New York State officials said yesterday they would probably sell $9 billion of tax-exempt bonds over a one-year period as part of the state's plan to purchase the Long Island Lighting Co.

But such a dramatic increase in the state's borrowing in just one year would probably cause yields of other state municipal issues to rise and also force local issuers to pay more on their borrowings, market participants warned yesterday.

Under the proposal, announced several weeks ago by Gov. Mario M. Cuomo, the state's Long Island Power Authority will sell revenue bonds to finance a state purchase of Lilco's assets. The New York Power Authority would Operate the utility.

Cuomo says the purchase would result in a 10% reduction in electric rates for Lilco customers. The utility serves Nassau and Suffolk counties on Long Island.

But Cuomo's opponent in the governor's race, Republican state Sen. George Pataki, says the proposal is a ploy to win votes on Long Island.

Several high-ranking state officials, including state Sen. Joseph Bruno, R-Brunswick, say the plan is unfair to state taxpayers, who would subsidize a multi-billion-dollar transaction that benefits only one region of the state.

While many investment bankers say they have studies demonstrating that the plan will reduce electric rates on Long Island, market observers have begun questioning the state's market savvy in selling the $9 billion of debt over just a 12-month span.

If the state flooded New York's municipal market with $9 billion of debt in one year, some of the bonds would simply not be bought, said Michael Shamosh, a bond strategist at Cowen & Co. New Fork City alone, the municipal market's largest single debt issuer, would not issue $9 billion of debt even over five years, Shamosh said.

"The plan doesn't sound realistic; there's something missing here," he said. "There are just not enough parking places for all these bonds right now. And to sell that many bonds in a one-year period would be a major mistake."

State officials, for their part, say they know the dangers of flooding the market with $9 billion of debt in one year. So far in 1994, New York State and its authorities have issued $8.56 billion of bonds, according to Securities Data Co.

S. David Freeman, the New York Power Authority's president and chief executive officer, said the financing plan "is not going to affect yields of other state bonds." As overall municipal issuance has fallen this year, buyers will have extra appetite for the securities, Freeman said.

Robert Schoenberger, the power authority's chief operating officer, said the state will meet next week with Lilco and the Long Island Power Authority to negotiate the buyout. Schoenberger said scheduling details are not yet available, though the state recognizes the potential for trouble.

"Obviously, we would not want to have an adverse impact on the marketplace," Schoenberger said.

Schoenberger said the authority will probably sell several bond issues as part of the takeover financings. "Clearly, the $9 billion question is when, and how much [debt] in each tranche," he added.

But market players are skeptical. George Marlin, a municipal bond portfolio manager and former Conservative Party candidate for New York City mayor, says the buyout will spark what market participants call "the crowding-out effect," where local issuers will be forced to offer buyers higher yields in order to compete with state bonds.

"Mario Cuomo is not concerned about electrical power but maintaining his own political power," Marlin said. "We should unplug Cuomo's plan. I think the whole idea is absurd."

Michael Brooks, senior municipal credit analyst for Sanford C. Bernstein & Co., a research and investment company, said he is "skeptical" about the proposed takeover, and wondered why in a time of privatization the state would be buying out Lilco. "This is not a done deal by any stretch of the imagination," Brooks said. "They're not doing this without further study."

John Kamplain contributed to this article.

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