The New York State comptroller's office has written regulations to govern municipalities' new powers to sell discount and variable-rate securities.

The final draft was sent to the state's secretary of state for publication and will be made public by that office, a spokeswoman for state Comptroller Edward V. Regan said yesterday.

The Bond Buyer has obtained a copy of a draft of the regulations, which outlines how local issuers can sell variable-rate and discount bonds, as well as the role of the comptroller in those sales.

Local issuers and officials from the municipal bond community have been waiting on the edges of their seats for the final draft. While a flood of new sales is not expected to hit the market anytime soon, some deals have been delayed until the regulations are ready. The city of Buffalo, for example, would like to include $45 million of variable-rate notes in an upcoming revenue anticipation note sale.

The new borrowing powers were included in a package of local government finance reforms approved by the state Legislature this summer. The entire reform package was designed to reduce borrowing costs and allow municipalities more flexibility in structuring and selling their debt.

The package included authorization permitting municipalities and school districts in the state to sell variable-rate and discount bonds until 1994, subject to rules written by the comptroller.

The comptroller has been working on writing the regulations and hearing comments on the drafts from public officials and municipal bond professionals.

While the draft says it prefers that bonds and notes be sold through competitive auction, it makes allowances for negotiated sales. The office acknowledges that issuers may have to sell bonds through negotiated sale because of market conditions, size of the issue, and the issuer's credit quality.

The draft says the "complexity of variable-rate debt may warrant the use of negotiated sales" and that local issuers are responsible for authorizing and selling the debt. "Therefore, the regulations permit a municipality to make its own determination whether to sell variable-rate obligations at negotiated sale," the draft explains.

To do this, the municipality will have to submit a report to its finance board explaining why it is selling variable rate-debt instead of fixed-rate debt and why it is selling debt through negotiation, rather than competitive auction, according to the draft.

Also, the issuer is supposed to select a remarketing agent, underwriters, and providers of letters of credit at least every two years to ensure that qualified candidates are able to submit proposals to work on the sales, the draft says. The issuer must also review and report on the qualifications of the firms assisting it with its variable-rate sale.

With the sale of discount bonds, however, the comptroller's regulations say that if a municipality or school district believes it must sell its discount bonds through negotiation, it must seek approval from the state comptroller.

The comptroller's office says in its final draft it does not believe "there is anything inherent in the sale of bonds at a discount that requires the use of a negotiated sale."

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