ATLANTA - In the nationwide fight to strengthen housing finance authorities, Georgia's governor is out in front.

Gov. Zell Miller persuaded lawmakers last year to amend the charter of the Georgia Housing and Finance Authority so it could sell industrial development bonds. He went further early this year, trying to pass legislation that would allow the agency to establish a bond bank and take over the state's hospital finance authority. He has vowed to try again in 1993, and officials at the housing authority are counting on eventual success.

The 18-year-old agency needs strengthening not only to fill a gap in Georgia's economic development efforts but to help ensure the authority's survival, said its executive director, Terrence Duvernay.

"If you've got expanded authority and are able to produce more for the state than just mortgage revenue bonds, I think it just plain puts you in a better position, politically and financially, to continue as a housing finance authority," he said. "I also think it's a more efficient use of resources."

Some Georgia lawmakers disagree.

"I'm very skeptical about our housing authority taking on a lot of extra bond powers," said one state representative, who deelined to be identified. "I'm not sure it's good public policy because it sows seed for conflict with local development authorities and seems to me a distraction from the main purpose of the authority, which is to help provide affordable housing."

In addition, credit analysts say that widened powers could lead to issuance of debt that might compromise the overall strength of the authority.

"As we give more and more credit for fund balances [at housing authorities], it could be a concern if the issuer goes out and does a lot of IDBs that could put a strain on those reserves," said Wendy Dolber, a director at Standard & Poor's Corp.

Mr. Duvernay said that, even with expanded powers, thp authority will still focus on housing. And, he said, the sale of IDBs will not burden the authority's reserves because the agency will follow cautious underwriting standards and use credit enhancement. He noted that Standard & Poor's has recently upgraded the authority's $800 million of mortgage revenue bonds to AA-plus from AA and designated it a "top-tier" agency.

Doug Shelby, the authority's director of planning and program development, said the authority would avoid conflict with any local development authorities by focusing its IDB program on rural areas not currently being served.

"The idea is to bundle together a bunch of small loans - the smallest

could run less than $200,000 - and

fund them out of letter of credit-backed IDB issues that could be as small as several million dollars or as large as about $15 million," he said. "It's not a new idea, of course, but it will take a lot of planning and staff time."

The authority hopes to sell its first IDB deal this year, he added.

Mr. Duvernay said the bond bank, if approved, could also stimulate Georgia's economy by permitting the authority to purchase debt issued by local governments for capital projects. He added that the authority would be protected by the pledge from participants to meet debt service. Any local government could request funding and there would be no preset limits on the amount borrowed.

The legislation cleared the state Senate but fell victim in the House to worries about broadening the authority's powers.

A National Fact of Life

"The bond bank would be similar to the IDB effort because it is a composite program that would allow smaller borrowers to tap the debt market," Mr. Duvernay said. "Right now, many local governments are shut out because of the problem of access and the high fees involved."

As controversy about the Georgia authority's foray into non-housing debt continues, expanded powers for housing agencies have become a fact of life in many states.

According to the National Council of State Housing Agencies, at least 14 other state housing authorities offer non-housing programs, with authorities from at least four other states - Arkansas, Wisconsin, West Virginia, and Colorado - empowered to sell non-housing bonds.

Arkansas is the most extreme example of centralization: Almost all state-level bond-issuing powers, except higher education borrowing, are combined in what was formerly the housing agency. The Arkansas Development Finance Agency was created in 1985 as party Gov. Bill Clinton's comprehensive program of economic development, according to Bob Nash, the agency's current executive director.

In Wisconsin, West Virginia, and Colorado, state legislatures have also responded to economic development needs by broadening the powers of housing finance authorities. However, such expansion has been limited to the ability to issue industrial development bonds.

In Wisconsin, the state Legislature revised the charter for the state's Housing Finance Authority in 1985 in response to a broad consensus that businesses needed help. The move allowed the authority, then 13 years old, to sell up to $105 million of industrial development bonds, said Richard J. Longabaugh, executive director of the Wisconsin Housing and Economic Development Authority.

"This change has been particularly helpful for us at the housing authority because we had a reputation in the state for being antibusiness," he said.

Mr. Longabaugh said that in issuing about $100 million of IDBs since 1986, with no more than $6 million to any one issue, the authority has been careful not to encroach on economic development projects sponsored by local bond

In West Virginia, legislators gave the state's Housing Development Fund the authority to sell industrial development debt in 1987 following a devastating flood in 1985, according to Marty Gargano, the fund's finance director.

"The legislators recognized that there are times when small businesses needed a fast infusion of capital, and they decided this would be a very efficient way to do it," he said. The authority has so far sold $10 million of such debt for mental health-related facilities through its Community Provider Financing Program, he added.

Mr. Gargano said state officials are considering legislation that would further expand the housing authority's powers by allowing it to sell water and sewer revenue bonds.

Colorado's state housing agency also was given legislative authority in 1987 to sell economic development bonds. Passage of the legislation followed a request from the small business community, according to Dave Herlinger, executive director of the Colorado Housing and Finance Authority.

"The big advantage for the state was that, by getting economic development powers within the housing authority, Colorado in effect got a freebie because we had the infrastructure here to issue these bonds," Mr. Herlinger said. "Because the economy was so horrendous, the idea of a stand-alone IDB authority had never gone anywhere. People figured it would cost too much to set up."

Mr. Herlinger said $11.7 million of tax-exempt industrial development debt has been sold by the housing authority, although taxable bonds have also been issued and sold to the state's Public Employees Retirement Association in $10 million increments.

According to Wooten Epes, former director of the Arkansas Development Finance Agency, multipurpose housing authorities are most likely to evolve in small- or medium-sized states with a conservative borrowing tradition and a scarcity of other bonding agencies.

"In Arkansas, all of these things came together to such an extraordinary degree that the situation was probably unique, though Georgia has some of the same elements," said Mr. Epes, currently a bond lawyer with Kutak Rock in Little Rock. "The least likely candidate would be a large state where the housing authority is surrounded by clearly defined stand-alone issuers."

~A Third Phase'

One state housing agency that fits Mr. Epes' profile as a likely candidate for expansion is the New Mexico Mortgage Finance Authority.

Executive Director Jim Stretz predicted that his authority would eventually be given the power to sell industrial development bonds. He noted that in 1989 the state Legislature voted to grant his agency that power, only to see the bill vetoed by then-Gov. Garrey E. Carruthers.

"It's my guess that we will get it within the next several of years, and that the track record of housing bond authorities in other states could help us do this," Mr. Stretz said.

Suzan Snodgrass, finance director at the Washington State Housing Finance Commission, said that although her state's legislators currently do not support IDB issuance, widespread IDB issuance by other housing authorities could lead policymakers to consider it.

In Georgia, many observers say the prospects for further expansion of the state Housing and Finance Authority's powers are good, despite the defeat of the legislation to set up the bond bank and absorb the Hospital Finance Authority.

With the backing of two important groups, the Georgia Municipal Association and the Georgia Association of County Commissioners, the authority hopes to overcome objections to the bond bank.

Mr. Duvernay attributed the defeat during the 1992 session to the crowded legislative calendar and to misunderstanding about the purpose of the bond bank on the part of lawmakers and investment bankers.

One of the objecting bankers, who declined to be identified, said a strong push by Georgia's governor would likely carry the day.

"I'm not at all happy about the prospect of a bond bank at GHFA, but it's my guess that if the governor presses for it early in the session, it will get passed," the banker said. "Even the bankers that feel strongly. about it are probably not willing to go toe-to-toe for long against Zell on this one."

John McEvoy, executive director of the National Council of State Housing Agencies, believes Georgia's effort to expand its authority's bond-issuing powers could help to shape other housing authorities' forays outside of housing debt.

"Housing authorities may be on the verge of a third phase," Mr. McEvoy said. "First came the struggle to get established, then a broadening of our role as facilitators of affordable housing.

"Now, with the phenomena of urban exodus and changing rural populations, states are increasingly thinking about centralizing bonding authority in housing agencies. Georgia has a broader concept of this than most and could provide the seismic event that will lead the next wave."

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