BOSTON Officials at the Massachusetts Municipal Association are studying the creation of a state bond bank to allow small issuers improved access to the municipal market.

While the association's discussions have just begun, several members of the municipal community in Boston have questioned whether Massachusetts needs a bond bank.

But proponents of the idea say that small issuers need to improve their ability to borrow in a cost-effective manner and that the bank would aid issuers that are unrated or poorly rated.

In other states including Maine. Vermont, New Hampshire, and Michigan bond banks are already in place. The bond banks allow issuers to sell bonds as part of a larger pool. ideally at a lower rate of interest.

In Vermont, Maine, and New Hampshire, the state provides a moral obligation to investors in the event that a bond bank member defaults on its debt service requirements. It is unclear whether Massachusetts would provide a similar obligation to bond bank sales.

John E Kendrick, a senior vice president at Cowen & Co. who prepared the preliminary report on the bond bank, said the opening of a bond bank in Massachusetts wouldn't help only communities with. poor ratings.

"A Massachusetts bank would be a vehicle for all issuers," Kendrick said. "If the bond bank idea does not save money for the issuers then it will fall apart from its own weight."

Even a triple-A rated community could use the bond bank when issuing debt, Kendrick said. Instead of relying on the credit rating achieved by an insured, bond bank deal, the triple-A community could issue an unenhanced series of bonds as part of a larger deal, and credit would be given to that community for the higher rating.

But some municipal participants in Boston still doubt that a bond bank would benefit Massachusetts.

"The concept of a bond bank works well in a state like Maine and Vermont, which has a lot of small issuers," said James B.G. Hearty, managing director at Lehman Brothers. "I'm not sure how many towns in Massachusetts it would help."

While Kendrick has so far been the chief spokesman for the creation of the bond bank, the next step in the process will have to come from the Massachusetts Municipal Association, a statewide group that represents government officials of various Massachusetts localities. The group's approval is needed to create the bond bank.

Brent A. Wilkes, the association's director-of marketing and president of its spin-off consulting group, said the association has begun to discuss the issue with its members.

"The concept of pooling many issues has been discussed by the MMA's members for seven or eight years," Wilkes said. "We have had a-very successful pool program, is place for municipal insurance, and we see this as another possible way for communities to work together."

Wilkes also said there was interest in the concept at the first meeting of the state's mayors group. The association also plans to meet with town managers, collectors, and treasurers.

In Maine, several officials said the program has greatly benefited the state.

"The bond bank has been great for us," said Sam Shapiro, treasurer of Maine. "It's almost foolhardy not to have the bond bank in place. If it's there, you can use it, but communities can still go out and borrow on their OWn."

Wayne L. Workman, senior vice president and manager of the public finance department at Tucker Anthony Inc., also said it was still unclear whether a pooled program would be useful in Massachusetts.

"I don't think it can be shown as a great benefit yet," Workman said, "Until it's clear. that there will be a marked improvement for issuers then the program won't get off' the ground."

But Kendrick, who would want Cowen & Co. to serve as senior manager on the bond bank transactions, said the only people opposing the creation of the bond bank are those with an interest in preserving the status quo.

"This program does not come out and say that the old system of community banking for small issues has poorly served those issuers," Kendrick said. "This might just be a way to serve them better."

Wilkes said that after the municipal association speaks to its different constituent groups, it will hire an outside adviser to review the responses and decide if the program should be further pursued.

Wilkes said he hopes to have a report for the board of directors of the association by February and, if the plan is approved, be prepared to sell bond bank bonds through the Massachusetts Industrial Finance Agency in the spring of 1995.

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