Boston has emerged from being a speculative credit to one that enjoys acceptance from the municipal bond market, according to Dean Witter Reynolds Inc.

"The city's response to its fiscal ills may serve as a source of inspiration to some of the more currently distressed state and local jurisdictions," wrote Dean Witter analyst Jeff Litton in a report released last Monday.

Mr. Lifton attributed part of Boston's recovery to its being able to revalue assessed property since the early 1980s. The levies on new properties and increases in property valuation are exempt from the curbs imposed by Proposition 2 1/2.

That initiative limits Massachusetts cities' annual property tax levy to within 2.5% of the full-cash valuation of taxable real estate and personal property.

If a municipality exceeds the 2.5% limit, it must reduce its tax rate by at least 15% of the previous year's tax levy until reaching the limit.

The revaluations between 1985 and 1991 totaled $74.4 million, Mr. Lifton said. The city was also able to generate taxes from new construction growth that brought it new taxes of about $138.5 million during the same period.

The city appears to have ended the 1991 fiscal year on June 30 without a deficit for the seventh straight year, the analyst said.

A final accounting must wait until the state has settled its own budget.

Mr. Lifton said the $1.34 billion budget provides for the first decrease in spending since the 1982 fiscal year, when the full force of Proposition 2 1/2 hit the city.

Mr. Lifton said the city has also been able to significantly reduce its spending by measures that include the consolidation or elimination of nine departments and an aggressive tax-collecting campaign. He also said Boston is committed to trimming labor costs.

"Competent fiscal and managerial oversight, a well-defined capital plan, strongly budgetary techniques, and the ability to respond to anticipated shortfalls remain credit strengths for Boston," he said.

The uncertainty of future state aid payments, however, may trigger further cuts, he said, adding that Proposition 2 1/2 and a stabilization of assessed valuation growth will constrain city revenues.

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