experiencing reduced financial flexibility in the near term, the remaining credit fundamentals -- economy, debt practices, and administration -- serve as compensating factors at this time," Moody's said.

More than 96% of all California note deals issued by Aug. 31 were rated by Moody's. The new report focuses on trends in California note issuance from 1990 to 1991 and includes the results of long-term debt rating reviews done in conjunction with the note offerings.

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