CHICAGO - Polk County, Iowa, will sell $38.8 million of general obligation refunding bonds in a competitive sale tomorrow to pay off the outstanding sports facility revenue bonds that financed construction of the bankrupt Prairie Meadows racetrack in Altoona.

Polk County officials say they expect the refunding to save the countly about $15 million over the life of the bonds.

The refunding issue is the key component of the county's reorganizaton plan, approved last month by. a U.S. Bankruptcy Court in Des Moines.

The reorganization plan allowed the county to refund the revenue bonds with general obligation bonds before the Dec. 1, 1997, optional call date for the revenue bonds.

The GO bonds, which will mature from 1994 through 2012 are insured by Financial Guaranty Insurance Co. Bonds maturing in or after 2008 are subject to optional redemption beginning on Dec. 1, 2007, according to the preliminary official statement.

The GO bonds will be secured by the county's unlimited tax pledge, but county officials opted for bond insurance to allay market concerns about the racetrack's 1991 bankruptcy filing, according to Mark Stevens, assistant county manager.

Polk County's sports facility bonds are rated Caa by Moody's Investors Service. The county's outstanding GOs are rated A by Moody's and AA by Standard & Poor's Corp., which does not rate the sports facility bonds.

In 1984, the county issued $40 million of revenue bonds to build the racetrack. It remarketed the bonds under a lease-purchase agreement in 1987. The racetrack opened in May 1989.

The Racing Association of Central Iowa, the racetrack's current owner, filed for bankruptcy in November 1991 after the county board of supervisors voted not to provide a $5.5 million subsidy for a racing season in 1992. Without the subsidy, racetrack officials said they could not afford to present live horse races so they televised races at other tracks. This year, the track began a 90-day live racing season on May 7.

Under the lease-purchase agreement between the county and the racing association, the county was required to provide the difference between the $4 million annual debt service on the bonds and the revenues derived from a wager tax at the track. At the time, racing association officials said they could not operate the racetrack without subsidies from the county.

The lease-purchase agreement was the subject of lawsuits that challenged its validity on constitutional and statutory grounds. The Iowa Supreme Court dismissed the suits on the grounds they they were filed too late.

After the revenue bonds are redeemed, the reorganization plan calls for Polk County to assume ownership of the racetrack. The Racing Association of Central Iowa will continue to operate the track, according to county officials.

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